<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 file number 1-14768
BEC ENERGY
(Exact name of registrant as specified in its charter)
Massachusetts 04-6830187
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Boylston Street, Boston, Massachusetts 02199
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 1-888-423-2364
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ------------------------
Common stock, par value $1 per share New York Stock Exchange
Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 26, 1999 computed as the average of the high and low
market price of the common stock as reported in the listing of composite
transactions for New York Stock Exchange listed securities in the Wall Street
Journal: $1,818,184,643.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 26, 1999
-------------------------- -----------------------------
Common Stock, $1 par value 46,471,173 shares
<PAGE>
BEC Energy
- --------------------------------------------------------------------------------
Form 10-K/A Annual Report
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Part I Page
- --------------------------------------------------------------------------------
<S> <C>
Item 1. Business 2
Item 2. Properties and Power Supply 6
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
- --------------------------------------------------------------------------------
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis 14
Item 8. Financial Statements and Supplementary Financial
Information 30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 58
Part III
- --------------------------------------------------------------------------------
Item 10. Trustees and Executive Officers of the Registrant 59
Item 11. Executive Compensation 62
Item 12. Security Ownership of Certain Beneficial Owners and
Management 70
Item 13. Certain Relationships and Related Transactions 71
Part IV
- --------------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 72
</TABLE>
1
<PAGE>
Part I
------
Item 1. Business
- -----------------
(a) General Development of Business
- -----------------------------------
Boston Edison Company (Boston Edison), an investor-owned regulated public
utility incorporated in 1886 under Massachusetts law, received final approval of
its reorganization plan to form a holding company structure from the Securities
and Exchange Commission (SEC) in May 1998. Effective May 20, 1998 the holding
company, BEC Energy (BEC), was formed with Boston Edison as a wholly owned
subsidiary of BEC. Effective June 25, 1998, Boston Energy Technology Group
(BETG) ceased being a subsidiary of Boston Edison and became a wholly owned
subsidiary of BEC. Unregulated activities continue to be conducted through
BETG.
Within its newly restructured industry, BEC has announced its intention to focus
its utility operations on the transmission and distribution of energy. The sale
of Boston Edison's fossil generating assets to Sithe Energies, Inc. (Sithe) was
completed in May 1998. In November 1998, Boston Edison signed an agreement with
Entergy Nuclear Generating Company (Entergy) to sell its wholly owned nuclear
generating unit, Pilgrim Nuclear Power Station (Pilgrim). BEC signed a merger
agreement with Commonwealth Energy System (CES) in December 1998 that will
create an energy delivery company serving approximately 1.3 million customers
located entirely within Massachusetts, including more than one million electric
customers in 81 communities and 240,000 gas customers in 51 communities.
(b) Financial Information about Industry Segments
- -------------------------------------------------
BEC's principal segment is the electric utility, Boston Edison. As noted above,
unregulated activities are conducted through BETG. Such unregulated activities
include telecommunications, construction management and district cooling. Refer
to Note J to the Consolidated Financial Statements in Item 8 for specific
financial information related to BEC's electric utility and unregulated
segments.
(c) Narrative Description of Business
- -------------------------------------
Principal Products and Services
Boston Edison currently supplies electricity at retail to an area of 590 square
miles, including the city of Boston and 39 surrounding cities and towns. The
population of the area served with electricity at retail is approximately 1.5
million. In 1998 Boston Edison served an average of approximately 660,000
customers. It also supplies electricity at wholesale for resale to other
utilities and municipalities. Electric operating revenues by class for the last
three years consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------
<S> <C> <C> <C>
Retail electric revenues:
Commercial 51% 51% 50%
Residential 27% 27% 27%
Industrial 9% 9% 9%
Other 1% 1% 2%
Wholesale and contract revenues 12% 12% 12%
=====================================================
</TABLE>
2
<PAGE>
Sources and Availability of Fuel
On May 15, 1998, Boston Edison completed the sale of its non-nuclear generating
assets to Sithe Energies. In April 1998, Boston Edison began soliciting
expressions of interest for the sale of its nuclear generating unit, Pilgrim as
part of the previously announced strategy to exit the generation business. On
November 19, 1998, Boston Edison announced that Entergy, a subsidiary of New
Orleans-based Entergy Corporation, had been selected as the winning bidder for
Pilgrim. A purchase and sale agreement has been signed and all required
approvals are anticipated in the second quarter of 1999. Company generation by
type of fuel for each of the last five years were as follows:
<TABLE>
<CAPTION>
Percentage of Company
Generation by Source (%)
--------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------
<S> <C> <C> <C> <C> <C>
Oil 8.1 32.0 16.1 17.5 27.8
Gas 20.8 31.1 33.3 39.9 31.6
Nuclear 71.1 36.9 50.6 42.6 40.6
=========================================
</TABLE>
The decrease in company oil and gas generation resulting from the fossil
divestiture was partially offset by higher purchased power in 1998 that included
a six-month transitional power purchase contract with Sithe that began in May.
In order to obtain fuel for use at Pilgrim Station, Boston Edison must obtain
supplies of uranium concentrates and secure contracts for these concentrates to
go through the processes of conversion, enrichment and fabrication of nuclear
fuel assemblies. Boston Edison currently has contracts for supplies of uranium
concentrates and the processes of conversion, enrichment and fabrication through
2002, 2000, 2004 and 2012, respectively. Following the planned sale of Pilgrim,
it is expected that each of these contracts for future commitments will either
be terminated or permitted to expire in accordance with their terms. Boston
Edison may be subject to a penalty of approximately $10 million to terminate one
of these contracts. Management anticipates any payment will be collected from
customers under the terms of the Boston Edison settlement agreement. None of
these supply contracts have been assigned to Entergy.
Franchises
Through its charter, which is unlimited in time, Boston Edison has the right to
engage in the business of producing and selling electricity, steam and other
forms of energy, has powers incidental thereto and is entitled to all the rights
and privileges of and subject to the duties imposed upon electric companies
under Massachusetts laws. The locations in public ways for electric
transmission and distribution lines are obtained from municipal and other state
authorities which, in granting these locations, act as agents for the state. In
some cases the action of these authorities is subject to appeal to the
Massachusetts Department of Telecommunications and Energy (DTE). The rights to
these locations are not limited in time, but are not vested and are subject to
the action of these authorities and the legislature. Pursuant to the
Massachusetts electric utility industry restructuring legislation enacted in
November 1997, the DTE has defined the service territory of Boston Edison based
on the territory actually served on July 1, 1997, and following, to the extent
possible, municipal boundaries. The legislation further provided that, until
terminated by effect of law or otherwise, Boston Edison shall have the exclusive
obligation to provide distribution service to all retail customers
3
<PAGE>
within such service territory. No other entity shall provide distribution
service within this territory without the written consent of Boston Edison which
consent must be filed with the DTE and the municipality so affected.
Seasonal Nature of Business
Kilowatt-hour (kWh) sales and revenues are typically higher in the winter and
summer than in the spring and fall as sales tend to vary with weather
conditions. Refer to the Selected Consolidated Quarterly Financial Data
(Unaudited) in Item 8 for specific financial information by quarter for 1998 and
1997.
Competitive Conditions
The utility industry has continued to change in response to the marketplace
demands for improved customer service and lower prices for energy. These
pressures have resulted in an increasing trend in the industry to seek
competitive advantages and other benefits through business combinations. On
December 5, 1998, BEC and CES, headquartered in Cambridge, Massachusetts,
entered into an Agreement and Plan of Merger (the Merger Agreement).
Management's Discussion and Analysis ("Merger with COM/Energy") in Item 7
provides further details regarding the Merger Agreement.
