FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-7624
WESTERN MASSACHUSETTS ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1961130
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
174 BRUSH HILL AVENUE, WEST SPRINGFIELD, MASSACHUSETTS 01090-0010
(Address of principal executive offices) (Zip Code)
(413) 785-5871
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at October 31, 1995
Common Shares, $25.00 par value 1,072,471 shares
WESTERN MASSACHUSETTS ELECTRIC COMPANY
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1995 and
December 31, 1994 2
Statements of Income - Three and Nine
Months Ended September 30, 1995 and 1994 4
Statements of Cash Flows - Nine Months
Ended September 30, 1995 and 1994 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. Other Information
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I. FINANCIAL INFORMATION
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
(Thousands of Dollars)
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 1,225,888 $ 1,214,326
Less: Accumulated provision for depreciation......... 452,405 425,019
------------- ------------
773,483 789,307
Construction work in progress........................... 20,603 19,187
Nuclear fuel, net....................................... 34,052 38,000
------------- ------------
Total net utility plant............................. 828,138 846,494
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Other Property and Investments:
Nuclear decommissioning trusts, at market............... 66,383 56,123
Investments in regional nuclear generating
companies, at equity................................... 14,889 14,927
Other, at cost.......................................... 3,981 3,941
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85,253 74,991
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Current Assets:
Cash and special deposits............................... 93 105
Notes receivable from affiliated companies.............. - 8,750
Receivables, net........................................ 37,791 35,427
Accounts receivable from affiliated companies........... 837 1,108
Accrued utility revenues................................ 13,247 15,766
Fuel, materials, and supplies, at average cost.......... 5,576 4,829
Prepayments and other................................... 7,455 9,215
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64,999 75,200
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Deferred Charges:
Regulatory assets:
Income taxes, net...................................... 93,858 86,357
Amortizable property investment--Millstone 3........... 8,400 16,800
Deferred costs--Millstone 3............................ - 7,836
Unrecovered contract obligation--Yankee Atomic
Electric Company...................................... 26,392 28,572
Recoverable energy costs............................... 8,324 8,324
Other.................................................. 40,990 36,337
Unamortized debt expense................................ 1,544 1,733
Other................................................... - 974
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179,508 186,933
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Total Assets........................................ $ 1,157,898 $ 1,183,618
============= ============
See accompanying notes to financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
(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................................ 150,112 149,683
Retained earnings....................................... 114,412 111,586
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Total common stockholder's equity.............. 291,336 288,081
Preferred stock not subject to mandatory redemption..... 53,500 68,500
Preferred stock subject to mandatory redemption......... 22,500 24,000
Long-term debt.......................................... 347,218 345,669
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Total capitalization........................... 714,554 726,250
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Obligations Under Capital Leases.......................... 20,880 23,852
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Current Liabilities:
Notes payable to affiliated company..................... 28,250 -
Long-term debt and preferred stock--current
portion................................................ 1,500 34,975
Obligations under capital leases--current
portion................................................ 15,606 12,945
Accounts payable........................................ 13,668 20,396
Accounts payable to affiliated companies................ 7,361 17,352
Accrued taxes........................................... 4,352 5,160
Accrued interest........................................ 4,271 6,702
Other................................................... 8,483 7,584
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83,491 105,114
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Deferred Credits:
Accumulated deferred income taxes....................... 266,613 253,821
Accumulated deferred investment tax credits............. 26,541 27,822
Deferred contract obligation--Yankee Atomic
Electric Company....................................... 26,392 28,572
Other................................................... 19,427 18,187
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338,973 328,402
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Commitments and Contingencies (Note 3)<F3>
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Total Capitalization and Liabilities........... $ 1,157,898 $ 1,183,618
============= ============
See accompanying notes to financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(Thousands of Dollars)
