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 September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission File Number 1-5324 NORTHEAST UTILITIES (Exact Name of registrant as specified in its charter) MASSACHUSETTS 04-2147929 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 174 BRUSH HILL AVENUE, WEST SPRINGFIELD, MASSACHUSETTS (01090-0010) (Address of principal executive offices) (Zip Code) (413) 785-5871 (Registrant's telephone number, including area code) Not Applicable (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 October 31, 1995 Common Shares, $5.00 par value 135,562,456 shares NORTHEAST UTILITIES AND SUBSIDIARIES TABLE OF CONTENTS Page No. Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1995 and December 31, 1994 2 Consolidated Statements of Income - Three and Nine Months Ended September 30, 1995 and 1994 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1995 and 1994 5 Notes to Consolidated Financial Statements 6 Report of Independent Public Accountants 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II. Other Information Item 1. Legal Proceedings 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20 PART I. FINANCIAL INFORMATION NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 1995 1994 ------------- ------------- (Thousands of Dollars) ASSETS - ------ Utility Plant, at original cost: Electric................................................ $ 9,434,003 $ 9,334,912 Other................................................... 153,969 157,632 ------------- ------------- 9,587,972 9,492,544 Less: Accumulated provision for depreciation......... 3,541,919 3,293,660 ------------- ------------- 6,046,053 6,198,884 Construction work in progress........................... 206,931 179,724 Nuclear fuel, net....................................... 200,784 224,839 ------------- ------------- Total net utility plant............................. 6,453,768 6,603,447 ------------- ------------- Other Property and Investments: Nuclear decommissioning trusts, at market............... 304,811 240,229 Investments in regional nuclear generating companies, at equity................................... 82,311 82,464 Investments in transmission companies, at equity........ 24,277 26,106 Other, at cost.......................................... 56,663 40,896 ------------- ------------- 468,062 389,695 ------------- ------------- Current Assets: Cash and special deposits............................... 51,206 34,579 Receivables, net........................................ 365,157 357,322 Accrued utility revenues................................ 121,027 142,788 Fuel, materials, and supplies, at average cost.......... 207,499 190,062 Recoverable energy costs, net--current portion.......... 83,419 19,522 Prepayments and other................................... 60,612 35,364 ------------- ------------- 888,920 779,637 ------------- ------------- Deferred Charges: Regulatory assets: Income taxes,net...................................... 1,125,630 1,124,119 Unamortized PSNH acquisition costs.................... 611,426 678,974 Deferred costs--nuclear plants........................ 179,076 233,145 Unrecovered contract obligation--Yankee Atomic Electric Company..................................... 145,155 157,147 Recoverable energy costs, net......................... 251,677 268,982 Deferred demand-side-management costs................. 108,253 116,133 Cogeneration costs-CL&P............................... 85,889 36,821 Other................................................. 104,339 109,043 Unamortized debt expense................................ 37,563 33,517 Other .................................................. 47,983 54,220 ------------ ------------ 2,696,991 2,812,101 ------------ ------------ Total Assets.............................................. $ 10,507,741 $ 10,584,880 ============ ============ See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 1995 1994 ------------- ------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common shareholders' equity: Common shares, $5 par value--authorized 225,000,000 shares; 135,180,057 shares issued and 126,465,580 shares outstanding in 1995 and 134,210,226 shares issued and 124,962,981 shares outstanding in 1994..................................... $ 675,900 $ 671,051 Capital surplus, paid in................................. 927,099 904,371 Deferred benefit plan--employee stock ownership plan......................................... (201,716) (213,324) Retained earnings........................................ 999,065 946,988 ------------- ------------- Total common shareholders' equity................. 2,400,348 2,309,086 Preferred stock not subject to mandatory redemption........ 169,700 234,700 Preferred stock subject to mandatory redemption............ 302,500 375,250 Long-term debt............................................. 3,695,807 3,942,005 ------------- ------------- Total capitalization.............................. 6,568,355 6,861,041 ------------- ------------- Minority Interest in Consolidated Subsidiaries............... 100,010 - ------------- ------------- Obligations Under Capital Leases............................. 148,598 166,018 ------------- ------------- Current Liabilities: Notes payable to banks..................................... 