BEC's electric utility subsidiary, Boston Edison has been anticipating and
responding to changes in the electric energy business as a result of industry
restructuring proceedings at both the federal and state levels. Management's
Discussion and Analysis ("Retail Access") in Item 7 provides further details
regarding Boston Edison's response to the industry climate, including details of
its industry restructuring settlement agreement.
Environmental Matters
BEC and its subsidiaries are subject to numerous federal, state and local
standards with respect to the management of wastes, air and water quality and
other environmental considerations. These standards could require modification
of existing facilities or curtailment or termination of operations at these
facilities. They could also potentially delay or discontinue construction of
new facilities and increase capital and operating costs by substantial amounts.
Noncompliance with certain standards can, in some cases, also result in the
imposition of monetary civil penalties.
Environmental-related capital expenditures for the years 1998 and 1997 were $0.6
million and $1.4 million, respectively. Management believes that its remaining
operating facilities are in substantial compliance with currently applicable
statutory and regulatory environmental requirements. Additional expenditures
could be required as changes in environmental requirements occur.
Number of Employees
As of March 26, 1999, BEC had 2,893 full-time and 48 part-time utility employees
including 1,966 represented by two locals of the Utility Workers Union of
America, AFL-CIO. The locals' labor contracts are effective through May of the
year 2000. Management believes it has satisfactory employee relations.
Approximately 600 employees are expected to terminate employment with BEC as a
result of the divestiture of Pilgrim Station in 1999. Refer to the Generating
Assets Divestiture section of Item 7 for information regarding employees
affected by the nuclear divestiture.
4
<PAGE>
(d) Financial Information about Foreign and Domestic Operations and Export Sales
- --------------------------------------------------------------------------------
BEC's principal subsidiary, Boston Edison delivers electricity to retail and
wholesale customers in the Boston area. Neither Boston Edison, nor BEC's other
subsidiaries have any foreign operations or export sales.
(e) Additional Information
- --------------------------
Regulation
BEC's electric utility subsidiary, Boston Edison and its wholly owned
subsidiary, Harbor Electric Energy Company (HEEC), operate primarily under the
authority of the DTE, whose jurisdiction includes supervision over retail rates
for electricity and financing and investing activities. In addition, the
Federal Energy Regulatory Commission (FERC) has jurisdiction over various phases
of Boston Edison's business including rates for power sold at wholesale for
resale, facilities used for the transmission or sale of that power, certain
issuances of short-term debt and regulation of the system of accounts. BEC's
subsidiary BETG and its subsidiaries are not subject to such regulation.
The Nuclear Regulatory Commission (NRC) has broad jurisdiction over the siting,
construction and operation of nuclear reactors with respect to public health and
safety, environmental matters and antitrust considerations. A license granted
by the NRC may be revoked, suspended or modified for failure to construct or
operate a facility in accordance with its terms. Boston Edison currently holds
an operating license for Pilgrim Station which expires in 2012. Continuing NRC
review of existing regulations and certain operating occurrences at other
nuclear plants have periodically resulted in the imposition of additional
requirements for all nuclear plants in the United States, including Pilgrim
Station. NRC inspections and investigations can result in the issuance of
notices of violation. These notices can also be accompanied by orders directing
that certain actions be taken or by the imposition of monetary civil penalties.
In addition, management could undertake certain actions regarding Pilgrim
Station at the request or suggestion of its insurers or the Institute of Nuclear
Power Operations, a voluntary association of nuclear utilities dedicated to the
promotion of safety and reliability in the operation of nuclear power plants.
Nuclear power continues to be a subject of political controversy and public
debate manifested from time to time in the form of requests for various kinds of
federal, state and local legislative or regulatory action, direct voter
initiatives or referenda or litigation. Management cannot predict the extent,
cost or timing of any modifications to Pilgrim which could be necessary as a
result of additional regulatory or other requirements. As discussed in Sources
and Availability of Fuel of this item, Boston Edison entered into a purchase and
sale agreement with Entergy for the sale of Pilgrim Station. The DTE approved
the sale of Pilgrim in March 1999. Other required approvals are anticipated in
the second quarter of 1999. Such approvals are required for the completion of
the Pilgrim sale. Provided that all required approvals are received and the
sale of Pilgrim proceeds as planned, Boston Edison will transfer its regulatory
and legal liability and responsibility for Pilgrim to Entergy, except for any
outstanding liabilities related to pre-closing occurrences. If the required
approvals are not received as anticipated, the agreement with Entergy could be
terminated. If Boston Edison is ultimately unable to sell Pilgrim, management
expects it would recover all stranded Pilgrim costs, including decommissioning
under the Boston Edison settlement agreement.
5
<PAGE>
Capital Expenditures and Financings
The most recent estimates of capital expenditures (excluding nuclear fuel),
allowance for funds used during construction (AFUDC), long-term debt maturities
and preferred stock payment requirements for the years 1999 through 2003 are as
follows:
<TABLE>
<CAPTION>
(in thousands) 1999 2000 2001 2002 2003
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital
expenditures (1) $233,000 $200,000 $189,000 $180,000 $158,000
AFUDC $ 1,200 $ 1,200 $ 1,200 $ 1,200 $ 1,200
Long-term debt $ 1,600 $166,600 $ 1,600 $ 1,600 $151,650
Preferred stock $ - $ - $ 50,000 $ - $ -
==============================================================================
</TABLE>
(1) Includes both utility and nonutility ventures.
Management continuously reviews its capital expenditure and financing programs.
These programs and, therefore, the estimates included in this Form 10-K/A are
subject to revision due to changes in regulatory requirements, environmental
standards, availability and cost of capital, interest rates and other
assumptions.
Plant expenditures in 1998 were $120 million and consisted primarily of
additions to Boston Edison's distribution and transmission systems and
construction expenditures related to BEC's district cooling subsidiary,
Northwind Boston, LLC. The majority of these expenditures were for system
reliability and control improvements, customer service enhancements and capacity
expansion to allow for long range growth in the Boston Edison service territory.
Refer to the Liquidity section of Item 7 for more information regarding capital
resources to fund BEC's construction programs.
Item 2. Properties and Power Supply
- ------------------------------------
Total electric generation capacity from facilities owned by Boston Edison
consisted of the following:
<TABLE>
<CAPTION>
Year
Unit (a) Location Capacity (b) Type Installed
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pilgrim Nuclear Plymouth, Mass. 670 Nuclear 1972
Power Station
New Boston Station South Boston, Mass. 760 Fossil 1965-1967
Units 1 and 2
Mystic Station Everett, Mass.
Units 4-5-6 388 Fossil 1957-1961
Unit 7 592 Fossil 1975
Combustion turbine 14 Fossil 1969
generator
Combustion turbine Various 276 Fossil 1966-1971
generators (nine)
==============================================================================
</TABLE>
(a) As discussed in Sources and Availability of Fuel of this item, Boston
Edison completed the sale of its fossil generating assets to Sithe
6
<PAGE>
Energies in May 1998. IN addition, Pilgrim Station is expected to be sold
to Entergy in 1999.
(b) In megawatts (MW) based on winter capability audit results in 1997.
Boston Edison's high-tension transmission lines are generally located on land
either owned or subject to easements in its favor. Its low-tension distribution
lines are located principally on public property under permission granted by
municipal and other state authorities.
As of December 31, 1998, Boston Edison's transmission system consisted of 376
miles of overhead circuits operating at 115, 230 and 345 kilovolts (kV) and 171
miles of underground circuits operating at 115 and 345 kV. The substations
supported by these lines are 45 transmission or combined transmission and
distribution substations with transformer capacity of 11,053 megavolt amperes
(MVA), 57 4 kV distribution substations with transformer capacity of 932 MVA and
16 primary network units with 79 MVA capacity. In addition, high tension
service was delivered to 248 customers' substations. The overhead and
underground distribution systems cover approximately 3,700 and 3,200 circuit
miles, respectively. HEEC, Boston Edison's regulated subsidiary, has a
distribution system that consists principally of a 4.1 mile 115 kV submarine
distribution line and a substation which is located on Deer Island in Boston,
Massachusetts. HEEC provides the ongoing support required to distribute
electric energy to its one customer, the Massachusetts Water Resources
Authority, at this location.
