FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
1-5324 NORTHEAST UTILITIES 04-2147929
(a Massachusetts voluntary association)
174 BRUSH HILL AVENUE
WEST SPRINGFIELD, MASSACHUSETTS 01090-2010
Telephone: (413) 785-5871
0-11419 THE CONNECTICUT LIGHT AND POWER COMPANY 06-0303850
(a Connecticut corporation)
107 SELDEN STREET
BERLIN, CONNECTICUT 06037-1616
Telephone: (860) 665-5000
1-6392 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE 02-0181050
(a New Hampshire corporation)
1000 ELM STREET
MANCHESTER, NEW HAMPSHIRE 03105-0330
Telephone: (603) 669-4000
0-7624 WESTERN MASSACHUSETTS ELECTRIC COMPANY 04-1961130
(a Massachusetts corporation)
174 BRUSH HILL AVENUE
WEST SPRINGFIELD, MASSACHUSETTS 01090-2010
Telephone: (413) 785-5871
33-43508 NORTH ATLANTIC ENERGY CORPORATION 06-1339460
(a New Hampshire corporation)
1000 ELM STREET
MANCHESTER, NEW HAMPSHIRE 03105-0330
Telephone: (603) 669-4000
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Company - Class of Stock Outstanding at July 31, 1998
Northeast Utilities
Common shares, $5.00 par value 136,900,684 shares
The Connecticut Light and Power Company
Common stock, $10.00 par value 12,222,930 shares
Public Service Company of New Hampshire
Common stock, $10.00 par value 1,000 shares
Western Massachusetts Electric Company
Common stock, $25.00 par value 1,072,471 shares
North Atlantic Energy Corporation
Common stock, $10.00 par value 1,000 shares
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms
that are found throughout this report:
COMPANIES
NU............................... Northeast Utilities
CL&P............................. The Connecticut Light and Power Company
Charter Oak or COE............... Charter Oak Energy, Inc.
WMECO............................ Western Massachusetts Electric Company
HWP.............................. Holyoke Water Power Company
NUSCO or the
Service Company.................. Northeast Utilities Service Company
NNECO............................ Northeast Nuclear Energy Company
NAEC............................. North Atlantic Energy Corporation
NAESCO or North Atlantic......... North Atlantic Energy Service Corporation
PSNH............................. Public Service Company of New Hampshire
RRR.............................. The Rocky River Realty Company
Select Energy.................... Select Energy, Inc., formerly NUSCO
Energy Partners, Inc.
Mode 1........................... Mode 1 Communications, Inc.
HEC.............................. HEC, Inc.
Quinnehtuk....................... The Quinnehtuk Company
the NU system.................... The Northeast Utilities system companies,
including NU and its wholly-owned
operating subsidiaries: CL&P, PSNH, WMECO
and NAEC
CYAPC............................ Connecticut Yankee Atomic Power Company
MYAPC............................ Maine Yankee Atomic Power Company
VYNPC............................ Vermont Yankee Nuclear Power Corporation
YAEC............................. Yankee Atomic Electric Company
the Yankee Companies............. CYAPC, MYAPC, VYNPC and YAEC
GENERATING UNITS
Millstone 1...................... Millstone Unit No. 1, a 660-MW nuclear
generating unit completed in 1970
Millstone 2...................... Millstone Unit No. 2, an 870-MW nuclear
electric generating unit completed in 1975
Millstone 3...................... Millstone Unit No. 3, a 1,154-MW nuclear
electric generating unit completed in 1986
Seabrook or Seabrook 1........... Seabrook Unit No. 1, a 1,148-MW nuclear
electric generating unit completed in 1986;
Seabrook 1 went into service in 1990.
REGULATORS
DOE.............................. U.S. Department of Energy
DTE.............................. Massachusetts Department of
Telecommunications and Energy, formerly
the Massachusetts Department of Public
Utilities (DPU)
DPUC............................. Connecticut Department of Public Utility
Control
FERC............................. Federal Energy Regulatory Commission
NHPUC............................ New Hampshire Public Utilities Commission
NRC.............................. Nuclear Regulatory Commission
SEC.............................. Securities and Exchange Commission
OTHER
kWh.............................. Kilowatt hour
MW............................... Megawatt
NU 1997 Form 10-K................ The NU system combined 1997 Form 10-K as
filed with the SEC and as amended on Form
10-K/A for NU, CL&P, PSNH and WMECO,
collectively the NU 1997 Form 10-K.
NU 1996 Form 10-K................ The NU system combined 1996 Form 10-K as
filed with the SEC and as amended on Form
10-K/A for NU, CL&P, PSNH and WMECO,
collectively the NU 1996 Form 10-K.
Northeast Utilities And Subsidiaries
The Connecticut Light and Power Company and Subsidiaries
Public Service Company of New Hampshire
Western Massachusetts Electric Company and Subsidiary
North Atlantic Energy Corporation
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
and
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
For the following companies:
Northeast Utilities and Subsidiaries
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997.................. 2
Consolidated Statements of Income - Three Months
and Six Months Ended June 30, 1998 and 1997.......... 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997.............. 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 6
Report of Independent Public Accountants ............
The Connecticut Light & Power Company and
Subsidiaries
Consolidated Balance Sheets - June 30, 1998
and December 31, 1997................................
Consolidated Statements of Income - Three Months
and Six Months Ended June 30, 1998 and 1997..........
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997..............
Management's Discussion and Analysis of
Financial Condition and Results of Operations........
Public Service Company of New Hampshire
Balance Sheets - June 30, 1998
and December 31, 1997................................
Statements of Income - Three Months and Six
Months Ended June 30, 1998 and 1997..................
Statements of Cash Flows - Six Months Ended
June 30, 1998 and 1997...............................
Management's Discussion and Analysis of
Financial Condition and Results of Operations........
Western Massachusetts Electric Company and Subsidiary
Consolidated Balance Sheets - June 30, 1998
and December 31, 1997................................
Consolidated Statements of Income - Three Months
and Six Months Ended June 30, 1998 and 1997..........
Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1998 and 1997..................
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................
North Atlantic Energy Corporation
Balance Sheets - June 30, 1998 and
December 31, 1997....................................
Statements of Income - Three Months and Six
Months Ended June 30, 1998 and 1997..................
Statements of Cash Flows - Six Months Ended
June 30, 1998 and 1997...............................
Management's Discussion and Analysis of
Financial Condition and Results of Operations........
Notes to Financial Statements (unaudited -
all companies)..........................................
Part II. Other Information
Item 1. Legal Proceedings...........................
Item 4. Submission of Matters to a Vote of
Security Holders............................
Item 5. Other Information...........................
Item 6. Exhibits and Reports on Form 8-K............
Signatures ............................................
NORTHEAST UTILITIES AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 9,913,197 $ 9,869,561
Other................................................... 187,675 186,130
------------- -------------
10,100,872 10,055,691
Less: Accumulated provision for depreciation......... 4,520,022 4,330,599
------------- -------------
5,580,850 5,725,092
Unamortized PSNH acquisition costs...................... 367,063 402,285
Construction work in progress........................... 148,151 141,077
Nuclear fuel, net....................................... 194,084 194,704
------------- -------------
Total net utility plant............................. 6,290,148 6,463,158
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 565,860 502,749
Investments in regional nuclear generating
companies, at equity................................... 85,247 86,955
Investments in transmission companies, at equity........ 20,210 19,635
Other, at cost.......................................... 104,153 95,362
------------- -------------
775,470 704,701
------------- -------------
Current Assets:
Cash and cash equivalents............................... 131,085 143,403
Special deposits........................................ 2,970 -
Investments in securitizable assets..................... 75,932 230,905
Receivables, net........................................ 165,847 214,914
Accrued utility revenues................................ 34,439 36,885
Fuel, materials, and supplies, at average cost.......... 210,686 212,721
Recoverable energy costs, net--current portion.......... 67,159 59,959
Investments in Charter Oak Energy, Inc.
held for sale.......................................... 15,050 33,391
Prepayments and other................................... 81,223 38,495
------------- -------------
784,391 970,673
------------- -------------
Deferred Charges:
Regulatory assets (Note 2C):
Income taxes,net...................................... 880,704 938,564
Deferred costs--nuclear plants........................ 174,188 199,753
Unrecovered contractual obligations................... 478,050 515,076
Recoverable energy costs, net......................... 294,541 324,809
Deferred demand side management costs................. 13,807 52,100
Cogeneration costs.................................... 18,688 33,505
Seabrook deferral..................................... 48,309 8,376
Other................................................. 91,168 101,095
Unamortized debt expense................................ 40,070 38,758
Other .................................................. 68,886 63,844
------------ ------------
2,108,411 2,275,880
------------ ------------
Total Assets.............................................. $ 9,958,420 $ 10,414,412
============ ============
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common shareholders' equity:
Common shares, $5 par value--authorized
225,000,000 shares; 136,900,684 shares issued and
130,540,854 shares outstanding in 1998 and
136,842,170 shares issued and 130,182,736 shares
outstanding in 1997.................................. $ 684,503 $ 684,211
Capital surplus, paid in.............................. 934,316 932,493
Deferred contribution plan--employee stock
ownership plan...................................... (147,205) (154,141)
Retained earnings (Note 1)............................ 695,846 707,522
------------- -------------
Total common shareholders' equity.............. 2,167,460 2,170,085
Preferred stock not subject to mandatory redemption..... 136,200 136,200
Preferred stock subject to mandatory redemption......... 197,072 245,750
Long-term debt.......................................... 3,364,622 3,645,659
------------- -------------
Total capitalization........................... 5,865,354 6,197,694
------------- -------------
Minority Interest in Consolidated Subsidiaries............ 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 159,886 30,427
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 80,000 50,000
Long-term debt and preferred stock--current
portion................................................ 305,077 274,810
Obligations under capital leases--current
portion................................................ 51,373 177,304
Accounts payable........................................ 272,639 402,870
Accrued taxes........................................... 74,735 46,016
Accrued interest........................................ 46,770 30,786
Accrued pension benefits................................ 55,103 77,186
Other................................................... 99,294 88,396
------------- ------------
984,991 1,147,368
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,942,972 1,984,513
Accumulated deferred investment tax credits............. 153,067 158,837
Deferred contractual obligations........................ 488,885 525,076
Other................................................... 263,265 270,497
------------- ------------
2,848,189 2,938,923
------------- ------------
Commitments and Contingencies (Note 9)
Total Capitalization and Liabilities........... $ 9,958,420 $ 10,414,412
============= =============
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
(Restated) (Restated)
------------- ------------- ------------- -------------
(Thousands of Dollars, except share information)
Operating Revenues............................. $ 874,809 $ 903,323 $ 1,833,714 $ 1,878,691
------------- ------------- ------------- -------------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power.... 306,117 281,142 659,654 622,524
Other........................................ 212,115 284,055 456,047 545,715
Maintenance................................... 76,041 143,525 196,996 242,722
Depreciation.................................. 86,556 87,415 173,785 176,594
Amortization of regulatory assets, net........ 38,797 31,015 67,028 62,412
Federal and state income taxes................ 17,627 (7,040) 34,388 8,167
Taxes other than income taxes................. 61,260 59,669 129,032 127,638
------------- ------------- ------------- -------------
Total operating expenses............... 798,513 879,781 1,716,930 1,785,772
------------- ------------- ------------- -------------
Operating Income............................... 76,296 23,542 116,784 92,919
------------- ------------- ------------- -------------
Other Income:
Deferred nuclear plants return--other
funds...................................... 1,781 1,828 3,656 3,602
Equity in earnings of regional nuclear
generating and transmission companies...... 2,967 2,736 7,091 6,177
Other, net................................... (4,913) 1,741 4,862 6,482
Minority interest in income of subsidiary.... (2,325) (2,325) (4,650) (4,650)
Income taxes................................. 7,304 1,676 10,328 1,207
------------- ------------- ------------- -------------
Other income, net...................... 4,814 5,656 21,287 12,818
------------- ------------- ------------- -------------
Income before interest charges......... 81,110 29,198 138,071 105,737
------------- ------------- ------------- -------------
Interest Charges:
Interest on long-term debt................... 69,247 68,219 139,473 138,425
Other interest............................... 2,041 3,509 2,919 4,375
Deferred nuclear plants return--borrowed
funds..................................... (3,262) (3,416) (6,778) (6,728)
------------- ------------- ------------- -------------
Interest charges, net.................. 68,026 68,312 135,614 136,072
------------- ------------- ------------- -------------
Income/(Loss) after interest charges.... 13,084 (39,114) 2,457 (30,335)
Preferred Dividends of Subsidiaries............ 6,811 7,903 14,133 15,806
------------- ------------- ------------- -------------
Net Income/(Loss).............................. $ 6,273 $ (47,017) $ (11,676) $ (46,141)
============= ============= ============= =============
Earnings/(Loss) Per Common Share............... $ 0.05 $ (0.37) $ (0.09) $ (0.36)
============= ============= ============= =============
Common Shares Outstanding (average)............ 130,459,076 129,603,995 130,379,294 129,115,844
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------
1998 1997
(Restated)
----------- -----------
(Thousands of Dollars)
Operating Activities:
Income/(Loss) before preferred dividends of subsidiaries.. $ 2,457 $ (30,335)
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 173,785 176,594
Deferred income taxes and investment tax credits, net... 7,709 16,183
Deferred nuclear plants return.......................... (10,434) (10,330)
Amortization of demand-side-management costs, net....... 38,293 37,329
Recoverable energy costs, net of amortization........... 23,068 (32,393)
Amortization of PSNH acquisition costs, net............. 20,238 28,282
Amortization of deferred cogeneration costs, net ....... 14,817 16,388
Deferred nuclear refueling outage, net of amortization.. 1,806 (18,255)
Other sources of cash................................... 84,363 35,541
Other uses of cash...................................... (19,741) (92,232)
Changes in working capital:
Receivables and accrued utility revenues, net........... (153,487) 96,868
Fuel, materials, and supplies........................... 2,035 (11,982)
Accounts payable........................................ (130,231) (147,716)
Accrued taxes........................................... 28,719 24,849
Sale of receivables and accrued utility revenues........ 205,000 28,000
Investment in securitizable assets...................... 154,973 (17,360)
Other working capital (excludes cash)................... (40,899) 35,683
----------- -----------
Net cash flows from operating activities.................... 402,471 135,114
----------- -----------
Financing Activities:
Issuance of common shares................................. 399 3,451
Issuance of long-term debt................................ 275 200,000
Net increase in short-term debt........................... 30,000 106,250
Reacquisitions and retirements of long-term debt.......... (257,668) (241,450)
Reacquisitions and retirements of preferred stock......... (48,678) (25,000)
Cash dividends on preferred stock......................... (14,133) (15,806)
Cash dividends on common shares........................... - (32,134)
----------- -----------
Net cash flows used for financing activities................ (289,805) (4,689)
----------- -----------
Investment Activities:
Investment in plant:
Electric and other utility plant........................ (93,371) (112,473)
Nuclear fuel............................................ (1,704) (6,074)
----------- -----------
Net cash flows used for investments in plant.............. (95,075) (118,547)
Investments in nuclear decommissioning trusts............. (40,592) (26,681)
Capital contributions to Charter Oak Energy............... - (28,750)
Other investment activities, net.......................... 10,683 (30,435)
----------- -----------
Net cash flows used for investments......................... (124,984) (204,413)
----------- -----------
Net Decrease In Cash For The Period......................... (12,318) (73,988)
Cash and cash equivalents - beginning of period............. 143,403 194,197
----------- -----------
Cash and cash equivalents - end of period................... $ 131,085 $ 120,209
=========== ===========
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the consolidated financial
statements and footnotes in this Form 10-Q, the First Quarter 1998 Form 10-Q
and the 1997 Form 10-K.
