1997 Annual Report
Public Service Company of New Hampshire
Index
Contents Page
Balance Sheets.......................................................... 2
Statements of Income.................................................... 4
Statements of Cash Flows................................................ 5
Statements of Common Stockholder's Equity............................... 6
Notes to Financial Statements........................................... 7
Report of Independent Public Accountants................................ 40
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 42
Selected Financial Data................................................. 50
Statistics.............................................................. 52
Statements of Quarterly Financial Data.................................. 52
Preferred Stockholder and Bondholder Information.....................Back Cover
PART I. FINANCIAL INFORMATION
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
- -----------------------------------------------------------------------------------------
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at cost:
Electric (Note 1H, Note 2).............................. $ 1,898,319 $ 1,877,955
Less: Accumulated provision for depreciation......... 590,056 552,780
------------- -------------
1,308,263 1,325,175
Unamortized acquisition costs (Note 1J)................. 402,285 491,709
Construction work in progress........................... 10,716 11,032
Nuclear fuel, net....................................... 1,308 1,313
------------- -------------
Total net utility plant............................. 1,722,572 1,829,229
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 4,332 3,229
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 19,169 19,578
Other, at cost.......................................... 3,773 1,835
------------- -------------
27,274 24,642
------------- -------------
Current Assets:
Cash and cash equivalents............................... 94,459 1,015
Notes receivable from affiliated companies.............. - 18,250
Receivables, less accumulated provision for
uncollectible accounts of $1,702,000 in 1997
and of $1,700,000 in 1996............................. 89,338 105,381
Accounts receivable from affiliated companies........... 38,520 32,452
Accrued utility revenues................................ 36,885 36,317
Fuel, materials, and supplies, at average cost.......... 40,161 44,852
Recoverable energy costs net--current portion........... 31,886 -
Prepayments and other................................... 11,271 24,629
------------- -------------
342,520 262,896
------------- -------------
Deferred Charges:
Regulatory assets (Note 1H)............................. 695,418 684,504
Deferred receivable from affiliated company (Note 10G).. 32,472 33,284
Unamortized debt expense................................ 11,749 12,731
Other................................................... 5,154 3,926
------------- -------------
744,793 734,445
------------- -------------
Total Assets........................................ $ 2,837,159 $ 2,851,212
============= =============
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
- -----------------------------------------------------------------------------------------
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$1 par value.
Authorized and outstanding 1,000 shares................ $ 1 $ 1
Capital surplus, paid in................................ 423,713 423,058
Retained earnings....................................... 170,188 174,691
------------- -------------
Total common stockholder's equity.............. 593,902 597,750
Preferred stock subject to mandatory redemption......... 75,000 100,000
Long-term debt.......................................... 516,485 686,485
------------- -------------
Total capitalization........................... 1,185,387 1,384,235
------------- -------------
Obligations Under Seabrook Power Contracts
and Other Capital Leases (Note 2 and Note 3)............. 799,450 871,707
------------- -------------
Current Liabilities:
Long-term debt and preferred stock--current portion..... 195,000 25,000
Obligations under Seabrook Power Contracts and other
capital leases--current portion........................ 122,363 42,910
Accounts payable........................................ 21,231 37,675
Accounts payable to affiliated companies................ 32,677 31,130
Accrued taxes........................................... 69,445 81
Accrued interest........................................ 7,197 7,992
Accrued pension benefits................................ 46,061 44,790
Other................................................... 9,917 37,516
------------- -------------
503,891 227,094
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 204,219 258,317
Accumulated deferred investment tax credits............. 3,972 4,511
Deferred contractual obligations (Note 4)............... 83,042 50,271
Deferred revenue from affiliated company................ 32,472 33,284
Other................................................... 24,726 21,793
------------- -------------
348,431 368,176
------------- -------------
Commitments and Contingencies (Note 10)
------------- -------------
Total Capitalization and Liabilities........... $ 2,837,159 $ 2,851,212
============= =============
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------
(Thousands of Dollars)
Operating Revenues................................. $1,108,459 $1,110,169 $ 979,971
----------- ----------- ----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power..... 326,745 356,679 257,008
Other......................................... 367,963 327,237 313,604
Maintenance...................................... 38,320 45,728 42,244
Depreciation..................................... 44,377 42,983 44,337
Amortization of regulatory assets, net........... 56,557 56,884 55,547
Federal and state income taxes (Note 9).......... 86,600 80,340 69,817
Taxes other than income taxes.................... 43,623 45,123 41,786
----------- ----------- ----------
Total operating expenses................... 964,185 954,974 824,343
----------- ----------- ----------
Operating Income................................... 144,274 155,195 155,628
----------- ----------- ----------
Other Income:
Equity in earnings of regional nuclear
generating companies and subsidary company..... 1,373 2,075 1,645
Other, net....................................... 698 8,075 3,162
Income taxes..................................... (2,391) (7,723) (770)
----------- ----------- ----------
Other (loss)/income, net................... (320) 2,427 4,037
----------- ----------- ----------
Income before interest charges............. 143,954 157,622 159,665
----------- ----------- ----------
Interest Charges:
Interest on long-term debt....................... 51,259 57,557 76,320
Other interest................................... 273 3,163 90
----------- ----------- ----------
Interest charges, net...................... 51,532 60,720 76,410
----------- ----------- ----------
Net Income......................................... $ 92,422 $ 96,902 $ 83,255
=========== =========== ==========
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------
(Thousands of Dollars)
Operating Activities:
Net Income.................................................. $ 92,422 $ 96,902 $ 83,255
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 44,377 42,983 44,337
Deferred income taxes and investment tax credits, net..... 21,795 94,646 69,986
Recoverable energy costs, net of amortization............. (12,336) 31,663 (15,266)
Amortization of acquisition costs......................... 56,557 56,884 55,547
Deferred Seabrook capital costs (Note 1K)................. (8,376) - -
Other sources of cash..................................... 51,054 65,922 15,973
Other uses of cash........................................ (67,590) (51,188) -
Changes in working capital:
Receivables and accrued utility revenues.................. 9,407 (36,907) (10,506)
Fuel, materials and supplies.............................. 4,691 (3,135) (4,264)
Accounts payable.......................................... (14,897) (7,714) 2,375
Accrued taxes............................................. 69,364 (717) (3,506)
Other working capital (excludes cash)..................... (13,765) (12,659) 16
----------- ----------- -----------
Net cash flows from operating activities...................... 232,703 276,680 237,947
----------- ----------- -----------
Financing Activities:
Reacquisitions and retirements of long-term debt............ - (172,500) (141,000)
Reacquisitions and retirements of preferred stock........... (25,000) - -
Cash dividends on preferred stock........................... (11,925) (13,250) (13,250)
Cash dividends on common stock.............................. (85,000) (52,000) (52,000)
----------- ----------- -----------
Net cash flows used for financing activities.................. (121,925) (237,750) (206,250)
----------- ----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (33,570) (37,480) (46,672)
Nuclear fuel.............................................. 5 129 (184)
----------- ----------- -----------
Net cash flows used for investments in plant................ (33,565) (37,351) (46,856)
NU System Money Pool........................................ 18,250 850 15,900
Investment in nuclear decommissioning trusts................ (490) (521) (489)
Other investment activities, net............................ (1,529) (1,010) (431)
----------- ----------- -----------
Net cash flows used for investments........................... (17,334) (38,032) (31,876)
----------- ----------- -----------
Net Increase/(Decrease) in Cash For The Period................ 93,444 898 (179)
Cash and cash equivalents - beginning of period............... 1,015 117 296
----------- ----------- -----------
Cash and cash equivalents - end of period..................... $ 94,459 $ 1,015 $ 117
=========== =========== ===========
Supplemental Cash Flow Information:
Cash paid/(refunded) during the year for:
Interest, net of amounts capitalized........................ $ 51,775 $ 58,835 $ 74,543
=========== =========== ===========
Income taxes................................................ $ 10,612 $ (457) $ 1,369
=========== =========== ===========
Increase in obligations:
Seabrook Power Contracts and other capital leases........... $ 6,197 $ 93 $ 28,028
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
- ---------------------------------------------------------------------------------------
Capital
Common Surplus, Retained
Stock Paid In Earnings Total
- ---------------------------------------------------------------------------------------
(Thousands of Dollars)
Balance at January 1, 1995............... $ 1 $421,784 $125,034 $546,819
Net income for 1995.................. 83,255 83,255
Cash dividends on preferred stock.... (13,250) (13,250)
Cash dividends on common stock....... (52,000) (52,000)
Capital stock expenses, net.......... 601 601
-------- --------- --------- ---------
Balance at December 31, 1995............. 1 422,385 143,039 565,425
Net income for 1996.................. 96,902 96,902
Cash dividends on preferred stock.... (13,250) (13,250)
Cash dividends on common stock....... (52,000) (52,000)
Capital stock expenses, net.......... 673 673
-------- --------- --------- ---------
Balance at December 31, 1996............. 1 423,058 174,691 597,750
Net income for 1997.................. 92,422 92,422
Cash dividends on preferred stock.... (11,925) (11,925)
Cash dividends on common stock....... (85,000) (85,000)
Capital stock expenses, net.......... 655 655
-------- --------- --------- ---------
Balance at December 31, 1997............. $ 1 $423,713 $170,188 $593,902
======== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
Public Service Company of New Hampshire
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ABOUT PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Public Service Company of New Hampshire (PSNH or the company), The
Connecticut Light and Power Company (CL&P), Western Massachusetts
Electric Company (WMECO), North Atlantic Energy Corporation (NAEC),
and Holyoke Water Power Company (HWP) are the operating subsidiaries
comprising the Northeast Utilities system (the NU system) and are
wholly owned by Northeast Utilities (NU).
The NU system furnishes franchised retail electric service in
Connecticut, New Hampshire, and western Massachusetts through CL&P,
PSNH, WMECO, and HWP. A fifth subsidiary, NAEC, sells all of its
entitlement to the capacity and output of the Seabrook nuclear
generating unit (Seabrook, a 1,148-megawatt (MW) nuclear generating
unit) to PSNH under two long-term contracts (the Seabrook Power
Contracts). In addition to its franchised retail service, the NU
system furnishes firm and other wholesale electric services to various
municipalities and other utilities, and participates in limited retail
access programs, providing off-system retail electric service. The NU
system serves about 30 percent of New England's electric needs and is
one of the 25 largest electric utility systems in the country as
measured by revenues.
Other wholly owned subsidiaries of NU provide support services for
the NU 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 NU system companies. North Atlantic Energy
Service Corporation (NAESCO) acts as agent for CL&P and NAEC, and has
operational responsibilities for Seabrook. Northeast Nuclear Energy
Company (NNECO) acts as agent for the NU system companies and other
New England utilities in operating the Millstone nuclear generating
facilities.
B. PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications of prior years' data have been made to
conform with the current year's presentation.
All transactions among affiliated companies are on a recovery of cost
basis which may include amounts representing a return on equity and are
subject to approval by various federal and state regulatory agencies.
C. PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as
a holding company under the Public Utility Holding Company Act of 1935
(1935 Act). NU and its subsidiaries, including PSNH, are subject to
the provisions of the 1935 Act. Arrangements among the NU system
companies, outside agencies and other utilities covering inter-
connections, interchange of electric power and sales of utility
property are subject to regulation by the Federal Energy Regulatory
Commission (FERC) and/or the SEC. PSNH is subject to further
regulation for rates, accounting and other matters by the FERC and/or
the applicable state regulatory commissions.
For information regarding proposed changes in the nature of industry
regulation, see Note 10A, "Commitments and Contingencies -
Restructuring and Rate Matters."
D. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued a new accounting
standard in February 1997: Statement of Financial Accounting Standards
(SFAS) 129, "Disclosure of Information about Capital Structure." SFAS
129 establishes standards for disclosing information about an entity's
capital structure. PSNH's current disclosures are consistent with the
requirements of SFAS 129.
During June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income" and SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS 130 establishes standards for the reporting
and disclosure of comprehensive income. To date, the NU system
companies have not had material transactions that would be required to
be reported as comprehensive income. SFAS 131 determines the standards
for reporting and disclosing qualitative and quantitative information
about a company's operating segments. This information includes segment
profit or loss, certain segment revenue and expense items and segment
assets and a reconciliation of these segment disclosures to
corresponding amounts in the company's general purpose financial
statements. Management performance is currently evaluated using a
cost-based budget and the information required by SFAS 131 is not
available. Therefore, these disclosure requirements are not
applicable. Management believes that the implementation of
SFAS 130 and SFAS 131 will not have a material impact on PSNH's
current disclosures.
See Note 10C, "Commitments and Contingencies-Environmental Matters,"
for information on other newly issued accounting and reporting
standards related to this area.
E. INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
Regional Nuclear Generating Companies: PSNH owns common stock of four
regional nuclear generating companies (Yankee companies). PSNH's
investments in the Yankee companies are accounted for on the equity
basis due to PSNH's ability to exercise significant influence over
their operating and financial policies. The Yankee companies, with
PSNH's ownership interests, are:
Connecticut Yankee Atomic Power Company (CYAPC) ................. 5.0%
Yankee Atomic Electric Company (YAEC) ........................... 7.0
Maine Yankee Atomic Power Company (MYAPC) ....................... 5.0
Vermont Yankee Nuclear Power Corporation (VYNPC) ................ 4.0
PSNH's equity investments in the Yankee companies at December 31, 1997
are:
(Thousands of Dollars)
CYAPC .............................................. $ 5,761
YAEC ............................................... 1,427
MYAPC .............................................. 3,880
VYNPC .............................................. 2,085
$13,153
Each Yankee company owns a single nuclear generating unit. Under the
terms of the contracts with the Yankee companies, the shareholders-
sponsors, including PSNH, are responsible for their proportionate
share of the costs of each unit, including decommissioning. The
energy and capacity costs from VYNPC and nuclear decommissioning
costs of the Yankee companies that have been shut down are billed
as purchased power to PSNH.
The electricity produced by the Vermont Yankee nuclear generating
facility (VY) is committed substantially on the basis of ownership
interests and is billed pursuant to contractual agreements. YAEC's,
CYAPC's and MYAPC's nuclear power plants were shut down permanently on
February 26, 1992, December 4, 1996, and August 6, 1997, respectively.
Under ownership agreements with the Yankee companies, PSNH may be asked
to provide direct or indirect financial support for one or more of the
companies. For more information on the Yankee companies, see Note 4,
"Nuclear Decommissioning," and Note 10F, "Commitments and Contingencies
- Long-Term Contractual Arrangements."
Millstone 3: PSNH has a 2.85 percent joint ownership interest in
Millstone 3, a 1,154-MW nuclear generating unit. As of December 31,
1997 and 1996, plant-in-service included approximately $118.7 million
and the accumulated provision for depreciation included approximately
$32.3 million and $29.4 million, respectively, for PSNH's share of
Millstone 3. PSNH's share of Millstone 3 expenses is included in the
corresponding operating expenses on the accompanying Statements of
Income. The Millstone 3 unit is out of service. NU hopes to return
Millstone 3 to service in early spring of 1998. For more information
on the Millstone 3 unit, see Note 10B, "Commitments and Contingencies -
Nuclear Performance."
Wyman Unit 4: PSNH has a 3.14 percent ownership interest in Wyman
Unit 4 (Wyman), a 632-MW oil-fired generating unit. At December 31,
1997 and 1996, plant-in-service included approximately $6.0 million,
respectively and the accumulated provision for depreciation included
approximately $3.9 million and $3.7 million, respectively, for PSNH's
share of Wyman. PSNH's share of Wyman expenses is included in the
corresponding operating expenses on the accompanying Statements of
Income.
F. DEPRECIATION
The provision for depreciation is calculated using the straight-line
method based on estimated remaining lives of depreciable utility
plant-in-service, adjusted for salvage value and removal costs, as
approved by the appropriate regulatory agencies.
Except for major facilities, depreciation rates are applied to the
average plant-in-service during the period. Major facilities are
depreciated from the time they are placed in service. When plant is
retired from service, the original cost of plant, including costs of
removal, less salvage, is charged to the accumulated provision for
depreciation. The depreciation rates for the several classes of
electric plant-in-service are equivalent to a composite rate of 3.7
percent in 1997 and 1996, and 3.8 percent in 1995. See Note 4,
"Nuclear Decommissioning," for information on nuclear plant
decommissioning.
PSNH's non-nuclear generating facilities have limited service lives.
Plant may be retired in place or dismantled based upon expected future
needs, the economics of the closure and environmental concerns. The
costs of closure and removal are incremental costs and, for financial
reporting purposes, are accrued over the life of the asset as part of
depreciation. At December 31, 1997 and 1996, the accumulated provision
for depreciation included approximately $34.2 million and $31.1
million, respectively, accrued for the cost of removal, net of salvage
for nonnuclear generation property.
G. REVENUES
Other than revenues under fixed-rate agreements negotiated with certain
wholesale, industrial and commercial customers and limited retail
access programs, utility revenues are based on authorized rates applied
to each customer's use of electricity. In general, rates can be changed
only through a formal proceeding before the appropriate regulatory
commission. Regulatory commissions also have authority over the terms
and conditions of nontraditional rate making arrangements. At the end
of each accounting period, PSNH accrues an estimate for the amount of
energy delivered but unbilled.
For information on the PSNH rate proceeding and its impact on PSNH, see
Management's Discussion and Analysis of Financial Condition and Results
of Operations (MD&A).
H. REGULATORY ACCOUNTING AND ASSETS
The accounting policies of PSNH and the accompanying financial
statements conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of
the ratemaking process in accordance with SFAS 71, "Accounting for the
Effects of Certain Types of Regulation." Assuming a cost-of-service
based regulatory structure, regulators may permit incurred costs,
normally treated as expenses, to be deferred and recovered through
future revenues. Through their actions, regulators also may reduce or
eliminate the value of an asset, or create a liability. If any portion
of PSNH's operations were no longer subject to the provisions of SFAS
71, as a result of a change in the cost-of-service based regulatory
structure or the effects of competition, PSNH would be required to
write off all of its related regulatory assets and liabilities unless
there is a formal transition plan which provides for the recovery,
through established rates, for the collection of approved stranded
costs and to maintain the cost-of-service basis for the remaining
regulated operations. At the time of transition, PSNH would be
required to determine any impairment to the carrying costs of
deregulated plant and inventory assets.
Management anticipates that a restructuring program will be implemented
within New Hampshire during the next few years. In a restructured
environment, PSNH's generation business no longer will be rate
regulated on a cost-of-service basis. The majority of PSNH's
regulatory assets are related to its generation business.
The staff of the SEC has had concerns regarding the appropriateness of
the utilities' ability to continue application of SFAS 71 for the
generation portion of their business in a restructured environment.
The SEC referred the issue to the Emerging Issues Task Force (EITF) of
the FASB which reached a consensus and issued "Deregulation of the
Pricing of Electricity - Issues Related to the Application of FASB
Statements No. 71 and 101," (EITF 97-4). The EITF concluded: (1) the
future recognition of regulatory assets for the portion of the business
that no longer qualifies for application of SFAS 71 depends on the
regulators' treatment of the recovery of those costs and other
stranded assets from cash flows of other portions of the business still
considered to be regulated, and (2) a utility should discontinue the
application of SFAS 71 when a legislative and regulatory plan has been
enacted, which would include transition plans into a competitive
environment, and when the stranded costs which are subject to future
rate recovery are determined. EITF 97-4 became effective in August
1997.
The issue of restructuring the electric utility industry in New
Hampshire is currently the focus of negotiations and proceedings within
the federal and state court systems . Management believes that PSNH's
use of regulatory accounting remains appropriate while this issue
remains in litigation.
PSNH expects that its transmission and distribution business will
continue to be rate-regulated on a cost-of-service basis, and
accordingly, will continue to apply SFAS 71 to this portion of its
business.
For more information on PSNH's regulatory environment and the
potential impacts of restructuring, see Note 10A, "Commitments
and Contingencies - Restructuring and Rate Matters," and the MD&A.
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," requires the evaluation of long-
lived assets, including regulatory assets, for impairment when certain
events occur or when conditions exist that indicate the carrying
amounts of assets may not be recoverable. SFAS 121 requires that any
long-lived assets which are no longer probable of recovery through
future revenues be revalued based on estimated future cash flows.
If this revaluation is less than the book value of the asset, an
impairment loss would be charged to earnings.
Management continues to believe that it is probable that PSNH will
recover its investments in long-lived assets through future revenues.
This conclusion may change in the future as the implementation of
restructuring plans within the state of New Hampshire will generally
require the formation of a separate generation entity which will be
subject to competitive market conditions. As a result, PSNH will be
required to assess the carrying amounts of its long-lived assets in
accordance with SFAS 121.
The components of PSNH's regulatory assets are as follows:
At December 31, 1997 1996
(Thousands of Dollars)
Recoverable energy costs, net
(Note 1K) ......................... $191,686 $211,236
Income taxes, net (Note 1I) ......... 128,244 151,431
Unrecovered contractual
obligations (Note 4) .............. 83,042 50,271
Deferred costs, nuclear
plants (Note 2) ................... 281,856 269,233
Seabrook deferral (Note 1K) ......... 8,376 -
Other ............................... 2,214 2,333
$695,418 $684,504
I. INCOME TAXES
The tax effect of temporary differences (differences between the
periods in which transactions affect income in the financial statements
and the periods in which they affect the determination of taxable
income) is accounted for in accordance with the ratemaking treatment
of the applicable regulatory commissions. See Note 9, "Income Tax
Expense" for the components of income tax expense.
The tax effect of temporary differences, including timing differences
accrued under previously approved accounting standards, that give rise
to the accumulated deferred tax obligation is as follows:
At December 31, 1997 1996
(Thousands of Dollars)
Accelerated depreciation and
other plant-related differences ... $103,985 $225,263
Net operating loss (NOL)
carryforwards ..................... (94,822) (94,149)
Regulatory assets - income tax
gross up .......................... 49,101 68,652
Other ............................... 145,955 58,551
$204,219 $258,317
At December 31, 1997, PSNH had a NOL carryforward of approximately
$293 million, that can be used against PSNH's federal taxable income
and which, if unused, expires between the years 2000 and 2006. PSNH
also had Investment Tax Credit (ITC) carryforwards of $40 million which
if unused, expires between the years 1998 and 2004. For a portion of
the carryforward amounts indicated above, the reorganization of PSNH
under Chapter 11 of the United States Bankruptcy Code limits the annual
amount of NOL and ITC carryforwards that may be used. Approximately
$31 million of the NOL and $9 million of the ITC carryforwards are
subject to this limitation.
See Note 10A, "Commitments and Contingencies - Restructuring and Rate
Matters," for the possible impacts on PSNH from the NHPUC's decision
related to industry restructuring.
