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 March 31, 1994
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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 33-43508
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NORTH ATLANTIC ENERGY CORPORATION
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(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 06-1339460
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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 April 29, 1994
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Common Shares, $1.00 par value 1,000 shares
NORTH ATLANTIC ENERGY CORPORATION
TABLE OF CONTENTS
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 1994
and December 31, 1993 2
Statements of Income - Three
Months Ended March 31, 1994 and 1993 4
Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
Part II. Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
1
PART I. FINANCIAL INFORMATION
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1994 1993
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(Thousands of Dollars)
ASSETS
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Utility Plant, at original cost:
Electric......................................... $ 766,020 $ 758,170
Less: Accumulated provision for depreciation.. 62,355 56,649
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703,665 701,521
Construction work in progress.................... 8,021 7,618
Nuclear fuel, net................................ 23,071 23,339
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Total net utility plant...................... 734,757 732,478
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Other Property and Investments:
Nuclear decommissioning trust, at market
in 1994 and at cost in 1993 (Note 2)<F2>........ 8,811 7,881
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Current Assets:
Cash............................................. 9,477 8,404
Receivables...................................... 1,843 2,453
Receivables from affiliated companies............ 19,313 20,304
Taxes receivable................................. 9,635 1,224
Materials and supplies, at average cost.......... 8,175 7,353
Prepayments and other............................ 2,132 4,183
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50,575 43,921
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Deferred Charges:
Deferred costs--Seabrook......................... 98,210 85,428
Regulatory asset--income taxes................... 22,355 19,432
Unamortized debt expense......................... 5,338 5,507
Deferred DOE assessment.......................... 4,861 4,905
Other deferred debits............................ 1,161 1,269
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131,925 116,541
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Total Assets................................. $ 926,068 $ 900,821
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See accompanying notes to financial statements.
2
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1994 1993
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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......................... 160,999 160,999
Retained earnings................................ 45,345 38,701
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Total common stockholder's equity....... 206,345 199,701
Long-term debt................................... 560,000 560,000
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Total capitalization.................... 766,345 759,701
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Current Liabilities:
Notes payable to affiliated company.............. 11,500 -
Accounts payable................................. 1,189 3,999
Accounts payable to affiliated companies......... 596 2,389
Accrued interest................................. 18,514 18,288
Accrued taxes.................................... 126 127
Deferred DOE obligation--current portion......... 845 845
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32,770 25,648
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Deferred Credits:
Accumulated deferred income taxes................ 86,866 74,772
Deferred obligation to affiliated company........ 33,284 33,284
Deferred DOE obligation.......................... 3,941 3,941
Deferred Seabrook tax settlement obligation...... 2,862 3,475
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126,953 115,472
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Commitments and Contingencies (Note 3) <F3>
Total Capitalization and Liabilities......... $ 926,068 $ 900,821
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See accompanying notes to financial statements.
3
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
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1994 1993
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(Thousands of Dollars)
Operating Revenues........................... $ 32,211 $ 29,153
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Operating Expenses:
Operation--
Fuel..................................... 1,449 1,758
Other.................................... 8,819 8,016
Maintenance................................ 2,895 1,663
Depreciation............................... 5,810 5,704
Federal and state income taxes............. 1,617 1,051
Taxes other than income taxes.............. 3,027 4,420
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Total operating expenses............. 23,617 22,612
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Operating Income............................. 8,594 6,541
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Other Income:
Deferred Seabrook return--other funds...... 3,243 3,685
Other, net................................. 356 106
Income taxes--credit....................... 856 159
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Other income, net.................... 4,455 3,950
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Income before interest charges....... 13,049 10,491
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Interest Charges:
Interest on long-term debt................. 16,005 16,006
Other interest............................. 124 177
Allowance for borrowed funds used during
construction............................. (185) (33)
Deferred Seabrook return--borrowed funds,
net of income taxes...................... (9,538) (10,844)
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Interest charges, net................ 6,406 5,306
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Net Income .................................. $ 6,643 $ 5,185
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See accompanying notes to financial statements.
4
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
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1994 1993
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(Thousands of Dollars)
Cash Flows From Operations:
Net Income .............................................. $ 6,643 $ 5,185
Adjusted for the following:
Depreciation ......................................... 5,810 5,704
Deferred income taxes and investment tax credits, net. 9,171 9,871
Deferred return - Seabrook............................ (12,782) (14,529)
Other sources of cash................................. 1,324 2,448
Other uses of cash.................................... (652) (1,184)
Changes in working capital:
Receivables ....................................... (6,810) 2,401
Materials and supplies............................. (822) (525)
Accounts payable................................... (4,603) 1,216
Other working capital (excludes cash).............. 2,320 (6,480)
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Net cash flows from (used for) investments................. (401) 4,107
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Cash Flows From Financing Activities:
Net increase (decrease) in short-term debt............ 11,500 (3,500)
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Net cash flows from (used for) financing activities........ 11,500 (3,500)
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Investment Activities:
Investments in plant:
Electric utility plant............................. (8,575) (1,497)
Nuclear fuel....................................... (521) (209)
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Net cash flows used for investments in plant.......... (9,096) (1,706)
Investment in nuclear decommissioning trust........... (930) (712)
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Net cash flows used for investments........................ (10,026) (2,418)
Net Increase (Decrease) In Cash for the Period............. 1,073 (1,811)
Cash-beginning of period................................... 8,404 6,264
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Cash-end of period......................................... $ 9,477 $ 4,453
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See accompanying notes to financial statements.