FINANCIAL CONDITION
Overview
NU's second-quarter earnings were $6.3 million, or 5 cents a share, compared
with a restated loss of $47.0 million, or 37 cents a share, for the second
quarter of 1997.
For the first six months of 1998, NU lost $11.7 million, or 9 cents a share,
compared with a restated loss of $46.1 million, or 36 cents a share, for the
first half of 1997.
Improved second-quarter results were primarily due to a nearly $140 million
reduction in nonfuel operation and maintenance costs in 1998, compared with the
same period in 1997. Approximately $80 million of the expense reduction was
related to lower costs at nuclear plants fully or partially owned by NU
subsidiaries. Lower expenses were recorded at Millstone 1, Connecticut Yankee,
and Maine Yankee, which have been permanently shut down and will not return to
service. In addition, Millstone 3 spending abated in the second quarter as the
unit neared its return to service, and Seabrook's costs fell as the result of
a refueling outage in 1997. The company expects spending at Millstone 2 to rise
in the third quarter as the company works to return the unit to service by the
end of the year.
Another $32 million of expense reduction was related to the receipt of proceeds
from several insurance carriers for the settlement with certain insurance
companies of all past, present and future environmental matters and the
reimbursement of certain costs related to a severe January 1998 ice storm in New
Hampshire.
Partially offsetting these lower costs was a nearly $30 million reduction in
revenues in the second quarter of 1998, compared with the same quarter of 1997.
That decrease reflected rate cuts in each state served by NU subsidiaries, as
well as the accounting for the decision by the DPUC to remove Millstone 2 from
CL&P's rates.
For the second quarter of 1998, CL&P and WMECO satisfied all financial tests
contained in the companies' revolving credit agreement. The next two quarters
will continue to be a financial challenge due to the ongoing costs to restart
Millstone 2 and the DPUC decision to remove that unit from CL&P's rates. For
further information regarding the companies' ability to meet their financial
tests, see the Liquidity and Capital Resources section of this MD&A.
Millstone Outages
CL&P and WMECO have ownership interests of 81 percent and 19 percent,
respectively, in Millstone 2. CL&P, WMECO and PSNH have joint ownership
interests in Millstone 3 that total 68 percent (52.93 percent for CL&P, 12.24
percent for WMECO and 2.85 percent for PSNH). NNECO, a wholly owned subsidiary
of NU, acts as an agent for certain NU system companies and other New England
utilities in operating the Millstone units.
On June 15, 1998, the NRC granted permission for NNECO to restart Millstone 3,
contingent upon the concurrence of the NRC staff. This action reclassified
the unit from the NRC's watch list as a Category 3 facility (plants requiring
formal NRC concurrence to operate) to a watch list Category 2 facility (plants
authorized to operate but that are closely monitored by the NRC). The
NRC staff subsequently authorized the restart on June 29, 1998 and the
1,154-megawatt plant was operating at 100 percent power by July 14, 1998.
The return to service of Millstone 3 is expected to save the NU system
approximately $8 million a month in replacement power($7 million for CL&P,
$1 million for WMECO and $300,000 for PSNH).
NNECO hopes to return Millstone 2 to service by the end of the year, but such a
timetable will be largely dependent on the ability of the company, the NRC staff
and the Millstone 2 contractor for the Independent Corrective Action
Verification Program (ICAVP), Parsons Power, to complete the design and
licensing bases reviews and any resulting corrective actions in a timely manner.
For the six months ended June 30, 1998, the NU system's share of nonfuel O&M
costs expensed for Millstone was approximately $208 million, compared to $260
million for the same period in 1997. CL&P's, WMECO's and PSNH's share of
Millstone nonfuel O&M costs for 1998 were approximately $167 million, $38
million, and $3 million, respectively, compared to $208 million, $49 million,
and $3 million, respectively, for the same period in 1997.
Replacement power costs for the three Millstone units were approximately $162
million for the six months ended June 30, 1998 compared to $200 million for the
same period in 1997. CL&P's and WMECO's share of Millstone replacement power
costs for 1998 were approximately $139 million and $22 million, respectively,
compared to $167 million and $30 million, respectively, for 1997. PSNH's share
of Millstone 3 replacement power costs were approximately $1 million in 1998 and
$3 million in 1997.
WMECO and PSNH have been expensing all of the costs to restart the units
including replacement power and nonfuel O&M expenses. As a result of certain
rate decisions in Connecticut, CL&P was permitted to recover, through its energy
adjustment clause, replacement power costs for Millstone 1 effective March 1,
1998 and Millstone 2 effective May 1, 1998. See "Connecticut Rate Matters" for
issues related to the recovery of Millstone costs.
For further information on the Millstone outages, see the 1997 Form 10-K and the
First Quarter 1998 Form 10-Q.
Millstone 1
CL&P and WMECO have ownership interests of 81 percent and 19 percent,
respectively, in Millstone 1. In July 1998, CL&P filed a continued unit
operation study (CUO) with the DPUC. The CUO study regarding Millstone 1 showed
that, given certain assumptions, the economic benefit to customers would be less
than one percent of the total cost that would be required to operate the unit
through the end of its license in 2010. Given the changing utility structure
and electric marketplace, CL&P and WMECO have decided to cease restart
activities at Millstone 1 and instead prepare for final decommissioning. CL&P,
WMECO and NNECO will undertake a number of regulatory filings intended to
implement the decommissioning and recovery of remaining assets of Millstone 1.
At June 30, 1998, the net unrecovered plant costs for Millstone 1 were
approximately $246 million ($199 million for CL&P and $47 million for WMECO).
The total estimated decommissioning costs, which have been updated to reflect
the early shut down of the unit, are approximately $642.1 million in mid-1997
dollars($520.1 million for CL&P and $122 million for WMECO). At June 30, 1998,
approximately $250.3 million of the total estimated decommissioning costs had
been funded by CL&P and WMECO, respectively through the use of external
trusts($195.1 million for CL&P and $55.2 million for WMECO). CL&P has also
recorded a reserve on its books which represents amounts which have been
collected by CL&P but not funded, and will also be used to fund the total
estimated decommissioning obligation of Millstone 1. At June 30, 1998, the
balance of this account on CL&P's books was approximately $19.8 million.
Management expects that CL&P and WMECO will each be allowed to recover from
customers the estimated remaining costs associated with Millstone 1, including
decommissioning, unrecovered plant and related assets, and other expenditures.
During the third quarter of 1998, CL&P and WMECO expect to recognize their
respective shares of these costs as regulatory assets, with corresponding
liabilities on their balance sheets.
For further information on Millstone 1, see Connecticut Rate Matters in this
MD&A.
Liquidity and Capital Resources
Cash provided from operating activities increased approximately $267 million in
the first six months of 1998, from 1997, primarily due to increased cash from
the use of two accounts receivable facilities and reduced expenditures for the
Millstone outages. Net cash used for financing activities increased
approximately $285 million, primarily due to higher reacquisitions and
retirements of long-term debt and preferred stock and a decrease in short-term
borrowings partially offset by the elimination of cash dividends on NU common
shares. The decrease in short-term borrowings reflects the change in accounting
for the receivable financing for CL&P. In 1997 the amount outstanding was
reflected as short-term debt. In 1998 it is reflected in cash from operating
activities. Net cash flows used for investments decreased approximately $79
million, primarily due to a 1997 capital contribution to Charter Oak Energy
projects.
For additional information on changes in capitalization, see "Notes to Financial
Statements" Note 4.
CL&P and WMECO established facilities under which they may sell from time to
time up to $200 million and $40 million, respectively, of their accounts
receivable and accrued utility revenues. As of June 30, 1998, CL&P and WMECO had
sold approximately $185 million and $20 million of accounts receivable,
respectively, to third party purchasers.
For additional information on the sale of accounts receivable, see "Notes to
Financial Statements" Note 7.
NU, CL&P and WMECO are parties to a three-year revolving credit agreement (the
Credit Agreement), and NU is separately party to another three-year revolving
credit agreement with different borrowing conditions. At June 30, 1998, CL&P
and WMECO had $10 million and $20 million, respectively outstanding under the
Credit Agreement. PSNH had $50 million outstanding at that time under a separate
credit agreement.
The NU system companies' ability to make new, and maintain existing, borrowings
under their financing arrangements is dependent on their satisfaction of
contractual borrowing conditions. The financial tests that must be satisfied to
permit NU, CL&P and WMECO to borrow under the Credit Agreement are particularly
restrictive throughout 1998. Based on present estimates, it will be difficult
for NU, CL&P and WMECO to meet certain of the interest coverage and capital
ratio tests contained in the Credit Agreement after the second quarter of 1998.
Accordingly, these companies are seeking an amendment to these provisions to
enable them to maintain access to funds under the Credit Agreement for the
remainder of its life. Similar financial tests are included in an operating
lease, which CL&P entered into in June of 1996, related to the use of four
turbine generators having an installed cost of approximately $70 million.
CL&P is also seeking an amendment to the covenant restrictions in this lease.
Management expects that satisfactory new terms will be reached. There is no
assurance that these tests, even if so amended, will be met if the NU system
encounters additional unexpected costs relating to storms or other operational
events or reduced revenues from regulatory actions or the effects of weather on
sales.
Each major company in the NU system 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.
Most of the fuel used at Millstone is financed through the Niantic Bay Fuel
Trust (NBFT). On June 5, 1998, the NBFT issued $180 million of Series G
intermediate term notes (ITNs) to repay other indebtedness previously incurred
by the NBFT, and the NBFT presently has no other indebtedness. The permanent
shutdown of Millstone 1 in July afforded the ITN holders the right to seek
repurchase of a pro rata share of their notes based upon the stipulated loss
value of the Millstone 1 fuel compared to the stipulated loss value of all fuel
then under the NBFT, approximately $83 million. It is not expected that the ITN
holders will seek repurchase. The shutdown also obligates CL&P and WMECO to pay
such amount to the NBFT under the NBFT lease whether or not any ITN holders
request repurchase. The companies are seeking consents from the ITN holders to
amend this lease provision so that they will not be obligated to make this
payment, but instead will deposit the proceeds of the sale for salvage of the
Millstone 1 fuel. Moneys deposited under the NBFT will be available for various
purposes under the NBFT, including the purchase of new fuel for use in the other
units.
For additional information on leases, see "Notes to Financial Statements"
Note 5.
On July 14, 1998, the NU Board of Trustees authorized the repurchase of up to
10 million NU common shares through July 1, 2000 in connection with the
implementation of utility restructuring in New England. Share repurchases could
be accomplished through a variety of means, including open market purchases and
possibly the use of certain derivative financial instruments or agreements. NU
does not contemplate immediate share repurchases.
For more information regarding status of restructuring in the NU System's
service territory, see "Restructuring" below and NU's First Quarter 1998 Form
10-Q.
In July 1998, North East Optic Network, Inc. (NEON) held an initial public
offering (IPO). Prior to the offering NU, through its unregulated subsidiary
Mode 1, owned 41.4% of NEON consisting of approximately 5 million common shares.
Mode 1 held approximately 4.8 million shares of NEON valued at over $57 million
at the closing of the IPO and will be prohibited from selling these shares for
180 days.
On July 23, 1998, Moody's Investors Service raised its credit ratings on
the senior debt of CL&P and WMECO from Ba3 to Ba2 following the restart of
Millstone 3. According to Moody's, "The outlook for these companies is positive,
predicated on Unit 3 maintaining a solid operating performance and reflecting
prospects for a timely return of the Millstone Unit 2 to full service and rate
base in Connecticut. While challenges remain, favorable resolution and
implementation of restructuring plans in Connecticut and Massachusetts,
including divestiture of assets and securitization of restructuring charges,
add significant upside potential for ratings over the longer term."
On July 21, 1998, Standard & Poor's (S&P) removed NU and all of its
subsidiaries from Credit Watch (negative) for the first time since 1996,
in response to the return of Millstone 3 to operation.
Restructuring
Connecticut
CL&P is scheduled to file its restructuring plan in accordance with the
Connecticut restructuring legislation with the DPUC by October 1, 1998.
New Hampshire
On May 26, 1998, the New Hampshire Supreme Court heard arguments on two
questions concerning the enforceability of the 1989 Rate Agreement signed
between NU and the State of New Hampshire. A court ruling is still pending.
On June 12, 1998, the U.S. District Court in Rhode Island issued a written
preliminary injunction barring the NHPUC from taking any steps to implement the
NHPUC's February 28, 1997 restructuring orders. A trial is scheduled to begin
in November. The NHPUC has appealed the order granting the preliminary
injunction to the U.S. Court of Appeals for the First Circuit. Oral argument in
this appeal will be scheduled in October 1998.
Massachusetts
WMECO's restructuring plan is currently before the DTE for review. As part of
the restructuring plan, WMECO announced it is offering for sale certain of its
fossil-fuel and hydroelectric generating assets. WMECO will continue to operate
and maintain the transmission and local distribution network and deliver
electricity to all customers.
For further information on restructuring issues, see "Notes to Financial
Statements" Note 9A and NU's First Quarter 1998 Form 10-Q.
Rate Matters
Connecticut
On April 29, 1998, the DPUC issued a final decision to remove Millstone 2 from
CL&P's rate base effective May 1, 1998 and Millstone 3 effective July 1, 1998.
On July 18, 1998, Millstone 3 returned to rate base after meeting the operating
requirements set forth in the DPUC order. Millstone 1 had previously been
removed from CL&P's rate base effective March 1, 1998.
Removing Millstone 2 from rate base has resulted in a reduction of CL&P's
current annual revenue requirements of $37.7 million, or about $3 million a
month. This reduction reflects the removal from rates of the O&M, depreciation,
and investment return related to the unit, net of replacement power costs. The
net reduction of revenue requirements associated with the removal of Millstone 3
from rates was approximately $7 million for the period July 1, 1998 through July
18, 1998. The DPUC allowed the revenue requirement reductions to be applied to
reduce regulatory asset balances, which would have been recoverable in future
rates. As a result, there was no change in rates. CL&P has accounted for these
reductions as a reserve against revenues until such time when the regulatory
asset balances are reduced.
On July 17, 1998, CL&P filed the results of updated continued unit operation
(CUO) studies for Millstone 1 and 2 with the DPUC. The Millstone 2 study
concluded that operation of the unit will provide an economic benefit through
the end of the unit's license life in 2015. The Millstone 1 CUO study showed
that, given certain assumptions, the economic benefit to customers would be less
than one percent of the total cost that would be required to operate the unit
through the end of its license in 2010.
