Exhibit 13.3
1994
ANNUAL REPORT TO STOCKHOLDERS
WESTERN MASSACHUSETTS ELECTRIC COMPANY
--------------------------------------
1994 Annual Report
Western Massachusetts Electric Company
Index
Contents Page
-------- ----
Balance Sheets..................................... 1-2
Statements of Income............................... 3
Statements of Cash Flows........................... 4
Statements of Common Stockholder's Equity.......... 5
Notes to Financial Statements...................... 6-25
Report of Independent Public Accountants........... 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 27-32
Selected Financial Data............................ 33
Statements of Quarterly Financial Data............. 33
Statistics......................................... 34
Preferred Stockholder and Bondholder Information... Back Cover
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
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At December 31, 1994 1993
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(Thousands of Dollars)
ASSETS
------
Utility Plant, at original cost:
Electric................................................ $1,214,326 $1,183,410
Less: Accumulated provision for depreciation......... 425,019 395,190
----------- -----------
789,307 788,220
Construction work in progress........................... 19,187 23,790
Nuclear fuel, net....................................... 38,000 35,727
----------- -----------
Total net utility plant............................. 846,494 847,737
----------- -----------
Other Property and Investments:
Nuclear decommissioning trusts, at market in 1994 and
at cost in 1993 (Note 12)<F12>......................... 56,123 49,155
Investments in regional nuclear generating
companies, at equity................................... 14,927 14,633
Other, at cost.......................................... 3,941 3,840
----------- -----------
74,991 67,628
----------- -----------
Current Assets:
Cash.................................................... 105 185
Notes receivable from affiliated companies.............. 8,750 -
Receivables, less accumulated provision for
uncollectible accounts of $2,032,000 in 1994
and $1,997,000 in 1993................................ 35,427 36,437
Accounts receivable from affiliated companies........... 1,108 4,972
Accrued utility revenues................................ 15,766 17,362
Fuel, materials, and supplies, at average cost.......... 4,829 7,057
Prepayments and other................................... 9,215 9,613
----------- -----------
75,200 75,626
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Deferred Charges:
Regulatory assets (Note 1H)<F1H>........................ 184,226 210,647
Unamortized debt expense................................ 1,733 1,842
Other................................................... 974 1,162
----------- -----------
186,933 213,651
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Total Assets........................................ $1,183,618 $1,204,642
=========== ===========
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
------------------------------------------------------------------------------------
At December 31, 1994 1993
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(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common stock--$25 par value. Authorized and
outstanding 1,072,471 shares in 1994 and 1993........ $ 26,812 $ 26,812
Capital surplus, paid in................................ 149,683 149,319
Retained earnings....................................... 111,586 97,627
----------- -----------
Total common stockholder's equity.............. 288,081 273,758
Cumulative preferred stock--
$100 par value--authorized 1,000,000 shares;
outstanding 200,000 shares in 1994 and 1993;
$25 par value--authorized 3,600,000 shares;
outstanding 2,927,000 shares in 1994
3,220,000 shares in 1993
Not subject to mandatory redemption (Note 5)<F5>...... 68,500 73,500
Subject to mandatory redemption (Note 6)<F6>.......... 24,000 25,500
Long-term debt (Note 7)<F7>............................. 345,669 393,232
----------- -----------
Total capitalization........................... 726,250 765,990
----------- -----------
Obligations Under Capital Leases.......................... 23,852 24,014
----------- -----------
Current Liabilities:
Notes payable to banks.................................. - 6,000
Long-term debt and preferred stock--current
portion................................................ 34,975 1,500
Obligations under capital leases--current
portion................................................ 12,945 12,888
Accounts payable........................................ 20,396 17,493
Accounts payable to affiliated companies................ 17,352 12,016
Accrued taxes........................................... 5,160 7,022
Accrued interest........................................ 6,702 6,478
Refundable energy costs................................. - 8,676
Other................................................... 7,584 11,727
----------- -----------
105,114 83,800
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Deferred Credits:
Accumulated deferred income taxes (Note 1I)<F1I>........ 253,821 253,547
Accumulated deferred investment tax credits............. 27,822 36,083
Deferred contract obligation--YAEC (Note 3)<F3>......... 28,572 24,150
Other................................................... 18,187 17,058
----------- -----------
328,402 330,838
----------- -----------
Commitments and Contingencies (Note 10)<F10>
Total Capitalization and Liabilities........... $1,183,618 $1,204,642
=========== ===========
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF INCOME
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For the Years Ended December 31, 1994 1993 1992
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(Thousands of Dollars)
Operating Revenues.............................. $421,477 $415,055 $410,720
--------- --------- ---------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power.. 67,365 67,781 86,356
Other...................................... 130,683 142,273 126,060
Maintenance................................... 35,430 34,259 39,303
Depreciation.................................. 36,885 35,751 34,257
Amortization of regulatory assets............. 29,118 29,700 26,321
Federal and state income taxes (Note 8)<F8>... 33,540 28,173 20,926
Taxes other than income taxes................. 18,403 17,051 16,984
--------- --------- ---------
Total operating expenses................ 351,424 354,988 350,207
--------- --------- ---------
Operating Income................................ 70,053 60,067 60,513
--------- --------- ---------
Other Income:
Deferred Millstone 3 return--other
funds (Note 1K)<F1K>........................ 761 1,439 2,119
Equity in earnings of regional nuclear
generating companies........................ 2,031 1,680 2,170
Other, net.................................... 2,926 2,966 2,628
Income taxes--credit.......................... 816 304 810
--------- --------- ---------
Other income, net....................... 6,534 6,389 7,727
--------- --------- ---------
Income before interest charges.......... 76,587 66,456 68,240
--------- --------- ---------
Interest Charges:
Interest on long-term debt.................... 27,678 29,979 31,694
Other interest................................ 21 881 469
Deferred Millstone 3 return--borrowed
funds (Note 1K)<F1K>........................ (569) (1,076) (945)
--------- --------- ---------
Interest charges, net................... 27,130 29,784 31,218
--------- --------- ---------
Income before cumulative effect of
accounting change............................. 49,457 36,672 37,022
Cumulative effect of accounting change
(Note 1B)<F1B>................................ - 3,922 -
--------- --------- ---------
Net Income...................................... $ 49,457 $ 40,594 $ 37,022
========= ========= =========
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
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For the Years Ended December 31, 1994 1993 1992
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(Thousands of Dollars)
Cash Flows From Operating Activities:
Net Income................................................ $ 49,457 $ 40,594 $ 37,022
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 36,885 35,751 34,257
Deferred income taxes and investment tax credits, net... 10,256 918 (785)
Deferred return - Millstone 3, net of amortization...... 13,427 12,252 9,110
Recoverable energy costs, net of amortization........... (8,622) 7,316 2,999
Other sources of cash................................... 25,967 26,765 26,591
Other uses of cash...................................... (23,701) (2,698) (1,654)
Changes in working capital:
Receivables and accrued utility revenues................ 6,470 (3,728) 12,288
Fuel, materials, and supplies........................... 2,228 1,944 490
Accounts payable........................................ 8,239 (2,078) (5,355)
Accrued taxes........................................... (1,862) (3,248) (295)
Other working capital (excludes cash)................... (2,991) 2,433 1,932
----------- ----------- -----------
Net cash flows from operating activities.................... 115,753 116,221 116,600
----------- ----------- -----------
Cash Flows From Financing Activities:
Issuance of long-term debt................................ 90,000 113,800 85,000
Net decrease in short-term debt........................... (6,000) (35,500) (3,250)
Reacquisitions and retirements of long-term debt.......... (104,169) (114,270) (94,167)
Reacquisitions and retirements of preferred stock......... (7,325) (1,500) (15,002)
Cash dividends on preferred stock......................... (5,897) (5,259) (7,485)
Cash dividends on common stock............................ (29,514) (28,785) (29,536)
----------- ----------- -----------
Net cash flows used for financing activities................ (62,905) (71,514) (64,440)
----------- ----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................. (32,680) (34,592) (46,061)
Nuclear fuel............................................ (4,928) (2,926) 1,003
----------- ----------- -----------
Net cash flows used for investments in plant.............. (37,608) (37,518) (45,058)
NU System Money Pool...................................... (8,750) - -
Other investment activities, net.......................... (6,570) (7,169) (7,101)
----------- ----------- -----------
Net cash flows used for investments......................... (52,928) (44,687) (52,159)
----------- ----------- -----------
Net (Decrease) Increase In Cash For The Period.............. (80) 20 1
Cash - beginning of period.................................. 185 165 164
----------- ----------- -----------
Cash - end of period........................................ $ 105 $ 185 $ 165
=========== =========== ===========
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest, net of amounts capitalized during construction.. $ 25,174 $ 27,277 $ 30,758
=========== =========== ===========
Income taxes.............................................. $ 30,040 $ 21,200 $ 17,711
=========== =========== ===========
Increase in obligations:
Niantic Bay Fuel Trust.................................... $ 12,237 $ 9,369 $ 7,224
=========== =========== ===========
TThe accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
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Capital Retained
Common Surplus, Earnings
Stock Paid In (a) Total
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(Thousands of Dollars)
Balance at January 1, 1992............... $26,812 $148,696 $ 91,708 $267,216
Net income for 1992.................. 37,022 37,022
Cash dividends on preferred
stock.............................. (7,485) (7,485)
Cash dividends on common stock....... (29,536) (29,536)
Loss on the retirement of preferred
stock.............................. (632) (632)
Capital stock expenses, net.......... 330 330
-------- --------- --------- ---------
Balance at December 31, 1992............. 26,812 149,026 91,077 266,915
Net income for 1993.................. 40,594 40,594
Cash dividends on preferred
stock.............................. (5,259) (5,259)
Cash dividends on common stock....... (28,785) (28,785)
Capital stock expenses, net.......... 293 293
-------- --------- --------- ---------
Balance at December 31, 1993............. 26,812 149,319 97,627 273,758
Net income for 1994.................. 49,457 49,457
Cash dividends on preferred
stock.............................. (5,897) (5,897)
Cash dividends on common stock....... (29,514) (29,514)
Loss on retirement of preferred
stock.............................. (87) (87)
Capital stock expenses, net.......... 364 364
-------- --------- --------- ---------
Balance at December 31, 1994............. $26,812 $149,683 $111,586 $288,081
======== ========= ========= =========
(a) The company has dividend restrictions imposed by its long-term debt
agreements. At December 31, 1994, these restrictions totaled
approximately $21.5 million.