Purchased Power Contracts
Boston Edison entered into a 13-month agreement effective December 1, 1998 to
transfer all of the unit output entitlements from its long-term power purchase
contracts to Select Energy (Select), a subsidiary of Northeast Utilities, Inc.
In return, Select will provide full energy service requirements to Boston
Edison, including New England Power Pool (NEPOOL) capability responsibilities,
at FERC approved tariff rates through December 31, 1999. For more information
regarding these long-term contracts refer to Note L to the Consolidated
Financial Statements in Item 8.
Sales Contracts
Boston Edison currently sells a percentage of Pilgrim Station's output to
Commonwealth Electric Company (Commonwealth), Montaup Electric Company (Montaup)
and various municipalities under long-term contracts. Under these contracts,
the utilities and municipalities pay their proportionate share of the costs of
operating the station and associated transmission facilities. The long-term
power sales contracts with Commonwealth and Montaup will be terminated upon the
closing of the sale of Pilgrim Station to Entergy. The contracts with the
municipalities remain in place whereby Boston Edison will purchase power for
resale to the municipalities under a purchase power agreement entered into with
Entergy. Refer to Notes K and L to the Consolidated Financial Statements in
Item 8 for more information regarding these contracts.
New England Power Pool
Boston Edison is a member of NEPOOL, a voluntary association of electric
utilities and other electricity suppliers in New England responsible for the
coordination, monitoring and directing of the operations of the major generating
and transmission facilities in the region. To obtain maximum benefits of power
pooling, the electric facilities of all member companies are
7
<PAGE>
directed by an Independent System Operator (ISO New England) as if they were a
single power system. This is accomplished through the use of a central
dispatching system that uses the lowest-priced generation and transmission
equipment available at any given time. NEPOOL's goal is to ensure a reliable
energy supply for the New England region at the lowest possible price.
During 1997, the power pool was restructured with changes taking effect to the
membership and governance provisions of the power pooling agreement along with
the transfer of operating responsibility of the integrated transmission and
generation system in New England to ISO New England. Previously, NEPOOL
dispatched generating units for operation based on the lowest operating costs of
available generation and transmission. Under the new structure, generators will
be required to provide ISO New England with market prices at which they will
sell short-term energy supply. These prices will form the basis for dispatch
anticipated to begin in the second quarter of 1999. As noted in the Purchased
Power Contracts section above, Boston Edison will receive all of its power
supply requirements from Select in 1999. Therefore, the change to NEPOOL's
operations and pricing structure is expected to have no material impact on
Boston Edison's costs for purchased electric energy.
Item 3. Legal Proceedings
- --------------------------
Industry and corporate restructuring legal proceedings
The DTE order approving the Boston Edison settlement agreement and the DTE order
approving the formation of BEC as a holding company were appealed by certain
parties to the Massachusetts Supreme Judicial Court (SJC). In December 1998,
the SJC dismissed the appeal of the order approving the holding company
formation. One settlement agreement appeal remains pending, however there has
to date been no briefing, hearing or other action taken with respect to this
proceeding.
In addition, along with other Massachusetts investor-owned utilities, Boston
Edison has been named as a defendant in a class action suit seeking to declare
certain provisions of the Massachusetts electric industry restructuring
legislation unconstitutional.
Management is currently unable to determine the outcome of these outstanding
proceedings however, if an unfavorable outcome were to occur, there could be a
material adverse impact on business operations, the consolidated financial
position or results of operations for a reporting period.
A referendum seeking repeal of the Massachusetts electric industry restructuring
legislation that was enacted in November 1997 was overwhelmingly defeated by a
better than 70% to 30% margin in a state-wide general election held on November
3, 1998. This outcome allows the comprehensive framework established for the
restructuring of the electric industry to continue as intended under the enacted
legislation.
Regulatory proceedings
In October 1997, the DTE opened a proceeding to investigate Boston Edison's
compliance with the 1993 order which permitted the formation of BETG and
authorized Boston Edison to invest up to $45 million in unregulated activities.
Hearings began in the fourth quarter of 1998 and are expected to be completed in
the first half of 1999.
8
<PAGE>
Each of the Reading Municipal Light Department, the Littleton Electric Light
Department and the West Boylston Municipal Light Department have filed separate
claims for arbitration in Massachusetts alleging that the proposed transfer of
Pilgrim Station constitutes a breach of their respective power sale agreements
and seeking to terminate those agreements. The remaining municipal light
departments have also indicated that they plan to file similar claims for
arbitration. Boston Edison has requested the FERC to exercise its pre-emptive
authority to consider the claims of the municipal light departments. In the
event that either the FERC determines, or as a result of the arbitrations, that
the contracts should be terminated, Boston Edison would continue to be obligated
to purchase power from Entergy that it intended to resell to the municipal light
departments. Boston Edison may not be able to resell such power in the short-
term power exchange at a price equal to or greater than the price it is required
to pay to Entergy. However, Boston Edison has filed at the DTE for recovery of
any such shortfall as part of its Pilgrim divestiture filing through the
transition charge.
Management is currently unable to determine the outcome of these proceedings
however, if an unfavorable outcome were to occur, there could be a material
adverse impact on business operations, the consolidated financial position or
results of operations for a reporting period.
Other litigation
In October 1998, the town of Plymouth, Massachusetts, the site of Pilgrim
Station, filed suit against Boston Edison. The town claimed that Boston Edison
wrongfully failed to execute an agreement with the town for payments in addition
to taxes due to the town under the Massachusetts electric industry restructuring
legislation. Boston Edison and the town agreed on a 15-year, $141 million
property tax package in March 1999. Payments in each of the first four years
are approximately $15 million after which payments gradually decline. All
payments under this agreement will be recovered from customers through the
transition charge.
In the normal course of its business BEC and its subsidiaries are also involved
in certain other legal matters. Management is unable to fully determine a range
of reasonably possible legal costs in excess of amounts accrued. Based on the
information currently available, it does not believe that it is probable that
any such additional costs will have a material impact on its consolidated
financial position. However, it is reasonably possible that additional legal
costs that may result from a change in estimates could have a material impact on
the results of a reporting period in the near term.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during the fourth
quarter of 1998.
9
<PAGE>
Executive Officers of the Registrant
- ------------------------------------
The names, ages, positions and business experience during the past five years of
all the executive officers of BEC Energy (Boston Edison, prior to May, 1998) as
of March 1, 1999 are listed below. There are no family relationships between
any of the officers, nor any arrangement or understanding between any officer
and another person pursuant to which the position as officer is held. Officers
hold office until the first meeting of the trustees following the next annual
meeting of the stockholders and until their respective successors are chosen and
qualified.
Business Experience
Name, Age and Position During Past Five Years
- ---------------------- ----------------------
Thomas J. May, 51 Chairman of the Board, President
Chairman of the Board, President and Chief Executive Officer (since
and Chief Executive Officer 1995), Chairman of the Board and
Chief Executive Officer (1994-
1995), President and Chief
Operating Officer (1993-1994);
Director (since 1991)
Chairman of the Board, President
and Chief Executive Officer and
Director, Boston Energy Technology
Group, Inc.; Director, Harbor
Electric Energy Company, Boston
Edison Services, Inc., BecoCom,
Inc., Northwind Boston, LLC and
Coneco Corp.