On June 1, 1998, CL&P filed two applications with the DPUC proposing rate
reductions totaling 3.4 percent. The first rate application requests a 1
percent reduction effective September 28, 1998, and requests recovery of
approximately $75 million of costs to be expended to improve reliability of
CL&P's transmission and distribution system. The second rate application was in
connection with CL&P's energy adjustment clause and reduced rates 2.4 percent on
July 1, 1998 to reflect that CL&P had incurred lower fuel costs over the past
six months.
For further information on Connecticut rate matters, see NU's First Quarter Form
10-Q.
New Hampshire
On May 29, 1998, the NHPUC approved slightly more than a 1 percent increase in
PSNH's fuel and purchased power adjustment clause (FPPAC)rate for the period
June through November 1998, as well as a Stipulation and Settlement Agreement
with the Office of Consumer Advocate and the NHPUC staff. The agreement
resolved most of the contested issues in the FPPAC proceeding. The increase in
the rate will result in the collection of substantially all of PSNH's currently
projected fuel and purchased power costs, but continues to defer for future
collection a substantial portion of previously incurred costs.
For further information on New Hampshire rate matters, see NU's First Quarter
1998 Form 10-Q.
Year 2000 Issue
The company has established an action plan by which certain processes must be
completed by certain dates in order to ensure its operating and reporting
systems, including nuclear systems, are able to properly recognize the year
2000. This action plan has three phases: the inventory phase, the detailed
assessment phase, and the remediation phase. The inventory phase identifies all
operating and reporting systems which may need to be fixed. This phase is on
target and is scheduled to be completed by the end of August 1998. The detailed
assessment phase is the process by which tests are performed to determine
exactly what needs to be done in order to ensure that the systems are able to
properly recognize and process the year 2000. The detailed assessment for the
majority of the systems, including nuclear, is scheduled to be completed by the
end of 1998. The final phase is the remediation phase; by the end of this
phase, all mission critical systems will be Year 2000 ready. Management
anticipates the remediation phase for mission critical systems to be finalized
by mid-1999.
The NU system utilizes 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 $34 million which 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 in
1998 and 1999. Since 1996, the company has incurred and expensed approximately
$7 million related to the inventory and assessment phases, 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 plans or those of third parties are not successful,
there could be a significant disruption of the NU system's operations. As a
precautionary measure, NU is developing a contingency plan which will evaluate
alternatives that could be implemented if our remediation plans are not
successful.
The company is committed to assuring that adequate resources are available in
order to implement any changes necessary for its nuclear and other operations to
be compatible with the new millennium.
Risk-Management Instruments
The NU system uses swaps, collars, puts, and calls to manage the market risk
exposures associated with changes in fuel prices and variable interest rates.
The NU system uses these instruments to reduce risk by essentially creating
offsetting market exposures but does not use these risk-management instruments
for speculative purposes. For more information on NU system's use of risk-
management instruments, see the "Notes to Financial Statements" Note 6.
CL&P employs fuel price risk-management instruments to hedge risks associated
with fuel prices created by long-term, fixed-price electricity contracts with
wholesale customers and the purchase or generation of replacement power related
to the ongoing Millstone nuclear outages.
At June 30, 1998, CL&P had outstanding agreements with a total notional value of
approximately $356 million and a negative mark to-market portion of
approximately $14.7 million.
NAEC has entered into various interest rate swap agreements related to its $200
million variable rate note, which essentially fixes the interest on it at 7.823
percent.
There have been no material changes in the reported market risks for either CL&P
or NAEC since the 1997 Form 10-K. For further information on CL&P's and NAEC's
respective market risk exposures, see the MD&A in the 1997 Form 10-K.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Second Six
Quarter Percent Months Percent
Operating revenues $(29) (3)% $(45) (2)%
Fuel, purchased and net
interchange power 25 9 37 6
Other operation (72) (25) (90) (16)
Maintenance (67) (47) (46) (19)
Amortization of
regulatory assets, net 8 25 5 7
Federal and state income taxes 19 (a) 17 (a)
Other income, net (7) (a) (2) (25)
Net income/(loss) 53 (a) 34 75
(a) Percentage greater than 100
Comparison of the Second Quarter of 1998 to the Second Quarter of 1997
Total operating revenues decreased in 1998, primarily due to retail rate
decreases for CL&P, PSNH and WMECO and the accounting for the impact of
Millstone 2 being removed from CL&P's rates, partially offset by higher retail
sales. Retail kilowatt hour sales were 1.7 percent higher in 1998 than in the
second quarter 1997.
Fuel, purchased and net interchange power expense increased in 1998, primarily
due to the timing in the recognition of costs under CL&P's and PSNH's fuel
clauses, partially offset by lower replacement power costs due to lower fuel
prices.
Other operation and maintenance expenses decreased in 1998, primarily due to
lower costs at the Millstone units ($54 million), the recognition of
environmental insurance proceeds ($23 million), lower administrative and general
expenses ($19 million), lower capacity charges from CY and MY ($19 million),
lower transmission and distribution expenditures primarily due to costs
associated with the Long Island Cable repairs in 1997 and lower tree trimming
activities in 1998 ($13 million), lower costs at Seabrook as a result of a 1997
refueling outage ($10 million) and the recognition of the January 1998 ice storm
insurance reimbursement ($9 million). These decreases were partially offset by
higher recognition of nuclear refueling outage costs primarily as a result of
the 1996 CL&P Rate Settlement ($7 million).
Amortization of regulatory assets, net increased in 1998, primarily due to
higher amortizations as a result of the 1998 CL&P interim rate decisions ($12
million) and the amortization in 1998 of Seabrook phase-in costs ($7 million).
These increases were partially offset by the completion of the amortization of
a portion of the PSNH acquisition premium ($10 million).
Federal and state income taxes increased in 1998, primarily due to higher book
taxable income.
Other income, net decreased in 1998, primarily due to costs associated with
CL&P's accounts receivable facility, partially offset by the 1998 benefit
from the 1997 shareholder derivative suit settlement.
Comparison of the First Six Months of 1998 to the First Six Months of 1997
Total operating revenues decreased in 1998, primarily due to retail rate
decreases for CL&P, PSNH and WMECO and the accounting for the impact of
Millstone 2 being removed from CL&P's rates, partially offset by higher retail
sales. Retail kilowatt hour sales were 0.7 percent higher in 1998 than in the
first six months of 1997.
Fuel, purchased and net interchange power expense increased in 1998, primarily
due to the timing in the recognition of costs under CL&P's and PSNH's fuel
clauses, partially offset by lower replacement power costs due to lower fuel
prices.
Other operation and maintenance expenses decreased in 1998, primarily due to
lower costs at the Millstone units ($52 million), lower administrative and
general expenses ($33 million), lower capacity charges from CY and MY ($31
million), the recognition of the environmental insurance proceeds ($23 million)
and lower costs at Seabrook as a result of a 1997 refueling outage ($9 million).
These decreases were partially offset by higher recognition of nuclear refueling
outage costs primarily as a result of the 1996 CL&P Rate Settlement ($16
million).
Amortization of regulatory assets, net increased in 1998, primarily due to
higher amortizations as a result of the 1998 CL&P interim rate decisions ($10
million) and the amortization in 1998 of Seabrook phase-in costs ($7 million).
These increases were partially offset by the completion of the amortization of a
portion of the PSNH acquisition premium ($10 million).
Federal and state income taxes increased in 1998, primarily due to higher book
taxable income.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Northeast Utilities:
We have reviewed the accompanying consolidated balance sheet of Northeast
Utilities (a Massachusetts trust) and subsidiaries as of June 30, 1998, and the
related consolidated statements of income for the three and six-month periods
ended June 30, 1998 and restated three and six-month periods ended June 30,
1997, and the consolidated statements of cash flows for the six-month periods
ended June 30, 1998 and restated June 30, 1997. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Northeast Utilities as of December
31, 1997, and in our report dated February 20, 1998, we expressed an unqualified
opinion on that statement. As discussed in footnote 1, the December 31, 1997
balance sheet was restated to reflect an adjustment in the Company's accounting
for nuclear compliance costs. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1997, is fairly
stated, in all material respects, in relation to the consolidated balance sheet,
as restated, from which it has been derived.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Hartford, Connecticut
August 7, 1998
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 6,453,871 $ 6,411,018
Less: Accumulated provision for depreciation......... 3,021,191 2,902,673
------------- -------------
3,432,680 3,508,345
Construction work in progress........................... 84,912 93,692
Nuclear fuel, net....................................... 137,236 135,076
------------- -------------
Total net utility plant............................. 3,654,828 3,737,113
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 414,180 369,162
Investments in regional nuclear generating
companies, at equity................................... 56,600 58,061
Other, at cost.......................................... 67,458 66,625
------------- -------------
538,238 493,848
------------- -------------
Current Assets:
Cash.................................................... 296 459
Investment in securitizable assets (Note 7)............. 54,296 205,625
Notes receivable from affiliated companies.............. 49,250 -
Receivables, net (Note 7)............................... 27,217 50,671
Accounts receivable from affiliated companies........... 3,200 3,150
Taxes receivable........................................ 13,079 70,311
Fuel, materials, and supplies, at average cost.......... 80,680 81,878
Recoverable energy costs, net--current portion.......... 1,444 28,073
Prepayments and other................................... 104,850 79,632
------------- -------------
334,312 519,799
------------- -------------
Deferred Charges:
Regulatory assets (Note 2C):
Income taxes,net...................................... 662,029 709,896
Unrecovered contractual obligations................... 313,876 338,406
Deferred demand side management costs................. 13,807 52,100
Recoverable energy costs, net......................... 90,868 104,796
Cogeneration costs.................................... 18,688 33,505
Other................................................. 50,076 54,115
Unamortized debt expense................................ 18,181 19,286
Other................................................... 16,680 18,359
------------- -------------
1,184,205 1,330,463
------------- -------------
Total Assets........................................ $ 5,711,583 $ 6,081,223
============= =============
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$10 par value--Authorized
24,500,000 shares; outstanding 12,222,930
shares................................................. $ 122,229 $ 122,229
Capital surplus, paid in................................ 664,129 641,333
Retained earnings (Note 1).............................. 355,312 419,972
------------- -------------
Total common stockholder's equity.............. 1,141,670 1,183,534
Preferred stock not subject to mandatory
redemption............................................. 116,200 116,200
Preferred stock subject to mandatory redemption......... 129,072 151,250
Long-term debt.......................................... 1,863,193 2,023,316
------------- -------------
Total capitalization........................... 3,250,135 3,474,300
------------- -------------
Minority Interest in Consolidated Subsidiary.............. 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 124,327 18,042
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 10,000 35,000
Notes payable to affiliated company..................... - 61,300
Long-term debt and preferred stock--current
portion................................................ 143,755 23,761
Obligations under capital leases--current
portion................................................ 38,433 140,076
Accounts payable........................................ 85,775 124,427
Accounts payable to affiliated companies................ 25,908 92,963
Accrued taxes........................................... 21,028 33,017
Accrued interest........................................ 27,480 14,650
Other................................................... 32,270 23,495
------------- -------------
384,649 548,689
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,296,271 1,348,617
Accumulated deferred investment tax credits............. 123,050 127,713
Deferred contractual obligations........................ 324,710 348,406
Other................................................... 108,441 115,456
------------- -------------
1,852,472 1,940,192
------------- -------------
Commitments and Contingencies (Note 9)
Total Capitalization and Liabilities........... $ 5,711,583 $ 6,081,223
============= =============
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------------
1998 1997 1998 1997
(Restated) (Restated)
--------- --------- ----------- -----------
(Thousands of Dollars)
Operating Revenues................................. $561,224 $574,841 $1,170,185 $1,199,749
--------- --------- ----------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power..... 216,624 216,531 463,316 482,625
Other......................................... 164,052 186,536 341,083 350,732
Maintenance...................................... 56,119 97,753 129,491 168,374
Depreciation..................................... 57,938 59,050 115,573 118,969
Amortization of regulatory assets, net........... 24,382 15,492 37,010 31,361
Federal and state income taxes................... (9,591) (19,685) (20,859) (28,289)
Taxes other than income taxes.................... 40,634 38,823 87,244 85,693
--------- --------- ----------- -----------
Total operating expenses................... 550,158 594,500 1,152,858 1,209,465
--------- --------- ----------- -----------
Operating Income/(Loss)............................ 11,066 (19,659) 17,327 (9,716)
--------- --------- ----------- -----------
Other Income:
Equity in earnings of regional nuclear
generating companies........................... 1,544 1,332 3,712 3,149
Other, net....................................... (7,133) 3,496 (13,776) 8,106
Minority interest in income of subsidiary........ (2,325) (2,325) (4,650) (4,650)
Income taxes..................................... 5,551 509 8,883 414
--------- --------- ----------- -----------
Other (loss)/income, net................... (2,363) 3,012 (5,831) 7,019
--------- --------- ----------- -----------
Income/(Loss) before interest charges...... 8,703 (16,647) 11,496 (2,697)
--------- --------- ----------- -----------
Interest Charges:
Interest on long-term debt....................... 33,805 30,605 66,745 63,882
Other interest................................... 1,259 2,909 2,091 3,218
--------- --------- ----------- -----------
Interest charges, net...................... 35,064 33,514 68,836 67,100
--------- --------- ----------- -----------
Net Loss........................................... $(26,361) $(50,161) $ (57,340) $ (69,797)
========= ========= =========== ===========
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------
1998 1997
(Restated)
----------- -----------
(Thousands of Dollars)
Operating Activities:
Net Loss ................................................... $ (57,340) $ (69,797)
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 115,573 118,969
Deferred income taxes and investment tax credits, net..... (37,495) (9,948)
Amortization of deferred demand-side-management costs, net 38,293 37,329
Recoverable energy costs, net of amortization............. 40,557 11,522
Amortization of deferred cogeneration costs, net ......... 14,817 16,388
Deferred nuclear refueling outage, net of amortization.... - (22,667)
Other sources of cash..................................... 58,296 19,899
Other uses of cash........................................ (9,021) (78,924)
Changes in working capital:
Receivables and accrued utility revenues.................. (161,596) 10,334
Fuel, materials, and supplies............................. 1,198 (4,430)
Accounts payable.......................................... (105,707) (57,803)
Accrued taxes............................................. (11,989) (3,921)
Sale of receivables and accrued utility revenues.......... 185,000 -
Investment in securitizable assets........................ 151,329 -
Other working capital (excludes cash)..................... 53,619 7,029
----------- -----------
Net cash flows from/(used for) operating activities........... 275,534 (26,020)
----------- -----------
Financing Activities:
Net (decrease)/increase in short-term debt.................. (86,300) 100,000
Issuance of long-term debt.................................. - 200,000
Reacquisitions and retirements of long-term debt............ (45,006) (193,288)
Reacquisitions and retirements of preferred stock........... (22,178) -
Cash dividends on preferred stock........................... (7,320) (7,611)
Cash dividends on common stock.............................. - (5,989)
----------- -----------
Net cash flows (used for)/from financing activities........... (160,804) 93,112
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (57,351) (74,494)
Nuclear fuel.............................................. (156) (669)
----------- -----------
Net cash flows used for investments in plant................ (57,507) (75,163)
NU System Money Pool........................................ (49,250) 53,050
Investments in nuclear decommissioning trusts............... (28,764) (19,194)
Other investment activities, net............................ 628 (25,926)
Capital contributions ...................................... 20,000 -
----------- -----------
Net cash flows used for investments........................... (114,893) (67,233)
----------- -----------
Net Decrease In Cash For The Period........................... (163) (141)
Cash - beginning of period.................................... 459 404
----------- -----------
Cash - end of period.......................................... $ 296 $ 263
=========== ===========
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CL&P (the company) is a wholly-owned subsidiary of NU. This discussion should
be read in conjunction with NU's MD&A and the company's consolidated financial
statements and footnotes in this Form 10-Q, the First Quarter 1998 Form 10-Q,
and the 1997 Form 10-K.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Second Six
Quarter Percent Months Percent
Operating revenues $(14) (2)% $(30) (2)%
Fuel, purchased and net
interchange power - - (19) (4)
Other operation (22) (12) (10) (3)
Maintenance (42) (43) (39) (23)
Amortization of
regulatory assets, net 9 57 6 18
Federal and state income taxes 5 (25) (1) 4
Other income, net (11) (a) (22) (a)
Net income/(loss) 24 47 12 18
(a) Percentage greater than 100
Comparison of the Second Quarter of 1998 to the Second Quarter of 1997
CL&P had a net loss for the second quarter of 1998 of approximately $26 million,
compared to a restated net loss of approximately $50 million for the second
quarter of 1997. Improved second-quarter results were primarily due to a $64
million reduction in nonfuel operation and maintenance costs, partially offset
by a reduction in revenues.
