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
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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 1-6392
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PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
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(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 02-018150
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1000 ELM STREET, MANCHESTER, NEW HAMPSHIRE 03105
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(Address of principal executive offices) (Zip Code)
(603) 669-4000
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(Registrant's telephone number, including area code)
Not Applicable
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(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
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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
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Common Shares, $10.00 par value 1,000 shares
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
TABLE OF CONTENTS
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1995 and
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 1. Legal Proceedings 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I. FINANCIAL INFORMATION
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
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(Thousands of Dollars)
ASSETS
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Utility Plant, at original cost:
Electric................................................ $ 2,072,021 $ 2,038,625
Less: Accumulated provision for depreciation......... 503,300 474,129
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1,568,721 1,564,496
Construction work in progress........................... 27,816 17,781
Nuclear fuel, net....................................... 1,782 2,248
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Total net utility plant............................. 1,598,319 1,584,525
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Other Property and Investments:
Nuclear decommissioning trusts, at market............... 2,286 1,815
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 19,405 19,551
Other, at cost.......................................... 638 394
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22,329 21,760
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Current Assets:
Cash and special deposits............................... 610 322
Notes receivable from affiliated companies.............. 105,500 35,000
Receivables, net........................................ 80,305 76,173
Accounts receivable from affiliated companies........... 958 3,779
Accrued utility revenues................................ 27,554 36,547
Fuel, materials, and supplies, at average cost.......... 44,454 37,453
Prepayments and other................................... 20,892 20,829
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280,273 210,103
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Deferred Charges:
Regulatory assets:
Unamortized acquisition costs.......................... 611,426 678,974
Income taxes, net...................................... 76,412 66,466
Unrecovered contract obligation--Yankee Atomic
Electric Company...................................... 26,392 28,572
Recoverable energy costs............................... 214,552 194,994
Other.................................................. 2,428 2,499
Unamortized debt expense................................ 15,012 17,064
Deferred receivable from affiliated company............. 33,284 33,284
Other................................................... 2,726 7,726
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982,232 1,029,579
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Total Assets........................................ $ 2,883,153 $ 2,845,967
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See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
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(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
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Capitalization:
Common stock--$1 par value.
Authorized and outstanding 1,000 shares................ $ 1 $ 1
Capital surplus, paid in................................ 422,231 421,784
Retained earnings....................................... 148,006 125,034
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Total common stockholder's equity.............. 570,238 546,819
Preferred stock subject to mandatory redemption......... 125,000 125,000
Long-term debt.......................................... 686,485 905,985
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Total capitalization........................... 1,381,723 1,577,804
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Obligations Under Seabrook Power Contract
and Other Capital Leases................................. 856,401 849,776
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Current Liabilities:
Long-term debt--current portion......................... 243,000 94,000
Obligations under capital leases--current
portion................................................ 43,448 38,191
Accounts payable........................................ 34,456 45,984
Accounts payable to affiliated companies................ 15,878 17,309
Accrued taxes........................................... 19,578 4,304
Accrued interest........................................ 23,686 10,496
Accrued pension benefits................................ 38,022 36,269
Other................................................... 28,727 20,350
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446,795 266,903
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Deferred Credits:
Accumulated deferred income taxes....................... 107,296 62,080
Accumulated deferred investment tax credits............. 5,198 5,614
Deferred contract obligation--Yankee Atomic
Electric Company....................................... 26,392 28,572
Deferred revenue from affiliated company................ 33,284 33,284
Other................................................... 26,064 21,934
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198,234 151,484
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Commitments and Contingencies (Note 3)<F3>
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Total Capitalization and Liabilities........... $ 2,883,153 $ 2,845,967
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See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
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1995 1994 1995 1994
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(Thousands of Dollars)