Douglas S. Horan, 49 Senior Vice President - Strategy
Senior Vice President - Strategy and Law and General Counsel
and Law and General Counsel (since 1995), Vice President and
General Counsel (1994-1995),
Deputy General Counsel (1991-1994)
Senior Vice President, General
Counsel and Director, Harbor
Electric Energy Company; Senior
Vice President and Director,
BecoCom, Inc.; Director, Boston
Energy Technology Group, Inc.,
Boston Edison Services, Inc. and
Coneco Corp.
10
<PAGE>
Business Experience
Name, Age and Position During Past Five Years
- ---------------------- ----------------------
James J. Judge, 43 Senior Vice President - Corporate
Senior Vice President - Corporate Services and Treasurer (since
Services and Treasurer 1995), Assistant Treasurer (1989-
1995), Director - Corporate
Planning (1993-1995)
Senior Vice President, Treasurer
and Director, Harbor Electric
Energy Company and Boston Energy
Technology Group, Inc.; Senior
Vice President and Director,
Boston Edison Services, Inc. and
BecoCom, Inc.; Director, Northwind
Boston, LLC and Coneco Corp.
Robert J. Weafer, Jr., 52 Vice President - Finance,
Vice President - Finance, Controller and Chief Accounting
Controller and Chief Officer (since 1991)
Accounting Officer
President and Assistant Treasurer,
Coneco Corp., Assistant Treasurer,
Harbor Electric Energy Company,
Boston Energy Technology Group,
Inc. and Boston Edison Services,
Inc.
Theodora S. Convisser, 51 Clerk of the Corporation (since
Clerk of the Corporation 1986) and Assistant General
Counsel (since 1984)
Clerk, Harbor Electric Energy
Company, Boston Energy Technology
Group, Inc., Boston Edison
Services, Inc., BecoCom, Inc.,
Northwind Boston, LLC and Coneco
Corp.
11
<PAGE>
Part II
-------
Item 5. Market for the Registrant's Common Stock and Related Stockholder
- -------------------------------------------------------------------------
Matters
- -------
(a) Market Information
- ----------------------
BEC's common stock is listed on the New York and Boston Stock Exchanges.
The high and low market value per share of common stock as reported in the Wall
Street Journal for each of the quarters in 1998 and 1997 was as follows. (Prior
to May 1998, the information listed refers to Boston Edison common stock.)
<TABLE>
<CAPTION>
1998 1997
------------------- ----------------
High Low High Low
--------- -------- ------- -------
<S> <C> <C> <C> <C>
First quarter $41 15/16 $35 1/16 $27 3/8 $26
Second quarter $42 5/8 $ 38 7/8 $26 5/8 $24 5/8
Third quarter $44 5/16 $ 37 3/4 $30 7/8 $26 1/2
Fourth quarter $44 15/16 $ 39 5/8 $38 3/8 $30 1/4
========= ======== ======= =======
</TABLE>
(b) Holders
- -----------
As of March 26, 1999, there were 29,234 holders of BEC common stock.
(c) Dividends
- -------------
Dividends declared per share of common stock for each of the quarters in 1998
and 1997 were as follows. (Prior to May 1998, the information listed refers to
Boston Edison common stock.)
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
First quarter $0.470 $0.470
Second quarter $0.470 $0.470
Third quarter $0.470 $0.470
Fourth quarter $0.485 $0.470
====== ======
</TABLE>
12
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
The following table summarizes five years of selected consolidated financial
data (in thousands, except per share data).
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating
revenues $1,622,515 $1,778,531 $1,668,856 $1,628,503 $1,544,735
Net income $ 141,046 $ 144,642 $ 141,546 $ 112,310 $ 125,022
Earnings per
share of
common
stock:
Basic $ 2.76 $ 2.71 $ 2.61 $ 2.08(a) $ 2.41
Diluted $ 2.75 $ 2.71 $ 2.61 $ 2.08(a) $ 2.41
Total
assets $3,213,899 $3,622,347 $3,729,291 $3,637,170 $3,608,699
Long-term
debt $ 955,563 $1,057,076 $1,058,644 $1,160,223 $1,136,617
Redeemable
preferred
stock $ 92,040 $ 163,093 $ 203,419 $ 206,514 $ 208,514
Cash
dividends
declared
per common
share $ 1.895 $ 1.880 $ 1.880 $ 1.835 $ 1.775
==============================================================================
</TABLE>
(a) Includes $0.44 per share restructuring charge. Excluding the
restructuring charge, 1995 earnings per share were $2.52.
13
<PAGE>
Item 7. Management's Discussion and Analysis
- ---------------------------------------------
Merger with COM/Energy
The utility industry has continued to change in response to the marketplace
demands for improved customer service and lower prices for energy. These
pressures have resulted in an increasing trend in the industry to seek
competitive advantages and other benefits through business combinations. On
December 5, 1998, BEC Energy (BEC) and Commonwealth Energy System (CES),
headquartered in Cambridge, Massachusetts, entered into an Agreement and Plan of
Merger (the Merger Agreement). Pursuant to the Merger Agreement, BEC and CES
will be merged into a new holding company which has not yet been named (Newco).
Holders of BEC common shares will receive one share of Newco common stock for
each share held while CES common shareholders will receive 1.05 shares of Newco
common stock for each share held. Alternatively, current BEC and CES common
shareholders have the right to receive $44.10 of cash for each share held, up to
an aggregate maximum of $300 million. At the close of the merger, BEC
shareholders are expected to own approximately 68% of Newco common stock and CES
shareholders are expected to own approximately 32%. The merger is expected to
occur shortly after the satisfaction of certain conditions, including the
receipt of certain regulatory approvals including that of the Massachusetts
Department of Telecommunications and Energy (DTE). The regulatory approval
process is expected to be completed during the second half of 1999.
The merger will create an energy delivery company serving approximately 1.3
million customers located entirely within Massachusetts, including more than one
million electric customers in 81 communities and 240,000 gas customers in 51
communities.
The Merger Agreement may be terminated under certain circumstances, including by
any party if the merger is not consummated by December 5, 1999, subject to an
automatic extension of six months if the requisite regulatory approvals have not
yet been obtained by such date. The merger will be accounted for using the
purchase method of accounting.
Upon effectiveness of the merger, Thomas J. May, BEC's current Chairman,
President and Chief Executive Officer (CEO), will become the Chairman and CEO of
Newco. Russell D. Wright, CES' current President and CEO, will become the
President and Chief Operating Officer of Newco and will serve on Newco's board
of trustees. Also, upon the effective date of the merger, Newco's board of
trustees will consist of BEC's and CES' current trustees.
Retail Access
BEC's electric utility subsidiary, Boston Edison Company (Boston Edison) has
been anticipating and responding to the changes in the electric energy business
as a result of industry restructuring proceedings at both federal and state
levels. In January 1998, the DTE approved Boston Edison's restructuring
settlement agreement. The DTE found that the settlement agreement substantially
complied or was consistent with key provisions of a Massachusetts law enacted in
November 1997 establishing a comprehensive framework for the restructuring of
the electric utility industry. Prior to this settlement agreement, retail
electric customers within Boston Edison's service territory received all
services related to the provision of electricity from Boston Edison. This
included the procurement of the electricity supply (either through purchase
contracts or generation) and the transmission and distribution to customers'
facilities. Major provisions of
14
<PAGE>
the settlement agreement included the ability for retail electric customers to
choose their electricity supplier (referred to as retail access) effective
March 1, 1998 (the retail access date). Boston Edison will continue to provide
all transmission and distribution of electricity services to all of its retail
customers. Under its settlement agreement, Boston Edison provides standard offer
service to all customers of record as of the retail access date. Customers
continuing to buy electricity under the standard offer are receiving service at
rates designed to give 10% savings from the rates in effect prior to the retail
access date. These standard offer customers will realize an additional 5%
average savings, after an adjustment for inflation, by September 1, 1999. Boston
Edison expects to be able to meet this additional rate reduction as a result of
the divestiture of the fossil generating assets which is discussed below. The
proceeds from the divestiture are being utilized to reduce customer rates. New
retail customers in the Boston Edison service territory and previously existing
customers that are no longer eligible for the standard offer due to choosing a
competitive supplier are on default service. The price of default service is
intended to reflect the average competitive market price for power. As of
December 31, 1998, 87% of customers are receiving standard offer service, while
13% are receiving default service. No customers received generation service from
competitive suppliers during 1998. Refer also to the Electric revenues section
for more information.
