FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission Registrant; State of Incorporation; I.R.S Employer
File Number Address; and Telephone Number Identification No.
1-5324 NORTHEAST UTILITIES 04-2147929
(a Massachusetts voluntary assocation)
174 BRUSH HILL AVENUE
WEST SPRINGFIELD, MASSACHUSETTS 01090-2010
Telephone: (413) 785-5871
0-11419 THE CONNECTICUT LIGHT AND POWER COMPANY 06-0303850
(a Connecticut corporation)
SELDEN STREET
BERLIN, CONNECTICUT 06037-1616
Telephone: (860) 665-5000
1-6392 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE 02-0181050
(a New Hampshire corporation)
1000 ELM STREET
MANCHESTER, NEW HAMPSHIRE 03105-0330
Telephone: (603) 669-4000
0-7624 WESTERN MASSACHUSETTS ELECTRIC COMPANY 04-1961130
(a Massachusetts corporation)
174 BRUSH HILL AVENUE
WEST SPRINGFIELD, MASSACHUSETTS 01090-2010
Telephone: (413) 785-5871
33-43508 NORTH ATLANTIC ENERGY CORPORATION 06-1339460
(a New Hampshire corporation)
1000 ELM STREET
MANCHESTER, NEW HAMPSHIRE 03105-0330
Telephone: (603) 669-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Registrant Title of Each Class on Which Registered
NORTHEAST UTILITIES Common Shares,$5.00 par New York Stock Exchange,Inc.
value
THE CONNECTICUT LIGHT 9.3% Cumulative Monthly New York Stock Exchange,Inc.
AND POWER COMPANY Income Preferred
Securities Series A(1)
(1)Issued by CL&P Capital, L.P., a wholly owned subsidiary of The Connecticut
Light and Power Company ("CL&P"), and guaranteed by CL&P.
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Each Class
NORTHEAST UTILITIES Common Share Warrants, no par value,
exercisable at $24 per share
THE CONNECTICUT LIGHT AND Preferred Stock, par value $50.00 per share,
POWER COMPANY issuable in series, of which the
following series are outstanding:
$1.90 Series of 1947 4.96% Series of 1958
$2.00 Series of 1947 4.50% Series of 1963
$2.04 Series of 1949 5.28% Series of 1967
$2.20 Series of 1949 6.56% Series of 1968
3.90% Series of 1949 $3.24 Series G of 1968
$2.06 Series E of 1954 7.23% Series of 1992
$2.09 Series F of 1955 5.30% Series of 1993
4.50% Series of 1956
PUBLIC SERVICE COMPANY Preferred Stock, par value $25.00 per share,
OF NEW HAMPSHIRE issuable in series, of which the following series
are outstanding:
10.60% Series A of 1991
WESTERN MASSACHUSETTS Preferred Stock, par value $100.00 per share,
ELECTRIC COMPANY issuable in series, of which the following series
is outstanding:
7.72% Series B of 1971
Class A Preferred Stock, par value $25.00 per share,
issuable in series, of which the following series
are outstanding:
7.60% Series of 1987
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of NORTHEAST UTILITIES' Common Share, $5.00 Par
Value, held by nonaffiliates, was $1,410,859,795 based on a closing sales price
of $10.37 per share for the 136,052,050 common shares outstanding on February
28, 1997. NORTHEAST UTILITIES holds all of the 12,222,930 shares, 1,000
shares, 1,072,471 shares and 1,000 shares of the outstanding common stock of
THE CONNECTICUT LIGHT AND POWER COMPANY, PUBLIC SERVICE COMPANY OF NEW
HAMPSHIRE, WESTERN MASSACHUSETTS ELECTRIC COMPANY, and NORTH ATLANTIC ENERGY
CORPORATION, respectively.
Documents Incorporated by Reference:
Part of Form 10-K
into Which Document
Description is Incorporated
Portions of Annual Reports to Shareholders of the following
companies for the year ended December 31, 1996:
Northeast Utilities Part II
The Connecticut Light and Power Company Part II
Public Service Company of New Hampshire Part II
Western Massachusetts Electric Company Part II
North Atlantic Energy Corporation Part II
Portions of the Northeast Utilities Proxy Statement Part III
dated April 30, 1997.
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms
that are found throughout this report:
COMPANIES
NU ........................... Northeast Utilities
CL&P.......................... The Connecticut Light and Power Company
Charter Oak or COE............ Charter Oak Energy, Inc.
WMECO......................... Western Massachusetts Electric Company
HWP............................Holyoke Water Power Company
NUSCO or the Service Company.. Northeast Utilities Service Company
NNECO......................... Northeast Nuclear Energy Company
NAEC.......................... North Atlantic Energy Corporation
NAESCO or North Atlantic...... North Atlantic Energy Service Corporation
PSNH.......................... Public Service Company of New Hampshire
RRR........................... The Rocky River Realty Company
Energy Partners............... NUSCO Energy Partners, Inc.
Mode 1........................ Mode 1 Communications, Inc.
HEC........................... HEC Inc.
Quinnehtuk.................... The Quinnehtuk Company
the System.................... The Northeast Utilities System
CYAPC......................... Connecticut Yankee Atomic Power Company
MYAPC......................... Maine Yankee Atomic Power Company
VYNPC......................... Vermont Yankee Nuclear Power Corporation
YAEC.......................... Yankee Atomic Electric Company
the Yankee Companies.......... CYAPC, MYAPC, VYNPC, and YAEC
GENERATING UNITS
Millstone 1................... Millstone Unit No. 1, a 660-MW nuclear
generating unit completed in 1970
Millstone 2................... Millstone Unit No. 2, an 870-MW nuclear electric
generating unit completed in 1975
Millstone 3................... Millstone Unit No. 3, a 1,154-MW nuclear
electric generating unit completed in 1986
Seabrook or Seabrook 1........ Seabrook Unit No. 1, a 1,148-MW nuclear electric
generating unit completed in 1986. Seabrook 1
went into service in 1990.
REGULATORS
DOE........................... U.S. Department of Energy
DPU........................... Massachusetts Department of Public Utilities
DPUC.......................... Connecticut Department of Public Utility
Control
MDEP.......................... Massachusetts Department of Environmental
Protection
CDEP.......................... Connecticut Department of Environmental
Protection
EPA........................... U.S. Environmental Protection Agency
FERC.......................... Federal Energy Regulatory Commission
NHDES......................... New Hampshire Department of Environmental
Services
NHPUC......................... New Hampshire Public Utilities Commission
NRC........................... Nuclear Regulatory Commission
SEC........................... Securities and Exchange Commission
OTHER
1935 Act...................... Public Utility Holding Company Act of 1935
CAAA.......................... Clean Air Act Amendments of 1990
DSM........................... Demand-Side Management
Energy Act.................... Energy Policy Act of 1992
EWG........................... Exempt wholesale generator
EAC........................... Energy Adjustment Clause (CL&P)
FAC........................... Fuel Adjustment Clause (CL&P)
FPPAC......................... Fuel and purchased power adjustment clause
(PSNH)
FUCO.......................... Foreign utility company
GUAC.......................... Generation Utilization Adjustment Clause
(CL&P)
IRM........................... Integrated resource management
kWh........................... Kilowatt-hour
MW............................ Megawatt
NBFT.......................... Niantic Bay Fuel Trust, lessor of nuclear fuel
used by CL&P and WMECO
NEPOOL........................ New England Power Pool
NUGs.......................... Nonutility generators
NUG&T......................... Northeast Utilities Generation and
Transmission Agreement
QF............................ Qualifying facility
NORTHEAST UTILITIES
THE CONNECTICUT LIGHT AND POWER COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NORTH ATLANTIC ENERGY CORPORATION
1996 Form 10-K Annual Report
Table of Contents
PART I
Page
Item 1. Business............................................... 1
The Northeast Utilities System.............................. 1
Forward-Looking Statements.................................. 2
Overview of Nuclear Matters and Related
Financial Matters......................................... 2
Competition and Cost Recovery............................... 5
Rates....................................................... 6
Connecticut Retail Rates............................... 6
New Hampshire Retail Rates............................. 9
Massachusetts Retail Rates............................. 14
Resource Plans.............................................. 16
Construction........................................... 16
Future Needs........................................... 17
Financing Program........................................... 18
1996 Financings........................................ 18
1997 Financing Requirements............................ 19
1997 Financing Plans................................... 20
Financing Limitations.................................. 21
Electric Operations......................................... 25
Distribution and Load.................................. 25
Regional and System Coordination....................... 28
Transmission Access and FERC Regulatory Changes........ 29
Fossil Fuels........................................... 29
Nuclear Generation..................................... 30
Nuclear Plant Performance and Regulatory Oversight..... 31
Decommissioning........................................ 38
Energy Related Businesses................................... 40
Private Power Development.............................. 40
Energy Management Services............................. 41
Telecommunications..................................... 41
Energy Products and Services........................... 42
Other Regulatory and Environmental Matters.................. 42
Environmental Regulation............................... 42
Electric and Magnetic Fields........................... 50
FERC Hydro Project Licensing................................ 51
Employees................................................... 52
Item 2. Properties............................................. 53
Item 3. Legal Proceedings...................................... 58
Item 4. Submission of Matters to a Vote of Security Holders.... 63
PART II
Item 5. Market for Registrants' Common Equity and Related
Shareholder Matters.................................... 64
Item 6. Selected Financial Data................................ 65
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 65
Item 8. Financial Statements and Supplementary Data............ 65
Item 9. Changes in Disagreements with Accountants on
Accounting and Financial Disclosure.................... 66
PART III
Item 10. Directors and Executive Officers of the Registrants.... 67
Item 11. Executive Compensation................................. 72
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 83
Item 13. Certain Relationships and Related Transactions......... 85
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.................................... 86
NORTHEAST UTILITIES
THE CONNECTICUT LIGHT AND POWER COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NORTH ATLANTIC ENERGY CORPORATION
PART I
ITEM 1. BUSINESS
THE NORTHEAST UTILITIES SYSTEM
Northeast Utilities (NU) is the parent of a number of companies comprising
the Northeast Utilities system (the System) and is not itself an operating
company. The System furnishes franchised retail electric service in
Connecticut, New Hampshire and western Massachusetts through four of NU's wholly
owned subsidiaries (The Connecticut Light and Power Company [CL&P], Public
Service Company of New Hampshire [PSNH], Western Massachusetts Electric Company
[WMECO] and Holyoke Water Power Company [HWP]). In addition to their franchised
retail electric service, CL&P, PSNH, WMECO and HWP (including its wholly owned
subsidiary, Holyoke Power and Electric Company) (the System companies) together
furnish wholesale electric service to various municipalities and other utilities
and, on a pilot basis pursuant to state regulatory experiments, provide off-
system retail electric service. The System serves about 30 percent of New
England's electric needs and is one of the 20 largest electric utility systems
in the country as measured by revenues.
North Atlantic Energy Corporation (NAEC) is a special-purpose operating
subsidiary of NU that owns a 35.98 percent interest in the Seabrook nuclear
generating facility (Seabrook) in Seabrook, New Hampshire and sells its share of
the capacity and output from Seabrook to PSNH under two life-of-unit, full-cost
recovery contracts.
Several wholly owned subsidiaries of NU provide support services for the
System companies and, in some cases, for other New England utilities. Northeast
Utilities Service Company (NUSCO) provides centralized accounting,
administrative, information resources, engineering, financial, legal,
operational, planning, purchasing and other services to the System companies.
North Atlantic Energy Service Corporation (NAESCO) has operational
responsibility for Seabrook. Northeast Nuclear Energy Company (NNECO) acts as
agent for the System companies and other New England utilities in operating the
Millstone nuclear generating facilities (Millstone) in Waterford, Connecticut.
Three other subsidiaries construct, acquire or lease some of the property and
facilities used by the System companies.
NU has four subsidiaries, Charter Oak Energy, Inc. (Charter Oak), HEC Inc.
(HEC), Mode 1 Communications, Inc. (Mode 1) and NUSCO Energy Partners,
Inc.(Energy Partners), which engage, either directly or indirectly through
subsidiaries, in a variety of energy-related activities. Charter Oak develops
and invests in nonutility generation as permitted under the Public Utility
Regulatory Policy Act (collectively, NUGs) and in exempt wholesale generators
and foreign utility companies as permitted under the Energy Policy Act of 1992
(Energy Act). HEC provides energy management services, both for the System's
commercial, industrial and institutional electric customers and for others.
Mode 1 and NUSCO Energy were formed in 1996 to develop and invest in
telecommunications and energy-related activities, respectively. See "Energy-
Related Businesses."
The System traditionally has been regulated in virtually all aspects of its
business by various federal and state agencies, including the Securities and
Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC), the
Nuclear Regulatory Commission (NRC)and various state and/or local regulatory
authorities with jurisdiction over the service areas in which each company
operates. In recent years, there has been significant activity at both the
legislative and regulatory level, particularly in New England, to change the
nature of regulation of the industry. For more information regarding recent
restructuring initiatives, see "Competition and Cost Recovery," "Rates," and
"Electric Operations."
FORWARD-LOOKING STATEMENTS
NU and its subsidiaries occasionally make forward-looking statements,
within the meaning of the Securities Exchange Act of 1934, as amended, such as
forecasts and projections of expected future performance or statements of their
plans and objectives. These forward-looking statements may be contained in
filings with the SEC, letters to shareholders, press releases and oral
statements. Although such forward-looking statements have been based on
reasonable assumptions, there is no assurance that the expected results will be
achieved, and actual results could differ materially from these statements. Some
of the factors that could cause actual results to differ materially include, but
are not limited to: governmental and regulatory actions and initiatives; the
impact of deregulation and increased competition in the industry; generating
plant performance; weather conditions; fuel prices and availability; general
economic conditions, including the effects of inflation; technological changes;
and uncertainties involved with foreign investments. These and other factors
are discussed in SEC filings made by NU, CL&P, WMECO, PSNH and NAEC from time to
time, including this report.
OVERVIEW OF NUCLEAR AND RELATED FINANCIAL MATTERS
On January 29, 1996, Millstone was placed on the NRC's watch list as a
Category 2 facility. As set forth below, CL&P and WMECO have significant
financial and capacity interests in Millstone. Facilities in Category 2 have
been identified by the NRC as having weaknesses that warrant increased attention
until the licensee, NNECO, demonstrates a period of improved performance.
Millstone was subsequently reclassified as a Category 3 facility, which requires
NNECO to receive formal NRC commissioners' approval to restart any of the units.
Millstone 1, 2 and 3 have been out of service since November 4, 1995, February
21, 1996 and March 30, 1996, respectively. Following these decisions, the System
faced in 1996, and continues to face, some of the most severe regulatory
scrutiny and financial challenges in the history of the United States nuclear
industry, including numerous civil lawsuits and criminal investigations. See,
"Item 3. Legal Proceedings."
Millstone 1, a 660-MW boiling water reactor, and Millstone 2, an 870-MW
pressurized water reactor, are each owned 81 percent by CL&P and 19 percent by
WMECO. Millstone 3, a 1154-MW pressurized water reactor, is jointly owned by
CL&P (52.93 percent), WMECO (12.24 percent), PSNH (2.85 percent) and other New
England utilities.
The System has initiated a number of changes in the management of its
nuclear program to address the problems at Millstone. In April 1996, the NU
Board of Trustees (NU Board) announced the formation of a special committee of
the NU Board to provide high-level oversight of the safety and effectiveness of
NU's nuclear operations and the progress toward resolving open NRC issues and
employee, community, and customer concerns. The committee consists exclusively
of outside trustees. It is chaired by E. Gail de Planque, who is a former NRC
commissioner. In light of substantial NU Board activities associated with the
current nuclear situation, the NU Board elected Elizabeth T. Kennan in 1996 as
Lead Trustee to facilitate the extensive, ongoing communications and activities
between the NU Board and management.
In response to various internal reports and other reviews that focused on
nuclear management as a fundamental cause for the decline in the performance of
Millstone, the NU Board elected Bruce D. Kenyon as President - Nuclear Group of
NU, in September 1996. Following this appointment, management unveiled a
reorganization of NU senior nuclear management that is intended to establish
direct accountability for performance at each of the nuclear power units that
the System operates. The new management team, including executives loaned from
unaffiliated utility companies with excellent nuclear programs, has focused in
the near-term on the recovery efforts of Millstone and improving nuclear
oversight and the System's employee concerns program. In January 1997, Neil S.
Carns was elected to the position of Senior Vice President and Chief Nuclear
Officer of NNECO to oversee the operations of Millstone. Both Mr. Kenyon and
Mr. Carns have extensive experience at other utilities with reputations for
excellent nuclear operations.
The new nuclear management team has developed comprehensive plans for
restarting each of the Millstone units. Each unit's recovery team is working
towards restart of its respective unit on a parallel basis with the other two
units. Management estimates that one of the units will be ready for restart in
the third quarter of 1997, with the second and third units being ready for
restart in the fourth quarter of 1997 and the first quarter of 1998,
respectively. Management hopes to have at least one unit operating in the
second half of 1997.
However, before and following notification to the NRC that a unit is ready
to resume operations, management expects that the NRC staff will conduct
extensive reviews and inspections, and before such notification, independent
corrective action verification teams also will inspect each unit. The System
also will need to comply with an NRC order regarding the development of a
comprehensive employee concerns program, which will need to be reviewed by an
independent third-party. Furthermore, because of the length of the outages,
management cannot estimate the time it will take for the units to resume full
power after NRC approval to restart.
For more information regarding specific regulatory actions related to NU's
nuclear units and the December 4, 1996 decision of the board of directors of
Connecticut Yankee Atomic Power Company (CYAPC) to retire the Connecticut Yankee
nuclear unit (CY) from commercial operation, see "Electric Operations--Nuclear
Generation." For information regarding actions taken to meet System capacity
needs caused by the Millstone outages, See "Electric Operations--Distribution
and Load."
As a result of the extended Millstone outages, the System companies have
incurred and will continue to bear substantial costs at least until the three
Millstone units have been restarted. Most of the costs are being borne by CL&P
and WMECO, which have the greatest investment share of the Millstone units.
Although PSNH did incur additional costs related to the outage, these costs were
somewhat mitigated by its increased sales of electricity from Seabrook and
fossil generation. In 1996, System companies expensed a total of approximately
$403 million Millstone-related non-fuel operation and maintenance costs, which
included among other costs $116 million for non-fuel incremental O&M costs
related to the Millstone outages ($93 million for CL&P, $21 million for WMECO
and $2 million for PSNH) and $63 million reserved for future Millstone
incremental O&M costs ($50 million for CL&P, $12 million for WMECO and $1
million for PSNH). O&M costs for Millstone in 1997 are estimated to be $386
million. O&M costs have been, and will continue to be, absorbed through the
System companies' current rates.
The System companies also expensed approximately $260 million for
replacement-power costs in 1996 ($216 million for CL&P, $41 million for WMECO
and $3 million for PSNH). Management expects that monthly replacement-power
costs for the System companies will average approximately $35 million ($30
million for CL&P and $5 million for WMECO) in 1997 while all three Millstone
units remain out of service. The System expensed a significant portion of its
1996 replacement power costs related to the nuclear outages and it is continuing
to expense 1997 replacement power costs.
Although the System companies are not precluded from seeking rate
recoveries of these costs in the future, management has committed not to seek
recovery of the portion of these costs attributable to the failure to meet
industry standards in operating Millstone. In light of that commitment, and in
recognition of the NRC's watch list designation of Millstone and that numerous
internal and external reports have been critical of the operation of Millstone,
management believes that CL&P and WMECO will not seek rate recovery of a
substantial portion of such costs. Management currently does not intend to
request any such recoveries until after the Millstone units begin returning to
service, so it is unlikely that any additional revenues from any permitted
recovery of these costs will be available while the units are out of service to
contribute to funding the recovery efforts.
The System has arranged a variety of borrowing facilities to fund its cash
requirements, including the nuclear recovery efforts. See "Financing Program---
1996 Financings." The length of the Millstone outages and the high costs of the
recovery efforts have weakened NU's, CL&P's and WMECO's 1996 earnings, balance
sheets and cash flows, and they continue to have adverse impacts on these
companies' financial conditions. Management believes that the borrowing
facilities that are currently in place provide System companies with adequate
access to the funds needed to bring the Millstone units back to service if those
units begin operating close to the currently envisioned schedules and if the
other assumptions on which management has based its planning do not
substantially change. For the System companies to access the entire amounts of
contractually committed borrowing capacity, some waivers or modifications of the
borrowing terms have been obtained and others might be required. See "Financing
Program---Financing Limitations."
If the return to service of one or more Millstone units is delayed
substantially, or if the needed waivers or modifications are not forthcoming on
reasonable terms, or if the System encounters additional significant costs or
other significant deviations from management's current assumptions the currently
available borrowing facilities could be insufficient to meet all of the System's
cash requirements, and some facilities could become unavailable because of
difficulties in meeting borrowing conditions. In those circumstances,
management would take actions to reduce costs and cash outflows and would
attempt to take actions to arrange additional sources of funds. The
availability of such sources would be dependent on general market conditions and
the System's credit and financial condition at the time.
COMPETITION AND COST RECOVERY
Competition in the energy industry continues to grow as a result of
legislative and regulatory action, technological advances, relatively high
electric rates in certain regions of the country, including New England, surplus
generating capacity and the increased availability of natural gas. These
competitive pressures are particularly strong in the System's service
territories, where legislators and regulatory agencies have been at the
forefront of the restructuring movement.
A major risk of competition for the System is "strandable investments."
These are expenditures that have been made by utilities in the past to meet
their public service obligations, with the expectation that they would be
recovered from customers in the future. However, under certain circumstances
these costs might not be recoverable from customers in a fully competitive
electric utility industry. The System is particularly vulnerable to strandable
investments because of: (i) the System's relatively high investment in nuclear
generating capacity, which had a high initial cost to build; (ii) state-mandated
purchased-power arrangements priced above market; (iii) significant regulatory
assets, which are those costs (including purchased-power costs) that have been
deferred by state regulators for future collection from customers and (iv) costs
incurred and assets created in connection with the bankruptcy reorganization of
PSNH in 1990 and NU's 1992 acquisition of PSNH.
As of December 31, 1996, the System's net investment in nuclear generating
capacity, excluding its investment in certain regional nuclear companies, was
$3.6 billion, and in its regulatory assets was approximately $2.2 billion. The
System expects to recover substantially all of its nuclear investment and its
regulatory assets from customers. The System is currently collecting its
nuclear investment through depreciation charges approved by its various state
utility regulators. See "Depreciation" in the notes to NU's financial
statements. Unless amortization levels are changed from currently scheduled
rates, the System's regulatory assets are expected to be substantially decreased
in the next five years. Although the System companies continue to operate
predominantly in state-approved franchise territories under traditional cost-of-
service regulation, various restructuring initiatives in the System's service
territories, particularly recent actions taken by the New Hampshire Public
Utility Commission (NHPUC), have created uncertainty with respect to future
rates and the recovery of strandable investments.
In 1995 regulators in Connecticut concluded that electric utilities should
be allowed a reasonable opportunity to recover strandable investments. Various
electric utility restructuring legislative proposals have been, and others will
be, introduced in the Connecticut State Legislature in 1997. On December 30,
1996, the Massachusetts Department of Public Utilities (DPU) issued its Model
Rules on Restructuring (Model Rules). The Model Rules indicate that utilities
will have a reasonable opportunity to recover strandable investments incurred on
or before August 16, 1995, which will be collected through a Stranded Cost
Access Charge. The Massachusetts General Court also has established a
legislative task force to review restructuring during the 1997 legislative
session.
On February 28, 1997, NHPUC issued its orders related to restructuring the
state's electric utility industry and setting interim stranded cost charges for
PSNH pursuant to legislation enacted in New Hampshire in 1996. In the orders,
the NHPUC announced a departure from cost-based ratemaking and instead adopted a
market-priced approach to stranded cost recovery. On March 10, 1997, NU, NAEC,
PSNH and NUSCO received a temporary restraining order from the United States
District Court for the District of Rhode Island, which stayed the NHPUC's
February 28, 1997 orders to the extent they established a rate setting
methodology that is not designed to recover PNSH's costs of providing service
and would require PSNH to write off any regulatory assets. If this stay or
another appropriate court action does not remain in effect, this methodology
will require PSNH to remove from its balance sheet for the quarter ending March
31, 1997 substantially all of its regulatory assets. The amount of that
potential write-off is currently estimated at over $400 million, after taxes.
For more information regarding this decision and other restructuring
initiatives, see "Rates;" for more information regarding the effect of the
February 28, 1997 decision on PSNH and NAEC's financings, see "Financing
Program---Financing Limitations."
Notwithstanding these legislative and regulatory initiatives, the System
has developed, and is continuing to develop, a number of marketing initiatives
to retain and continue to serve its existing customers. In particular, System
companies have been devoting increasing attention in recent years to negotiating
long-term power supply arrangements with certain large commercial and industrial
retail customers. Approximately 12 percent of the System's commercial and
industrial retail revenues were under negotiated rate agreements at the end of
1996. In 1996, those negotiated rate reductions amounted to approximately $39
million in annual revenues, up from $35 million in 1995. CL&P accounted for
approximately $19 million of the 1996 rate reductions, PSNH for $12.5 million,
WMECO for $6 million and HWP for $1.5 million. The average term of these
agreements is approximately 5.8 years.
The System has expanded its Retail Marketing organization to provide value-
added solutions to its customers. The System devoted significantly more
resources to its retail marketing efforts in 1996 than in prior years. In
particular, NUSCO hired approximately 170 new employees as part of its retail
sales organization. The new employees will allow the System to have more direct
contact with customers in order to develop tailor-made solutions for customers'
energy needs. In addition, the System companies, as well as other NU
subsidiaries, received orders from the SEC and FERC in 1996 that increased their
flexibility to market and broker electricity, gas, oil and other forms of energy
throughout the United States and to provide various services related thereto.
RATES
CONNECTICUT RETAIL RATES
GENERAL
Approximately 63% of System revenues are derived from CL&P, and 56% of the
book value of the System's electric utility assets are owned by CL&P.
CL&P's retail rates are subject to the jurisdiction of the Connecticut
Department of Public Utility Control (DPUC). Connecticut law provides that
revised rates may not be put into effect without the prior approval of the DPUC.
Connecticut law also authorizes the DPUC to order a rate reduction under certain
circumstances before holding a full-scale rate proceeding. The DPUC is further
required to review a utility's rates every four years if there has not been a
rate proceeding during such period. The DPUC is expected to begin such a review
in the second half of 1997. Based on recently enacted legislation, if the DPUC
approves performance-based incentives for a particular company, the DPUC will
include in such an order periodic monitoring and review of the company's
performance in lieu of the four year review.
On July 1, 1996, the DPUC approved a settlement agreement (Settlement) that
had been jointly submitted to the DPUC by CL&P, the Connecticut Office of
Consumer Counsel (OCC) and the independent Prosecutorial Division of the DPUC.
The Settlement provides that CL&P's base rates will be frozen until at least
December 31, 1997. The Settlement provides that during the rate freeze, CL&P's
target return on equity (ROE) will be 10.7 percent, but the Settlement does not
alter CL&P's allowed ROE of 11.7 percent. One-third of earnings above the
target ROE will be refunded to customers. The Settlement also accelerated the
amortization of CL&P's regulatory assets ($73 million in 1996 and $54 to $68
million in 1997). As of December 31, 1996, CL&P's regulatory assets totaled
approximately $1.4 billion.
The Settlement terminated all outstanding litigation pending as of March
31, 1996 among the parties that potentially could affect CL&P's rates. Such
litigation included appeals by CL&P and the OCC from CL&P's 1993 rate case
decision, appeals from the DPUC's decisions concerning the 1992-1993 and 1993-
1994 fuel-recovery periods, nuclear operating prudence review proceedings
pending at the time of the settlement, and OCC's appeal from the DPUC guidelines
adopted in 1995 allowing additional flexibility in negotiating special rates
with electric customers. In exchange, CL&P agreed not to seek recovery from its
customers of approximately $115 million in uncollected nuclear costs incurred
before March 31, 1996.
The Settlement does not affect issues to be addressed by the DPUC in future
restructuring proceedings and the recovery of costs related to the ongoing
Millstone outages. For information regarding the prudence proceeding related to
nuclear operations for the period March 31, 1996 to June 30, 1996, See "Rates---
CL&P Adjustment Clauses and Prudence."
ELECTRIC INDUSTRY RESTRUCTURING IN CONNECTICUT
Pursuant to legislation introduced in 1995, a legislative task force was
created to consider electric industry restructuring in Connecticut. The final
report of the task force was issued on December 18, 1996. Although the members
of the task force did not come to a consensus on restructuring, the report
included several recommendations on legislation, including, among other things,
legislation to enable securitization of strandable investments; reduction of tax
burdens incorporated in electric rates; reduction of rate impacts of government-
mandated contracts with NUGs; and elimination of obsolete regulation. After
considering the report of the task force, the legislative members of the task
force submitted their own proposal on restructuring to the members of the
legislative Energy and Technology Committee. Their proposal includes two
alternatives: one for a retail competition pilot program available to 10 percent
of the load in each rate class by January 1, 1998; and a second for full retail
competition beginning January 1, 1998 unless CL&P had effected 10 percent retail
rate reductions for all rate classes by that date. This proposal, among others,
is being considered in developing restructuring legislation in 1997.
CL&P ADJUSTMENT CLAUSES AND PRUDENCE
On October 8, 1996, the DPUC issued its final order establishing an Energy
Adjustment Clause (EAC) in place of CL&P's existing Fuel Adjustment Clause and
Generation Utilization Adjustment Clause (GUAC). The EAC took effect on January
1, 1997. The EAC is designed to reconcile and adjust every six months the
difference between actual fuel costs and the fuel revenue collected through base
rates. The EAC includes an incentive mechanism that disallows recovery of the
first $9 million in fuel costs that exceeds base levels and permits CL&P to
retain the first $9 million in fuel cost savings. The EAC also designates a 60
percent nuclear capacity factor floor. When the six-month nuclear capacity
factor falls below 60 percent, related energy costs are deferred to the
subsequent EAC period for consideration for recovery. Finally, the costs to
serve nonfirm wholesale transactions will continue to be removed from the
calculation of fuel costs at actual marginal cost.
On December 31, 1996, the DPUC issued a decision approving CL&P's request
to recover $25 million, excluding replacement power costs (see below), through
the GUAC for the period April 1 - August 31, 1996. The $25 million will be
recovered over a twelve-month period beginning January 1, 1997. The fuel costs
for the period September 1, 1996 through December 31, 1996, excluding
replacement power costs for the current nuclear outages at Millstone, are
expected to be filed with the DPUC in March 1997. Management does not expect a
significant dollar request for the period.
Despite an earlier procedural order indicating that prudence hearings on
the current nuclear outages at Millstone would take place after the nuclear
plants return to service, on January 15, 1997, the DPUC notified CL&P that it
will be conducting its prudence review of nuclear cost recovery issues in
multiple phases. The first phase, covering the period April 1 through June 30,
1996, has already begun. CL&P will not be permitted to collect any replacement
power costs associated with the current nuclear outages prior to the completion
of the DPUC's prudence reviews. Management believes that CL&P will not seek
rate recovery of a substantial portion of such costs.
In connection with an ongoing management audit of CL&P, including matters
related to the NRC watch list designation, the two consulting firms hired by the
DPUC to review such matters issued reports in December 1996 that were highly
critical of NU's management of its nuclear program. The results of these reports
could bear on any future DPUC review of the prudence of the System's nuclear-
related costs. In a separate proceeding, the DPUC ordered CL&P to submit
studies by July 1, 1997 that analyze the economic benefits from the continued
operation of Millstone 1 and 2. The DPUC stated that these studies were
necessary in light of the uncertainty regarding restart dates of the units and
the costs associated with returning these units to operation.
In May 1996, the Connecticut state legislature enacted legislation to
create the Nuclear Energy Advisory Council (NEAC), a volunteer group of fourteen
members. The NEAC was charged with conducting a broad review of safety and
operations of the System's four Connecticut nuclear units and to advise the
Governor, the legislature and affected municipalities on these issues. The NEAC
issued its first report on February 7, 1997, which provided a wide-range of
preliminary recommendations, including legislation and additional public
hearings related to nuclear spent fuel, federal congressional hearings, review
by the Connecticut Attorney General of the NRC's oversight of the System's
nuclear operations and the requirement for a state nuclear plant resident
inspector. These recommendations are similar to various legislative proposals
currently pending at the state legislature related to nuclear oversight,
operations and cost recovery. Management cannot predict the ultimate effect of
this report or such proposed legislation.
DEMAND-SIDE MANAGEMENT
CL&P provides demand side management (DSM) programs for its residential,
commercial and industrial customers. CL&P is allowed to recover DSM costs in
excess of costs reflected in base rates over periods ranging from approximately
four to ten years.
On April 9, 1996, the DPUC issued an order approving CL&P's budget of $37.1
million for 1996 DSM expenditures, which will be recovered over a 2.43 year
amortization period. In November 1996, CL&P filed its 1996-1997 DSM programs
and budgets with the DPUC. CL&P proposed a budget level of $36 million for 1997
DSM expenditures. CL&P's unrecovered DSM costs at December 31, 1996, excluding
carrying costs, which are collected currently, were approximately $90 million.
NEW HAMPSHIRE RETAIL RATES
GENERAL
Approximately 24% of System revenues are derived from PSNH, and 17% of the
book value of the System's electric utility assets are owned by PSNH.
PSNH's Rate Agreement with the state of New Hampshire (State) provided for
seven base rate increases of 5.5 percent per year beginning in 1990 and a
comprehensive fuel and purchased power adjustment clause (FPPAC). The final
base rate increase went into effect on June 1, 1996. The Rate Agreement
provides that PSNH's rates will be subject to traditional rate regulation after
the fixed rate period expires on May 31, 1997, but that the FPPAC will continue
through May 31, 2000. Although the FPPAC continues for an additional 3 years
beyond the end of the fixed rate period, there is uncertainty regarding how it
will function after May 31, 1997. Given the completion of the fixed rate
period, and the uncertainty surrounding the FPPAC, management expects that PSNH
will file a rate case with the NHPUC in May 1997. For more information
regarding other cost recovery matters related to the Rate Agreement, see
"Unamortized PSNH Acquisition Costs."