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
<F1A> A. GENERAL
Western Massachusetts Electric Company (WMECO or the company), The
Connecticut Light and Power Company (CL&P), Holyoke Water Power Company
(HWP), Public Service Company of New Hampshire (PSNH), and North
Atlantic Energy Corporation (NAEC) are the operating subsidiaries
comprising the Northeast Utilities system (the system) and are wholly
owned by Northeast Utilities (NU).
Other wholly owned subsidiaries of NU provide substantial support
services to the system. Northeast Utilities Service Company (NUSCO)
supplies centralized accounting, administrative, data processing,
engineering, financial, legal, operational, planning, purchasing, and
other services to the system companies. Northeast Nuclear Energy
Company (NNECO) acts as agent for system companies in operating the
Millstone nuclear generating facilities.
All transactions among affiliated companies are on a recovery of cost
basis which may include amounts representing a return on equity, and
are subject to approval by various federal and state regulatory
agencies.
<F1B> B. CHANGE IN ACCOUNTING FOR PROPERTY TAXES
WMECO adopted a one-time change in the method of accounting for
municipal property tax expense for its Connecticut properties. Most
municipalities in Connecticut assess property values as of October 1.
Before January 1, 1993, WMECO 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, WMECO changed its method of
accounting for 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. This one-time change
increased earnings for common shares by approximately $3.9 million.
<F1C> C. RECLASSIFICATIONS
Certain classifications of prior years' data have been made to conform
with the current year's presentation.
<F1D> D. INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
Regional Nuclear Generating Companies: WMECO owns common stock of four
regional nuclear generating companies (Yankee companies). The Yankee
companies, with the company's ownership interests, are:
Connecticut Yankee Atomic Power Company (CY) .... 9.5%
Yankee Atomic Electric Company (YAEC) ........... 7.0
Maine Yankee Atomic Power Company (MY) .......... 3.0
Vermont Yankee Nuclear Power Corporation (VY) ... 2.5
WMECO's investments in the Yankee companies are accounted for on the
equity basis due to the company's ability to exercise significant
influence over their operating and financial policies. The electricity
produced by the facilities is committed to the participants
substantially on the basis of their ownership interests and is billed
pursuant to contractual agreements. Under ownership agreements with
the Yankee companies, WMECO may be asked to provide direct or indirect
financial support for one or more of the companies. For more
information on these agreements, see Note 10E, "Commitments and
Contingencies - Purchased Power Arrangements."
The YAEC nuclear power plant was shut down permanently on February 26,
1992. For more information on the Yankee companies, see Note 3,
"Nuclear Decommissioning."
Millstone 1: WMECO has a 19 percent joint-ownership interest in
Millstone 1, a 660-megawatt (MW) nuclear generating unit. As of
December 31, 1994 and 1993, plant-in-service included approximately
$87.0 million and $77.6 million, respectively, and the accumulated
provision for depreciation included approximately $31.4 million and
$30.5 million, respectively, for WMECO's share of Millstone 1. WMECO's
share of Millstone 1 expenses is included in the corresponding
operating expenses on the accompanying Statements Of Income.
Millstone 2: WMECO has a 19 percent joint-ownership interest in
Millstone 2, an 870-MW nuclear generating unit. As of December 31,
1994 and 1993, plant-in-service included approximately $159.2 million
and $158.1 million, respectively, and the accumulated provision for
depreciation included approximately $40.4 million and $34.8 million,
respectively, for WMECO's share of Millstone 2. WMECO's share of
Millstone 2 expenses is included in the corresponding operating
expenses on the accompanying Statements Of Income.
Millstone 3: WMECO has a 12.24 percent joint-ownership interest in
Millstone 3, an 1,154-MW nuclear generating unit. As of December 31,
1994 and 1993, plant-in-service included approximately $376.1 million
and $375.5 million, respectively, and the accumulated provision for
depreciation included approximately $83.2 million and $72.9 million,
respectively, for WMECO's proportionate share of Millstone 3. WMECO's
share of Millstone 3 expenses is included in the corresponding
operating expenses on the accompanying Statements Of Income.
<F1E> E. DEPRECIATION
The provision for depreciation is calculated using the straight-line
method based on estimated remaining lives of depreciable utility
plant-in-service, adjusted for salvage value and removal costs, as
approved by the appropriate regulatory agency. Except for major
facilities, depreciation factors are applied to the average
plant-in-service during the period. Major facilities are depreciated
from the time they are placed in service. When plant is retired from
service, the original cost of plant, including costs of removal, less
salvage, is charged to the accumulated provision for depreciation. For
nuclear production plants, the costs of removal, less salvage, that
have been funded through external decommissioning trusts will be paid
with funds from the trusts and charged to the accumulated reserve for
decommissioning included in the accumulated provision for depreciation
over the expected service life of the plants. See Note 3, "Nuclear
Decommissioning," for additional information.
The depreciation rates for the several classes of electric
plant-in-service are equivalent to a composite rate of 3.1 percent in
1994 and 1993, and 3.0 percent in 1992.
<F1F> F. PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as a
holding company under the Public Utility Holding Company Act of 1935
(1935 Act), and it and its subsidiaries, including the company, are
subject to the provisions of the 1935 Act. Arrangements among the
system companies, outside agencies, and other utilities covering inter-
connections, interchange of electric power, and sales of utility
property are subject to regulation by the Federal Energy Regulatory
Commission (FERC) and/or the SEC. The company is subject to further
regulation for rates, accounting, and other matters by the FERC and the
Massachusetts Department of Public Utilities (DPU).
<F1G> G. REVENUES
Other than fixed-rate agreements negotiated with certain wholesale,
industrial, and commercial customers, utility revenues are based on
authorized rates applied to each customer's use of electricity. Rates
can be changed only through a formal proceeding before the appropriate
regulatory commission. At the end of each accounting period, WMECO
accrues an estimate for the amount of energy delivered but unbilled.
<F1H> H. REGULATORY ACCOUNTING
WMECO follows accounting policies that reflect the impact of the rate
treatment of certain events or transactions that differ from generally
accepted accounting principles for those events or transactions
followed by nonregulated enterprises. Under regulatory accounting,
assuming that future revenues are expected to be sufficient to provide
recovery, regulators may permit incurred costs, normally treated as
expenses, to be deferred and recovered in revenues at a later date.
Regulatory accounting is unique in that the actions of a regulator can
provide reasonable assurance of the existence of an asset. Regulators,
through their actions, may also reduce or eliminate the value of an
asset, or create a liability. If the economic entity no longer comes
under the jurisdiction of a regulator or external forces, such as a
move to a competitive environment, effectively limiting the influence
of cost-of-service based rate regulation, the entity may be forced to
abandon regulatory accounting, requiring a reexamination and potential
write-off of net regulatory assets. WMECO continues to be subject to
cost-of-service based rate regulation. Based on current regulation,
WMECO believes that its use of regulatory accounting is still
appropriate.
The components of regulatory assets are as follows:
At December 31, 1994 1993
--------------------------------------------------------------
(Thousands of Dollars)
Income taxes, net (Note 1I) .......... $ 86,357 $ 94,414
Unrecovered contract obligation -
YAEC (Note 3) ...................... 28,572 24,150
Amortizable property investment -
Milstone 3( Note 1K) ............... 16,800 28,001
Recoverable energy costs (Note 1J) ... 8,324 8,908
Deferred costs - Millstone 3 (Note 1K) 7,836 22,667
Other ................................ 36,337 32,507
-------- --------
$184,226 $210,647
======== ========
<F1I> I. INCOME TAXES
The tax effect of temporary differences (differences between the
periods in which transactions affect income in the financial statements
and the periods in which they affect the determination of income
subject to tax) is accounted for in accordance with the ratemaking
treatment of the applicable regulatory commissions. See Note 8,
"Income Tax Expense," for the components of income tax expense.
In 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109). SFAS 109 supersedes previously issued income
tax accounting standards. WMECO adopted SFAS 109, on a prospective
basis during the first quarter of 1993, and increased the net deferred
tax obligation by $249.3 million at that time. As it is probable that
the increase in deferred tax liabilities will be recovered from
customers through rates, WMECO also established a regulatory asset.