67,500 180,000 Commercial paper........................................... - 10,000 Long-term debt and preferred stock--current portion................................................... 294,972 174,948 Obligations under capital leases--current portion................................................... 85,637 73,103 Accounts payable........................................... 227,143 280,942 Accrued taxes.............................................. 123,921 57,532 Accrued interest........................................... 83,426 70,639 Accrued pension benefits................................... 92,246 90,194 Other...................................................... 95,315 98,296 ------------- ------------ 1,070,160 1,035,654 ------------- ------------ Deferred Credits: Accumulated deferred income taxes.......................... 2,028,594 1,968,230 Accumulated deferred investment tax credits................ 180,404 188,005 Deferred contract obligation--Yankee Atomic Electric Company......................................... 145,155 157,147 Other...................................................... 266,465 208,785 ------------- ------------ 2,620,618 2,522,167 ------------- ------------ Commitments and Contingencies (Note 5)<F5> Total Capitalization and Liabilities.............. $ 10,507,741 $ 10,584,880 ============= ============= See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- --------------------------- 1995 1994 1995 1994 -------------- ------------- ------------- ------------- (Thousands of Dollars, except share information) Operating Revenues............................. $ 985,092 $ 923,708 $ 2,770,130 $ 2,744,509 -------------- ------------- ------------- ------------- Operating Expenses: Operation -- Fuel, purchased and net interchange power.... 242,923 220,694 680,860 628,462 Other........................................ 244,351 237,505 694,091 677,700 Maintenance................................... 70,048 76,259 197,926 221,850 Depreciation.................................. 89,514 84,933 263,016 248,715 Amortization of regulatory assets, net........ 36,727 29,244 96,897 131,082 Federal and state income taxes................ 76,954 75,558 205,469 226,923 Taxes other than income taxes................. 63,416 63,633 188,220 190,648 -------------- ------------- ------------- ------------- Total operating expenses............... 823,933 787,826 2,326,479 2,325,380 -------------- ------------- ------------- ------------- Operating Income............................... 161,159 135,882 443,651 419,129 -------------- ------------- ------------- ------------- Other Income: Deferred nuclear plants return--other funds...................................... 3,431 6,777 10,727 20,771 Equity in earnings of regional nuclear generating and transmission companies...... 3,637 3,687 9,854 10,794 Other, net................................... 3,270 (4,125) 633 2,559 Income taxes--credit......................... 1,444 6,482 10,895 9,963 -------------- ------------- ------------- ------------- Other income, net...................... 11,782 12,821 32,109 44,087 -------------- ------------- ------------- ------------- Income before interest charges......... 172,941 148,703 475,760 463,216 -------------- ------------- ------------- ------------- Interest Charges: Interest on long-term debt................... 78,692 77,903 239,271 234,736 Other interest............................... 1,981 2,554 4,753 5,622 Deferred nuclear plants return--borrowed funds..................................... (5,827) (7,717) (17,476) (31,533) -------------- ------------- ------------- ------------- Interest charges, net.................. 74,846 72,740 226,548 208,825 -------------- ------------- ------------- ------------- Income after interest charges........... 98,095 75,963 249,212 254,391 Preferred Dividends of Subsidiaries............ 8,569 10,934 31,004 32,329 -------------- ------------- ------------- ------------- Net Income..................................... $ 89,526 $ 65,029 $ 218,208 $ 222,062 ============== ============= ============= ============= Earnings Per Common Share...................... $ 0.71 $ 0.52 $ 1.74 $ 1.78 ============== ============= ============= ============= Common Shares Outstanding (average)............ 126,412,303 124,790,381 125,769,477 124,583,613 ============== ============= ============= ============= See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, ----------------------- 1995 1994 ----------- ----------- (Thousands of Dollars) Operating Activities: Income before preferred dividends of subsidiaries......... $ 249,212 $ 254,391 Adjustments to reconcile to net cash from operating activities: Depreciation............................................ 263,016 248,715 Deferred income taxes and investment tax credits, net... 103,961 83,521 Deferred nuclear plants return, net of amortization..... 61,084 36,412 Recoverable energy costs, net of amortization........... (46,592) (40,295) Amortization of PSNH acquisition costs.................. 41,323 41,503 Deferred cogeneration costs............................. (49,068) (18,202) Other sources of cash................................... 135,685 40,326 Other uses of cash...................................... (37,800) (15,553) Changes in working capital: Receivables and accrued utility revenues................ 