Operating Revenues................................. $ 249,626 $ 227,976 $ 734,812 $ 688,130
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Operating Expenses:
Operation --
Fuel, purchased and net interchange power..... 64,613 53,090 202,922 162,655
Other......................................... 80,737 76,149 226,269 228,081
Maintenance...................................... 8,722 10,640 29,595 34,549
Depreciation..................................... 11,837 9,820 32,883 28,992
Amortization of regulatory assets, net........... 13,212 13,176 41,323 41,503
Federal and state income taxes................... 20,470 16,507 57,291 48,045
Taxes other than income taxes.................... 10,380 9,881 31,536 29,763
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Total operating expenses................... 209,971 189,263 621,819 573,588
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Operating Income................................... 39,655 38,713 112,993 114,542
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Other Income:
Equity in earnings of regional nuclear
generating companies and subsidary company..... 453 399 1,228 1,127
Other, net....................................... 1,664 (907) 1,711 125
Income taxes--credit............................. 416 635 1,158 (1,137)
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Other income, net.......................... 2,533 127 4,097 115
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Income before interest charges............. 42,188 38,840 117,090 114,657
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Interest Charges:
Interest on long-term debt....................... 18,994 19,474 58,367 56,783
Other interest................................... (1) 104 (187) 333
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Interest charges, net...................... 18,993 19,578 58,180 57,116
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Net Income......................................... $ 23,195 $ 19,262 $ 58,910 $ 57,541
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See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
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1995 1994
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(Thousands of Dollars)
Operating Activities:
Net Income.................................................$ 58,910 $ 57,541
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................. 32,883 28,992
Deferred income taxes and investment tax credits, net.... 52,946 48,707
Recoverable energy costs, net of amortization............ (903) (39,333)
Amortization of acquisition costs........................ 41,323 41,503
Other sources of cash.................................... 20,229 2,662
Other uses of cash....................................... - (7,457)
Changes in working capital:
Receivables and accrued utility revenues................. 7,682 10,275
Fuel, materials, and supplies............................ (7,001) (1,176)
Accounts payable......................................... (12,959) (5,763)
Accrued taxes............................................ 15,274 18,898
Other working capital (excludes cash).................... 4,602 6,111
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Net cash flows from operating activities..................... 212,986 160,960
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Financing Activities:
Net decrease in short-term debt............................ - (2,500)
Reacquisitions and retirements of long-term debt........... (70,500) (70,500)
Cash dividends on preferred stock.......................... (9,938) (9,937)
Cash dividends on common stock............................. (26,000) -
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Net cash flows used for financing activities................. (106,438) (82,937)
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Investment Activities:
Investment in plant:
Electric utility plant................................... (35,113) (21,252)
Nuclear fuel............................................. (186) (362)
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Net cash flows used for investments in plant............... (35,299) (21,614)
NU System Money Pool....................................... (70,500) (61,750)
Other investment activities, net........................... (461) (87)
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Net cash flows used for investments.......................... (106,260) (83,451)
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Net Increase (Decrease) in Cash For The Period............... 288 (5,428)
Cash and special deposits - beginning of period.............. 322 5,995
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Cash and special deposits - end of period....................$ 610 $ 567
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See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. General
The accompanying unaudited financial statements should be read in conjunction
with the Annual Report of Public Service Company of New Hampshire (the company
or PSNH), 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 PSNH's construction program,
see the Notes to Financial Statements in PSNH's 1994 Form 10-K.
PSNH Rate Agreement: For information regarding the PSNH rate agreement, see the
Notes to Financial Statements in PSNH's June 30, 1995 Form 10-Q and 1994 Form
10-K.
Environmental Matters: For information regarding environmental matters, see the
Notes to Financial Statements in PSNH's March 31, 1995 Form 10-Q and 1994 Form
10-K.
Nuclear Insurance Contingencies: For information regarding nuclear insurance
contingencies, see the Notes to Financial Statements in PSNH's 1994 Form 10-K.
Purchased Power Arrangements: For information regarding purchased power
arrangements, see the Notes to Financial Statements in PSNH's 1994 Form 10-K.
Hydro-Quebec: For information regarding Hydro-Quebec, see the Notes to
Financial Statements in PSNH's 1994 Form 10-K.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of PSNH'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
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
Net income increased to approximately $23 million for the three months ended
September 30, 1995 from approximately $19 million for the same period in 1994.
Net income increased to approximately $59 million for the nine months ended
September 30, 1995 from approximately $58 million for the same period in 1994.
Net Income for the three-month period increased primarily due to higher revenues
from regulatory decisions and higher retail kilowatt-hour sales. Retail
kilowatt-hour sales for the quarter were up 1.9 percent from 1994 as a result of
hotter summer weather.