The tax effect of temporary differences which give rise to the
accumulated deferred tax obligation are as follows:
At December 31, 1994 1993
-------------------------------------------------------------
(Thousands of Dollars)
Accelerated depreciation and other
plant-related differences ........ $214,485 $205,030
Regulatory assets - income tax gross up 34,084 37,258
Other .............................. 5,252 11,259
-------- --------
$253,821 $253,547
======== ========
<F1J> J. RECOVERABLE ENERGY COSTS
In Massachusetts, all retail fuel costs are collected on a current
basis by means of a separate fuel-charge billing rate. As permitted by
the DPU, WMECO defers the difference between forecasted and actual fuel
cost recoveries until it is recovered or refunded quarterly under a
retail fuel adjustment clause. Massachusetts law requires the
establishment of an annual performance program related to fuel
procurement and use. The program establishes performance standards for
plants owned and operated by WMECO or plants in which WMECO has a life-
of-unit contract. Therefore, revenues collected under WMECO's retail
fuel adjustment clause are subject to refund pending review by the DPU.
To date, there have been no significant adjustments as a result of
this program.
Under the Energy Policy Act of 1992 (Energy Act), WMECO is assessed for
its proportionate shares of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (D&D assessment). The Energy Act requires that
regulators treat D&D assessments as a reasonable and necessary current
cost of fuel, to be fully recovered in rates, like any other fuel
cost. WMECO has begun to recover these costs. At December 31, 1994,
WMECO's D&D assessment was $8.3 million.
<F1K> K. MILLSTONE 3
As of December 31, 1991, all of WMECO's recoverable investment in
Millstone 3 was in rate base. Beginning in 1986, the DPU has permitted
WMECO to recover the portion of its Millstone 3 investment representing
the amount currently determined to be "unuseful" by the DPU ($16.8
million at December 31, 1994), over a ten-year period, without earning
a return. On June 30, 1987, WMECO also began recovering the deferred
return, including carrying charges, on the recoverable but not yet
phased-in portion of its investment in Millstone 3. This recovery is
taking place over a nine-year period. As of December 31, 1994, $77.6
million of the deferred return, including carrying charges, has been
recovered, and $7.8 million of the deferred return, including carrying
charges, remains to be recovered over the period ending June 30, 1995.
<F1L> L. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes interest-rate caps to manage well-defined
interest-rate risks. Premiums paid for purchased interest-rate cap
agreements are amortized to interest expense over the terms of the
caps. Unamortized premiums are included in deferred charges. Amounts
receivable under cap agreements are accrued as a reduction of interest
expense. Any material unrealized gains or losses on interest-rate caps
will be deferred until realized. For further information on
derivatives, see Note 11, "Derivative Financial Instruments."
<F1M> M. SPENT NUCLEAR FUEL DISPOSAL COSTS
Under the Nuclear Waste Policy Act of 1982, WMECO must pay the United
States Department of Energy (DOE) for the disposal of spent nuclear
fuel and high-level radioactive waste. Fees for nuclear fuel burned on
or after April 7, 1983 are billed currently to customers and paid to
the DOE on a quarterly basis. For nuclear fuel used to generate
electricity prior to April 7, 1983 (prior-period fuel), payment may be
made anytime prior to the first delivery of spent fuel to the DOE,
which may be as early as 1998. Until such payment is made, the
outstanding balance will continue to accrue interest at the three-month
Treasury Bill Yield Rate. At December 31, 1994, fees due to the DOE
for the disposal of prior-period fuel were approximately $33.2 million,
including interest costs of $17.6 million. As of December 31, 1994,
all fees had been collected through rates.
<F2>2. LEASES
WMECO and CL&P have entered into the Niantic Bay Fuel Trust (NBFT) capital
lease agreement to finance up to $530 million of nuclear fuel for
Millstone 1 and 2 and their share's of the nuclear fuel for Millstone 3.
WMECO and CL&P make quarterly lease payments for the cost of nuclear fuel
consumed in the reactors (based on a units-of-production method at rates
which reflect estimated kilowatt-hours of energy provided) plus financing
costs associated with the fuel in the reactors. Upon permanent discharge
from the reactors, ownership of the nuclear fuel transfers to WMECO and
CL&P.
WMECO has also entered into lease agreements, some of which are capital
leases, for the use of data processing and office equipment, vehicles,
nuclear control room simulators, and office space. The provisions of these
lease agreements generally provide for renewal options. The rental
payments that have been charged to operating expense are provided on the
next page:
Capital Operating
Year Leases Leases
---- ------------ ----------
1994 ........... $13,594,000 $6,485,000
1993 ........... 17,280,000 6,367,000
1992 ........... 13,799,000 7,263,000
Interest included in capital lease rental payments was $1,845,000 in 1994,
$2,090,000 in 1993, and $2,895,000 in 1992.
Substantially all of the capital lease rental payments were made pursuant
to the nuclear fuel lease agreement. Future minimum lease payments under
the nuclear fuel capital lease cannot be reasonably estimated on an annual
basis due to variations in the usage of nuclear fuel.
Future minimum rental payments, excluding annual nuclear fuel lease
payments and executory costs, such as property taxes, state use taxes,
insurance, and maintenance, under long-term noncancelable leases, as of
December 31, 1994, are as follows:
Year Operating Leases
---- ----------------
(Thousands of Dollars)
1995 ..................... $ 4,800
1996 ..................... 4,400
1997 ..................... 4,100
1998 ..................... 3,200
1999 ..................... 3,000
After 1999 ............... 32,000
--------
Future minimum lease payments $51,500
=======
<F3>3. NUCLEAR DECOMMISSIONING
The company's 1992 decommissioning study concluded that complete and
immediate dismantlement at retirement continues to be the most viable and
economic method of decommissioning the three Millstone units.
Decommissioning studies are reviewed and updated periodically to reflect
changes in decommissioning requirements, technology, and inflation.
The estimated cost of decommissioning WMECO's ownership share of
Millstone 1, 2, and 3, in year-end 1994 dollars, is $78.1 million, $62.7
million, and $54.9 million, respectively. These estimated costs have been
levelized and assumed after-tax earnings on the Millstone decommissioning
fund of 6.5 percent. Future escalation rates in decommissioning costs for
the Millstone units are assumed. Nuclear decommissioning costs are accrued
over the expected service life of the units and are included in
depreciation expense on the Statements Of Income. Nuclear decommissioning
costs amounted to $4.8 million in 1994, $4.6 million in 1993 and 1992.
Nuclear decommissioning, as a cost of removal, is included in the
accumulated provision for depreciation on the Balance Sheets. At December
31, 1994, the balance in the accumulated reserve for decommissioning
amounted to $56.1 million. See "Nuclear Decommissioning" in the
Management's Discussion and Analysis for a discussion of changes being
considered by the FASB relating to accounting for decommissioning costs.
WMECO has established independent decommissioning trusts for its portion of
the costs of decommissioning Millstone 1, 2, and 3. As of December 31,
1994, WMECO has collected, through rates, $42.4 million toward the future
decommissioning costs of its share of the Millstone units, all of which has
been transferred to external decommissioning trusts. Earnings on the
decommissioning trusts increase the decommissioning trust balance and the
accumulated reserve for decommissioning. Due to WMECO's adoption,
effective January 1, 1994, of SFAS 115, Accounting for Certain Investments
in Debt and Equity Securities, unrealized gains and losses associated with
the decommissioning trusts also impact the balance of the trusts and the
accumulated reserve for decommissioning.
Changes in requirements or technology, the timing of funding or
dismantling, or adoption of a decommissioning method other than immediate
dismantlement, would change decommissioning cost estimates. WMECO attempts
to recover sufficient amounts through its allowed rates to cover their
expected decommissioning costs. Only the portion of currently estimated
total decommissioning costs that has been accepted by regulatory agencies
is reflected in rates of the company. Because allowances for
decommissioning have increased significantly in recent years, customers in
future years may need to increase their payments to offset the effects of
any insufficient rate recoveries in previous years.
WMECO, along with other New England utilities, has equity investments in
the four Yankee companies. Each Yankee company owns a single nuclear
generating unit. WMECO's ownership share of estimated costs, in year-end
1994 dollars, of decommissioning CY, MY, and VY are $34.4 million, $10.1
million, and $8.2 million, respectively. Under the terms of the contracts
with the Yankee companies, the shareholders-sponsors are responsible for
their proportionate share of the operating costs of each unit, including
decommissioning. The nuclear decommissioning costs of the Yankee companies
are included as part of the cost of power by WMECO.
YAEC has begun component-removal activities related to decommissioning of
its nuclear facility. In June 1992, YAEC filed a rate filing to obtain
FERC authorization to collect the closing and decommissioning costs and to
recover the remaining investment in the YAEC nuclear power plant over the
remaining period of the plant's Nuclear Regulatory Commission (NRC)
operating license. The bulk of these costs has been agreed to by the YAEC
joint owners and approved, as a settlement, by FERC. In October 1994, YAEC
submitted a revised decommissioning cost estimate as part of its
decommissioning plan with the NRC. Following the receipt of NRC approval,
this estimate will be filed with the FERC. The revised estimate increased
WMECO's ownership share of decommissioning YAEC's nuclear facility by
approximately $6.6 million in January 1, 1994 dollars. At December 31,
1994, the estimated remaining costs including decommissioning amounted to
$408.2 million, of which WMECO's share was approximately $28.6 million.