13,926 34,850 Fuel, materials, and supplies........................... (17,437) (6,240) Accounts payable........................................ (53,799) (30,920) Accrued taxes........................................... 66,389 51,251 Other working capital (excludes cash)................... (13,390) (5,638) ----------- ----------- Net cash flows from operating activities.................... 716,510 674,121 ----------- ----------- Financing Activities: Issuance of common shares................................. 32,968 11,049 Issuance of long-term debt................................ - 485,000 Issuance of Monthly Income Preferred Securities..................................... 100,000 - Net (decrease) increase in short-term debt................ (122,500) 11,500 Reacquisitions and retirements of long-term debt.......... (139,227) (781,859) Reacquisitions and retirements of preferred stock......... (133,175) (1,500) Cash dividends on preferred stock......................... (31,004) (32,329) Cash dividends on common shares........................... (165,876) (164,382) ----------- ----------- Net cash flows used for financing activities................ (458,814) (472,521) ----------- ----------- Investment Activities: Investment in plant: Electric and other utility plant........................ (168,772) (176,685) Nuclear fuel............................................ (11,681) (5,651) ----------- ----------- Net cash flows used for investments in plant.............. (180,453) (182,336) Other investment activities, net.......................... (60,616) (29,605) ----------- ----------- Net cash flows used for investments......................... (241,069) (211,941) ----------- ----------- Net Increase (Decrease) In Cash For The Period.............. 16,627 (10,341) Cash and special deposits - beginning of period............. 34,579 32,008 ----------- ----------- Cash and special deposits - end of period................... $ 51,206 $ 21,667 =========== =========== See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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, 1994 (1994 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 September 30, 1995, the results of operations for the three and nine months ended September 30, 1995 and 1994, and the statements of cash flows for the nine months ended September 30, 1995 and 1994. The results of operations for the three and nine months ended September 30, 1995 and 1994 are not necessarily indicative of the results expected for a full year. Certain reclassifications of prior period data have been made to conform with the current period presentation. 2. Accounting for Long-Lived Assets The company's accounting policies and the accompanying consolidated financial statements conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the ratemaking process in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for Certain Types of Regulation" (SFAS 71). If any portion of the company's operations was no longer subject to the provisions of SFAS 71, as a result of a change in the cost-of-service based regulatory structure or the effects of competition, the company would be required to write off related regulatory assets and liabilities. The company would also be required to determine any impairment to other assets and write down these assets to their fair value. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121), issued in March 1995 and effective January 1, 1996, establishes accounting standards for the impairment of long-lived assets. SFAS 121 requires that regulatory assets that are no longer probable of recovery through future revenues be charged to earnings. Based upon the current regulatory environment in the company's service area, it is not expected that the adoption of SFAS 121 would have a material impact on the company's financial position or results of operations. This conclusion may change in the future as competitive factors influence wholesale and retail pricing in the electric utility industry, or if the cost-of-service based regulatory structure were to change. 3. Derivative Financial Instruments The Connecticut Light and Power Company (CL&P), a wholly owned subsidiary of NU, uses fuel price swaps to hedge against well-defined fuel price risk created by negotiated energy contracts. CL&P does not use these agreements for trading purposes. Those fuel swap agreements minimize exposure associated with rising fuel prices and effectively fix CL&P's cost of fuel for these negotiated energy contracts. Under the swap agreements, CL&P exchanges monthly payments based on the differential between fixed and variable prices for the associated fuel. These swap agreements have been made with various financial institutions, each of which is currently rated "A" or better by Standard & Poors rating group. CL&P is exposed to credit risk on its fuel swaps if the counterparties fail to perform their obligations. However, based on the high credit quality of CL&P's counterparties, management anticipates that all the obligations under the swap contracts will be fully satisfied. As of