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 the early retirements and layoffs to the NU system could be in
the range of $2 million to $3 million.
Regulatory Matters
On September 15, 1995, PSNH filed with the New Hampshire Public Utilities
Commission (NHPUC) a request for a reduced Fuel and Purchased Power Adjustment
Clause(FPPAC) rate to take effect on December 1, 1995 and continue through May
31, 1996. If approved, the effective rate would reduce PSNH's overall rate level
by about one percent. A final decision is expected by the end of November.
The costs associated with purchases by PSNH from certain nonutility generators
(NUGs) over the level assumed in rates are deferred and recovered over ten-year
periods through the FPPAC. At September 30, 1995, the unrecovered deferrals
were approximately $189 million. PSNH has reached tentative agreements with the
six remaining wood-fired NUGs. These agreements call for substantial upfront
and continuing payments, and are subject to the approval of the NHPUC. If the
NHPUC's proposal for a retail wheeling pilot is not revised to provide for full
recovery of stranded investments, management will need to reevaluate whether to
proceed with the NUG buy-out agreements.
Nuclear Performance
The Seabrook nuclear power plant operated at a capacity factor of 92.8 percent
for the nine months ended September 30, 1995, as compared to 48.5 percent for
the same period in 1994. The lower 1994 capacity factor was primarily the
result of a 23-day shutdown for an unplanned outage that began in January and a
114-day refueling and maintenance outage that began in April. Seabrook began a
50-day refueling and maintenance outage in November 1995.
Liquidity And Capital Resources
Cash provided from operations increased approximately $52 million for the first
nine months of 1995, as compared with the same period in 1994, primarily due to
higher fuel recoveries. Cash flows used for financing activities increased
approximately $24 million in 1995 primarily due to the payment of common stock
dividends in 1995. Cash used for investments increased approximately $23
million for the first nine months of 1995 primarily due to an increase in
construction expenditures in 1995 and higher investment in the NU system money
pool.
PSNH's construction program expenditures amounted to approximately $35 million
for the first nine months of 1995, as compared to approximately $21 million for
the same period in 1994. The increase is primarily due to the costs associated
with the installation of the pollution control system at Merrimack Station.
On October 18, 1995, Moody's Investors Service lowered its ratings of PSNH and
North Atlantic Energy Corporation (NAEC) securities, bringing the rating for
PSNH's First Mortgage Bonds below investment grade. Standard and Poor's had
previously downgraded PSNH and NAEC securities below investment grade. With both
of the major nationally recognized securities rating organizations that rate
PSNH and NAEC securities rating them below investment grade, PSNH's and NAEC's
borrowing costs have been adversely affected and the future availability and
cost of funds for those companies could be adversely affected.
Results of Operations
Comparison of the Third Quarter 1995 with the Third Quarter
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of 1994
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The components of the change in operating revenues are as follows:
Changes in Operating Revenues Increase/Decrease
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(Millions of Dollars)
Regulatory decisions $5
Fuel, purchased power,
and FPPAC cost recoveries 17
Retail Sales Volume 2
Other (2)
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Total revenue change $22
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Revenues related to regulatory decisions increased primarily because of the June
1995 retail rate increase. Fuel, purchased power, and FPPAC cost recoveries
increased primarily due to an increase in base fuel recoveries and higher sales
to other utilities. Retail kilowatt-hour sales increased 1.9 percent for the
quarter from 1994 levels as a result of hotter summer weather.
Fuel, purchased and net interchange power expense increased approximately $12
million in the third quarter of 1995 primarily due to the timing in the
recognition of fuel expenses under the FPPAC.
Other operation and maintenance expense increased approximately $3 million in
the third quarter of 1995 primarily due to the higher costs under the Seabrook
Power Contract.
Federal and state income taxes increased approximately $4 million in the third
quarter of 1995 primarily due to higher book taxable income.
Comparison of the First Nine Months of 1995 with the First Nine
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Months of 1994
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The components of the change in operating revenues are as follows:
Changes in Operating Revenues Increase/Decrease
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(Millions of Dollars)
Regulatory decisions $15
Fuel, Purchased Power,
and FPPAC cost recoveries 42
Retail Sales Volume (3)
Wholesale revenues (4)
Other (3)
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Total revenue change $47
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Revenues related to regulatory decisions increased primarily because of the June
1994 and 1995 retail rate increases. Fuel, purchased power, and FPPAC cost
recoveries increased primarily due to higher sales to other utilities and higher
base fuel recoveries.