Management expects that WMECO will continue to be allowed to recover such
FERC-approved costs from its customers. Accordingly, WMECO has recognized
these costs as a regulatory asset, with a corresponding obligation, on its
Balance Sheets.
<F4>4. SHORT-TERM DEBT
The system companies have various revolving credit lines totaling $485
million. NU, CL&P, WMECO, HWP, NNECO, and The Rocky River Realty Company
(RRR) have established a revolving-credit facility with a group of
16 banks. Under this facility, the participating companies may borrow up
to an aggregate of $360 million. Individual borrowing limits as of January
1, 1995 were $150 million for NU, $325 million for CL&P, $60 million for
WMECO, $5 million for HWP, $50 million for NNECO, and $22 million for RRR.
The system companies may borrow funds on a short-term revolving basis
using either fixed-rate loans or standby loans. Fixed rates are set using
competitive bidding. Standby-loan rates are based upon several alternative
variable rates. The system companies are obligated to pay a facility fee
of 0.20 percent per annum of each bank's total commitment under the three-
year portion of the facility, representing 75 percent of the total
facility, plus 0.135 percent per annum of each bank's total commitment
under the 364-day portion of the facility, representing 25 percent of the
total facility. At December 31, 1994, there were $30.0 million of
borrowings under the facility, all of which had been borrowed by other
system companies.
The weighted average interest rate on notes payable to banks outstanding on
December 31, 1993 was 3.3 percent.
Certain subsidiaries of NU, including WMECO, are members of the Northeast
Utilities System Money Pool (Pool). The Pool provides a more efficient use
of the cash resources of the system, and reduces outside short-term
borrowings. NUSCO administers the Pool as agent for the member companies.
Short-term borrowing needs of the member companies are first met with
available funds of other member companies, including funds borrowed by NU
parent. NU parent may lend to the Pool but may not borrow. Funds may be
withdrawn from or repaid to the Pool at any time without prior notice.
However, borrowings based on loans from NU parent bear interest at NU
parent's cost and must be repaid based upon the terms of NU's parent's
original borrowing. Investing and borrowing subsidiaries receive or pay
interest based on the average daily Federal Funds rate. At December 31,
1994 and 1993, WMECO had no outstanding borrowings from the Pool.
Maturities of WMECO's short-term debt obligations are for periods of three
months or less.
The amount of short-term borrowings that may be incurred by the company is
subject to periodic approval by the SEC under the 1935 Act. In addition,
the charter of WMECO contains provisions restricting the amount of short-
term borrowings. Under the SEC and/or charter restrictions, the company
was authorized, as of January 1, 1995, to incur short-term borrowings up
to a maximum of $60 million.
<F5>5. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock not subject to mandatory redemption are:
December 31, Shares
1994 Outstanding
RedemptionDecember 31, December 31,
-----------------------
Description Price 1994 1994 1993 1992
--------------------------------------------------------------------
(Thousands of Dollars)
7.72% Series B of 1971 $103.51 200,000 $20,000 $20,000 $20,000
1988 Adjustable
Rate DARTS 25.00 1,940,000 48,500 53,500 53,500
------- ------ ------
Total preferred stock not
subject to mandatory
redemption ........ $68,500 $73,500 $73,500
======= ======= =======
All or any part of each outstanding series of preferred stock may be
redeemed by the company at any time at established redemption prices plus
accrued dividends to the date of redemption.
<F6>6. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock subject to mandatory redemption are:
December 31, Shares December 31,
1994 Outstanding ------------------------
Redemption December 31,
Description Price* 1994 1994 1993 1992
--------------------------------------------------------------------
(Thousands of Dollars)
7.60% Series of 1987 $26.02 987,000 $24,675 $27,000 $28,500
Less preferred stock to be
redeemed within one year,
net of reacquired stock 27,000 675 1,500 1,500
------- ------- -------
Total preferred stock subject
to mandatory redemption $24,000 $25,500 $27,000
======= ======= =======
*Redemption price reduces in future years.
The minimum sinking-fund provisions of the 1987 Series subject to mandatory
redemption at December 31, 1994, for the years 1995 through 1999, are $1.5
million per year. In case of default on sinking-fund payments, no payments
may be made on any junior stock by way of dividends or otherwise (other
than in shares of junior stock) so long as the default continues. If the
company is in arrears in the payment of dividends on any outstanding shares
of preferred stock, the company would be prohibited from redemption or
purchase of less than all of the preferred stock outstanding. All or part
of the 7.60% Series of 1987 may be redeemed by the company at any time at
an established redemption price plus accrued dividends to the date of
redemption.
<F7>7. LONG-TERM DEBT
Details of long-term debt outstanding are:
December 31, 1994 1993
----------------------------------------------------------------
(Thousands of Dollars)
First Mortgage Bonds:
9 1/4% Series U, .......due 1995 $ 34,300 $ 34,650
5 3/4% Series F, .......due 1997 14,850 15,000
7 3/8% Series H, .......due 1998 - 15,000
6 3/4% Series G, .......due 1998 9,900 10,000
6 1/4% Series X, .......due 1999 40,000 -
6 7/8% Series W, .......due 2000 60,000 60,000
7 3/4% Series J, .......due 2002 - 30,000
7 3/4% Series V, .......due 2002 85,000 85,000
7 3/4% Series Y, .......due 2024 50,000 -
9 3/4% Series R, .......due 2016 - 24,750
10 1/8% Series T, .......due 2018 - 33,819
--------- --------
Total First Mortgage Bonds .... 294,050 308,219
Pollution Control Notes:
Tax Exempt Series A, due 2028 53,800 53,800
Fees and interest due for spent fuel
disposal costs (Note 1M) ........... 33,239 31,930
Less: Amounts due within one year ... 34,300 -
Unamortized premium and discount, net (1,120 (717)
------- --------
Long-term debt, net .................. $345,669 $393,232
======== ========
Long-term debt maturities and cash sinking-fund requirements on debt
outstanding at December 31, 1994 for the years 1995 through 1999 are
approximately: $34,300,000 in 1995, $0 in 1996, $14,850,000 in 1997,
$9,900,000 in 1998, and $40,000,000 in 1999. In addition, there are annual
1-percent sinking- and improvement-fund requirements, currently amounting
to $2,950,000 in 1995, $2,600,000 in 1996 and 1997, $2,450,000 in 1998, and
$2,350,000 in 1999. Such sinking- and improvement-fund requirements may be
satisfied by the deposit of cash or bonds or by certification of property
additions.
All or any part of each outstanding series of first mortgage bonds may be
redeemed by the company at any time at established redemption prices plus
accrued interest to the date of redemption, except certain series which are
subject to certain refunding limitations during their respective initial
five-year redemption periods.
Essentially all of the company's utility plant is subject to the liens of
its first mortgage bond indenture. As of December 31, 1994 and 1993 , the
company has secured $53.8 million of pollution control notes with second
mortgage liens on Millstone 1, junior to the liens of its first mortgage
bond indentures. The average effective interest rates on the variable-rate
pollution control notes was 2.7 percent for 1994 and 2.5 percent for 1993.
<F8>8. INCOME TAX EXPENSE
The components of the federal and state income tax provisions are:
For the Years Ended December 31, 1994 1993 (Note 1I) 1992
----------------------------------------------------------------
(Thousands of Dollars)
Current income taxes:
Federal ..................... $18,358 $22,239 $16,736
State ....................... 4,110 4,712 4,165
-------- -------- ---------
Total current ............. 22,468 26,951 20,901
-------- -------- --------
Deferred income taxes, net:
Federal ..................... 9,697 1,683 (1,466)
State ....................... 2,267 664 117
------- -------- --------
Total deferred ............ 11,964 2,347 (1,349)
------- -------- --------
Investment tax credits, net (1,708) (1,429) (1,251)
------ ------- -------
Total income tax expense ...... $32,724 $27,869 $18,301
======= ======= =======
The components of total income tax expense are classified as follows:
Income taxes charged to operating
expenses ...................... $33,540 $28,173 $20,926
Income taxes associated with the
amortization of deferred Millstone 3
return - borrowed funds ....... - - (2,410)
Income taxes associated with
allowance for funds used during
construction (AFUDC) and deferred
Millstone 3 return - borrowed funds - - 595
Other income taxes - credit .... (816) (304) (810)
------- ------- -------
Total income tax expense ......... $32,724 $27,869 $18,301
======= ======= =======
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
For the Years Ended December 31, 1994 1993 (Note 1I)1992
----------------------------------------------------------------
(Thousands of Dollars)
Depreciation, leased nuclear fuel,
settlement credits,and disposal
costs ...................... $ 7,016 $6,852 $ 4,070
Energy adjustment clause ...... 3,598 (2,627) (4,663)
AFUDC and deferred Millstone 3
return, net................. (2,203) (2,191) (1,815)
Deferred refueling cost ....... 401 413 666
Early retirement program ...... 133 (544) (775)
Loss on bond redemption ....... 2,064 1,561 18
Demand-side management ........ 466 (712) 394
Other ......................... 489 (405) (794)
------- ------ -------
Deferred income taxes, net .... $11,964 $2,347 $(1,349)
======= ====== =======
A reconciliation between income tax expense and the expected tax expense at
the applicable statutory rates is as follows:
For the Years Ended December 31, 1994 1993 (Note 1I) 1992
-------------------------------------------------------------------
(Thousands of Dollars)
Expected federal income tax at 35 percent
of pretax income for 1994 and 1993
and 34 percent for 1992 .. $28,763 $23,962 $18,810
Tax effect of differences:
Depreciation differences .... 1,740 1,784 (1,584)
Deferred Millstone 3 return -
other funds ................ (266) (504) (721)
Amortization of deferred Millstone 3
return - other funds ....... 3,347 3,341 2,856
Investment tax credit amortization (1,708) (1,429) (1,251)
State income taxes, net of
federal benefit ........... 4,144 3,494 2,829
Adjustment for prior years taxes (825) - (1,500)
Other, net .................. (2,471) (2,779) (1,138)
------- ------- -------
Total income tax expense ...... $32,724 $27,869 $18,301
======= ======= =======
9. EMPLOYMENT BENEFITS
<F9A> A. PENSION BENEFITS
The company participates in a uniform noncontributory-defined benefit
retirement plan covering all regular system employees. Benefits are
based on years of service and employees' highest eligible compensation
during five consecutive years of employment. The company's direct
portion of the system's pension (income) cost, part of which was
charged to utility plant, approximated $(1.0) million in 1994, $1.2
million in 1993, and $(0.5) million in 1992. The company's pension
costs for 1994 and 1993 included approximately $0.8 million and $2.7
million, respectively, related to a work force reduction program.