J. UNAMORTIZED ACQUISITION COSTS
The unamortized PSNH acquisition costs represent the aggregate value
placed by the 1989 rate agreement with the state of New Hampshire (Rate
Agreement) on PSNH's assets in excess of the net book value of PSNH's
non-Seabrook assets, plus the $700 million value assigned to Seabrook
by the Rate Agreement, as part of the bankruptcy resolution on June 5,
1992 (Acquisition Date). The Rate Agreement provides for the recovery
through rates, with a return, of the unamortized PSNH acquisition
costs. The Rate Agreement provides that $425 million of the
unamortized PSNH acquisition costs be amortized over the first
seven years after PSNH's May 16, 1991 reorganization from bankruptcy
(Reorganization Date) with the remaining amount to be amortized
over the 20-year period after the Reorganization Date. The
unrecovered balance of PSNH acquisition costs at December 31, 1997,
was approximately $402.3 million. In accordance with the Rate
Agreement, approximately $32.9 million of this amount will be
recovered through rates by June 1, 1998, and the remaining amount
of approximately $369.4 million will be recovered through rates by
2011. As of December 31, 1997, PSNH has collected approximately
$591 million of acquisition costs through rates.
K. RECOVERABLE ENERGY COSTS
Under the Energy Policy Act of 1992 (Energy Act), PSNH is assessed
for its proportionate share of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (D&D assessment). The Energy Act requires that
regulators treat D&D assessments as a reasonable and necessary current
cost of fuel, to be fully recovered in rates like any other fuel cost.
PSNH is currently recovering these costs through rates. As of December
31, 1997, PSNH's total D&D deferrals were approximately $300 thousand.
The Rate Agreement includes a comprehensive fuel and purchased power
adjustment clause (FPPAC) permitting PSNH to pass through to retail
customers, for a ten-year period that began in May 1991, the retail
portion of differences between the fuel and purchased power costs
assumed in the Rate Agreement and PSNH's actual costs, which include
the costs related to the Seabrook Power Contracts and the Clean Air Act
Amendment. The cost components of the FPPAC are subject to a prudence
review by the New Hampshire Public Utilities Commission (NHPUC).
Under the Rate Agreement, charges made by NAEC through the Seabrook
Power Contracts, including the deferred Seabrook capital expenses, are
being deferred by PSNH and subsequently will be subsequently billed and
collected by PSNH through the FPPAC. PSNH began to defer the amount
of these costs on December 1, 1997 and will continue to do so for
the period December 1, 1997 through May 31, 1998. Beginning on
June 1, 1998, these costs will be recovered over a 36-month period.
At December 31, 1997, PSNH has deferred approximately $8.4 million
of these costs, which balance is recorded in PSNH's deferred costs,
nuclear plants.
On February 10, 1998, the NHPUC established a FPPAC rate for the period
December 1, 1997 through May 31, 1998. The new FPPAC rate increased
customer billings by approximately six percent. This rate continues to
defer a substantial portion of these costs.
At December 31, 1997, PSNH's net recoverable energy costs, excluding
current net recoverable energy costs, were approximately $191.7
million. This amount includes approximately $172.9 million of
deferred small power producer costs.
See Note 10A, "Commitments and Contingencies - Restructuring and
Rate Matters" for the possible impacts on PSNH of the NHPUC's
decision related to industry restructuring.
L. SPENT NUCLEAR FUEL DISPOSAL COSTS
Under the Nuclear Waste Policy Act of 1982, PSNH must pay the United
States Department of Energy (DOE) for the disposal of spent nuclear
fuel and high-level radioactive waste. The DOE is responsible for the
selection and development of repositories for, and the disposal of,
spent nuclear fuel and high-level radioactive waste. Fees are billed
currently to customers and paid to the DOE on a quarterly basis.
The DOE was originally scheduled to begin accepting delivery of spent
fuel in 1998. However, delays in identifying a permanent storage site
have continually postponed plans for the DOE's long-term storage and
disposal site. Extended delays or a default by the DOE could lead to
consideration of costly alternatives. The company has primary
responsibility for the interim storage of its spent nuclear fuel.
Current capability to store spent fuel at Seabrook are estimated to be
adequate until the year 2010. Meeting spent fuel storage requirements
beyond this period could require new and separate storage facilities,
the costs for which have not been determined. Storage facilities for
Millstone 3 are expected to be adequate for the projected life of the
unit.
In November 1997, the U.S. District Court of Appeals for the D.C.
Circuit ruled that the lack of an interim storage facility does not
excuse the DOE from meeting its contractual obligation to begin
accepting spent nuclear fuel no later than January 31, 1998.
Currently, the DOE has not taken the spent nuclear fuel as scheduled
and, as a result, may have to pay contract damages. The ultimate
outcome of this legal proceeding is uncertain at this time.
M. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and short-term cash
investments which are highly liquid in nature and have original
maturities of three months or less.
2. SEABROOK POWER CONTRACTS
PSNH and NAEC have entered into two power contracts that obligate PSNH to
purchase NAEC's 35.98 percent ownership of the capacity and output of
Seabrook for the term of Seabrook's Nuclear Regulatory Commission (NRC)
operating license. Under these power contracts, PSNH is obligated to pay
NAEC's cost of service during this period, regardless of whether Seabrook 1
is operating. NAEC's cost of service includes all of its Seabrook-related
costs, including operation and maintenance (O&M) expenses, fuel expense,
income and property tax expense, depreciation expense, certain overhead and
other costs and a return on its allowed investment.
PSNH has included its right to buy power from NAEC on its Balance Sheets
as part of utility plant and regulatory assets with a corresponding
obligation. At December 31, 1997, this right was valued at approximately
$917.1 million.
The contracts established the value of the initial investment in Seabrook
(initial investment) at $700 million. As prescribed by the Rate Agreement,
as of May 1, 1996, NAEC phased into rates 100 percent of its investment in
Seabrook 1. This plan is in compliance with SFAS 92,"Regulated Enterprises-
Accounting for Phase-in Plans." From the Acquisition Date through November
1997, NAEC recorded $203.9 million of deferred return on its investment in
Seabrook 1. At November 30, 1997, NAEC's utility plant included $84.1
million of deferred return that was transferred as part of the Seabrook
plant assets to NAEC on the Acquisition Date. Beginning on December 1,
1997, the deferred return, including the portion transferred to NAEC, is
currently being billed through the Seabrook Power Contracts to PSNH and
will be fully recovered from customers by May 2001. NAEC depreciated its
initial investment over the term of Seabrook 1's operating license (39
years), and any subsequent plant additions are depreciated on a straight-
line basis over the remaining term of the power contracts at the time the
subsequent additions are placed in service.
If Seabrook 1 is shut down prior to the expiration of the NRC operating
license, PSNH will be unconditionally required to pay NAEC termination
costs for 39 years, less the period during which Seabrook 1 has operated.
These termination costs will reimburse NAEC for its share of Seabrook 1
shut-down and decommissioning costs, and will pay NAEC a return of and on
any undepreciated balance of its initial investment over the remaining term
of the power contracts, and the return of and on any capital additions to
the plant made after the Acquisition Date over a period of five years after
shut down (net of any tax benefits to NAEC attributable the cancellation).
Contract payments charged to operating expenses are approximately:
Year Contract Payments
(Thousands of Dollars)
1997................................. $188,000
1996................................. 159,000
1995................................. 154,000
Interest included in the contract payment was $57 million in 1997, $55
million in 1996, and $51 million in 1995.
Future minimum payments, excluding executory costs, such as property taxes,
state use taxes, insurance and maintenance, under the terms of the
contracts, as of December 31, 1997, are approximately:
Year Seabrook Power Contracts
(Thousands of Dollars)
1998 ................................ $199,000
1999 ................................ 184,000
2000 ................................ 183,000
2001 ................................ 108,000
2002 ................................ 69,100
After 2002............................. 1,077,000
Future minimum payments................ 1,820,100
Less amount representing
interest............................. 903,000
Present value of Seabrook Power
Contracts payments .................. $ 917,100
See Note 10A, "Commitments and Contingencies - Restructuring and Rate
Matters" for the possible impacts the NHPUC's restructuring decision may
have on the Seabrook Power Contracts.
3. LEASES
PSNH has entered into lease agreements, some of which are capital leases,
for the use of data processing and office equipment, vehicles and office
space. The provisions of these lease agreements generally provide for
renewal options. The following rental payments have been charged to
expense:
Year Capital Leases Operating Leases
1997........................... $1,579,000 $5,657,000
1996........................... 1,105,000 4,884,000
1995........................... 1,103,000 5,291,000
Interest included in capital lease rental payments was $272,000 in 1997,
$292,000 in 1996, and $351,000 in 1995.
Future minimum rental payments, excluding executory costs, such as property
taxes, state use taxes, insurance and maintenance, under long-term
noncancellable leases, as of December 31, 1997, are:
Year Capital Leases Operating Leases
(Thousands of Dollars)
1998........................... $1,500 $ 6,100
1999........................... 1,200 5,300
2000........................... 1,000 4,700
2001........................... 1,000 4,200
2002........................... 100 2,200
After 2002 .................... 500 5,100
Future minimum lease
payments .................... 5,300 $27,600
Less amount representing
interest ..................... 600
Present value of future
minimum lease payments ...... $4,700
4. NUCLEAR DECOMMISSIONING
Millstone and Seabrook: Millstone 3 and Seabrook 1 have service lives that
are expected to end during the years 2025 and 2026, respectively. Upon
retirement, these units must be decommissioned. Current decommissioning
studies concluded that complete and immediate dismantlement at retirement
continues to be the most viable and economic method of decommissioning
Millstone 3 and Seabrook 1. Decommissioning studies are reviewed and
updated periodically to reflect changes in decommissioning requirements,
costs, technology and inflation.
The estimated cost of decommissioning PSNH's 2.85 percent ownership share
of Millstone 3 and NAEC's 35.98 percent share of Seabrook 1, in year-end
1997 dollars, is $15.6 million and $170.2 million, respectively. Millstone
3 and Seabrook 1 decommissioning costs will be increased annually by their
respective escalation rates. PSNH's Millstone 3 decommissioning costs are
accrued over the expected service life of the unit and are included in
depreciation expense on its Statements of Income. Nuclear decommissioning
costs related to PSNH's share of Millstone 3 amounted to $0.4 million in
1997 and 1996, and $0.3 million in 1995. Nuclear decommissioning, as a
cost of removal, is included in the accumulated provision for depreciation
on PSNH's Balance Sheets. At December 31, 1997 and 1996, the balance in
the accumulated reserve for depreciation amounted to $4.3 million and $3.2
million, respectively.
PSNH makes payments to an independent decommissioning trust for its portion
of the costs of decommissioning Millstone 3. NAEC's portion of the cost
of decommissioning Seabrook 1 is paid to an independent decommissioning
financing fund managed by the state of New Hampshire. Funding of the
estimated decommissioning costs assumes levelized collections for Millstone
3 and escalated collections for Seabrook 1, and after-tax earnings on the
Millstone and Seabrook decommissioning funds of approximately 5.5 percent
and 6.5 percent, respectively. Under the terms of the Rate Agreement, PSNH
is obligated to pay NAEC's share of Seabrook's decommissioning costs, even
if the unit is shut down prior to the expiration of its operating license.
Accordingly, NAEC bills PSNH directly for its share of the costs of
decommissioning Seabrook 1. PSNH records its Seabrook decommissioning
costs as a component of purchased power expense on its Statements of
Income. Under the Rate Agreement, PSNH's Seabrook decommissioning costs
are recovered through base rates.
As of December 31, 1997, PSNH collected through rates approximately
$2.6 million toward the future decommissioning costs of its share of
Millstone 3, which has been transferred to the external decommissioning
trust. As of December 31, 1997, NAEC has paid approximately $21.1 million
(including payments made prior to the Acquisition Date by PSNH),
into Seabrook 1's decommissioning financing fund. Earnings on the
decommissioning trust and financing fund increase the decommissioning
trust balance and the accumulated reserve for depreciation. Unrealized
gains and losses associated with the decommissioning trust and financing
fund also impact the balance of the trust, and the accumulated reserve
for depreciation.