Total operating revenues decreased in 1998, primarily due to the 1998 interim
rate reduction and the accounting for the impact of Millstone 2 being removed
from rates. Higher retail sales were offset by lower capacity sales revenues as
a result of a settlement with the Connecticut Municipal Electric Energy
Cooperative. Retail kilowatt hour sales were 3.1 percent higher in 1998 than in
the second quarter 1997.
Other operation and maintenance expense decreased in 1998, primarily due to
lower costs at the Millstone units ($43 million), lower capacity charges from CY
and MY ($11 million), the recognition of environmental insurance proceeds ($8
million), lower administrative and general expenses ($7 million) and lower
transmission and distribution expenditures primarily due to costs associated
with the Long Island Cable repairs in 1997 and lower tree trimming activities in
1998 ($7 million). These decreases were partially offset by higher capacity
purchases ($15 million) and higher recognition of nuclear refueling outage costs
primarily as a result of the 1996 Rate Settlement ($9 million).
Amortization of regulatory assets, net increased in 1998, primarily due to
higher amortizations as a result of the 1998 interim rate decision.
Federal and state income taxes increased in 1998, primarily due to higher book
taxable income.
Other income, net decreased in 1998, primarily due to costs associated with the
accounts receivable facility.
Comparison of the First Six Months of 1998 to the First Six Months of 1997
For the first six months of 1998, CL&P lost $57 million, compared to a restated
loss of $70 million for the first half of 1997. Improved results for the first
six months were primarily due to a $49 million reduction in nonfuel operation
and maintenance costs, partially offset by a reduction in revenues.
Total operating revenues decreased in 1998, primarily due to lower capacity
sales revenues as a result of a settlement with the Connecticut Municipal
Electric Energy Cooperative, the 1998 interim rate decrease and the accounting
for the impact of Millstone 2 being removed from rates. These decreases were
partially offset by higher retail sales. Retail kilowatt hour sales were 1.1
percent higher in 1998 than in the first six months of 1997.
Fuel, purchased and net interchange power expense decreased in 1998, primarily
due to lower intercompany purchases and lower replacement power costs due to
lower fuel prices. These decreases were partially offset by the timing in the
recognition of costs under the company's fuel clause.
Other operation and maintenance expense decreased in 1998, primarily due to
lower costs at the Millstone units ($41 million), lower capacity charges from CY
and MY ($18 million), lower administrative and general expenses ($10 million),
lower transmission and distribution expenditures primarily due to costs
associated with the Long Island Cable repairs in 1997 and lower tree trimming
activities in 1998 ($8 million) and the recognition of the environmental
insurance proceeds ($8 million). These decreases were partially offset by
higher capacity purchases ($35 million) and higher recognition of nuclear
refueling outage costs primarily as a result of the 1996 Rate Settlement ($18
million).
Amortization of regulatory assets, net increased in 1998, primarily due to
higher amortizations as a result of the 1998 interim rate decision.
Other income, net decreased in 1998, primarily due to costs associated with the
accounts receivable facility.
Liquidity and Capital Resources
Cash provided from operations increased approximately $302 million in the
first six months of 1998, from 1997, primarily due to cash available through
the company's accounts receivable facility and reduced expenditures for
the Millstone outages. Net cash used for financing activities increased
approximately $254 million, primarily due to higher net reacquisitions of
long-term debt and retirement of preferred stock and a decrease in short-term
borrowings, partially offset by no cash dividends on common stock. The decrease
in short-term borrowings reflects the change in accounting for the receivable
financing for the company. Net cash flows used for investments increased
approximately $48 million, primarily due to higher investments in the NU
system Money Pool.
Financial Condition
For the second quarter of 1998, the company satisfied all financial tests
contained in the company's revolving credit agreement. The next two quarters
will continue to be a financial challenge due to the ongoing costs to restart
Millstone 2 and the DPUC decision to remove that unit from rate base. For
further information of the company's ability to meet its financial tests, see
the Liquidity and Capital Resources section of NU's MD&A.
For information relating to the following items, refer to NU's MD&A included in
this Form 10-Q:
Millstone Outages
Millstone 1
Restructuring
Rate Matters
Year 2000 Issues
Risk-Management Instruments
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
PART I. FINANCIAL INFORMATION
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
June 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 1,900,707 $ 1,898,319
Less: Accumulated provision for depreciation......... 609,189 590,056
------------- -------------
1,291,518 1,308,263
Unamortized acquisition costs........................... 367,064 402,285
Construction work in progress........................... 18,855 10,716
Nuclear fuel, net....................................... 1,305 1,308
------------- -------------
Total net utility plant............................. 1,678,742 1,722,572
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 5,022 4,332
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 19,282 19,169
Other, at cost.......................................... 3,809 3,773
------------- -------------
28,113 27,274
------------- -------------
Current Assets:
Cash and cash equivalents............................... 12,182 94,459
Receivables, net........................................ 77,150 89,338
Accounts receivable from affiliated companies........... 11,797 38,520
Accrued utility revenues................................ 34,439 36,885
Fuel, materials, and supplies, at average cost.......... 36,007 40,161
Recoverable energy costs--current portion............... 65,715 31,886
Prepayments and other................................... 50,304 11,271
------------- -------------
287,594 342,520
------------- -------------
Deferred Charges:
Regulatory assets (Note 2C):
Recoverable energy costs............................... 173,966 191,686
Income taxes, net...................................... 126,508 128,244
Deferred costs, nuclear plant.......................... 243,973 281,856
Unrecovered contractual obligations.................... 76,996 83,042
Seabrook deferral...................................... 48,309 8,376
Other.................................................. 2,204 2,214
Deferred receivable from affiliated company............. 27,600 32,472
Unamortized debt expense................................ 15,173 11,749
Other................................................... 6,563 5,154
------------- -------------
721,292 744,793
------------- -------------
Total Assets........................................ $ 2,715,741 $ 2,837,159
============= =============
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
June 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$1 par value.
Authorized and outstanding 1,000 shares................ $ 1 $ 1
Capital surplus, paid in................................ 424,250 423,713
Retained earnings (Note 1).............................. 203,593 170,501
------------- -------------
Total common stockholder's equity.............. 627,844 594,215
Preferred stock subject to mandatory redemption......... 50,000 75,000
Long-term debt.......................................... 516,485 516,485
------------- -------------
Total capitalization........................... 1,194,329 1,185,700
------------- -------------
Obligations Under Seabrook Power Contracts
and Other Capital Leases................................. 750,287 799,450
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 50,000 -
Long-term debt and preferred stock--current portion..... 25,000 195,000
Obligations under Seabrook Power Contracts and other
capital leases--current portion........................ 129,882 122,363
Accounts payable........................................ 29,311 21,231
Accounts payable to affiliated companies................ 29,234 32,677
Accrued taxes........................................... 93,317 69,445
Accrued interest........................................ 6,138 7,197
Accrued pension benefits................................ 46,032 46,061
Other................................................... 8,231 9,417
------------- -------------
417,145 503,391
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 218,904 204,406
Accumulated deferred investment tax credits............. 3,716 3,972
Deferred contractual obligations........................ 76,996 83,042
Deferred revenue from affiliated company................ 27,600 32,472
Other................................................... 26,764 24,726
------------- -------------
353,980 348,618
------------- -------------
Commitments and Contingencies (Note 9)
------------- -------------
Total Capitalization and Liabilities........... $ 2,715,741 $ 2,837,159
============= =============
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1998 1997 1998 1997
(Restated) (Restated)
---------- ---------- ---------- -----------
(Thousands of Dollars)
Operating Revenues................................. $ 250,784 $ 257,098 $ 512,529 $ 535,419
---------- ---------- ---------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power..... 70,868 61,032 145,814 136,601
Other......................................... 85,967 94,737 173,792 181,149
Maintenance...................................... 1,328 9,339 29,944 17,450
Depreciation..................................... 11,221 10,865 22,728 22,107
Amortization of regulatory assets, net........... 6,103 14,141 20,238 28,282
Federal and state income taxes................... 21,677 21,447 37,069 49,064
Taxes other than income taxes.................... 11,214 11,347 21,769 21,800
---------- ---------- ---------- -----------
Total operating expenses................... 208,378 222,908 451,354 456,453
---------- ---------- ---------- -----------
Operating Income................................... 42,406 34,190 61,175 78,966
---------- ---------- ---------- -----------
Other Income:
Equity in earnings of regional nuclear
generating companies and subsidary company..... 795 299 1,466 855
Other, net....................................... 3,082 10 6,479 (130)
Income taxes..................................... (3,170) (276) (6,396) (847)
---------- ---------- ---------- -----------
Other income/(loss), net................... 707 33 1,549 (122)
---------- ---------- ---------- -----------
Income before interest charges............. 43,113 34,223 62,724 78,844
---------- ---------- ---------- -----------
Interest Charges:
Interest on long-term debt....................... 11,259 12,919 23,953 25,544
Other interest................................... 253 15 379 (284)
---------- ---------- ---------- -----------
Interest charges, net...................... 11,512 12,934 24,332 25,260
---------- ---------- ---------- -----------
Net Income......................................... $ 31,601 $ 21,289 $ 38,392 $ 53,584
========== ========== ========== ===========
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------
1998 1997
(Restated)
----------- -----------
(Thousands of Dollars)
Operating Activities:
Net Income................................................ $ 38,392 $ 53,584
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 22,728 22,107
Deferred income taxes and investment tax credits, net... 44,423 19,269
Recoverable energy costs, net of amortization........... (16,109) (25,217)
Amortization of acquisition costs, net.................. 20,238 28,282
Deferred Seabrook capital costs......................... (39,933) -
Other sources of cash................................... 55,453 29,753
Other uses of cash...................................... (72,054) (3,130)
Changes in working capital:
Receivables and accrued utility revenues................ 41,357 26,386
Fuel, materials, and supplies........................... 4,154 (1,353)
Accounts payable........................................ 4,637 (4,527)
Accrued taxes........................................... 23,872 6,436
Other working capital (excludes cash)................... (41,307) (34,323)
----------- -----------
Net cash flows from operating activities.................... 85,851 117,267
----------- -----------
Financing Activities:
Net increase in short term debt........................... 50,000 -
Reacquisitions and retirements of long-term debt.......... (170,000) -
Reacquisition and retirements of preferred stock.......... (25,000) (25,000)
Cash dividends on preferred stock......................... (5,300) (6,625)
Cash dividends on common stock............................ - (85,000)
----------- -----------
Net cash flows used for financing activities................ (150,300) (116,625)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................. (17,389) (12,746)
Nuclear fuel............................................ 3 3
----------- -----------
Net cash flows used for investments in plant.............. (17,386) (12,743)
NU System Money Pool...................................... - 13,100
Other investment activities, net.......................... (442) (1,806)
----------- -----------
Net cash flows used for investments......................... (17,828) (1,449)
----------- -----------
Net Decrease In Cash For The Period......................... (82,277) (807)
Cash and cash equivalents - beginning of period............. 94,459 1,015
----------- -----------
Cash and cash equivalents - end of period................... $ 12,182 $ 208
=========== ===========
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PSNH (the company) is a wholly-owned subsidiary of NU. This discussion should
be read in conjunction with NU's MD&A and the company's consolidated financial
statements and footnotes in this Form 10-Q, the First Quarter 1998 Form 10-Q,
and the 1997 Form 10-K.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Second Six-
Quarter Percent Months Percent
Operating revenues $(6) (2)% $(23) (4)%
Fuel, purchased and net
interchange power 10 16 9 7
Other operation (9) (9) (7) (4)
Maintenance (8) (86) 12 72
Amortization of
regulatory assets, net (8) (57) (8) (28)
Federal and state income taxes 3 14 (6) (13)
Other income, net 3 307 7 (50)
Net income/(loss) 10 48 (15) (28)
Comparison of the Second Quarter of 1998 to the Second Quarter of 1997
PSNH's net income was approximately $32 million for the second quarter of 1998
compared to $21 million, as restated, for the second quarter of 1997. The
increase in net income for the second quarter was primarily due to lower
nonfuel operation and maintenance expenses, partially offset by lower revenues.
Total operating revenues decreased in 1998, primarily due to a 1997 retail rate
decrease, partially offset by higher revenues under the company's fuel clauses.
Retail kilowatt-hour sales were flat in 1998 from the same period in 1997.
Fuel, purchased and net interchange power expense increased in 1998, primarily
due to the timing in the recognition of costs under the company's fuel clause,
partially offset by lower purchased power as a result of the Seabrook refueling
outage in 1997.
Other operation and maintenance expense decreased in 1998, primarily due to the
recognition of environmental insurance proceeds ($10 million), lower capacity
charges from MY and CY ($4 million), and the recognition of the January ice
storm insurance reimbursement ($9 million); partially offset by the amortization
of the Seabrook phase-in costs that began in June 1998 ($7 million).
Amortization of regulatory assets decreased ($8 million) in 1998, primarily due
to completion of the amortization of a portion of the company's acquisition
premium.
Federal and state income taxes increased due to higher book taxable income.
Other income, net increased in 1998, primarily due to the amortization of the
Seabrook deferred charges associated with the taxes on the purchased return
which began in December 1997.