5
NORTH ATLANTIC ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
<F1>1. General
The accompanying unaudited consolidated financial statements should be read
in conjunction with the Annual Report of North Atlantic Energy Corporation
(the company or NAEC) on Form 10-K for the year ended December 31, 1993 (1993
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 March 31, 1994, the results of operations for the three months
ended March 31, 1994 and 1993, and the statements of cash flows for the three
months ended March 31, 1994, and 1993. The results of operations for the
three months ended March 31, 1994 and 1993 are not necessarily indicative of
the results expected for a full year.
Certain amounts in the accompanying financial statements of the company for
the period ended March 31, 1993 have been reclassified to conform with the
March 31, 1994 presentation.
<F2>2. Changes in Accounting Principles
Statement of Financial Accounting Standards No. 115 (SFAS 115): In May 1993,
the Financial Accounting Standards Board (FASB) issued SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities." SFAS 115 addresses
the accounting and reporting for certain investments in debt and equity
securities, and expands the use of fair value accounting for these
securities. SFAS 115 is applicable to NAEC with respect to its investments
in nuclear decommissioning trusts.
SFAS 115 requires investments in decommissioning trusts to be presented at
fair value and was adopted by NAEC on a prospective basis in the first
quarter of 1994.
<F3>3. Commitments and Contingencies
Seabrook 1 Construction Program: For information regarding the Seabrook 1
construction program, see the Notes to Financial Statements in NAEC's 1993
Form 10-K.
Environmental Matters: For information regarding Environmental Matters, see
the Notes to Financial Statements in NAEC's 1993 Form 10-K.
Nuclear Insurance Contingencies: For information regarding Nuclear Insurance
Contingencies, see the Notes to Financial Statements in NAEC's 1993 Form 10-
K.
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NORTH ATLANTIC ENERGY CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of North Atlantic Energy
Corporation's (NAEC or the company) financial condition and the principal
factors having an impact on the results of operations. The company is a
wholly owned subsidiary of Northeast Utilities (NU). This discussion should
be read in conjunction with the company's financial statements and footnotes
and the 1993 Form 10-K.
FINANCIAL CONDITION
Overview
On June 5, 1992 (the Acquisition Date), NU completed the acquisition of
Public Service Company of New Hampshire (PSNH). In a related transaction,
PSNH's 35.6 percent share of the Seabrook 1 nuclear power plant (Seabrook)
and other Seabrook-related assets were transferred to the company. On the
Acquisition Date, PSNH and NAEC entered into the Seabrook Power Contract,
under which PSNH is obligated to buy from the company all of the capacity and
output of Seabrook for a period equal to the length of the Nuclear Regulatory
Commission (NRC) full-power operating license for Seabrook (through 2026).
Under the Seabrook Power Contract, the company is not entitled to earn an
immediate cash return on the full amount of its Initial Investment in
Seabrook, but instead is required to phase-in its return on the initial
recoverable investment in Seabrook ($700 million). The company is entitled
to earn a noncash deferred return on the portion of the initial investment
not yet phased into rates. The company is currently earning a cash return on
55 percent of its Seabrook investment.
On February 15, 1994, NAEC acquired Vermont Electric Generation and
Transmission Cooperative's (VEG&T) 0.4 percent ownership interest of Seabrook
for approximately $6.4 million. NAEC will sell the output from this Seabrook
interest to PSNH under an agreement that has been approved by the Federal
Energy Regulatory Commission (FERC) and is substantially similar to the
Seabrook Power Contract between PSNH and NAEC that was effective on the
Acquisition Date.
Accounting Standards
In 1994, the company adopted Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 supersedes or amends other accounting
pronouncements related to the accounting for marketable securities. The
adoption of SFAS No. 115 has not had a material impact on the financial
condition or results of operations.
See the "Notes to Financial Statements" for additional information on this
new accounting standard.
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Rate Matters
PSNH's rates are determined under a rate agreement executed by the Governor
and the Attorney General of New Hampshire in 1989 and subsequently approved
by the New Hampshire Public Utilities Commission (NHPUC) (the Rate
Agreement). The Rate Agreement sets out a comprehensive plan of rates for
PSNH, providing for seven base rate increases of 5.5 percent per year (the
fixed-rate period) and a comprehensive fuel and purchased power adjustment
clause (FPPAC). The base rate increases are effective annually on each June
1. The fifth base rate increase will go into effect on June 1, 1994.
As prescribed by the Rate Agreement, NAEC is phasing in its $700-million
initial investment in Seabrook 1. As of March 31, 1994, NAEC has included in
rates $385 million of its initial Seabrook investment. The remaining
investment ($315 million) will be phased into rates over the next three years
beginning May 15, 1994. The deferred return associated with the amount of
investment that has not been included in rates is $149.1 million through
March 31, 1994 including $50.9 million which is recorded as utility plant.