September 30, 1995, CL&P had outstanding fuel-swap agreements with a total notional value of approximately $252 million. As of October 31, 1995, the fuel swaps outstanding had a negative mark-to-market position of approximately $11 million. For further information on Derivative Financial Instruments, see the Notes to Consolidated Financial Statements in NU's March 31, 1995 and June 30, 1995 Form 10-Qs and in its 1994 Form 10-K. 4. Capitalization In December 1995, North Atlantic Energy Corporation (NAEC) plans to complete a $225 million variable rate note facility with a group of banks. NAEC has called the entire $205 million principal amount of its 15.23 percent notes, due 2000, in early November, with funding in early December from the proceeds of the variable rate note facility. An interest rate swap is also planned to reduce the variability in the interest rate on the new notes. The refinancing is expected to save approximately $3 million annually over the next five years. 5. Commitments and Contingencies Construction Program: For information regarding the construction program, see the Notes to Consolidated Financial Statements in NU's 1994 Form 10-K. Nuclear Performance: For information regarding the performance of the NU system's nuclear units, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q and in NU's March 31, 1995 and June 30, 1995 Form 10-Qs, and NU's 1994 Form 10-K. PSNH Rate Agreement: For information regarding the PSNH Rate Agreement, see the Notes to Consolidated Financial Statements in NU's June 30, 1995 Form 10-Q and 1994 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 March 31, 1995 Form 10-Q and 1994 Form 10-K. Nuclear Insurance Contingencies: For information regarding nuclear insurance contingencies, see the Notes to Consolidated Financial Statements in NU's 1994 Form 10-K. Purchased Power Arrangements: For information regarding purchased power arrangements, see the Notes to Consolidated Financial Statements in NU's 1994 Form 10-K. Hydro-Quebec: For information regarding Hydro-Quebec, see the Notes to Consolidated Financial Statements in NU's 1994 Form 10-K. 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 September 30, 1995, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 1995 and 1994, and the consolidated statement of cash flows for the nine-month periods ended September 30, 1995 and 1994. 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. /s/ Arthur Andersen LLP Arthur Andersen LLP Hartford, Connecticut October 27, 1995 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, footnotes and Part II, Other Information, of this report and Management's Discussion and Analysis in the 1994 Form 10-K and the First and Second Quarter 1995 Form 10-Qs. FINANCIAL CONDITION Overview The company's earnings per common share decreased to $1.74 for the nine months ended September 30, 1995, from $1.78 for the same period in 1994. The decrease in earnings from 1994 for the nine-month period is primarily attributable to lower retail kilowatt-hour sales as a result of mild weather in the first quarter of 1995, lower wholesale revenues and higher fuel and purchased-power costs, partially offset by higher revenues related to regulatory decisions, a favorable tax ruling in the first quarter of 1995 and a reduction in maintenance costs. NU's retail kilowatt-hour sales through September 1995 were down by 1.0 percent from 1994, which had colder than normal weather in the first quarter. Earnings per share increased to $0.71 for the three months ended September 30, 1995, from $0.52 for the same period in 1994. The increase in earnings for the three-month period is primarily attributable to higher kilowatt-hour sales due to hotter summer weather, higher revenues from regulatory decisions and a lower level of non-recurring charges. Retail kilowatt-hour sales for the quarter were up 2.6 percent from 1994. Workforce Reductions In July, 1995, NU announced a program aimed at reducing the nuclear organization's total workforce by approximately 250 employees. The estimated pre-tax cost of the early retirement that was charged to expense in the third quarter was approximately $7 million. This estimate was based on 121 eligible employees accepting the early retirement. The balance of the workforce reduction will be achieved through attrition and layoffs. The estimated cost of layoffs could be in the range of $2 to $3 million. Regulatory Matters Connecticut In September 1995, the Department of Public Utility Control (DPUC) issued a draft decision denying The Connecticut Light and Power Company's (CL&P) request to exclude market based contracts from the fossil fuel adjustment clause, on the ground that such treatment creates cost shifting among customers. The impact of this decision, if finalized, would be a reduction in fuel revenues of about $13 million a year based on contracts currently in place. New Hampshire On September 15, 1995, Public Service Company of New Hampshire (PSNH) filed with the New Hampshire Public Utilities Commission (NHPUC), a request for a reduced Fuel and Purchased Power Adjustment Clause(FPPAC) rate to take effect on December 1, 1995 and continue through May 31, 1996. If approved, the effective rate would reduce PSNH's overall rate level by about one percent. A final decision is expected by the end of November. The costs associated with purchases by PSNH from certain nonutility generators (NUGs) over the level assumed in rates are deferred and recovered over ten-year periods through the FPPAC. At September 30, 1995, the unrecovered deferrals were approximately $189 million. PSNH has reached tentative agreements with the six remaining wood-fired NUGs. These agreements call for substantial upfront and continuing payments, and are subject to the approval of the NHPUC. If the NHPUC's proposal for a retail wheeling pilot is not revised to provide for full recovery of stranded investments, management will need to reevaluate whether to proceed with the NUG buy-out agreements. 