ELECTRIC INDUSTRY RESTRUCTURING IN NEW HAMPSHIRE
Pilot Program
The NHPUC initiated a two-year retail-wheeling pilot program (Program) in
mid-1996. The Program included up to three percent of PSNH's retail customers
(approximately 12,000 customers). On April 24, 1996, the NHPUC approved the
terms for PSNH's participation in the Program. Under this plan, PSNH provides a
10-percent incentive credit off its traditional rates to customers who
participate in the program and will be allowed to recover all of its costs above
an assumed market price of power. CL&P, through either affiliated companies or
marketing divisions, also is participating in the Program. In early 1997, PSNH
transferred its interest in PSNH Energy, a competitive supplier in the New
Hampshire retail electric competition pilot program, to Energy Partners, but
PSNH continues to sell power to Energy Partners at wholesale.
Based upon its preliminary analysis of the Program, PSNH, with its current
relatively high cost rate structure, could lose a substantial portion of its
current market share if New Hampshire was open to wide-scale retail competition.
PSNH could mitigate this loss somewhat by securing new off-franchise customers,
although it already serves 70% of available customers in New Hampshire. To
offset the risk of a substantial decrease in revenues, the System is actively
developing marketing initiatives to retain existing customers and attract new
off-franchise customers should full-scale competition be introduced in New
Hampshire according to the proposed schedule. The critical factor regarding
significant losses for PSNH related to electric utility restructuring, however,
is the issue of the recovery of strandable investments. For more information,
see "Competition and Cost Recovery" and "Energy-Related Businesses--Energy
Products and Services."
NHPUC Restructuring Plan
On May 21, 1996, legislation became effective in New Hampshire requiring
the NHPUC to issue a final restructuring plan no later than February 28, 1997.
Electric utilities must submit compliance filings by June 30, 1997. The
legislation directed the NHPUC to implement full retail competition by January
1, 1998 or at the earliest date determined to be in the public interest by the
NHPUC, but not later than July 1, 1998.
On February 28, 1997, in accordance with this legislation, the NHPUC issued
its orders related to restructuring the state's electric utility industry and
setting interim stranded cost charges for PSNH.
In the orders, the NHPUC announced a departure from cost-based ratemaking
and instead adopted the market-priced approach to stranded cost recovery
advocated by the NHPUC's consultants, LaCapra Associates. Accordingly, unless
the orders are stayed or modified, PSNH will be required to discontinue
accounting under Financial Accounting Standard No. 71, ACCOUNTING FOR THE
EFFECTS OF CERTAIN TYPES OF REGULATION (FAS 71) and have to remove from its
balance sheet as early as the quarter ending March 31, 1997 substantially all of
its regulatory assets. The amount of that potential write-off is currently
estimated at over $400 million, after taxes. However, PSNH does not believe
that under the orders it would be required to recognize any additional loss
resulting from the impairment of the value of its other long-lived assets under
the provisions of FAS 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND LONG-LIVED ASSETS TO BE DISPOSED OF. See, "Unamortized PSNH Acquisition
Costs" and "Seabrook Power Contracts" below.
The orders also contain rulings on numerous other issues that would, if put
into effect, have a substantial effect on the operations of PSNH. Included
among these rulings are an assertion that the 1989 Rate Agreement by and between
NU and the State of New Hampshire, which was an integral part of NU's
acquisition of PSNH in 1992, is not binding on the State; the requirement that
PSNH divest within two years following the initiation of competition all of its
owned-generation and all of its wholesale power purchase contracts (including
its contract with NAEC for Seabrook output); a prohibition on the remaining
distribution company and its affiliates from engaging in retail marketing or
load aggregation services; and a mandate for the filing of tariffs with the FERC
for the provision of unbundled retail transmission service.
On March 3, 1997, PSNH, NU, NAEC and NUSCO filed for a temporary
restraining order, preliminary and permanent injunctive relief and for a
declaratory judgment in the United States District Court for New Hampshire. The
case was subsequently transferred to Rhode Island. On March 10, 1997, the court
issued a temporary restraining order, which stayed the NHPUC's February 28, 1997
orders to the extent they established a rate setting methodology that is not
designed to recover PSNH's costs of providing service and would require PSNH to
write off any regulatory assets under FAS 71. An evidentiary hearing regarding
the System plaintiffs' request for a preliminary injunction prohibiting the
NHPUC from taking any action to implement the restructuring orders and the
restructuring statute as construed and applied in the orders will be held in the
same court on March 20, 1997.
If this stay or another appropriate court action does not remain in effect,
the write-off triggered by the decision would result in defaults which, if not
waived or renegotiated, would give investors and lenders the right to accelerate
the repayment of approximately $686 million of PSNH indebtedness and $515
million of NAEC indebtedness. These circumstances could force PSNH and NAEC to
seek bankruptcy protection under Chapter 11 of the bankruptcy laws. PSNH also
intends to pursue claims for damages in State court in New Hampshire for
abrogation of the 1989 Rate Agreement. The damage claims will be in the
hundreds of millions of dollars.
Freedom Energy Proceedings
In 1994, Freedom Energy Company, LLC (Freedom), filed a petition with the
NHPUC for permission to operate as a retail electric utility selling to large
industrial customers in New Hampshire, including customers of PSNH. PSNH
intervened in Freedom's proceeding, arguing that Freedom could not sell
electricity to PSNH customers because PSNH had an exclusive franchise. In June
1995, the NHPUC determined that electric utility franchises in New Hampshire
need not be exclusive as a matter of law. PSNH appealed this decision to the
New Hampshire Supreme Court, which affirmed on May 13, 1996, holding that the
NHPUC can alter existing exclusive franchise orders if it is determined to be in
the public good to do so. The Supreme Court expressly indicated, however, that
its decision does not address whether any such alteration of the franchise would
require compensation to the utility.
The remaining issues related to the Freedom proceedings, including whether
Freedom has qualifications to operate a public utility, are still pending at the
NHPUC. In the Spring of 1997, the NHPUC intends to hold hearings to investigate
Freedom's financial, managerial and operational abilities to be deemed a
utility. Freedom's petition is opposed by other parties seeking to be
participants in a restructured, competitive electric industry. A related FERC
proceeding is still pending.
FPPAC AND PRUDENCE
The FPPAC provides for the recovery or refund by PSNH, for the ten-year
period beginning on May 16, 1991, of the difference between its actual prudent
energy and purchased power costs and the estimated amounts of such costs
included in base rates established by the Rate Agreement. The FPPAC amount is
calculated for a six-month period based on forecasted data and is reconciled to
actual data in subsequent FPPAC billing periods.
On June 3, 1996, the NHPUC ordered PSNH to refund $41.5 million, which
amount includes $5 million of interest, related to NUG costs which had been
previously collected through the FPPAC. The refund, which will be made by
crediting customer bills through May 31, 1997, was implemented on June 1, 1996.
When actual fuel and purchased power costs are less than the estimated costs in
base rates, PSNH is permitted to retain revenues to offset previously deferred
charges, including the $41.5 million refund. By this method PSNH will have
fully recovered the $41.5 million by May 1, 1997.
On December 3, 1996, the NHPUC approved PSNH's FPPAC rate for December 1,
1996 through May 31, 1997, representing an overall rate decrease of 1.0 percent.
NUGs
The costs associated with purchases by PSNH from certain NUGs at prices
above the level assumed in rates are deferred and recovered through the FPPAC
over ten years. As of December 31, 1996, NUG deferrals totaled approximately
$211 million.
Under the Rate Agreement, PSNH and the State have an obligation to use
their best efforts to renegotiate burdensome purchased power arrangements with
13 specified hydroelectric and wood-burning NUGs that were selling their output
to PSNH under long-term NHPUC rate orders. If approved, PSNH will exchange
near-term cash payments for partial relief from high-cost purchased power
20
obligations to the NUGs, with such payments and an associated return on the
unamortized portion being recoverable from customers in a future amortization
period.
Seven of these orders have been successfully renegotiated, and PSNH has
reached agreements, subject to NHPUC approval, with the six remaining wood-fired
NUGs. The six agreements could result in net savings of approximately $440
million to PSNH's customers over a period of 20 years in exchange for upfront
payments of approximately $250 million recoverable in future charges to
customers.
In early 1996, the NHPUC began a proceeding to decide whether to approve
these settlement agreements. Despite a determination by the New Hampshire
Attorney General finding that PSNH had used its best efforts to renegotiate the
13 agreements, on March 11, 1996, the NHPUC decided to open a docket, which is
ongoing, to independently review that issue.
In January 1997, the NHPUC issued an order approving one of the six NUG
settlements. However, the order expressly indicates that PSNH is not assured of
recovering all of the payments the company must make pursuant to the agreement.
In addition, the order required PSNH and the NUG owner to contribute an
undisclosed amount to create a fund designed to mitigate the impact of the
buydown agreement on the wood-fuel industry. On February 14, 1997, PSNH filed a
response with the NHPUC stating that the uncertainties of recovery stated in the
order made it impossible to finance the upfront payments for the agreement.
UNAMORTIZED PSNH ACQUISITION COSTS
The Rate Agreement also provides for the recovery by PSNH through rates of
unamortized PSNH acquisition costs, which is the aggregate value placed by
PSNH's reorganization plan on PSNH's assets in excess of the net book value of
its non-Seabrook assets and the value assigned to Seabrook. The unrecovered
balance of PSNH acquisition costs at December 31, 1996 was approximately $491.7
million. In accordance with the Rate Agreement, approximately $82.0 million of
this amount will be recovered through rates by June 1, 1998, and the remaining
amount, approximately $409.7 million, will be recovered through rates by 2011.
PSNH earns a return each year on the unamortized portion of the costs. This
amount will not be deemed "impaired" by the NHPUC's February 28, 1997
restructuring decision within the meaning of FAS 121. For more information
regarding PSNH's recovery of these costs, see "Unamortized PSNH Acquisition
Costs" in the notes to NU's financial statements and "Unamortized Acquisition
Costs" in the notes to PSNH's financial statements.
SEABROOK POWER CONTRACTS
PSNH and NAEC have entered into two power contracts that collectively
obligate PSNH to purchase NAEC's 35.98 percent ownership of the capacity and
output of Seabrook for the term of Seabrook's NRC operating license and to pay
NAEC's "cost of service" during this period, whether or not Seabrook continues
to operate. NAEC's cost of service includes all of its prudently incurred
Seabrook-related costs, including O&M expenses, cost of fuel, depreciation of
NAEC's recoverable investment in Seabrook and a phased-in return on that
investment. The payments by PSNH to NAEC under these contracts constitute
purchased power costs for purposes of the FPPAC and are recovered from PSNH
customers under the Rate Agreement. Decommissioning costs are separately
collected by PSNH in its base rates. See "Rates--New Hampshire Retail Rates--
General" and--"FPPAC and Prudence" for information relating to the Rate
Agreement. At December 31, 1996, NAEC's net utility plant investment, including
fuel, in Seabrook was approximately $692 million.
If Seabrook were retired before the expiration of its NRC operating license
term, NAEC would continue to be entitled under the contracts to recover its
remaining Seabrook investment and a return on that investment and its other
Seabrook-related costs over a 39-year period, less the period during which
Seabrook has operated.
The contracts provide that NAEC's return on its "allowed investment" in
Seabrook (its investment in working capital, fuel, capital additions after the
date of commercial operation and a portion of the initial investment) is
calculated based on NAEC's actual capitalization over the term of the contracts,
its actual debt and preferred equity costs and a common equity cost of 12.53
percent for the first ten years of the contracts, and thereafter at an equity
rate of return to be fixed in a filing with FERC. The portion of the initial
investment, which is included in the allowed investment, has increased annually
since May 1991 and reached 100 percent on May 31, 1996.
NAEC is entitled to earn a deferred return on the portion of the initial
investment not yet phased into rates. At December 31, 1996, the amount of this
deferred return was $185.1 million In addition, NAEC's utility plant includes
$84.1 million of deferred return (including taxes) that was transferred as part
of the Seabrook assets to NAEC on the acquisition date. The deferred return,
including the portion transferred to NAEC, will be recovered with carrying
charges beginning December 1, 1997, and will be fully recovered by May 2001.
For additional information regarding the contracts, see "Deferred Costs-Nuclear
Plants" in the notes to PSNH's financial statements.
MASSACHUSETTS RETAIL RATES
GENERAL
Approximately 11% of System revenues are derived from WMECO, and 11% of the
book value of the System's electric utility assets are owned by WMECO.
WMECO's retail rates are subject to the jurisdiction of the Massachusetts
Department of Public Utilities (DPU). The rates charged under HWP's contracts
with its industrial customers are not subject to the ratemaking jurisdiction of
any state or federal regulatory agency.
On April 30, 1996, the DPU approved a settlement which was proposed by
WMECO and the Massachusetts Attorney General (the Agreement). The Agreement
will continue, through February 1998, a 2.4-percent rate reduction instituted in
June 1994. The Agreement terminates pending reviews of WMECO's generating plant
performance and any potential reviews associated with Millstone 2's 1994-1995
extended outage. The Agreement also accelerates its amortization of strandable
generation assets by approximately $6 million in 1996 and $10 million in 1997.
ELECTRIC INDUSTRY RESTRUCTURING IN MASSACHUSETTS
On December 30, 1996, the DPU issued the Model Rules, which supplemented an
earlier set of draft rules issued on May 1, 1996. The Model Rules and
accompanying order endorsed January 1, 1998 as the date for full customer choice
of energy suppliers in Massachusetts. In addition, the Model Rules provide that
utilities will have a reasonable opportunity to recover strandable investments
and for the functional unbundling of a utility's distribution, transmission,
generation and marketing functions. The Model Rules also addressed many of the
other issues, including the future structure of the electric utility industry,
that were addressed in the DPU's May 1 explanatory statement. The Model Rules,
however, require a number of statutory changes to be enacted in order to
implement these rules. The Massachusetts legislature has given no formal
indication as to whether it will enact the statutory changes requested by the
DPU. It is unclear at this time how the DPU will proceed if the requested
statutory changes are not enacted.
The DPU also issued regulations establishing standards of conduct governing
the relationship between electric company distribution companies and their
competitive affiliates, which include all affiliates that "engage in the selling
or marketing of natural gas, electricity, or related services on a competitive
basis, including, but not limited to, natural gas or electric supply or
capacity, and demand-side management." Among other restrictions and reporting
requirements, the rules provide a number of restrictions on the flow of
information between a distribution company and its competitive affiliates,
provide that much of the information that is shared between a distribution
company and its competitive affiliate must be provided to non-affiliates, and
provide for physical separation between employees of a distribution company and
its competitive affiliate. The System is currently developing and implementing
procedures to comply with this order.
In addition to the proposed rules set forth above, the DPU also ordered
each electric company, including WMECO, to develop revenue-neutral rates
unbundled into at least generation, transmission and distribution components.
WMECO filed its proposed unbundled rates with the DPU on March 3, 1997. The DPU
has stated that Massachusetts electric utilities should be prepared to begin
sending unbundled bills to Massachusetts customers by June 1997 and that all
customers should be in receipt of unbundled bills by the end of August 1997.
On February 28, 1997, the DPU approved a settlement agreement involving an
unaffiliated electric company, Massachusetts Electric Company (MECO), which is
intended to meet the restructuring objectives of the DPU. This proposal calls
for full-retail choice by January 1, 1998 or a later date when customers of
other Massachusetts electric companies have the opportunity to choose their
energy supplier. Under the settlement, MECO's generating affiliate will divest
itself of its generation assets and MECO will collect strandable investments
through a nonbypassable access charge on customers' bills. The settlement,
however, provides that further DPU approval is required before retail access is
triggered and acknowledges that the legislature can alter the settlement through
subsequent restructuring legislation. Two other Massachusetts electric
companies have indicated that they have reach similar agreements in principal
with the Attorney General, but have not yet filed such agreement. WMECO
currently does not have any plans to divest itself of generation assets in
connection with a restructuring plan.
WMECO FUEL ADJUSTMENT CLAUSE AND GENERATING UNIT OPERATING PERFORMANCE
In Massachusetts, all fuel costs are collected on a current basis by means
of a forecasted quarterly fuel clause. The DPU must hold public hearings before
permitting adjustments in WMECO's retail fuel adjustment clause. In addition to
energy costs, the fuel adjustment clause includes capacity and transmission
charges and credits that result from short-term transactions with other
utilities and from certain FERC-approved contracts among the System operating
companies.
Massachusetts law establishes an annual performance program related to fuel
procurement and use and requires the DPU to review generating unit performance
and related fuel costs. Fuel clause revenues collected in Massachusetts are
subject to potential refund, pending the DPU's examination of the actual
performance of WMECO's generating units. The DPU has found that possession of a
minority ownership interest in a generating plant does not relieve a company of
its responsibilities for the prudent operation of that plant. For information
regarding WMECO's ownership interests in nuclear generating units, see "Electric
Operations--Nuclear Generation."
On February 28, 1997, the DPU approved a settlement agreement between
WMECO and the Massachusetts Attorney General to maintain WMECO's FAC at its
August 1996 level through August 1997. The settlement also provides that
WMECO will not seek carrying charges on any deferred fuel costs incurred as
a result of maintaining the FAC at the agreed-upon level. In accepting the
settlement, the DPU deferred any inquiry into WMECO's fuel expenses, including
replacement power fuel expenses related to the current Millstone outages.
Management believes that WMECO will not seek rate recovery of a substantial
portion of such costs.
DEMAND-SIDE MANAGEMENT
In 1992, the DPU established a conservation charge (CC) to be included in
WMECO's customers' bills. The CC includes incremental DSM program costs above
or below base rate recovery levels, lost fixed-cost recovery adjustments and the
provision for a DSM incentive mechanism.
In August and November 1995, the DPU issued decisions 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 reduced 1996 revenues by approximately $5.5 million.
On January 17, 1996, the DPU approved a two-year settlement proposal that
resolves WMECO's DSM-related proceedings before the DPU. The settlement
resolves: (i) DSM budget levels for 1996 and 1997 (at $12.4 million and $11.9
million, respectively); (ii) the CC for each rate class for 1996 and 1997; and
(iii) energy savings associated with past DSM activity. The Agreement,
modifies, in part, the above-referenced DSM decisions. The Agreement shifted $8
million once included in the CC as lost base revenues into base rates.
On March 3, the DPU approved WMECO's proposed conservation charges for the
period March 1, 1997 - February 28, 1998. These new charges are now being
included on customers' bills. In addition, the DPU approved WMECO's estimates
of energy savings from its DSM programs.
RESOURCE PLANS
CONSTRUCTION
The System's construction program in the period 1997 through 2001 is
estimated as follows:
1997* 1998 1999 2000 2001
(Millions)
CL&P $165 $180 $164 $163 $170
PSNH 35 46 49 37 39
WMECO 37 42 31 28 31
NAEC 9 7 6 6 6
OTHER 34 15 14 16 14
TOTAL $280 $290 $264 $250 $260
* The 1997 data include costs of approximately $20 million related to upgrading
the System's transmission facilities to meet capacity needs caused by the
extended Millstone outages. See, "Electric Operations--Distribution and Load."
The construction program data shown above include all anticipated capital
costs necessary for committed projects and for those reasonably expected to
become committed, regardless of whether the need for the project arises from
environmental compliance, nuclear safety, reliability requirements or other
causes. The construction program's main focus is maintaining and upgrading the
existing transmission and distribution system and nuclear and fossil-generating
facilities.
The construction program data shown above generally include the anticipated
capital costs necessary for fossil generating units to operate at least until
their scheduled retirement dates. Whether a unit will be operated beyond its
scheduled retirement date, be deactivated or be retired on or before its
scheduled retirement date is regularly evaluated in light of the System's needs
for resources at the time, the cost and availability of alternatives and the
costs and benefits of operating the unit compared with the costs and benefits of
retiring the unit. Retirement of certain of the units could, in turn, require
substantial compensating expenditures for other parts of the System's bulk power
supply system. Those compensating capital expenditures have not been fully
identified or evaluated and are not included in the table.
FUTURE NEEDS
The System periodically updates its long-range resource needs through its
integrated demand and supply planning process. While the System does not
foresee the need for any new major generating facilities at least until 2010, it
has reactivated some older facilities and leased additional facilities in 1996
to supplement its capacity requirements due to the extended Millstone outages.
The System's long-term plans rely, in part, on certain DSM programs. These
System company sponsored measures, including installations to date, are
projected to lower the System summer peak load in 2010 by 703 MW and lower the
winter peak load as of January 1, 2011 by 482 MW. See "Rates" for information
about rate treatment of DSM costs.
In addition, System companies have long-term arrangements to purchase the
output from certain NUGs under federal and state laws, regulations and orders
mandating such purchases. NUGs supplied 660.4 MW of firm capacity in 1996. The
System companies do not expect to purchase additional capacity from NUGs for the
foreseeable future. See "Rates--New Hampshire Retail Rates--NUGs" for
information concerning PSNH's efforts to renegotiate its agreements with wood-
burning NUGs and "CL&P Cogeneration Costs" in the notes to NU's financial
statements and "Cogeneration Costs" in the notes to CL&P's financial statements
for information regarding CL&P's termination of one of its purchased-power
agreements.
The System's need for new resources may be affected by premature
retirements of existing generating units, regulatory approval of the continued
operation of certain fossil fuel units past scheduled retirement dates, and the
possible deactivation of plants resulting from environmental compliance costs,
licensing decisions and other regulatory matters. The System's need for new
resources also may be substantially affected by restructuring of the electric
industry. For more information regarding restructuring, see "Rates".
FINANCING PROGRAM
1996 FINANCINGS
On April 30, 1996, PSNH extended and increased its $125 million revolving-
credit agreement to $225 million. A portion of the facility in the amount of
$100 million will expire April 29, 1997 and the remaining $125 million will
expire on April 30, 1999. PSNH used the facility in part to finance the
repayment at maturity of PSNH's $172.5 million of Series A First Mortgage Bonds
on May 16, 1996.
On May 21, 1996, the Connecticut Development Authority issued $62 million
of tax-exempt pollution control revenue bonds. Concurrent with that issuance,
the proceeds of the bonds were loaned to CL&P for the reimbursement of a portion
of CL&P's share of the previously incurred costs of financing, acquiring,
constructing, and installing pollution control, sewage, and solid waste disposal
facilities at Millstone 3. The bonds were issued with an initial variable
interest rate of 3.7 percent per annum. The bonds will mature on May 1, 2031 and
may bear, at CL&P's discretion, a variable or fixed interest rate, which may not
exceed 12 percent. The bonds were originally backed by a five-year letter of
credit, which was secured by a second mortgage on CL&P's interest in Millstone
1. On January 23, 1997, the letter of credit was replaced with an insurance
facility and a standby bond purchase agreement. The second mortgage was replaced
with the issuance of $62 million of First and Refunding Mortgage Bonds, 1996
Series B, bearing the same interest rate as the underlying bonds. As of
February 28, 1997, the bonds bore an interest rate of 3.3 percent per annum.
On June 21, 1996, CL&P entered into an operating lease agreement for CL&P
to acquire the use of four turbine generators having an installed cost of
approximately $70 million. The initial lease term is for a five-year period.
The lease agreement provides for five consecutive renewal options under which
CL&P may lease the turbines for five additional twelve-month terms. The rental
payments are based on a 30 day floating interest rate plus 1 percent. The
interest rate averaged 6.42 percent during 1996. Upon termination of the lease
agreement, ownership of the turbines will remain with the lessor, unless CL&P
exercises its purchase option.
On June 25, 1996, CL&P issued $160 million of First and Refunding Mortgage
Bonds, 1996 Series A. The 1996 Series A Bonds bear interest at an annual rate
of 7.875%, and will mature on June 1, 2001. The net proceeds from the issuance
and sale of the 1996 Series A Bonds, plus funds from other sources, are intended
to be used to repay approximately $193.3 million in principal amount of CL&P's
Series UU bonds, due April 1, 1997. Before maturity of the Series UU bonds, CL&P
has used a portion of the net proceeds to reduce short-term borrowing
requirements.
On July 11, 1996, CL&P entered into an agreement to sell up to $200 million
of fractional undivided percentage interests in eligible accounts receivable
with limited recourse. The agreement provides for a loss reserve pursuant to
which additional customer receivables are allocated to the purchaser on an
interim basis, to protect against bad debt. To the extent actual loss
experience of the pool receivables exceeds the loss reserve, the purchaser
absorbs the excess. For receivables sold, CL&P has retained collection and
servicing responsibilities as agent for the purchaser.
On September 13, 1996, WMECO entered into an agreement to sell fractional
undivided percentage receivable interests in WMECO's eligible billed and
unbilled accounts receivable. The amount of receivables sold at any one time
will not exceed $40 million plus limited reserves for losses. To the extent
actual loss experience of the pool receivables exceeds the loss reserves, the
purchaser will absorb the excess. WMECO has retained collection and servicing
responsibilities as agent for the purchaser.
In order to comply with new accounting requirements, effective January 1,
1997, the CL&P receivables agreement and the WMECO receivables agreement are
being restructured. The WMECO receivables agreement will terminate if it is not
restructured and if certain regulatory approvals are not obtained before April
1, 1997, unless extended by mutual agreement.
On November 21, 1996, NU, CL&P and WMECO entered into a new three-year
revolving credit agreement (the New Credit Agreement) with a group of banks.
Under the New Credit Agreement, NU is able to borrow on a revolving basis up to
$150 million, CL&P is able to borrow approximately $313 million, and WMECO will
be able to borrow up to $150 million, subject to a total borrowing limit of
approximately $313 million for all three borrowers. The New Credit Agreement
replaces a like amount of borrowing availability under earlier revolving credit
agreements (Old Credit Agreements). Approximately $56 million is still
available under the Old Credit Agreement. For information regarding amendments
to this agreement and issues related to its financial covenants, see "Financing
Limitations," below.
Total System debt, including short-term and capitalized leased obligations,
was $4.15 billion as of December 31, 1996, compared with $4.25 billion as of
December 31, 1995 and $4.54 billion as of December 31, 1994. For more
information regarding System financing, see "Notes to Consolidated Statements of
Capitalization" in NU's financial statements and "Short-Term Debt" in the notes
to CL&P's, PSNH's, WMECO's and NAEC's financial statements and "Item 7.
Management Discussion and Analysis of Financial Condition and Results of
Operations."
1997 FINANCING REQUIREMENTS
The System's aggregate capital requirements for 1997, exclusive of
requirements under the Niantic Bay Fuel Trust (NBFT) and a one percent sinking
and improvement fund for CL&P and WMECO, are approximately as follows:
CL&P PSNH WMECO NAEC Other System
(Millions)
Construction $165 $ 35 $ 37 $ 9 $ 34 $280
Nuclear Fuel 5 - 1 15 - 21
Maturities 204 - 15 - - 219
Cash Sinking funds - 25 - 20 56 101
Total $374 $ 60 $ 53 $44 $90 $621
For further information on NBFT and the System's financing of its nuclear
fuel requirements, see "Leases" in the notes to NU's, CL&P's and WMECO's
financial statements. For further information on the System's 1997 and five-
year financing requirements, see "Notes to Consolidated Statements of
Capitalization" in NU's financial statements, "Long-Term Debt" in the notes to
CL&P's, PSNH's and WMECO's financial statements and "Item 7. Management
Discussion and Analysis of Financial Condition and Results of Operations."
1997 FINANCING PLANS
The System companies generally propose to finance their 1997 requirements
through internally generated funds and short-term borrowings. WMECO also
proposes to issue up to approximately $60 million of first mortgage bonds, and
CL&P is evaluating the issue and sale of up to $200 million of first mortgage
bonds. CL&P and WMECO also propose to sell receivables to finance a portion of
their 1997 requirements. For more information regarding the issuance of
additional CL&P and WMECO first mortgage bonds as collateral for the New Credit
Agreement, see "Financing Limitations," below.
In April 1995, NU began issuing NU common shares to fund its Dividend
Reinvestment Plan (DRP). The total amount financed through the DRP in 1996 was
approximately $10.5 million. NU stopped issuing new shares to fund the DRP in
March 1996 and has been funding, and expects to continue through 1997 to fund,
the DRP by purchasing shares in the open market.
On October 8, 1996, Moody's Investors Service (Moody's) downgraded the
senior securities of NU, CL&P, WMECO and NBFT for the second time in 1996.
Standard & Poor's Ratings Group (S&P) downgraded the senior securities of NU,
CL&P and NBFT on October 11, 1996. On March 3, 1997, Moody's and S&P further
downgraded its ratings on NU, PSNH and NAEC in response to the NHPUC decision
described above under "Rates--New Hampshire Retail Rates--Electric Industry
Restructuring." S&P's and Moody's have both announced that all System securities
are being reviewed for further downgrades.
On January 28, 1997, the NU Board declared a 25 cent dividend on each
outstanding commons share payable on March 31, 1997. In light of the
seriousness of the NHPUC's February 28th restructuring orders and the extent of
the Millstone outages, management will recommend that the NU Board consider
suspending the NU dividend. If a dividend suspension were to occur, that would
conserve about $140 million annually of additional funds, compared with the
current dividend of 25 cents. For more information regarding restructuring, see
"Rates" and regarding restrictions on NU and certain System companies' ability
to pay dividends, see "Financing Limitations," below.
FINANCING LIMITATIONS
Many of the System companies' charters and borrowing facilities contain
financial limitations (as discussed more fully below) that must be satisfied
before borrowings can be made and for outstanding borrowings to remain
outstanding. To date, CL&P, PSNH, WMECO and NAEC have satisfied all financial
covenants required under their respective borrowing facilities, but NU needed
and obtained a limited waiver of an interest coverage covenant that had to be
satisfied for NU to borrow under the New Credit Agreement.
NU, CL&P and WMECO are currently maintaining their access to the New Credit
Agreement under a written arrangement which expires March 28, 1997, unless
extended by mutual consent, under which (i) NU agreed not to borrow more than
$27 million against the facility for a period of time, and (ii) NU agreed to
enter into an interim written arrangement whereby NU, CL&P and WMECO will seek
regulatory approval for certain amendments in order to maintain access to the
New Credit Agreement through its maturity date. It is anticipated that these
amendments will include (i) CL&P and WMECO providing lenders first mortgage
bonds as collateral for specified periods and subject to specified terms for
releasing the collateral, (ii) revised financial covenants that are consistent
with NU's, CL&P's and WMECO's current financial forecasts and (iii) an upfront
payment to the lenders in order to maintain commitments under the New Credit
Agreement.
The amounts of short-term borrowings that may be incurred by NU, CL&P,
PSNH, WMECO, HWP and NAEC are subject to periodic approval by the SEC under the
1935 Act. The following table shows the amount of short-term borrowings
authorized by the SEC for each company as of January 1, 1997 and the net amounts
of outstanding short-term debt and cash investments of those companies at the
end of 1996 and as of February 28, 1997:
Maximum Authorized Short-Term Debt Outstanding
Short-Term Debt and (Cash Investments)*
12/31/96 2/28/97
(Millions)
NU.................. $ 150 $ 33 $ ( 62)
CL&P ............... 375 (109) ( 16)
PSNH ............... 225** ( 18) 12
WMECO............... 150 47 74
HWP................. 5 ( 9) ( 9)
NAEC................ 50 3 26
Total $( 53) $ 25
* These columns includes borrowings of or cash investments by various System
companies from NU and other System companies. Total System short-term
indebtedness to unaffiliated lenders was $39 million at December 31, 1996 and
$93 million at February 28, 1997.
** This limit was approved by the NHPUC and will decrease to $125 million
effective May 14, 1997.
The supplemental indentures under which NU issued $175 million in
principal amount of 8.58 percent amortizing notes in December 1991 and $75
million in principal amount of 8.38 percent amortizing notes in March 1992
contain restrictions on dispositions of certain System companies' stock,
limitations of liens on NU assets and restrictions on distributions on and
acquisitions of NU stock. Under these provisions, neither NU, CL&P, PSNH nor
WMECO may dispose of voting stock of CL&P, PSNH or WMECO other than to NU or
another System company, except that CL&P may sell voting stock for cash to
third persons if so ordered by a regulatory agency so long as the amount sold is
not more than 19 percent of CL&P's voting stock after the sale. The
restrictions also generally prohibit NU from pledging voting stock of CL&P,
PSNH or WMECO or granting liens on its other assets in amounts greater than
five percent of the total common equity of NU. As of December 31, 1996, no NU
debt was secured by liens on NU assets. Finally, NU may not declare or make
distributions on its capital stock, acquire its capital stock (or rights
thereto), or permit a System company to do the same, at times when there is an
event of default under the supplemental indentures under which the amortizing
notes were issued.
The charters of CL&P and WMECO contain preferred stock provisions
restricting the amount of unsecured debt those companies may incur. As of
December 31, 1996, CL&P's and WMECO's charters permit CL&P and WMECO to incur an
additional $524 million and $78 million, respectively, of unsecured debt.
In connection with NU's acquisition of PSNH, the DPUC imposed certain
financial conditions intended to prevent NU from relying on CL&P resources if
the PSNH acquisition strained NU's financial condition. The principal
conditions provided for a DPUC review if CL&P's common equity falls to 36
percent or below, require NU to obtain DPUC approval to secure NU financings
with CL&P stock or assets and obligate NU to use its best efforts to sell CL&P
preferred or common stock to the public if NU cannot meet CL&P's need for equity
capital. If, at any time, CL&P projects that its common equity ratio as of the
end of the next fiscal quarter will be below 36% or plans to take any action
that will result or can reasonably be expected to result in reducing the above
ratio below 36% then CL&P is required to notify the DPUC in writing at least 45
days before such action is taken or event is anticipated to occur. The DPUC may
conduct a proceeding after its receipt of CL&P's notice. At December 31, 1996,
CL&P's common equity ratio was 36.6 percent. CL&P does not expect to meet this
condition as of June 30, 1997 and will notify the DPUC in accordance with the
foregoing requirement.