Comparison of the First Six Months of 1998 to the First Six Months of 1997
Net income for the six months ended June 30, 1998 was $38 million, compared to
$53 million, as restated, for the six months ended June 30, 1997. The decrease
in net income for the six month period was primarily due to lower operating
revenues and higher nonfuel operation and maintenance expenses.
Total operating revenues decreased in 1998, primarily due to the 1997 retail
rate decrease partially offset by higher revenues under the company's fuel
clause. Retail kilowatt hour sales increased 0.4% for the six months 1998.
Fuel, purchased and net interchange power expense increased in 1998, primarily
due to the timing in the recognition of costs under the company's fuel clause,
partially offset by lower purchased power as a result of the 1997 Seabrook
refueling outage.
Other operation and maintenance expense increased in 1998, primarily due to the
amortization of Seabrook phase-in costs that began in June 1998 ($7 million),
higher costs related to the January ice storm, net of insurance proceeds, ($10
million) and higher fossil maintenance costs ($6 million). These increases were
partially offset by lower capacity charges from MY and CY ($6 million), and the
recognition of the environmental insurance proceeds ($10 million).
Amortization of regulatory assets decreased ($8 million) in 1998, due to the
completion of the amortization of a portion of the company's acquisition
premium.
Federal and state income taxes decreased in 1998, primarily due to lower book
taxable income.
Other income, net increased in 1998, primarily due to the amortization of the
Seabrook deferred charges associated with the taxes on the purchased return
which began in December 1997.
Liquidity
Cash provided from operations decreased approximately $31 million in the first
six months of 1998, from 1997, primarily due to the billing from NAEC of the
Seabrook phase-in costs which were not being recovered from customers, partially
offset by higher working capital. Net cash used for financing activities
increased approximately $34 million, primarily due to higher reacquisitions and
retirements of long-term debt, partially offset by lower cash dividends on
common shares and an increase in short-term debt. Net cash flows used for
investments increased approximately $16 million, primarily due to a 1997
decrease in investments in the NU system Money Pool.
For information relating to the following items, refer to NU's MD&A included in
this Form 10-Q:
Financial Condition
Millstone Outages
Restructuring
Rate Matters
Year 2000 Issues
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- ------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 1,290,704 $ 1,284,288
Less: Accumulated provision for depreciation......... 585,571 559,119
------------- ------------
705,133 725,169
Construction work in progress........................... 18,276 19,038
Nuclear fuel, net....................................... 31,474 30,907
------------- ------------
Total net utility plant............................. 754,883 775,114
------------- ------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 115,643 102,708
Investments in regional nuclear generating
companies, at equity................................... 15,332 15,741
Other, at cost.......................................... 6,903 4,900
------------- ------------
137,878 123,349
------------- ------------
Current Assets:
Cash.................................................... 270 105
Investments in securitizable assets (Note 7)............ 21,636 25,280
Receivables, net (Note 7)............................... 2,362 2,739
Accounts receivable from affiliated companies........... 3,491 3,933
Taxes receivable........................................ 3,568 10,768
Fuel, materials, and supplies, at average cost.......... 5,005 5,860
Prepayments and other................................... 21,347 14,945
------------- ------------
57,679 63,630
------------- ------------
Deferred Charges:
Regulatory assets (Note 2C):
Income taxes, net...................................... 58,207 63,716
Unrecovered contractual obligations.................... 87,178 93,628
Recoverable energy costs............................... 27,754 26,270
Other.................................................. 26,076 27,763
Unamortized debt expense................................ 2,289 2,695
Other................................................... 3,532 2,963
------------- ------------
205,036 217,035
------------- ------------
Total Assets........................................ $ 1,155,476 $ 1,179,128
============= ============
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- ------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$25 par value.
Authorized and outstanding 1,072,471 shares............ $ 26,812 $ 26,812
Capital surplus, paid in................................ 151,537 151,171
Retained earnings (Note 1).............................. 57,724 58,608
------------- ------------
Total common stockholder's equity.............. 236,073 236,591
Preferred stock not subject to mandatory redemption..... 20,000 20,000
Preferred stock subject to mandatory redemption......... 18,000 19,500
Long-term debt.......................................... 348,595 386,849
------------- ------------
Total capitalization........................... 622,668 662,940
------------- ------------
Obligations Under Capital Leases.......................... 25,690 217
------------- ------------
Current Liabilities:
Notes payable to banks.................................. 20,000 15,000
Notes payable to affiliated company..................... 24,100 14,350
Long-term debt and preferred stock--current
portion................................................ 41,500 11,300
Obligations under capital leases--current
portion................................................ 8,329 32,670
Accounts payable........................................ 14,344 30,571
Accounts payable to affiliated companies................ 9,860 21,209
Accrued taxes........................................... 151 522
Accrued interest........................................ 7,435 3,318
Other................................................... 8,191 2,446
------------- ------------
133,910 131,386
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 241,424 246,453
Accumulated deferred investment tax credits............. 22,630 23,364
Deferred contractual obligations........................ 87,178 93,628
Other................................................... 21,976 21,140
------------- ------------
373,208 384,585
------------- ------------
Commitments and Contingencies (Note 9)
Total Capitalization and Liabilities........... $ 1,155,476 $ 1,179,128
============= ============
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1998 1997 1998 1997
(Restated) (Restated)
--------- --------- --------- ----------
(Thousands of Dollars)
Operating Revenues............................. $ 90,649 $104,130 $197,838 $ 210,184
--------- --------- --------- ----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power. 25,565 35,255 57,006 76,335
Other..................................... 30,602 40,744 63,976 72,571
Maintenance.................................. 11,901 24,868 27,454 41,353
Depreciation................................. 10,155 9,647 20,494 19,829
Amortization of regulatory assets............ 1,343 1,610 3,039 3,225
Federal and state income taxes............... (230) (7,977) 1,041 (9,244)
Taxes other than income taxes................ 4,699 4,777 10,376 10,234
--------- --------- --------- ----------
Total operating expenses............... 84,035 108,924 183,386 214,303
--------- --------- --------- ----------
Operating Income/(Loss)........................ 6,614 (4,794) 14,452 (4,119)
--------- --------- --------- ----------
Other Income:
Equity in earnings of regional nuclear
generating companies....................... 420 359 1,016 852
Other, net................................... (620) (213) 91 357
Income taxes................................. 420 630 214 702
--------- --------- --------- ----------
Other income, net...................... 220 776 1,321 1,911
--------- --------- --------- ----------
Income/(loss) before interest charges.. 6,834 (4,018) 15,773 (2,208)
--------- --------- --------- ----------
Interest Charges:
Interest on long-term debt................... 6,748 6,001 13,685 11,974
Other interest............................... 824 1,473 1,459 2,343
--------- --------- --------- ----------
Interest charges, net.................. 7,572 7,474 15,144 14,317
--------- --------- --------- ----------
Net (Loss)/Income.............................. $ (738) $(11,492) $ 629 $ (16,525)
========= ========= ========= ==========
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------
1998 1997
(Restated)
----------- -----------
(Thousands of Dollars)
Operating Activities:
Net Income/(Loss)........................................... $ 629 $ (16,525)
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 20,494 19,829
Deferred income taxes and investment tax credits, net..... (2,982) (3,448)
Recoverable energy costs, net of amortization............. (1,484) 5,408
Amortization of nuclear refueling outage, net of deferrals 1,806 4,411
Other sources of cash..................................... 11,396 9,222
Other uses of cash........................................ (1,255) (15,422)
Changes in working capital:
Receivables and accrued utility revenues.................. (19,181) 22,437
Fuel, materials, and supplies............................. 855 (846)
Accounts payable.......................................... (27,576) (15,119)
Accrued taxes............................................. (371) (2,261)
Sale of receivables and accrued utility revenues.......... 20,000 28,000
Investments in securitizable assets....................... 3,644 (17,360)
Other working capital (excludes cash)..................... 10,660 1,080
----------- -----------
Net cash flows from operating activities...................... 16,635 19,406
----------- -----------
Financing Activities:
Net increase in short-term debt............................. 14,750 30,700
Reacquisitions and retirements of long-term debt............ (9,800) (14,700)
Reacquisitions and retirements of preferred stock........... (1,500) -
Cash dividends on preferred stock........................... (1,513) (1,570)
Cash dividends on common stock.............................. - (15,004)
----------- -----------
Net cash flows from/(used for) financing activities........... 1,937 (574)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (9,058) (12,816)
Nuclear fuel.............................................. - (23)
----------- -----------
Net cash flows used for investments in plant................ (9,058) (12,839)
Investments in nuclear decommissioning trusts............... (7,754) (4,743)
Other investment activities, net............................ (1,594) (1,215)
----------- -----------
Net cash flows used for investments........................... (18,406) (18,797)
----------- -----------
Net Increase In Cash For The Period........................... 166 35
Cash - beginning of period.................................... 105 67
----------- -----------
Cash - end of period.......................................... $ 271 $ 102
=========== ===========
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations
WMECO (the company) is a wholly-owned subsidiary of NU. This discussion should
be read in conjunction with NU's MD&A and the company's consolidated financial
statements and footnotes in this Form 10-Q, the First Quarter 1998 Form 10-Q and
the 1997 Form 10-K.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Second Six
Quarter Percent Months Percent
Operating revenues $(13) (13)% $(12) (6)%
Fuel, purchased and net
interchange power (10) (27) (19) (25)
Other operation (10) (25) (9) (12)
Maintenance (13) (52) (14) (34)
Federal and state income taxes 8 (92) 11 (a)
Net income/(loss) 11 (94) 17 (a)
(a) Percentage greater than 100
Comparison of the Second Quarter of 1998 to the Second Quarter of 1997
WMECO had a net loss for the second quarter of 1998 of approximately $700,000
compared to a restated net loss of approximately $11.5 million for the second
quarter of 1997. Improved second quarter results were primarily due to a $23
million reduction in nonfuel operation and maintenance costs, partially offset
by a reduction in operating revenues.
Total operating revenues decreased in 1998, primarily due to a 10% 1998 retail
rate decrease and lower revenues under the company's fuel clause. Retail
kilowatt hour sales were 1.2 percent higher in 1998 than in the second quarter
1997.
Fuel, purchased and net interchange power expense decreased in 1998, primarily
due to the timing in the recognition of costs under the company's fuel clause
and lower replacement power costs due to lower fuel prices.
Other operation and maintenance expense decreased in 1998, primarily due to
lower costs at the Millstone units ($10 million), lower capacity charges from CY
and MY ($4 million), lower administrative and general expenses ($3 million) and
the recognition of environmental insurance proceeds ($2 million).
Federal and state income taxes increased in 1998, primarily due to higher book
taxable income.
Comparison of the First Six Months of 1998 to the First Six Months of 1997
For the first six months of 1998, WMECO had net income of approximately $600,000
compared to a restated net loss of approximately $16.5 million for the first six
months of 1997. Improved results for the six months were primarily due to a $23
million reduction in nonfuel operation and maintenance costs, partially offset
by a reduction in operating revenues.
Total operating revenues decreased in 1998, primarily due to a 10% 1998 retail
rate decrease and lower revenues under the company's fuel clause. These
decreases were partially offset by higher retail sales. Retail kilowatt hour
sales were 2.5 percent higher than those in the first six months of 1997.
Fuel, purchased and net interchange power expense decreased in 1998, primarily
due to the timing in the recognition of costs under the company's fuel clause
and lower replacement power costs due to lower fuel prices.
Other operation and maintenance expense decreased in 1998, primarily due to
lower costs associated with the Millstone outages ($10 million), lower capacity
charges from CY and MY ($6 million), lower administrative and general expenses
($3 million) and the recognition of the environmental insurance proceeds ($2
million).
Federal and state income taxes increased in 1998, primarily due to higher book
taxable income.
Liquidity and Capital Resources
Cash provided from operations decreased approximately $3 million in the first
six months of 1998, from 1997, primarily due to a decrease in cash from the use
of an accounts receivable facility, partially offset by lower cash expenditures
related to the Millstone outages. Net cash from financing activities increased
approximately $3 million, primarily due to a decrease in long-term debt
reacquisitions and retirements and lower payments of cash dividends, partially
offset by lower short-term borrowings.
See NU's MD&A in this form 10-Q for further detail regarding Liquidity and
Capital Resources.
Financial Condition
For the second quarter of 1998, the company satisfied all financial tests
contained in the company's revolving credit agreement. The next two quarters
will continue to be a financial challenge due to the ongoing costs to restart
Millstone 2. For further information on the company's ability to meet its
financial tests, see the Liquidity and Capital Resources section of NU's MD&A.