Currently, the company funds annually an amount at least equal to that
which will satisfy the requirements of the Employee Retirement Income
Security Act and the Internal Revenue Code. Pension costs are
determined using market-related values of pension assets. Pension
assets are invested primarily in domestic and international equity
securities and bonds.
The components of net pension cost for WMECO are:
For the Years Ended December 31, 1994 1993 1992
----------------------------------------------------------------
(Thousands of Dollars)
Service cost .............. $ 2,720 $4,702 $2,403
Interest cost ............. 7,655 7,527 7,875
Return on plan assets ..... 221 (17,272) (8,820)
Net amortization .......... (11,635) 6,246 (1,962)
------- ------- ------
Net pension (income)/cost . $(1,039) $1,203 $ (504)
======= ====== ======
-------------------------------------------------------------
For calculating pension cost, the following assumptions were used:
For the Years Ended December 31, 1994 1993 1992
--------------------------------------------------------------
Discount rate ............. 7.75% 8.00% 8.50%
Expected long-term rate
of return ................ 8.50 8.50 9.00
Compensation/progression rate 4.75 5.00 6.75
The following table represents the Plan's funded status reconciled to
the Balance Sheets:
At December 31, 1994 1993
--------------------------------------------------------------
(Thousands of Dollars)
Accumulated benefit obligation,
including $89,159,000 of vested
benefits at December 31, 1994 and
$82,601,000 of vested benefits at
December 31, 1993 ............ $ 85,193 $ 88,554
========= =========
Projected benefit obligation .. $ 99,667 $104,288
Market value of plan assets ... 122,813 130,803
-------- --------
Market value in excess of projected
benefit obligation ........... 23,146 26,515
Unrecognized transition amount (2,433) (2,668)
Unrecognized prior service costs (560) (581)
Unrecognized net gain ......... (22,068) (26,220)
---------- ----------
Accrued pension liability ..... $ (1,915) $ (2,954)
========== ==========
------------------------------------------------------------
The following actuarial assumptions were used in calculating the Plan's
year-end funded status:
At December 31, 1994 1993
-------------------------------------------------------------
Discount rate ................. 8.25% 7.75%
Compensation/progression rate . 5.00 4.75
-------------------------------------------------------------
<F9B> B. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company provides certain health care benefits, primarily medical
and dental, and life insurance benefits through a benefit plan to
retired employees. These benefits are available for employees leaving
the company who are otherwise eligible to retire and have met specified
service requirements. Effective January 1, 1993, the company adopted
SFAS 106, Employer's Accounting for Postretirement Benefits Other Than
Pensions, on a prospective basis. WMECO's direct portion of health
care and life insurance costs, part of which were deferred or charged
to utility plant, approximated $5.0 million in 1994 and 1993, and $2.2
million in 1992.
On January 1, 1993, the accumulated postretirement benefit obligation
represented the company's transition obligation upon the adoption of
SFAS 106. As allowed by SFAS 106, the company is amortizing its
transition obligation of approximately $33 million over a 20-year
period. For current employees and certain retirees, the total SFAS 106
benefit is limited to two times the 1993 per-retiree health care costs.
The SFAS 106 obligation has been calculated based on this assumption.
Effective July 1994, the company funded SFAS 106 postretirement costs
through external trusts. The company will fund annually amounts once
they have been rate recovered and which also are tax-deductible under
the Internal Revenue Code. The trust assets are invested primarily in
equity securities and bonds. During 1993, the company did not fund
SFAS 106 costs.
The following table represents the plan's funded status reconciled to
the Balance Sheets:
At December 31, 1994 1993
--------------------------------------------------------------
(Thousands of Dollars)
Accumulated postretirement
benefit obligation of:
Retirees $29,619 $27,685
Fully eligible active employees .. 28 38
Active employees not eligible to retire 4,823 5,488
--------- ---------
Total accumulated postretirement
benefit obligation ............... 34,470 33,211
Market value of plan assets ........ 2,026 -
--------- ---------
Accumulated postretirement benefit
obligation in excess of plan assets (32,444) (33,211)
Unrecognized transition amount ..... 29,542 31,183
Unrecognized net gain .............. (477) (587)
--------- ---------
Accrued postretirement benefit liability $ (3,379) $ (2,615)
======== ========
-------------------------------------------------------------
The components of health care and life insurance costs are:
For the Years Ended December 31, 1994 1993
--------------------------------------------------------------
(Thousands of Dollars)
Service cost ....................... $ 519 $ 659
Interest cost ...................... 2,703 2,676
Return on plan assets .............. 19 -
Net amortization ................... 1,717 1,703
------- -------
Net health care and life insurance costs $4,958 $5,038
====== ======
-------------------------------------------------------------
The following actuarial assumptions were used in calculating the plan's
year-end funded status:
At December 31, 1994 1993
------------------------------------------------------------
Discount rate ...................... 8.00% 7.75%
Long-term rate of return - health assets,
net of tax ....................... 5.00 5.00
Long-term rate of return - life assets 8.50 8.50
Health care cost trend rate (a) .... 10.20 11.10
(a) The annual growth in per capita cost of covered health care
benefits was assumed to decrease to 5.4 percent by 2002.
The effect of increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1994 by $2.1
million and the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year then ended by
$185,000. The trust holding the plan assets is subject to federal
income taxes at a 35-percent tax rate.
WMECO is currently recovering SFAS 106 costs, including previously
deferred costs. Deferral of such costs is permitted since it is
expected that the period of recovery of deferred costs will be within
the time frame established by the applicable accounting requirements.
10. COMMITMENTS AND CONTINGENCIES
<F10A>A.CONSTRUCTION PROGRAM
The construction program is subject to periodic review and revision.
Actual construction expenditures may vary from estimates due to factors
such as revised load estimates, inflation, revised nuclear safety
regulations, delays, difficulties in the licensing process, the
availability and cost of capital, and the granting of timely and
adequate rate relief by regulatory commissions, as well as actions by
other regulatory bodies.
The company currently forecasts construction expenditures (including
AFUDC) of $170.4 million for the years 1995-1999, including $36.3
million for 1995. In addition, the company estimates that nuclear fuel
requirements, including nuclear fuel financed through the NBFT, will be
$58.9 million for the years 1995-1999, including $10.7 million for
1995. See Note 2, "Leases" for additional information about the
financing of nuclear fuel.
<F10B>B.NUCLEAR PERFORMANCE
In October 1994, Millstone 2 began a planned refueling and maintenance
outage that was originally scheduled for 63 days. The outage has
encountered several unexpected difficulties which have lengthened the
duration of the outage. The magnitude of the schedule impact is
currently under review, but the unit is not expected to return to
service before April 1995. WMECO expects that replacement power costs
in the range of $1 million per month will be attributable to the
extension of the outage. Recovery of the costs related to this outage
is subject to scrutiny by the DPU.
<F10C>C.ENVIRONMENTAL MATTERS
WMECO is subject to regulation by federal, state, and local authorities
with respect to air and water quality, handling the disposal of toxic
substances and hazardous and solid wastes, and the handling and use of
chemical products. WMECO has an active environmental auditing and
training program and believes that it is in substantial compliance with
current environmental laws and regulations.
Changing environmental requirements could hinder the construction of
new generating units, transmission and distribution lines, substations,
and other facilities. The cumulative long-term, economic cost impact
of increasingly stringent environmental requirements cannot accurately
be estimated. Changing environmental requirements could also require
extensive and costly modifications to WMECO's existing generating
units, and transmission and distribution systems, and could raise
operating costs significantly. As a result, WMECO may incur
significant additional environmental costs, greater than amounts
included in cost of removal and other reserves, in connection with the
generation and transmission of electricity and the storage,
transportation, and disposal of by-products and wastes. WMECO may also
encounter significantly increased costs to remedy the environmental
effects of prior waste handling activities.