While not directly restricting the amount of short-term debt that CL&P,
WMECO, Rocky River Realty (RRR), NNECO and NU may incur, the revolving credit
agreements to which CL&P, WMECO, HWP, RRR, NNECO and NU are parties provide that
the lenders are not required to make additional loans, and that the maturity of
indebtedness can be accelerated, if NU (on a consolidated basis) does not meet a
common equity ratio test that requires, in effect, that NU's consolidated common
equity (as defined) be at least 30 percent in any quarter. At December 31,
1996, NU's common equity ratio was 34.6 percent.
Under the New Credit Agreement, NU is prohibited from incurring additional
debt unless it is able to demonstrate, on a pro forma basis for the prior
quarter and going forward, that its equity ratio (as defined) will be at least
30 percent of total capitalization (as defined) through December 31, 1996, 31
percent through December 31, 1997 and 32 percent thereafter. In addition, NU
must demonstrate that its ratio of operating income to interest expense will be
at least 1.25 to 1 through December 31, 1996, 1.50 to 1 through June 30, 1997,
2.25 to 1 through December 31, 1997 and 3.25 to 1 thereafter. At December 31,
1996, NU's common equity ratio was 34.4 percent and its operating income to
interest expense ratio was 0.87 to 1. As discussed above, NU has received a
waiver of these covenants through March 28, 1997. NU is also prohibited from
incurring additional debt in excess of CL&P, WMECO, PSNH and NAEC's aggregate
dividend paying ability. See below, for information regarding limitations on
dividend payments.
Additionally, under the New Credit Agreement, CL&P and WMECO are prohibited
from incurring additional debt unless they are able to demonstrate, on a pro
forma basis for the prior quarter and going forward, that their equity ratios
will be at least 32 percent of their total capitalizations through December 31,
1996, 33 percent through December 31, 1997 and 34 percent thereafter. At
December 31, 1996, CL&P'S and WMECO's common equity ratios were 36.6 percent and
40.6 percent. Beginning in the first quarter of 1997, CL&P must demonstrate
that its ratio of operating income to interest expense will be at least 3.00 to
1 through June 30, 1997 and 4.50 to 1 thereafter. WMECO also must demonstrate
that its ratio of operating income to interest expense will be at least 1.50 to
1 through June 30, 1997, 2.25 to 1 through December 31, 1997 and 2.50 to 1
thereafter. CL&P and WMECO are not expected to meet the requirements for either
of these covenants during 1997 and as discussed more fully above, will seek
waivers of these covenants.
PSNH and NAEC are parties to a variety of financing agreements providing
that the credit thereunder can be terminated or accelerated if they do not
maintain specified minimum ratios of common equity to capitalization (as defined
in each agreement). For PSNH, the minimum common equity ratio in a letter of
credit agreement and in a revolving credit agreement is not less than 28.5
percent through June 30, 1997 and 30 percent thereafter. At December 31, 1996,
PSNH's common equity ratio was 42.4 percent. For NAEC, the minimum common
equity ratio in a term loan agreement is 25 percent; at December 31, 1996,
NAEC's common equity ratio was 29.4 percent.
In addition, PSNH's revolving credit agreement requires that for PSNH to
obtain and maintain borrowings thereunder, it must demonstrate that its ratio of
operating income to interest expense will be at least 1.75 to 1 at the end of
each fiscal quarter for the remaining term of the agreement. The NAEC term loan
agreement requires a ratio of adjusted net income to interest expense of 1.35 to
1 through December 31, 1997 and 1.50 to 1 thereafter. For the 12-month periods
ended December 31, 1996 the corresponding ratios for PSNH were 3.59 to 1 and
1.75 to 1, respectively.
In addition, PSNH and NAEC are parties to a variety of financing agreements
providing in effect that the credit thereunder can be terminated or accelerated
if there are actions taken, either by PSNH or NAEC or by the State of New
Hampshire, that deprive PSNH and/or NAEC of the benefits of the Rate Agreement
and/or the Seabrook Power Contracts.
If the February 28, 1997 orders of the NHPUC described above under "Rates--
New Hampshire Retail Rates--Electric Industry Restructuring in New Hampshire"
become effective, they would, unless waived by the respective lenders, result in
(i) write-offs that would cause PSNH's common equity to fall below the
contractual minimums, (ii) reductions in income that would cause PSNH's income
to fall below the contractual minimums, (iii) potential violation of the
contractual provisions with respect to actions depriving PSNH and NAEC of the
benefits of the Rate Agreement and (iv) the potential for cross defaults to
other PSNH and NAEC financing documents. Substantially all of PSNH's and NAEC's
debt obligations ($686 million of PSNH debt and $515 million of NAEC debt) would
be affected. For these actions to be avoided, management believes that it is
essential that the March 10, 1997 temporary restraining order issued by a
federal court judge (see the "Rates" section described above) be extended and
made applicable to the foregoing issues.
The indentures securing the outstanding first mortgage bonds of CL&P, PSNH,
WMECO and NAEC provide that additional bonds may not be issued, except for
certain refunding purposes, unless earnings (as defined in each indenture and
before income taxes, and, in the case of PSNH, without deducting the
amortization of PSNH's regulatory asset) are at least twice the pro forma annual
interest charges on outstanding bonds and certain prior lien obligations and the
bonds to be issued. CL&P and WMECO's 1996 earnings do not permit them to meet
those earnings coverage tests, but as of March 31, 1997, CL&P and WMECO would be
able to issue up to $236 million and $153 million of additional first mortgage
bonds, respectively, on the basis of previously issued but refunded bonds,
without having to meet the earnings coverage test. After the $193 million of
CL&P series UU bonds are retired on April 1, 1997, the amount issuable by CL&P
will increase by that amount.
The preferred stock provisions of CL&P's, PSNH's and WMECO's charters also
prohibit the issuance of additional preferred stock (except for refinancing
purposes) unless income before interest charges (as defined and after income
taxes and depreciation) is at least 1.5 times the pro forma annual interest
charges on indebtedness and the annual dividend requirements on preferred stock
that will be outstanding after the additional stock is issued. CL&P and WMECO
are currently unable to issue additional preferred stock under these provisions.
SEC rules under the 1935 Act require that dividends on NU's shares be based
on the amounts of dividends received from subsidiaries, not on the
undistributed retained earnings of subsidiaries. At the current indicated
annual dividend of $1.00 per share, NU's aggregate annual dividends on common
shares outstanding at December 31, 1996, including unallocated shares held by
the Employee Stock Option Plan, would be approximately $136 million.
The supplemental indentures under which CL&P's and WMECO's first mortgage
bonds and the indenture under which PSNH's first mortgage bonds have been issued
limit the amount of cash dividends and other distributions these subsidiaries
can make to NU out of their retained earnings. As of December 31, 1996, CL&P
had $11.3 million, WMECO had $75.5 million and PSNH had $174.6 million of
unrestricted retained earnings. CL&P is not expected to be able to declare any
dividends under these provision in 1997. The indenture under which NAEC's Series
A Bonds have been issued also limits the amount of cash dividends or
distributions NAEC can make to NU to retained earnings plus $10 million. At
December 31, 1996, approximately $31.6 million was available to be paid under
this provision.
PSNH's revolving credit agreement prohibits it from declaring or paying any
cash dividends or distributions on any of its capital stock, except for
dividends on the preferred stock, unless minimum interest coverage and common
equity ratio tests are satisfied. PSNH's preferred stock provisions also limit
the amount of cash dividends and other distributions PSNH can make to NU if
after taking the dividend or other distribution into account, PSNH's common
stock equity is less than 25 percent of total capitalization. At December 31,
1996, approximately $172.8 million was available to be paid under these
provisions. If NAEC could not meet the common equity covenant referred to
above, it would also be unable to pay common dividends. At December 31, 1996,
$63.7 million was available to be paid under this provision.
Certain subsidiaries of NU have established a system for pooling System
resources (Money Pool) to provide a more effective use of the cash resources of
the System and to reduce outside short-term borrowings. NUSCO administers the
Money Pool as agent for the participating companies. Short-term borrowing needs
of the participating companies (except NU) are first met with available funds of
other member companies, including funds borrowed by NU from third parties. NU
may lend to, but not borrow from, the Money Pool. Investing and borrowing
subsidiaries receive or pay interest based on the average daily Federal Funds
rate, except that borrowings based on loans from NU bear interest at NU's cost.
Funds may be withdrawn or repaid to the Money Pool at any time without prior
notice.
RRR is the obligor under financing arrangements for office facilities at
the System's Berlin (Connecticut) headquarters. Under those financing
arrangements, the holders of notes for $38 million would be entitled to request
the repurchase of the notes if any major subsidiary (as defined) of NU has debt
ratings below investment grade as of any year-end during the term of the
financing. The notes are secured by real estate leases between RRR and NUSCO,
which provide for the acceleration of rent equal to RRR's note obligations if
RRR is unable to pay, and NU has guaranteed the notes. PSNH and NAEC, whose debt
ratings were below investment grade at year end, will become major subsidiaries
of NU as of the end of 1996, based on the financial statements incorporated in
this report. Accordingly, under the terms of the RRR financing arrangements,
the holders have 30 days in which to elect to require RRR to repurchase the
notes at par. If a noteholder makes such an election, RRR will have the option
to refinance the note(s) with an institutional investor (as defined) within
approximately 150 days of receipt of the notice of the event. If RRR is unable
or unwilling to refinance the note(s) it is required to repurchase the note(s)
within approximately 90 days of receipt of the notice. This notice will be given
within three days after the filing date of this report. RRR is engaged in
discussions with the noteholders about this issue.
ELECTRIC OPERATIONS
DISTRIBUTION AND LOAD
The System companies own and operate a fully integrated electric utility
business. The System companies' retail electric service territories cover
approximately 11,335 square miles (4,400 in CL&P's service area, 5,445 in PSNH's
service area and 1,490 in WMECO's service area) and have an estimated total
population of approximately 4 million (2.5 million in Connecticut, 963,000 in
New Hampshire and 582,000 in Massachusetts). The companies furnish retail
electric franchise service in 149, 198 and 59 cities and towns in Connecticut,
New Hampshire and Massachusetts, respectively. In December 1996 CL&P furnished
retail electric franchise service to approximately 1.1 million customers in
Connecticut, PSNH provided retail electric service to approximately 400,000
customers in New Hampshire and WMECO served approximately 195,000 retail
electric franchise customers in Massachusetts. HWP serves 33 retail customers
in Holyoke, Massachusetts.
The following table shows the sources of 1996 electric revenues based on
categories of customers:
CL&P PSNH** WMECO NAEC Total System
Residential................ 42% 30% 38% - 40%
Commercial................. 35 25 32 - 33
Industrial................. 13 16 19 - 16
Wholesale*................. 8 27 7 100% 9
Other...................... 2 2 4 - 2
Total...................... 100% 100% 100% 100% 100%
* Includes capacity sales.
** Excludes sales related to the New Hampshire Pilot Program.
NAEC's 1996 electric revenues were derived entirely from sales to PSNH
under the Seabrook power contracts. See "Rates--New Hampshire Retail Rates---
Seabrook Power Contracts" for a discussion of the contracts.
Through December 31, 1996, the all-time peak demand on the System was 6,358
MW, which occurred on August 2, 1995. At the time of the peak, the System's
generating capacity, including capacity purchases, was 8035 MW.
System energy requirements were met in 1996 and 1995 as set forth below:
Source 1996 1995
Nuclear .................................... 28% 52%
Oil ........................................ 12 4
Coal ....................................... 11 10
Hydroelectric .............................. 5 3
Natural gas ................................ 3 5
NUGs ....................................... 13 13
Purchased-power............................. 28 13
100% 100%
The actual changes in retail KWh sales for the last two years and the
forecasted sales growth estimates for the ten-year period 1996 through 2006, in
each case exclusive of wholesale revenues and New Hampshire pilot program sales,
for the system, CL&P, PSNH and WMECO are set forth below:
1996 over 1995 over Forecast 1996-2006
1995 1994 Compound Rate of Growth
System......... 1.6% (.1)% 1.2%
CL&P........... 1.8% (.3)% 1.1%
PSNH........... .4% .4 % 1.7%
WMECO.......... 2.7% (.1)% 0.4%
Retail electric sales rose by 1.6 percent in 1996 compared to 1995,
primarily due to moderate growth in the residential and commercial classes.
Residential sales were up 2.0 percent in 1996 and commercial sales were up 2.3
percent. Industrial sales were essentially flat. Weather has had a minimal
effect on 1996 growth rates because the increase in winter heating requirements
due to abnormally cold winter weather was offset by the decrease in summer
cooling requirements due to a relatively cool summer. Retail sales at CL&P and
WMECO increased by 1.8 percent and 2.7 percent, respectively. However, PSNH
retail sales increased by only 0.4 percent, partly due to the New Hampshire
Pilot Program.
In spite of further defense and insurance curtailments, moderate growth is
forecasted to resume over the next ten years. The forecasted annual growth rate
of one percent is significantly below historic rates due to a general slow down
of economic growth in the region and, in part, because of forecasted savings
from System-sponsored DSM programs that are designed to minimize operating
expenses for System customers and reduce their demand for electricity. The
forecasted ten-year annual growth rate of System sales would be approximately
1.7 percent if the System did not pursue DSM programs at the forecasted levels.
See "Rates" for information about rate treatment of DSM costs.
The System also acts as both a buyer and a seller of electricity in the
highly competitive wholesale electricity market in the Northeastern United
States (Northeast). Although revenues from long-term contracts have been
declining, as a result of new contracts entered into in recent years, the
System's wholesale revenues of $300 million in 1996 were comparable to 1995 and
are expected to be constant in 1997. The System's most important wholesale
market at this time remains New England. Of the $300 million in total 1996
wholesale revenues, approximately $280 million came from sales to investor-
owned, cooperative and municipal utilities in New England.
With the System's generating capacity of 8034 MW as of January 1, 1997
(including the net of capacity sales to and purchases from other utilities, and
approximately 660 MW of capacity purchased from NUGs under existing contracts),
the System expects to meet reliably its projected annual peak load growth of 1.6
percent until at least the year 2010 without adding new capacity.
The System companies operate and dispatch their generation as provided in
the NEPOOL Agreement. In 1996, the peak demand on the NEPOOL system was 19,507
MW in August, which was 992 MW below the 1995 peak load of 20,499 MW in July of
that year. NEPOOL has projected that there will be an increase in demand in
1997 and estimates that the summer 1997 peak load could reach 21,390 MW.
Management expects that the System and NEPOOL will have sufficient capacity
to meet peak load demands for New England even if Millstone, the Maine Yankee
nuclear unit (MY) and the 300 MW Long Island Cable are not operational at any
time during the 1997 summer season, so long as the remaining generating units
and transmission systems in Connecticut and the New England region have normal
operability. If high levels of unplanned outages in New England were to occur,
or if any of the System's transmission lines used to import power from other
states were unavailable, at times of peak load demand, NU and the other New
England utilities may have to resort to operating procedures designed to reduce
load. The System spent approximately $60 million in 1996 to reduce the risk of
unplanned outages and expects to spend $47 million in 1997. Most of the money
budgeted for 1997 will be used to improve the System's network of transmission
lines to increase imports into Connecticut and for lease payments for additional
capacity.
REGIONAL AND SYSTEM COORDINATION
The System companies and most other New England utilities are parties to an
agreement (NEPOOL Agreement), which coordinates the planning and operation of
the region's generation and transmission facilities. System transmission lines
form part of the New England transmission system linking System generating
plants with one another and with the facilities of other utilities in the
Northeast and Canada. The generating facilities of all NEPOOL participants are
dispatched as a single system through the New England Power Exchange, a central
dispatch facility. The NEPOOL Agreement provides for a determination of the
generating capacity responsibilities of participants and certain transmission
rights and responsibilities. NEPOOL's objectives are to assure that the bulk
power supply of New England and adjoining areas conforms to proper standards of
reliability, to attain maximum practical economy in the bulk power supply system
consistent with such reliability standards and to provide for equitable sharing
of the resulting benefits and costs.
Pursuant to the NEPOOL Agreement, if a participant is unable to meet its
capacity responsibility obligations, the participant is required to pay a
penalty. In the event that none of the Millstone units are returned to service
by November 1, 1997, the System companies could be required to pay a penalty
under the NEPOOL Agreement of approximately $10 million per month. This number
would decrease as each unit is returned to service. Management, however,
expects to meet its capacity responsibility even if the Millstone units do not
return to service as currently scheduled through purchased power contracts with
other utilities and/or reactivating System fossil generating units and thus
avoid the penalty. The costs of these alternative plans cannot be estimated at
this time.
A restated and revised NEPOOL Agreement, providing for pool-wide open
access transmission tariff and a proposal for the creation of an Independent
System Operator (ISO), became effective on March 1, 1997. Under these new
arrangements: (1) the ISO, a non-profit corporation, whose board of directors
and staff will not be controlled by or affiliated with market participants, will
ensure the reliability of the NEPOOL transmission system, administer the NEPOOL
tariff and oversee the efficient and competitive functioning of the regional
power market; (2) The NEPOOL tariff will provide for non-discriminatory open-
access to the regional transmission network at one rate regardless of
transmitting distance for all transactions; and (3) The new NEPOOL Agreement
will establish a broader governance structure for NEPOOL and develop a more
open, competitive market structure.
There are two agreements that determine the manner in which costs and
savings are allocated among the System companies. Under an agreement among
CL&P, WMECO and HWP (Initial System Companies) pool their electric production
costs and the costs of their principal transmission facilities (NUG&T).
Pursuant to the merger agreement between NU and PSNH, the Initial System
Companies and PSNH entered into a ten-year sharing agreement (Sharing
Agreement), expiring in June 2002, that provides, among other things, for the
allocation of the capability responsibility savings and energy expense savings
resulting from a single-system dispatch through NEPOOL.
TRANSMISSION ACCESS AND FERC REGULATORY CHANGES
On April 24, 1996, FERC issued its final open access rule (the Rule) to
promote competition in the electric industry. The Rule will require, among
other things, all public utilities that own, control or operate facilities used
for transmitting electric energy in interstate commerce to file an open-access,
non-discriminatory transmission tariff and to take transmission service for
their own new wholesale sales and purchases under the open-access tariffs. The
Rule also requires public utilities to develop and maintain a same-time
information system that will give existing and potential transmission users the
same access to transmission information that the public utility enjoys, and
requires public utilities to separate transmission from generation marketing
functions and communications. The Rule also supports full recovery of
legitimate, prudent and verifiable wholesale strandable investments. On
February 26, 1997, FERC reaffirmed the Rule with a few minor clarifications.
On July 8, 1996, NU refiled its transmission tariffs to conform with the
minimum terms and conditions set forth in the Rule. On December 31, 1996, NU
filed amendments to its transmission tariff and several other compliance filings
to meet the Rule's year-end requirements, including standards of conduct
ensuring that transmission and wholesale generation personnel function
independently. As of January 3, 1997, NU operates pursuant to the requirements
of the standards of conduct and participates in a NEPOOL-wide Open Access Same-
Time Information System, which provides transmission customers with electronic
access to information on available capacity, tariffs and other information. On
January 22, 1997, NU refiled its transmission tariff to account for certain
transmission services that would be provided by NEPOOL under the new NEPOOL
Agreement (discussed above), which was filed on December 31, 1996.
In 1996, the System companies collected approximately $45 million in
incremental transmission revenues from other electric utility generators.
FOSSIL FUELS
In 1996, 12 percent and 11 percent of the System's generation was oil and
coal-derived, respectively. The System's residual oil-fired generation stations
used approximately 7.8 million barrels of oil in 1996. The System obtained the
majority of its oil requirements in 1996 through contracts with several large,
independent oil companies. Those contracts allow for some spot purchases when
market conditions warrant. Spot purchases represented approximately 15 percent
of the System's fuel oil purchases in 1996. The contracts expire annually or
biennially. The System currently does not anticipate any difficulties in
obtaining necessary fuel oil supplies on economic terms.
The System has nine generating stations, aggregating approximately 3,280
MW, which can fully or partially burn either residual oil or natural gas/coal,
as economics, environmental concerns or other factors dictate. CL&P plans to
convert two of the four units at its oil-fired Middletown Station in Connecticut
comprising approximately 350 MW of capacity to a dual-fuel generating facility
in the spring of 1997. CL&P, PSNH and WMECO have contracts with the local gas
distribution companies where the dual-fuel generating units are located, under
which natural gas is made available by those companies on an interruptible
basis. In addition, gas for CL&P'S Devon and Montville generating stations is
being purchased directly from producers and brokers on an interruptible basis
and transported through the interstate pipeline system and the local gas
distribution company. The System expects that interruptible natural gas will
continue to be available for its dual-fuel electric generating units on economic
terms and will continue to economically supplement fuel oil requirements.
The System companies obtain their coal through long-term supply contracts
and spot market purchases. The System companies currently have an adequate
supply of coal. Because of changes in federal and state air quality
requirements, the System may be required to use lower sulfur coal in its plants
in the future. See "Other Regulatory and Environmental Matters--Environmental
Regulation---ir Quality Requirements."
NUCLEAR GENERATION
GENERAL
Certain System companies have ownership interests in four operating nuclear
units, Millstone 1, 2 and 3 and Seabrook 1, and equity interests in four
regional nuclear companies (the Yankee Companies) that separately own CY, Maine
Yankee (MY), Vermont Yankee (VY) and Yankee Rowe. System companies operate the
three Millstone units and Seabrook 1. Yankee Rowe was permanently removed from
service in 1992, and CY was permanently removed from service on December 4,
1996. The System companies will have responsibility for administering the
decommissioning of CY.
CL&P and WMECO own 100 percent of Millstone 1 and 2 as tenants in common.
Their respective ownership interests in each unit are 81 percent and 19 percent.
CL&P, PSNH and WMECO have agreements with other New England utilities
covering their joint ownership as tenants in common of Millstone 3. CL&P's
ownership interest in the unit is 52.93 percent, PSNH's ownership interest in
the unit is 2.85 percent and WMECO's interest is 12.24 percent. NAEC and CL&P
have 35.98 percent and 4.06 percent ownership interests, respectively, in
Seabrook. The Millstone 3 and Seabrook joint ownership agreements provide for
pro-rata sharing by the owners of each unit of the construction and operating
costs, the electrical output and the associated transmission costs. CL&P and
WMECO, through NNECO as agent, operate Millstone 3 at cost, and without profit,
under a sharing agreement that obligates them to utilize good utility operating
practice and requires the joint owners to share the risk of employee negligence
and other risks pro rata in accordance with their ownership shares. The sharing
agreement provides that CL&P and WMECO would only be liable for damages to the
non-NU owners for a deliberate breach of the agreement pursuant to authorized
corporate action.
CL&P, PSNH, WMECO and other New England electric utilities are the
stockholders of the Yankee companies. Each Yankee company owns a single nuclear
generating unit. The stockholder-sponsors of each Yankee company are
responsible for proportional shares of the operating costs of the respective
Yankee company and are entitled to proportional shares of the electrical output.
The relative rights and obligations with respect to the Yankee companies are
approximately proportional to the stockholders' percentage stock holdings, but
vary slightly to reflect arrangements under which nonstockholder electric
utilities have contractual rights to some of the output of particular units. The
Yankee companies and CL&P's, PSNH's and WMECO's stock ownership percentages in
the Yankee companies are set forth below:
CL&P PSNH WMECO System
Connecticut Yankee Atomic
Power Company (CYAPC) ...... 34.5% 5.0% 9.5% 49.0%
Maine Yankee Atomic Power
Company (MYAPC) ............ 12.0% 5.0% 3.0% 20.0%
Vermont Yankee Nuclear
Power Corporation (VYNPC)... 9.5% 4.0% 2.5% 16.0%
Yankee Atomic Electric
Company (YAEC) ............ 24.5% 7.0% 7.0% 38.5%
CL&P, PSNH and WMECO are obligated to provide their percentages of any
additional equity capital necessary for the Yankee companies, but do not expect
to need to contribute additional equity capital in the future. CL&P, PSNH and
WMECO believe that the two remaining operating plants, MY and VY, could require
additional external financing in the next several years to finance construction
expenditures, nuclear fuel and for other purposes. Although the ways in which
MYAPC and VYAPC would attempt to finance these expenditures, if they are needed,
have not been determined, CL&P, PSNH and WMECO could be asked to provide further
direct or indirect financial support for these companies. For information
regarding additional capital requirements at MY and related watch list costs,
see "Electric Operations--Nuclear Generation--Nuclear Plant Performance and
Regulatory Oversight."
The operators of Millstone 1, 2 and 3, MY, VY and Seabrook 1 hold full
power operating licenses from the NRC. As holders of licenses to operate
nuclear reactors, CL&P, WMECO, NAESCO, NNECO and the Yankee companies are
subject to the jurisdiction of the NRC. The NRC has broad jurisdiction over the
design, construction and operation of nuclear generating stations, including
matters of public health and safety, financial qualifications, antitrust
considerations and environmental impact. The NRC issues 40-year initial
operating licenses to nuclear units and NRC regulations permit renewal of
licenses for an additional 20-year period.
The NRC also regularly conducts generic reviews of technical and other
issues, a number of which may affect the nuclear plants in which System
companies have interests. The cost of complying with any new requirements that
may result from these reviews cannot be estimated at this time, but such costs
could be substantial. For more information regarding recent actions taken by
the NRC with respect to the System's nuclear units, see "Electric Operations---
Nuclear Generation--Nuclear Plant Performance and Regulatory Oversight."
NUCLEAR PLANT PERFORMANCE AND REGULATORY OVERSIGHT
MILLSTONE UNITS
Millstone 1, 2 and 3 are located in Waterford, Connecticut and have license
expirations of October 6, 2010, July 31, 2015 and November 25, 2025,
respectively and are currently out of service. These units are presently on the
NRC's watch list as Category 3 plants, the lowest such category. Plants in this
category are required to receive formal NRC commissioners' approval to resume
operations.
Millstone 1 began a planned refueling and maintenance outage on November 4,
1995. Millstone 2 was shut down on February 21, 1996 as a result of an
engineering evaluation that determined that some valves could be inoperable in
certain emergency scenarios. On March 30, 1996, Millstone 3, was shut down by
NNECO following an engineering evaluation which determined that four safety-
related valves would not be able to perform their design function during certain
postulated events.
Each of these outages has been extended in order to respond to various NRC
requests to describe actions taken, including the resolution of specific
technical issues and to ensure that future operation of the units will be
conducted in accordance with the terms and conditions of their operating
licenses, NRC regulations and their Updated Final Safety Analysis Report. The
System also must demonstrate that it maintains an effective corrective action
program for Millstone, as required by NRC regulations, to identify and resolve
conditions that are adverse to safety or quality. For more information
regarding nuclear management changes and costs related to the outages, see
"Overview of Nuclear Matters and Related Financial Matters."
Based upon management's current plans, it is estimated that one of the
units will be ready for restart in the third quarter of 1997 with the second and
third units being ready for restart in the fourth quarter of 1997 and the first
quarter of 1998, respectively. Millstone 1 presently has the most aggressive
schedule, but there are no assurances it will be the first unit to restart.
Prior to and following notification to the NRC that the units are ready to
resume operations, management expects that the NRC staff will conduct extensive
reviews and inspections, and prior to such notification, independent corrective
action verification teams (as discussed more fully below) also will inspect each
unit. The System also will need to comply with an NRC order regarding the
development of a comprehensive employee concerns program, which will need to be
reviewed by an independent third-party (as discussed more fully below). The
units will not be allowed to restart without an affirmative vote of the NRC
commissioners following completion of these reviews and inspections. Management
cannot estimate when the NRC will allow any of the units to restart, but hopes
to have at least one unit operating in the second half of 1997. Furthermore,
because of the length of the outages, management cannot estimate the time it
will take for the units to resume full power after NRC approval to restart.
On August 14, 1996, the NRC issued an order confirming NNECO's agreement to
conduct an Independent Corrective Action Verification Program (ICAVP) prior to
the restart of each of the Millstone units. The order requires that an
independent, third party team, whose appointment is subject to NRC approval,
verify the results of the corrective actions taken to resolve identified design
and configuration management issues. NNECO has submitted to the NRC its
selection of an ICAVP contractor for each of the units. The NRC is evaluating
NNECO's selection.
In the Fall of 1996, the NRC established a Special Projects Office to
oversee inspection and licensing activities at Millstone. The Special Projects
Office is responsible for (1) licensing and inspection activities at Millstone;
(2) oversight of the independent corrective action verification program; (3)
oversight of NU's corrective actions related to safety issues involving employee
concerns; and (4) inspections necessary to implement NRC oversight of the
plants' restart activities.
On December 4 and 5, 1996, the NRC conducted enforcement conferences
regarding numerous apparent regulatory violations at Millstone and CY that were
discovered during routine and special inspections at the units during 1996. It
is likely that these proceedings will result in the issuance of Notices of
Violations and the imposition of significant civil penalties for each of the
units. For more information regarding the current status of CY, see "Yankee
Units-Connecticut Yankee" below.
In addition to the various technical and design basis issues at Millstone,
the NRC continues to focus on the System's response to employee concerns at the
units. On October 24, 1996, the NRC issued an order that requires NNECO to
devise and implement a comprehensive plan for handling safety concerns raised by
Millstone employees and for assuring an environment free from retaliation and
discrimination. The NRC also ordered NNECO to contract for an independent third
party to oversee this comprehensive plan. The members of the independent third-
party organization must not have had any direct previous involvement with
activities at Millstone and must be approved by the NRC. Oversight by the
third-party group will continue until NNECO demonstrates, by performance, that
the conditions leading to this order have been corrected. NNECO has submitted
to the NRC its comprehensive employee concerns plan and its selection of the
third-party oversight organization, which are currently being reviewed by the
NRC.
On March 7, 1997, the NRC issued a letter to NNECO confirming NNECO's
commitment to evaluate and correct problems identified within its licensed
operator training programs at Millstone and CY. Management has already taken
certain steps to address the NRC's concerns in this area and is committed to
making additional significant improvements in its training program. Management
is evaluating this situation, but currently does not believe that the NRC's
action will have a material impact on its plans for restarting the Millstone
units.
For information regarding replacement power costs and incremental nuclear
O&M costs associated with the extended Millstone outages, see "Overview of
Nuclear Matters and Related Financial Matters." For information regarding the
recoverability of these costs, see "Rates." For information regarding the 1996
nuclear workforce reduction, see "Employees." For information regarding criminal
investigations by the NRC's Office of Investigations (OI) and the Office of the
U. S. Attorney for the District of Connecticut related to various matters at
Millstone and CY; two citizens petitions related to NU's nuclear operations; and
potential joint owner litigation related to the extended outages, see "Item 3.
Legal Proceedings."
SEABROOK
Seabrook 1, a 1148-MW pressurized-water reactor, has a license expiration
date of October 17, 2026. The Seabrook operating license expires 40 years from
the date of issuance of authorization to load fuel, which was about three and
one-half years before Seabrook's full-power operating license was issued. The
System will determine at the appropriate time whether to seek recapture of some
or all of this period from the NRC and thus add up to an additional three and
one-half years to the operating term for Seabrook. In 1996, Seabrook operated
at a capacity factor of 96.5 percent. The unit expects to begin a 49-day
planned refueling and maintenance outage on May 10, 1997.
On October 9, 1996, the NRC issued a request for information concerning all
nuclear plants in the United States, except the three Millstone units and CY,
which had previously received such requests. Such information will be used to
verify that these facilities are being operated and maintained in accordance
with NRC regulations and the unit's specific licenses. The NRC has indicated
that the information will be used to determine whether future inspection or
enforcement activities are warranted for any plant. NAESCO has submitted its
response to the NRC's request with respect to Seabrook. Seabrook's operations
have not been restricted by the request. The NRC's April 1996 comprehensive
review found Seabrook to be a well-operated facility without any major safety
issues or weaknesses and noted that it would reduce its future inspections in a
number of areas as a result of its findings.
YANKEE UNITS
CONNECTICUT YANKEE
CY, a 582-MW pressurized-water reactor, has a license expiration date of
June 29, 2007. On July 22, 1996 CY began an unscheduled outage as a
precautionary measure to evaluate the plant's service water system, which
provides cooling water to certain critical plant components. On August 8, 1996,
after evaluating certain other pending technical and regulatory issues, CY's
management decided to delay the restart of the unit and to begin a scheduled
September refueling outage. The refueling outage was accelerated in order to
allow time to resolve the pending issues.
On December 4, 1996, the board of directors of CYAPC voted unanimously to
retire CY. The decision to shut down CY was based on economic analyses that
showed that shutting down the unit prematurely and incurring replacement power
costs could produce potential savings to its purchasers compared to the costs of
operating it over the remaining period of the unit's operating license. These
analyses indicated that this shutdown decision could produce savings in excess
of $130 million on a net present value basis. These analyses did not consider
the costs of addressing concerns about CY's design and licensing basis raised by
the NRC this past summer similar to those raised at Millstone. If these costs
had been considered, the economic analyses would have favored shutdown by an
even greater margin. CYAPC has undertaken a number of regulatory filings
intended to implement the decommissioning. For more information regarding CYAPC
revised decommissioning estimate that was submitted to FERC in December 1996,
See "Decommissioning" below.
Based upon FERC regulatory precedent, CYAPC believes it will be allowed to
continue to collect from its power purchasers, including CL&P, WMECO and PSNH,
CYAPC's decommissioning costs, the owners' unrecovered investments in CYAPC, and
other costs associated with the permanent closure of the plant over the
remaining period of its NRC operating license. Management in turn expects that
CL&P, WMECO and PSNH will continue to be allowed to recover such FERC-approved
costs from their customers.
The preliminary estimate of the sum of future payments for the closing,
decommissioning and recovery of the remaining investment in CY is approximately
$762.8 million. The System's share of these remaining estimated costs is
approximately $374 million.
As confirmed by the NRC on March 4, 1997, CYAPC has agreed to undertake
various steps to resolve deficiencies and weaknesses in the radiation protection
program at CY. Management does not believe that this undertaking will have a
material adverse effect on the System companies or CYAPC.
MAINE YANKEE
MY, a 870-MW pressurized-water reactor, has a license expiration date of
October 21, 2008. MY's operating license expires 40 years from the date of
issuance of the construction permit, which was about four years before MY's
full-power operating license was issued. At the appropriate time, MYAPC will
determine whether to seek recapture of this construction period from the NRC and
add it to the term of the MY operating license. In 1996, MY operated at a
capacity factor of 65.5 percent.