For information relating to the following items, refer to NU's MD&A included in
this form 10-Q:
Millstone Outages
Millstone 1
Restructuring
Rate Matters
Year 2000 Issue
NORTH ATLANTIC ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
June 30,
1998 December 31,
(Unaudited) 1997
------------- -------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 769,731 $ 779,111
Less: Accumulated provision for depreciation......... 160,847 143,778
------------- -------------
608,884 635,333
Construction work in progress........................... 7,212 4,616
Nuclear fuel, net....................................... 24,069 27,413
------------- -------------
Total net utility plant............................. 640,165 667,362
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 31,015 26,547
------------- -------------
31,015 26,547
------------- -------------
Current Assets:
Cash.................................................... 533 13
Special deposits........................................ 2,970 -
Receivables from affiliated companies................... 23,467 25,695
Taxes receivable........................................ 10,845 4,613
Materials and supplies, at average cost................. 13,024 13,003
Prepayments and other................................... 3,142 4,220
------------- -------------
53,981 47,544
------------- -------------
Deferred Charges:
Regulatory assets:
Deferred costs--Seabrook............................... 174,188 199,753
Income taxes, net...................................... 45,966 48,736
Recoverable energy costs............................... 1,952 2,057
Unamortized loss on reacquired debt.................... 15,151 18,938
Unamortized debt expense................................ 3,222 3,702
------------- -------------
240,479 273,186
------------- -------------
Total Assets........................................ $ 965,640 $ 1,014,639
============= =============
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
June 30,
1998 December 31,
(Unaudited) 1997
------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$1 par value. Authorized
and outstanding 1,000 shares.......................... $ 1 $ 1
Capital surplus, paid in................................ 160,999 160,999
Retained earnings....................................... 48,914 58,702
------------- -------------
Total common stockholder's equity.............. 209,914 219,702
Long-term debt.......................................... 405,000 475,000
------------- -------------
Total capitalization........................... 614,914 694,702
------------- -------------
Current Liabilities:
Notes payable to affiliated company..................... 3,050 9,950
Long-term debt--current portion......................... 70,000 20,000
Accounts payable........................................ 6,352 7,912
Accounts payable to affiliated companies................ 763 6,040
Accrued interest........................................ 3,009 3,025
Accrued taxes........................................... 450 -
Other................................................... 397 1,055
------------- -------------
84,021 47,982
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 216,317 216,701
Deferred obligation to affiliated company............... 27,600 32,472
Other................................................... 22,788 22,782
------------- -------------
266,705 271,955
------------- -------------
Commitments and Contingencies (Note 9)
Total Capitalization and Liabilities........... $ 965,640 $ 1,014,639
============= =============
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Thousands of Dollars)
Operating Revenues................................. $ 69,627 $ 50,128 $ 137,796 $ 92,104
---------- ---------- ---------- ----------
Operating Expenses:
Operation --
Fuel.......................................... 3,140 1,697 6,362 5,525
Other......................................... 9,312 10,844 17,769 18,734
Maintenance...................................... 3,826 10,723 6,822 13,656
Depreciation..................................... 6,193 6,156 12,605 12,513
Amortization of regulatory assets, net........... 21,366 - 42,732 -
Federal and state income taxes................... 9,124 3,272 18,094 6,517
Taxes other than income taxes.................... 3,301 3,253 6,399 6,570
---------- ---------- ---------- ----------
Total operating expenses................... 56,262 35,945 110,783 63,515
---------- ---------- ---------- ----------
Operating Income................................... 13,365 14,183 27,013 28,589
---------- ---------- ---------- ----------
Other Income:
Deferred Seabrook return--other funds............ 1,749 1,812 3,624 3,553
Other, net....................................... (2,002) 20 (4,386) 136
Income taxes..................................... 4,499 716 7,674 870
---------- ---------- ---------- ----------
Other income, net.......................... 4,246 2,548 6,912 4,559
---------- ---------- ---------- ----------
Income before interest charges............. 17,611 16,731 33,925 33,148
---------- ---------- ---------- ----------
Interest Charges:
Interest on long-term debt....................... 12,624 12,876 25,439 25,403
Other interest................................... (153) 257 (173) 182
Deferred Seabrook return--borrowed funds......... (3,163) (3,360) (6,553) (6,635)
---------- ---------- ---------- ----------
Interest charges, net...................... 9,308 9,773 18,713 18,950
---------- ---------- ---------- ----------
Net Income......................................... $ 8,303 $ 6,958 $ 15,212 $ 14,198
========== ========== ========== ==========
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------
1998 1997
----------- -----------
(Thousands of Dollars)
Operating Activities:
Net Income................................................ $ 15,212 $ 14,198
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 12,605 12,513
Deferred income taxes and investment tax credits, net... 2,462 11,410
Deferred Seabrook return, net of amortization........... 33,011 (10,188)
Amortization of deferred obligation to affiliated co.... (4,872) -
Other sources of cash................................... 22,469 8,045
Other uses of cash...................................... (7,522) (206)
Changes in working capital:
Receivables............................................. 2,228 (1,613)
Materials and supplies.................................. (21) (267)
Accounts payable........................................ (6,837) (10,926)
Accrued taxes........................................... 450 (3,171)
Other working capital (excludes cash)................... (8,798) 2,725
----------- -----------
Net cash flows from operating activities.................... 60,387 22,520
----------- -----------
Financing Activities:
Net (decrease)/increase in short-term debt................ (6,900) 35,900
Reacquisitions and retirements of long-term debt.......... (20,000) (20,000)
Cash dividends on common stock............................ (25,000) (25,000)
----------- -----------
Net cash flows used for financing activities................ (51,900) (9,100)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................. (2,636) (5,837)
Nuclear fuel............................................ (1,551) (5,381)
----------- -----------
Net cash flows used for investments in plant.............. (4,187) (11,218)
Investments in nuclear decommissioning trusts............. (3,780) (2,501)
----------- -----------
Net cash flows used for investments......................... (7,967) (13,719)
----------- -----------
Net Increase/(Decrease) In Cash For The Period.............. 520 (299)
Cash - beginning of period.................................. 13 299
----------- -----------
Cash - end of period........................................ $ 533 $ -
=========== ===========
See accompanying notes to financial statements.
North Atlantic Energy Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
NAEC (the company) is a wholly-owned subsidiary of NU. This discussion should
be read in conjunction with NU's MD&A in this Form 10-Q, the company's financial
statements and footnotes in this Form 10-Q, the 1998 First Quarter Form 10-Q and
the 1997 Form 10-K.
FINANCIAL CONDITION
Overview
Under the Seabrook Power Contract (the Contract), PSNH is unconditionally
obligated to pay the company's cost of service for a period equal to the length
of the NRC full-power operating license for Seabrook (through 2026) whether or
not Seabrook 1 is operating and without regard to the cost of alternative
sources of power. In addition, PSNH will be obligated to pay decommissioning
and project cancellation costs after the termination of the operating license.
NAEC had net income of approximately $15 million for the six months ended June
30, 1998, compared to $14 million for the same period in 1997.
Liquidity and Capital Resources
Cash provided from operations increased by approximately $37 million in the
first six months of 1998, from 1997, as a result of the beginning of the
amortization of the Seabrook deferred return in December 1997, which is billed
through the Seabrook Power Contract to PSNH. Cash used for financing activities
increased by approximately $43 million in the first six months of 1998, from
1997, primarily due to the repayment of short-term debt. Cash used for
investments decreased by approximately $6 million in the first six months of
1998, from 1997 primarily due to lower expenditures related to electric utility
plant and nuclear fuel.
See NU's MD&A in this Form 10-Q for further information on liquidity and capital
resources.
Seabrook Performance
Seabrook operated at a capacity factor of 79.7 percent through June 1998,
compared to 71.6 percent for the same period in 1997. The higher 1998 capacity
factor is due primarily to a refueling outage in 1997.
Risk-Management Instruments
NAEC uses swaps to manage the market risk exposures associated with variable
interest rates. The company uses these instruments to reduce risk by
essentially creating offsetting market exposures but does not use these risk-
management instruments for speculative purposes. For further information on
risk-management instruments, see the "Notes to Financial Statements," Note 6.
For additional information relating to risk-management instruments, see NU's
MD&A in this Form 10-Q and the MD&A in the 1997 10-K.
For information relating to the following items, refer to NU's MD&A in this Form
10-Q:
PSNH Restructuring
Year 2000 Issue
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
1998 over/(under) 1997
Second Six-
Quarter Percent Months Percent
Operating revenues $19 39% $46 50%
Other operation (1) (14) (1) (5)
Maintenance (7) (64) (7) (50)
Amortization of
regulatory assets, net 21 (a) 43 (a)
Federal and state income taxes 2 81 5 85
Other income, net (2) (a) (5) (33)
Net earnings/(loss) 1 19 1 7
(a) Percent greater than 100
Comparison of the Second Quarter of 1998 to the Second Quarter of 1997
Operating revenues represent amounts billed to PSNH under the terms of the Power
Contracts and billings to PSNH for decommissioning expense.
Operating revenues increased in the second quarter of 1998 primarily due to
increased sales to PSNH as a result of the amortization of the Seabrook deferred
return which began in December 1997.
Other operation and maintenance expense decreased in 1998 primarily due to
higher costs in 1997 relating to the Seabrook outage.
Amortization of regulatory assets, net increased in the second quarter of 1998
primarily due to the amortization of the Seabrook deferred return which began in
December 1997.
Federal and state income taxes increased in the second quarter of 1998 primarily
due to higher book taxable income.
Other, net income decreased in the second quarter of 1998 primarily due to the
amortization of the Seabrook deferred charges associated with the taxes on the
purchased return which began in December 1997.
Comparison of the First Six Months of 1998 to the First Six Months of 1997
Operating revenues represent amounts billed to PSNH under the terms of the Power
Contracts and billings to PSNH for decommissioning expense.
Operating revenues increased in 1998 primarily due to increased sales to PSNH as
a result of the amortization of the Seabrook deferred return which began in
December 1997.
Other operation and maintenance expense decreased in 1998 primarily due to
higher costs in 1997 relating to the Seabrook outage.
Amortization of regulatory assets, net increased in 1998 primarily due to the
amortization of the Seabrook deferred return which began in December 1997.
Federal and state income taxes increased in 1998 primarily due to higher book
taxable income.
Other, net income decreased in 1998 primarily due to the amortization of the
Seabrook deferred charges associated with the taxes on the purchased return
which began in December 1997.
NORTHEAST UTILITIES AND SUBSIDIARIES
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
NORTH ATLANTIC ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SECURITIES AND EXCHANGE COMMISSION INQUIRY AND RESTATEMENT
(NU, CL&P, PSNH, WMECO)
During the first quarter of 1998, the SEC made an inquiry into the NU system
companies' accounting for nuclear compliance costs. The SEC advised NU, CL&P,
PSNH and WMECO to reflect these costs as incurred, rather than reserving for
them. NU, CL&P, PSNH, and WMECO and their independent auditors, Arthur Andersen
LLP believed the accounting they followed was required by, and was in accordance
with, generally accepted accounting principles. The NU system companies agreed
to adjust their accounting as requested by the SEC beginning with the first
quarter 1998 financial statements. The NU system companies also restated 1997
and 1996 financial statements and amended their respective 1997 and 1996 Form
10-Ks.
For additional information regarding the SEC inquiry and restatement, see the
combined Form 10-Q for the quarter ended March 31, 1998, the Form 8-K dated
March 9, 1998 for NU and PSNH, the Form 8-K dated March 25, 1998 for CL&P and
WMECO, and the combined NU 1997 Form 10-K.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Presentation (All Companies)
The accompanying unaudited consolidated financial statements should be
read in conjunction with the MD&A in this Form 10-Q, the Amended
Annual Reports of NU, CL&P, PSNH and WMECO, and the Annual Report of
NAEC, which were filed as part of a combined Form 10-K for the year
ended December 31, 1997 and the combined Form 10-Q for the quarter
ended March 31, 1998 for NU, CL&P, PSNH, WMECO and NAEC. In the
opinion of the companies, the accompanying financial statements
contain all adjustments necessary to present fairly the companies'
financial position as of June 30, 1998, the results of operations for
the three-month and six-month periods ended June 30, 1998 and 1997,
and the statements of cash flows for the six-month periods ended June
30, 1998 and 1997. All adjustments are of a normal, recurring nature
except those described below in Note 9B. The results of operations
for the three-month and six-month periods ended June 30, 1998 and 1997
are not indicative of the results expected for a full year.
NU is the parent company of the NU system. The NU system furnishes
franchised retail electric service in Connecticut, New Hampshire and
western Massachusetts through four wholly owned subsidiaries: CL&P,
PSNH, WMECO and HWP. A fifth wholly owned subsidiary, NAEC, sells all
of its entitlement to the capacity and output of the Seabrook nuclear
power plant to PSNH. In addition to its franchised retail electric
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.
Several other wholly owned subsidiaries of NU provide support services
for the NU system companies and, in some cases, for other New England
utilities.
The consolidated financial statements of NU include the accounts of
all wholly owned subsidiaries. Significant intercompany transactions
have been eliminated in consolidation.
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 disclosures 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 period data have been made to
conform with the current period presentation.
B. New Accounting Standards (All Companies)
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS
133 establishes accounting and reporting standards for derivative
instruments and hedging activities.
This statement becomes effective for the NU system companies on
January 1, 2000 and will require derivative instruments used by the NU
system companies to be recognized on the balance sheets as assets or
liabilities at fair value. The NU system uses derivative instruments
for hedging purposes only. These derivative instruments will be
accounted for differently depending on which hedging classification
the derivative instrument falls under, as defined by SFAS 133. Based
on the derivative instruments currently used by the NU system
companies to hedge some of its fuel price and interest rate risks,
there may be an impact on earnings upon adoption of SFAS 133 which
cannot be determined at this time.
For additional information regarding derivative instruments, see
Note 6, "Interest Rate and Fuel Price Management," in this Form 10-Q,
the combined Form 10-Q for the quarter ended March 31, 1998, and the
NU 1997 Form 10-K.
For additional information regarding new accounting standards,
see the combined Form 10-Q for the quarter ended March 31, 1998 and
the NU 1997 Form 10-K.
C. Regulatory Accounting and Assets (All Companies)
Regulatory Accounting: The accounting policies of CL&P, PSNH,
WMECO and NAEC 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." The restructuring of
the electric utility industry is currently the focus of regulatory
proceedings in each state in which NU operates.
CL&P, PSNH and WMECO each expect that their respective transmission
and distribution business will continue to be rate regulated on a
cost-of-service basis and, accordingly, CL&P, PSNH and WMECO will each
continue to apply SFAS 71 to these portions of their respective
business. In a restructured electric utility environment, the
generation portion of each system companies' respective business will
be deregulated.
Connecticut: The Connecticut General Assembly has passed
legislation for electric utility industry restructuring, to begin
January 1, 2000 in Connecticut. The legislation requires electric
companies operating within the Connecticut jurisdiction, including
CL&P, to submit a restructuring plan to the DPUC by October 1, 1998.
Management is unable to predict the ultimate outcome of CL&P's
restructuring proceeding, however, it believes that it is entitled to
full recovery of its prudently incurred costs, including regulatory
assets and strandable investments based on the restructuring
legislation. Management believes that CL&P's use of regulatory
accounting remains appropriate within this jurisdiction pending a
final decision on CL&P's October 1998 filing.
New Hampshire: Restructuring the electric utility industry in
New Hampshire is currently the focus of 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.
Massachusetts: Electric utility industry restructuring in
Massachusetts became effective March 1, 1998. On February 20, 1998,
the DTE issued an order approving, in all material aspects, WMECO's
restructuring plan filed on December 31, 1997, on an interim basis.
During May 1998, WMECO filed a modified restructuring plan with the
DTE (collectively, the plan). A final decision on WMECO's modified
restructuring plan is expected later in 1998. Management believes
that WMECO's use of regulatory accounting remains appropriate within
this jurisdiction, pending final decision on the plan by the DTE.
Once the DTE completes its review of WMECO's modified restructuring
plan and issues a final approval, WMECO will discontinue the
application of SFAS 71 to the generation portion of its business. The
restructuring legislation enacted by Massachusetts specifically
provides for future deferrals and cost recovery of generation-related
strandable assets as contemplated under the restructuring plan. WMECO
is not expected to write off either its generation-related strandable
investments or related regulatory assets. WMECO's generation-related
regulatory assets had a book value of approximately $179 million at
June 30, 1998.
For further information on the NU system companies' respective
regulatory environments and the potential impacts of restructuring,
see the MD&A and Note 9A in this Form 10-Q, the combined Form 10-Q for
the quarter ended March 31, 1998, and the NU 1997 Form 10-K.
Regulatory Accounting/Millstone 1: SFAS 90, "Regulated Enterprises -
Accounting for Abandonment and Disallowances of Plant Costs," amends
SFAS 71 and governs the accounting and reporting required when it
becomes probable that a nuclear plant will be abandoned. SFAS 90
requires, in part, that once it becomes probable that the operating
asset will be abandoned, the cost of the asset be removed from plant
in service, and, that the disallowance of any costs of the abandoned
plant which is probable and reasonably estimable be recognized as a
loss. NU has decided to cease restart activities at Millstone 1 and
instead prepare for final decommissioning. The NU system companies
will undertake a number of regulatory filings intended to implement
the decommissioning and recovery of remaining assets of Millstone 1.
At this point in time, management believes accounting for the plant
abandonment in accordance with SFAS 90 will not have a material
effect on the NU system companies' results of operations. For
further information on the closure of Millstone 1, see the MD&A
and Notes 9B and 10 in this Form 10-Q.