This amount and the additional deferred amounts associated with the remaining
phase-in will be recovered over the period May 1997 through 2001.
Seabrook Performance
In the first quarter of 1994, Seabrook operated at a capacity factor of 73.6
percent as compared to 90.9 percent for the same period in 1993. The unit
was shutdown on January 25, 1994 for an unplanned outage and returned to
service on February 18, 1994. The unit began its scheduled 56-day refueling
and maintenance outage on April 9, 1994.
Liquidity and Capital Resources
Cash provided from operations decreased $4.5 million for the first three
months of 1994, compared with the same period in 1993 primarily due to a
decrease in working capital. Cash provided from financing activities was $15
million higher in 1994, as compared with 1993, primarily due to a net
increase in short-term debt used partially for investment in plant. Cash
used for investments was $7.6 million higher in 1994, as compared with 1993,
primarily due to higher expenditures for Seabrook as a result of the
unplanned outage in January 1994.
The company's construction program expenditures, including allowance for
funds used during construction (AFUDC), amounted to $8.6 million for the
first three months of 1994 as compared to $1.5 million during the same period
in 1993. The 1994 construction program expenditure increase is due primarily
to the Seabrook outage.
The company has ongoing cash requirements for Seabrook-related capital
expenditures, nuclear fuel expenditures, interest and operating expenses.
Such cash requirements are expected to be met from payments under the
Seabrook Power Contract and the Tax Allocation Agreement, except that to the
extent some or all of the capital expenditures and
8
nuclear fuel expenditures may have to be financed, the company expects to
borrow under the NU System Money Pool. At March 31, 1994, borrowings under
the Money Pool were $11.5 million.
A substantial portion of the company's cash flow for the first few years is
expected to consist of payments made by NU to the company under a Tax
Allocation Agreement that the company entered into with NU at the time of the
acquisition. The amount of such payments will decrease over time but is
expected to remain substantial during the first few years when the company is
expected to incur losses for tax purposes due to accelerated tax depreciation
of Seabrook. The company has received $8.4 million for the first three
months of 1994 under this agreement. No assurance can be given, however, as
to the extent of the future benefits, if any, that will actually accrue to
the company under the Tax Allocation Agreement.
RESULTS OF OPERATIONS
Comparison of the First Quarter of 1994 with the First Quarter of 1993
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Operating revenues represent amounts billed to PSNH under the terms of the
Seabrook Power Contract and billings to PSNH for decommissioning expense.
Operating revenues increased $3.1 million in the first quarter of 1994
compared with the same period in 1993, primarily due to the higher operation
and maintenance expenses attributable to the unplanned Seabrook outage and
the increased return associated with the phase-in of additional Seabrook
plant.
Operation and maintenance expenses increased $2.0 million in 1994, as
compared to 1993, primarily due to the unplanned Seabrook outage in 1994.
Taxes other than income taxes decreased $2.1 million in 1994, as compared to
1993, primarily because of the repeal of the Seabrook nuclear property tax in
1993.
Deferred Seabrook return decreased $1.8 million in 1994, as compared to 1993,
primarily because additional Seabrook investment was phased into rates in May
1993.
9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
1. On September 30, 1993, 29 participants in the New England
Power Pool (NEPOOL) (including NAEC) filed the 30th Amendment to the NEPOOL
Agreement (Amendment) at the Federal Energy Regulatory Commission (FERC).
The Amendment establishes a minimum size for generating units to be
considered for designation as "Pool-Planned Units." Such designation
entitles the owners of an interest in a unit to have their shares of the
output of the unit transmitted to them under a transmission rate that is
generally more favorable than the rates that would be available in the
absence of such a designation. Massachusetts Municipal Wholesale Electric
Company and several other municipal electric utilities moved to intervene and
protest the Amendment, claiming that it discriminates against transmission
dependent utilities.
On April 11, 1994, the FERC issued an Order setting the
Amendment for a "paper hearing" in May 1994. FERC intends to address whether
the Amendment eliminates transmission access and the discounted rates for
Pool-Planned Units. FERC has also broadened the proceeding to consider
whether NEPOOL's activities in this are consistent with the standards of the
Federal Power Act.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during this
reporting period.
10
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
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Registrant
Date May 9, 1994 By /s/ Bernard M. Fox
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Bernard M. Fox
Vice Chairman and Chief
Executive Officer, and
Director
Date May 9, 1994 By /s/ John W. Noyes
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John W. Noyes
Vice President and
Controller
11