By order issued on January 3, 1996, the NRC suspended MY's authority to
operate at full power and limited MY to operating at 90 percent power pending
the NRC's review and approval of a computer code application used at MY. The
plant was taken out of service on December 5, 1996 after finding that certain
cables did not have the proper separation required by the plant's design and
licensing basis to protect them during accident conditions. MYAPC has agreed
not to restart the plant until it completes a number of actions required by the
NRC and prior to receiving NRC approval.
On January 29, 1997, the NRC announced that MY had been placed on the NRC's
watch list as a Category 2 plant. Plants in this category have been identified
as having weaknesses that warrant increased NRC attention until the licensee
demonstrates a period of improved performance. The NRC cited a number of
deficiencies in the engineering design to support operations at MY, which were
identified by an independent safety assessment team during the latter half of
1996. Although MY has developed a plan and initiated steps to correct the
problems, including entering into an agreement with Entergy Corporation to
acquire outside management expertise in the operation of the facility, the NRC
indicated that increased agency attention was still needed.
The System cannot estimate when MY will return to service and expects that
there will be substantial costs associated with the NRC's actions that cannot be
accurately estimated at this time.
VERMONT YANKEE
VY, a 514-MW boiling water reactor, has a license expiration date of March
21, 2012. In 1996, VY operated at a capacity factor of 81.4 percent. VY had a
57-day planned refueling outage during 1996 that ended on November 1, 1996. The
unit expects to begin a 56-day planned refueling and maintenance outage on
September 28, 1998.
YANKEE ROWE
In 1992, YAEC's owners voted to shut down Yankee Rowe permanently based on
an economic evaluation of the cost of a proposed safety review, the reduced
demand for electricity in New England, the price of alternative energy sources
and uncertainty about certain regulatory requirements. The power contracts
between CL&P, PSNH, WMECO, and other owners, and YAEC permit YAEC to recover
from each its proportional share of the Yankee Rowe shutdown and decommissioning
costs. For more information regarding the decommissioning of Yankee Rowe, see
"Decommissioning," below.
NUCLEAR INSURANCE
The NRC requires nuclear plant licensees to maintain a minimum of $1.06
billion in nuclear property and decontamination insurance coverage. The NRC
requires that proceeds from the policy following an accident that exceed $100
million will first be applied to pay expenses. The insurance carried by the
licensees of the Millstone units, Seabrook 1, CY, MY and VY meets the NRC's
requirements. YAEC has obtained an exemption for Yankee Rowe from the $1.06
billion requirement and currently carries $25 million of insurance that
otherwise meets the requirements of the rule. CYAPC expects to seek a similar
exemption for CY in 1997. For more information regarding nuclear insurance, see
"Commitments and Contingencies--Nuclear Insurance Contingencies" in the notes to
NU's, CL&P's, PSNH's, WMECO's and NAEC's financial statements.
NUCLEAR FUEL
The supply of nuclear fuel for the System's existing units requires the
procurement of uranium concentrates, followed by the conversion, enrichment and
fabrication of the uranium into fuel assemblies suitable for use in the System's
units. The majority of the System companies' uranium enrichment services
requirements is provided under a long-term contract with the United States
Enrichment Corporation (USEC), a wholly owned United States government
corporation. The majority of Seabrook's uranium enrichment services
requirements is furnished through a Russian trading company. The System expects
that uranium concentrates and related services for the units operated by the
System and for the other units in which the System companies are participating,
that are not covered by existing contracts, will be available for the
foreseeable future on reasonable terms and prices.
In August 1995, NAESCO filed a complaint in the United States Court of
Federal Claims challenging the propriety of the prices charged by the USEC for
uranium enrichment services procured for Seabrook Station in 1993. The
complaint is an appeal of the final decision rendered by the USEC contracting
officer denying NAESCO's claims, which range from $2.5 to $5.8 million, and will
likely be considered along with similar complaints that are pending before the
court on behalf of 13 other utilities. The NAESCO complaint has been suspended
pending the outcome of an appeal in another proceeding involving a similar
complaint.
As a result of the Energy Act, the United States commercial nuclear power
industry is required to pay the United States Department of Energy (DOE),
through a special assessment for the costs of the decontamination and
decommissioning of uranium enrichment plants owned by the United States
government, no more than $150 million per annum for 15 years beginning in 1993.
Each domestic nuclear utility's payment is based on its pro rata share of all
enrichment services received by the United States commercial nuclear power
industry from the United States government through October 1992. Each year, the
DOE adjusts the annual assessment using the Consumer Price Index. The Energy
Act provides that the assessments are to be treated as reasonable and necessary
current costs of fuel, which costs shall be fully recoverable in rates in all
jurisdictions. The System's total share of the estimated assessment was
approximately $62.8 million. Management believes that the DOE assessments
against CL&P, WMECO, PSNH and NAEC will be recoverable in future rates.
Accordingly, each of these companies has recognized these costs as a regulatory
asset, with a corresponding obligation on its balance sheet.
In June 1995, the United States Court of Federal Claims held that, as
applied to YAEC, the Uranium Enrichment Decontamination and Decommissioning Fund
is an unlawful add-on to the bargained-for contract price for enriched uranium.
As a result, the federal government must refund the approximately $3.0 million
that YAEC has paid into the fund since its inception. NU is evaluating the
applicability of this decision to the $21 million that the System companies have
already paid into the fund, and whether this alters the System companies'
obligation to pay such special assessments in the future. The decision as to
YAEC has been appealed by the federal government.
Nuclear fuel costs associated with nuclear plant operations include amounts
for disposal of nuclear waste. The System companies include in their nuclear
fuel expense spent fuel disposal costs accepted by the DPUC, NHPUC and DPU in
rate case or fuel adjustment decisions. Spent fuel disposal costs also are
reflected in FERC-approved wholesale charges.
HIGH-LEVEL RADIOACTIVE WASTE
The Nuclear Waste Policy Act of 1982 (NWPA) provides that the federal
government is responsible for the permanent disposal of spent nuclear reactor
fuel and high-level waste. As required by the NWPA, electric utilities
generating spent nuclear fuel (SNF) and high-level waste are obligated to pay
fees into a fund which would be used to cover the cost of siting, constructing,
developing and operating a permanent disposal facility for this waste. The
System companies have been paying for such services for fuel burned starting in
April 1983 on a quarterly basis since July 1983. The DPUC, NHPUC and DPU permit
the fee to be recovered through rates.
In return for payment of the fees prescribed by the NWPA, the federal
government is to take title to and dispose of the utilities' high-level wastes
and spent nuclear fuel. The NWPA provides that a disposal facility be
operational and for the DOE to accept nuclear waste for permanent disposal in
1998. On March 3, 1997 CYAPCO, NAESCO and NUSCO intervened as parties in a
lawsuit brought in the U.S. Court of Appeals for the District of Columbia
Circuit by 35 nuclear utilities in late January, seeking additional action based
on the DOE's assertion that it expects to be unable to begin acceptance of spent
nuclear fuel for disposal by January 31, 1998. Among other requests for relief,
the lawsuit requests that utilities be relieved of their contractual obligation
with DOE to pay fees into the Nuclear Waste Fund and be authorized to place such
fee payments into escrow "unless and until" DOE begins accepting spent fuel for
disposal. The DOE's current estimate for an available site is 2010.
Until the federal government begins accepting nuclear waste for disposal,
operating nuclear generating plants will need to retain high-level waste and
spent fuel onsite or make some other provisions for their storage. With the
addition of new storage racks, storage facilities for Millstone 3 is expected to
be adequate for the projected life of the unit. With the implementation of
currently planned modifications, the storage facilities for Millstone 1 and 2
are expected to be adequate (maintaining the capacity to accommodate a full-core
discharge from the reactor) until 2003 and 2004, respectively. Fuel
consolidation, which has been licensed for Millstone 2, could provide adequate
storage capability for the projected lives of Millstone 1 and 2. Adequate
storage capacity exists to accommodate all of the SNF at CY. In addition, other
licensed technologies, such as dry storage casks or on-site transfers, are being
considered to accommodate spent fuel storage requirements. With the current
installation of new racks in its existing spent fuel pool, Seabrook is expected
to have spent fuel storage capacity until at least 2010.
MYAPC believes it has adequate storage capacity through MY's current
licensed operating life. The storage capacity of the spent fuel pool at VY is
expected to be reached in 2005 and the available capacity of the pool is
expected to be able to accommodate full-core removal until 2001.
Because the Yankee Rowe plant was permanently shut down in February 1992,
YAEC is considering the construction of a temporary facility to store the spent
nuclear fuel produced by the Yankee Rowe plant over its operating lifetime until
that fuel is removed by the DOE.
LOW-LEVEL RADIOACTIVE WASTE
The System currently has contracts to dispose its low-level radioactive
waste (LLRW) at two privately operated facilities in Clive, Utah and in
Barnwell, South Carolina. Because access to LLRW disposal may be lost at any
time, the System has plans that will allow for onsite storage of LLRW for at
least five years. Neither Connecticut nor New Hampshire have developed
alternatives to out-of-state disposal of LLRW to date. Both Maine and Vermont
are in the process of implementing an agreement with Texas to provide access to
a LLRW disposal facility that is to be developed in that state. All three
states plan to form a LLRW compact that is currently awaiting approval by
Congress.
DECOMMISSIONING
Based upon the System's most recent comprehensive site-specific updates of
the decommissioning costs for each of the three Millstone units and for
Seabrook, the recommended decommissioning method continues to be immediate and
complete dismantlement of those units at their retirement. The table below sets
forth the estimated Millstone and Seabrook decommissioning costs for the System
companies. The estimates are based on the latest site studies, escalated to
December 31, 1996 dollars.
CL&P PSNH WMECO NAEC System
(Millions)
Millstone 1 $316.0 $ - $ 74.1 $ - $ 390.1
Millstone 2 279.0 - 65.5 - 344.5
Millstone 3 244.9 13.2 56.6 - 314.7
Seabrook 18.3 - - 162.1 180.4
Total $858.2 $ 13.2 $196.2 $162.1 $1,229.7
As of December 31, 1996, the System recorded balances (at market) in its
external decommissioning trust funds as follows:
CL&P PSNH WMECO NAEC System
(Millions)
Millstone 1 $141.1 $ - $ 40.0 $ - $ 181.1
Millstone 2 92.5 - 27.0 - 119.5
Millstone 3 61.2 3.2 16.6 - 81.0
Seabrook 2.2 - - 19.7 21.9
Total $297.0 $ 3.2 $ 83.6 $ 19.7 $ 403.5
In 1986, the DPUC approved the establishment of separate external trusts
for the currently tax-deductible portions of decommissioning expense accruals
for Millstone 1 and 2 and for all expense accruals for Millstone 3. The DPUC
has authorized CL&P to collect its current decommissioning estimate for the
three Millstone units from customers. This estimate includes an approximate 16
percent contingency factor for the decommissioning cost of each unit.
WMECO has established independent trusts to hold all decommissioning
expense collections from customers. The DPU has authorized WMECO to collect its
current decommissioning estimate for the three Millstone units.
New Hampshire enacted a law in 1981 requiring the creation of a state-
managed fund to finance decommissioning of any units in that state. NAEC's
costs for decommissioning are billed by it to PSNH and recovered by PSNH under
the Rate Agreement. Under the Rate Agreement, PSNH is entitled to a base rate
increase to recover increased decommissioning costs. In its recent restructuring
orders, the NHPUC determined that PSNH would be allowed to recover
decommissioning costs through stranded cost charges. See "Rates--New Hampshire
Retail Rates" for further information on the Rate Agreement and restructuring.
The decommissioning cost estimates for the System nuclear units are
reviewed and updated regularly to reflect inflation and changes in
decommissioning requirements and technology. Changes in requirements or
technology, or adoption of a decommissioning method other than immediate
dismantlement, could change these estimates. CL&P, PSNH and WMECO attempt to
recover sufficient amounts through their 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 System companies. Based on present estimates, and assuming its
nuclear units operate to the end of their respective license periods, the System
expects that the decommissioning trust funds will be substantially funded when
those expenditures have to be made.
CYAPC, YAEC, VYNPC and MYAPC are all collecting revenues for
decommissioning from their power purchasers. The table below sets forth the
System companies' estimated share of decommissioning costs of the Yankee units.
The estimates are based on the latest site studies, escalated to December 31,
1996 dollars. For information on the equity ownership of the System companies
in each of the Yankee units, see "Electric Operations--Nuclear Generation--
General."
CL&P PSNH WMECO System
(Millions)
VY $ 34.8 $ 14.6 $ 9.1 $ 58.5
Yankee Rowe* 42.5 12.1 12.1 66.7
CY* 263.2 38.1 72.5 373.8
MY 44.3 18.5 11.1 73.9
Total $384.8 $ 83.3 $104.8 $572.9
* As discussed more fully below, the costs shown include all remaining
decommissioning costs and other closing costs associated with the early
retirement of Yankee Rowe and CY as of December 31, 1996.
As of December 31, 1996, the System's share of the external decommissioning
trust fund balances (at market), which have been recorded on the books of the
Yankee Companies, is as follows:
CL&P PSNH WMECO System
(Millions)
VY $ 15.1 $ 6.4 $ 4.0 $ 25.5
Yankee Rowe 29.4 8.4 8.4 46.2
CY 70.6 10.2 19.4 100.2
MY 19.6 8.2 4.9 32.7
Total $134.7 $33.2 $36.7 $204.6
Effective January 1996, YAEC began billing its sponsors, including CL&P,
WMECO and PSNH, amounts based on a revised estimate approved by the FERC that
assumes decommissioning by the year 2000. This revised estimate was based on
continued access to the Barnwell, South Carolina, low-level radioactive waste
facility, changes in assumptions about earnings on decommissioning trust
investments, and changes in other decommissioning cost assumptions.
CYAPC accrues decommissioning costs on the basis of immediate dismantlement
at retirement. In late December 1996, CYAPC made a filing with FERC to amend
the wholesale power contracts between the owners of the facility, and revise
decommissioning cost estimates and other cost estimates for the facility. The
amendments clarify the owners' entitlement to full recovery of sunk costs and
the ongoing costs of maintaining the plant in accordance with NRC rules until
decommissioning begins, and ensures that decommissioning will continue to be
funded through June 2007, the full license term, despite the unit's earlier
shutdown. On February 26, 1997, FERC approved a draft order setting for hearing
the prudence of the decision to close CY. FERC will determine the prudence of
CYAPC's decision to retire the plant before it finally determines the justness
and reasonableness of CY's proposed amended power contract rates.
For more information regarding nuclear decommissioning, see "Nuclear
Decommissioning" in the notes to NU's, CL&P's, PSNH's, WMECO's and NAEC's
financial statements.
ENERGY-RELATED BUSINESSES
PRIVATE POWER DEVELOPMENT
The System participates as a developer and investor in domestic and
international private power projects through its subsidiary, Charter Oak.
Management currently does not permit Charter Oak to invest in facilities which
are located within the System service territory or sell electric output to any
of the System electric utility companies. Charter Oak is investing primarily in
projects outside of the United States.
Charter Oak owns, through wholly owned special-purpose subsidiaries, a 10
percent equity interest in a 220-MW natural gas-fired combined-cycle
cogeneration QF in Texas, a 56-MW interest in a 1,875-MW natural gas-fired
cogeneration facility in the United Kingdom, a 33 percent equity interest in a
114-MW natural gas-fired project in Argentina, a 20-MW wind-power project in
Costa Rica and an 83 percent interest in a 168 MW natural gas fired project in
Argentina.
Charter Oak is currently participating in the development of other projects
in Latin America and the Pacific Rim. Specifically, Charter Oak is engaged in
financing a 200-MW coal fired project in Inner Mongolia in the Peoples Republic
of China and in developing a 30-MW wind-power project in New Zealand and a 100-
MW natural gas fired project in Argentina. Charter Oak will own 50-MW, 15-MW and
51-MW interests in these respective projects.
Although Charter Oak has no full-time employees, 15 NUSCO employees are
dedicated to Charter Oak activities on a full-time basis. Other NUSCO employees
provide services as required. NU's Board of Trustees has authorized investments
up to $200 million in Charter Oak through December 31, 1998. NU's total
investment in Charter Oak was approximately $87 million as of December 31, 1996.
ENERGY MANAGEMENT SERVICES
In 1990, NU organized a subsidiary corporation, HEC, to acquire
substantially all of the assets and personnel of a nonaffiliated energy
management services company. In general, HEC contracts to reduce its customers'
energy costs and/or conserve energy and other resources. HEC also provides DSM
consulting services to utilities and others. HEC's energy management and
consulting services have primarily been directed to the commercial, industrial
and institutional markets and utilities in New England and New York. NU's
aggregate equity investment in HEC was approximately $4 million as of December
31, 1996.
TELECOMMUNICATIONS
In 1996, NU organized a telecommunications subsidiary, Mode 1. On May 30,
1996, the Federal Communications Commission approved Mode 1's application to
become an "exempt telecommunications company." The order will allow NU to
participate in a wide range of telecommunications activities both within and
outside New England. Mode 1 has filed to obtain a state-wide certificate of
public convenience and necessity in Connecticut and expects to make additional
state regulatory filings in 1997 for approval to engage in various
telecommunications activities. The System companies also may seek approval to
transfer certain of their telecommunications facilities and equipment to Mode 1
in 1997.
Mode 1 has acquired a 9.9 percent interest in FiveCom LLC (FiveCom) for
approximately $1.3 million and a 40 percent interest in NECOM LLC (NECOM) for
$5.3 million. FiveCom owns the remaining 60 percent interest in NECOM. NECOM is
constructing a 310 mile fiber optic communications system placed on the System's
transmission facilities. NU's total investment in Mode 1 was approximately $6.8
million as of December 31, 1996. NU expects to invest up to approximately $20
million in Mode 1 in 1997 for telecommunications activities, including the
construction and purchase of additional facilities as well as the development of
new business opportunities.
ENERGY PRODUCTS AND SERVICES
NU also organized another subsidiary, Energy Partners, in 1996. In late
1996, PSNH transferred its interest in PSNH Energy, a competitive supplier in
the New Hampshire retail electric competition pilot program, to Energy Partners.
See "Rates--New Hampshire Retail Rates--Electric Industry Restructuring in New
Hampshire". This subsidiary will be a vehicle for participation in other retail
pilot competition programs and open-access retail electric markets in the
Northeast and other areas of the country as appropriate. In addition, Energy
Partners is in the process of developing energy-related products and services in
order to enhance its core electric service and customer relationships. Energy
Partners has taken steps to establish strategic alliances with other companies
in various energy-related fields including fuel supply and management, power
quality, energy efficiency and load management services.
OTHER REGULATORY AND ENVIRONMENTAL MATTERS
ENVIRONMENTAL REGULATION
GENERAL
The System and its subsidiaries are subject to federal, state and local
regulations with respect to water quality, air quality, toxic substances,
hazardous waste and other environmental matters. Similarly, the System's major
generation and transmission facilities may not be constructed or significantly
modified without a review by the applicable state agency of the environmental
impact of the proposed construction or modification. Compliance with
environmental laws and regulations, particularly air and water pollution control
requirements, may limit operations or require substantial investments in new
equipment at existing facilities. See "Resource Plans" for a discussion of the
System's construction plans.
SURFACE WATER QUALITY REQUIREMENTS
The federal Clean Water Act (CWA) requires every "point source" discharger
of pollutants into navigable waters to obtain a National Pollutant Discharge
Elimination System (NPDES) permit from the United States Environmental
Protection Agency (EPA) or state environmental agency specifying the allowable
quantity and characteristics of its effluent. System facilities have all
required NPDES permits in effect. Compliance with NPDES and state water
discharge permits has necessitated substantial expenditures and may require
further expenditures because of additional requirements that could be imposed in
the future. For information regarding ongoing criminal investigations by the
Office of the U. S. Attorney for the District of Connecticut related to
allegations that there were some violations of certain facilities' NPDES
permits, see "Item 3. Legal Proceedings."
In October 1995, the Connecticut Department of Environmental Protection
(CDEP) issued a consent order to CL&P and the Long Island Lighting Company
(LILCO) requiring those companies to address leaks of dielectric fluids from the
Long Island cable, which is jointly owned by CL&P and LILCO. This cable enables
CL&P to interchange up to 300 MW of capacity with LILCO. In May 1996, the
consent order was modified to address issues relating to a leak, which occurred
in January, 1996. The modified order requires CL&P and LILCO to study and
propose alternatives for the prevention, detection and mitigation of leaks from
the cable and to evaluate the ecological effects of leaks on the environment.
Alternatives to be studied include cable replacement and alternative dielectric
fluids. These studies are ongoing. The System will incur additional costs to
meet the requirements of the order and to meet any subsequent CDEP requirements
that may result from these studies. These costs, as well as the long-term
future and cost-effectiveness of the cable operation subsequent to any
additional CDEP requirements, cannot be estimated at this time.
The United States Attorney's Office in New Haven, Connecticut has
commenced an investigation and issued subpoenas to CL&P, NU, NUSCO, CONVEX and
LILCO seeking documents relating to operation and maintenance of the cable and
the most recent leaks from the cable described above. The government has not
revealed the scope of its investigation, so 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 a criminal
proceeding. For information regarding a lawsuit related to discharges from the
cable, see "Item 3. Legal Proceedings."
Merrimack Station's NPDES permit requires site work to isolate adjacent
wetlands from the station's wastewater system. Plans have been approved by the
New Hampshire Department of Environmental Services (NHDES). PSNH will submit the
permit application to begin construction in early 1997. The Merrimack permit
also requires PSNH to perform further biological studies because significant
numbers of migratory fish are being restored to lower reaches of the Merrimack
River. These studies have been completed and results have been reported to the
EPA. The findings from these studies indicate that Merrimack Station's once-
through cooling system does not interfere with the establishment of a balanced
aquatic community. However, if the agencies determine that interference exists,
PSNH could be required to construct a partially enclosed cooling water system
for Merrimack Station. The amount of capital expenditures relating to the
foregoing cannot be determined at this time. However, if such expenditures were
required, they would likely be substantial and/or a reduction of Merrimack
Station's net generation capability could result.
The ultimate cost impact of the CWA and state water quality regulations on
the System cannot be estimated because of uncertainties such as the impact of
changes to the effluent guidelines or water quality standards. Additional
modifications, in some cases extensive and involving substantial cost, may
ultimately be required for some or all of the System's generating facilities.
The Federal Oil Pollution Act of 1990 (OPA 90) sets out the requirements
for facility response plans and periodic inspections of spill response equipment
at facilities that can cause substantial harm to the environment by discharging
oil or hazardous substances into the navigable waters of the United States and
onto adjoining shorelines. The System Companies are currently in compliance
with the requirements of OPA 90.
OPA 90 includes limits on the liability that may be imposed on persons
deemed responsible for release of oil. The limits do not apply to oil spills
caused by negligence or violation of laws or regulations. OPA 90 also does not
preempt state laws regarding liability for oil spills. In general, the laws of
the states in which the System owns facilities and through which the System
transports oil could be interpreted to impose strict liability for the cost of
remediating releases of oil and for damages caused by releases. The System
currently carries general liability insurance in the total amount of $100
million per occurrence for oil spills.
AIR QUALITY REQUIREMENTS
The Clean Air Act Amendments of 1990 (CAAA) impose stringent requirements
on emissions of sulfur dioxide (SO2) and nitrogen oxide (NOX) for the purpose of
controlling acid rain and ground level ozone. In addition, the CAAA address the
control of toxic air pollutants. Installation of continuous emissions monitors
(CEMs) and expanded permitting provisions also are included.
Existing and future federal and state air quality regulations, including
recently proposed standards, could hinder or possibly preclude the construction
of new, or the modification of existing, fossil units in the System's service
area and could raise the capital and operating cost of existing units. The
ultimate cost impact of these requirements on the System cannot be estimated
because of uncertainties about how EPA and the states will implement various
requirements of the CAAA.
Nitrogen Oxide. Title I of the CAAA identifies NOX emissions as a
precursor of ambient ozone. Connecticut, Massachusetts and New Hampshire, as
well as other Northeastern states, currently exceed the ambient air quality
standard for ozone. Pursuant to the CAAA, states exceeding the ozone standard
must implement plans to address ozone nonattainment. All three states have
issued final regulations to implement Phase I reduction requirements and the
System has met these requirements. Compliance with Phase I requirements has cost
the System a total of approximately $41 million: $10 million for CL&P, $27
million for PSNH, $1 million for WMECO and $3 million for HWP. Compliance has
been achieved using a combination of currently available technology, combustion
efficiency improvements and emissions trading. Compliance costs for Phase II,
effective in 1999, are expected to result in an additional cost of approximately
$5 million for CL&P, but are not expected to be material for PSNH, WMECO and
HWP.
Sulfur Dioxide. The CAAA mandates reductions in SO2 emissions to
control acid rain. These reductions are to occur in two phases. First, certain
high SO2 emitting plants were required to reduce their emissions beginning in
1995. All Phase I units have been allocated SO2 allowances for the period 1995-
1999. These allowances are freely tradable. One allowance entitles a source to
emit one ton of SO2. No unit may emit more SO2 than the amount for which it has
allowances. The only System units subject to the Phase I reduction requirements
are PSNH's Merrimack Units 1 and 2. Newington Station in New Hampshire and Mt.
Tom Station in Massachusetts are conditional Phase I units, which means that the
System can decide to include these plants as Phase I units during any year and
obtain allowances for that year. The System included these plants as Phase I
units in 1996.
On January 1, 2000, the start of Phase II, a nationwide cap of 8.9 million
tons per year of utility SO2 emissions will be imposed and existing units will
be granted allowances to emit SO2. Most of the System companies' allocated
allowances will substantially exceed their expected SO2 emissions for 2000 and
subsequent years, except for PSNH, which expects to purchase additional SO2
allowances.
New Hampshire and Massachusetts have each instituted acid rain control laws
that limit SO2 emissions. The System is meeting the new SO2 limitations by
using natural gas and/or lower sulfur coal in its plants. Under the existing
fuel adjustment clauses in Connecticut, New Hampshire and Massachusetts, the
System should be able to recover the additional fuel costs of compliance with
the CAAA and state laws from its customers. For more information regarding a
prudence hearing in New Hampshire on costs associated with PSNH's capital
expenditures to comply with Phase I reduction requirements, see "Rates--New
Hampshire Retail Rates--FPPAC and Prudence."
Management does not believe that the acid rain provisions of the CAAA will
have a significant impact on the System's overall costs or rates due to the very
strict limits on SO2 emissions already imposed by Connecticut, New Hampshire and
Massachusetts. In addition, management believes that Title IV of the CAAA (acid
rain) requirements for NOX limitations will not have a significant impact on
System costs due to the more stringent NOX limitations resulting from Title I of
the CAAA discussed above.
EPA, Connecticut, New Hampshire and Massachusetts regulations also include
other air quality standards, emission standards and monitoring and testing and
reporting requirements that apply to the System's generating stations. They
require new or modified fossil fuel-fired electric generating units to operate
within stringent emission limits. The System could incur additional costs to
meet these requirements, which costs cannot be estimated at this time.
Air Toxics. Title III of the CAAA directed EPA to study air toxics and
mercury emissions from fossil fired steam electric generation units to determine
if they should be regulated. EPA exempted these plants from the hazardous air
pollutant program pending completion of the studies, expected in 1997 or 1998.
Should EPA determine that such generating plants' emissions must be controlled
to the same extent as emissions from other sources under Title III, the System
could be required to make substantial capital expenditures to upgrade or replace
pollution control equipment, but the amount of these expenditures cannot be
readily estimated.
TOXIC SUBSTANCES AND HAZARDOUS WASTE REGULATIONS
PCBs. Under the federal Toxic Substances Control Act of 1976 (TSCA), EPA
has issued regulations that control the use and disposal of polychlorinated
biphenyls (PCBs). PCBs had been widely used as insulating fluids in many
electric utility transformers and capacitors before TSCA prohibited any further
manufacture of such PCB equipment. System companies have taken numerous steps
to comply with these regulations and have incurred increased costs for disposal
of used fluids and equipment that are subject to the regulations.
In general, the System sends fluids with concentrations of PCBs equal to or
higher than 500 ppm to an unaffiliated company to dispose of using approved
methods. Electrical capacitors that contain PCB fluid are sent off-site to
dispose of through burning in high temperature incinerators approved by EPA.
The System disposes of solid wastes containing PCBs in secure chemical waste
landfills.
Asbestos. Federal, Connecticut, New Hampshire and Massachusetts asbestos
regulations have required the System to expend significant sums in the past on
removal of asbestos, including measures to protect the health of workers and the
general public and to properly dispose of asbestos wastes. Asbestos removal
costs for the System are not expected to be material in 1997.
RCRA. Under the federal Resource Conservation and Recovery Act of 1976, as
amended (RCRA), the generation, transportation, treatment, storage and disposal
of hazardous wastes are subject to EPA regulations. Connecticut, New Hampshire
and Massachusetts have adopted state regulations that parallel RCRA regulations
but in some cases are more stringent. The procedures by which System companies
handle, store, treat and dispose of hazardous wastes are regularly revised,
where necessary, to comply with these regulations.
Hazardous Waste Liability. As many other industrial companies have done in
the past, System companies disposed of residues from operations by depositing or
burying such materials on-site or disposing of them at off-site landfills or
facilities. Typical materials disposed of include coal gasification waste, fuel
oils, gasoline and other hazardous materials that might contain PCBs. It has
since been determined that deposited or buried wastes, under certain
circumstances, could cause groundwater contamination or create other
environmental risks. The System has recorded a liability for what it believes
is, based upon currently available information, its estimated environmental
remediation costs for waste disposal sites for which the System companies expect
to bear legal liability, and continues to evaluate the environmental impact of
its former disposal practices. Under federal and state law, government agencies
and private parties can attempt to impose liability on System companies for such
past disposal. As of December 31, 1996, the liability recorded by the System
for its estimated environmental remediation costs for known sites needing
remediation including those sites described below, exclusive of recoveries from
insurance or third parties, was approximately $13 million. These costs could be
significantly higher if alternative remedies become necessary.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, commonly known as Superfund, EPA has the
authority to cleanup or order cleanup of hazardous waste sites and to impose the
cleanup costs on parties deemed responsible for the hazardous waste activities
on the sites. Responsible parties include the current owner of a site, past
owners of a site at the time of waste disposal, waste transporters and waste
generators. It is EPA's position that all responsible parties are jointly and
severally liable, so that any single responsible party can be required to pay
the entire costs of cleaning up the site. As a practical matter, however, the
costs of cleanup are usually allocated by agreement of the parties, or by the
courts on an equitable basis among the parties deemed responsible, and several
federal appellate court decisions have rejected EPA's position on strict joint
and several liability. Superfund also contains provisions that require System
companies to report releases of specified quantities of hazardous materials and
require notification of known hazardous waste disposal sites. System companies
are in compliance with these reporting and notification requirements.
The System currently is involved in two Superfund sites in Connecticut, one
in Kentucky, one in New Jersey and two in New Hampshire. The level of study of
each site and the information about the waste contributed to the site by the
System and other parties differs from site to site. Where reliable information
is available that permits the System to make a reasonable estimate of the
expected total costs of remedial action and/or the System's likely share of
remediation costs for a particular site, those cost estimates are provided
below. All cost estimates were made in accordance with generally accepted
accounting principles where remediation costs were probable and reasonably
estimable. Any estimated costs disclosed for cleaning up the sites discussed
below were determined without consideration of possible recoveries from third
parties, including insurance recoveries. Where the System has not accrued a
liability, the costs either were not material or there was insufficient
information to accurately assess the System's exposure.
At two Connecticut sites, the Beacon Heights and Laurel Park landfills, the
major parties formed coalitions and joined as defendants a number of other
parties including "Northeast Utilities (Connecticut Light and Power)" (NU
[CL&P]). Litigation on both sites was consolidated in a single case in the
federal district court. In 1993, the coalitions' claims against a number of
defendants including NU (CL&P) were dismissed. In 1994, the Beacon Heights
Coalition indicated that they would not pursue NU (CL&P) as a defendant. As a
result, CL&P does not expect to incur cleanup costs for the Beacon Heights site.
Meanwhile, the coalitions appealed the 1993 federal district court dismissal,
which was overturned. A petition for rehearing was filed and it is unlikely the
district court will take further action until the petition is resolved. In any
event, CL&P's liability at the Laurel Park site is expected to be minimal
because of the non-hazardous nature and small volume of the materials that were
sent there.
The System had sent a substantial volume of LLRW from Millstone 1,
Millstone 2 and CY to the Maxey Flats nuclear waste disposal site in Fleming
County, Kentucky. On April 18, 1996, the U.S. District Court for the Eastern
District of Kentucky approved a consent decree between EPA and members of the
Maxey Flats PRP Steering Committee, including System companies, and several
federal government agencies, including DOE and the Department of Defense as well
as the Commonwealth of Kentucky. The System has recorded a liability for future
remediation costs for this site based on its share of ultimate remediation costs
under the tentative agreement. The System's liability at the site has been
assessed at slightly over $1 million.
PSNH has committed in the aggregate approximately $300,000 to its share of
the clean up of two municipal landfill Superfund sites in Dover and North
Hampton, New Hampshire. Some additional costs may be incurred at these sites,
but they are not expected to be significant.
CL&P, as successor to The Hartford Electric Light Company (HELCO), has been
named as one of over 100 defendants in a cost recovery action filed in the
federal district court in New Jersey. Plaintiffs have not disclosed the amount
of the recovery they are seeking and, due to the nature of HELCO's limited
dealings with the plaintiffs, CL&P believes its liability is minimal.
As discussed below, in addition to the remediation efforts for the above-
mentioned Superfund sites, the System has been named as a PRP and is monitoring
developments in connection with several state environmental actions.
In 1987, CDEP published a list of 567 hazardous waste disposal sites in
Connecticut. The System owns two sites on this list. The System has spent
approximately $2.7 million, as of December 31, 1996, completing investigations
and limited remediation at these sites. Both sites were formerly used by CL&P
predecessor companies for the manufacture of coal gas (also known as town gas
sites) from the late 1800s to the 1950s. This process resulted in the
production of coal tar and creosote residues and other byproducts, which, when
not sold for other industrial or commercial uses, were frequently deposited on
or near the production facilities. Site investigations have been completed at
these sites and discussions with state regulators are in progress to address the
need and extent of remediation necessary to protect public health and the
environment.