WMECO has recorded a liability for what it believes is, based upon
information currently available, its estimated environmental
remediation costs for waste disposal sites for which it expects to bear
legal liability. In most cases, the extent of additional future
environmental cleanup costs is not reasonably estimable due to a number
of factors including the unknown magnitude of possible contamination,
the appropriate remediation methods, the possible effects of future
legislation or regulation, and the possible effects of technological
changes. At December 31, 1994, the liability recorded by WMECO for its
estimated environmental remediation costs, excluding any possible
insurance recoveries or recoveries from third parties, amounted to
approximately $700,000. However, in the event that it becomes
necessary to effect environmental remedies that are currently not
considered probable, it is reasonably possible that the upper limit of
the system's environmental liability range could increase to
approximately $2.3 million.
WMECO cannot estimate the potential liability for future claims that
may be brought against it. However, considering known facts, existing
laws, and regulatory practices, management does not believe the matters
disclosed above will have a material effect on WMECO's financial
position or future results of operations.
<F10D>D.NUCLEAR INSURANCE CONTINGENCIES
The Price-Anderson Act currently limits public liability from a single
incident at a nuclear power plant to $8.9 billion. The first $200
million of liability would be provided by purchasing the maximum amount
of commercially available insurance. Additional coverage of up to a
total of $8.3 billion would be provided by an assessment of $75.5
million per incident, levied on each of the 110 nuclear units that are
currently subject to the Secondary Financial Protection Program in the
United States, subject to a maximum assessment of $10 million per
incident per nuclear unit in any year. In addition, if the sum of all
public liability claims and legal costs arising from any nuclear
incident exceeds the maximum amount of financial protection, each
reactor operator can be assessed an additional 5 percent, up to
$3.8 million, or $415.3 million in total, for all 110 nuclear units.
The maximum assessment is to be adjusted at least every five years to
reflect inflationary changes. Based on WMECO's ownership interests in
Millstone 1, 2, and 3, WMECO's maximum liability would be $39.8 million
per incident. In addition, through WMECO's power purchase contracts
with the three operating Yankee regional nuclear generating companies,
WMECO would be responsible for up to an additional $11.9 million per
incident. Payments for WMECO's ownership interest in nuclear
generating facilities would be limited to a maximum of $6.5 million per
incident per year.
Effective January 1, 1995, insurance was purchased from Nuclear Mutual
Limited (NML) to cover the primary cost of repair, replacement, or
decontamination of utility property resulting from insured occurrences
with respect to WMECO's ownership interest in Millstone 1, 2, 3, and
CY. All companies insured with NML are subject to retroactive
assessments if losses exceed the accumulated funds available to NML.
The maximum potential assessment against WMECO with respect to losses
arising during the current policy year is approximately $3.1 million
under the NML primary property insurance program.
Insurance has been purchased from Nuclear Electric Insurance Limited
(NEIL) to cover: (1) certain extra costs incurred in obtaining
replacement power during prolonged accidental outages with respect to
WMECO's ownership interests in Millstone 1, 2, and 3, and CY, and (2)
the excess cost of repair, replacement, or decontamination or premature
decommissioning of utility property resulting from insured occurrences
with respect to WMECO's ownership interests in Millstone 1, 2, and 3,
CY, MY, and VY. All companies insured with NEIL are subject to
retroactive assessments if losses exceed the accumulated funds
available to NEIL. The maximum potential assessments against WMECO
with respect to losses arising during current policy years are
approximately $1.7 million under the replacement power policies and
$7.7 million under the excess property damage, decontamination, and
decommissioning policies. Although WMECO has purchased the limits of
coverage currently available from the conventional nuclear insurance
pools, the cost of a nuclear incident could exceed available insurance
proceeds.
Insurance has been purchased from American Nuclear Insurers/Mutual
Atomic Energy Liability Underwriters, aggregating $200 million on an
industry basis for coverage of worker claims. All participating
reactor operators insured under this coverage are subject to
retrospective assessments of $3.1 million per reactor. The maximum
potential assessments against WMECO with respect to losses arising
during the current policy period are approximately $2.2 million.
<F10E>E.PURCHASED POWER ARRANGEMENTS
WMECO, along with CL&P and PSNH, purchase approximately ten percent of
their electricity requirements pursuant to long-term contracts with the
Yankee companies. Under the terms of its agreement, the company pays
its ownership share (or entitlement share) of generating costs, which
include depreciation, operation and maintenance expenses, taxes, the
estimated cost of decommissioning, and a return on invested capital.
These costs are recorded as purchased power expense, and are recovered
through the company's rates. WMECO's total cost of purchases under
these contracts for the units that are operating amounted to $28.8
million in 1994, $30.2 million in 1993, and $29.2 million in 1992. See
Note 1D, "Summary Of Significant Accounting Policies - Investments and
Jointly Owned Electric Utility Plant" and Note 3, "Nuclear
Decommissioning" for more information on the Yankee companies.
WMECO has entered into two arrangements for the purchase of capacity
and energy from nonutility generators. These arrangements have terms
of 15 and 25 years, and require the company to purchase the energy at
specified prices or formula rates. For the 12 months ended
December 31, 1994, approximately 14 percent of system electricity
requirements was met by nonutility generators. The total cost of the
company's purchases under these arrangements amounted to $27.5 million
in 1994, $13.6 million in 1993, and $4.8 million in 1992. These costs
are recovered through the company's rates.
The estimated annual costs of the significant purchase power
arrangements are as follows:
1995 1996 1997 1998 1999
-------------------------------------------------------------
(Millions of Dollars)
Yankee companies ...... $31.0 $32.6 $29.2 $34.0 $32.3
Nonutility generators . 29.7 30.9 32.5 34.1 35.8
-------------------------------------------------------------
<F10F>F.HYDRO-QUEBEC
Along with other New England utilities, WMECO, CL&P, PSNH, and HWP
entered into agreements to support transmission and terminal facilities
to import electricity from the Hydro-Quebec system in Canada. WMECO is
obligated to pay, over a 30-year period, its proportionate share of the
annual operation, maintenance, and capital costs of these facilities.
WMECO's share of Hydro-Quebec costs are currently forecast to be $19.9
million for the years 1995-1999, including $4.4 million for 1995.
<F11>11. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes derivative financial instruments to manage well-
defined interest-rate risks. The company does not use them for trading
purposes.
WMECO has entered into an interest-rate cap contract with a financial
institution in order to reduce a portion of the interest-rate risk
associated with its variable-rate tax-exempt pollution control revenue
bonds. During 1994, there was one outstanding contract held by WMECO,
covering $52 million of its pollution control bond, with a term of three
years. The contract entitles WMECO to receive from its counterparty the
amount, if any by which the interest payments on its variable-rate tax-
exempt pollution control revenue bond exceeds the J. J. Kenny High Grade
Index. This contract is settled on a quarterly basis. As of December 31,
1994, WMECO had a total notional amount of $52 million in caps outstanding,
with a positive mark-to-market position of approximately $0.6 million.
WMECO is exposed to credit risk on the interest-rate caps if the
counterparty fails to perform its obligation. However, WMECO anticipates
that the counterparty will be able to fully satisfy its obligations under
the contract.
<F12>12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each of the following financial instruments:
Cash and nuclear decommissioning trusts: The carrying amount approximates
fair value.
SFAS 115 requires investments in debt and equity securities to be presented
at fair value and was adopted by the company on a prospective basis as of
January 1, 1994. As a result of the adoption of SFAS 115, the investments
held in the company's nuclear decommissioning trusts decreased by
approximately $800,000 as of December 31, 1994, with a corresponding offset
to the accumulated provision for depreciation. The $800,000 decrease
represents cumulative gross unrealized holding gains of $300,000, offset by
cumulative gross unrealized holding losses of $1.1 million. There was no
change in funding requirements of the trusts nor any impact on earnings as
a result of the adoption of SFAS 115.
Preferred stock and long-term debt: The fair value of WMECO's fixed-rate
securities is based upon the quoted market price for those issues or
similar issues. WMECO's adjustable rate preferred stock is assumed to have
a fair value equal to its carrying value.
The carrying amount of WMECO's financial instruments and the estimated fair
values are as follows:
----------------------------------------------------------------
Carrying Fair
At December 31, 1994 Amount Value
----------------------------------------------------------------
(Thousands of Dollars)
Preferred stock not subject to
mandatory redemption ......... $ 68,500 $ 66,050
Preferred stock subject to
mandatory redemption ......... 24,675 24,675
Long-term debt -
First Mortgage Bonds ....... 294,050 274,469
Other long-term debt ....... 87,039 87,039
-----------------------------------------------------------------
Carrying Fair
At December 31, 1993 Amount Value
-----------------------------------------------------------------
(Thousands of Dollars)
Preferred stock not subject to
mandatory redemption ......... $ 73,500 $ 74,000
Preferred stock subject to
mandatory redemption ......... 27,000 28,215
Long-term debt -
First Mortgage Bonds ....... 308,219 319,213
Other long-term debt ....... 85,730 85,730
-----------------------------------------------------------------
The fair values shown above have been reported to meet the disclosure
requirements and do not purport to represent the amounts at which those
obligations would be settled.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
------------------------------------------------------------
Report of Independent Public Accountants
-------------------------------------------------------------
To the Board of Directors
of Western Massachusetts Electric Company:
We have audited the accompanying balance sheets of Western Massachusetts
Electric Company (a Massachusetts corporation and a wholly owned subsidiary of
Northeast Utilities) as of December 31, 1994 and 1993, and the related
statements of income, common stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Western Massachusetts
Electric Company as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 1B and 9B to the Financial Statements, effective
January 1, 1993, Western Massachusetts Electric Company changed its methods of
accounting for property taxes, and postretirement benefits other than pensions.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 17, 1995
WESTERN MASSACHUSETTS ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------------------------------
This section contains management's assessment of WMECO's (the company)
financial condition and the principal factors having an impact on the results of
operations. The company is a wholly owned subsidiary of Northeast Utilities
(NU). This discussion should be read in conjunction with the company's
financial statements and footnotes.