Generating Assets Divestiture
The Boston Edison restructuring settlement agreement included a provision for
the divestiture of its fossil generating assets no later than six months after
the retail access date. On May 15, 1998, Boston Edison completed the sale of
its non-nuclear generating assets to Sithe Energies, Inc. (Sithe). Boston
Edison received proceeds from the sale of $655 million, including $121 million
for a six-month transitional power purchase contract. The amount received above
net book value on the sale of these assets is being returned to Boston Edison's
customers over the settlement period. That amount is partially offset by the
costs to provide standard offer service incurred by Boston Edison's fossil
generating assets prior to the divestiture which are recoverable under Boston
Edison's settlement agreement.
In April 1998, Boston Edison began soliciting expressions of interest for the
sale of its nuclear generating unit, Pilgrim Nuclear Power Station (Pilgrim) as
part of the previously announced strategy to exit the generation business. On
November 19, 1998, Boston Edison announced that Entergy Nuclear Generating
Company (Entergy), a subsidiary of New Orleans-based Entergy Corporation, had
been selected as the winning bidder for Pilgrim. In the nation's first
competitive bid process for a nuclear power plant, Entergy is expected to
purchase Pilgrim in a deal valued at an estimated $121 million. In addition,
under the agreement Boston Edison will fully fund and transfer its
decommissioning trust fund to Entergy and Entergy will then assume full
liability and responsibility for decommissioning the Pilgrim site. A purchase
and sale agreement has been signed and all required approvals are anticipated in
the second quarter of 1999. The purchase price includes reimbursement for costs
to be expended by Boston Edison in 1999 primarily related to the refueling and
maintenance outage scheduled for May 1999. Therefore, the actual proceeds could
be impacted by the ultimate timing of the transaction.
As part of a benefits package offered to employees affected by the nuclear
divestiture, eligible non-represented nuclear and designated nuclear support
employees were offered unreduced retirement and transition benefits under a
voluntary early retirement program (VERP). Sixteen employees elected to
participate in the VERP. A retention benefit program was offered to all non-
15
<PAGE>
represented nuclear and designated nuclear support employees that did not elect
or were ineligible to retire under the VERP who continue to work through the
sale closing date. It is anticipated that approximately 300 non-represented
nuclear and designated nuclear support employees will receive one-time retention
payments under this program. Costs associated with the VERP and retention
program are recoverable under Boston Edison's settlement agreement. At December
31, 1998, approximately $24 million in one-time benefit charges were deferred as
a regulatory asset related to the nuclear divestiture.
For more information on the nuclear divestiture refer to the November 23, 1998
BEC or Boston Edison Report on Form 8-K announcing the purchase and sale
agreement with Entergy.
BEC Energy
Boston Edison received final approval of its reorganization plan to form a
holding company structure from the Securities and Exchange Commission (SEC) in
May 1998. Effective May 20, 1998, BEC was formed with Boston Edison as a wholly
owned subsidiary of BEC. Effective June 25, 1998, Boston Energy Technology
Group (BETG) ceased being a subsidiary of Boston Edison and became a wholly
owned subsidiary of BEC. The holding company structure clearly separates the
unregulated and regulated operations of BEC and provides management with greater
organizational flexibility in order to take advantage of utility and nonutility
business opportunities in a more timely manner, including the merger with CES.
Joint Ventures
Unregulated activities continue to be conducted through BETG. During 1997, BETG
entered into two joint venture agreements. BETG's joint venture agreement with
RCN Telecom Services, Inc. (RCN) established a limited liability company (LLC)
that competes directly with local and long-distance telephone, video and
Internet access companies for telecommunications-related services. BETG owns
49% of the LLC while RCN owns 51% and maintains day-to-day management
responsibility. As part of the joint venture agreement, BETG has the option to
exchange certain portions of its joint venture interest for shares of RCN
Corporation common stock. During 1998, BETG exercised its option to convert a
portion of its interest with a cost of $11 million. BETG expects to receive
approximately 1.1 million RCN Corporation common shares during the first quarter
of 1999. As a result of this conversion, BETG's ownership interest in the joint
venture is reduced from 49% to 46%.
BETG also established an energy marketing venture with Williams Energy Services
Company (WESCO), a subsidiary of The Williams Companies, Inc. in 1997. In
August 1998, BEC and WESCO entered into an agreement to transfer BETG's 50%
interest in their joint venture to WESCO. This transaction did not have a
material impact on BEC's consolidated financial position or results of
operations.
Results of Operations
1998 versus 1997
Basic and diluted earnings per common share were $2.76 and $2.75, respectively
in 1998 compared to $2.71 and $2.71 in 1997, a 1.8% increase in basic earnings
as described below.
16
<PAGE>
Operating revenues
Operating revenues decreased 8.8% from 1997 as follows:
<TABLE>
<S> <C>
(in thousands)
- -------------------------------------------------------
Retail revenues $(148,272)
Wholesale revenues (3,721)
Short-term sales and other revenues (4,023)
- -------------------------------------------------------
Decrease in operating revenues $(156,016)
=======================================================
</TABLE>
Retail revenues were $1,375 million in 1998 compared to $1,523 million in 1997,
a decrease of $148 million or 10%. Retail revenues reflect the impact of the
mandated 10% retail rate reduction. A 2.0% increase in retail kilowatt-hour
(kWh) sales in 1998 partially offset the impact of the rate reduction. Retail
revenues also reflect a decrease due to the timing effect of fuel and purchased
power cost recovery. Prior to its cessation as of March 1, 1998, the fuel
clause charge was lower than the prior year as the 1997 charge reflected the
recovery of substantial prior year undercollections. Fuel clause revenues were
offset by fuel and purchased power expenses and, therefore, had no net effect on
earnings.
Short-term sales and other revenues were $105 million in 1998 compared to $109
million in 1997, a decrease of $4 million or 4%. Boston Edison experienced a
$20 million decrease in short-term power sales revenues consistent with an 11%
reduction in short-term kWh sales, primarily as a result of the expiration of
certain short-term sales contracts. The decrease has no net impact on earnings
as it is offset by a corresponding decrease in fuel and purchased power
expenses. Additional decreases include a $2 million decrease from Boston
Edison's Harbor Electric Energy Company subsidiary and a $2 million decrease
from BETG. These decreases were partially offset by the recognition of $20
million of revenue related to the support of standard offer service provided by
Boston Edison's fossil generating units prior to divestiture.
Operating expenses
Fuel and purchased power expense was $568 million in 1998 compared to $679
million in 1997, a decrease of $111 million or 16%. Fuel expense related to
fossil generation units decreased approximately $161 million. This decrease
reflects the divestiture of those units in May 1998. Purchased power expense
increased approximately $94 million, an increase of 26%. This increase reflects
Boston Edison's purchased power requirements in the absence of its fossil
generating units. Prior to the retail access date, the fuel and purchased power
clause component of its electric rates allowed Boston Edison to adjust its rates
to fully collect fuel and purchased power costs. Since the retail access date,
Boston Edison similarly adjusts its electric rates to fully collect the cost of
providing standard offer and default service. Fuel and purchased power expense
reflects a reduction of approximately $7 million related to these mechanisms in
1998. In 1997, fuel and purchased power expense reflects an increase of
approximately $37 million related to these mechanisms. Due to the rate
adjustment mechanisms, this net reduction in operating expenses of $44 million
had no net impact on earnings.