Changes in requirements or technology, the timing of funding or
dismantling, or adoption of a decommissioning method other than immediate
dismantlement would change decommissioning cost estimates and the amounts
required to be recovered. PSNH attempts to recover sufficient amounts
through its allowed rates to cover its expected decommissioning costs.
Only the portion of currently estimated total decommissioning costs that
has been accepted by regulatory agencies is reflected in rates of PSNH.
Based on present estimates and assuming its nuclear units operate to
the end of their respective licensing periods, PSNH expects that the
decommissioning trust and financing fund will be substantially funded
when the units are retired from service.
Yankee Companies: VYNPC owns and operates a nuclear generating unit with
a service life that is expected to end in 2012. PSNH's ownership share of
estimated costs, in year-end 1997 dollars, of decommissioning the unit
owned and operated by VYNPC is $20.2 million.
On August 6, 1997, the board of directors of MYAPC voted unanimously
to cease permanently the production of power at its nuclear generating
facility (MY). The NU system companies had relied on MY for approximately
one percent of their capacity. During November 1997, MYAPC filed an
amendment to its power contracts clarifying the obligations of its
purchasing utilities following the decision to cease power production.
During January 1998, the FERC accepted the amendments and proposed rates,
subject to refund. At December 31, 1997, the remaining estimated
obligation, including decommissioning, amounted to approximately $867.2
million, of which PSNH's share was approximately $43.4 million.
On December 4, 1996, the board of directors of CYAPC voted unanimously
to cease permanently the production of power at its nuclear generating
plant (CY). During 1996, the NU system companies had relied on CY for
approximately three percent of their capacity. During late December 1996,
CYAPC filed an amendment to its power contracts clarifying the obligations
of its purchasing utilities following the decision to cease power
production. On February 27, 1997, the FERC approved an order for hearing
which, among other things, accepted CYAPC's contract amendment. The
new rates became effective March 1, 1997, subject to refund. At
December 31, 1997, the remaining estimated obligation, including
decommissioning, amounted to $619.9 million, of which PSNH's share
was approximately $31.0 million.
YAEC is in the process of decommissioning its nuclear facility.
At December 31, 1997, the estimated remaining costs, including
decommissioning, amounted to $124.4 million, of which PSNH's share
was approximately $8.7 million.
Under the terms of the contracts with MYAPC, CYAPC and YAEC, the
shareholder-sponsor companies, including PSNH, are responsible for their
proportionate share of the costs of the units, including decommissioning.
Management expects that PSNH will continue to be allowed to recover these
costs from its customers. Accordingly, PSNH has recognized these costs
as regulatory assets, with corresponding obligations.
Proposed Accounting: The staff of the SEC has questioned certain
current accounting practices of the electric utility industry,
including PSNH, regarding the recognition, measurement and classification
of decommissioning costs for nuclear generating units in the financial
statements. In response to these questions, the FASB has agreed to
review the accounting for closure and removal costs, including
decommissioning. If current electric utility industry accounting
practices for nuclear power plant decommissioning are changed, the annual
provision for decommissioning could increase relative to 1997, and the
estimated cost for decommissioning could be recorded as a liability
(rather than as accumulated depreciation), with recognition of an increase
in the cost of the related nuclear power plant. Management believes that
PSNH will continue to be allowed to recover decommissioning costs through
rates.
5. SHORT-TERM DEBT
The amount of short-term borrowings that may be incurred by PSNH is subject
to periodic approval by the SEC under the 1935 Act or by the NHPUC.
Effective May 1997, PSNH was authorized under a waiver from the NHPUC, to
incur short-term borrowings up to a maximum of $125 million.
PSNH has a $125 million revolving credit agreement that will expire in
April 1999. The revolving credit agreement is with a group of 16 banks.
PSNH is obligated to pay a facility fee of .50 percent per annum on the
commitment of $125 million. At December 31, 1997 and 1996, there were no
borrowings under the facility.
Under the credit facility discussed above, PSNH may borrow funds on a
short-term revolving basis under its agreement, using either fixed-rate
loans or standby loans. Fixed rates are set using competitive bidding.
Standby loans are based upon several alternative variable rates.
Money Pool: Certain subsidiaries of NU, including PSNH, are members of the
Northeast Utilities System Money Pool (Pool). The Pool provides a more
efficient use of the cash resources of the system, and reduces outside
short-term borrowings. NUSCO administers the Pool as agent for the member
companies. Short-term borrowing needs of the member companies are first
met with available funds of other member companies, including funds
borrowed by NU parent. NU parent may lend to the Pool but may not borrow.
Funds may be withdrawn from or repaid to the Pool at any time without prior
notice. Investing and borrowing subsidiaries receive or pay interest based
on the average daily Federal Funds rate. However, borrowings based on
loans from NU parent bear interest at NU parent's cost and must be repaid
based upon the terms of NU parent's original borrowing. At December 31,
1997 and 1996, PSNH had no outstanding borrowings from the Pool.
Maturities of PSNH's short-term debt obligations are for periods of three
months or less. For further information on short-term debt, see the MD&A.
6. EMPLOYEE BENEFITS
A. PENSION BENEFITS
The NU system subsidiaries participate in a uniform noncontributory
defined benefit retirement plan covering all regular NU system
employees. Benefits are based on years of service and employees'
highest eligible compensation during 60 consecutive months of
employment. PSNH's direct portion of the NU system's pension cost,
part of which was charged to utility plant, approximated $1.3 million
in 1997, $6.2 million in 1996, and $2.3 million in 1995. Pension
(credits)/costs for 1997 and 1996 included approximately $(1.0) million
and $1.9 million, respectively, related to workforce reduction
programs.
Currently, PSNH funds annually an amount at least equal to that which
will satisfy the requirements of the Employee Retirement Income
Security Act and the Internal Revenue Code. Pension costs are
determined using market-related values of pension assets. Pension
assets are invested primarily in domestic and international equity
securities and bonds.
The components of net pension cost for PSNH are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Service cost........................... $ 2,987 $ 6,161 $ 3,462
Interest cost.......................... 13,398 12,808 11,923
Return on plan assets.................. (34,622) (24,393) (33,156)
Net amortization....................... 19,508 11,608 20,108
Net pension cost....................... $ 1,271 $ 6,184 $ 2,337
For calculating pension cost, the following assumptions were
used:
For the Years Ended December 31, 1997 1996 1995
Discount rate.......................... 7.75% 7.50% 8.25%
Expected long-term rate of return...... 9.25 8.75 8.50
Compensation/progression rate.......... 4.75 4.75 5.00
The following table represents the plan's funded status
reconciled to the Balance Sheets:
At December 31, 1997 1996
(Thousands of Dollars)
Accumulated benefit obligation,
including vested benefits at
December 31, 1997 and 1996 of
$(140,089,000) and $(131,624,000),
respectively......................... $(152,709) $(143,377)
Projected benefit obligation .......... (187,968) (179,192)
Market value of plan assets ........... 195,612 173,035
Market value in excess of (less than)
projected benefit obligation ........ 7,644 (6,157)
Unrecognized transition amount ........ 4,003 4,337
Unrecognized prior service costs ...... 7,597 8,135
Unrecognized net gain ................. (65,305) (51,105)
Accrued pension liability ............. $(46,061) $ (44,790)
The following actuarial assumptions were used in calculating the
plan's year-end funded status:
For the Years Ended December 31, 1997 1996
Discount rate.......................... 7.25% 7.75%
Compensation/progression rate.......... 4.25 4.75
B. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The NU system subsidiaries provide certain health care benefits,
primarily medical and dental, and life insurance benefits through a
benefit plan to retired employees (referred to as SFAS 106 benefits).
These benefits are available for employees retiring from the NU system
who have met specified service requirements. For current employees and
certain retirees, the total SFAS 106 benefit is limited to two times
the 1993 per-retiree health care cost. The SFAS 106 obligation has been
calculated based on this assumption. PSNH's direct portion of SFAS 106
benefits, part of which was deferred or charged to utility plant,
approximated $4.9 million in 1997, $6.2 million in 1996, and $7.2
million in 1995.
PSNH is funding SFAS 106 postretirement costs through external trusts.
PSNH is funding, on an annual basis, amounts that have been rate-
recovered and which also are tax-deductible under the Internal Revenue
Code. The trust assets are invested primarily in equity securities and
bonds.
The components of health care and life insurance cost are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Service cost .......................... $ 802 $ 914 $ 933
Interest cost ......................... 3,352 3,559 4,063
Return on plan assets ................. (3,753) (1,720) (1,694)
Amortization of unrecognized
transition obligation ............... 2,941 2,941 2,941
Other amortization, net ............... 1,541 547 998
Net health care and life
insurance cost ...................... $4,883 $6,241 $7,241
For calculating PSNH's SFAS 106 benefit costs, the following
assumptions were used:
For the Years Ended December 31, 1997 1996 1995
Discount rate ......................... 7.75% 7.50% 8.00%
Long-term rate of return -
Health assets, net of tax .......... 6.00 5.25 5.00
Life assets ........................ 9.25 8.75 8.50
The following table represents the plan's funded status reconciled to
the Balance Sheets:
At December 31, 1997 1996
(Thousands of Dollars)
Accumulated postretirement benefit
obligation of:
Retirees ........................... $(36,790) $(38,245)
Fully eligible active
employees ........................ (31) (22)
Active employees not
eligible to retire ............... (9,788) (9,696)
Total accumulated post-
retirement benefit
obligation .......................... (46,609) (47,963)
Market value of plan assets ........... 22,908 17,882
Accumulated postretirement
benefit obligation in
excess of plan assets ............... (23,701) (30,081)
Unrecognized transition
amount .............................. 44,108 47,049
Unrecognized net gain ................. (20,407) (17,139)
Accrued postretirement benefit
liability ........................... $ - $ (171)
The following actuarial assumptions were used in calculating
the plan's year-end funded status:
At December 31, 1997 1996
Discount rate ......................... 7.25% 7.75%
Health care cost trend rate (a) ....... 5.76 7.23
(a) The annual growth in per capita cost of covered health care
benefits was assumed to decrease to 4.40 percent by 2001.
The effect of increasing the assumed health care cost trend rate by
one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1997, by $3.1
million and the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year then ended by
$245 thousand. The trust holding the health plan assets is subject to
federal income taxes at a 39.6 percent tax rate.
PSNH currently is recovering SFAS 106 costs through rates.
7. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock subject to mandatory redemption are:
Shares
Outstanding December 31,
Description December 31, 1997 1997 1996 1995
(Thousands of Dollars)
10.60%
Series A of 1991 ..... 4,000,000 $100,000 $125,000 $125,000
Less preferred stock
to be redeemed
within one year .... 1,000,000 25,000 25,000 -
Total preferred stock
subject to
mandatory redemption $ 75,000 $100,000 $125,000
In case of default on dividends or sinking-fund payments, no payments may
be made on any junior stock by way of dividends or otherwise (other than
in shares of junior stock) so long as the default continues. If PSNH is
in arrears in the payment of dividends on any outstanding shares of
preferred stock, PSNH would be prohibited from redemption or purchase
of less than all of the preferred stock outstanding. The Series A
Preferred Stock is not subject to optional redemption by PSNH. It is
subject to an annual sinking fund requirement of $25 million, which
began on June 30, 1997, sufficient to retire annually 1,000,000 shares
at $25 per share.