FINANCIAL CONDITION
OVERVIEW
Net income increased to approximately $49 million in 1994 from approximately $41
million in 1993. The 1994 increase in net income is due primarily to reduced
operation and interest costs. The 1993 net income includes the impact of a
change in the method of accounting for Connecticut municipal property taxes
which resulted in an increase to net income of approximately $4 million. In
addition, 1993 net income reflected a decrease of approximately $2 million for
the costs of an employee reduction program. Net income before these one-time
items was approximately $39 million in 1993.
In 1994, the company experienced modest retail kilowatt-hour sales growth, due
in large part to the beginning of an economic recovery in New England.
Employment levels have risen, unemployment rates have fallen, and personal
income has increased. The company's 1994 retail kilowatt-hour sales rose by 1.4
percent over 1993. Overall, weather had little effect on sales volume, with
mild weather after mid-August offsetting unusually cold weather in January and
hot weather in late June and July.
In 1995, the company expects little retail sales growth over 1994, primarily
because of the effects of higher interest rates on the regional economy. The
company estimates compounded annual sales growth of 0.9 percent from 1994
through 1999.
Competitive forces within the electric utility industry are continuing to
increase due to a variety of influences, including legislative and regulatory
actions, technological advances, and changes in consumer demand. The company
has developed, and is continuing to develop, a number of initiatives to retain
and continue to serve its existing customers and to expand its retail and
wholesale customer base.
The company believes the steps it is taking, including a companywide process
reengineering effort, will have significant, positive effects, including reduced
operating costs and improved customer service, in the next few years. The
company also benefits from a diverse retail base with no significant dependence
on any one retail customer or industry.
WMECO continues to operate predominantly in a state-approved franchise under
traditional cost-of-service regulation. Retail wheeling, under which a retail
customer would be permitted to select an electricity supplier and require the
local electric utility to transmit the power to the customer's site, is not
required in Massachusetts. However, bills related to retail wheeling have been
introduced in the legislature. Massachusetts regulators have been studying the
potential restructuring of the electric utility industry. To date, none of these
bills have been enacted and the regulatory proceeding has not progressed to the
point where management can assess the impact of any potential outcomes on the
company.
While retail competition is not required in the company's retail service
territory, competitive forces are nonetheless influencing retail pricing. These
forces include competition from alternate fuels such as natural gas, competition
from customer-owned generation and regional competition for business retention
and expansion. The company's retail business group continues to work with
customers to address their concerns. The company has reached long-term rate
agreements with many new and existing customers to gain or retain their
business. In general, these rate agreements have terms of about five years.
Negotiated retail rate reductions for customers under rate agreements in effect
for 1994 amounted to approximately $4 million. Management believes that the
aggregate amount of retail rate reductions will increase in 1995 but that the
related agreements will continue to provide significant benefits to the company,
including the preservation of approximately 7 percent of retail revenues.
The company is also working with its regulators to address the needs of
customers more widely. The company has a 20-month rate plan in effect through
February 1996. Management will continue to evaluate the use of agreements of
this type to keep retail rates competitive.
The company acts as both a buyer and a seller of electricity in the highly
competitive wholesale electricity market in the Northeastern United States
(Northeast). Many of the contracts signed in the late 1980s have or will expire
in the mid-1990s and much of revenues produced by such contracts has not been
replaced through new wholesale power arrangements. In the last few years NU has
entered into several smaller long-term sales contracts which will continue
approximately through the year 2005. Wholesale sales are made primarily to
investor-owned utilities throughout the Northeast. The company will be increas-
ing its efforts to increase wholesale sales through intensified marketing
efforts. The company's wholesale power marketing efforts benefit from the
interconnection of the NU system's transmission system with all the major
utilities in New England.
RATE MATTERS
The company follows accounting principles that allow the rate treatment for
certain events or transactions to be reflected. These principles may differ
from the accounting principles followed by nonregulated enterprises. Regulators
may permit incurred costs, which would normally be treated as expenses by
nonregulated enterprises, to be deferred as regulatory assets and recovered in
revenues at a later date. Regulatory assets at December 31,1994 were
approximately $184 million. Based on current regulation,the company believes
that its use of regulatory accounting is still appropriate.
See "Notes to Consolidated Financial Statements," Note 1H, for further details
on regulatory accounting.
On May 26, 1994, the Massachusetts Department of Public Utilities (DPU) approved
a settlement agreement under which WMECO's customers received 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 power outages from mid-1987 through mid-1993. The DPU also approved the
amortization of previously deferred expenses for postretirement benefits
beginning in July 1994. In addition, under the agreement, WMECO's largest
customers 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 approximately 5 percent for
those larger customers. The settlement agreement did not have a significant
adverse 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 [CY] unit) was 67.5 percent
for 1994, compared with 80.8 percent for 1993 and a 1994 national average of
73.2 percent. The lower 1994 capacity factor was primarily the result of
extended refueling and maintenance outages for Millstone 1, Millstone 2, and
Seabrook. CY, Seabrook, and Millstone 2 were also out of service for varying
lengths of time in 1994 because of unexpected technical and operating
difficulties. These difficulties included a manual shutdown of CY when both
service water headers were declared inoperable and an automatic trip from 100
percent power for Seabrook when a main steam isolation valve closed during
quarterly surveillance testing, and a Millstone 2 shutdown to replace a degraded
lower seal on a reactor coolant pump.
On October 1, 1994, Millstone 2 was shut down for a planned 63 day refueling
and maintenance outage. The outage has encountered several unexpected
difficulties, which will lengthen the duration of the outage. The outage
extensions were caused by a significant scope increase in service water system
repairs as identified through a comprehensive inspection plan and by a need for
management to exercise a deliberate approach to the conduct of work during the
early portions of the outage. The outage schedule is currently under review,
but the unit is not expected to return to service before April 1995.
Replacement power costs attributable to the extension of the outage for WMECO
are expected to be in the range of approximately $1 million per month. These
costs are recovered through WMECO's fuel adjustment clause. In addition,
WMECO'S share of the operation and maintenance costs to be incurred during the
outage are estimated to be $10 million, an increase of approximately $4 million
as a result of the extension. The recovery of these costs is subject to
prudence reviews in Massachusetts.
The Nuclear Regulatory Commission (NRC's) latest report for the Millstone
Station noted significant weaknesses of Millstone's 2 operations and
maintenance. In a public statement in late 1994, a senior NRC official
expressed disappointment with the continued weaknesses in Millstone 2's
performance. The primary cause of the NRC's disappointment with Millstone 2's
performance appears to be that, despite significant management attention and
action over a period of years, the NRC does not believe it has seen enough
objective evidence of improvement in reducing procedural noncompliance and other
human errors. Management has acknowledged the basis for the NRC's concern with
Millstone 2 and has been devoting increased attention to resolving these issues.
Management and the NRC expect to continue to monitor closely the developments
at Millstone 2.
ENVIRONMENTAL MATTERS
NU devotes substantial resources to identify and then to meet the multitude of
environmental requirements it faces. NU has active auditing programs addressing
a variety of different regulatory requirements, including an environmental
auditing program to detect and remedy noncompliance with environmental laws or
regulations.
The company is potentially liable for environmental cleanup costs at a number of
sites both inside and outside its service territories. To date, the future
estimated environmental remediation liabilities has not been material with
respect to the earnings or financial position of the company. At December 31,
1994, the liability recorded by the company, amounted to approximately $1
million. These costs could rise to as much as approximately $2 million if
alternate remediation remedies become necessary.
The company expects that the implementation of the 1990 Clean Air Act Amendments
(CAAA) as they relate to sulfur dioxide emissions will require only modest
emission reductions for the company. WMECO's exposure is minimal because of the
companies' investment in nuclear energy in the 1970s and 1980s and the burning
of low-sulfur fuels. The CAAA requirements for emissions limits for nitrogen
oxides will initially be met by capital expenditures of approximately $1
million.
NUCLEAR DECOMMISSIONING
The company's estimated cost to decommission its shares of Millstone units 1, 2,
and 3 is approximately $196 million in year-end 1994 dollars. In addition, the
company's estimated cost to decommission its shares of the regional nuclear
generating units is approximately $53 million. These costs are being recognized
over the lives of the respective units and a portion of the costs is being
recovered through rates. Yankee Atomic Electric Company (YAEC) has begun compo-
nent removal activities related to the decommissioning of its nuclear facility.
The company's estimated obligation to YAEC has been recorded on its Balance
Sheets. Management expects that the company will continue to be allowed to
recover these costs.