One of the sites is a 25.8-acre site located in the south end of Stamford,
Connecticut. Site investigations have located coal tar deposits covering
approximately 5.5 acres and having a volume of approximately 45,000 cubic yards.
A final risk assessment report for the site was completed in January 1994. The
System is currently considering redevelopment of the site in cooperation with
the local municipality as part of the State of Connecticut's Urban Sites
Program. Several remedial options have been evaluated to remediate the site, if
necessary to accommodate redevelopment. The estimated cost of remediation and
institutional controls range from $5 to $8 million.
The second site is a 3.5-acre former coal gasification facility that
currently serves as an active substation in Rockville, Connecticut. Site
investigations have located creosote and other polyaromatic hydrocarbon
contaminants that may require remediation. Several options are being evaluated
to remediate the site, if necessary. Meetings with the CDEP and local officials
will take place in 1997. CL&P will present a long-term plan for the site.
As part of the 1989 divestiture of CL&P's gas business, site investigations
were performed for properties that were transferred to Yankee Gas Services
Company (Yankee Gas). CL&P agreed to accept liability for any required cleanup
for the three sites it retained. These three sites include Stamford and
Rockville (discussed above) and Torrington, Connecticut. At the Torrington
site, investigations have been completed and the cost of any remediation, if
necessary, is not expected to be material. CL&P and Yankee Gas also share a
site in Winsted, Connecticut and any liability for required cleanup there. CL&P
and Yankee Gas will share the costs of cleanup of sites formerly used in CL&P's
gas business but not currently owned by either of them.
PSNH contacted NHDES in December 1993 concerning possible coal tar
contamination in Laconia, New Hampshire in Lake Opechee and the Winnipesaukee
River near an area where PSNH and a second PRP formerly owned and operated a
coal gasification plant from the late 1800's to the 1950's. A comprehensive site
investigation was completed in December 1996. This study has shown that
byproducts from the operation of the former manufactured gas plant are present
in groundwater, subsurface soil and in the sediments of the adjacent
Winnipesaukee River. Remediation estimates range from $3 to $4 million.
Discussions with the NHDES will take place early in 1997 to determine the extent
of remediation necessary. An interim cost sharing agreement with a second PRP
wherein this PRP contributed 25% to the cost of the site investigations has
ended. PSNH will enter into negotiations to reassess future cost allocation.
A second coal gasification facility formerly owned and operated by a
predecessor company to PSNH is located in Keene, New Hampshire. The NHDES has
been notified of the presence of coal tar contamination and further site
investigations were completed in 1996. The NHDES has requested additional
studies to be completed in 1997. PSNH also will inform a second PRP who
formerly owned and operated the gas facility of site conditions. Additional New
Hampshire sites include several former manufactured gasification facilities, an
inactive ash landfill located at Dover Point and a municipal landfill in
Peterborough. Historic reviews of these sites are ongoing. Studies are ongoing
at the Dover Point site and plans to further determine if metals are migrating
from the site to the adjacent Piscataqua River are being developed. These
results will be discussed with the NHDES in 1997 to determine the scope of these
investigations. PSNH's liability at these sites cannot be estimated at this
time.
In Massachusetts, System companies have been designated by the
Massachusetts Department of Environmental Protection (MDEP) as PRPs for twelve
sites under MDEP's hazardous waste and spill remediation program. At two sites,
the System may incur remediation costs that may be material to HWP depending on
the remediation requirements. At one site, HWP has been identified by MDEP as
one of three PRPs in a coal tar site in Holyoke, Massachusetts. HWP owned and
operated the Holyoke Gas Works from 1859 to 1902. The site is located on the
east side of Holyoke, adjacent to the Connecticut River and immediately
downstream of HWP's Hadley Falls Station. MDEP has designated both the land and
river deposit areas as priority waste disposal sites. Due to the presence of
tar patches in the vicinity of the spawning habitat of the shortnose sturgeon---
an endangered species--the National Oceanographic and Atmospheric Administration
(NOAA) and National Marine Fisheries Service have taken an active role in
overseeing site activities. Both MDEP and NOAA have notified the PRPs of the
need to remove tar deposits from the river. During 1996, HWP conducted a pilot
project to assess the feasibility and costs of tar removal. Results of this
project are currently being evaluated. To date, HWP has spent approximately $1
million for river studies and construction costs related to the site. The total
estimated costs for remediation of tar patches in the river range from $2 to $3
million. Discussions of the results of the pilot study will be presented to the
MADEP in early 1997.
The second site is a former manufactured gas plant facility in Easthampton,
Massachusetts. WMECO predecessor companies owned and operated the Easthampton
Gas Works from 1864 to 1924. Previous investigations have identified coal tar
deposits on the land portion of the site. During fall, 1996, WMECO conducted
additional investigative work in an adjacent pond. The results of this work are
currently being analyzed. A report will be submitted to the MDEP in 1997 which
will better define the extent of coal tar deposits in the pond. To date, WMECO
has spent approximately $200,000 dollars for investigative work. The total
estimated remediation costs for the site are estimated to range from $1 to $4.6
million.
In the past, the System has received other claims from government agencies
and third parties for the cost of remediating sites not currently owned by the
System but affected by past System disposal activities and may receive more such
claims in the future. The System expects that the costs of resolving claims for
remediating sites about which it has been notified will not be material, but
cannot estimate the costs with respect to sites about which it has not been
notified.
ELECTRIC AND MAGNETIC FIELDS
In recent years, published reports have discussed the possibility of
adverse health effects from electric and magnetic fields (EMF) associated with
electric transmission and distribution facilities and appliances and wiring in
buildings and homes. Most researchers, as well as numerous scientific review
panels considering all significant EMF epidemiological and laboratory research
to date, agree that current information remains inconclusive, inconsistent and
insufficient for risk assessment of EMF exposures. Most recently, a review
issued in October 1996 by the U.S. National Academy of Sciences concluded "that
the current body of evidence does not show that exposure to these fields
presents a human-health hazard." Based on this information management does not
believe that a causal relationship between EMF exposure and adverse health
effects has been established or that significant capital expenditures are
appropriate to minimize unsubstantiated risks. NU is closely monitoring
research and government policy developments.
The System supports further research into the subject and is voluntarily
participating in the funding of the ongoing National EMF Research and Public
Information Dissemination Program. If further investigation were to demonstrate
that the present electricity delivery system is contributing to increased risk
of cancer or other health problems, the industry could be faced with the
difficult problem of delivering reliable electric service in a cost-effective
manner while managing EMF exposures. In addition, if the courts were to
conclude that individuals have been harmed and that utilities are liable for
damages, the potential monetary exposure for all utilities, including the System
companies, could be enormous. Without definitive scientific evidence of a
causal relationship between EMF and health effects, and without reliable
information about the kinds of changes in utilities' transmission and
distribution systems that might be needed to address the problem, if one is
found, no estimates of the cost impacts of remedial actions and liability awards
are available.
The Connecticut Interagency EMF Task Force (Task Force) last provided a
report to the state legislature in January 1995. The Task Force advocated a
policy of "voluntary exposure control," which involves providing people with
information to enable them to make individual decisions about EMF exposure.
Neither the Task Force, nor any Connecticut state agency, has recommended
changes to the existing electrical supply system. The Task Force is required to
provide another report to the legislature by 1998. The Connecticut Siting
Council (Siting Council) previously adopted a set of EMF "Best Management
Practices," which are now considered in the justification, siting and design of
new or modified transmission lines and substations. In 1996, the Siting Council
concluded a generic proceeding in which it conducted a comparative life-cycle
cost analysis of overhead and underground transmission lines, pursuant to a law
that was adopted in 1994 in part due to public EMF concerns. This proceeding is
expected to be referenced in future comparisons of overhead and underground
alternatives to proposed transmission line projects.
EMF has become increasingly important as a factor in facility siting
decisions in many states, and local EMF concerns occasionally make the news when
utilities propose new or changed facilities. In prior years, various bills
involving EMF were introduced in the Massachusetts and Connecticut legislatures
with no action taken. No such bills were introduced in either state in 1996.
CL&P has been the focus of media reports since 1990 charging that EMF
associated with a substation and related distribution lines in Guilford,
Connecticut are linked with various cancers and other illnesses in several
nearby residents. See "Item 3. Legal Proceedings", for information about two
suits brought by plaintiffs who now or formerly lived near that substation.
FERC HYDRO PROJECT LICENSING
Federal Power Act licenses may be issued for hydroelectric projects for
terms of 30 to 50 years as determined by FERC. Upon the expiration of a
license, any hydroelectric project so licensed is subject to reissuance by FERC
to the existing licensee or to others upon payment to the licensee of the lesser
of fair value or the net investment in the project plus severance damages less
certain amounts earned by the licensee in excess of a reasonable rate of return.
The System companies hold FERC licenses for 19 hydroelectric projects
aggregating approximately 1,375 MW of capacity, located in Connecticut,
Massachusetts and New Hampshire. Four of the System licenses expired on
December 31, 1993 (WMECO's Gardners Falls project and PSNH's Ayers Island, Smith
and Gorham projects). On August 1, 1994, FERC issued new 30-year licenses to
PSNH for the continued operation of the Smith and Gorham projects. Rehearing
requests on these new licenses were filed with FERC by several intervenors and
were subsequently denied in 1996. On April 29, 1996, FERC issued a new 40 year
license to PSNH for continued operation or the Ayers Island Project. FERC has
issued an annual license allowing the Gardners Falls project to continue
operations pending completion of the relicensing process. The Final
Environmental Impact Statement for the Gardners Falls Project indicated that
minimum flow requirements, downstream fish passage facilities and recreational
enhancements are needed at the project and were recommended as conditions of a
new license.
The license for HWP's Holyoke Project expires in late 1999. The
relicensing process for this project began in 1994. In November 1995, the
Holyoke Gas and Electric Department initiated the process of applying to FERC
for the license on the Holyoke Project in competition with HWP. Absent
significant differences in the competing license applications, the Federal Power
Act gives a preference to an existing licensee for the new license. License
applications must be filed with FERC by August 1997.
CL&P's FERC licenses for operation of the Falls Village and Housatonic
Hydro Projects expire in 2001. The relicensing process was initiated in August
of 1996 with the issuance of a Notice of Intent (NOI) to the FERC indicating the
intention of CL&P to relicense both projects. An Initial Consultation Document
(ICD) was issued to consulting agencies in September 1996 and two public
meetings were held in early November 1996 to discuss relicensing issues. CL&P is
awaiting the submittal of resource agency comments.
FERC has issued a notice indicating that it has authority to order project
licensees to decommission projects that are no longer economic to operate. FERC
has not required any such project decommissioning to date. The potential costs
of decommissioning a project, however, could be substantial. It is likely that
this FERC decision will be appealed if, and when, they attempt to exercise this
authority.
EMPLOYEES
As of December 31, 1996, the System companies had 8,842 full and part-time
employees on their payrolls, of which 2,194 were employed by CL&P, 1,279 by
PSNH, 497 by WMECO, 92 by HWP, 1,274 by NNECO, 2,692 by NUSCO and 814 by NAESCO.
NU, NAEC, Charter Oak, Mode 1 and Energy Partners have no employees.
In 1995 and early 1996, the System implemented a program to reduce the
nuclear organization's total workforce by approximately 220 employees, which
included both early retirements and involuntary terminations. The pretax cost
of the program was approximately $8.7 million. For information regarding the
criminal investigations by the NRC's Office of Investigations and the Office of
the U. S. Attorney for the District of Connecticut related to this workforce
reduction, see "Item 3. Legal Proceedings."
In December 1996, the System announced a voluntary separation program
affecting approximately 1100 employees. Eligible employees must decide whether
to elect the program by March 11, 1997, and the separations will be effected
between April 1, 1997 and March 1, 1998. The estimated cost of the program is
approximately $7 million.
Approximately 2200 employees of CL&P, PSNH, WMECO, NAESCO and HWP are
covered by 11 union agreements, which expire between October 1, 1997 and May 31,
1999.
ITEM 2. Properties
The physical properties of the System are owned or leased by subsidiaries
of NU. CL&P's principal plants and other properties are located either on land
which is owned in fee or on land, as to which CL&P owns perpetual occupancy
rights adequate to exclude all parties except possibly state and federal
governments, which has been reclaimed and filled pursuant to permits issued by
the United States Army Corps of Engineers. The principal properties of PSNH
are held by it in fee. In addition, PSNH leases space in an office building
under a 30-year lease expiring in 2002. WMECO's principal plants and a major
portion of its other properties are owned in fee, although one hydroelectric
plant is leased. NAEC owns a 35.98 percent interest in Seabrook 1 and
approximately 560 acres of exclusion area land located around the unit. In
addition, CL&P, PSNH, and WMECO have certain substation equipment, data
processing equipment, nuclear fuel, gas turbines, nuclear control room
simulators, vehicles, and office space that are leased. With few exceptions,
the System companies' lines are located on or under streets or highways, or on
properties either owned or leased, or in which the company has appropriate
rights, easements, or permits from the owners.
CL&P's properties are subject to the lien of its first mortgage indenture.
PSNH's properties are subject to the lien of its first mortgage indenture. In
addition, any PSNH outstanding revolving credit agreement borrowings are
secured by a second lien, junior to the lien of the first mortgage indenture,
on PSNH's property located in New Hampshire. WMECO's properties are subject to
the lien of its first mortgage indenture. NAEC's First Mortgage Bonds are
secured by a lien on the Seabrook 1 interest described above, and all rights of
NAEC under the Seabrook Power Contracts. In addition, CL&P's and WMECO's
interests in Millstone 1 are subject to second liens for the benefit of lenders
under agreements related to pollution control revenue bonds. Various of these
properties are also subject to minor encumbrances which do not substantially
impair the usefulness of the properties to the owning company.
The System companies' and NAEC's properties are well maintained and are in
good operating condition.
Transmission and Distribution System
At December 31, 1996, the System companies owned 103 transmission and 416
distribution substations that had an aggregate transformer capacity of
25,200,069 kilovoltamperes (kVa) and 9,127,367 kVa, respectively; 3,057 circuit
miles of overhead transmission lines ranging from 69 kilovolt (kV) to 345 kV,
and 192 cable miles of underground transmission lines ranging from 69 kV to 138
kV; 32,649 pole miles of overhead and 1,958 conduit bank miles of underground
distribution lines; and 398,452 line transformers in service with an aggregate
capacity of 16,472,221 kVa.
Electric Generating Plants
As of December 31, 1996, the electric generating plants of the System
companies and NAEC, and the System companies' entitlements in the generating
plants of the two operating Yankee regional nuclear generating companies were as
follows (See "Item 1. Business - Electric Operations, Nuclear Generation" for
information on ownership and operating results for the year.):
Claimed
Year Capability*
Owner Plant Name (Location) Type Installed (kilowatts)
CL&P Millstone (Waterford, CT)
Unit 1 Nuclear 1970 524,637
Unit 2 Nuclear 1975 708,345
Unit 3 Nuclear 1986 606,453
Seabrook (Seabrook, NH) Nuclear 1990 47,175
ME Yankee (Wiscasset, ME) Nuclear 1972 94,832
VT Yankee (Vernon, VT) Nuclear 1972 45,353
Total Nuclear-Steam Plants (6 units) 2,026,795
Total Fossil-Steam Plants (10 units) 1954-73 1,877,370
Total Hydro-Conventional (25 units) 1903-55 98,970
Total Hydro-Pumped Storage (7 units) 1928-73 905,150
Total Internal Combustion (20 units) 1966-96 567,940
Total CL&P Generating Plant (68 units) 5,476,225
PSNH Millstone (Waterford, CT)
Unit 3 Nuclear 1986 32,624
ME Yankee (Wiscasset, ME) Nuclear 1972 39,514
VT Yankee (Vernon, VT) Nuclear 1972 19,068
Total Nuclear-Steam Plants (3 units) 91,206
Total Fossil-Steam Plants (7 units) 1952-78 1,004,088
Total Hydro-Conventional (20 units) 1917-83 69,060
Total Internal Combustion (5 units) 1968-70 108,450
Total PSNH Generating Plant (35 units) 1,272,804
WMECO Millstone (Waterford, CT)
Unit 1 Nuclear 1970 123,063
Unit 2 Nuclear 1975 166,155
Unit 3 Nuclear 1986 140,216
ME Yankee (Wiscasset, ME) Nuclear 1972 23,708
VT Yankee (Vernon, VT) Nuclear 1972 11,948
Total Nuclear-Steam Plants (5 units) 465,090
Total Fossil-Steam Plants (1 unit) 1957 107,000
Total Hydro-Conventional (27 units) 1904-34 110,910**
Total Hydro-Pumped Storage (4 units) 1972-73 205,200
Total Internal Combustion (3 units) 1968-69 60,500
Total WMECO Generating Plant (40 units) 948,700
NAEC Seabrook (Seabrook, NH) Nuclear 1990 418,111
HWP Mt. Tom (Holyoke, MA) Fossil-Steam 1960 147,000
Total Hydro-Conventional (15 units) 1905-83 43,560
Total HWP Generating Plant (16 units) 190,560
NU Millstone (Waterford, CT)
System Unit 1 Nuclear 1970 647,700
Unit 2 Nuclear 1975 874,500
Unit 3 Nuclear 1986 779,239
Seabrook (Seabrook, NH) Nuclear 1990 465,286
ME Yankee (Wiscasset, ME) Nuclear 1972 158,054
VT Yankee (Vernon, CT) Nuclear 1972 76,369
Total Nuclear-Steam Plants (6 units) 3,001,202
Total Fossil-Steam Plants (19 units) 1952-78 3,135,458
Total Hydro-Conventional (87 units) 1903-83 322,500
Total Hydro-Pumped Storage (7 units) 1928-73 1,110,350
Total Internal Combustion (28 units) 1966-96 736,890
Total NU System Generating Plant
Including Regional Yankees (147 units) 8,306,400
Excluding Regional Yankees (145 units) 8,071,977
*Claimed capability represents winter ratings as of December 31, 1996.
**Total Hydro-Conventional capability includes the Cobble Mtn. plant's
33,960 kW which is leased from the City of Springfield, MA.
Franchises
NU's operating subsidiaries hold numerous franchises in the territories
served by them. For more information regarding recent judicial, regulatory and
legislative decisions and initiatives that may affect the terms under which the
System companies provide electric service in their franchised territories, see
"Connecticut Retail Rates - Electric Industry Restructuring in Connecticut;"
"New Hampshire Retail Rates - Electric Industry Restructuring in New Hampshire;"
and "Massachusetts Retail Rates - Electric Industry Restructuring in
Massachusetts," and "Item 3. Legal Proceedings."
CL&P. Subject to the power of alteration, amendment or repeal by the
General Assembly of Connecticut and subject to certain approvals, permits and
consents of public authority and others prescribed by statute, CL&P has, subject
to certain exceptions not deemed material, valid franchises free from burdensome
restrictions to sell electricity in the respective areas in which it is now
supplying such service.
In addition to the right to sell electricity as set forth above, the
franchises of CL&P include, among others, rights and powers to manufacture,
generate, purchase, transmit and distribute electricity, to sell electricity at
wholesale to other utility companies and municipalities and to erect and
maintain certain facilities on public highways and grounds, all subject to such
consents and approvals of public authority and others as may be required by law.
The franchises of CL&P include the power of eminent domain.
PSNH. Subject to the power of alteration, amendment or repeal by the
General Court (legislature) of the State of New Hampshire and subject to certain
approvals, permits and consents of public authority and others prescribed by
statute, PSNH has, subject to certain exceptions not deemed material, valid
franchises free from burdensome restrictions to sell electricity in the
respective areas in which it is now supplying such service.
In addition to the right to sell electricity as set forth above, the
franchises of PSNH include, among others, rights and powers to manufacture,
generate, purchase, transmit and distribute electricity, to sell electricity at
wholesale to other utility companies and municipalities and to erect and
maintain certain facilities on certain public highways and grounds, all subject
to such consents and approvals of public authority and others as may be required
by law. The franchises of PSNH include the power of eminent domain.
NNECO. Subject to the power of alteration, amendment or repeal by the
General Assembly of Connecticut and subject to certain approvals, permits and
consents of public authority and others prescribed by statute, NNECO has a valid
franchise free from burdensome restrictions to sell electricity to utility
companies doing an electric business in Connecticut and other states.
In addition to the right to sell electricity as set forth above, the
franchise of NNECO includes, among others, rights and powers to manufacture,
generate and transmit electricity, and to erect and maintain facilities on
certain public highways and grounds, all subject to such consents and approvals
of public authority and others as may be required by law.
WMECO. WMECO is authorized by its charter to conduct its electric business
in the territories served by it, and has locations in the public highways for
transmission and distribution lines. Such locations are granted pursuant to the
laws of Massachusetts by the Department of Public Works of Massachusetts or
local municipal authorities and are of unlimited duration, but the rights
thereby granted are not vested. Such locations are for specific lines only,
and, for extensions of lines in public highways, further similar locations must
be obtained from the Department of Public Works of Massachusetts or the local
municipal authorities. In addition, WMECO has been granted easements for its
lines in the Massachusetts Turnpike by the Massachusetts Turnpike Authority.
HWP and Holyoke Power and Electric Company (HP&E). HWP, and its wholly
owned subsidiary HP&E, are authorized by their charters to conduct their
businesses in the territories served by them. HWP's electric business is
subject to the restriction that sales be made by written contract in amounts of
not less than 100 horsepower, except for municipal customers in the counties of
Hampden or Hampshire, Massachusetts and except for customers who occupy property
in which HWP has a financial interest, by ownership or purchase money mortgage.
HWP also has certain dam and canal and related rights, all subject to such
consents and approvals of public authorities and others as may be required by
law. The two companies have locations in the public highways for their
transmission and distribution lines. Such locations are granted pursuant to the
laws of Massachusetts by the Department of Public Works of Massachusetts or
local municipal authorities and are of unlimited duration, but the rights
thereby granted are not vested. Such locations are for specific lines only and,
for extensions of lines in public highways, further similar locations must be
obtained from the Department of Public Works of Massachusetts or the local
municipal authorities. The two companies have no other utility franchises.
NAEC. NAEC is authorized by the NHPUC to own and operate its interest in
Seabrook 1.
ITEM 3 - LEGAL PROCEEDINGS
1. Litigation Relating to Electric and Magnetic Fields
NU and CL&P are currently involved in two lawsuits alleging physical and
emotional damages from exposure to "electromagnetic radiation" generated by the
defendants. Management believes that the allegations that EMF caused or
contributed to the plaintiffs' illnesses are not supported by scientific
evidence. One of these cases has been resolved in NU and CL&P's favor at the
trial level, but it has been appealed and is now pending at the Connecticut
Supreme Court.
2. Southeastern Connecticut Regional Resources Recovery Authority (SCRRRA) -
Application of the Municipal Rate
This matter involves three separate disputes over the rates that apply to
CL&P's purchases of the generation of the SCRRRA project in Preston,
Connecticut. A favorable ruling on all of these matters could result in savings
to CL&P customers of approximately $20 million over the terms of the agreement
with the SCRRRA. FERC has ruled in CL&P's favor in one of these matters, but
this decision has been appealed to the United States D. C. Circuit Court of
Appeals. A final ruling in this decision in favor of CL&P would also resolve
the second dispute. A Connecticut Superior Court, however, has ruled in favor
of the SCRRRA in the final dispute. CL&P has appealed this decision to the
Connecticut Appellate Court.
3. Connecticut DPUC - CL&P's Petition for Declaratory Ruling Regarding
Proposed Retail Sales of Electricity by Texas-Ohio Power, Inc. (TOP)
On August 3, 1995, CL&P filed a petition for declaratory rulings with the
DPUC to determine whether TOP, which built a small cogeneration plant in
Manchester, Connecticut, can sell electricity from the facility to two CL&P
retail customers in Manchester. On December 6, 1995, the DPUC ruled that,
because TOP's project would not use the public streets, it did not require
specific legislative authorization to make retail sales of electricity. In
February 1997 the Hartford Superior Court upheld the DPUC's decision. CL&P
plans to appeal the decision to the Connecticut Appellate Court.
4. New Hampshire Office of Consumer Advocate and the Campaign for
Ratepayers Rights Case
Two petitions are currently pending at the New Hampshire Supreme Court,
alleging that all of PSNH's special contracts are void and constitute a breach
of the Rate Agreement by PSNH, thereby estopping PSNH from claiming benefits
under the Rate Agreement. The case has been briefed and oral argument is not
expected before the summer of 1997. While NU believes these petitions should
be denied, it cannot predict the outcome of this proceeding or its ultimate
effect on the System.
5. Tax Litigation
In 1991, the Town of Haddam performed a town-wide revaluation of the CY
property in that town. Based on the report of the engineering firm hired by the
town to perform the revaluation, Haddam determined that the full fair-market
value of the property, as of October 1, 1991, was $840 million. At that time,
CY's net-book value was $245 million. On September 5, 1996, a Connecticut court
ruled that Haddam had over-assessed CY at three and a half times its proper
assessment. The decision set the plant's fair market value at $235 million. CY
estimates that the town owes it approximately $16.2 million in refunds,
including accrued interest, for taxes that were overpaid from July 31, 1992
through July 31, 1996. The Town may defer an appeal of the court's decision
until all matters, including the deferred claim on the 1995 tax assessment, are
resolved. The parties are currently involved in settlement discussions.
6. Long Island Cable - Citizen's Suit
On April 4, 1996, a citizen's suit against Long Island Lighting Company
(LILCO), a non-affiliate of NU, CL&P (collectively, the "Companies") and NUSCO
was filed in Federal District Court in Connecticut. The suit alleges the
Companies are in violation of the Federal Clean Water Act because they are
maintaining an unpermitted discharge of pollutants from the Long Island Cable
and claims the pollutants are an imminent danger to the environment and public
health. The suit asks the Court, among other things, to enjoin further
operation of the Long Island Cable without a permit and to impose a civil
penalty of $25,000 for each violation.
7. Shareholder Litigation
Shareholder Demand Letter: On April 10, 1996, NU received a letter from a
representative of a shareholder demanding that it commence legal action against
NU's CEO, Bernard M. Fox, and certain unnamed officers and directors with regard
to operations at Millstone Station. On April 23, 1996, the NU Board created a
special committee to, among other responsibilities, conduct an independent
review and investigation of the allegations contained in the letter and make
recommendations as to how the NU Board should respond to the letter. This
investigation is ongoing.
Derivative Actions: NU has been served with seven civil complaints naming
as defendants certain current and former trustees and officers seeking to
recover unspecified damages for alleged losses purportedly arising out of NU's
operations at Millstone.
Shareholder Securities Class Actions: NU has been served with four class
actions based on various Federal and state securities laws and common law
theories alleging misrepresentations and omissions in public disclosures related
to the System's nuclear situation. These complaints represent classes of
plaintiffs who purchased or otherwise acquired NU common stock during periods
ranging from November 1993 to April 1996. NU believes that all of these class
actions are without merit and intends to vigorously defend in all such actions.
8. Connecticut Municipal Electric Energy Cooperative (CMEEC) Dispute
This matter involves a dispute with CMEEC over its obligations under its
Millstone Units 1 & 2 contract with CL&P, under which CMEEC has a 3.49 percent
life-of-unit interest in each of the units. CMEEC and CL&P have been negotiating
since May 1996 over issues related to Millstone Units 1 & 2. Since October
1996, CMEEC has failed to make payment on its obligations of approximately $1.6
million per month, claiming that CL&P materially breached its contractual
obligations, and requesting arbitration of the issues. CL&P has denied the
allegations and requested payment.
9. Millstone 3 - Potential Joint Owner Litigation
This matter involves claims that the non-NU owners of Millstone 3 could
potentially bring against the NU System companies for the costs associated with
the current extended outage of this facility.
The non-NU owners of Millstone 3 have been paying their monthly shares of
the cost of that unit since it went out of service in March 1996, but have
reserved their rights to contest whether the NU System companies have any
responsibility for the additional costs the non-NU owners have borne as a result
of the extended outage. No formal claims have been made, but it is possible
that some or all of the non-NU owners will assert liability on the part of the
NU System companies. CL&P and WMECO, through NNECO as agent, operate Millstone
3 at cost, and without profit, under a Sharing Agreement that obligates them to
utilize good utility operating practices and requires the joint owners to share
the risk of employee negligence and other risks pro-rata in accordance with
their ownership shares. The Sharing Agreement also provides that CL&P and WMECO
would only be liable for damages to the non-NU owners for a deliberate breach of
the agreement pursuant to authorized corporate action. The non-NU owners have
retained a team of technical and regulatory experts to review and monitor
activities at Millstone 3. As representatives of Millstone 3 joint owners, NU
is cooperating fully with the team.
10. NRC - Section 2.206 Petitions
Spent Fuel Pool Off-Load Practices 2.206 Petition: In August 1995, a
petition was filed with the NRC under Section 2.206 of the NRC's regulations by
the organization We the People and a NUSCO employee. The petitioners maintained
that NU's historic practice of off-loading the full reactor core at Millstone 1
resulted in spent fuel pool heat loads in excess of the pool's NRC-approved
cooling capability, and asserted that the practice was a knowing and willful
violation of NRC requirements. The petitioners also filed a supplemental
petition concerning refueling practices at Millstone 2 and 3 and Seabrook
Station.
On December 26, 1996, the Acting Director of the Office of Nuclear Reactor
Regulation issued a partial decision granting, in part, the petition. The
decision, which is limited to the NRC staff's technical review of the issues
raised by petitioners, concluded that the design of the spent fuel pool and
related system at Millstone 1 was adequate,and that the full core offload
practices at that unit, Millstone 3 and Seabrook were safe. The petitioners'
assertions regarding Millstone 2 were not substantiated. The Director further
concluded that the regulatory actions taken by the NRC to date regarding the
three Millstone units, including the imposition of an Independent Corrective
Action Verification Program prior to restart, were broader than the actions
requested by petitioners and thus constituted a partial grant of petitioners'
request. Issues of wrongdoing raised in the petition remain under consideration
by the NRC staff, and will not be addressed until after the U.S. Attorney has
concluded its investigation of the spent fuel pool issues and decided whether to
commence criminal proceedings. See paragraph 11 below.
Other 2.206 Petitions: Two additional petitions under Section 2.206 have
been filed with the NRC requesting various actions be taken with respect to the
operating licenses for Millstone Units 1, 2 and 3 and CY, including revocation
and suspension, and other enforcement action due to alleged mismanagement of the
units and violations of NRC regulations that petitioners allege have jeopardized
public health and safety. While management believes that the NRC is already
addressing a number of issues raised in these petitions, it cannot predict the
ultimate outcome of these petitions.
11. NRC Office of Investigations and U.S. Attorney Investigations and
Related Matters
The NRC's Office of Investigations (OI) has been examining various matters
at Millstone and CY, including but not limited to procedural and technical
compliance matters and employee concerns. One of these matters has been
referred, and others may be referred, to the Office of the U.S. Attorney for the
District of Connecticut (U.S. Attorney) for possible criminal prosecution. The
referred matter concerns full core off-load procedures and related matters at
Millstone (see item 10 above). The U.S. Attorney is also reviewing possible
criminal violations arising out of certain of NNECO's other activities at
Millstone and CY, including the 1996 nuclear workforce reduction and its
licensed operator training programs.
The U.S. Attorney, together with the U.S. EPA and the Connecticut Attorney
General, is also investigating possible criminal violations of federal
environmental laws at certain NU facilities, including Millstone. NU has been
informed by the government that it is a target of the investigation, but that no
one in senior management is either a target or a subject of the investigation.
Management does not believe that any System company or officer has engaged
in conduct that would warrant a federal criminal prosecution. NU intends to
fully cooperate with the OI and the U.S. Attorney in their ongoing
investigations.
12. Other Legal Proceedings
The following sections of Item 1. "Business" discuss additional legal
proceedings: See "Overview of Nuclear Matters and Related Financial Matters"
for information regarding NRC watch list issues; "Rates" for information about
CL&P's rate and fuel clause adjustment clause proceedings, various state
restructuring proceedings and civil lawsuits related thereto and NHPUC
proceedings involving Freedom Energy Company and PSNH's franchise rights;
"Electric Operations--Transmission Access and FERC Regulatory Changes" for
information about proceedings relating to power and transmission issues;
"Electric Operations--Nuclear Generation" and "Electric Operations-Nuclear Plant
Performance and Regulatory Oversight" for information related to nuclear plant
performance, nuclear fuel enrichment pricing, high-level and low-level
radioactive waste disposal, decommissioning matters and NRC regulation; "Other
Regulatory and Environmental Matters" for information about proceedings
involving surface water and air quality, toxic substances and hazardous waste,
electric and magnetic fields, licensing of hydroelectric projects, and other
matters.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No Event that would be described in response to this item occurred
with respect to NU, WMECO, PSNH, or NAEC.
In a written Consent in Lieu of a Meeting of Common Shareholders of
CL&P ("Consent") dated December 18, 1996, shareholders voted to amend CL&P's
Restated Certificate of Incorporation to include the following language
regarding the indemnification of directors, officers, employees, and agents:
RESOLVED, that Section IX of the Part Two of Article IV of the
Restated Certificate of Incorporation of the Company is hereby amended to read
as follows:
SECTION IX
IMMUNITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS, AND AGENTS
No director, officer or agent of the Company shall be held personally
responsible for any action in good faith through subsequently adjudged to be in
violation of these Sections.
Effective January 1, 1997, the Company shall indemnify and advance
expenses to an individual made a party to a proceeding because he/she is or was
a Director of the Company under Section 33-771 of the Connecticut General
Statutes, Revision of 1958, as amended. The Company shall also indemnify and
advance expenses under Sections 33-770 to 33-778, inclusive, of the Connecticut
General Statutes, to any officer, employee or agent of the company who is not a
director to the same extent as provided to a director.
The vote to amend the Restated Certificate of Incorporation was
12,222,930 shares in favor, representing 100 percent of the issued
and outstanding shares of common stock of CL&P.