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 68.6 percent for the nine months ended September 30, 1995, as compared with 64.3 percent for the same period in 1994. An extended refueling and maintenance outage for Millstone Unit 2, which ended on August 4, 1995, had an adverse impact on the 1995 nuclear capacity factor. In early November, Seabrook and Millstone 1 began planned 50-day refueling and maintenance outages. Total replacement power costs attributable to the extension of the Millstone Unit 2 outage for CL&P and Western Massachusetts Electric Company (WMECO) are approximately $80 million. In addition, operation and maintenance (O&M) costs incurred during the outage are approximately $70 million, an increase of $37 million as a result of the outage extension. O&M costs associated with the refueling outage are deferred and amortized through rates for CL&P and WMECO. The recovery of the replacement power and O&M costs is subject to prudence reviews in both Connecticut and Massachusetts. CL&P has a mechanism that has been in operation since 1979 designed to recover or refund certain nonnuclear fuel costs if the nuclear units do not operate at a predetermined capacity factor (the Generation Utilization Adjustment Clause or GUAC). In early August 1995, CL&P filed its annual GUAC filing with the DPUC. As part of that filing, CL&P proposed to recover its 1994-1995 GUAC costs over an 18 month period (instead of the usual 12 months) to mitigate the impact of the GUAC rate increase. On August 31, 1995, the DPUC issued an interim decision that allowed CL&P to begin recovering $80 million of the GUAC costs over an 18 month period beginning in September 1995. The $80 million is net of certain fuel "overrecoveries" during the GUAC period (approximately $19 million). In its decision, the DPUC also stated that it would examine the GUAC rate in detail in the November quarterly fuel proceeding and issue a final decision at that time. The DPUC's decision is also subject to the results of a prudence review of the Millstone 2 outage. CL&P has reserved $19 million for the "overrecoveries" during the GUAC period. While the company is unable to predict the outcome of possible prudence reviews of its nuclear operations or the GUAC "overrecoveries" issues, management believes that the ultimate resolution of these matters will not have a material adverse impact on the company's financial position or the results of its operations. LIQUIDITY AND CAPITAL RESOURCES Cash provided from operations increased approximately $42 million for the first nine months of 1995, as compared to 1994, primarily due to payments received under a new wholesale power contract in 1995. Cash used for financing activities decreased approximately $14 million primarily due to lower reacquisition and retirements of long-term debt and preferred stock, net of issuances, and the issuance of additional common shares in 1995 as a result of the company's Dividend Reinvestment Plan and the allocation of shares through the company's Employee Stock Ownership Plans, partially offset by higher repayment of short-term debt. Cash used for investments increased approximately $29 million primarily due to higher investments in the nuclear decommissioning trusts in 1995. On October 18, 1995, Moody's Investors Service lowered its ratings of PSNH and North Atlantic Energy Corporation (NAEC) securities, bringing the rating for PSNH's First Mortgage Bonds below investment grade. Standard and Poor's had previously downgraded PSNH and NAEC securities below investment grade. With both of the major nationally recognized securities rating organizations that rate PSNH and NAEC securities rating them below investment grade, PSNH's and NAEC's borrowing costs have been adversely affected and the future availability and cost of funds for those companies could be adversely affected. RESULTS OF OPERATIONS Comparison of the Third Quarter of 1995 with the Third Quarter - -------------------------------------------------------------- of 1994 - ------- The components of the change in operating revenues are as follows: Changes in Operating Revenues Increase/(Decrease) - ----------------------------- ------------------- (Millions of Dollars) Regulatory decisions $ 21 Fuel, purchased power, and FPPAC cost recoveries 28 Retail sales volume 17 Wholesale revenues (4) Other (1) ---- Total revenue change $ 61 ==== Revenues related to regulatory decisions increased primarily because of retail rate increases for PSNH and CL&P in June