The staff of the Securities and Exchange Commission has questioned certain of
the current accounting practices of the electric utility industry, including
this company, regarding the recognition, measurement, and classification of
decommissioning costs for nuclear generating stations in the financial
statements of electric utilities. The Financial Accounting Standards Board is
currently reviewing the accounting for removal costs, including decommissioning
and similar costs. If current electric utility industry accounting practices
for such decommissioning costs are changed: (1) annual provisions for decom-
missioning could increase, (2) the estimated costs for decommissioning could be
recorded as a liability rather than as accumulated depreciation, and (3) trust
fund income from the external decommissioning trust could be reported as
investment income rather than as a reduction to decommissioning expense.
See the "Notes To Financial Statements," Note 3, for further information on
nuclear decommissioning.
PROPERTY TAXES
CY has a significant court appeal for municipal property tax assessments in the
town of Haddam, Connecticut. The central issue in this case is the fair market
value of utility property. CY believes that the assessments should be based on
a fair market value that approximates net book cost. This is the assessment
level that taxing authorities are predominantly using throughout Connecticut,
Massachusetts, and some of New Hampshire. However, towns such as Haddam
advocate a method that approximates reproduction costs.
CY's appeal is still pending. The company estimates that, for assessments in
towns such as Haddam, the change to the reproduction cost methodology could
result in property valuations approximately three times greater than values
approximating net book cost. If other towns in Connecticut or Massachusetts
adopt this methodology, there could be a significant adverse impact on the
company's future results of operations and financial condition. However, the
extent to which other towns successfully adopt this methodology and any
subsequent increase in the company's property tax liability cannot be determined
at this time.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations in 1994 was relatively flat as compared with 1993.
Cash used for financing activities was approximately $9 million lower in 1994,
as compared with 1993, primarily due to lower repayment of short-term debt,
partially offset by higher net reacquisitions and retirements of long-term debt.
Cash used for investments was approximately $8 million higher in 1994, compared
with 1993, primarily due to an increase in loans to other system companies under
the NU system money pool.
In 1994, the company refinanced approximately $90 million of debt, which is
expected to reduce interest costs by approximately $2 million annually. With
interest rates rising in mid-1994, a lot of refinancing completed, and
construction needs remaining modest, the focus of the company's financing
activities will shift toward using the significant amount of cash generated by
the company to retire debt and to prepare the company for an increasingly
competitive business.
The company is obligated to meet approximately $107 million of long-term debt
and preferred stock maturities and cash sinking-fund requirements during the
1995 through 1999 period, including approximately $36 million for 1995. The
company's construction program expenditures, including allowance for funds used
during construction (AFUDC), for the period 1995 through 1999 are estimated to
be approximately $170 million, including approximately $36 million for 1995.
The construction program's main focus is maintaining and upgrading the existing
transmission and distribution system, as well as nuclear and fossil-generating
facilities. NU does not foresee the need for new major generating facilities,
at least until the year 2009. Construction expenditures and debt sinking fund
requirements will continue to be met through internal cash generation.
WMECO entered into interest rate cap contracts to reduce a portion of interest
rate risk on certain variable-rate tax-exempt pollution control revenue bonds.
Any premiums paid on these contracts are deferred and amortized over the life of
the contracts. The differential paid or received as interest rates is
recognized in income when realized.
RESULTS OF OPERATIONS
OPERATING REVENUES
The components of the change in operating revenues for the past two years are
provided in the table below.
CHANGE IN OPERATING REVENUES
Increase/(Decrease)
1994 vs. 1993 1993 vs. 1992
--------------------------------------------------------------------
(Millions of Dollars)
Regulatory decisions $(4) $12
Fuel and purchased power
cost recoveries 13 (19)
Sales volume - 4
Wholesale Revenues - 8
Other revenues (3) (1)
-- ---
Total revenue change $ 6 $ 4
=== ===
Operating revenues increased approximately $6 million in 1994 as compared with
1993. Revenues related to regulatory decision decreased in 1994, primarily
because of the June 1994 retail rate reduction and lower recoveries for demand-
side-management costs, partially offset by the July 1993 retail rate increase.
Fuel and purchased power cost recoveries increased primarily due to higher
energy interchange revenues in 1994.
Operating revenues increased approximately $4 million in 1993 as compared with
1992. Revenues related to regulatory decisions increased primarily because of
the effects of the July 1992 and July 1993 retail rate increases. Fuel and
purchased power cost recoveries decreased primarily due to lower energy costs.
Retail sales in 1993 were relatively flat. Wholesale revenues increased
primarily because of higher capacity interchange revenues.
FUEL, PURCHASED, AND NET INTERCHANGE POWER
Fuel, purchased, and net interchange power decreased approximately $19 million
in 1993, as compared to 1992, primarily due to lower outside purchases as a
result of better nuclear performance in 1993.
OTHER OPERATION AND MAINTENANCE EXPENSES
Other operation and maintenance expenses decreased approximately $10 million in
1994, as compared with 1993, primarily due to higher costs in 1993 associated
with early retirement programs, lower 1994 payroll and benefit costs, lower
fossil-unit costs and lower capacity charges from the regional nuclear
generating units, partially offset by higher 1994 costs associated with the
operation and maintenance activities of the nuclear units, higher reserves for
excess/obsolete inventory at the nuclear and fossil units in 1994 and higher
outside services primarily related to companywide process reengineering.
Other operation and maintenance expenses increased approximately $11 million in
1993, as compared to 1992, primarily due to higher capacity interchange charges,
increased demand-side-management costs, and the 1993 one-time costs associated
with an employee-reduction program, partially offset by lower 1993 costs
associated with the operation and maintenance activities of the nuclear units.
AMORTIZATION OF REGULATORY ASSETS, NET
Amortization of regulatory assets, net increased approximately $3 million in
1993, as compared to 1992, primarily because of higher amortization of Millstone
3 deferred costs.
FEDERAL AND STATE INCOME TAXES
Federal and state income taxes increased approximately $5 million in 1994, as
compared to 1993 due primarily to higher taxable income.
Federal and state income taxes increased approximately $8 million in 1993, as
compared to 1992, primarily because of higher taxable income and one-time
adjustments in 1992 causing 1992 taxes to be lower than would otherwise be
expected.
INTEREST CHARGES
Interest on long-term debt decreased approximately $2 million in 1994, as
compared to 1993, primarily because of lower average interest rates as a
result of refinancing activities and lower 1994 debt levels.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
The cumulative effect of the accounting change of approximately $4 million in
1993 represents the one-time change in the method of accounting for Connecticut
municipal property tax expense recognized in the first quarter of 1993.
--------------------------------------------------------------------------
SELECTED FINANCIAL DATA
--------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------------------------------------------------------------------------
(Thousands of Dollars)
Operating Revenues.......$ 421,477 $ 415,055 $ 410,720 $ 409,840 $ 375,456
Operating Income......... 70,053 60,067 60,513 59,723 57,448
Net Income............... 49,457 40,594(a) 37,022 34,637 35,191
Cash Dividends on
Common Stock........... 29,514 28,785 29,536 31,499 34,459
Total Assets.............1,183,618 1,204,642 1,130,684 1,119,593 1,134,986
Long-Term Debt*.......... 379,969 393,232 392,976 401,095 419,527
Preferred Stock Not Subject to
Mandatory Redemption... 68,500 73,500 73,500 88,500 88,500
Preferred Stock Subject to
Mandatory Redemption*... 24,675 27,000 28,500 28,502 30,000
Obligations Under Capital
Leases*................. 36,797 36,902 41,509 44,134 52,370
* Includes portions due within one year.
(a)Includes the cumulative effect of change in accounting for municipal property
tax expense, which increased earnings for common shares by $3.9 million.
STATEMENTS OF QUARTERLY FINANCIAL DATA (UNAUDITED)
--------------------------------------------------------------------------
Quarter Ended
---------------------------------------------------
1994 March 31 June 30 September 30December 31
--------------------------------------------------------------------------
(Thousands of Dollars)
Operating Revenues.. $112,984 $101,188 $102,597 $104,708
======== ======== ======== ========
Operating Income.... $ 19,468 $ 21,268 $ 11,374 $ 17,943
========= ======== ========= =========
Net Income.......... $ 13,961 $ 16,035 $ 6,395 $ 13,066
========= ======== ========== =========
1993
--------------------------------------------------------------------------
Operating Revenues.. $108,950 $ 92,383 $105,510 $108,212
======== ======== ======== ========
Operating Income.... $ 17,659 $ 13,529 $ 13,045 $ 15,834
========= ======== ======== =========
Net Income.......... $ 15,350 $ 7,316 $ 7,182 $ 10,746
========= ========= ======== =========
STATISTICS
--------------------------------------------------------------------------
Gross Electric Average
Utility Plant Annual
December 31, Use Per Electric
(Thousands of kWh Sales Residential Customers Employees
Dollars) (Millions)Customer (kWh)(Average)(December 31,)
---------------------------------------------------------------------
1994 $1,271,513 4,978 7,433 193,187 617
1993 1,242,927 4,715 7,351 192,542 657
1992 1,214,386 4,155 7,433 191,920 739
1991 1,199,362 3,780 7,494 191,692 797
1990 1,184,285 3,874 7,619 191,759 826