PART II
Item 5. Market for the Registrants' Common Equity and Related
Shareholder Matters
NU. The common shares of NU are listed on the New York Stock Exchange. The
ticket symbol is "NU," although it is frequently presented as "Noeast Util"
and/or "NE Util" in various financial publications. The high and low sales
prices for the past two years, by quarters, are shown below.
Year Quarter High Low
1996 First $25 1/4 19
Second 20 1/4 11 7/8
Third 13 3/8 11 1/2
Fourth 13 1/2 9 1/2
1995 First $24 1/4 21
Second 23 7/8 21 3/8
Third 24 1/2 22
Fourth 25 3/8 23 1/2
As of January 31, 1997, there were 114,818 common shareholders of record
of NU. As of the same date, there were a total of 135,051,939 common shares
issued, including 7,540,802 million unallocated ESOP shares held in the ESOP
trust.
NU declared and paid quarterly dividends of $0.44 per share during all of
1995 and for the first two quarters of 1996. On July 23, 1996, the Board of
Trustees reduced dividends to $0.25 per share for the third quarter. The fourth
quarter dividend was also declared and paid at the $0.25 per share level. On
January 28, 1997, the Board of Trustees declared a dividend of $0.25 per share,
payable on March 31, 1997 to holders of record on March 1, 1996. The
declaration of future dividends may vary depending on capital requirements and
income as well as financial and other conditions existing at the time.
Information with respect to dividend restrictions for NU and its
subsidiaries is contained in Item 1. Business under the caption "Financing
Program - Financing Limitations" and in Note (b) to the "Consolidated Statements
of Common Shareholders' Equity" on page 25 of NU's 1996 Annual Report to
Shareholders, which information is incorporated herein by reference.
CL&P, PSNH, WMECO, and NAEC. The information required by this item is not
applicable because the common stock of CL&P, PSNH, WMECO, and NAEC is held
solely by NU.
Item 6. Selected Financial Data
NU. Reference is made to information under the heading "Selected
Consolidated Financial Data" contained on page 45 of NU's 1996 Annual Report to
Shareholders, which information is incorporated herein by reference.
CL&P. Reference is made to information under the heading "Selected
Financial Data" contained on page 50 of CL&P's 1996 Annual Report, which
information is incorporated herein by reference.
PSNH. Reference is made to information under the heading "Selected
Financial Data" contained on pages 49 and 50 of PSNH's 1996 Annual Report, which
information is incorporated herein by reference.
WMECO. Reference is made to information under the heading "Selected
Financial Data" contained on page 45 of WMECO's 1996 Annual Report, which
information is incorporated herein by reference.
NAEC. Reference is made to information under the heading "Selected
Financial Data" contained on page 32 of NAEC's 1996 Annual Report, which
information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
NU. Reference is made to information under the heading "Management's
Discussion and Analysis" contained on pages 11 through 19 in NU's 1996 Annual
Report to Shareholders, which information is incorporated herein by reference.
CL&P. Reference is made to information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained on pages 38 through 49 in CL&P's 1996 Annual Report, which information
is incorporated herein by reference.
PSNH. Reference is made to information under the heading
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained on pages 39 through 48 in PSNH's 1996
Annual Report, which information is incorporated herein by reference.
WMECO. Reference is made to information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained on pages 34 through 44 in WMECO's 1996 Annual Report, which
information is incorporated herein by reference.
NAEC. Reference is made to information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained on pages 25 through 31 in NAEC's 1996 Annual Report, which information
is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
NU. Reference is made to information under the headings "Company Report,"
"Report of Independent Public Accountants," "Consolidated Statements of Income,"
"Consolidated Statements of Cash Flows," "Consolidated Statements of Income
Taxes," "Consolidated Balance Sheets," "Consolidated Statements of
Capitalization," "Consolidated Statements of Common Shareholders' Equity,"
"Notes to Consolidated Financial Statements," and "Consolidated Statements of
Quarterly Financial Data" contained on pages 20 through 44 in NU's 1996 Annual
Report to Shareholders, which information is incorporated herein by reference.
CL&P. Reference is made to information under the headings "Consolidated
Balance Sheets," "Consolidated Statements of Income," "Consolidated Statements
of Cash Flows," "Consolidated Statements of Common Stockholder's Equity," "Notes
to Consolidated Financial Statements," "Report of Independent Public
Accountants," and "Statements of Quarterly Financial Data" contained on pages 2
through 37 and page 50 in CL&P's 1996 Annual Report, which information is
incorporated herein by reference.
PSNH. Reference is made to information under the headings "Balance
Sheets," "Statements of Income," "Statements of Cash Flows," "Statements of
Common Equity," "Notes to Financial Statements," "Report of Independent Public
Accountants," "Independent Auditors' Report," and "Statements of Quarterly
Financial Data" contained on pages 2 through 38 and page 51 in PSNH's 1996
Annual Report, which information is incorporated herein by reference.
WMECO. Reference is made to information under the headings "Balance
Sheets," "Statements of Income," "Statements of Cash Flows," "Statements of
Common Stockholder's Equity," "Notes to Financial Statements," "Report of
Independent Public Accountants," and "Statements of Quarterly Financial Data"
contained on pages 2 through 33 and page 45 in WMECO's 1996 Annual Report, which
information is incorporated herein by reference.
NAEC. Reference is made to information under the headings "Balance Sheet,"
"Statement of Income," "Statement of Cash Flows," "Statement of Common
Stockholder's Equity," "Notes to Financial Statements," "Report of Independent
Public Accountants," and "Statement of Quarterly Financial Data" contained on
pages 2 through 24 and page 32 in NAEC's 1996 Annual Report which information is
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
No event that would be described in response to this item has occurred with
respect to NU, CL&P, PSNH, WMECO, or NAEC.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
NU.
In addition to the information provided below concerning the executive
officers of NU, incorporated herein by reference is the information contained in
the sections "Proxy Statement", "Committee Composition and Responsibility",
"Common Stock Ownership of Certain Beneficial Owners", "Common Stock Ownership
of Management", "Compensation of Trustees", "Summary Compensation Table",
"Section 16 Compliance", "Pension Benefits", and "Report on Executive
Compensation" of the definitive proxy statement for solicitation of proxies by
NU's Board of Trustees, dated April 30, 1997, which will be filed with the
Commission pursuant to Rule 14a-6 under the Securities Exchange Act of 1934 (the
Act).
First First
Positions Elected Elected
Name Held an Officer a Trustee
John H. Forsgren EVP, CFO 02/01/96 -
Bernard M. Fox CHB, P, CEO, T 05/01/83 05/20/86
William T. Frain, Jr. OTH - -
Cheryl W. Grise OTH 06/01/91 -
Barry Ilberman OTH 02/01/89 -
Bruce D. Kenyon P 09/03/96 -
Francis L. Kinney OTH 04/24/74 -
Hugh C. MacKenzie P 07/01/88 -
John J. Roman VP, CONT 04/01/92 -
Robert P. Wax SVP, SEC, GC 08/01/92 -
CL&P.
First First
Positions Elected Elected
Name Held an Officer a Director
Robert G. Abair D - 01/01/89
John H. Forsgren EVP, CFO, D 02/01/96 06/10/96
Bernard M. Fox CH, D 05/15/81 05/01/83
William T. Frain, Jr. D - 02/01/94
Cheryl W. Grise SVP, CAO, D 06/01/91 01/01/94
Barry Ilberman VP 02/01/89 -
John B. Keane VP, TR, D 08/01/92 08/01/92
Bruce D. Kenyon P, D 09/03/96 09/03/96
Francis L. Kinney SVP 04/24/74 -
Hugh C. MacKenzie P, D 07/01/88 06/06/90
John J. Roman VP, CONT 04/01/92 -
Robert P. Wax SVP, SEC, GC 08/01/92 -
PSNH.
First First
Positions Elected Elected
Name Held an Officer a Director
John C. Collins D - 10/19/92
John H. Forsgren EVP, CFO, D 02/01/96 08/05/96
Bernard M. Fox CH, CEO, D 06/05/92 06/05/92
William T. Frain, Jr. P, COO, D 03/18/71 02/01/94
Cheryl W. Grise D 02/06/95
Barry Ilberman VP 07/01/94 -
Bruce D. Kenyon P 09/03/96 -
Gerald Letendre D - 10/19/92
Hugh C. MacKenzie D - 02/01/94
Jane E. Newman D - 10/19/92
John J. Roman VP, CONT 04/01/92 -
Robert P. Wax SVP,SEC,GC 08/01/92 02/01/93
WMECO.
First First
Positions Elected Elected
Name Held an Officer a Director
Robert G. Abair VP, CAO, D 09/06/88 01/01/89
John H. Forsgren EVP, CFO, D 02/01/96 06/10/96
Bernard M. Fox C, D 05/15/81 05/01/83
William T. Frain, Jr. D - 02/01/94
Cheryl W. Grise SVP, D 06/01/91 01/01/94
Barry Ilberman VP 02/01/89 -
John B. Keane VP, TR, D 08/01/92 08/01/92
Bruce D. Kenyon P, D 09/03/96 09/03/96
Francis L. Kinney SVP 04/24/74 -
Hugh C. MacKenzie P, D 07/01/88 06/06/90
John J. Roman VP, CONT 04/01/92 -
Robert P. Wax SVP, SEC, AC, GC 08/01/92 -
NAEC.
First First
Positions Elected Elected
Name Held an Officer a Director
Ted C. Feigenbaum EVP, CNO, D 10/21/91 10/16/91
John H. Forsgren EVP, CFO 02/01/96 -
Bernard M. Fox C, CEO, D 10/21/91 10/16/91
William T. Frain, Jr. D - 02/01/94
Cheryl W. Grise SVP, CAO, D 10/21/91 01/01/94
Barry Ilberman VP 01/29/92 -
Francis L. Kinney SVP 10/21/91 -
John B. Keane VP, TR, D 08/01/92 08/01/92
Bruce D. Kenyon P, D 09/03/96 09/03/96
Hugh C. MacKenzie D - 01/01/94
John J. Roman VP, CONT 04/01/92 -
Robert P. Wax SVP, SEC, GC 08/01/92 -
Key:
AC - Assistant Clerk
CAO - Chief Administrative Officer EVP - Executive Vice President
CEO - Chief Executive Officer GC - General Counsel
CFO - Chief Financial Officer OTH - Executive Officer of NU
system
CH - Chairman P - President
CHB - Chairman of the Board SEC - Secretary
CNO - Chief Nuclear Officer SVP - Senior Vice President
COO - Chief Operating Officer T - Trustee
CONT - Controller TR - Treasurer
D - Director VP - Vice President
Name Age Business Experience During Past 5 Years
Robert G. Abair (1) 58 Elected Vice President and Chief
Administrative Officer of WMECO in 1988.
John C. Collins (2) 52 Executive Vice President, Lahey Clinic,
since 1995. Previously Chief Executive
Officer, The Hitchcock Clinic, Dartmouth -
Hitchcock Medical Center from 1977 to 1995.
Ted C. Feigenbaum (3) 46 Elected Executive Vice President and Chief
Nuclear Officer of NAEC February, 1996;
previously Senior Vice President of NAEC
since 1991; Senior Vice President and Chief
Nuclear Officer of PSNH June, 1992 to August,
1992; President and Chief Executive Officer -
New Hampshire Yankee Division of PSNH October,
1990 to June, 1992 and Chief Nuclear
Production Officer of PSNH January, 1990
to June, 1992.
John H. Forsgren (4) 50 Elected Executive Vice President and Chief
Financial Officer of NU, CL&P, PSNH, WMECO
and NAEC February, 1996; previously Managing
Director of Chase Manhattan Bank since 1995;
and Senior Vice President-Chief Financial
Officer of Euro Disney, The Walt Disney
Company.
Bernard M. Fox (5) 54 Elected Chairman of the Board, President
and Chief Executive Officer of NU, Chairman
of CL&P, PSNH, WMECO and NAEC, and Chief
Executive Officer of PSNH and NAEC in 1995;
previously Vice Chairman of CL&P and WMECO,
and Vice Chairman and Chief Executive Officer
of NAEC since 1994; Chief Executive Officer
of NU, CL&P, PSNH, WMECO and NAEC in 1993;
President and Chief Operating Officer of NU,
CL&P and WMECO in 1990 and NAEC since 1991;
Vice Chairman of PSNH since 1992.
William T. Frain, Jr.(6) 55 Elected President and Chief Operating Officer
of PSNH in 1994; previously Senior Vice
President of PSNH since 1992.
Cheryl W. Grise 44 Elected Senior Vice President and Chief
Administrative Officer of CL&P, PSNH and
NAEC, and Senior Vice President of WMECO
in 1995; previously Senior Vice
resident-Human Resources and Administrative
Services of CL&P,WMECO and NAEC since 1994;
Vice President-Human Resources of NAEC since
1992.
Barry Ilberman (7) 47 Elected Vice President-Corporate and
Environmental Affairs of CL&P, PSNH, WMECO and
NAEC, in 1994; previously Vice President-
Corporate Planning of CL&P, WMECO since 1992.
John B. Keane (8) 50 Elected Vice President and Treasurer of NU,
CL&P, PSNH, WMECO and NAEC in 1993;
previously Vice President, Secretary and
General Counsel-Corporate of NU, CL&P and
WMECO since 1992; Vice President, Assistant
Secretary and General Counsel-Corporate of
PSNH and NAEC, Vice President, Secretary and
General Counsel-Corporate of NU and CL&P,
and Vice President, Secretary,Assistant
Clerk and General Counsel-Corporate of
WMECO since 1992.
Bruce D. Kenyon (9) 54 President and Chief Executive Officer of NAEC
and President-Nuclear Group of CL&P,PSNH and
WMECO since 1996; previously President and
Chief Operating Officer of South Carolina
Electric and Gas Company from 1990.
Francis L. Kinney (10) 64 Elected Senior Vice President-Governmental
Affairs of CL&P, WMECO and NAEC in 1994;
previously Vice President-Public Affairs of
NAEC since 1992.
Gerald Letendre 56 President, Diamond Casting & Machine Co.,
Inc. since 1972.
Hugh C. MacKenzie (11) 54 Elected President-Retail Business Group of
NU February, 1996 and President of CL&P and
WMECO in 1994; previously Senior Vice
President-Customer Service Operations of
CL&P and WMECO since 1990.
Jane E. Newman (12) 51 Executive Vice President and Director, Exeter
Trust Company since 1995. Previously
President, Coastal Broadcasting Corporation
since 1992.
John J. Roman 43 Elected Vice President and Controller of NU,
CL&P, PSNH, WMECO and NAEC in 1995;
previously Assistant Controller of CL&P,
PSNH, WMECO and NAEC since 1992.
Robert P. Wax 48 Elected Senior Vice President, Secretary and
General Counsel of NU, CL&P, PSNH, NAEC and
WMECO in 1997. Previously elected Vice
President, Secretary and General Counsel of
PSNH and NAEC in 1994; elected Vice
President, Secretary and General Counsel of
NU and CL&P and Vice President, Secretary,
Assistant Clerk and General Counsel of WMECO
in 1993; previously Vice President, Assistant
Secretary and General Counsel of PSNH and
NAEC since 1993; previously Vice President
and General Counsel-Regulatory of NU, CL&P,
PSNH, WMECO and NAEC since 1992.
(1) Member-Advisory Committee, Bank of Boston Springfield/Pioneer Valley.
(2) Director of Fleet Bank - New Hampshire and Hamden Assurance Company
Limited.
(3) Director of Connecticut Yankee Atomic Power Company and Maine Yankee
Atomic Power Company.
(4) Director of Connecticut Yankee Atomic Power Company.
(5) Director of The Institute of Living, the Institute of Nuclear Power
Operations, the Connecticut Business and Industry Association, Fleet
Financial Group, Inc., CIGNA Corporation, Connecticut Yankee Atomic Power
Company, Edison Electric Institute, Hartford Hospital, The Dexter
Corporation, a Trustee of Mount Holyoke College and The Hartford Courant
Foundation and a Fellow and Founder of the American Leadership Forum.
(6) Director of the Business and Industry Association of New Hampshire, the
Greater Manchester Chamber of Commerce; Trustee of Optima Health, Inc.
and Saint Anselm College.
(7) Director of Connecticut Yankee Atomic Power Company.
(8) Director of Maine Yankee Atomic Power Company, Vermont Yankee Nuclear
Power Corporation, Yankee Atomic Electric Company and Connecticut Yankee
Atomic Power Company, Member - Advisory Committee, Fleet Bank
Connecticut.
(9) Trustee of Columbia College and Director of Connecticut Yankee Atomic
Power Company.
(10) Director of Mid-Conn Bank.
(11) Director of Connecticut Yankee Atomic Power Company.
(12) Director of Exeter Trust Company, Perini Corporation, NYNEX
Telecommunications and Consumers Water Company.
There are no family relationships between any director or executive officer
and any other director or executive officer of NU, CL&P, PSNH, WMECO or NAEC.
ITEM 11. EXECUTIVE COMPENSATION
NU.
Incorporated herein by reference is the information contained in the
sections "Summary Compensation Table", "Pension Benefits", and "Report on
Executive Compensation" of the definitive proxy statement for solicitation of
proxies by NU, dated April 30, 1997, which will be filed with the Commission
pursuant to Rule 14a-6 under the Act.
SUMMARY COMPENSATION TABLE
CL&P, PSNH, WMECO and NAEC
The following table presents the cash and non-cash compensation received by the
CEO and the next four highest paid executive officers of the System, and by two
retired executive officers who would have been among the five highest paid
executive officers but for their retirement, in accordance with rules of the
Securities and Exchange Commission (SEC):
Annual Compensation Long Term Compensation
Awards
Payouts
Options/ Long
Re- Stock Term All
Other stricted Appreci- Incentive Other
Annual Stock ation Program Compen-
Name and Salary Compensa- Awards Rights Payouts sation ($)
Principal Position Year ($) Bonus($) tion ($) ($) (#) ($) (Note 1)
Bernard M. Fox 1996 551,300 None None None None 65,420 7,500
(Note 2) 1995 551,300 246,168 None None None 130,165 7,350
1994 544,459 308,896 None None None 115,771 4,500
Bruce D. Kenyon 1996 144,231 400,000 None 499,762 None None None
(Note 2) (Note 3)
1995 None None None None None None None
1994 None None None None None None None
John H. Forsgren 1996 305,577 None 62,390 80,380 None None None
(Note 2) (Note 4) (Note 4)
1995 None None None None None None None
1994 None None None None None None None
Hugh C. MacKenzie 1996 264,904 None None None None 19,834 7,500
(Note 2) 1995 247,665 128,841 None None None 46,789 7,350
1994 245,832 113,416 None None None 40,449 4,500
Ted C. Feigenbaum 1996 248,858 (Note 5) None None None 14,770 7,222
(Note 2) 1995 185,300 126,002 None None None None 5,553
1994 183,331 47,739 None None None None 4,500
Robert E. Busch 1996 300,385 None None None None 26,747 2,637,500
Formerly President- (Note 6)
Energy Resources Group 1995 350,000 147,708 None None None 63,100 7,350
of NU, CL&P, WMECO and 1994 346,122 173,366 None None None 44,073 4,500
PSNH and formerly
President of NAEC (Note 6)
Notes:
1. "All Other Compensation" consists of employer matching
contributions under the Northeast Utilities Service Company
401(k) Plan, generally available to all eligible employees. It
also includes, in the case of Mr. Busch, certain payments made
to him pursuant to the terms of his separation agreement with
Northeast Utilities Service Company (see Note 6).
2. See "Item 10. Directors and Executive Officers of the
Registrants" for information on the directorships and officer
positions held by each active individual named in the summary
compensation table with each of the registrants.
3. The restricted stock will vest when Millstone Station is
removed from the Nuclear Regulatory Commission's "watch list",
provided that this occurs within three years of Mr. Kenyon's
commencement of employment and the SRLP and INPO ratings of
Seabrook Station have not materially changed from their 1996
levels. Dividends accruing on these shares are reinvested in
additional shares subject to the same restrictions. At the end
of 1996, Mr. Kenyon owned 39,585 restricted shares with a
market value of $519,555, plus a $9,896 dividend that was
reinvested into an additional 740 restricted shares on January
2, 1997.
4. The "other annual compensation" consists of tax payments on a
restricted stock award. The restricted stock will vest on
January 1, 1999. Dividends accruing on these shares are
reinvested in additional shares subject to the same
restrictions. At the end of 1996, Mr. Forsgren owned 5,305
restricted shares with a market value of $69,621, plus a $1,326
dividend that was reinvested into an additional 99 restricted
shares on January 2, 1997.
5. Awards under the 1996 short term incentive program of the
Northeast Utilities Executive Incentive Plan have not yet been
made. Based on preliminary estimates of corporate performance,
no short term awards will be made.
6. Mr. Busch left the Company during 1996. Pursuant to his
separation agreement with Northeast Utilities Service Company,
Mr. Busch received cash payments of $880,000 during 1996 and
$220,000 during 1997, a supplemental retirement benefit with a
present value of $1,400,000, continued medical coverage for
himself and his family with a present value of $100,000 and
career planning with a value of $30,000. See Employment
Contracts and Termination of Employment Arrangements, below.
REPORT ON EXECUTIVE COMPENSATION
[Note: The Committee on Organization, Compensation and Board Affairs of the
Board of Trustees of Northeast Utilities is the administrator of executive
compensation for the executives of the registrants with authority to establish
and interpret the terms of the registrants' executive salary and incentive
programs and to make payment of awards.]
The Committee on Organization, Compensation and Board Affairs of the Board
of Trustees is the administrator of executive compensation for the executives of
the Northeast Utilities system (the Company) with authority to establish and
interpret the terms of the Company's executive salary and incentive programs and
to make payment of awards.
Compensation Strategy: The Company's executive compensation goals for
1996 were to provide a competitive compensation package to enable the Company to
attract and retain key executives and to align executive interests with those of
Northeast Utilities' shareholders and with Company performance. The 1996
compensation of the Company's executives was comprised primarily of base salary,
annual incentive awards and long-term incentive awards.
To achieve the compensation goal of providing a competitive package, the
Committee draws upon information from a variety of sources, including
compensation consultants, utility and general industry surveys, and other
publicly-available information, including proxy statements. In 1996, the
Company's comparison groups for purposes of executive compensation continued to
consist of a consultant's database of over 600 industrial and more than 50
electric and gas utilities, as well as a smaller group of ten electric utilities
whose operating characteristics were substantially similar to those of the
Company in terms of generation mix, revenues and customer size. Seven of the
ten companies are included in the Standard & Poor's (S&P) Electric Companies
Index, which is the Index used in the share performance chart shown in Northeast
Utilities' proxy statement.
Base Salary: The target level for the base salary of each executive
reflects the median base salary level for that position within the market
comparison groups. The Committee periodically adjusts the level of base salary
to reflect considerations such as changes in responsibility, market sensitivity,
individual performance and internal equity. Any portion of base salary in
excess of the salary range upper limit (the going rate) is paid in a lump sum,
and is not counted as base salary in determining future salary increases. The
Committee sets base salary ranges for most Company officers and sets the annual
base salary for each such officer except for the Chief Executive Officer (CEO),
whose base salary is set by the Board of Trustees following a recommendation by
the Committee. During 1996, the Committee approved a 2.75 percent increase in
the 1996 base salary range structure over 1995. Because 1996 base salary levels
were generally within targeted pay levels of the comparison group, only certain
officers received 1996 base salary adjustments.
Incentive Pay: Incentive awards for the executive officers are made in
accordance with the Company's Executive Incentive Plan (the Plan). Under the
Plan during 1996, the Committee established a one-year short-term program and a
three-year long-term program with target awards (expressed as a percentage of
going rate) commensurate with incentive awards for the position within the
comparison groups.
The programs calculate payouts based on actual Company performance against
target goals with respect to two equally-weighted corporate measures. Each
measure has a threshold performance limit (under which no amount is awarded) and
an upper limit (which will yield the maximum payout of twice the target amount).
The corporate performance measures for the 1996 short-term incentive program
were 1996 earnings per share and Company operations and maintenance budget. The
corporate performance measures for the 1996-1998 long-term incentive program
were total shareholder return and cost of service (COS) over the three-year
period. The total shareholder return goal will be met at target if the total
return on a Northeast Utilities common share for the performance period equals
the return on the S&P Electric Companies Index for the same period. The COS
goal will be met at target if the Company's average COS changes by the same
percentage as the COS average of an 18 utility company comparison group. Awards
under the 1996 short-term program, if any, will be made in cash in the Spring of
1997 and, under the 1996-1998 long-term program, awards will be made in
Northeast Utilities common shares in the Spring of 1999.
For 1996, target awards for participants in the short-term program ranged
from 25 percent to 35 percent, and for participants in the long-term program
from 15 percent to 45 percent, of the going rate for their positions. Awards
under the short-term program can vary from those determined solely by corporate
performance depending on individual achievement of a set of assigned goals
established for the performance year. These assigned goals vary as appropriate
from officer to officer and include employee safety; service reliability;
nuclear operations; economic development; operating, maintenance and capital
expenditure levels; environmental initiatives; and generating unit capacity and
availability.
During 1996, the Committee determined that establishing a Stock Price
Recovery Program for certain senior officers, including the CEO, was in the best
interest of the Company and its shareholders. The purpose of this program is to
focus key officers on achieving fundamental business goals relative to the
challenges of nuclear operations and industry restructuring, with a net effect
of advancing shareholder interests with regard to share price recovery. In
connection with the commencement of this new incentive program, the Committee
terminated the participation of these officers in the 1996 short-term program
and the 1996-1998 long-term program and resolved that these officers would not
participate in other incentive programs that begin in 1997 or 1998. Awards
under the Stock Price Recovery Incentive Program will be based on appreciation
of the price of Northeast Utilities common shares between December 31, 1996 and
December 31, 1998 against a targeted share price goal, indexed to reflect the
relative performance of a Northeast Utilities common share compared to the
performance of the S&P Electric Companies Index during the same period. The
target award of each participant is equal to the value of the 1996, 1997, and
1998 short-term and long-term incentive programs at target, assuming that there
had been no changes in the 1997 and 1998 program target payout opportunities for
these executives. There are no individual performance goals in the program.
Awards under the program are made in restricted stock units and stock
appreciation rights (SARs). The SARs are exercisable from January 1, 1999
through December 31, 2001.
At the same time, the Committee modified the short and long-term program
design for officers not participating in the Stock Price Recovery Incentive
Program to recognize the importance of retaining key executive talent and to
help assure the officers' continuing dedication to their duties to the Company
and its shareholders. Consistent with these views, the Committee established
for 1997 a short-term program that calculates payouts based on performance
against goals that vary by division and a 1997-1999 long-term program that
measures corporate performance solely on total shareholder return exceeding the
S&P Electric Companies Index return for the same period by a specified
percentage.
Also during 1996, the Committee made awards under the 1993-1995 long-term
incentive program. Awards, in Northeast Utilities common shares, were based on
the Company's relative ranking against a group of electric utilities with
respect to shareholder return and COS. Achievement of goals was less than
target and resulted in awards that were 69.1 percent of target.
CEO Pay: Despite a base salary that is below the median market level for
the position, the Committee did not increase Mr. Fox's base salary in 1996
because of company performance.
Annual Incentive Bonus. In 1996, the Committee established a program
governing the payment of the 25-percent holdback of Mr. Fox's award under the
1995 short-term program. Under this program, the holdback will be forfeited
unless nuclear goals with respect to removal from the watch list and improvement
in the area of employee concerns are fulfilled within a specified time period,
as determined by the Board with the assistance of the Nuclear Committee of the
Board.
Long-Term Incentive Award. During 1996, Mr. Fox was granted 4,108
Northeast Utilities common shares in conformance with the provisions of the
1993-1995 program whose payouts were based on the Company's performance under
COS and shareholder return measures as described above.
The Committee does not believe it is necessary to make any changes in the
Company's executive compensation programs at this time in response to the
deductibility cap placed on executive salaries by Section 162(m) of the Internal
Revenue Code. The Committee believes that the executive compensation programs
appropriately balance shareholder and customer interests. It continues to
evaluate options for dealing with the issues raised by Section 162 (m).
Dated: January 28, 1997
Respectfully submitted,
Elizabeth T. Kennan, Chairman
William J. Pape II, Vice Chairman
John F. Curley
Cotton Mather Cleveland
Gaynor N. Kelley
Robert E. Patricelli
PENSION BENEFITS
The following table shows the estimated annual retirement benefits payable
to an executive officer of the registrants upon retirement, assuming that
retirement occurs at age 65 and that the officer is at that time not only
eligible for a pension benefit under the Northeast Utilities Service Company
Retirement Plan (the Retirement Plan) but also eligible for the make-whole
benefit and the target benefit under the Supplemental Executive Retirement Plan
for Officers of Northeast Utilities System Companies (the Supplemental Plan).
The Supplemental Plan is a non-qualified pension plan providing supplemental
retirement income to system officers. The make-whole benefit under the
Supplemental Plan, available to all officers, makes up for benefits lost through
application of certain tax code limitations on the benefits that may be provided
under the Retirement Plan, and includes as "compensation" awards under the
Executive Incentive Compensation Program and the Executive Incentive Plan and
deferred compensation (as earned). The target benefit further supplements these
benefits and is available to officers at the Senior Vice President level and
higher who are selected by the Board of Trustees of Northeast Utilities to
participate in the target benefit and who remain in the employ of Northeast
Utilities companies until at least age 60 (unless the Board of Trustees sets an
earlier age). Each of the executive officers of Northeast Utilities named in
the Summary Compensation Table is currently eligible for a target benefit,
except Mr. Kenyon, whose Employment Agreement provides a specially calculated
retirement benefit, based on his previous arrangement with South Carolina
Electric and Gas. If Mr. Kenyon retires with at least three but less than five
years of service with the Company, he will be deemed to have five years of
service. In addition, if Mr. Kenyon retires with at least three years of
service with the Company, he will receive a lump sum payment of $500,000.
The benefits presented below are based on a straight life annuity
beginning at age 65 and do not take into account any reduction for joint and
survivorship annuity payments.
ANNUAL TARGET BENEFIT
FINAL AVERAGE
COMPENSATION YEARS OF CREDITED SERVICE
15 20 25 30 35
$200,000 $72,000 $96,000 $120,000 $120,000 $120,000
250,000 90,000 120,000 150,000 150,000 150,000
300,000 108,000 144,000 180,000 180,000 180,000
350,000 126,000 168,000 210,000 210,000 210,000
400,000 144,000 192,000 240,000 240,000 240,000
450,000 162,000 216,000 270,000 270,000 270,000
500,000 180,000 240,000 300,000 300,000 300,000
600,000 216,000 288,000 360,000 360,000 360,000
700,000 252,000 336,000 420,000 420,000 420,000
800,000 288,000 384,000 480,000 480,000 480,000
900,000 324,000 432,000 540,000 540,000 540,000
1,000,000 360,000 480,000 600,000 600,000 600,000
1,100,000 396,000 528,000 660,000 660,000 660,000
1,200,000 432,000 576,000 720,000 720,000 720,000
Final average compensation for purposes of calculating the target benefit
is the highest average annual compensation of the participant during any 36
consecutive months compensation was earned. Compensation taken into account
under the target benefit described above includes salary, bonus, restricted
stock awards, and long-term incentive payouts shown in the Summary Compensation
Table, but does not include employer matching contributions under the 401(k)
Plan. In the event that an officer's employment terminates because of
disability, the retirement benefits shown above would be offset by the amount of
any disability benefits payable to the recipient that are attributable to
contributions made by Northeast Utilities and its subsidiaries under long term
disability plans and policies.
As of December 31, 1996, the five executive officers named in the Summary
Compensation Table had the following years of credited service for retirement
compensation purposes: Mr. Fox - 32, Mr. Kenyon - 0, Mr. Forsgren - 0, Mr.
MacKenzie - 31, and Mr. Feigenbaum 10. Assuming that retirement were to occur
at age 65 for these officers, retirement would occur with 43, 11, 15, 41 and 29
years of credited service, respectively. Mr. Fox has announced that he will
retire in the second half of 1997.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Officer Agreements
Northeast Utilities Service Company (NUSCO) has entered into employment
agreements (the Officer Agreements) with each of the named executive officers
(except for Mr. Fox - see separate description below) and certain other
executive officers and directors of the registrants. The Officer Agreements are
also binding on Northeast Utilities and on each majority-owned subsidiary of
Northeast Utilities with at least fifty employees on its direct payroll.
Each Officer Agreement obligates the officer to perform such duties as may be
directed by the NUSCO Board of Directors or the Northeast Utilities Board of
Trustees, protect the Company's confidential information, and refrain, while
employed by the Company and for a period of time thereafter, from competing with
the Company in a specified geographic area. Each Officer Agreement provides
that the officer's base salary will not be reduced below certain levels without
the consent of the officer, that the officer will participate in specified
benefits under the Supplemental Executive Retirement Plan (see Pension Benefits,
above), in the applicable divisional officer executive incentive programs or the
Stock Price Recovery Program, as the case may be, under the Executive Incentive
Plan (see Report on Executive Compensation, above), and, beginning on January 1,
1999, if the employment term has not ended, in each short-term and long-term
incentive compensation program established by the Company for such senior level
executives generally, at an incentive opportunity level not less than that in
effect for the officer as of January 1, 1996 (or January 1, 1997 for certain
officers).
Each Officer Agreement provides for automatic one-year extensions of the
employment term unless at least six months' notice of non-renewal is given by
either party. The employment term may also be ended by the Company for "cause",
as defined, at any time (in which case no target benefit, if any, shall be due
the officer under the Supplemental Executive Retirement Plan), or by the officer
on thirty days' prior written notice for any reason. Absent "cause", the
Company may remove the officer from his or her position on sixty days' prior
written notice, but in the event the officer is so removed and signs a release
of all claims against the Company, the officer will receive one or two years'
base salary and annual incentive payments, specified employee welfare and
pension benefits, and vesting of stock appreciation rights, options and
restricted stock.