Regulatory Assets: On May 29, 1998, the NHPUC approved a Stipulation
and Settlement, previously agreed to by PSNH, the Office of the
Consumer Advocate and the NHPUC staff. This settlement resolved most
of the contested issues in a comprehensive fuel and purchased power
adjustment clause (FPPAC) proceeding. As approved by the NHPUC, in
conjunction with a new reduced NEPOOL capability responsibility,
PSNH's revised request produced slightly more than a 1 percent net
increase in rates. This rate collects substantially all currently
projected fuel and purchased power costs, but will defer a
substantial portion of previously incurred costs.
For additional information regarding regulatory accounting and
assets, see the MD&A in this Form 10-Q, the combined Form 10-Q for
the quarter ended March 31, 1998, the Form 8-Ks dated March 9, 1998,
and the NU 1997 Form 10-K.
3. SHORT-TERM DEBT (NU, CL&P, WMECO)
NU, CL&P and WMECO are parties to a three-year revolving credit agreement,
and NU is separately party to another three-year revolving credit agreement
with different borrowing conditions (collectively, the Credit Agreement).
At June 30, 1998, NU, CL&P and WMECO had $0 million, $10 million, and $20
million, respectively of borrowings outstanding under the Credit Agreement.
PSNH had $50 million outstanding at that time under a separate credit
agreement.
The NU system companies' ability to make new, and maintain existing,
borrowings under their respective financing arrangements is dependent on
their satisfaction of contractual borrowing conditions. Based on present
estimates, it will be difficult for NU, CL&P and WMECO to meet certain of
the interest coverage and capital ratio covenants contained in the Credit
Agreement after the second quarter of 1998. Accordingly, these NU system
companies are seeking an amendment to these provisions to enable them
to attain or maintain access to funds under the Credit Agreement for
the remainder of its life. Similar financial tests are included in
an operating lease, which CL&P entered into in June of 1996, related
to the use of four turbine generators having an installed cost of
approximately $70 million. CL&P is also seeking an amendment to the
covenant restrictions in this lease. Management expects that satisfactory
new terms will be reached. There is no assurance that these tests, even
if so amended, will be met if the NU system encounters additional
unexpected costs relating to storms or other operational events or
reduced revenues from regulatory actions or the effects of weather on
sales.
For additional information, see the MD&A in this Form 10-Q, the combined
Form 10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K.
4. CAPITALIZATION (NU, CL&P)
CL&P: On June 30, 1998, CL&P elected to redeem and pay off $25,000,000
principal amount of its first and refunding mortgage bonds, 7-1/4%, Series
VV, due July 1, 1999 (the Series VV Bonds) at the general redemption price
of 100.00 percent of the principal amount thereof together with accrued
interest thereon. The partial redemption was funded, in part, through the
use of CL&P's accounts receivable sales program and short-term financing
facility.
During June 1998, the NU Board of Trustees approved a resolution for a
capital contribution to be made by NU to CL&P in the amount of $20 million.
For information related to NU's stock compensation plans and related stock
registrations, see Note 8 in this Form 10-Q and the NU 1997 Form 10-K.
For further information on matters related to the NU system companies'
capitalization, refer to the MD&A in this Form 10-Q, the combined Form
10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K.
5. LEASES (NU, CL&P, WMECO)
CL&P and WMECO utilize the Niantic Bay Fuel Trust (NBFT) to finance
substantially all of their nuclear fuel requirements for the Millstone
units. The NBFT consisted of a revolving credit facility and intermediate
term notes (ITNs). The revolving credit facility portion of the agreement
expired on July 31, 1998. The NBFT currently consists of the ITNs. On June
5, 1998, the NBFT issued $180 million Series G ITNs through a private
placement offering. The five-year notes mature June 5, 2003 and will bear
interest at a rate of 8.59% per annum, payable semiannually.
The proceeds from the Series G ITNs were used to refinance the $80 million
Series F ITNs which matured on June 5, 1998, to repay outstanding advances
and interest under the NBFT Credit Agreement and will be used as cash
collateral for future purchases of nuclear fuel.
The permanent shutdown of Millstone 1 in July afforded the ITN holders the
right to seek repurchase of a pro rata share of their notes based upon the
value of the Millstone 1 fuel compared to all fuel then under the NBFT,
approximately $83 million. It is not expected at present that any ITN
holders will seek repurchase. The shutdown also obligates CL&P and WMECO
to pay such amount to the NBFT under the NBFT lease whether or not any ITN
holders request repurchase. The companies are seeking consents from the
ITN holders to amend this lease provision so that they will not be
obligated to make this payment, but instead deposit the proceeds of the
sale for salvage of the Millstone 1 fuel. Whatever moneys are deposited
under the NBFT will be available for various purposes under the NBFT,
including the purchase of new fuel for use in the other units.
For additional information regarding the NBFT and other lease matters, see
the MD&A in this Form 10-Q, the combined Form 10-Q for the quarter ended
March 31, 1998, and the NU 1997 Form 10-K.
6. INTEREST RATE AND FUEL PRICE MANAGEMENT (NU, CL&P, NAEC)
Fuel Price Management: As of June 30, 1998, CL&P had outstanding derivative
instruments used for fuel-price management with a total notional value of
approximately $356 million and a negative mark-to-market position of
approximately $14.7 million.
The terms of CL&P's fuel-price management agreements require CL&P to post
cash collateral with its counterparties in the event of negative mark-to-
market positions and lowered credit ratings. The amount of collateral is to
be returned to CL&P when the mark-to-market position becomes positive, when
CL&P meets specified credit ratings or when an agreement ends and all open
positions are properly settled. At June 30, 1998, cash collateral in the
amount of approximately $17.1 million was posted under these terms.
Interest Rate Management: As of June 30, 1998, NAEC had outstanding
derivative instruments used for interest-rate management with a total
notional value of approximately $200 million and a negative mark-to-market
position of approximately $773 thousand.
Credit Risk: These fuel-price and interest-rate management agreements have
been made with various financial institutions, each of which is rated "A3"
or better by Moody's rating agency. Each respective company is exposed to
credit risk on their respective risk management instruments if the
counterparties fail to perform their obligations. However, management
anticipates that the counterparties will be able to fully satisfy their
obligations under the agreements.
For further information on fuel-price and interest-rate management
instruments, see the MD&A in this Form 10-Q, the NU system combined Form
10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K.
7. SALE OF ACCOUNTS RECEIVABLE AND ACCRUED UTILITY REVENUES (CL&P, WMECO)
During 1996, CL&P and WMECO entered into agreements to sell up to $200
million and $40 million, respectively, of undivided ownership interests in
their eligible customer receivables and accrued utility revenues
(receivables).
CL&P and WMECO have each established a special purpose, wholly owned
subsidiary whose business consists of the purchase and resale of
receivables. At June 30, 1998, approximately $185 million and $20 million
of receivables had been sold to third-party purchasers by CL&P and WMECO,
respectively, through the use of each company's special purpose, wholly
owned subsidiary, CL&P Receivables Corporation (CRC) and WMECO Receivables
Corporation (WRC).
WMECO: For the periods ended May 31, 1998 and June 30, 1998, respectively,
WMECO's senior secured debt was not rated at least the required rating as
defined under the terms of WMECO's receivables purchase agreement. As a
result, an event of termination and a transition event had occurred. WMECO
and WRC requested and received waivers of such event of termination from
the purchaser and agent. Under the waivers, the purchaser and agent agreed
to forebear taking any action as permitted within the agreement as a result
of such termination events through December 31, 1998, and agreed to an
aggregate purchase limit for all percentage interests subject to the
receivables purchase agreement of $40 million.
For CRC's and WRC's respective sale agreements with the third-party
purchasers, the receivables were sold with limited recourse. Both CRC's
and WRC's respective sales agreements provide for a formula-based loss
reserve in which additional receivables may be assigned to the third-party
purchasers for costs such as bad debt. The third-party purchasers absorb
the excess amount in the event that actual loss experience exceeds the loss
reserve. At June 30, 1998, approximately $20.3 million and $4.2 million of
assets had been designated as collateral by CRC and WRC, respectively.
These amounts represent the formula-based amount of credit exposure at June
30, 1998. Historical losses for bad debt for both CL&P and WMECO have been
substantially less.
For further information on the NU system companies' sale of receivables,
see the MD&A in this Form 10-Q and NU 1997 Form 10-K.
8. STOCK-BASED COMPENSATION
In May 1998, the shareholders of NU voted to approve the establishment of
the Northeast Utilities Employee Share Purchase Plan (ESPP) and the
Northeast Utilities Incentive Plan (Incentive Plan). The ESPP allows
eligible employees to purchase shares of NU common stock at a predetermined
discount of the lower of the price of the stock at the beginning or end of
a six-month period. The ESPP is designed to encourage employee ownership in
NU. Payroll deductions for the ESPP began in July 1998.
The Incentive Plan sets the terms to provide stock-based compensation
awards to be made, both on an annual basis and an individual basis, to
certain eligible employees and board members in order to assist in
recruiting and retaining talented individuals. The Incentive Plan is
designed to align the economic interests of the participants with those of
the shareholders. The first of the annual grants was made in May 1998.
NU accounts for its stock-based compensation programs in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, no compensation expense has been
recognized for the stock options granted under the Incentive Plan in May
1998, as the exercise price of the options was equal to the market price
of the stock on the date of grant. Compensation expense related to the
restricted stock grants made under the program in May 1998 was not
material.
For further information, see Part II, Other Information - Item 4 in this
Form 10-Q and the NU 1997 Form 10-K.
9. COMMITMENTS AND CONTINGENCIES (All Companies)
A. Restructuring and Rate Matters (All Companies)
Connecticut:
Restructuring: On April 29, 1998, the governor of the state of
Connecticut signed into law a comprehensive electric utility
restructuring bill. It is expected that CL&P is permitted, under this
legislation, to fully recover its strandable costs.
For additional information regarding the Connecticut utility
restructuring legislation and the utility restructuring environment in
Connecticut, see Note 2C, and the MD&A in this Form 10-Q, the combined
Form 10-Q for the quarter ended March 31, 1998, NU's and CL&P's Form
8-Ks dated April 15, 1998 and the NU 1997 Form 10-K.
Rate Matters: On June 1, 1998, CL&P filed two rate applications with
the DPUC, proposing a total of 3.4 percent in rate reductions. The
first application, a base rate case, requested a one percent rate
reduction effective September 28, 1998. The second filing, pursuant
to CL&P's energy adjustment clause reduced rates 2.4 percent and
was effective July 1, 1998.
For additional information on the June 1, 1998 Connecticut rate
filings, refer to the MD&A in this Form 10-Q.
New Hampshire:
For information regarding electric utility restructuring and rate
matters in the New Hampshire jurisdiction, see the MD&A in this Form
10-Q, Form 8-Ks dated March 9, 1998, the combined Form 10-Q for the
quarter ended March 31, 1998, and the NU 1997 Form 10-K.
Massachusetts:
For information on electric utility restructuring and rate matters in
Massachusetts, see the MD&A and Note 2C in this Form 10-Q, the
combined Form 10-Q for the quarter ended March 31, 1998, and the NU
1997 Form 10-K.
B. Nuclear Performance (All Companies)
Millstone: The three Millstone units are operated by NNECO. Millstone
1 and 2 have been out of service since November 4, 1995 and
February 21, 1996, respectively. Millstone 2 is currently on the
NRC's watch list.
Millstone 1: During July 1998, NU decided to cease restart activities
at Millstone 1. For further information on this matter, see Note 10
and the MD&A in this Form 10-Q.
Millstone 2: NNECO hopes to return Millstone 2 to service by the end
of the year, but such timetable will be largely dependent on the NU
system companies, the NRC staff and the Millstone 2 contractor for the
ICAVP's ability to complete the design and licensing bases reviews,
and any resulting corrective actions, in a timely manner.
Management cannot be certain as to when the NRC will allow Millstone 2
to return to service and cannot estimate the remaining replacement
power costs CL&P and WMECO will ultimately incur. Replacement power
costs incurred by NU attributable to the Millstone outages were
approximately $162 million for the six months ended June 30, 1998.
CL&P's and WMECO's share of those costs for the six month period
ended June 30, 1998 were approximately $139 million and $22 million,
respectively. PSNH's share of Millstone 3 replacement power costs
were immaterial for the six months ended June 30, 1998.
Millstone 3: On June 15, 1998, the NRC granted permission for NNECO
to restart Millstone 3, contingent upon the concurrence of the NRC
staff. This action reclassified the Unit from the NRC's watch list
as a Category 3 facility (plants requiring formal NRC concurrence
to operate) to a watch list Category 2 facility (plants authorized
to operate but that are closely monitored by the NRC). The NRC staff
subsequently authorized the restart on June 29, 1998 and the 1,154
megawatt plant was operating at 100 percent power by July 14, 1998.
The return to service of Millstone 3 is expected to save NU
subsidiaries approximately $8 million a month in replacement power.
WMECO and PSNH have been expensing all of the costs to restart the
units including replacement power and nonfuel O&M expenses. As a
result of certain rate decisions in Connecticut, CL&P is permitted
to recover, through its energy adjustment clause, replacement power
costs for Millstone 1 effective March 1, 1998 and Millstone 2
effective May 1, 1998.
Millstone Rate Issues: For information regarding this matter, see
the MD&A in this Form 10-Q, the Form 8-Ks dated April 15, 1998 for NU
and CL&P, the Form 8-K dated April 20, 1998 for WMECO, the Form 8-K
dated March 9, 1998 for NU and the NU 1997 Form 10-K.
For information regarding Millstone-related litigation matters, see
Part II of this Form 10-Q, the Form 8-K dated March 9, 1998 for NU and
the Form 8-Ks dated March 25, 1998 for CL&P and WMECO, and the NU 1997
Form 10-K.
C. Environmental Matters (All Companies)
For information regarding environmental matters, see the MD&A in this
Form 10-Q and the NU 1997 Form 10-K.
D. Nuclear Insurance Contingencies (All Companies)
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 $83.9 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 $4.2 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 Price-Anderson
Act, the maximum assessment is to be adjusted at least every five
years to reflect inflationary changes.
Based upon its ownership interests in Millstone 1, 2, and 3 and
in Seabrook 1, the NU system's maximum liability, including any
additional assessments, would be $271.0 million per incident, of which
payments would be limited to $30.8 million per year. In addition,
through power purchase contracts with MYAPC, VYNPC, and CYAPC, the NU
system would be responsible for up to an additional $74.9 million per
incident, of which payments would be limited to $8.5 million per year.
For additional information regarding nuclear insurance contingencies,
see the NU 1997 Form 10-K.
E. Construction Program (All Companies)
For information regarding the NU system's construction program, see
the NU 1997 Form 10-K.
F. Long-Term Contractual Arrangements (NU, CL&P, PSNH, WMECO)
The sponsor companies, including CL&P, PSNH and WMECO, of MYAPC, as a
group, have entered into several secondary purchaser contracts for the
sale of energy and capacity from the Maine Yankee generating plant
(MY). Upon the shutdown of MY, the secondary purchasers ceased to
make payments under these agreements and have demanded arbitration.