Fuel, purchased and net interchange power expense increased approximately $40
million in the first nine months of 1995 primarily due to the timing in the
recognition of fuel expenses under the FPPAC.
Other operation and maintenance expenses decreased approximately $7 million in
the first nine months of 1995 primarily due to lower capacity charges under the
Seabrook Power Contract and lower storm costs in 1995.
Federal and state income taxes increased approximately $11 million in the first
nine months of 1995 primarily due to higher book taxable income and lower tax
benefits associated with the Seabrook inter-company loss.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
1. On or about November 1, 1995, the New Hampshire Office of Consumer Advocate
(OCA) and the Campaign for Ratepayers Rights filed suit in Superior Court
against the NHPUC seeking a declaratory ruling that special contracts entered
into by and between PSNH and certain retail customers are prohibited by the 1989
rate agreement between PSNH and the State of New Hampshire (Rate Agreement).
The petition is based on an alleged inconsistency between the New Hampshire
statute that allows special contracts agreed to by a utility and a customer when
deemed appropriate by the NHPUC and the legislation accepting the Rate Agreement
wherein PSNH received protection against NHPUC actions fixing rates other than
in the manner agreed upon in the Rate Agreement. The court petition alleges
that the special contracts also constitute a breach of the Rate Agreement by
PSNH, thereby stopping PSNH from claiming benefits under the Rate Agreement.
The New Hampshire Attorney General will represent the NHPUC in this action.
While PSNH believes this proceeding should be dismissed on procedural grounds,
it cannot predict the outcome of this proceeding or its ultimate effect on PSNH
or NAEC at this time.
Item 5. Other Information
1. On October 9, 1995, the NHPUC issued preliminary guidelines for an Electric
Retail Competition Pilot Program (Program). The Program is proposed to be a
three-year retail wheeling experiment under which a randomly selected group of
retail users will be free to purchase up to 60 MW of power from other suppliers
besides their franchised local utility, of which 44 MW of the prospective loss
is allocated to PSNH. This amount of power equals three percent of PSNH's peak
load. If the program were implemented as proposed, participants would be
responsible for arranging their own electricity supply and would be free to
negotiate the terms for such supply with any potential supplier. Under the
proposed guidelines, utilities would not be allowed to charge exit or re-entry
fees to customers who go off and on their systems, but recovery of stranded
costs resulting from the Program would be split equally between utility
investors and participating customers. Finalization of the guidelines is
expected in December 1995, subject to further comments and hearings.
For additional information on this matter, see "Other Information" in PSNH's
1995 Form 10-Q for the quarter ended June 30, 1995.
2. On September 1, 1995, PSNH filed a petition with the New Hampshire Supreme
Court, which was accepted on November 2, 1995, appealing the NHPUC's decision in
the proceeding involving Freedom Electric Power Company, now known as Freedom
Energy Company, LLC (Freedom), that PSNH's franchise was not exclusive as a
matter of law.
For additional information on this matter, see "Other Information" in PSNH's
1995 Form 10-Q for the quarter ended June 30, 1995.
3. New Hampshire's Limited Electrical Energy Producers Act (LEEPA) purportedly
allows a qualifying generator of not greater than 5 MW capacity to sell its
output to up to three retail customers. LEEPA also provides that the local
franchised utility could be ordered to wheel the energy to these retail
customers. On October 3, 1995, the NHPUC issued an order stating that the LEEPA
retail wheeling provision was not pre-empted by federal law and that it had
authority to order such retail wheeling service if it was found to be in the
public good. PSNH and Connecticut Valley Electric Company filed motions for
rehearing of this order with the NHPUC on November 2, 1995.
4. On 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 PSNH's 1994
Form 10-K.
5. 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 PSNH'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.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
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Registrant
Date November 13, 1995 By /s/ Bernard M. Fox
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Bernard M. Fox
Chairman, Chief Executive
Officer, and Director
Date November 13, 1995 By /s/ John W. Noyes
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John W. Noyes
Vice President and
Controller