Under the terms of an Officer Agreement, upon any termination of employment of
the officer within two years following a change in control, as defined, if the
officer signs a release of all claims against the Company the officer will be
entitled to certain payments including two or three times base salary and annual
incentive payments, specified employee welfare and pension benefits, and vesting
of stock appreciation rights, options and restricted stock. Certain of the
change in control provisions may be modified by the Board of Trustees prior to a
change in control, on at least two years' notice to the affected officer(s).
Besides the terms described above, Mr. Forsgren's Officer Agreement provides for
a starting salary of $350,000 per year and a $100,000 restricted stock grant.
Mr. Feigenbaum's Officer Agreement provides for a starting salary of $250,000
per year. Mr. Kenyon's Officer Agreement provides for an initial starting
salary of at $500,000 per year, a $500,000 restricted stock grant and a $400,000
cash signing bonus (See Summary Compensation Table, above). Mr. Kenyon's
Officer Agreement also provides for a special retirement benefit (described
above in Pension Benefits) instead of a target benefit and a make-whole benefit
under the Supplemental Plan, and a special short term incentive compensation
program in lieu of a portion of the Stock Price Recovery Program. Under this
incentive program Mr. Kenyon will be eligible to receive a payment up to 100
percent of base salary depending on his fulfillment of certain incentive goals
for each of the years ending August 31, 1997 and August 31, 1998, and for the 16
month period ending December 31, 1999.
Transition and Retirement Agreement
In 1992, Northeast Utilities entered into an agreement with Mr. Fox (the "1992
Agreement") to provide for an orderly chief executive officer succession. The
agreement states that if Mr. Fox is terminated without cause, he will be
entitled to two years' base pay; specified employee welfare benefits; a
supplemental retirement benefit equal to the difference between the target
benefit he would be entitled to receive if he had reached the age of 55 on the
termination date and the actual target benefit to which he is entitled as of the
termination date; and a target benefit under the Supplemental Executive
Retirement Plan, notwithstanding that he might not have reached age 60 on the
termination date and notwithstanding other forfeiture provisions of that plan.
In January, 1997, Northeast Utilities entered into a Transition and Retirement
Agreement (the "Transition Agreement") with Mr. Fox to reflect his election to
retire on the later of August 1, 1997 and the date his successor is elected.
The Transition Agreement is intended to supersede the 1992 Agreement at the time
of Mr. Fox's retirement. The Transition Agreement obligates Mr. Fox to maintain
the confidentiality of Company information during his employment and following
his retirement, and not to compete with the Company for certain periods of time
in specified geographic areas.
The Transition Agreement provides that Mr. Fox will be engaged as a consultant
to the Board of Trustees of Northeast Utilities for 24 months following his
retirement, with a fee of $500,000 for the first 12 months and $300,000 for the
second 12 months, payable in full notwithstanding Mr. Fox's death or disability
during such period or the occurrence of a change in control, as defined. The
Transition Agreement also provides that Mr. Fox will be entitled to a target
benefit under the Supplemental Executive Retirement Plan (actuarially reduced,
if applicable, to reflect payments beginning prior to age 57), and for vesting
of all stock appreciation rights granted to him in the Stock Price Recovery
Program. All payments and benefits under the Transition Agreement are
conditioned on Mr. Fox signing a release of claims against the Company "and all
related parties" with respect to matters arising out of his employment with the
Company, and the Company releasing Mr. Fox from all civil liability which may
arise from his being or having been a Trustee or officer of Northeast Utilities
and its subsidiaries, except for any liability which has been or may be asserted
against Mr. Fox by the Company as the result of an investigation conducted upon
the demand of a shareholder or by a shareholder on behalf of the Company. Both
the 1992 Agreement and the Transition Agreement are binding on each majority-
owned subsidiary of Northeast Utilities with at least fifty employees on its
direct payroll.
Separation Agreement
NUSCO entered into a Separation Agreement with Mr. Busch in August 1996 in
connection with the termination of Mr. Busch's employment. The agreement
provided for a severance payment of two times annual compensation, and specified
supplemental employee welfare and pension benefits. It provides for
confidentiality restrictions on Mr. Busch and a two year non-competition period
in specified geographic locations. It includes a release by Mr. Busch of claims
against the Company and a release by the Company of claims against Mr. Busch,
except such as might be brought as the result of an investigation conducted upon
the demand of a shareholder or on behalf of the Company by shareholders.
NUSCO's obligations under this agreement are binding on each majority-owned
subsidiary of Northeast Utilities with at least fifty employees on its direct
payroll.
The descriptions of the various agreements set forth above are for purpose of
disclosure in accordance with the proxy and other disclosure rules of the SEC
and shall not be controlling on any party; the actual terms of the agreements
themselves determine the rights and obligations of the parties.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
NU.
Incorporated herein by reference is the information contained in the
sections "Common Stock Ownership of Certain Beneficial Owners", "Common Stock
Ownership of Management", "Compensation of Trustees", "Summary Compensation
Table", "Pension Benefits", and "Report on Executive Compensation" of the
definitive proxy statement for solicitation of proxies by NU, dated April 30,
1997 which will be filed with the Commission pursuant to Rule 14a-6 under the
Act.
CL&P, PSNH, WMECO AND NAEC.
NU owns 100% of the outstanding common stock of registrants CL&P, PSNH,
WMECO and NAEC. As of February 25, 1997, the Directors of CL&P, PSNH, WMECO and
NAEC beneficially owned the number of shares of each class of equity securities
of NU listed below. No equity securities of CL&P, PSNH, WMECO or NAEC are owned
by the Directors and Executive Officers of CL&P, PSNH, WMECO and NAEC.
CL&P, PSNH, WMECO, and NAEC DIRECTORS AND EXECUTIVE OFFICERS
Amount and
Nature of
Title Of Name of Beneficial Percent of
Class Beneficial Owner Ownership (1) Class (2)
NU Common Robert G. Abair(3) 7,761
NU Common John C. Collins(4) 0
NU Common Ted C. Feigenbaum(5) 1,917
NU Common John H. Forsgren(6) 5,404
NU Common Bernard M. Fox(7) 27,532
NU Common William T. Frain, Jr.(8) 2,726
NU Common Cheryl W. Grise(9) 4,553
NU Common Barry Ilberman(10) 8,124
NU Common John B. Keane(11) 2,971
NU Common Bruce D. Kenyon(12) 41,075
NU Common Francis L. Kinney(13) 4,949
NU Common Gerald Letendre(4) 0
NU Common Hugh C. MacKenzie(14) 9,962
NU Common Jane E. Newman(4) 0
NU Common Robert P. Wax(15) 3,815
Amount beneficially owned by Directors and Executive Officers
as a group - CL&P 118,872 shares (11 persons)
- PSNH 103,191 shares ( 8 persons)
- WMECO 118,872 shares (11 persons)
- NAEC 113,028 shares (11 persons)
(1) Unless otherwise noted, each Director and Executive Officer of CL&P,
PSNH, WMECO and NAEC has sole voting and investment power with respect
to the listed shares.
(2) As of February 25, 1997 there were 136,052,050 common shares of NU
outstanding. The percentage of such shares beneficially owned by any
Director or Executive Officer, or by all Directors and Executive
Officers of CL&P, PSNH, WMECO and NAEC as a group, does not exceed one
percent.
(3) Mr. Abair is a Director of CL&P and WMECO.
(4) Messrs. Collins, Letendre and Ms. Newman are Directors of PSNH.
(5) Mr. Feigenbaum is a Director and Executive Officer of NAEC.
(6) Mr. Forsgren is a Director and Executive Officer of CL&P, WMECO and
PSNH and an Executive Officer of NAEC. Mr. Forsgren's shares are
restricted. See Note 3 of the Summary Compensation Table.
(7) Mr. Fox is a Director and Executive Officer of CL&P, PSNH, WMECO and
NAEC. Mr. Fox shares voting and investment power with his wife for
5,745 of these shares. In addition, Mr. Fox's wife has sole voting and
investment power for 140 shares as to which Mr. Fox disclaims
beneficial ownership.
(8) Mr. Frain is a Director of CL&P, PSNH, WMECO and NAEC and an Executive
Officer of PSNH.
(9) Mrs. Grise is a Director of CL&P, PSNH, WMECO and NAEC and an Executive
Officer of CL&P, WMECO and NAEC.
(10) Mr. Ilberman is an Executive Officer of CL&P, PSNH, WMECO and NAEC.
Mr. Ilberman shares voting and investment power with his wife for 319
of these shares and voting and investment power with his mother for
1,277 of these shares.
(11) Mr. Keane is a Director of CL&P, WMECO and NAEC.
(12) Mr. Kenyon is a Director and Executive Officer of CL&P, NAEC and WMECO
and an Executive Officer of PSNH. 40,325 of Mr. Kenyon's shares are
restricted. See Note 2 of the Summary Compensation Table.
(13) Mr. Kinney is an Executive Officer of CL&P, WMECO and NAEC. Mr. Kinney
shares voting and investment power with his wife for 2,243 of these
shares.
(14) Mr. MacKenzie is a Director of CL&P, PSNH, WMECO and NAEC and an
Executive Officer of CL&P and WMECO. Mr. MacKenzie shares voting and
investment power with his wife for 1,584 of these shares.
(15) Mr. Wax is an Executive Officer of CL&P, PSNH, WMECO and NAEC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NU.
Incorporated herein by reference is the information contained in the
section "Certain Relationships and Related Transactions" of the definitive proxy
statement for solicitation of proxies by NU's Board of Trustees, dated April 30,
1997, which will be filed with the Commission pursuant to Rule 14a-6 under the
Act.
CL&P, PSNH, WMECO AND NAEC.
No relationships or transactions that would be described in response to
this item exist now or existed during 1996 with respect to CL&P, PSNH, WMECO and
NAEC.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) 1. Financial Statements:
The Report of Independent Public Accountants and financial
statements of NU, CL&P, PSNH, WMECO, and NAEC are hereby incorporated
by reference and made a part of this report (see "Item 8. Financial
Statements and Supplementary Data").
Report of Independent Public Accountants S-1
Consent of Independent Public Accountants S-3
2. Schedules:
Financial Statement Schedules for NU (Parent),
NU and Subsidiaries, CL&P and Subsidiaries,
PSNH and WMECO are listed in the Index to
Financial Statement Schedules S-4
3. Exhibits Index E-1
(b) Reports on Form 8-K:
NU, CL&P, PSNH, and WMECO filed Form 8-Ks dated November 25,1996 with
the SEC on December 19, 1996. This 8-K filing disclosed that:
*NNECO informed the NRC of its comprehensive plan for restarting
the Millstone units.
*The Board of Directors of CYAPCO voted unanimously to retire the
CY power plant.
*The NRC conducted enforcement conferences at Millstone and CY.
*One of the two outside consulting firms retained by the DPUC to
audit the NU system's nuclear operations issued its final report.
*The Citizens Awareness Network filed a petition with the NRC
requesting that the NRC suspend or revoke NNECO's license to
operate Millstone.
*The non-NU owners of Millstone 3 have reserved their rights to
contest whether the NU system companies have any responsibility
for the additional costs borne by the non-NU owners as a result
of the current outage of the unit.
*CMEEC has advised CL&P that it was terminating its contract to
receive approximately 3.51 percent of each of Millstone 1 and 2's
capacity and energy for cause due to the extended outages.
*NU system companies expect to have sufficient capacity, assuming
expected system load and expected operations of system
facilities, to meet peak demands in their service areas through
the winter of 1996-1997 and the summer of 1997.
*NU and certain present and former officers and employees of the
company were served with a purported class action lawsuit filed
on behalf of certain shareholders.
*Storm Bernice is expected to cost NU about $20-$30 million. After
payment of a $10 million deductible, up to $15 million of
insurance is available to cover restoration costs.
NU, PSNH, and NAEC filed Form 8-Ks dated January 17, 1997 with the
SEC on January 17, 1997. This filing disclosed the testimony of NU's
chief financial officer before the NHPUC regarding the potential
impact of a stranded cost methodology that the NHPUC was considering.
NU and CL&P filed Form 8-Ks dated January 20, 1997 with the SEC on
January 21, 1997. This filing disclosed a preliminary earnings
outlook for NU.
NU, CL&P, PSNH, WMECO, and NAEC filed Form 8-Ks dated February 20,
1997 with the SEC on February 24, 1997. This filing disclosed that
the Chairman and Chief Executive Officer had announced his intention
to retire.
NU, CL&P, PSNH, WMECO, and NAEC filed Form 8-Ks dated February 28,
1997 with the SEC on March 3, 1997. This filing disclosed the NHPUC's
issuance of a decision regarding the restructuring of New Hampshire's
electric utility industry.
NORTHEAST UTILITIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NORTHEAST UTILITIES
(Registrant)
Date: March 21, 1997 By /s/Bernard M. Fox
Bernard M. Fox
Chairman of the Board,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Title Signature
March 21, 1997 A Trustee, Chairman /s/Bernard M. Fox
of the Board, Bernard M. Fox
President and
Chief Executive Officer
March 21, 1997 Executive Vice /s/John H. Forsgren
President and Chief John H. Forsgren
Financial Officer
March 21, 1997 Vice President and /s/John J. Roman
Controller John J. Roman
Trustee
Cotton Mather Cleveland
Trustee
John F. Curley
March 21, 1997 Trustee /s/E. Gail de Planque
E. Gail de Planque
Trustee
Gaynor N. Kelley
March 21, 1997 Trustee /s/Elizabeth T. Kennan
Elizabeth T. Kennan
March 21, 1997 Trustee /s/William J. Pape II
William J. Pape II
Trustee
Robert E. Patricelli
March 21, 1997 Trustee /s/Norman C. Rasmussen
Norman C. Rasmussen
March 21, 1997 Trustee /s/John F. Swope
John F. Swope
March 21, 1997 Trustee /s/John F. Turner
John F. Turner
THE CONNECTICUT LIGHT AND POWER COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE CONNECTICUT LIGHT AND POWER COMPANY
(Registrant)
March 21, 1997 By /s/Bernard M. Fox
Bernard M. Fox
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Title Signature
March 21, 1997 Chairman and /s/Bernard M. Fox
a Director Bernard M. Fox
March 21, 1997 President and /s/Hugh C. MacKenzie
a Director Hugh C. MacKenzie
March 21, 1997 Executive Vice /s/John H. Forsgren
President and Chief John H. Forsgren
Financial Officer
and a Director
March 21, 1997 Vice President and /s/John J. Roman
Controller John J. Roman
March 21, 1997 Director /s/Robert G. Abair
Robert G. Abair
March 21, 1997 Director /s/William T. Frain, Jr.
William T. Frain, Jr.
March 21, 1997 Director /s/Cheryl W. Grise
Cheryl W. Grise
March 21, 1997 Director /s/John B. Keane
John B. Keane
March 21, 1997 Director /s/Bruce D. Kenyon
Bruce D. Kenyon
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
(Registrant)
Date: March 21, 1997 By /s/Bernard M. Fox
Bernard M. Fox
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Title Signature
March 21, 1997 Chairman, Chief /s/Bernard M. Fox
Executive Officer Bernard M. Fox
and a Director
March 21, 1997 President, Chief /s/William T. Frain, Jr.
Operating Officer William T. Frain, Jr.
and a Director
March 21, 1997 Executive Vice /s/John H. Forsgren
President and Chief John H. Forsgren
Financial Officer
and a Director
March 21, 1997 Vice President and /s/John J. Roman
Controller John J. Roman
March 21, 1997 Director /s/John C. Collins
John C. Collins
March 21, 1997 Director /s/Cheryl W. Grise
Cheryl W. Grise
March 21, 1997 Director /s/Gerald Letendre
Gerald Letendre
March 21, 1997 Director /s/Hugh C. MacKenzie
Hugh C. MacKenzie
March 21, 1997 Director /s/Jane E. Newman
Jane E. Newman
WESTERN MASSACHUSETTS ELECTRIC COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
(Registrant)
March 21, 1997 By /s/Bernard M. Fox
Bernard M. Fox
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Title Signature
March 21, 1997 Chairman and /s/Bernard M. Fox
a Director Bernard M. Fox
March 21, 1997 President and /s/Hugh C. MacKenzie
a Director Hugh C. MacKenzie
March 21, 1997 Executive Vice /s/John H. Forsgren
President and Chief John H. Forsgren
Financial Officer
and a Director
March 21, 1997 Vice President and /s/John J. Roman
Controller John J. Roman
March 21, 1997 Director /s/Robert G. Abair
Robert G. Abair
March 21, 1997 Director /s/William T. Frain,Jr
William T. Frain,Jr
March 21, 1997 Director /s/Cheryl W. Grise
Cheryl W. Grise
March 21, 1997 Director /s/John B. Keane
John B. Keane
March 21, 1997 Director /s/Bruce D. Kenyon
Bruce D. Kenyon
NORTH ATLANTIC ENERGY CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NORTH ATLANTIC ENERGY CORPORATION
(Registrant)
March 21, 1997 By /s/Bernard M. Fox
Bernard M. Fox
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Title Signature
March 21, 1997 Chairman, Chief /s/Bernard M. Fox
Executive Officer Bernard M. Fox
and a Director
March 21, 1997 President, Chief /s/Bruce D. Kenyon
Executive Officer Bruce D. Kenyon
and a Director
March 21, 1997 Executive Vice /s/John H. Forsgren
President and Chief John H. Forsgren
Financial Officer
March 21, 1997 Vice President and /s/John J. Roman
Controller John J. Roman
March 21, 1997 Director /s/Ted C. Feigenbaum
Ted C. Feigenbaum
March 21, 1997 Director /s/William T. Frain,Jr.
William T. Frain,Jr.
March 21, 1997 Director /2/Cheryl W. Grise
Cheryl W. Grise
March 21, 1997 Director /s/John B. Keane
John B. Keane
March 21, 1997 Director /s/Hugh C. MacKenzie
Hugh C. MacKenzie
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Northeast Utilities' annual report to
shareholders, and The Connecticut Light and Power Company's and Western
Massachusetts Electric Company's annual reports, incorporated by reference in
this Form 10-K and have issued our reports thereon dated February 21, 1997
(except with respect to the matter discussed in the "Subsequent Event" footnote
of Northeast Utilities' annual report to shareholders, as to which the date is
March 10, 1997). Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed in the
accompanying index are the responsibility of the companies' management and are,
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of
he basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 21, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards, the
financial statements included in North Atlantic Energy Corporation's and Public
Service Company of New Hampshire's annual reports, incorporated by reference in
this Form 10-K and have issued our reports thereon dated February 21, 1997
(except with respect to the matter discussed in the "Subsequent Event" footnote,
as to which the date is March 10, 1997). Our reports included an explanatory
paragraph regarding the existence of conditions which raise substantial doubt
about the companies' abilities to continue as going concerns. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedules listed in the accompanying index are the
responsibility of the companies' management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 21, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included or incorporated by reference in this Form
10-K, into previously filed Registration Statement No. 33-55279 of The
Connecticut Light and Power Company, No. 33-56537 of CL&P Capital, LP, No. 33-
51185 of Western Massachusetts Electric Company, and No. 33-34622, No. 33-44814,
No. 33-63023, and No. 33-40156 of Northeast Utilities.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 20, 1997
INDEX TO FINANCIAL STATEMENTS SCHEDULES
Schedule Page
I. Financial Information of Registrant:
Northeast Utilities (Parent) Balance
Sheets 1996 and 1995 S-5
Northeast Utilities (Parent) Statements
of Income 1996, 1995, and 1994 S-6
Northeast Utilities (Parent) Statements
of Cash Flows 1996, 1995, and 1994 S-7
II. Valuation and Qualifying Accounts and Reserves
1996, 1995, and 1994:
Northeast Utilities and Subsidiaries S-8 - S-10
The Connecticut Light and Power Company S-11 - S-13
Public Service Company of New Hampshire S-14 - S-16
Western Massachusetts Electric Company S-17 - S-19
All other schedules of the companies' for which provision is made in the
applicable regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable, and therefore
have been omitted.
SCHEDULE I
NORTHEAST UTILITIES (PARENT)
FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AT DECEMBER 31, 1996 AND 1995
(Thousands of Dollars)
1996 1995
---------- ----------
ASSETS
- ------
Other Property and Investments:
Investments in subsidiary companies, at
equity............................................... $2,506,254 $2,701,866
Investments in transmission companies, at equity...... 21,186 23,557
Other, at cost........................................ 413 250
----------- -----------
2,527,853 2,725,673
----------- -----------
Current Assets:
Cash.................................................. 10 18
Notes receivable from affiliated companies............ 5,475 9,675
Notes and accounts receivable......................... 813 0
Receivables from affiliated companies................. 7,106 607
Prepayments........................................... 224 138
----------- -----------
13,628 10,438
----------- -----------
Deferred Charges:
Accumulated deferred income taxes..................... 5,293 6,984
Unamortized debt expense.............................. 524 11
Other................................................. 46 122
----------- -----------
5,863 7,117
----------- -----------
Total Assets..................................... $2,547,344 $2,743,228
=========== ===========
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common Shareholders' Equity:
Common shares, $5 par value--Authorized
225,000,000 shares; 136,051,938 shares issued and
128,444,373 shares outstanding in 1996 and
135,611,166 shares issued and
127,050,647 outstanding in 1995..................... $ 680,260 $ 678,056
Capital surplus, paid in.............................. 940,446 936,308
Deferred benefit plan--employee stock ownership plan.. (176,091) (198,152)
Retained earnings..................................... 832,520 1,007,340
----------- -----------
Total common shareholders' equity................... 2,277,135 2,423,552
Long-term debt........................................ 194,000 210,000
----------- -----------
Total capitalization................................ 2,471,135 2,633,552
----------- -----------
Current Liabilities:
Notes payable to banks................................ 38,750 57,500
Long-term debt and preferred stock--current portion... 16,000 14,000
Accounts payable...................................... 15,504 18,213
Accounts payable to affiliated companies.............. 600 1,074
Accrued taxes......................................... 2,158 6,539
Accrued interest...................................... 2,602 2,864
Dividend reinvestment plan............................ 0 8,995
Other................................................. 2 2
----------- -----------
75,616 109,187
----------- -----------
Other Deferred Credits.................................. 593 489
----------- -----------
Total Capitalization and Liabilities $2,547,344 $2,743,228
=========== ===========
SCHEDULE I
NORTHEAST UTILITIES (PARENT)
FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Thousands of Dollars Except Share Information)
1996 1995 1994
------------- ------------- -------------
Operating Revenues............... $ - $ - $ -
------------- ------------- -------------
Operating Expenses:
Other.......................... 8,920 14,267 13,114
Federal income taxes........... (10,390) (8,585) (10,736)
------------- ------------- -------------
Total operating expenses...... (1,470) 5,682 2,378
------------- ------------- -------------
Operating Income (Loss).......... 1,470 (5,682) (2,378)
------------- ------------- -------------
Other Income:
Equity in earnings of
subsidiaries.................. 18,272 310,025 309,769
Equity in earnings of
transmission companies........ 3,306 3,561 3,418
Other, net..................... 368 329 679
------------- ------------- -------------
Other income, net............ 21,946 313,915 313,866
------------- ------------- -------------
Income before interest
charges..................... 23,416 308,233 311,488
------------- ------------- -------------
Interest Charges 21,585 25,799 24,614
------------- ------------- -------------
Earnings for Common Shares $ 1,831 $ 282,434 $ 286,874
============= ============= =============
Earnings Per Common Share........ $ 0.01 $ 2.24 $ 2.30
============= ============= =============
Common Shares Outstanding
(average)....................... 127,960,382 126,083,645 124,678,192
============= ============= =============
SCHEDULE I
NORTHEAST UTILITIES (PARENT)
FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, 1994
(Thousands of Dollars)
1996 1995 1994
-------------- -------------- --------------
Operating Activities:
Net income $ 1,831 $ 282,434 $ 286,874
Adjustments to reconcile to net cash
from operating activities:
Equity in earnings of subsidiary companies (18,272) (310,025) (309,769)
Cash dividends received from subsidiary companies 247,101 272,350 201,403
Deferred income taxes 3,868 772 (1,890)
Other sources of cash 17,961 6,916 3,007
Other uses of cash (3,065) (528) (169)
Changes in working capital:
Receivables (7,312) 1,991 30,525
Accounts payable (3,183) 15,381 (43,601)
Other working capital (excludes cash) (13,724) 7,396 7,615
-------------- -------------- --------------
Net cash flows from operating activities 225,205 276,687 173,995
-------------- -------------- --------------
Financing Activities:
Issuance of common shares 10,622 47,218 14,551
Net (decrease) increase in short-term debt (18,750) (46,500) 31,500
Reacquisitions and retirements of long-term debt (14,000) (12,000) (9,000)
Cash dividends on common shares (176,276) (221,701) (219,317)
-------------- -------------- --------------
Net cash flows used for financing activities (198,404) (232,983) (182,266)
-------------- -------------- --------------
Investment Activities:
NU System Money Pool 4,200 (7,700) 17,650
Investment in subsidiaries (33,217) (38,963) (10,912)
Other investment activities, net 2,208 2,935 1,503
-------------- -------------- --------------
Net cash flows (used for) from investments (26,809) (43,728) 8,241
-------------- -------------- --------------
Net decrease in cash for the period (8) (24) (30)
Cash - beginning of period 18 42 72
-------------- -------------- --------------
Cash - end of period $ 10 $ 18 $ 42
============== ============== ==============
Supplemental Cash Flow Information
Cash paid during the year for:
Interest, net of amounts capitalized $ 21,770 $ 26,430 $ 24,235
============== ============== ==============
Income taxes (refund) $ (7,700) $ (8,418) $ (16,786)
============== ============== ==============
NORTHEAST UTILITIES AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1996
(Thousands of Dollars)
- ----------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance atCharged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ----------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 14,379 $ 21,761 $ - $ 19,078 (a) $ 17,062
========= ========= ========= ========== ==========
Asset valuation reserves $ 10,266 $ $ - $ 10,266 $ 0
========= ========= ========= ========== ==========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 38,409 $ 8,397 $ - $ 10,546 (b) $ 36,260
========= ========= ========= ========== ==========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
NORTHEAST UTILITIES AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 16,826 $ 18,010 $ - $ 20,458 (a)$ 14,378
========= ========= ========= ========= =========
Asset valuation reserves $ 8,684 $ 1,582 $ - $ - $ 10,266
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 34,721 $ 11,475 $ - $ 7,787 (b)$ 38,409
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
NORTHEAST UTILITIES AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1994
(Thousands of Dollars)
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 14,629 $ 23,194 $ - $ 20,997 (a) $ 16,826
========= ========= ========= ========= =========
Asset valuation reserves $ 797 $ 7,887 $ - $ -(b) $ 8,684
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 28,286 $ 13,150 $ - $ 6,715 (c) $ 34,721
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally the reduction in the carrying amounts of assets.
(c) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1996
(Thousands of Dollars)
- ----------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance atCharged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ----------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 10,567 $ 15,704 $ - $ 13,030 (a) $ 13,241
========= ========= ========= ========== ==========
Asset valuation reserves $ 10,266 $ -$ - $ 10,266 $ 0
========= ========= ========= ========== ==========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 19,874 $ 5,709 $ - $ 6,704 (b) $ 18,879
========= ========= ========= ========== ==========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 12,778 $ 12,722 $ - $ 14,933 (a)$ 10,567
========= ========= ========= ========= =========
Asset valuation reserves $ 8,684 $ 1,582 $ - $ - $ 10,266
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 19,529 $ 5,633 $ - $ 5,288 (b)$ 19,874
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1994
(Thousands of Dollars)
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 10,816 $ 17,177 $ - $ 15,215 (a) $ 12,778
========= ========= ========= ========= =========
Asset valuation reserves $ 797 $ 7,887 $ - $ (b) $ 8,684
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 14,905 $ 9,924 $ - $ 5,300 (c) $ 19,529
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally the reduction in the carrying amounts of assets.
(c) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1996
(Thousands of Dollars)
- ----------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance atCharged to other Balance
beginning costs and accounts- Deductions- at end
Description of period(expenses describe describe of period
- ----------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 1,582 $ 2,906 $ - $ 2,788 (a) $ 1,700
========= ========= ========= ========== ==========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 8,142 1,040 $ - $ 1,917 (b) $ 7,265
========= ========= ========= ========== ==========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 12,778 $ 12,722 $ - $ 14,933 (a)$ 10,567
========= ========= ========= ========= =========
Asset valuation reserves $ 8,684 $ 1,582 $ - $ - $ 10,266
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 19,529 $ 5,633 $ - $ 5,288 (b)$ 19,874
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1994
(Thousands of Dollars)
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 10,816 $ 17,177 $ - $ 15,215 (a) $ 12,778
========= ========= ========= ========= =========
Asset valuation reserves $ 797 $ 7,887 $ - $ (b) $ 8,684
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 14,905 $ 9,924 $ - $ 5,300 (c) $ 19,529
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally the reduction in the carrying amounts of assets.
(c) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
WESTERN MASSACHUSETTS ELECTRIC COMPANY SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1996
(Thousands of Dollars)
- -------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance atCharged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 2,230 $ 3,097 $ - $ 3,206 (a) $ 2,121
========= ========= ========= ========== ==========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 5,144 $ 1,222 $ - $ 791 (b) $ 5,575
========= ========= ========= ========== ==========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
WESTERN MASSACHUSETTS ELECTRIC COMPANY SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 2,032 $ 2,836 $ - $ 2,638 (a)$ 2,230
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 4,674 $ 1,340 $ - $ 870 (b)$ 5,144
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
WESTERN MASSACHUSETTS ELECTRIC COMPANY SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1994
(Thousands of Dollars)
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 1,997 $ 3,017 $ - $ 2,982 (a) $ 2,032
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 3,842 $ 1,473 $ - $ 641 (b) $ 4,674
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
EXHIBIT INDEX
Each document described below is incorporated by reference to the files of
the Securities and Exchange Commission, unless the reference to the document is
marked as follows:
* - Filed with the 1996 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1996 NU Form 10-K, File No. 1-5324 into
the 1996 Annual Reports on Form 10-K for CL&P, PSNH, WMECO and NAEC.
# - Filed with the 1996 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1996 NU Form 10-K, File No. 1-5324 into
the 1996 Annual Report on Form 10-K for CL&P.
@ - Filed with the 1996 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1996 NU Form 10-K, File No. 1-5324 into
the 1996 Annual Report on Form 10-K for PSNH.
** - Filed with the 1996 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1996 NU Form 10-K, File No. 1-5324 into
the 1996 Annual Report on Form 10-K for WMECO.
## - Filed with the 1996 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1996 Form 10-K, File No. 1-5324 into the
1996 Annual Report on Form 10-K for NAEC.
Exhibit
Number Description
3. Articles of Incorporation and By-Laws
3.1 Northeast Utilities
3.1.1 Declaration of Trust of NU, as amended
through May 24, 1988. (Exhibit 3.1.1, 1988 NU Form 10-K,
File No. 1-5324)
3.2 The Connecticut Light and Power Company
3.2.1 Certificate of Incorporation of CL&P, restated to March 22,
1994. (Exhibit 3.2.1, 1993 NU Form 10-K, File No. 1-5324)
# 3.2.2 Certificate of Amendment to Certificate of Incorporation of
CL&P, dated December 26, 1996.
# 3.2.3 By-laws of CL&P, as amended to January 1, 1997.
3.3 Public Service Company of New Hampshire
3.3.1 Articles of Incorporation, as amended to May 16, 1991.
(Exhibit 3.3.1, 1993 NU Form 10-K, File No. 1-5324)
3.3.2 By-laws of PSNH, as amended to November 1, 1993. (Exhibit
3.3.2, 1993 NU Form 10-K, File No. 1-5324)
3.4 Western Massachusetts Electric Company
3.4.1 Articles of Organization of WMECO, restated to February 23,
1995. (Exhibit 3.4.1, 1994 NU Form 10-K, File No. 1-5324)
3.4.2 By-laws of WMECO, as amended to February 13, 1995. (Exhibit
3.4.2, 1994 NU Form 10-K, File No. 1-5324)
3.5 North Atlantic Energy Corporation
3.5.1 Articles of Incorporation of NAEC dated September 20, 1991.
(Exhibit 3.5.1, 1993 NU Form 10-K, File No. 1-5324)
3.5.2 Articles of Amendment dated October 16, 1991 and June 2,
1992 to Articles of Incorporation of NAEC. (Exhibit 3.5.2,
1993 NU Form 10-K, File No. 1-5324)
3.5.3 By-laws of NAEC, as amended to November 8, 1993. (Exhibit
3.5.3, 1993 NU Form 10-K, File No. 1-5324)
4 Instruments defining the rights of security holders, including indentures
4.1 Northeast Utilities
4.1.1 Indenture dated as of December 1, 1991 between Northeast
Utilities and IBJ Schroder Bank & Trust Company, with
respect to the issuance of Debt Securities. (Exhibit 4.1.1,
1991 NU Form 10-K, File No. 1-5324)
4.1.2 First Supplemental Indenture dated as of December 1, 1991
between Northeast Utilities and IBJ Schroder Bank & Trust
Company, with respect to the issuance of Series A Notes.
(Exhibit 4.1.2, 1991 NU Form 10-K, File No. 1-5324)
4.1.3 Second Supplemental Indenture dated as of March 1, 1992
between Northeast Utilities and IBJ Schroder Bank & Trust
Company with respect to the issuance of 8.38% Amortizing
Notes. (Exhibit 4.1.3, 1992 NU Form 10-K, File No. 1-5324)
4.1.4 Warrant Agreement dated as of June 5, 1992 between
Northeast Utilities and the Service Company. (Exhibit
4.1.4, 1992 NU Form 10-K, File No. 1-5324)
4.1.4.1 Additional Warrant Agent Agreement dated as of
June 5, 1992 between Northeast Utilities and State
Street Bank and Trust Company. (Exhibit 4.1.4.1,
1992 NU Form 10-K, File No. 1-5324)
4.1.4.2 Exchange and Disbursing Agent Agreement dated as
of June 5, 1992 among Northeast Utilities, Public
Service Company of New Hampshire and State Street
Bank and Trust Company. (Exhibit 4.1.4.2, 1992
NU Form 10-K, File No. 1-5324)
4.1.5 Credit Agreements among CL&P, NU, WMECO, NUSCO (as Agent)
and 3 Commercial Banks dated December 3, 1992 (Three-Year
Facility). (Exhibit C.2.38, 1992 NU Form U5S, File No. 30-
246)
4.1.6 Credit Agreements among CL&P, WMECO, NU, Holyoke Water Power
Company, RRR, NNECO and NUSCO (as Agent) and 1 commercial
banks dated December 3, 1992 (Three-Year Facility).