and July 1995. Fuel, purchased-power, and FPPAC cost recoveries increased primarily due to higher sales and the recovery of GUAC costs for CL&P. Retail kilowatt-hour sales increased 2.6 percent for the quarter from 1994 levels as a result of hotter summer weather. Wholesale revenues decreased primarily due to capacity sales contracts that expired at the end of 1994. Fuel, purchased, and net interchange power expense increased approximately $22 million in the third quarter of 1995 primarily because of higher deferred FPPAC expenses and the impact of a DPUC draft decision on market based contracts. Other operation expense increased approximately $7 million and maintenance expense decreased approximately $6 million. The increase in operation expense is due primarily to higher amortization of demand-side-management costs and higher outside services employed, partially offset by a nuclear inventory write- off in 1994. The decrease in maintenance expense is due primarily to lower maintenance costs at the fossil units. Depreciation expense increased approximately $5 million in the third quarter of 1995 primarily because of higher plant balances and higher decommissioning levels in 1995. Amortization of regulatory assets, net increased approximately $7 million in the third quarter of 1995 primarily because of the reduction in the deferral of CL&P cogeneration expenses from approximately $6 million a month to approximately $3 million a month beginning July 1995, partially offset by the completion of WMECO's amortization of Millstone 3 phase-in costs in June 1995. Federal and state income taxes increased approximately $6 million in the third quarter of 1995 primarily because of higher book taxable income, partially offset by a $5 million adjustment in 1995 to reduce the income tax accrual as a result of the expiration of a tax year subject to audit. Deferred nuclear plants return decreased approximately $5 million in the third quarter of 1995 primarily because the last 5 percent of CL&P's Millstone 3 investment was phased into rates on January 1, 1995 and an additional 15 percent of NAEC's Seabrook 1 investment was phased into rates on May 1, 1995. Other income increased approximately $7 million in the third quarter of 1995 primarily because of an adjustment in September 1994 to the environmental reserve. Comparison of the First Nine Months of 1995 with the First Nine - --------------------------------------------------------------- Months of 1994 - -------------- The components of the change in operating revenues are as follows: Changes in Operating Revenues Increase/(Decrease) - ----------------------------- ------------------- (Millions of Dollars) Regulatory decisions $ 59 Retail Sales volume (22) Wholesale revenues (17) Fuel, purchased power, and FPPAC cost recoveries 12 Other (6) ---- Total revenue change $26 ==== Revenues related to regulatory decisions increased primarily because of the retail rate increases for PSNH and CL&P in June and July 1994 and 1995, partially offset by the June 1994 retail rate reduction for WMECO. Retail sales volume decreased 1.0 percent for the first nine months of 1995 from 1994 sales levels primarily due to mild weather in the first quarter of 1995, partially offset by hotter summer weather. Wholesale revenues decreased primarily due to capacity sales contracts that expired at the end of 1994. Fuel, purchased- power, and FPPAC cost recoveries increased primarily due to the recovery of GUAC costs for CL&P. Other includes lower revenues as a result of new negotiated rate reductions for retail customers. Fuel, purchased, and net interchange power expense increased approximately $52 million in the first nine months of 1995 primarily because of higher deferred FPPAC expenses, a higher level of energy purchases from other utilities as a result of the extended Millstone 2 outage, a reserve for fuel overrecoveries and the impact of the DPUC draft decision on market based contracts. These increases were partially offset by higher deferred GUAC expenses, net of GUAC amortization. Other operation expense increased approximately $16 million and maintenance expense decreased approximately $24 million. The increase in operation expense is due primarily to higher capacity charges from the regional nuclear units primarily due to Maine Yankee which is in an extended refueling outage and Vermont Yankee which had an outage in March 1995, higher 1995 demand-side- management amortization costs and higher outside services employed, partially offset by a nuclear inventory write-off in 1994. The decrease in maintenance expense is due primarily to lower maintenance costs at the nuclear and fossil units. Depreciation expense increased approximately $14 million in the first nine months of 1995 primarily because of higher plant balances and higher decommissioning levels in 1995. Amortization of regulatory assets, net decreased approximately $34 million in the first nine months of 1995 primarily because of the deferral of CL&P cogeneration expenses which began in July 1994 and the 1994 amortization of the CL&P cogeneration buyout. Federal and state income taxes decreased approximately $22 million in the first nine months of 1995 primarily because of lower book taxable