Operating Revenues............................. $107,960 $102,597 $315,237 $316,769
--------- --------- --------- ---------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power. 21,017 22,068 65,291 47,986
Other..................................... 35,292 34,322 103,840 101,047
Maintenance.................................. 12,740 8,435 28,664 25,652
Depreciation................................. 9,521 9,248 28,365 27,303
Amortization of regulatory assets............ 2,973 7,280 17,084 21,424
Federal and state income taxes............... 2,166 5,311 11,541 27,112
Taxes other than income taxes................ 4,530 4,559 14,184 14,135
--------- --------- --------- ---------
Total operating expenses............... 88,239 91,223 268,969 264,659
--------- --------- --------- ---------
Operating Income............................... 19,721 11,374 46,268 52,110
--------- --------- --------- ---------
Other Income:
Deferred Millstone 3 return--other funds..... - 170 108 636
Equity in earnings of regional nuclear
generating companies....................... 475 519 1,299 1,514
Other, net................................... 657 700 1,911 1,630
Income taxes--credit......................... 116 257 842 794
--------- --------- --------- ---------
Other income, net...................... 1,248 1,646 4,160 4,574
--------- --------- --------- ---------
Income before interest charges......... 20,969 13,020 50,428 56,684
--------- --------- --------- ---------
Interest Charges:
Interest on long-term debt................... 6,699 6,741 20,708 20,785
Other interest............................... 129 12 295 (16)
Deferred Millstone 3 return--borrowed funds.. - (128) (81) (476)
--------- --------- --------- ---------
Interest charges, net.................. 6,828 6,625 20,922 20,293
--------- --------- --------- ---------
Net Income..................................... $ 14,141 $ 6,395 $ 29,506 $ 36,391
========= ========= ========= =========
See accompanying notes to financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-----------------------
1995 1994
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(Thousands of Dollars)
Operating Activities:
Net Income................................................ $ 29,506 $ 36,391
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 28,365 27,303
Deferred income taxes and investment tax credits, net... 3,600 5,801
Deferred return - Millstone 3, net of amortization...... 7,147 9,958
Recoverable energy costs, net of amortization........... 1,039 (10,568)
Other sources of cash................................... 15,058 12,536
Other uses of cash...................................... (256) (6,455)
Changes in working capital:
Receivables and accrued utility revenues................ 426 7,781
Fuel, materials, and supplies........................... (747) 3,198
Accounts payable........................................ (16,719) (8,769)
Accrued taxes........................................... (808) 933
Other working capital (excludes cash)................... (810) 3,121
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Net cash flows from operating activities.................... 65,801 81,230
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Financing Activities:
Issuance of long-term debt................................ - 90,000
Net increase (decrease) in short-term debt................ 28,250 (6,000)
Reacquisitions and retirements of long-term debt.......... (34,300) (103,569)
Reacquisitions and retirements of preferred stock......... (15,675) (1,500)
Cash dividends on preferred stock......................... (3,688) (4,316)
Cash dividends on common stock............................ (22,737) (22,114)
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Net cash flows used for financing activities................ (48,150) (47,499)
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Investment Activities:
Investment in plant:
Electric utility plant.................................. (18,869) (22,657)
Nuclear fuel............................................ (1,112) 158
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Net cash flows used for investments in plant.............. (19,981) (22,499)
NU System Money Pool...................................... 8,750 (5,000)
Other investment activities, net.......................... (6,432) (6,306)
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Net cash flows used for investments......................... (17,663) (33,805)
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Net Decrease In Cash For The Period......................... (12) (74)
Cash and special deposits - beginning of period............. 105 185
----------- -----------
Cash and special deposits - end of period................... $ 93 $ 111
=========== ===========
See accompanying notes to financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. General
The accompanying unaudited financial statements should be read in conjunction
with the Annual Report of Western Massachusetts Electric Company (the company or
WMECO), a wholly owned subsidiary of Northeast Utilities (NU), on Form 10-K for
the year ended December 31, 1994 (1994 Form 10-K). In the opinion of the
company, the accompanying financial statements contain all adjustments necessary
to present fairly the financial position as of September 30, 1995, the results
of operations for the three and nine months ended September 30, 1995 and 1994,
and the statements of cash flows for the nine months ended September 30, 1995
and 1994. The results of operations for the three and nine months ended
September 30, 1995 and 1994 are not necessarily indicative of the results
expected for a full year.