Operations and maintenance expense was $386 million in 1998 compared to $423
million in 1997, a decrease of $37 million or 9%. The most significant driver
of this decrease was a $28 million decrease in power production expenses
primarily due to the fossil divestiture in May 1998. Employee benefit expenses
decreased by approximately $24 million due to lower pension and other
postretirement benefit costs. These favorable impacts were partially offset by
a $4 million increase in general and administrative expenses primarily due
17
<PAGE>
to spending related to electric industry restructuring and the year 2000
computer issue and a $7 million increase in expenses related to parent company
costs and unregulated ventures.
Depreciation and amortization expense was $192 million in 1998 compared to $189
million in 1997, an increase of $3 million or 1%. Depreciation on distribution
utility plant increased approximately $10 million, as Boston Edison was required
to increase this depreciation under the terms of its settlement agreement. This
increase was partially offset by an $8.7 million nonrecurring charge recorded in
1997 to reflect the removal of specific nuclear-related intangible assets from
the balance sheet. These intangible assets related to costs incurred for plant
design and safety studies. These studies were superceded by updated studies.
Demand side management (DSM) and renewable energy programs expense was $52
million in 1998 compared to $30 million in 1997, an increase of $22 million or
74%. This increase reflects an increase in the required spending for DSM
programs in 1998. In addition, the renewable energy programs expense of $8
million in 1998 is the result of a new state mandate for the funding of
renewable energy that became effective March 1, 1998. Renewable energy expenses
are collected through a separate rate mechanism and, therefore, have no net
effect on earnings.
Property and other taxes were $84 million in 1998 compared to $106 million in
1997, a decrease of $22 million or 21%. The decrease is due to a decrease in
municipal property taxes resulting from the fossil divestiture.
Operating income taxes were $98 million in 1998 compared to $94 million in 1997,
an increase of $4 million or 4%. The increase in operating income taxes is
primarily the result of a $4 million reduction in investment tax credit
amortization due to the divestiture of the fossil generating assets and non-
deductible expenses incurred at BETG. Refer to Note C to the Consolidated
Financial Statements for more information on income taxes.
Other income (expense), net
Other expense, net of tax was $11.8 million in 1998 compared to $6.4 million in
1997, an increase of $5.4 million or 85%. Prior to the consideration of tax
benefits, other expenses were $35.9 million in 1998 compared to $17.7 million in
1997, an increase of $18.2 million. BETG's equity losses in the RCN and
EnergyVision joint ventures were $19.7 million in 1998 compared to $9.2 million
in 1997. The $10.5 million increase is primarily due to RCN which began
operations in the second quarter of 1997. 1998 also reflects $23.2 million of
costs related to the fossil divestiture that is offset by the recognition of
investment tax credits disclosed below, $3.5 million related to discontinued
operations of BETG's subsidiary, Coneco and $2.6 million of costs associated
with the referendum that sought to repeal the Massachusetts electric industry
restructuring law. These negative amounts are offset in 1998 by $7.6 million of
interest income due to levels of cash on hand as a result of the proceeds from
the fossil divestiture. In addition to the other items mentioned, 1997 results
reflect a charge of $12.9 million from the nuclear asset impairment which is
discussed further in Note B to the Consolidated Financial Statements. Offsetting
the negative impacts in 1997 was $5.0 million of interest income received
related to the favorable outcome of an IRS audit. Other miscellaneous income was
$5.5 million in 1998 and other miscellaneous expense was $0.6 million in 1997.
Income tax benefits related to other expenses were $24.1 million in 1998 and
$11.3 million in 1997. The 1998 income tax benefit includes $10.9 million
related to the
18
<PAGE>
recognition of previously deferred investment tax credits associated with the
fossil generating stations.
Interest charges
Interest charges on long-term debt were $83 million in 1998 compared to $92
million in 1997, a decrease of $9 million or 10%. The decrease reflects $6
million due to the maturing of $100 million of 5.95% debentures in March 1998
and the cessation of amortization of the associated redemption premiums and $2
million due to the redemption of a $100 million 6.662% bank loan in June 1998.
Short-term interest charges were $9 million in 1998 compared to $15 million in
1997, a decrease of $6 million or 40%. Approximately $7 million of the decrease
is due to the redemption of Boston Edison's outstanding short-term debt with
proceeds from the fossil divestiture. This was partially offset by $1 million
in interest charges from BEC's line of credit entered into in 1998.
Preferred stock dividends
Preferred stock dividends were $9 million in 1998 compared to $13 million in
1997, a decrease of $4 million or 33%. Preferred stock dividends decreased $1
million as a result of Boston Edison's redemption of 40,000 shares of 7.27%
series cumulative preferred stock in May 1998 and 1997 and the remaining 320,000
shares in July 1998. An additional $3 million decrease was due to the
redemption of 400,000 shares of 7.75% series cumulative preferred stock in July
1998 and 400,000 shares of 8.25% series in June 1997. Refer to Note G to the
Consolidated Financial Statements.
1997 versus 1996
Basic and diluted earnings per common share were $2.71 in 1997 compared to $2.61
in 1996, a 3.8% increase as described below.
Operating revenues
Operating revenues increased 6.6% over 1996 as follows:
<TABLE>
<S> <C>
(in thousands)
- ------------------------------------------------------
Retail revenues $ 88,484
Wholesale revenues (765)
Short-term sales and other revenues 21,956
- ------------------------------------------------------
Increase in operating revenues $109,675
======================================================
</TABLE>
Retail revenues were $1,523 million in 1997 compared to $1,435 million in 1996,
an increase of $88 million or 6%. Retail base revenues, consistent with the
0.8% increase in kWh sales in 1997, were $923 million compared to $920 million
in 1996. Increases due to warmer than normal temperatures in June and July,
cooler temperatures in October and December and the stronger local economy were
offset by milder than normal winter conditions during the first quarter of 1997
and lower industrial sales. Industrial sales continued to be adversely affected
by the decline in manufacturing activity in the Boston Edison service territory.
In addition, revenues in 1996 reflect one more day of sales due to the leap
year. The increase in retail electric revenues is primarily due to the timing
effect of fuel and purchased power cost recovery. An $88 million increase in
fuel and purchased power clause revenues reflects the recovery of substantial
prior year undercollections. These higher revenues are offset by higher fuel
and purchased power expenses and, therefore, have no net effect on earnings.
Pilgrim performance revenues, which varied annually based on the operating
performance of Pilgrim Station
19
<PAGE>
prior to the retail access date, decreased $4 million primarily due to a lower
annual capacity factor effective November 1996 reflecting the scheduled
refueling and maintenance outage in the first quarter of 1997.
Short-term sales and other revenues were $109 million in 1997 compared to $87
million in 1996, an increase of $22 million or 25%. Short-term sales revenues
increased approximately $16 million. This was due to the continued reduction in
available nuclear energy supply in New England combined with a 42% increase in
fossil generation allowing for increased sales to the power exchange. Revenues
from these short-term sales resulted in a corresponding reduction to future fuel
and purchased power billings to retail customers and, therefore, had no net
effect on earnings.
Operating expenses
Fuel and purchased power expense was $679 million in 1997 compared to $589
million in 1996, an increase of $90 million or 15%. This increase reflects $57
million related to the timing effect of fuel and purchased power cost recovery.