income and 1995 adjustments to the income tax accrual as a result a favorable tax ruling and the expiration of a tax year subject to audit. Deferred nuclear plants return decreased approximately $24 million in the first nine months of 1995 primarily because the last 5 percent of CL&P's Millstone 3 investment was phased into rates on January 1, 1995, an additional 15 percent of NAEC's Seabrook 1 investment was phased into rates on May 1, 1995, and because of a one-time adjustment to NAEC's Seabrook 1 deferred return of $5 million in June 1995 PART II. Other Information Item 1. Legal Proceedings 1. On November 7, 1995, the DPUC issued a draft decision in the Texas-Ohio Power Company (Texas-Ohio) proceeding that was filed by CL&P in mid-August. The DPUC found that a private power producer (PPP) can sell electricity to retail customers in Connecticut as long as the PPP does not use public rights of way. The draft decision specifically states that the ruling is "narrow in scope" and that a PPP that seeks to utilize public rights of way to sell at retail to end users in Connecticut would require a franchise. A final decision in this DPUC proceeding is expected at the end of November. For additional information on this proceeding, see "Legal Proceedings" in NU's 1995 Form 10-Q for the quarter ended June 30, 1995. 2. On or about November 1, 1995, the New Hampshire Office of Consumer Advocate (OCA) and the Campaign for Ratepayers Rights filed suit in Superior Court against the NHPUC seeking a declaratory ruling that special contracts entered into by and between PSNH and certain retail customers are prohibited by the 1989 rate agreement between PSNH and the State of New Hampshire (Rate Agreement). The petition is based on an alleged inconsistency between the New Hampshire statute that allows special contracts agreed to by a utility and a customer when deemed appropriate by the NHPUC and the legislation accepting the Rate Agreement wherein PSNH received protection against NHPUC actions fixing rates other than in the manner agreed upon in the Rate Agreement. The court petition alleges that the special contracts also constitute a breach of the Rate Agreement by PSNH, thereby stopping PSNH from claiming benefits under the Rate Agreement. The New Hampshire Attorney General will represent the NHPUC in this action. While PSNH believes this proceeding should be dismissed on procedural grounds, it cannot predict the outcome of this proceeding or its ultimate effect on PSNH or NAEC at this time. Item 5. Other Information 1. On October 9, 1995, the NHPUC issued preliminary guidelines for an Electric Retail Competition Pilot Program (Program). The Program is proposed to be a three-year retail wheeling experiment under which a randomly selected group of retail users will be free to purchase up to 60 MW of power from other suppliers besides their franchised local utility, of which 44 MW of the prospective loss is allocated to PSNH. This amount of power equals three percent of PSNH's peak load. If the program were implemented as proposed, participants would be responsible for arranging their own electricity supply and would be free to negotiate the terms for such supply with any potential supplier. Under the proposed guidelines, utilities would not be allowed to charge exit or re-entry fees to customers who go off and on their systems, but recovery of stranded costs resulting from the Program would be split equally between utility investors and participating customers. Finalization of the guidelines is expected in December 1995, subject to further comments and hearings. For additional information on this matter, see "Other Information" in NU's 1995 Form 10-Q for the quarter ended June 30, 1995. 2. On September 1, 1995, PSNH filed a petition with the New Hampshire Supreme Court, which was accepted on November 2, 1995, appealing the NHPUC's decision in the proceeding involving Freedom Electric Power Company, now known as Freedom Energy Company, LLC (Freedom), that PSNH's franchise was not exclusive as a matter of law. For additional information on this matter, see "Other Information" in NU's 1995 Form 10-Q for the quarter ended June 30, 1995. 3. New Hampshire's Limited Electrical Energy Producers Act (LEEPA) purportedly allows a qualifying generator of not greater than 5 MW capacity to sell its output to up to three retail customers. LEEPA also provides that the local franchised utility could be ordered to wheel the energy to these retail customers. On October 3, 1995, the NHPUC issued an order stating that the LEEPA retail wheeling provision was not pre-empted by federal law and that it had authority to order such retail wheeling service if it was found to be in the public good. PSNH and Connecticut Valley Electric Company filed motions for rehearing of this order with the NHPUC on November 2, 1995. 