Certain reclassifications of prior period data have been made to conform with
the current period presentation.
2. Accounting for Long-Lived Assets
The company's accounting policies and the accompanying financial statements
conform to generally accepted accounting principles applicable to rate-regulated
enterprises and reflect the effects of the ratemaking process in accordance with
Statement of Financial Accounting Standards No. 71, "Accounting for Certain
Types of Regulation" (SFAS 71). If any portion of the company's operations was
no longer subject to the provisions of SFAS 71, as a result of a change in the
cost-of-service based regulatory structure or the effects of competition, the
company would be required to write off related regulatory assets and
liabilities. The company would also be required to determine any impairment to
other assets and write down these assets to their fair value.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS
121), issued in March 1995 and effective January 1, 1996, establishes accounting
standards for the impairment of long-lived assets. SFAS 121 requires that
regulatory assets that are no longer probable of recovery through future
revenues be charged to earnings. Based upon the current regulatory environment
in the company's operating service area, it is not expected that the adoption of
SFAS 121 would have a material impact on the company's financial position or
results of operations. This conclusion may change in the future as competitive
factors influence wholesale and retail pricing in the electric utility industry,
or if the cost-of-service based regulatory structure were to change.
3. Commitments and Contingencies
Construction Program: For information regarding WMECO's construction program,
see the Notes to Financial Statements in WMECO'S 1994 Form 10-K.
Nuclear Performance: For information regarding the performance of the WMECO
nuclear units, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in this Form 10-Q, and see WMECO's March 31, 1995 and
June 30, 1995 Form 10-Qs, and 1994 Form 10-K.
Environmental Matters: For information regarding environmental matters, see the
Notes to Financial Statements in WMECO's 1994 Form 10-K.
Nuclear Insurance Contingencies: For information regarding nuclear insurance
contingencies, see the Notes to Financial Statements in WMECO's 1994 Form 10-K.
Purchased Power Arrangements: For information regarding purchased power
arrangements, see the Notes to Financial Statements in WMECO's 1994 Form 10-K.
Hydro-Quebec: For information regarding Hydro-Quebec, see the Notes to
Financial Statements in WMECO's 1994 Form 10-K.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of WMECO's (the company) financial
condition and the principal factors having an impact on the results of
operations. The company is a wholly owned subsidiary of Northeast Utilities
(NU). This discussion should be read in conjunction with the company's
consolidated financial statements, footnotes and Part II, Other Information, of
this report and Management's Discussion and Analysis in the 1994 Form 10-K and
the First and Second Quarter 1995 Form 10-Qs.
FINANCIAL CONDITION
Overview
The company's net income decreased to approximately $30 million for the nine
months ended September 30, 1995, from approximately $36 million for the same
period in 1994. The decrease in net income is primarily attributable to a one-
time benefit in May 1994 from a rate case settlement agreement, higher fuel and
purchased-power costs, and lower retail kilowatt-hour sales, partially offset by
one-time tax adjustments. WMECO's retail kilowatt-hour sales through September
1995 were down by almost one percent from 1994 as a result of mild weather in
the first quarter of 1995.
Net income increased to approximately $14 million for the three months ended
September 30, 1995, from approximately $6 million for the same period in 1994.
The increase in net income for the three-month period is primarily attributable
to higher kilowatt-hour sales due to hotter summer weather and a one-time tax
adjustment in 1995. Retail kilowatt-hour sales for the quarter were up 4.7
percent from 1994.
Workforce Reductions
In July, 1995, NU announced a program aimed at reducing the nuclear
organization's total workforce by approximately 250 employees. The NU system-
wide estimated pre-tax cost of the early retirement that was charged to expense
in the third quarter was approximately $7 million. This estimate was based on
121 eligible employees accepting the early retirement. The balance of the
workforce reduction will be achieved through attrition and layoffs. The
estimated cost of layoffs to the NU system could be in the range of $2 to $3
million.