In addition, company fuel expense increased $50 million primarily due to the
increase in fossil generation. These increases were partially offset by a $22
million decrease in power exchange purchases. These fuel and purchased power
expenses are substantially recoverable through fuel and purchased power
revenues.
Operations and maintenance expense was $423 million in both 1997 and 1996. The
$6 million incremental impact associated with service restoration efforts
resulting from the severe snow storm in April 1997 that struck the greater
Boston area offset the impact of lower spending from cost control efforts and
significantly less overhaul activity at the fossil generating units.
Depreciation and amortization expense was $189 million in 1997 compared to $186
million in 1996, an increase of $3 million or 2%. An $8.7 million nonrecurring
charge was recorded to depreciation expense in the third quarter of 1997 to
reflect the removal of specific nuclear-related intangible assets from the
balance sheet. These intangible assets related to costs incurred for plant
design and safety studies. These studies were superceded by updated studies.
In 1996 a $5.2 million adjustment was recorded to correct the accumulated
depreciation balance of certain large computer equipment.
Operating income taxes were $94 million in 1997 compared to $88 million in 1996,
an increase of $6 million or 6%. Income taxes increased as a result of higher
net income offset by the impact of the favorable outcome of an Internal Revenue
Service (IRS) appeal received in the third quarter related to investment tax
credits (ITC). This also resulted in an increase in unamortized ITC which is
being reflected as a reduction to income tax expense over the life of the
related assets. Refer to Note C to the Consolidated Financial Statements for
more information on income taxes.
Other income (expense), net
Other expense, net was $6 million in 1997 compared to income of $4 million in
1996, a net increase in expense of $10 million. 1997 reflects the charge of
approximately $13 million ($8 million after tax) from the nuclear asset
impairment which is further discussed in Note B to the Consolidated Financial
Statements in addition to BETG equity losses of $9 million ($6 million after
tax). These decreases were partially offset by approximately $5 million ($3
million after tax) in interest income from the IRS appeal.
20
<PAGE>
Interest charges
Interest charges on long-term debt were $92 million in 1997 compared to $95
million in 1996, a decrease of $3 million or 2%. The decrease reflects $6
million due to the maturing of $100 million of 5.70% debentures in March 1997
and the cessation of amortization of the associated redemption premiums. This
was partially offset by a $5 million increase due to the March 1997 issuance of
a $100 million 6.662% bank loan due in 1999. The decrease also reflects $2
million from the maturity of $100 million of 5 1/8% debentures in March 1996.
Allowance for borrowed funds used during construction (AFUDC), which represents
the financing costs of construction, was $1 million in 1997 compared to $2
million in 1996, a decrease of $1 million or 48%. AFUDC decreased primarily due
to a lower average construction work in progress (CWIP) balance in 1997. The
1996 average CWIP balance included nuclear fuel purchased in anticipation of
Pilgrim Station's scheduled refueling outage in the first quarter of 1997.
Preferred stock dividends
Preferred stock dividends were $13 million in 1997 compared to $15 million in
1996, a decrease of $2 million or 14%. The decrease in preferred stock
dividends is the result of the redemption of 20,000 of mandatory and 20,000 of
optional shares of 7.27% series cumulative preferred stock in May 1997 and
400,000 shares of 8.25% series in June 1997. Refer to Note G to the
Consolidated Financial Statements.
Electric Sales and Revenues
Electric sales
Total kWh sales increased 2.3%. The 2.0% increase in 1998 retail kWh sales was
primarily due to the positive impact of a continued strong local economy on
commercial customers. The commercial sector represents approximately 50% of
electric operating revenues. The Boston area commercial office vacancy rate is
at a 17-year low. In addition, the Massachusetts employment rate increased 2.8%
over 1997. These positive impacts associated with the economic conditions along
with warmer than normal summer weather were partially offset by the mild winter
weather conditions in the first quarter of 1998. Wholesale sales increased
primarily due to a 32% increase in sales to Pilgrim contract customers. That
increase reflects a 97% capacity factor in 1998, the plant's highest annual
performance ever achieved. The lower level of sales in 1997 reflected that
year's refueling outage. Short-term sales decreased due to lower sales to other
contract customers.
Retail kWh sales increased 0.8% in 1997. This was primarily attributable to the
commercial sector. The commercial increase reflects the impact of a continued
strong economy in the Boston area and very warm temperatures in June and July
and cooler than normal temperatures in the fourth quarter. Hotel occupancy
rates and non-manufacturing employment continued to increase in 1997.
Residential revenues were also positively impacted by the weather. These
positive impacts were offset by milder winter weather in the first quarter of
1997 and declines in manufacturing employment affecting the industrial sector.
In addition, revenues in 1996 reflect one more day of sales due to the leap
year. Total kWh sales increased 3.1% as a result of the continued reduction in
available nuclear energy supply in New England. This reduction, combined with
an increase in fossil generation allowed for increased sales to the power
exchange.
21
<PAGE>
Electric revenues
Boston Edison's electric delivery business provides standard offer customers
service at rates designed to give 10% savings from the rates in effect prior to
the retail access date. As part of the Massachusetts restructuring legislation
enacted in November 1997, these customers will realize an additional 5% average
savings, after an adjustment for inflation, by September 1, 1999. Boston Edison
expects to meet this additional rate reduction as a result of the proceeds
received from the divestiture of the fossil generating assets. All Boston
Edison distribution customers must pay a transition charge as a component of
distribution electric rates. The purpose of the transition charge is to allow
Boston Edison to collect certain costs from customers which would not be
collected in the competitive energy supply market. Such costs include the above
market costs related to purchased power contracts and its own generating
stations, as well as the cost to decommission Pilgrim Station. The plant and
regulatory asset balances which will be recovered through the transition charge
until 2009 were approved by the DTE. The other costs will be reviewed by the
DTE on an annual basis. Under the settlement agreement, the aggregate amount of
the transition charge is reduced by the net proceeds from fossil divestiture.
The cost of providing standard offer service, which includes fuel and purchased
power costs, is recovered from customers on a fully reconciling basis. The
price of default service is intended to reflect the average competitive market
price for power.
As part of the settlement agreement, the annual performance adjustment charge
ceased and the cost recovery mechanism for Pilgrim Station changed effective
March 1, 1998. Approximately 25% of the operations and capital costs, including
a return on investment, continues to be collected under wholesale contracts with
other utilities and municipalities. Boston Edison's long-term power sales
contracts with the utilities, Commonwealth Electric Company and Montaup Electric
Company, will be terminated upon the closing of the sale of Pilgrim Station to
Entergy. Boston Edison's contracts with the various municipalities remain in
place. However, upon the Pilgrim sale closing date, Boston Edison will purchase
power for resale to the municipalities under a purchase power agreement entered
into with Entergy. Through the sale closing date, Boston Edison will share 25%
of any profit or loss from the sale of Pilgrim's output with distribution
customers through the transition charge. In addition, Boston Edison will obtain
transition payments up to a maximum of $23 million per year depending on the
level of costs incurred for such items as property taxes, insurance, regulatory
fees and security requirements.
Under its settlement agreement, Boston Edison's distribution rates will remain
unchanged through December 31, 2000, subject to a minimum and maximum return on
average common equity (ROE). The ROE is subject to a floor of 6% and a ceiling
of 11.75%. If the ROE is below 6%, Boston Edison is authorized to add a
surcharge to distribution rates in order to achieve the 6% floor. If the ROE is
above 11%, it is required to adjust distribution rates by an amount necessary to
reduce the calculated ROE between 11% and 12.5% by 50%, and a return above 12.5%
by 100%. No adjustment is made if the ROE is between 6% and 11%. The cost of
providing transmission service to distribution customers is recovered on a fully
reconciling basis.