8. LONG-TERM DEBT
Details of long-term debt outstanding are:
At December 31,
1997 1996
(Thousands of Dollars)
First Mortgage Bonds:
9.17% Series B, due 1998.............. $170,000 $170,000
Total First Mortgage Bonds............ 170,000 170,000
Pollution Control Revenue Bonds:
7.65% Tax-Exempt Series A, due 2021....... 66,000 66,000
7.50% Tax-Exempt Series B, due 2021....... 108,985 108,985
7.65% Tax-Exempt Series C, due 2021....... 112,500 112,500
Adjustable Rate, Taxable, Series D,
due 2021 ................................ 39,500 39,500
Adjustable Rate, Taxable, Series E,
due 2021 ................................ 69,700 69,700
Adjustable Rate, Tax-Exempt, Series D,
due 2021 ................................ 75,000 75,000
Adjustable Rate, Tax-Exempt, Series E
due 2021 ................................ 44,800 44,800
Less: Amounts due within one year ........ 170,000 -
Long-term debt, net ................ $516,485 $686,485
Long-term debt maturities and cash sinking-fund requirements on debt
outstanding at December 31, 1997 aggregate approximately $170 million for
1998. There are neither sinking-fund requirements nor debt maturities
existing for the years 1999 through 2002. Also, there are annual renewal
and replacement fund requirements equal to 2.25 percent of the average
of net depreciable utility property owned by PSNH at the reorganization
date, plus cumulative gross property additions thereafter. PSNH expects
to meet these future fund requirements by certifying property additions.
Any deficiency would need to be satisfied by the deposit of cash or bonds.
Essentially, all utility plant of PSNH is subject to the lien of its first
mortgage bond indenture. PSNH's Revolving Credit Facility has a second
lien, junior to the lien of its first mortgage bond indenture, on all PSNH
property located in New Hampshire which will expire in April 1999. At
December 31, 1997, there were no borrowings under the Revolving Credit
Facility.
Concurrent with the issuance of PSNH's Series A and B First Mortgage
Bonds, PSNH entered into financing arrangements with the Business Finance
Authority of the state of New Hampshire (BFA). Pursuant to these
arrangements, the BFA issued seven series of Pollution Control Revenue
Bonds (PCRBs) and loaned the proceeds to PSNH. At December 31, 1997,
approximately $516.5 million of PCRBs were outstanding. The average
effective interest rates on the variable-rate pollution control notes
ranged from 3.8 percent to 5.6 percent for 1997, and from 3.5 percent to
5.5 percent for 1996. PSNH's obligation to repay each series of PCRBs is
secured by a series of First Mortgage Bonds that were issued under its
indenture. Each such series of First Mortgage Bonds contains terms and
provisions with respect to maturity, principal payment, interest rate,
and redemption that correspond to those of the applicable series of PCRBs.
For financial reporting purposes, these bonds would not be considered
outstanding unless PSNH fails to meet its obligations under the PCRBs.
The PCRBs, except for Series D and E, are redeemable on or after May 1,
2001, at the option of the company with accrued interest and at specified
premiums. Under current interest rate elections by PSNH, the Series D
and E PCRBs are redeemable, at par plus accrued interest at the end of
each interest-rate period. Future interest-rate elections by PSNH could
significantly defer or eliminate the availability of optional redemptions
by PSNH, and could affect costs as well.
9. INCOME TAX EXPENSE
The components of the federal and state income tax provisions charged to
operations are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Current income taxes:
Federal ................................. $67,148 $(4,978) $(1,166)
State ................................... 48 (1,605) 1,767
Total current ......................... 67,196 (6,583) 601
Deferred income taxes, net:
Federal ................................. 21,118 94,922 72,147
State ................................... 1,217 272 (1,606)
Total deferred ....................... 22,335 95,194 70,541
Investment tax credits, net ............... (540) (548) (555)
Total income tax expense .................. $88,991 $88,063 $70,587
The components of total income tax expense are classified as follows:
Income taxes charged to operating
expenses ................................. $86,600 $80,340 $69,817
Other income taxes ........................ 2,391 7,723 770
Total income tax expense .................. $88,991 $88,063 $70,587
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Depreciation .............................. $(1,937) $(1,055) $ 1,294
Deferred tax asset associated
with NOL ................................ - 96,756 57,543
Energy adjustment clauses ................. 16,839 (10,716) 5,098
Amortization of regulatory
settlement .............................. 11,501 11,501 11,501
Other ..................................... (4,068) (1,292) (4,895)
Deferred income taxes, net ................ $22,335 $95,194 $70,541
A reconciliation between income tax expense and the expected tax expense at
the applicable statutory rate is as follows:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Expected federal income tax at
35 percent of pretax income ............. $63,495 $64,616 $53,845
Tax effect of differences:
Depreciation ............................ 1,890 1,896 1,868
Amortization of acquisition costs ....... 31,298 31,410 31,522
Seabrook intercompany loss .............. (4,616) (7,504) (13,048)
Investment tax credit amortization ...... (540) (548) (555)
State income taxes, net of
federal benefit ....................... 1,095 (867) 105
Other, net .............................. (3,631) (940) (3,150)
Total income tax expense .................. $88,991 $88,063 $70,587
10. COMMITMENTS AND CONTINGENCIES
A. RESTRUCTURING AND RATE MATTERS
The 1996 restructuring legislation that the NHPUC is charged with
implementing provides that the NHPUC may not adopt a restructuring
plan that imposes a severe financial hardship on a utility. Management
believes that PSNH is entitled to full recovery of its prudently
incurred costs, including regulatory assets and other strandable
costs. It bases this belief both on the general nature of public
utility industry cost-of-service based regulation and the specific
circumstances of the resolution of PSNH's previous bankruptcy
proceedings and its acquisition by NU, including the recoveries
provided by the Rate Agreement and related agreements.
On February 28, 1997, the NHPUC issued its decision 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 decision, the NHPUC announced a departure
from cost-based ratemaking and instead adopted a market-priced approach
to ratemaking and stranded cost recovery. Accordingly, unless the
NHPUC modifies its position or the litigation described below results
in necessary modifications to the final plan which leads management
to conclude that the ratemaking approach utilized in the NHPUC's
restructuring decision will not go into effect, PSNH no longer will be
subject to the provisions of SFAS 71. That would result in PSNH
writing off from its balance sheet substantially all of its regulatory
assets. The amount of the potential write-off triggered by the order
is currently estimated at over $400 million, after taxes. PSNH does
not believe that under the decision, 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 SFAS 121.
On March 3, 1997, PSNH, NU, NAEC and NUSCO filed for a temporary
restraining order, preliminary and permanent injunctive relief and for
declaratory judgment in the United States District Court for New
Hampshire (District Court). The case was subsequently transferred to
Rhode Island. On March 10, 1997, the Chief Judge of the Rhode Island
federal court issued a temporary restraining order which stayed the
NHPUC's February 28, 1997 decision to the extent it 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.
During 1997, a mediation process ended without a resolution. The
District Court had suspended the procedural schedule associated with
this court proceeding pending the resolution of appeals of certain
preliminary rulings by the U.S. Circuit Court of Appeals for the First
Circuit (First Circuit). On February 3, 1998, the First Circuit denied
the appeals taken by would-be intervenors in PSNH's federal court
proceeding concerning the NHPUC's final plan on restructuring. The
First Circuit affirmed a previous court decision stating that the
opposing interests in this case were adequately represented by the
NHPUC or by PSNH. As a result of this decision, the proceedings in
the District Court may resume. On February 17, 1998, the NHPUC filed
a petition for rehearing with the First Circuit. The temporary
restraining order issued by the District Court in March 1997 will
remain in effect until further orders by either court.
During 1997, the NHPUC reopened its proceeding to reconsider certain
limited matters in its restructuring orders. The scope of the PSNH-
specific rehearing proceedings included alternative rate-setting
methodologies proposed by the intervenors; to decide the appropriate
methodology to be used to determine PSNH's interim stranded costs; and
to set PSNH's interim stranded cost charges utilizing the determined
methodology. In testimony filed with the NHPUC in November 1997, PSNH
proposed a new methodology to quantify its strandable costs. Under
this proposal, PSNH would divest all owned generation and purchased-
power obligations via auction. To the extent that the auction fails to
produce sufficient revenues to cover the net book value of owned
generation and contractual payment obligations of purchased-power, the
difference would be recovered from customers through a non-bypassable
distribution charge. The new proposal also relies upon securitization
of certain assets to further reduce rates.
On December 15, 1997, the NHPUC officially announced that industry
restructuring would not take place on January 1, 1998. Management
believes that industry restructuring will not take place in New
Hampshire until the courts resolve the issues brought before them, or
the parties involved reach a settlement.
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). 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 NHPUC's February 28, 1997 decision were to become effective, it
would, unless PSNH and NAEC receive waivers from their 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 would be affected.
If these events transpired and if the creditors holding PSNH and NAEC
debt obligations decide to exercise their rights to demand payment then
either creditors or PSNH and NAEC could initiate proceedings under
Chapter 11 of the bankruptcy laws.
As a result of the NHPUC decision and the potential consequences
discussed above, the reports of our auditors on the individual
financial statements of PSNH and NAEC contain explanatory paragraphs.
Those explanatory paragraphs indicate that a substantial doubt exists
currently about the ability of PSNH and NAEC to continue as going
concerns. The accounts of PSNH and NAEC are included in the
consolidated financial statements of NU on the basis of a going
concern. While the effect of the implementation of that decision
would have a material adverse impact on NU's financial position,
results of operations, and cash flows, it would not in and of itself
result in defaults under borrowing or other financial agreements of\
NU or its other subsidiaries.
On May 2, 1997, PSNH made a rate filing with the NHPUC. For
information regarding this rate proceeding, see the MD&A.
For information regarding the FERC rate proceedings for CYAPC and
MYAPC, see Note 4, "Nuclear Decommissioning."
B. NUCLEAR PERFORMANCE
Millstone: The three Millstone units are managed by NNECO.
Millstone 1, 2 and 3 have been out of service since November 4, 1995,
February 21, 1996 and March 30, 1996, respectively, and are on the
NRC's watch list. PSNH's ownership interest in the Millstone units
is limited to a 2.85 percent joint ownership interest in Millstone 3.
NU has restructured its nuclear organization and is currently
implementing comprehensive plans to restart the units.
Subsequent to its January 31, 1996 announcement that Millstone had been
placed on its watch list, the NRC stated that the units cannot return
to service until independent, third-party verification teams have
reviewed the actions taken to improve the design, configuration and
employee concerns issues that prompted the NRC to place the units on
its watch list. The actual date of the return to service for each of
the units is dependent upon the completion of independent inspections
and reviews by the NRC and a vote by the NRC commissioners. NU hopes
to return Millstone 3 to service in early spring of 1998 and Millstone
2 three to four months after Millstone 3. Millstone 1 is currently in
extended maintenance status.
In 1997, NU's share of nonfuel O&M costs expensed for Millstone totaled
$566 million, including $73 million reserved for future restart costs.
PSNH's share of nonfuel O&M costs was approximately $5 million.
Budgeted nuclear spending levels at Millstone for 1998 will be reduced
from 1997 levels, although they will be considerably higher than before
the station was placed on the NRC's watch list. The actual level of
1998 spending will depend on when the units return to operation and the
cost of restoring them to service. The total cost to restart the units
cannot be precisely estimated at this time. Management will continue
to evaluate the costs to be incurred in 1998 to determine whether
adjustments to the existing reserves are required.
Management cannot predict when the NRC will allow any of the Millstone
units to return to service and thus cannot precisely estimate the total
replacement power costs the NU system companies will ultimately incur.
Replacement power costs incurred by NU attributable to the Millstone
outages averaged approximately $28 million per month during 1997, and
for 1998 are projected to average approximately $9 million per month
for Millstone 3, $9 million per month for Millstone 2, and $6 million
per month for Millstone 1 while the plants remain out of service. To
date, PSNH's share of replacement power costs has not been material.
PSNH's share of replacement power costs is not expected to be material
for 1998, while Millstone 3 is out of service. CL&P, WMECO and PSNH
will continue to expense their replacement power costs in 1998.
Based on the current estimates of expenditures and restart dates,
management believes the NU system has sufficient resources to fund the
restoration of the Millstone units and related replacement power costs.