Nuclear Performance
The composite capacity factor of the five nuclear generating units that the NU
system operates - including the Connecticut Yankee nuclear unit (CY) - was 68.6
percent for the nine months ended September 30, 1995, as compared with 64.3
percent for the same period in 1994. An extended refueling and maintenance
outage for Millstone Unit 2, which ended on August 4, 1995, had an adverse
impact on the 1995 nuclear capacity factor. In early November, Millstone Unit 1
began a planned 50-day refueling and maintenance outage.
Total replacement power costs attributable to the extension of the Millstone
Unit 2 outage for the company are approximately $12 million. In addition,
operation and maintenance (O&M) costs to be incurred during the outage are
approximately $13 million, an increase of $7 million as a result of the outage
extension. Replacement power costs are recovered currently through the
company's fuel clause. O&M costs associated with the refueling outage are
deferred and amortized through rates. The recovery of the replacement power and
O&M costs is subject to prudence reviews.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $15 million for the first
nine months of 1995, as compared to 1994, primarily due to lower working
capital. Cash used for investments decreased approximately $16 million primarily
due a decrease in loans to other companies under the NU system money pool.
RESULTS OF OPERATIONS
Comparison of the Third Quarter of 1995 with the Third Quarter
- --------------------------------------------------------------
of 1994
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The components of the change in operating revenues are as follows:
Change in Operating Revenues Increase/(Decrease)
- ----------------------------- -------------------
(Millions of Dollars)
Retail sales volume $ 3
Fuel and purchased-power costs recoveries 2
---
Total revenue change $ 5
===
Retail kilowatt-hour sales increased 4.7 percent for the quarter from 1994
levels as a result of hotter summer weather. Fuel and purchased-power cost
recoveries increased primarily due higher kilowatt-hour sales.
Other operation and maintenance expense increased approximately $5 million due
primarily to due higher 1995 storm costs, higher costs associated with a work
stoppage and higher outside services employed, partially offset by a nuclear
inventory writeoff in 1994.
Amortization of regulatory assets, net decreased approximately $4 million in the
third quarter of 1995 primarily because the Millstone 3 phase-in costs were
fully amortized in June 1995.
Federal and state income taxes decreased approximately $3 million in the third
quarter of 1995 primarily because of an adjustment in 1995 to reduce the income
tax accrual as a result of the expiration of a tax year subject to audit.
Comparison of the First Nine Months of 1995 with the First Nine
- ---------------------------------------------------------------
Months of 1994
- --------------
The components of the change in operating revenues are as follows:
Changes in Operating Revenues Increase/(Decrease)
- ----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $ (2)
Retail Sales volume (3)
Fuel and purchased power
cost recoveries 6
Other (3)
----
Total revenue change $ (2)
====
Revenues related to regulatory decisions decreased primarily because of the June
1994 retail rate reduction for WMECO. Retail sales volume decreased 0.9 percent
for the first nine months of 1995 from 1994 sales levels primarily due to mild
weather in the first quarter of 1995, partially offset by hotter summer weather.
Fuel and purchased-power cost recoveries increased primarily due to higher
energy costs, partially offset by lower interchange revenues. Other includes
lower revenues as a result of new negotiated rate reductions for retail
customers.
Fuel, purchased, and net interchange power expense increased approximately $17
million in the first nine months of 1995 primarily because of a one-time benefit
in May 1994 from a rate case settlement agreement and higher energy costs as a
result of the extended Millstone 2 outage.
Other operation and maintenance expense increased approximately $6 million due
primarily to higher capacity charges from the regional nuclear units primarily
due to Maine Yankee which is in an extended refueling outage and Vermont Yankee
which had an outage in March 1995, and higher 1995 storm costs, higher costs
associated with a work stoppage and higher outside services employed, partially
offset by a nuclear inventory write-off in 1994 and lower maintenance costs at
the company's fossil units.