4. On August 16, 1995, the Massachusetts Department of Public Utilities (DPU) issued an order in its investigation, which began in February 1995, into electric utility industry restructuring in Massachusetts. The order found that recovery of net, non-mitigatable stranded costs during a transition to full competition, which is to be no longer than 10 years, is in the public interest. Stranded costs are to be recovered by a non-bypassable charge. The DPU also set forth 12 principles for the transition to a restructured industry and ordered WMECO and other Massachusetts utilities to submit, by February 16, 1996, plans for moving to a competitive generation market and for incentive regulation for transmission and distribution. For additional information on this proceeding, see "Other Information" in NU's 1995 Form 10-Q for the quarter ended March 31, 1995. 5. On August 24, 1995, the DPU issued a decision limiting WMECO's recovery of lost base revenues in calendar year 1996 to those revenues "lost" due to implementation of conservation-related costs in the most recent three-year period. The DPU decision does not affect 1995 revenues, but the three-year limit on recovery could reduce 1996 revenues by approximately $8 million. WMECO requested clarification of the decision on September 13, 1995. For additional information on this proceeding, see "Item 1. Business - Rates" in NU's 1994 Form 10-K. 6. On October 4, 1995, the U.S. Court of Appeals for the District of Columbia Circuit granted a motion to intervene filed by Northeast Utilities Service Company, Connecticut Yankee Atomic Power Company and North Atlantic Energy Service Company as party petitioners in the lawsuit brought by other nuclear utilities seeking a judicial declaration that the Nuclear Waste Policy Act of 1982, as amended, unconditionally binds the U.S. Department of Energy to begin acceptance of spent nuclear fuel and high-level radioactive waste beginning on January 31, 1998. For additional information on this matter, see "Item 1. Business - Electric Operations - Nuclear Generation - High-Level Radioactive Waste" in NU's 1994 Form 10-K. 7. On October 12, 1995, the NRC issued an order halting major dismantling or decommissioning activities at the Yankee Rowe Nuclear Plant (Yankee Rowe) until after completion of an adjudicatory hearing process. The NRC intends to issue a Notice of Opportunity for a hearing on the NRC staff-approved Yankee Rowe decommissioning plan and, if a hearing is requested, order an expedited hearing. The NRC's action was taken in response to a recent federal appeals court decision finding that the NRC should have offered a hearing opportunity prior to authorizing Yankee's Component Removal Program in 1993. For additional information on this matter, see "Other Information" in NU's 1995 Form 10-Q for the quarter ended June 30, 1995. 8. On October 13, 1995, the Connecticut Department of Environmental Protection (DEP) issued a consent order to CL&P and NUSCO requiring those companies to address leaks from the Long Island cable, which is jointly owned by CL&P and the Long Island Lighting Company (LILCO). The order will obligate CL&P and NUSCO to study and propose alternatives for prevention, detection and mitigation of oil leaks and to evaluate the ecological effects of leaks on the environment. Alternatives to be studied include removal and replacement of the cable. The System will incur additional costs to complete the requirements of the order and to meet any subsequent DEP requirements resulting from the studies under the consent order, which costs cannot be estimated at this time. 9. The United States Attorney's Office in New Haven, Connecticut has commenced an investigation and has issued subpoenas to CL&P, NU and NUSCO, seeking documents relating to operation and maintenance of and recent leaks from the Long Island cable. Since the investigation is in its preliminary stages and the government has not revealed the scope of its investigation, management cannot evaluate the likelihood of a criminal proceeding being initiated at this time. However, management is aware of nothing that would suggest that any System company, officer or employee has engaged in conduct that would warrant such a proceeding. 10. New three year labor contracts covering approximately 370 union employees of WMECO and Holyoke Water Power Company were signed on August 28, 1995. The employees covered by these contracts returned to work on September 1, 1995, which ended a strike that began on May 25, 1995. For additional information on this matter, see "Other Information" in NU's 1995 Form 10-Q for the quarter ended June 30, 1995. 11. Effective October 1, 1995, E. Gail de Planque was elected to the Northeast Utilities Board of Trustees to fill the vacancy created with the retirement of Chairman of the Board William B. Ellis. She was a commissioner with the NRC until earlier this year when she stepped down from that position. Ms. De Planque has a doctorate degree in environmental health sciences from New York University and has been an adjunct professor in the university's Medical Center. Item 6. Exhibits and Reports on Form 8-K (a) Listing of Exhibits: Exhibit Number Description ------- ----------- 15 Letter regarding unaudited financial information 27 Financial Data Schedule (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 November 13, 1995 By /s/ Bernard M. Fox ------------------ ---------------------------------- Bernard M. Fox Chairman, President, and Chief Executive Officer Date November 13, 1995 By /s/ John W. Noyes ------------------ ---------------------------------- John W. Noyes Vice President and Controller