If the return to service of Millstone 3 or 2 is delayed substantially
beyond the present restart estimates, if some financing facilities
become unavailable because of difficulties in meeting borrowing
conditions or renegotiating extensions, if CL&P and WMECO encounter
additional significant costs or if any other significant deviations
from management's assumptions occur, CL&P and WMECO could be unable to
meet their cash requirements. In those circumstances, management would
take even more stringent actions to reduce costs and cash outflows and
attempt to obtain additional sources of funds. The availability of
these funds would be dependent upon general market conditions and
CL&P's and WMECO's respective credit and financial conditions at that
time.
Litigation: On August 7, 1997, the non-NU owners of Millstone 3 filed
demands for arbitration with CL&P and WMECO as well as lawsuits in
Massachusetts Superior Court against NU and its current and former
trustees. The non-NU owners raise a number of contract, tort and
statutory claims arising out of the operation of Millstone 3. The
arbitrations and lawsuits seek to recover compensatory damages,
punitive damages, treble damages and attorneys' fees. Owners
representing approximately two-thirds of the non-NU interests in
Millstone 3 claimed compensatory damages in excess of $200 million.
In addition, one of the lawsuits seeks to restrain NU from disposing
of its shares of the stock of WMECO and HWP, pending the outcome of
the lawsuit. Management cannot estimate the potential outcome of these
suits but believes there is no legal basis for the claims and intends
to defend against them vigorously. To date, no reserves have been
established for this litigation. At December 31, 1997, the costs
related to this litigation for the NU system were estimated to be
$100 million for incremental O&M costs and approximately $100 million
for replacement power costs. These costs are likely to increase as
long as Millstone 3 remains out of service.
C. ENVIRONMENTAL MATTERS
The NU system is subject to regulation by federal, state and local
authorities with respect to air and water quality, the handling and
disposal of toxic substances and hazardous and solid wastes, and the
handling and use of chemical products. The NU system has an active
environmental auditing and training program and believes that it is in
substantial compliance with current environmental laws and regulations.
However, the NU system is subject to certain pending enforcement
actions and governmental investigations in the environmental area.
Management cannot predict the outcome of these enforcement actions and
investigations.
Environmental requirements could hinder the construction of new
generating units, transmission and distribution lines, substations and
other facilities. Changing environmental requirements could also
require extensive and costly modifications to PSNH's existing
generating units, and transmission and distribution systems, and could
raise operating costs significantly. As a result, PSNH may incur
significant additional environmental costs, greater than amounts
included in cost of removal and other reserves, in connection with the
generation and transmission of electricity and the storage,
transportation and disposal of by-products and wastes. PSNH may also
encounter significantly increased costs to remedy the environmental
effects of prior waste handling activities. The cumulative long-term
cost impact of increasingly stringent environmental requirements cannot
be estimated accurately.
PSNH has recorded a liability based upon currently available
information for what it believes are its estimated environmental
remediation costs that it expects to incur for waste disposal sites.
In most cases, additional future environmental cleanup costs are not
reasonably estimable due to a number of factors, including the unknown
magnitude of possible contamination, the appropriate remediation
methods, the possible effects of future legislation or regulation and
the possible effects of technological changes. At December 31, 1997,
the net liability recorded by PSNH for its estimated environmental
remediation costs, excluding any possible insurance recoveries or
recoveries from third parties, amounted to approximately $5.6 million,
which management has determined to be the most probable amount.
During 1997, PSNH adopted Statement of Position 96-1, "Environmental
Remediation Liabilities" (SOP). The principal objective of the SOP
is to improve the manner in which existing authoritative accounting
literature is applied by entities to specific situations of
recognizing, measuring and disclosing environmental remediation
liabilities. The adoption of the SOP resulted in an increase of
approximately $400 thousand to PSNH's environmental reserve in 1997.
PSNH cannot estimate the potential liability for future claims,
including environmental remediation costs, that may be brought against
it. However, considering known facts, existing laws, and regulatory
practices, management does not believe the matters disclosed above will
have a material effect on PSNH's financial position or future results
of operations.
D. NUCLEAR INSURANCE CONTINGENCIES
Under certain circumstances, in the event of a nuclear incident at
one of the nuclear facilities in the country covered by the federal
government's third-party liability indemnification program, an owner
of a nuclear unit could be assessed in proportion to its ownership
interest in each of its nuclear units up to $75.5 million. Payments of
this assessment would be limited to $10.0 million in any one year per
nuclear incident based upon the owner's pro rata ownership interest in
each of its nuclear units. In addition, the owner would be subject to
an additional five percent or $3.8 million, in proportion to its
ownership interests in each of its nuclear units, if the sum of all
claims and costs from any one nuclear incident exceeds the maximum
amount of financial protection. Under the terms of the Seabrook Power
Contracts with NAEC, PSNH could be obligated to pay for any assessment
charged to NAEC as a "cost of service." Based on its ownership
interest in Millstone 3 and NAEC's ownership interest in Seabrook 1,
PSNH's maximum liability, including any additional assessments, would
be $30.8 million per incident of which payments would be limited to
$3.9 million per year. In addition, through power purchase contracts
with MYAPC, VYNPC and CYAPC, PSNH would be responsible for up to an
additional $11.1 million per incident, of which payments would be
limited to a maximum of $1.4 million per year.
Insurance has been purchased to cover the primary cost of repair,
replacement or decontamination of utility property resulting from
insured occurrences at Millstone 3 and CY. PSNH is subject to
retroactive assessments if losses exceed the accumulated funds
available to the insurer. The maximum potential assessment against
PSNH with respect to losses arising during the current policy year
is approximately $0.4 million under the primary property insurance
program.
Insurance has been purchased to cover certain extra costs incurred in
obtaining replacement power during prolonged accidental outages and
the excess cost of repair, replacement, or decontamination or premature
decommissioning of utility property resulting from insured occurrences.
PSNH is subject to retroactive assessments if losses exceed the
accumulated funds available to the insurer. The maximum potential
assessments against PSNH (including costs resulting from PSNH's
contracts with NAEC), with respect to losses arising during current
policy years are approximately $2.2 million under the replacement
power policies and $5.2 million under the excess property damage,
decontamination and decommissioning policies. Although PSNH has
purchased the limits of coverage currently available from the
conventional nuclear insurance pools, the cost of a nuclear incident
could exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on an industry
basis for coverage of worker claims. All participating reactor
operators insured under this coverage are subject to retrospective
assessments of $3 million per reactor. The maximum potential assessment
against PSNH (including costs resulting from the Seabrook Power
Contracts with NAEC), with respect to losses arising during the current
policy period is approximately $1.8 million. Effective January 1,
1998, a new worker policy was purchased which is not subject to
retrospective assessments.
E. CONSTRUCTION PROGRAM
The construction program is subject to periodic review and revision by
management. PSNH currently forecasts construction expenditures of
approximately $302.6 million for the years 1998-2002, including
approximately $41.9 million for 1998. In addition, PSNH estimates that
nuclear fuel requirements, for its share of Millstone 3, will be $5.1
million for the years 1998-2002, including $1.7 million for 1998.
F. LONG-TERM CONTRACTUAL ARRANGEMENTS
Yankee Companies: PSNH, CL&P and WMECO rely on VY for approximately
1.7 percent of their capacity under long-term contracts. Under the
terms of their agreements, the NU system companies pay their ownership
(or entitlement) shares of costs, which include depreciation, O&M
expenses, taxes, the estimated cost of decommissioning and a return on
invested capital. These costs are recorded as purchased power expense
and are recovered through the companies' rates. PSNH's total cost of
purchases under contracts with VYNPC, amounted to $6.2 million in 1997,
$6.5 million in 1996 and 1995.
The other Yankee generating facilities, MY, CY and Yankee Rowe, were
permanently shutdown as of August 6, 1997, December 4, 1996, and
February 26, 1992, respectively. See Note 1E, "Summary of Significant
Accounting Policies-Investments and Jointly Owned Electric Utility
Plant," for more information on the Yankee companies. See Note 4,
"Nuclear Decommissioning," regarding information on the related
decommissioning studies.
Nonutility Generators (NUGs): PSNH has requirements under various
arrangements for the purchase of capacity and energy from NUGs. These
arrangements have terms from 20 to 30 years, currently expiring in
the years 1998 through 2023, and require PSNH to purchase energy at
specified prices or formula rates. For the 12 months ending December
31, 1997, approximately 14 percent of the NU system electricity
requirements were met by NUGs. PSNH's total cost of purchases under
these arrangements amounted to $133.1 million in 1997, $132.6 million
in 1996, and $124.0 million in 1995. These costs may be deferred for
eventual recovery through rates. For additional information, see Note
1K, "Summary of Significant Accounting Policies-Recoverable Energy
Costs."
New Hampshire Electric Cooperative: PSNH entered into a buy-back
agreement to purchase the capacity and energy of the New Hampshire
Electric Cooperative, Inc.'s (NHEC) share of Seabrook 1 and to pay all
of NHEC's Seabrook 1 costs for a ten-year period, which began on July
1, 1990. The total cost of purchases under this agreement was $23.4
million in 1997, $14.6 million in 1996, and $15.8 million in 1995.
The total cost of these purchases has been collected through the
FPPAC in accordance with the Rate Agreement. In connection with the
agreement, NHEC agreed to continue as a firm-requirements customer of
PSNH for 15 years.
Hydro-Quebec: Along with other New England utilities, PSNH, CL&P,
WMECO, and HWP have entered into agreements to support transmission and
terminal facilities to import electricity from the Hydro-Quebec system
in Canada. PSNH is obligated to pay, over a 30-year period ending in
2020, its proportionate share of the annual O&M and capital costs of
these facilities.
Estimated Annual Costs: The estimated annual costs of PSNH's
significant long-term contractual arrangements are as follows:
1998 1999 2000 2001 2002
(Millions of Dollars)
VYNPC ........................ $ 7.1 $ 7.1 $ 6.7 $ 7.4 $ 7.7
NUGs ......................... 139.4 142.9 147.1 151.3 155.5
NHEC ......................... 30.0 30.0 14.6 - -
Hydro-Quebec ................. 10.2 9.8 9.7 9.4 9.2
For additional information regarding the recovery of purchased power
costs, see Note 1K, "Summary of Significant Accounting Policies -
Recoverable Energy Costs."
G. DEFERRED RECEIVABLE FROM AFFILIATED COMPANY
At the time PSNH emerged from bankruptcy on May 16, 1991, in accordance
with the phase-in under the Rate Agreement, it began accruing a
deferred return on a portion of its Seabrook investment. From May 16,
1991 to the Acquisition Date, PSNH accrued a deferred return of $50.9
million. On the Acquisition Date, PSNH sold the $50.9 million deferred
return to NAEC as part of the Seabrook-related assets.
At the time PSNH transferred the deferred return to NAEC, it realized,
for income tax purposes, a gain that is deferred under the consolidated
income tax rules. Beginning December 1, 1997, this gain is being
restored for income tax purposes, as the deferred return of $50.9
million, and the associated income taxes of $32.9 million, are being
collected by NAEC through the Seabrook Power Contracts. As NAEC
recovers the $32.9 million in years eight through ten of the Rate
Agreement, it will be obligated to make these corresponding payments
to PSNH.
On the Acquisition Date, PSNH recorded the $32.9 million of income
taxes associated with the deferred return as a deferred receivable from
NAEC, with a corresponding entry to deferred revenue, on its Balance
Sheet. In 1993, due to changes in tax rates, this amount was adjusted
to $33.2 million.
For further information related to the phase-in of the Seabrook power
plant, see Note 2, "Seabrook Power Contracts."