Amortization of regulatory assets, net decreased approximately $4 million in the
first nine months of 1995 primarily because the Millstone 3 phase-in costs were
fully amortized in June 1995.
Federal and state income taxes decreased approximately $16 million in the first
nine months of 1995 primarily because of lower book taxable income and 1995
adjustments to the income tax accrual as a result of a favorable tax ruling and
the expiration of a tax year subject to audit.
PART II. Other Information
Item 5. Other Information
1. On August 16, 1995, the Massachusetts Department of Public Utilities (DPU)
issued an order in its investigation, which began in February 1995, into
electric utility industry restructuring in Massachusetts. The order found that
recovery of net, non-mitigatable stranded costs during a transition to full
competition, which is to be no longer than 10 years, is in the public interest.
Stranded costs are to be recovered by a non-bypassable charge. The DPU also
set forth 12 principles for the transition to a restructured industry and
ordered WMECO and other Massachusetts utilities to submit, by February 16, 1996,
plans for moving to a competitive generation market and for incentive regulation
for transmission and distribution.
For additional information on this proceeding, see "Other Information" in
WMECO's 1995 Form 10-Q for the quarter ended March 31, 1995.
2. On August 24, 1995, the DPU issued a decision limiting WMECO's recovery of
lost base revenues in calendar year 1996 to those revenues "lost" due to
implementation of conservation-related costs in the most recent three-year
period. The DPU decision does not affect 1995 revenues, but the three-year
limit on recovery could reduce 1996 revenues by approximately $8 million. WMECO
requested clarification of the decision on September 13, 1995.
For additional information on this proceeding, see "Item 1. Business - Rates" in
WMECO's 1994 Form 10-K.
3. On October 4, 1995, the U.S. Court of Appeals for the District of Columbia
Circuit granted a motion to intervene filed by Northeast Utilities Service
Company, Connecticut Yankee Atomic Power Company and North Atlantic Energy
Service Company as party petitioners in the lawsuit brought by other nuclear
utilities seeking a judicial declaration that the Nuclear Waste Policy Act of
1982, as amended, unconditionally binds the U.S. Department of Energy to begin
acceptance of spent nuclear fuel and high-level radioactive waste beginning on
January 31, 1998.
For additional information on this matter, see "Item 1. Business - Electric
Operations - Nuclear Generation - High-Level Radioactive Waste" in WMECO's 1994
Form 10-K.
4. On October 12, 1995, the NRC issued an order halting major dismantling or
decommissioning activities at the Yankee Rowe Nuclear Plant (Yankee Rowe) until
after completion of an adjudicatory hearing process. The NRC intends to issue a
Notice of Opportunity for a hearing on the NRC staff-approved Yankee Rowe
decommissioning plan and, if a hearing is requested, order an expedited hearing.
The NRC's action was taken in response to a recent federal appeals court
decision finding that the NRC should have offered a hearing opportunity prior to
authorizing Yankee's Component Removal Program in 1993.
For additional information on this matter, see "Other Information" in WMECO's
1995 Form 10-Q for the quarter ended June 30, 1995.
5. New three year labor contracts covering approximately 370 union employees
of WMECO and Holyoke Water Power Company were signed on August 28, 1995. The
employees covered by these contracts returned to work on September 1, 1995,
which ended a strike that began on May 25, 1995.
For additional information on this matter, see "Other Information" in WMECO's
1995 Form 10-Q for the quarter ended June 30, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Listing of Exhibits:
Exhibit
Number Description
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27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during this reporting period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
--------------------------------------
Registrant
Date November 13, 1995 By /s/ Bernard M. Fox
-------------------- ------------------------------
Bernard M. Fox
Chairman and Director
Date November 13, 1995 By /s/ John W. Noyes
-------------------- ------------------------------
John W. Noyes
Vice President and Controller