To date, the secondary purchasers have not been successful in forcing
arbitration of these contracts. The sponsor companies have covered the
payments that the secondary purchasers have failed to make. The NU
system companies, collectively, have established a receivable in the
approximate amount of $3.3 million which is equal to the amount which
has been paid by the NU system companies to MYAPC on behalf of the
secondary purchasers obligation.
Management cannot estimate the period to which the NU system
companies will be subject to this obligation.
For additional information regarding long-term contractual
arrangements, see the NU 1997 Form 10-K.
G. Charter Oak Energy, Inc. Sale (NU)
For information on COE, see the combined Form 10-Q for the quarter
ended March 31, 1998, and the NU 1997 Form 10-K.
10. NUCLEAR DECOMMISSIONING
Millstone Unit 1: CL&P and WMECO have ownership interests of 81 percent and
19 percent, respectively, in Millstone 1. In July 1998, CL&P filed a
continued unit operation study (CUO) with the DPUC. The CUO study
regarding Millstone 1 showed that, given certain assumptions, the economic
benefit to customers would be less than one percent of the total cost that
would be required to operate the unit through the end of its license in
2010. Given the changing utility structure and electric marketplace, CL&P
and WMECO have decided to cease restart activities at Millstone 1 and
instead prepare for final decommissioning. CL&P, WMECO and NNECO will
undertake a number of regulatory filings intended to implement the
decommissioning and recovery of remaining assets of Millstone 1.
At June 30, 1998, the net unrecovered plant costs for Millstone 1 were
approximately $246 million ($199 million for CL&P and $47 million for
WMECO). The total estimated decommissioning costs, which have been updated
to reflect the early shutdown of the unit, are approximately $642.1 million
in mid-1997 dollars ($520.1 million for CL&P and $122 million for WMECO).
At June 30, 1998, approximately $250.3 million of the total estimated
decommissioning costs had been funded by CL&P and WMECO, respectively,
through the use of external trusts ($195.1 million for CL&P and $55.2
million for WMECO). CL&P has also recorded a reserve on its books which
represents amounts which have been collected by CL&P but not funded, and
will also be used to fund the total estimated decommissioning obligation of
Millstone 1. At June 30, 1998, the balance of this account on CL&P's book
was approximately $19.8 million. Management expects that CL&P and WMECO
will each be allowed to recover from customers the estimated remaining
costs associated with Millstone 1, including decommissioning, unrecovered
plant and related assets, and other expenditures. During the third quarter
of 1998, CL&P and WMECO expect to recognize their respective share of these
costs as regulatory assets, with corresponding liabilities on their balance
sheets.
For more information on the Millstone 1 closure, see the MD&A and Note 9B
in this Form 10-Q, and the NU 1997 Form 10-K.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
1. (NU, CL&P, WMECO) On July 2, 1998, the Massachusetts Superior Court
denied a motion by the Massachusetts Municipal Wholesale Electric Company
(MMWEC) to place a lien on NU's common stock ownership in WMECO and Holyoke
Water and Power Company in connection with the litigation commenced by non-NU
joint owners of Millstone 3 in August 1997. MMWEC had requested that the court
issue an order restraining NU from disposing of the stock in these subsidiary
companies to ensure that a future judgment against NU in favor of MMWEC could be
satisfied. The underlying litigation is ongoing.
For more information regarding this matter, see "Item 3 - Legal
Proceedings" in NU's 1997 Annual Report on Form 10-K and "Item 1 - Legal
Proceedings" in NU's Quarterly Report on Form 10-Q for the quarter ending March
31, 1998.
2. (NU) As part of the December 1997 $25.5 million settlement of the
shareholder derivative actions against NU, approximately $7.5 million was held
in escrow pending the court's ruling on the plaintiffs' petition for attorney's
fees in that amount. On June 22, 1998, the court approved a settlement whereby
plaintiffs' counsel was paid a total of $2.6 million. On June 26, 1998, NU
received the remaining $5.5 million of the settlement fund.
For additional information, see "Item 3 - Legal Proceedings" in NU's 1997
Annual Report on Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(NU) At the Annual Meeting of Shareholders of NU held on May 12, 1998
shareholders voted to fix the number of Trustees for the ensuing year at nine.
The vote fixing the number of Trustees was 108,343,806 votes in favor and
2,183,513 votes against, with 1,551,108 abstentions and broker nonvotes.
At the Annual Meeting, the following nine nominees were elected to serve
on the Board of Trustees by the votes set forth below:
For Withheld Total
1. Cotton M. Cleveland 107,271,489 4,805,161 112,076,650
2. William F. Conway 107,928,803 4,147,847 112,076,650
3. E. Gail DePlanque 107,772,536 4,304,114 112,076,650
4. Elizabeth T. Kennan 107,176,756 4,899,894 112,076,650
5. Michael G. Morris 107,955,674 4,120,976 112,076,650
6. William J. Pape II 107,245,460 4,831,190 112,076,650
7. Robert E. Patricelli 107,578,272 4,498,378 112,076,650
8. John F. Swope 106,550,401 5,526,249 112,076,650
9. John F. Turner 107,672,101 4,404,549 112,076,650
NU's shareholders also voted to approve the Employee Share Purchase Plan.
The Employee Share Purchase Plan generally provides eligible employees of the
Company with a means to purchase, through payroll deductions, common shares at
a discount, consistent with the provisions of the Internal Revenue Code of 1986,
as amended. The vote approving such plan was 90,224,369 votes in favor and
4,667,809 votes against, with 2,024,735 abstentions and broker nonvotes.
NU's shareholders also voted to approve the Incentive Plan. The Incentive
Plan provides for annual incentive awards to officers of the Company at or above
the Vice President level and grants of incentive stock options, nonqualified
stock options, restricted stock, stock appreciation rights and performance units
to selected employees of the Company, including employees who are also Trustees
of Northeast Utilities. In addition, the Incentive Plan provides for grants of
nonqualified stock options to non-employee Trustees of Northeast Utilities and
Company contractors. The vote approving such plan was 70,964,406 votes in favor
and 23,346,599 votes against, with 2,592,646 abstentions and broker nonvotes.
NU's shareholders also ratified the Board of Trustees' selection of Arthur
Andersen LLP to serve as independent auditors of NU and its subsidiaries for
1998. The vote ratifying such selection was 108,049,954 votes in favor and
2,246,520 votes against, with 1,786,774 abstentions and broker nonvotes.
(CL&P) In a written Consent in Lieu of a Meeting of Stockholders of CL&P
("Consent") dated April 16, 1997, stockholders voted to amend CL&P's Restated
Certificate of Incorporation to include the following language regarding the
indemnification of directors, officers, employees and agents:
SECTION IX
INDEMNIFICATION OF DIRECTORS, OFFICERS
EMPLOYEES AND AGENTS
Effective January 1, 1997, the Company shall indemnify and advance
reasonable expenses to an individual made or threatened to be made a party to
a proceeding because he/she is or was a Director of the Company to the fullest
extent permitted by law under Section 33-771 and Section 33-773 of the
Connecticut General Statutes, as may be amended from time to time ("Connecticut
General Statutes"). The Company shall also indemnify and advance reasonable
expenses under Connecticut General Statutes Sections 33-770 to 33-778,
inclusive, as amended, to any officer, employee or agent of the Company who
is not a Director to the same extent as a Director and to such further extent,
consistent with public policy, as may be provided by contract, the Certificate
of Incorporation of the Company, the Bylaws of the Company or a resolution of
the Board of Directors. In connection with any advance for such expenses, the
Company may, but need not, require any such officer, employee or agent to
deliver a written affirmation of his/her good faith belief that he/she has met
the relevant standard of conduct or a written undertaking to repay any funds
advanced for expenses if it is ultimately determined that he/she is not
entitled to indemnification. The Board of Directors, by resolution, the
general counsel of the Company, or such additional officer or officers as
the Board of Directors may specify, shall have the authority to determine that
indemnification or advance for such expenses to any such officer, employee or
agent is permissible and to authorize payment of such indemnification or advance
for expenses. The Board of Directors, by resolution, the general counsel of the
Company, or such additional officer or officers as the Board of Directors may
specify, shall also have the authority to determine the terms on which the
Company shall advance expenses to any such officer, employee or agent, which
terms need not require delivery by such officer, employee or agent of a written
affirmation of his/her good faith belief that he/she has met the relevant
standard of conduct or a written undertaking to repay any funds advanced for
such expenses if it is ultimately determined that he/she is not entitled to
indemnification.
The indemnification and advance for expenses provided for herein shall not
be deemed exclusive of any other rights to which those indemnified or eligible
for advance for expenses may be entitled under Connecticut law as in effect on
the effective date hereof and as thereafter amended or any Bylaw, agreement,
vote of shareholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
No lawful repeal or modification of this Section IX or the adoption of any
provision inconsistent herewith by the Board of Directors and shareholders of
the Company or change in statute shall apply to or have any effect on the
obligations of the Company to indemnify or to pay for or reimburse in advance
expenses incurred by a director, officer, employee or agent of the Company in
defending any proceeding arising out of or with respect to any acts or omissions
occurring at or prior to the effective date of such repeal, modification or
adoption of a provision or statutes change inconsistent herewith.
The vote to amend the Restated Certificate of Incorporation was 12,222,930
shares in favor, representing 100 percent of the issued and outstanding shares
of common stock of CL&P.
In a written Consent in Lieu of an Annual Meeting of Stockholders of CL&P
("Consent") dated June 16, 1998, stockholders voted to fix the number of
directors for the ensuing year at four. The vote fixing the number of directors
at four was 12,222,930 shares in favor, representing 100 percent of the issued
and outstanding shares of common stock of CL&P. Through the Consent, the
following four directors were elected, each by a vote of 12,222,930 shares in
favor, to serve on the Board of Directors for the ensuing year: John H.
Forsgren, Bruce D. Kenyon, Hugh C. MacKenzie and Michael G. Morris.
(PSNH) At the Annual Meeting of Stockholders of PSNH held on May 18, 1998,
stockholders voted to fix the number of directors for the ensuing year at eight.
The vote fixing the number of directors at eight was 1,000 shares in favor,
representing 100 percent of the issued and outstanding shares of common stock
of PSNH. At the Annual Meeting, the following eight directors were elected,
each by a vote of 1,000 shares in favor, to serve on the Board of Directors for
the ensuing year: John C. Collins, John H. Forsgren, William T. Frain, Jr.,
Bruce D. Kenyon, Gerald Letendre, Hugh C. MacKenzie, Michael G. Morris, and Jane
E. Newman.
(WMECO) In a written Consent in Lieu of an Annual Meeting of Stockholders
of WMECO ("Consent") dated June 18, 1998, stockholders voted to fix the number
of directors for the ensuing year at four. The vote fixing the number of
directors at four was 1,072,471 shares in favor, representing 100 percent of
the issued and outstanding shares of common stock of WMECO. Through the Consent
the following four directors were elected, each by a vote of 1,072,471 shares in
favor, to serve on the Board of Directors for the ensuing year: John H.
Forsgren, Bruce D. Kenyon, Hugh C. MacKenzie, and Michael G. Morris.
(NAEC) In a written Consent in Lieu of an Annual Meeting of Stockholders
of NAEC "Consent") dated June 18, 1998, stockholders voted to fix the number of
directors for the ensuing year at three. The vote fixing the number of
directors at three was 1,000 shares in favor, representing 100 percent of the
issued and outstanding shares of common stock of NAEC. Through the Consent, the
following three directors were elected, each by a vote of 1,000 shares in favor,
to serve on the Board of Directors for the ensuing year: John H. Forsgren,
Bruce D. Kenyon and Michael G. Morris.
ITEM 5. OTHER INFORMATION
1. (NU, CL&P, WMECO) On June 1, 1998, the NRC's Director of Nuclear Reactor
Regulation issued a decision denying in its entirety a Section 2.206 petition
which had been filed by Citizens Awareness Network (CAN) in February of 1998.
The petitioners had requested that the NRC revoke the operating licenses of
Millstone Units 1, 2 and 3 as a result of the company's harassment and
intimidation of the nuclear workforce for raising safety issues.
For additional information, see "Item 3 - Legal Proceedings" in NU's 1997
Annual Report on Form 10-K.
2. (NU, PSNH) The New Hampshire Electric Cooperative (NHEC) has certain
wholesale requirements purchase obligations with PSNH under an Amended Partial
Requirements Agreement (APRA). In 1995 the FERC opened a proceeding in response
to a complaint by PSNH that was based on an attempt by NHEC to avoid these
wholesale requirements purchase obligations by soliciting bids from qualifying
facilities (QF). On May 29, 1998, the FERC denied PSNH's complaint. The FERC
ruled that NHEC's purchase obligations under the APRA expressly allow it to
purchase QF power. The FERC further stated that the price for such purchases
may be determined by negotiation between NHEC and the individual QF. This
decision has been tolled while the FERC considers PSNH's request for
clarification or rehearing.
Also, on May 29, 1998, the FERC issued a ruling in another docket related
to the APRA refusing PSNH's request to impose a stranded cost charge on NHEC as
a result of reduced purchases by NHEC when it allows its customers to choose
their energy supplier from the competitive market. The FERC granted PSNH's
request for rehearing of this decision. An initial decision must be rendered by
October 30, 1998, and a final decision is expect by March 1999.
In 1997, PSNH had sales of approximately $47 million to NHEC under the
APRA.
For additional information, see "Item 1 - Business - Competition and
Marketing - Wholesale Marketing" in NU's 1995 Annual Report on Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits:
Exhibit Number Description
15 Letter regarding unaudited financial
information
27.1 NU Financial Data Schedule
27.2 CL&P Financial Data Schedule
27.3 PSNH Financial Data Schedule
27.4 WMECO Financial Data Schedule
27.5 NAEC Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTHEAST UTILITIES
Registrant
Date: August 7, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President
and Chief Financial Officer
Date: August 7, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE CONNECTICUT LIGHT AND POWER COMPANY
Registrant
Date: August 7, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: August 7, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Registrant
Date: August 7, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: August 7, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Registrant
Date: August 7, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: August 7, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTH ATLANTIC ENERGY CORPORATION
Registrant
Date: August 7, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President and
Chief Financial Officer and
Director
Date: August 7, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
Exhibit 15
August 7, 1998
To Northeast Utilities:
We are aware that Northeast Utilities has incorporated by reference in its
Registration Statements No. 33-34622, No. 33-40156, No. 33-44814, No. 33-63023,
No. 33-55279, No. 33-56537, No. 333-52413, and No. 333-52415, its Form 10-Q for
the quarter ended June 30, 1998, which includes our report dated August 7, 1998
covering the unaudited interim financial information contained therein. Pursuant
to Regulation C of the Securities Act of 1933, that report is not considered a
part of the registration statement prepared or certified by our firm or a report
prepared or certified by our firm within the meaning of Sections 7 and 11 of the
Act.
Very truly yours,
/s/ Arthur Andersen LLP
Arthur Andersen LLP