See Note 10A, "Commitments and Contingencies - Restructuring and Rate
Matters" for the possible impacts of the NHPUC's decision related to
industry restructuring on this intercompany transaction between PSNH
and NAEC.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each of the following financial instruments:
Cash and nuclear decommissioning trusts: The carrying amounts approximate
fair value.
SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires investments in debt and equity securities to be
presented at fair value. Unrealized gains and losses resulting from the
use of SFAS 115 accounting have not been material.
Preferred stock and long-term debt: The fair value of PSNH's fixed-rate
securities is based upon the quoted market price for those issues or
similar issues. Adjustable rate securities are assumed to have a fair
value equal to their carrying value. The carrying amounts of PSNH's
financial instruments and the estimated fair values are as follows:
Carrying Fair
At December 31, 1997 Amount Value
(Thousands of Dollars)
Preferred stock subject to
mandatory redemption..................... $100,000 $ 99,000
Long-term debt - First Mortgage Bonds...... $170,000 $170,425
Other long-term debt....................... $516,485 $537,599
Carrying Fair
At December 31, 1996 Amount Value
(Thousands of Dollars)
Preferred stock subject to
mandatory redemption..................... $125,000 $125,000
Long-term debt - First Mortgage Bonds...... 170,000 175,729
Other long-term debt....................... 516,485 523,536
The fair values shown above have been reported to meet the disclosure
requirements and do not purport to represent the amounts at which those
obligations would be settled.
To the Board of Directors
of Public Service Company of New Hampshire:
We have audited the accompanying balance sheets of Public Service Company
of New Hampshire (a New Hampshire corporation and a wholly owned subsidiary
of Northeast Utilities) as of December 31, 1997 and 1996, and the related
statements of income, common stockholder's equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Public Service Company
of New Hampshire as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 10A, on
February 28, 1997 the State of New Hampshire Public Utilities Commission
(the NHPUC) issued an order outlining its final plan to restructure the
electric utility industry. The final plan announced a departure from cost-
based rate making, which, if implemented, would require the company to
discontinue the application of Financial Accounting Standard No. 71,
"Accounting for the Effects of Certain Types of Regulation," (FAS 71).
The implementation of the final plan, including the effect of the
discontinuation of FAS 71, would result in after tax write-off of over
$400 million. Such a write-off would cause the company to be in technical
default under financial covenants imposed by lenders, which, would, if not
waived or renegotiated, give rise to the rights of lenders to accelerate
the repayment of approximately $686 million of the company's indebtedness
and approximately $495 million of an affiliated company's indebtedness.
These conditions raise substantial doubt about the company's ability to
continue as a going concern. The financial statements referred to above
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of Public Service Company of New
Hampshire's (PSNH or the company) financial condition and the principal factors
having an impact on the results of operations. The company is a wholly-owned
subsidiary of Northeast Utilities (NU). This discussion should be read in
conjunction with the company's financial statements and footnotes.
FINANCIAL CONDITION
OVERVIEW
Net income was approximately $92 million for 1997 compared to approximately $97
million for 1996. The decrease in net income was primarily due to higher
operation expenses.
Retail kilowatt-hour sales were essentially unchanged in 1997.
A significant issue facing PSNH in 1998 is the industry restructuring efforts in
New Hampshire. A temporary restraining order issued by a U.S. District Court is
currently blocking the New Hampshire Public Utilities Commission (NHPUC) from
implementing a February 1997 restructuring order that would have resulted in a
write-off by PSNH of more than $400 million. Management hopes to negotiate an
alternative restructuring proposal in 1998 that will produce significant PSNH
rate reductions and allow retail customers to choose their electric suppliers,
but still give PSNH and North Atlantic Energy Corporation (NAEC) an opportunity
to maintain an adequate financial condition and earn fair returns on their
investments.
RESTRUCTURING
In February, 1997, the NHPUC issued orders to restructure the state's electric
utility industry and set interim stranded cost charges for PSNH. In the orders,
the NHPUC announced a departure from cost-based ratemaking and adopted a market-
priced approach to stranded cost recovery. PSNH, NU, NAEC and Northeast
Utilities Service Company (NUSCO) filed for a temporary restraining order,
preliminary and permanent injunctive relief and a declaratory judgment in the
United States District Court of New Hampshire. The case subsequently was
transferred to the United States District Court of Rhode Island (District Court)
where a temporary restraining order was granted, staying, indefinitely, the
enforcement of the NHPUC's restructuring orders as they affected PSNH. Certain
appeals to the preliminary ruling have been denied and proceedings in the
District Court are expected to resume.
The NHPUC conducted rehearing proceedings in 1997 to decide the appropriate
methodology to be used to determine PSNH's interim stranded costs and to set
PSNH's interim stranded cost charges utilizing the determined methodology. The
NHPUC has not indicated when it will issue a decision in these proceedings.
On December 15, 1997, the NHPUC officially announced that industry restructuring
would not take place on January 1, 1998. On December 24, 1997, the Governor's
office filed a motion with the NHPUC formally requesting that certain issues
concerning the rate agreement (Rate Agreement) between NU, PSNH and the state of
New Hampshire, entered into in 1989 in connection with NU's reorganization plan
to resolve PSNH's bankruptcy, be transferred to the New Hampshire Supreme Court
for decision. The motion recommends that the NHPUC not issue any new rulings
concerning the Rate Agreement pending such Supreme Court decision. On February
20, 1998, the NHPUC petitioned the New Hampshire Supreme Court to review two
issues regarding the Rate Agreement; (i) whether the Rate Agreement creates
private rights which would allow PSNH to seek damages under a contract theory if
PSNH receives less than the full amount it claims as strandable costs under the
Rate Agreement, and (ii) if yes, against whom and under what conditions such
rights be enforceable. The Supreme Court first must determine whether it will
accept the NHPUC's petition.
As part of the rehearing proceedings, PSNH proposed a new methodology to
quantify its stranded costs. Under this proposal, PSNH would divest its owned
generation and purchased power obligations via auction. To the extent that
the auction fails to produce sufficient revenues to cover the net book value
of owned generation and contractual payment obligations of purchased power,
the difference would be recovered from customers through a non-bypassable
distribution charge. The new proposal also relies upon securitization of
certain assets to further reduce rates.
On February 20, 1998, PSNH forwarded a settlement offer to representatives from
the state of New Hampshire that was consistent with PSNH's proposal in the
rehearing proceedings, including among other things, a 20 percent rate reduction
at the beginning of 1999, an auction of PSNH's non nuclear generating units and
securitization of approximately $1.15 billion of PSNH's stranded costs.
See the "Notes to Financial Statements," Note 10A, for the potential accounting
impacts of restructuring.
RATE MATTERS
PSNH's Rate Agreement provided for seven base rate increases and a comprehensive
fuel and purchased power adjustment clause (FPPAC). In June 1996, the final
base rate increase of 5.5 percent went into effect. Although the FPPAC
continues for an additional four years beyond the end of the fixed rate period,
there is uncertainty regarding how it will continue to function. The costs
associated with purchases by PSNH from certain non-utility generators (NUGs) at
prices above the level assumed in rates are deferred and recovered through the
FPPAC. At December 31, 1997, NUG deferrals totaled approximately $173 million.
On May 2, 1997, PSNH made a rate filing with the NHPUC requesting base rates to
remain at their current level after May 31, 1997. By order dated November 6,
1997, the NHPUC ordered a temporary rate reduction for PSNH at a revenue level
6.87 percent lower than current rates. The NHPUC also set an interim return on
equity of 11 percent. The temporary rates became effective December 1, 1997. A
final decision, which will be reconciled to July 1, 1997, is not expected to be
issued until September, 1998. A portion of this reduction was offset by an
increase to rates through the FPPAC.
On February 10, 1998, the NHPUC ordered an FPPAC rate for the period December 1,
1997 through May 31, 1998, which increased customer bills by approximately 6
percent. Prior to this increase, the FPPAC rate had been a credit to reflect
a customer refund ordered by the NHPUC beginning in June 1996. This rate
continues to defer recovery of a substantial portion of costs for the future.
In addition, recovery of the Seabrook deferred return (approximately $127
million annually) is scheduled to begin in June 1998. On March 13, 1998, PSNH
filed a proposed change to its rates, effective June 1, 1998. Public hearings
on the proposed rate change are scheduled to take place in May 1998.
The NHPUC also confirmed in its February 10, 1998 decision that it would
disallow approximately $3 million in replacement power costs related to outages
at Connecticut Yankee, Maine Yankee and Vermont Yankee and require PSNH to set
aside $10 million as a reserve for potential overpayments due to the fact that
PSNH has not required small power producers to reduce deliveries during so-
called "light-loading" periods, pending the NHPUC's review of this matter. The
decision also alleges various breaches of the Rate Agreement and ordered PSNH to
meet with the State to discuss these matters. Finally, the decision indicated
that the NHPUC would open a proceeding to review whether the proceeds from the
sale of steam generators (approximately $20.9 million for NAEC's share) related
to the canceled Unit II at Seabrook station should flow through rates to reduce
customer bills.
See the "Notes to Financial Statements," Note 1K, for further information on
the FPPAC.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $44 million in 1997,
compared to 1996, primarily due to lower recoveries through the FPPAC as a
result of a customer refund ordered by the NHPUC and higher costs due to
the Seabrook outage that are not being recovered currently, partially offset
by higher working capital. Cash used for financing activities decreased
approximately $116 million in 1997, compared to 1996, due primarily to the
repayment of long-term debt in 1996, partially offset by the higher payment
of cash dividends on common stock and the repayment of preferred stock in 1997.
Cash used for investments decreased approximately $21 million in 1997, compared
to 1996, primarily due to a decrease in investments in the NU system Money Pool.
PSNH has a $125 million revolving credit agreement that will expire in April
1999. At December 31, 1997 there were no borrowings under the facility.
PSNH has a first mortgage bond maturity of $170 million, plus accrued interest,
on May 14, 1998. PSNH expects to meet that maturity with cash on hand and
borrowing under the revolving credit agreement.
Each major subsidiary of NU finances its own needs. Neither CL&P nor WMECO
has any financing agreements containing cross defaults based on financial
defaults by NU, PSNH or NAEC. Similarly, neither PSNH nor NAEC has any
financing agreements containing cross defaults based on financial defaults by
NU, CL&P or WMECO. Nevertheless, it is possible that investors will take
negative operating results or regulatory developments at one company in the NU
system into account when evaluating other companies in the NU system. That
could, as a practical matter and despite the contractual and legal separations
among the NU companies, negatively affect each company's access to financial
markets.
NUCLEAR PERFORMANCE
MILLSTONE 3
PSNH has a 2.85 percent joint ownership interest in Millstone 3. Millstone 3 has
been out of service since March 30, 1996.
Subsequent to its January 31, 1996, announcement that Millstone had been placed
on its watch list, the NRC has stated that the unit cannot return to service
until independent, third party verification teams have reviewed the actions
taken to improve the design, configuration and employee concerns issues that
prompted the NRC to place the unit on its watch list. The actual date of the
return to service for the unit is dependent upon the completion of independent
inspections, reviews by the NRC and a vote by the NRC commissioners.
In January 1998, NU declared Millstone 3 physically ready for restart, which
meant that almost all of the restart-required physical work had been completed
in the plant. The NRC currently is conducting a series of inspections to
determine, among other things, whether the plant has effective leadership and
corrective action and employee concerns programs. The Independent Corrective
Action Verification Program, an NRC-ordered independent review of the plant's
design and licensing bases, is expected to be completed in March 1998.
To date, PSNH's costs related to the Millstone 3 outage have not had a material
impact on the company's financial position or results of operations. Management
expects that, under its current planning assumptions, Millstone 3's outage-
related costs will continue to be immaterial to the company's results of
operations.