(Exhibit C.2.39, 1992 NU Form U5S, File No. 30-246)
4.1.7 Credit Agreement among NU, CL&P and WMECO and several
commercial banks, dated as of November 21, 1996. (Exhibit
No. B.1, File No. 70-8875)
4.2 The Connecticut Light and Power Company
4.2.1 Indenture of Mortgage and Deed of Trust between CL&P and
Bankers Trust Company, Trustee, dated as of May 1, 1921.
(Composite including all twenty-four amendments to May 1,
1967.) (Exhibit 4.1.1, 1989 NU Form 10-K, File No. 1-5324)
Supplemental Indentures to the Composite May 1, 1921
Indenture of Mortgage and Deed of Trust between
CL&P and Bankers Trust Company, dated as of:
4.2.2 April 1, 1967. (Exhibit 4.16, File No. 2-60806)
4.2.3 January 1, 1968. (Exhibit 4.18, File No. 2-60806)
4.2.4 December 1, 1969. (Exhibit 4.20, File No. 2-60806)
4.2.5 June 30, 1982. (Exhibit 4.33, File No. 2-79235)
4.2.6 December 1, 1989. (Exhibit 4.1.26, 1989 NU Form
10-K, File No. 1-5324)
4.2.7 April 1, 1992. (Exhibit 4.30, File No. 33-59430)
4.2.8 July 1, 1992. (Exhibit 4.31, File No. 33-59430)
4.2.9 July 1, 1993. (Exhibit A.10(b), File No. 70-8249)
4.2.10 July 1, 1993. (Exhibit A.10(b), File No. 70-8249)
4.2.11 December 1, 1993. (Exhibit 4.2.14, 1993 NU Form 10-K,
File No. 1-5324)
4.2.12 February 1, 1994. (Exhibit 4.2.15, 1993 NU Form 10-K,
File No. 1-5324)
4.2.13 February 1, 1994. (Exhibit 4.2.16, 1993 NU Form 10-K,
File No. 1-5324)
4.2.14 June 1, 1994. (Exhibit 4.2.15, 1994 NU Form 10-K,
File No. 1-5324)
4.2.15 October 1, 1994. (Exhibit 4.2.16, 1994 NU Form 10-K,
File No. 1-5324)
# 4.2.16 June 1, 1996.
# 4.2.17 January 1, 1997.
4.2.18 Financing Agreement between Industrial Development Authority
of the State of New Hampshire and CL&P (Pollution Control
Bonds, 1986 Series) dated as of December 1, 1986. (Exhibit
C.1.47, 1986 NU Form U5S, File No. 30-246)
4.2.18.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds, 1986 Series) dated as of
August 1, 1994. (Exhibit 1 (Execution Copy),
File No. 70-7320)
4.2.19 Financing Agreement between Industrial Development Authority
of the State of New Hampshire and CL&P (Pollution Control
Bonds, 1988 Series) dated as of October 1, 1988. (Exhibit
C.1.55, 1988 NU Form U5S, File No. 30-246)
4.2.19.1 Letter of Credit (Pollution Control Bonds,
1988 Series) dated October 27, 1988.
(Exhibit 4.2.17.1, 1995 NU Form 10-K,
File No. 1-5324)
4.2.19.2 Reimbursement and Security Agreement
(Pollution Control Bonds, 1988 Series)
dated as of October 1, 1988.
(Exhibit 4.2.17.2, 1995 NU form 10-K,
File No. 1-5324)
4.2.20 Financing Agreement between Industrial Development Authority
of the State of New Hampshire and CL&P (Pollution Control
Bonds) dated as of December 1, 1989. (Exhibit C.1.39, 1989
NU Form U5S, File No. 30-246)
4.2.21 Loan and Trust Agreement among Business Finance Authority
of the State of New Hampshire, CL&P and the Trustee
(Pollution Control Bonds, 1992 Series A) dated as of
December 1, 1992.(Exhibit C.2.33, 1992 NU Form U5S, File No.
30-246)
4.2.21.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds, 1992 Series A)
dated as of December 1, 1992. (Exhibit
4.2.19.1, 1995 NU Form 10-K, File No.
1-5324)
4.2.22 Loan Agreement between Connecticut Development Authority
and CL&P (Pollution Control Bonds - Series A, Tax Exempt
Refunding) dated as of September 1, 1993. (Exhibit 4.2.21,
1993 NU Form 10-K, File No. 1-5324)
4.2.22.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds - Series A, Tax
Exempt Refunding) dated as of September 1,
1993. (Exhibit 4.2.23, 1993 NU Form 10-K,
File No. 1-5324)
4.2.23 Loan Agreement between Connecticut Development Authority and
CL&P (Pollution Control Bonds - Series B, Tax Exempt
Refunding) dated as of September 1, 1993. (Exhibit 4.2.22,
1993 NU Form 10-K, File No. 1-5324)
4.2.23.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds - Series B, Tax
Exempt Refunding) dated as of September 1,
1993. (Exhibit 4.2.24, 1993 NU Form 10-K,
File No. 1-5324)
# 4.2.24 Amended and Restated Loan Agreement between Connecticut
Development Authority and CL&P (Pollution Control Revenue
Bond - 1996A Series) dated as of May 1, 1996 and Amended and
Restated as of January 1, 1997.
# 4.2.24.1 Amended and Restated Indenture of Trust
between Connecticut Development Authority
and the Trustee (CL&P Pollution Control
Revenue Bond-1996A Series), dated as of
May 1, 1996 and Amended and Restated as of
January 1, 1997.
# 4.2.24.2 Standby Bond Purchase Agreement among CL&P,
Societe Generale, New York Branch and the
Trustee, dated January 23, 1997.
# 4.2.24.3 AMBAC Municipal Bond Insurance Policy issued
by the Connecticut Development Authority
(CL&P Pollution Control Revenue Bond-1996A
Series), effective January 23, 1997.
4.2.25 Amended and Restated Limited Partnership Agreement (CL&P
Capital, L.P.) among CL&P, NUSCO, and the persons who became
limited partners of CL&P Capital, L.P. in accordance with
the provisions thereof dated as of January 23, 1995 (MIPS).
(Exhibit A.1 (Execution Copy), File No. 70-8451)
4.2.26 Indenture between CL&P and Bankers Trust Company, Trustee
(Series A Subordinated Debentures), dated as of January 1,
1995 (MIPS). (Exhibit B.1 (Execution Copy), File No. 70-
8451)
4.2.27 Payment and Guaranty Agreement of CL&P dated as of January
23, 1995 (MIPS). (Exhibit B.3 (Execution Copy), File No.
70-8451)
4.3 Public Service Company of New Hampshire
4.3.1 First Mortgage Indenture dated as of August 15, 1978
between PSNH and First Fidelity Bank, National Association,
New Jersey, Trustee, (Composite including all amendments to
May 16, 1991). (Exhibit 4.4.1, 1992 NU Form 10-K, File No.
1-5324)
4.3.1.1 Tenth Supplemental Indenture dated as of May 1,
1991 between PSNH and First Fidelity Bank,
National Association. (Exhibit 4.1, PSNH
Current Report on Form 8-K dated February 10,
1992, File No. 1-6392).
@ 4.3.2 Amended and Restated Revolving Credit Agreement, dated as of
April 1, 1996.
4.3.3 Series A (Tax Exempt New Issue) PCRB Loan and Trust
Agreement dated as of May 1, 1991. (Exhibit 4.2, PSNH
Current Report on Form 8-K dated February 10, 1992, File No.
1-6392)
4.3.4 Series B (Tax Exempt Refunding) PCRB Loan and Trust
Agreement dated as of May 1, 1991. (Exhibit 4.3, PSNH
Current Report on Form 8-K dated February 10, 1992, File No.
1-6392)
4.3.5 Series C (Tax Exempt Refunding) PCRB Loan and Trust
Agreement dated as of May 1, 1991. (Exhibit 4.4, PSNH
Current Report on Form 8-K dated February 10, 1992, File No.
1-6392)
4.3.6 Series D (Taxable New Issue) PCRB Loan and Trust Agreement
dated as of May 1, 1991. (Exhibit 4.5, PSNH Current Report
on Form 8-K dated February 10, 1992, File No. 1-6392)
4.3.6.1 First Supplement to Series D (Tax Exempt
Refunding Issue) PCRB Loan and Trust Agreement
dated as of December 1, 1992. (Exhibit 4.4.5.1,
1992 NU Form 10-K, File No. 1-5324)
4.3.6.2 Second Series D (May 1, 1991 Taxable New Issue and
December 1, 1992 Tax Exempt Refunding Issue) PCRB
Letter of Credit and Reimbursement Agreement dated
as of May 1, 1995 (Exhibit B.4, Execution Copy,
File No. 70-8036)
4.3.7 Series E (Taxable New Issue) PCRB Loan and Trust Agreement
dated as of May 1, 1991. (Exhibit 4.6, PSNH Current Report
on Form 8-K dated February 10, 1992, File No. 1-6392)
4.3.7.1 First Supplement to Series E (Tax Exempt
Refunding Issue) PCRB Loan and Trust Agreement
dated as of December 1, 1993. (Exhibit 4.3.8.1,
1993 NU Form 10-K, File No. 1-5324)
4.3.7.2 Second Series E (May 1, 1991 Taxable New Issue and
December 1, 1993 Tax Exempt Refunding Issue) PCRB
Letter of Credit and Reimbursement Agreement dated
as of May 1, 1995. (Exhibit B.5, Execution Copy,
File No. 70-8036)
4.4 Western Massachusetts Electric Company
4.4.1 First Mortgage Indenture and Deed of Trust between WMECO
and Old Colony Trust Company, Trustee, dated as of August
1, 1954. (Exhibit 4.4.1, 1993 NU Form 10-K, File No. 1-
5324)
Supplemental Indentures thereto dated as of:
4.4.2 March 1, 1967. (Exhibit 2.5, File No. 2-68808)
4.4.3 September 1, 1990. (Exhibit 4.3.15, 1990 NU Form 10-K,
File No. 1-5324.)
4.4.4 December 1, 1992. (Exhibit 4.15, File No. 33-55772)
4.4.5 January 1, 1993. (Exhibit 4.5.13, 1992 NU Form 10-K,
File No. 1-5324)
4.4.6 March 1, 1994. (Exhibit 4.4.11, 1993 NU Form 10-K,
File No. 1-5324)
4.4.7 March 1, 1994. (Exhibit 4.4.12, 1993 NU Form 10-K,
File No. 1-5324)
4.4.8 Loan Agreement between Connecticut Development Authority and
WMECO, (Pollution Control Bonds - Series A, Tax Exempt
Refunding) dated as of September 1, 1993. (Exhibit 4.4.13,
1993 NU Form 10-K, File No. 1-5324)
4.4.8.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds - Series A, Tax Exempt
Refunding) dated as of September 1, 1993.
(Exhibit 4.4.14, 1993 NU Form 10-K, File No. 1-
5324)
4.5 North Atlantic Energy Corporation
4.5.1 First Mortgage Indenture and Deed of Trust between NAEC and
United States Trust Company of New York, Trustee, dated as
of June 1, 1992. (Exhibit 4.6.1, 1992 NU Form 10-K, File
No. 1-5324)
4.5.2 Term Credit Agreement dated as of November 9, 1995.
(Exhibit 4.5.2, 1995 NU Form 10-K, File No. 1-5324)
10 Material Contracts
10.1 Stockholder Agreement dated as of July 1, 1964 among the stockholders
of Connecticut Yankee Atomic Power Company (CYAPC). (Exhibit 10.1,
1994 NU Form 10-K, File No. 1-5324)
10.2 Form of Power Contract dated as of July 1, 1964 between CYAPC and each
of CL&P, HELCO, PSNH and WMECO. (Exhibit 10.2, 1994 NU Form 10-K,
File No. 1-5324)
10.2.1 Form of Additional Power Contract dated as of April 30,
1984, between CYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.2.1, 1994 NU Form 10-K, File No. 1-5324)
10.2.2 Form of 1987 Supplementary Power Contract dated as of April
1, 1987, between CYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.2.6, 1987 NU Form 10-K, File No. 1-5324)
10.3 Capital Funds Agreement dated as of September 1, 1964 between CYAPC
and CL&P, HELCO, PSNH and WMECO. (Exhibit 10.3, 1994 NU Form 10-K,
File No. 1-5324)
10.4 Stockholder Agreement dated December 10, 1958 between Yankee Atomic
Electric Company (YAEC) and CL&P, HELCO, PSNH and WMECO. (Exhibit
10.4, 1993 NU Form 10-K, File No. 1-5324)
10.5 Form of Amendment No. 3, dated as of April 1, 1985, to Power Contract
between YAEC and each of CL&P, PSNH and WMECO, including a composite
restatement of original Power Contract dated June 30, 1959 and
Amendment No. 1 dated April 1, 1975 and Amendment No. 2 dated October
1, 1980. (Exhibit 10.5, 1988 NU Form 10-K, File No. 1-5324.)
10.5.1 Form of Amendment No. 4 to Power Contract, dated May 6,
1988, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.1, 1989 NU Form 10-K, File No. 1-5324)
10.5.2 Form of Amendment No. 5 to Power Contract, dated June 26,
1989, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.2, 1989 NU Form 10-K, File No. 1-5324)
10.5.3 Form of Amendment No. 6 to Power Contract, dated
July 1,1989, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.3, 1989 NU Form 10-K, File No. 1-5324)
10.5.4 Form of Amendment No. 7 to Power Contract, dated February
1, 1992, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.4, 1993 NU Form 10-K, File No. 1-5324)
10.6 Stockholder Agreement dated as of May 20, 1968 among stockholders of
MYAPC. (Exhibit 4.15, File No. 2-30018)
10.7 Form of Power Contract dated as of May 20,1968 between MYAPC and each
of CL&P, HELCO, PSNH and WMECO. (Exhibit 4.14, File No. 2-30018)
10.7.1 Form of Amendment No. 1 to Power Contract dated as of March
1, 1983 between MYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.7.1, 1993 NU Form 10-K, File No. 1-5324)
10.7.2 Form of Amendment No. 2 to Power Contract dated as of
January 1, 1984 between MYAPC and each of CL&P, PSNH and
WMECO. (Exhibit 10.7.2, 1993 NU Form 10-K, File No. 1-
5324)
10.7.3 Form of Amendment No. 3 to Power Contract dated as of
October 1, 1984 between MYAPC and each of CL&P, PSNH and
WMECO. (Exhibit No. 10.7.3, 1994 NU Form 10-K, File No. 1-
5324)
10.7.4 Form of Additional Power Contract dated as of February 1,
1984 between MYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.7.4, 1993 NU Form 10-K, File No. 1-5324)
10.8 Capital Funds Agreement dated as of May 20, 1968 between Maine Yankee
Atomic Power Company (MYAPC) and CL&P, PSNH, HELCO and WMECO.
(Exhibit 4.13, File No. 2-30018)
10.8.1 Amendment No. 1 to Capital Funds Agreement, dated as of
August 1, 1985, between MYAPC, CL&P, PSNH and WMECO.
(Exhibit No. 10.8.1, 1994 NU Form 10-K, File No. 1-5324)
10.9 Sponsor Agreement dated as of August 1, 1968 among the sponsors of
VYNPC. (Exhibit 4.16, File No. 2-30285)
10.10 Form of Power Contract dated as of February 1, 1968 between VYNPC
and each of CL&P, HELCO, PSNH and WMECO. (Exhibit 4.18, File No.
2-30018)
10.10.1 Form of Amendment to Power Contract dated as of June 1, 1972
between VYNPC and each of CL&P, HELCO, PSNH and WMECO.
(Exhibit 5.22, File No. 2-47038)
10.10.2 Form of Second Amendment to Power Contract dated as of
April 15, 1983 between VYNPC and each of CL&P, PSNH and
WMECO. (Exhibit 10.10.2, 1993 NU Form 10-K, File No. 1-
5324)
10.10.3 Form of Third Amendment to Power Contract dated as of April
24, 1985 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit No. 10.10.3, 1994 NU Form 10-K, File No. 1-5324)
* 10.10.4 Form of Fourth Amendment to Power Contract dated as of
June 1, 1985 between VYNPC and each of CL&P, PSNH and
WMECO.
10.10.5 Form of Fifth Amendment to Power Contract dated as of May 6,
1988 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.5, 1990 NU Form 10-K, File No. 1-5324)
10.10.6 Form of Sixth Amendment to Power Contract dated as of May
6, 1988 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.6, 1990 NU Form 10-K, File No. 1-5324)
10.10.7 Form of Seventh Amendment to Power Contract dated as of June
15, 1989 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.7, 1990 NU Form 10-K, File No. 1-5324)
10.10.8 Form of Eighth Amendment to Power Contract dated as of
December 1, 1989 between VYNPC and each of CL&P, PSNH and
WMECO. (Exhibit 10.10.8, 1990 NU Form 10-K, File No. 1-
5324)
10.10.9 Form of Additional Power Contract dated as of February 1,
1984 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.9, 1993 NU Form 10-K, File No. 1-5324)
10.11 Capital Funds Agreement dated as of February 1, 1968 between Vermont
Yankee Nuclear Power Corporation (VYNPC) and CL&P, HELCO, PSNH and
WMECO. (Exhibit 4.16, File No. 2-30018)
10.11.1 Form of First Amendment to Capital Funds Agreement dated as
of March 12, 1968 between VYNPC and CL&P, HELCO, PSNH and
WMECO. (Exhibit 4.17, File No. 2-30018)
10.11.2 Form of Second Amendment to Capital Funds Agreement dated
as of September 1, 1993 between VYNPC and CL&P, HELCO, PSNH
and WMECO. (Exhibit 10.11.2, 1993 NU Form 10-K, File No. 1-
5324)
10.12 Amended and Restated Millstone Plant Agreement dated as of December
1, 1984 by and among CL&P, WMECO and Northeast Nuclear Energy Company
(NNECO). (Exhibit 10.12, 1994 NU Form 10-K, File No. 1-5324)
10.13 Sharing Agreement dated as of September 1, 1973 with respect to 1979
Connecticut nuclear generating unit (Millstone 3). (Exhibit 6.43,
File No. 2-50142)
10.13.1 Amendment dated August 1, 1974 to Sharing Agreement - 1979
Connecticut Nuclear Unit. (Exhibit 5.45, File No. 2-52392)
10.13.2 Amendment dated December 15, 1975 to Sharing Agreement -
1979 Connecticut Nuclear Unit. (Exhibit 7.47, File No. 2-
60806)
10.13.3 Amendment dated April 1, 1986 to Sharing Agreement - 1979
Connecticut Nuclear Unit. (Exhibit 10.17.3, 1990 NU Form
10-K, File No. 1-5324)
10.14 Agreement dated July 19, 1990, among NAESCO and Seabrook Joint owners
with respect to operation of Seabrook. (Exhibit 10.53, 1990 NU Form
10-K, File No. 1-5324)
10.15 Sharing Agreement between CL&P, WMECO, HP&E, HWP and PSNH dated as of
June 1, 1992. (Exhibit 10.17, 1992 NU Form 10-K, File No. 1-5324)
10.16 Rate Agreement by and between NUSCO, on behalf of NU, and the
Governor of the State of New Hampshire and the New Hampshire Attorney
General dated as of November 22, 1989. (Exhibit 10.44, 1989 NU Form
10-K, File No. 1-5324)
10.16.1 First Amendment to Rate Agreement dated as of December 5,
1989. (Exhibit 10.16.1, 1995 NU Form 10-K, File No. 1-5324)
10.16.2 Second Amendment to Rate Agreement dated as of December 12,
1989. (Exhibit 10.16.2, 1995 NU Form 10-K, File No. 1-5324)
10.16.3 Third Amendment to Rate Agreement dated as of December 3,
1993. (Exhibit 10.16.3, 1995 NU Form 10-K, File No. 1-5324)
10.16.4 Fourth Amendment to Rate Agreement dated as of September 21,
1994. (Exhibit 10.16.4, 1995 NU Form 10-K, File No. 1-5324)
10.16.5 Fifth Amendment to Rate Agreement dated as of September 9,
1994. (Exhibit 10.16.5, 1995 NU Form 10-K, File No. 1-5324)
10.17 Form of Seabrook Power Contract between PSNH and NAEC, as amended and
restated. (Exhibit 10.45, NU 1992 Form 10-K, File No. 1-5324)
10.18 Agreement (composite) for joint ownership, construction and operation
of New Hampshire nuclear unit, as amended through the November 1,
1990 twenty-third amendment. (Exhibit No. 10.17, 1994 NU Form 10-K,
File No. 1-5324)
10.18.1 Memorandum of Understanding dated November 7, 1988 between
PSNH and Massachusetts Municipal Wholesale Electric Company
(Exhibit 10.17, PSNH 1989 Form 10-K, File No. 1-6392)
10.18.2 Agreement of Settlement among Joint Owners dated as of
January 13, 1989. (Exhibit 10.13.21, 1988 NU Form 10-K,
File No. 1-5324)
10.18.2.1 Supplement to Settlement Agreement, dated as
of February 7, 1989, between PSNH and
Central Maine Power Company.
(Exhibit 10.18.1, PSNH 1989
Form 10-K, File No. 1-6392)
10.19 Amended and Restated Agreement for Seabrook Project Disbursing Agent
dated as of November 1, 1990. (Exhibit 10.4.7, File No. 33-35312)
10.19.1 Form of First Amendment to Exhibit 10.19. (Exhibit 10.4.8,
File No. 33-35312)
10.19.2 Form (Composite) of Second Amendment to Exhibit 10.19.
(Exhibit 10.18.2, 1993 NU Form 10-K, File No. 1-5324)
10.20 Agreement dated November 1,1974 for Joint Ownership, Construction and
Operation of William F. Wyman Unit No. 4 among PSNH, Central Maine
Power Company and other utilities. (Exhibit 5.16 , File No. 2-52900)
10.20.1 Amendment to Exhibit 10.20 dated June 30, 1975. (Exhibit
5.48, File No. 2-55458)
10.20.2 Amendment to Exhibit 10.20 dated as of August 16, 1976.
(Exhibit 5.19, File No. 2-58251)
10.20.3 Amendment to Exhibit 10.20 dated as of December 31, 1978.
(Exhibit 5.10.3, File No. 2-64294)
10.21 Form of Service Contract dated as of July 1, 1966 between each of NU,
CL&P and WMECO and the Service Company. (Exhibit 10.20, 1993 NU Form
10-K, File No. 1-5324)
10.21.1 Service Contract dated as of June 5, 1992 between PSNH and
the Service Company. (Exhibit 10.12.4, 1992 NU Form 10-K,
File No. 1-5324)
10.21.2 Service Contract dated as of June 5, 1992 between NAEC and
the Service Company. (Exhibit 10.12.5, 1992 NU Form 10-K,
File No. 1-5324)
10.21.3 Form of Annual Renewal of Service Contract. (Exhibit
10.20.3, 1993 NU Form 10-K, File No. 1-5324)
10.22 Memorandum of Understanding between CL&P, HELCO, HP&E, HWP and WMECO
dated as of June 1, 1970 with respect to pooling of generation and
transmission. (Exhibit 13.32, File No. 2-38177)
10.22.1 Amendment to Memorandum of Understanding between CL&P,
HELCO, HP&E, HWP and WMECO dated as of February 2, 1982 with
respect to pooling of generation and transmission. (Exhibit
10.21.1, 1993 NU Form 10-K, File No. 1-5324)
10.22.2 Amendment to Memorandum of Understanding between CL&P,
HELCO, HP&E, HWP and WMECO dated as of January 1, 1984 with
respect to pooling of generation and transmission. (Exhibit
10.21.2, 1994 NU Form 10-K, File No. 1-5324)
10.23 New England Power Pool Agreement effective as of November 1, 1971, as
amended to December 1, 1996. (Exhibit 10.15, 1988 NU Form 10-K, File
No. 1-5324.)
10.23.1 Twenty-sixth Amendment to Exhibit 10.23 dated as of March
15, 1989. (Exhibit 10.15.1, 1990 NU Form 10-K, File No. 1-
5324)
10.23.2 Twenty-seventh Amendment to Exhibit 10.23 dated as of
October 1, 1990. (Exhibit 10.15.2, 1991 NU Form 10-K, File
No. 1-5324)
10.23.3 Twenty-eighth Amendment to Exhibit 10.23 dated as of
September 15, 1992. (Exhibit 10.18.3, 1992 NU Form 10-K,
File No. 1-5324)
10.23.4 Twenty-ninth Amendment to Exhibit 10.23 dated as of May 1,
1993. (Exhibit 10.22.4, 1993 NU Form 10-K, File No. 1-5324)
10.23.5 Thirty-second Amendment (Amendments 30 and 31 were
withdrawn) to Exhibit 10.23 dated as of September 1, 1995.
(Exhibit 10.23.5, 1995 NU Form 10-K, File No. 1-5324)
* 10.23.6 Thirty-third Amendment to Exhibit 10.23 dated as of December
31, 1996 and Form of Interim Independent System Operator
(ISO) Agreement.
10.24 Agreements among New England Utilities with respect to the Hydro-
Quebec interconnection projects. (See Exhibits 10(u) and 10(v);
10(w), 10(x), and 10(y), 1990 and 1988, respectively, Form 10-K of New
England Electric System, File No. 1-3446.)
10.25 Trust Agreement dated February 11, 1992, between State Street Bank and
Trust Company of Connecticut, as Trustor, and Bankers Trust Company,
as Trustee, and CL&P and WMECO, with respect to NBFT. (Exhibit 10.23,
1991 NU Form 10-K, File No. 1-5324)
10.25.1 Nuclear Fuel Lease Agreement dated as of February 11, 1992,
between Bankers Trust Company, Trustee, as Lessor, and CL&P
and WMECO, as Lessees. (Exhibit 10.23.1, 1991 NU Form 10-K,
File No. 1-5324)
10.26 Simulator Financing Lease Agreement, dated as of February 1, 1985, by
and between ComPlan and NNECO. (Exhibit 10.25, 1994 NU Form 10-K,
File No. 1-5324)
10.27 Simulator Financing Lease Agreement, dated as of May 2, 1985, by and
between The Prudential Insurance Company of America and NNECO.
(Exhibit No. 10.26, 1994 NU Form 10-K, File No. 1-5324)
10.28 Lease dated as of April 14, 1992 between The Rocky River Realty
Company (RRR) and Northeast Utilities Service Company (NUSCO) with
respect to the Berlin, Connecticut headquarters (office lease).
(Exhibit 10.29, 1992 NU Form 10-K, File No. 1-5324)
10.28.1 Lease dated as of April 14, 1992 between RRR and NUSCO with
respect to the Berlin, Connecticut headquarters (project
lease). (Exhibit 10.29.1, 1992 NU Form 10-K, File No. 1-
5324)
10.29 Millstone Technical Building Note Agreement dated as of December 21,
1993 between, by and between The Prudential Insurance Company of
America and NNECO. (Exhibit 10.28, 1993 NU Form 10-K, File No. 1-
5324)
10.30 Lease and Agreement, dated as of December 15, 1988, by and between
WMECO and Bank of New England, N.A., with BNE Realty Leasing
Corporation of North Carolina. (Exhibit 10.63, 1988 NU Form 10-K,
File No. 1-5324.)
10.31 Note Agreement dated April 14, 1992, by and between The Rocky River
Realty Company (RRR) and Purchasers named therein (Connecticut General
Life Insurance Company, Life Insurance Company of North America, INA
Life Insurance Company of New York, Life Insurance Company of
Georgia), with respect to RRR's sale of $15 million of guaranteed
senior secured notes due 2007 and $28 million of guaranteed senior
secured notes due 2017. (Exhibit 10.52, 1992 NU Form 10-K, File No.
1-5324)
10.31.1 Note Guaranty dated April 14, 1992 by Northeast Utilities
pursuant to Note Agreement dated April 14, 1992 between RRR
and Note Purchasers, for the benefit of The Connecticut
National Bank as Trustee, the Purchasers and the owners of
the notes. (Exhibit 10.52.1, 1992 NU Form 10-K, File No. 1-
5324)
10.31.2 Assignment of Leases, Rents and Profits, Security Agreement
and Negative Pledge, dated as of April 14, 1992 among RRR,
NUSCO and The Connecticut National Bank as Trustee, securing
notes sold by RRR pursuant to April 14, 1992 Note Agreement.
(Exhibit 10.52.2, 1992 NU Form 10-K, File No. 1-5324)
* 10.32 Master Trust Agreement dated as of September 2, 1986 between CL&P and
WMECO and Colonial Bank as Trustee, with respect to reserve funds for
Millstone 1 decommissioning costs.
10.32.1 Notice of Appointment of Mellon Bank, N.A. as Successor
Trustee, dated November 20, 1990, and Acceptance of
Appointment. (Exhibit 10.41.1, 1992 NU Form 10-K, File No.
1-5324)
* 10.33 Master Trust Agreement dated as of September 2, 1986 between CL&P and
WMECO and Colonial Bank as Trustee, with respect to reserve funds for
Millstone 2 decommissioning costs.
10.33.1 Notice of Appointment of Mellon Bank, N.A. as Successor
Trustee, dated November 20, 1990, and Acceptance of
Appointment. (Exhibit 10.42.1, 1992 NU Form 10-K, File No.
1-5324)
* 10.34 Master Trust Agreement dated as of April 23, 1986 between CL&P and
WMECO and Colonial Bank as Trustee, with respect to reserve funds for
Millstone 3 decommissioning costs.
10.34.1 Notice of Appointment of Mellon Bank, N.A. as Successor
Trustee, dated November 20, 1990, and Acceptance of
Appointment. (Exhibit 10.43.1, 1992 NU Form 10-K, File No.
1-5324)
10.35 NU Executive Incentive Plan, effective as of January 1, 1991.
(Exhibit 10.44, NU 1991 Form 10-K, File No. 1-5324)
10.36 Supplemental Executive Retirement Plan for Officers of NU System
Companies, Amended and Restated effective as of January 1, 1992.
(Exhibit 10.45.1, NU Form 10-Q for the Quarter Ended June 30, 1992,
File No. 1-5324)
10.36.1 Amendment 1 to Exhibit 10.36, effective as of August 1,
1993. (Exhibit 10.35.1, 1993 NU Form 10-K, File No. 1-5324)
10.36.2 Amendment 2 to Exhibit 10.36, effective as of January 1,
1994. (Exhibit 10.35.2, 1993 NU Form 10-K, File No. 1-5324)
10.36.3 Amendment 3 to Exhibit 10.36, effective as of January 1,
1996. (Exhibit 10.36.3, 1995 NU Form 10-K, File No. 1-5324)
10.37 Loan Agreement dated as of December 2, 1991, by and between NU and
Mellon Bank, N.A., as Trustee, with respect to NU's loan of $175
million to an ESOP Trust. (Exhibit 10.46, NU 1991 Form 10-K, File No.
1-5324)
10.37.1 First Amendment to Exhibit 10.37 dated February 7, 1992.
(Exhibit 10.36.1, 1993 NU Form 10-K, File No. 1-5324)
10.37.2 Loan Agreement dated as of March 19, 1992 by and between NU
and Mellon Bank, N.A., as Trustee, with respect to NU's loan
of $75 million to the ESOP Trust. (Exhibit 10.49.1, 1992 NU
Form 10-K, File No. 1-5324)
10.37.3 Second Amendment to Exhibit 10.37 dated April 9, 1992.
(Exhibit 10.36.3, 1993 NU Form 10-K, File No. 1-5324)
10.38 Employment Agreement with Bernard M. Fox. (Exhibit 10.48, NU Form
10-Q for the Quarter Ended June 30, 1992, File No. 1-5324)
* 10.39 Transition and Retirement Agreement with Bernard M. Fox.
* 10.40 Employment Agreement with Bruce M. Kenyon.
* 10.41 Employment Agreement with John H. Forsgren.
* 10.42 Employment Agreement with Hugh C. MacKenzie.
* 10.43 Employment Agreement with Ted C. Feigenbaum.
10.44 Employment Agreement with Robert E. Busch. (Exhibit 10, NU Form 10-Q
for the Quarter Ended September 30, 1996, File No. 1-5324)
10.45 Northeast Utilities Deferred Compensation Plan for Trustees, Amended
and Restated December 13, 1994. (Exhibit 10.39, 1995 NU Form 10-K,
File No. 1-5324)
10.46 Deferred Compensation Plan for Officers of Northeast Utilities System
Companies adopted September 23, 1986. (Exhibit 10.40, 1995 NU Form
10-K, File No. 1-5324)
10.47 Reciprocal Support Agreement Among NNECO, NAESCO, CYAPC, YAEC and
NUSCO dated January 1, 1996. (Exhibit 10.41, 1995 NU Form 10K, File
No. 1-5324)
* 10.48 Receivables Purchase and Sale Agreement (CL&P), dated as of July
11, 1996.
* 10.49 Receivables Purchase and Sale Agreement (WMECO), dated as of
September 11, 1996 and First Amendment dated as of January 15,
1997.
* 10.50 Master Lease Agreement between General Electric Capital Corporation
and CL&P, dated as of June 21, 1996.
13 Annual Report to Security Holders (Each of the Annual Reports is filed
only with the Form 10-K of that respective registrant.)
* 13.1 Portions of the Annual Report to Shareholders of NU (pages 11 -
46) that have been incorporated by reference into this Form 10-K.
13.2 Annual Report of CL&P.
13.3 Annual Report of WMECO.
13.4 Annual Report of PSNH.
13.5 Annual Report of NAEC.
*21 Subsidiaries of the Registrant.
27 Financial Data Schedules (Each Financial Data Schedule is filed only with
the Form 10-K of that respective registrant.)
27.1 Financial Data Schedule of NU.
27.2 Financial Data Schedule of CL&P.
27.3 Financial Data Schedule of WMECO.
27.4 Financial Data Schedule of PSNH.
27.5 Financial Data Schedule of NAEC.