SEABROOK
PSNH is obligated to purchase North Atlantic Energy Corporation's (NAEC) 35.98-
percent share of the capacity and output generated by Seabrook 1(Seabrook) under
the Seabrook Power Contract for a period equal to the length of the NRC full-
power operating license for Seabrook (through 2026) whether or not Seabrook is
operating and without regard to the cost of alternative sources of power. North
Atlantic Energy Service Corporation is the managing agent and operates Seabrook.
Seabrook operated at a capacity factor of 78.3 percent through December 1997,
compared to 96.8 percent for the same period in 1996. The lower 1997 capacity
factor is due primarily to the 50-day scheduled refueling and maintenance outage
which began on May 10, 1997, and an unplanned outage that began on December 5,
1997. The unplanned outage occurred when the unit was shut down to repair leaks
in a three inch stainless steel pipe in the residual heat removal system. The
pipe was replaced, but problems were subsequently discovered in the control
building air conditioning system. Design changes were implemented and the plant
returned to service on January 16, 1998.
DECOMMISSIONING
CONNECTICUT YANKEE
PSNH has a 5 percent ownership interest in the Connecticut Yankee nuclear
generating facility (CY or the plant). On December 4, 1996, the Board of
Directors of Connecticut Yankee Atomic Power Company voted unanimously to cease
permanently the production of power at the plant. The decision to retire CY from
commercial operation was based on an economic analysis of the costs of operating
it compared to the costs of closing it and incurring replacement power costs
over the remaining period of the plant's operating license, which would have
expired in 2007. The economic analysis showed that closing the plant and
incurring replacement power costs produced substantial savings.
CY has undertaken a number of regulatory filings intended to implement the
decommissioning. In late December 1996, CY filed an amendment to its power
contracts with the FERC to clarify the obligations of its purchasing utilities
following the decision to cease power production. At December 31, 1997, PSNH's
share of these obligations was approximately $31 million, including the cost of
decommissioning and the recovery of existing assets. Management expects that
PSNH will continue to be allowed to recover such FERC approved costs from their
customers. Accordingly, PSNH has recognized its share of the estimated costs as
a regulatory asset, with a corresponding obligation, on its balance sheets.
MAINE YANKEE
PSNH has a 5 percent ownership interest in the Maine Yankee (MY) nuclear
generating facility. On August 6, 1997, the Board of Directors of Maine Yankee
Atomic Power Company (MYAPC) voted unanimously to retire MY. On January 14,
1998, FERC released a draft order on the MYAPC application to amend its power
contracts with the owner/purchasers and revise its decommissioning and other
charges. FERC has accepted the proposed application for filing and made the
amendments and the proposed charges under the contracts effective on January
15, 1998, subject to refund after hearings. At December 31, 1997, PSNH's
share of the estimated remaining obligation, including decommissioning amounted
to approximately $43 million. Under the terms of the contracts with MYAPC, the
shareholders' sponsor companies, including PSNH, are responsible for their
proportionate share of the costs of the unit, including decommissioning.
Management expects that PSNH will be allowed to recover these costs from its
customers. Accordingly, PSNH has recognized these costs as a regulatory asset,
with a corresponding obligation on its balance sheet.
MILLSTONE AND SEABROOK
PSNH's estimated cost to decommission its 2.85 percent share of Millstone 3 and
NAEC's 35.98 share of Seabrook is approximately $16 million and $170 million,
respectively, in year end 1997 dollars. These costs are being recognized over
the lives of the respective units with a portion currently being recovered
through rates. Under the terms of the Rate Agreement, the company is obligated
to pay NAEC's share of Seabrook's decommissioning costs, even if the unit is
shut down prior to the expiration of its operating license. As of December 31,
1997, the market value of the contributions already made to the Millstone 3 and
Seabrook decommissioning trusts, including their investment returns, was
approximately $4 million and $26 million, respectively.
See the "Notes to Financial Statements," Note 4, for further information on
nuclear decommissioning, including PSNH's share of costs to decommission the
other regional nuclear generating units.
ENVIRONMENTAL MATTERS
PSNH is potentially liable for environmental cleanup costs at a number of sites
inside and outside its service territory. To date, the future estimated
environmental remediation liability has not been material with respect to the
earnings or financial position of PSNH. At December 31, 1997, PSNH had recorded
an environmental reserve of approximately $5.6 million. See the "Notes to
Financial Statements" Note 10C, for further information on environmental
matters.
YEAR 2000 ISSUE
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the change of the
century occurs, date-sensitive systems may recognize the year 2000 as 1900, or
not recognize it at all. This inability to recognize or properly treat the
year 2000 may cause NU systems to process critical financial and operational
information incorrectly. The company has assessed and continues to assess the
impact of the Year 2000 issue on its operating and reporting systems. The
assessment of the nuclear operating systems is continuing and is expected to
be completed in the summer of 1998.
The NU System will utilize both internal and external resources to reprogram or
replace, and test the software for Year 2000 modifications. The total estimated
remaining cost of the Year 2000 project is $37 million and is being funded
through operating cash flows. This estimate does not include any costs for the
replacement or repair of equipment or devices that may be identified during the
assessment process. The majority of these costs will be expensed as incurred
over the next two years. To date, the NU system has incurred and expensed
approximately $4 million related to the assessment of, and preliminary efforts
in connection with, its Year 2000 project.
The costs of the project and the date on which the company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those plans. If the
NU system's remediation plan is not successful, there could be a significant
disruption of the NU system's operations.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
1997 over/(under) 1996 1996 over/(under) 1995
Amount Percent Amount Percent
Operating revenues ($2) - % $130 13%
Fuel, purchased and net
interchange power (30) (8) 100 39
Other operation 41 12 14 4
Maintenance (7) (16) 3 8
Other, net (7) (92) 5 (a)
Interest on long-term debt (6) (11) (19) (25)
Other interest expense (3) (91) 3 (a)
Net income (4) (5) 14 16
(a) Percent greater than 100
OPERATING REVENUES
Total operating revenues decreased in 1997 primarily due to lower fuel
recoveries, partially offset by higher retail revenues. Fuel recoveries
decreased approximately $12 million, primarily due to the customer refund
ordered by the NHPUC. Retail revenues increased approximately $9 million,
primarily due to the June 1996 rate increase, partially offset by the December
1997 rate decrease and higher price discounts to retain customers. Retail
sales were essentially unchanged.
Total operating revenues increased in 1996, primarily due to higher fuel
recoveries, regulatory decisions, and other retail revenues. Fuel recoveries
increased $112 million, primarily due to revenues resulting from the
intercompany allocation of energy costs to NU affiliated companies ($125
million) and higher base fuel revenues primarily as a result of the June 1996
and 1995 retail-rate increases, partially offset by lower FPPAC revenues as a
result of a customer refund ordered by the NHPUC. Revenues related to regulatory
decisions increased $8 million, primarily due to the retail-rate increases.
Other retail revenues increased $10 million primarily due to sales growth
and other revenue sources. Retail sales increased 0.4 percent ($2 million),
primarily due to economic growth in 1996, partially offset by milder weather
in 1996.
FUEL EXPENSE
Fuel, purchased and net interchange power expense decreased in 1997, primarily
due to the timing in the recognition of fuel expenses under the FPPAC, partially
offset by higher purchased power costs.
Fuel, purchased and net interchange power expense increased in 1996, primarily
due to higher purchased power costs and the timing in the recognition of fuel
expenses under the FPPAC.
OTHER OPERATION AND MAINTENANCE EXPENSE
Other operation and maintenance expense increased in 1997 primarily due to
higher capacity charges under the Seabrook Power Contract as a result of the
scheduled May 1997 refueling and maintenance outage and the unplanned December
1997 outage ($23 million), higher capacity purchases from NHEC ($11 million),
higher capacity charges from MY ($4 million) and higher costs for PSNH's share
of Millstone 3 ($2 million), partially offset by lower fossil costs ($4 million)
and lower administration and sales costs ($3 million).
Other operation and maintenance expenses increased in 1996, primarily due to
higher storm costs, higher employee benefit costs, higher capacity charges under
the Seabrook Power Contracts and higher marketing costs.
OTHER, NET
Other, net decreased in 1997 and increased in 1996, primarily due to the
deferral in 1996 of interest expense ($5 million) associated with the FPPAC
refund.
INTEREST ON LONG-TERM DEBT
Interest on long-term debt decreased in 1997 and 1996, primarily due to the
repayment of the $172.5 million Series A first-mortgage bond in May 1996.
OTHER INTEREST EXPENSE
Other interest expense decreased in 1997 and increased in 1996, primarily due
to 1996 interest expense ($5 million) associated with the FPPAC refund.
Public Service Company of New Hampshire
SELECTED FINANCIAL DATA (a)
Jan. 1, 1997 Jan. 1, 1996 Jan. 1, 1995
to to to
For the Periods Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
(Thousands of Dollars)
Operating Revenues........ $1,108,459 $1,110,169 $ 979,971
Operating Income.......... 144,274 155,195 155,628
Net Income ............... 92,422 96,902 83,255
Cash Dividends on
Common Stock............ 85,000 52,000 52,000
At Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
Total Assets.............. $2,837,159 $2,851,212 $2,920,487
Long-Term Debt (b)........ 686,485 686,485 858,985
Preferred Stock
Subject to Mandatory
Redemption(b)........... 100,000 125,000 125,000
Obligations Under
Seabrook Power
Contracts and Other
Capital Leases(b)....... 921,813 914,617 915,288
(a) Reclassifications of prior data have been made to conform with
the current presentation.
(b) Includes portions due within one year.
Public Service Company of New Hampshire
SELECTED FINANCIAL DATA
Jan. 1, 1994 Jan. 1, 1993
to to
For the Periods Dec. 31, 1994 Dec. 31, 1993
(Thousands of Dollars)
Operating Revenues........ $922,039 $864,415
Operating Income.......... 152,086 124,710
Net Income ............... 77,444 52,237
Cash Dividends on
Common Stock............ - -
At Dec. 31, 1994 Dec. 31, 1993
(Thousands of Dollars)
Total Assets.............. $2,845,967 $2,774,511
Long-Term Debt (b)........ 999,985 1,093,895
Preferred Stock
Subject to Mandatory
Redemption(b)........... 125,000 125,000
Obligations Under
Seabrook Power
Contracts and Other
Capital Leases(b)....... 887,967 856,559
Public Service Company of New Hampshire
STATISTICS
Average
Gross Electric Annual
Utility Plant Use Per
December 31, kWh Residential Electric
(Thousands of Sales Customer Customers Employees
Dollars)(a) (Millions) (kWh) (Average) (December 31)
1997 $2,312,628 13,340 6,528 407,642 1,254
1996 2,382,009 13,601 6,567 407,082 1,279
1995 2,469,474 11,001 6,524(c) 406,077 1,325
1994 2,521,960 11,008 6,768 400,775 1,374
1993 2,590,644 11,146 6,817 397,277 1,426
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
Quarter Ended (b)
1997 March 31 June 30 Sept.30 Dec. 31
Operating Revenues....... $278,321 $257,098 $285,390 $287,650
Operating Income......... $ 45,010 $ 34,062 $ 32,322 $ 32,880
Net Income............... $ 32,529 $ 21,161 $ 19,056 $ 19,676
1996 March 31 June 30 Sept.30 Dec. 31
Operating Revenues....... $269,540 $261,897 $296,719 $282,013
Operating Income......... $ 44,668 $ 42,156 $ 46,934 $ 21,437
Net Income............... $ 28,545 $ 23,986 $ 30,646 $ 13,725
(a) Includes reclassification of the unamortized acquisition costs to
gross utility plant.
(b) Reclassifications of prior data have been made to conform with
the current presentation.
(c) Effective January 1, 1996, the amounts shown reflect billed and
unbilled sales. 1995 has been restated to reflect this change.