Boston Edison filed proposed adjustments to its standard offer and transition
charges with the DTE in November 1998. The DTE approved these proposed
adjustments to be effective January 1, 1999. The DTE is continuing to examine
Boston Edison's cost recovery mechanisms. The rates provide an approximate 12%
reduction from inflation-adjusted pre-retail access date rates.
22
<PAGE>
Liquidity
Cash requirements for utility plant expenditures have been met in recent years
with internally generated funds. These funds are cash flows from operating
activities, adjusted to exclude changes in working capital and the payment of
dividends. During 1998, 1997 and 1996 internal generation of cash provided 97%,
211% and 177%, respectively of plant expenditures. The capital spending level,
excluding nuclear fuel, forecasted for 1999 is $233 million which includes
amounts for utility plant and the capital requirements of the nonutility
ventures. This spending level also includes the 1999 portion of business system
replacements discussed below. The capital spending level over the next five
years is forecasted to be approximately $960 million. In addition to capital
expenditures, debt and preferred stock payment requirements are $1.6 million in
1999, $166.6 million in 2000, $51.6 million in 2001, $1.6 million in 2002 and
$151.65 million in 2003.
Boston Edison supplements internally generated funds as needed, primarily
through the issuance of short-term commercial paper and bank borrowings. Boston
Edison has authority from the Federal Energy Regulatory Commission (FERC) to
issue up to $350 million of short-term debt. Boston Edison has a $200 million
revolving credit agreement with a group of banks as well as other arrangements
with several banks to provide additional short-term credit on an uncommitted and
as available basis. No amount was outstanding under the revolving credit
agreement as of December 31, 1998.
In December 1998, Boston Edison filed a securitization financing plan with the
DTE. Under the plan, a special purpose entity (SPE) will be formed as a wholly
owned subsidiary of Boston Edison. The SPE will pay Boston Edison an amount
equal to the generation-related regulatory assets to be securitized by issuing
debt securities. A portion of the net proceeds will be used to fund the nuclear
decommissioning trust. In addition, Boston Edison may also utilize a portion of
the proceeds to reduce capitalization and for general corporate purposes.
Boston Edison will remit amounts to the SPE as these amounts are collected from
customers through a separate component of the transition charge over the
settlement period. A DTE order regarding the securitization plan is expected by
the second quarter of 1999.
BEC established a $225 million revolving credit agreement with a group of banks
effective through July 2001. The purpose of the credit agreement is to provide
financing to the holding company for general corporate purposes, invest in its
subsidiaries and fund the common share repurchase program discussed below.
Approximately $78 million was outstanding under this agreement as of
December 31, 1998.
Refer to Note H to the Consolidated Financial Statements for more information
regarding these debt agreements.
In April 1998, Boston Edison announced a common share repurchase program under
which it would repurchase up to four million of its common shares. BEC has
assumed this program since the reorganization to a holding company structure.
Through December 31, 1998, approximately 1.3 million shares have been
repurchased at a total cost of approximately $53 million. Under this program,
shares are repurchased through open market, block or privately-negotiated
transactions, or a combination. The timing and actual number of shares
repurchased will be impacted by market conditions.
23
<PAGE>
Year 2000 Computer Issue
The year 2000 issue is the result of computer programs that were written using
two digits rather than four to define an applicable year. If computer programs
with date-sensitive functions are not year 2000 compliant, they may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in system failures or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions and
engage in other normal business activities. BEC has a year 2000 program in
place to address the risk of non-compliant internal business software, internal
non-business software and embedded chip technology and external noncompliance of
third parties.
BEC is addressing the year 2000 issue on a coordinated basis. BEC has
inventoried and assessed all date-sensitive information and transaction
processing computer systems and has determined that approximately one-third of
business critical systems software need modification or replacement. BEC
defines its business critical systems as those which are necessary for the
delivery of and billing and accounting for electricity to its customers. Plans
have been developed and are being implemented to correct and test all affected
systems, with priorities assigned based on the importance of the supported
activity. As systems are being remediated or replaced, they are tested for
operational and year 2000 compliance in their own environment. After completion
of implementation, the systems are then tested for their integration and
compliance with other interactive systems. Management estimates that
approximately 70% of the efforts necessary to implement and test its critical
computer systems to alleviate the year 2000 issue are complete and expects to
complete all efforts by the end of the second quarter of 1999. In addition, all
other non-critical systems have been inventoried and assessed. Approximately
one-third of these systems require modification or replacement. Under the year
2000 plan, each non-critical system has a form of readiness acceptance
commensurate with its business importance. The more important and complex
systems are being tested as a means of acceptance. Less important and non-
complex systems may refer to industry test results, vendor test results and/or
vendor statements of readiness as a means of acceptance. Management expects to
complete the remediation, replacement and testing of at least 95% of its non-
critical computer systems by the end of the second quarter of 1999. All non-
critical systems are scheduled for completion by the third quarter of 1999.
BEC has also inventoried its non-information technology systems that may be
date-sensitive and that use embedded technology such as micro-controllers or
micro-processors. Approximately 27% of these systems require modification or
replacement. The three categories of these systems are (1) telecommunications,
(2) distribution system controls and (3) other distribution equipment. BEC is
55%, 30% and 80% complete, respectively, with its efforts to resolve and
remediate the systems that have been identified as year 2000 non-compliant
within each category. BEC expects completion of resolution and testing by the
end of the second quarter of 1999.
Costs incurred to remediate non-compliant systems are expensed as incurred. In
addition, a decision has been made to use this opportunity to upgrade some of
BEC's inefficient centralized business systems. Systems' replacement costs will
be capitalized and amortized over future periods. BEC expects the modification
and testing of its information and transaction processing systems to cost $32
million. BEC has expended $19 million on this project through December 31,
1998. BEC has funded and plans on continuing to fund all costs related to year
2000 with internally generated cash flows.
24
<PAGE>
In addition to its internal efforts, BEC has initiated formal communications
with its significant suppliers, service providers and other vendors to determine
the extent to which BEC may be vulnerable to their failure to correct their own
year 2000 issues. BEC has received responses from over 500 third party vendors
including all business critical vendors. Approximately 40% of the vendors
indicated their systems would not be adversely impacted by year 2000 issues.
All of the vendors contacted have indicated that they will be year 2000
compliant by the end of the fourth quarter of 1999. In addition, BEC has
contacted all of its significant power suppliers. Each has indicated that they
either are or will be year 2000 compliant by the end of the fourth quarter of
1999. In addition to the risk faced from its dependence on third party
suppliers for year 2000 compliance, BEC has a risk that power will not be
available from the New England Power Pool (NEPOOL) for the purchase and
distribution to Boston Edison's customers. Should NEPOOL fail to resolve its
year 2000 issues as planned, there would be an adverse impact on Boston Edison
and its customers. To mitigate this risk, efforts are being coordinated with
NEPOOL to establish inter-utility testing guidelines to determine year 2000
readiness. Boston Edison is also a participant in the NEPOOL/ISO New England
Year 2000 Joint Oversight Committee which has responsibility for the operational
reliability of NEPOOL. Overall regional activities, including those of
NEPOOL/ISO New England, will be coordinated by the Northeast Power Coordinating
Council, whose activities will be incorporated into the interregional
coordinating effort by the North American Electric Reliability Council. The
target for the completion of this effort is mid-1999.
In addition, parts of the global infrastructure, including national banking
systems, electrical power grids, gas pipelines, transportation facilities,
communications and government activities, may not be fully functional after 1999
due to the year 2000 issue. Infrastructure failures could significantly reduce
BEC's ability to acquire energy and its ability to serve its customers as
effectively as they are now being served.
BEC believes that its efforts to address the year 2000 issue will allow it to
successfully avoid any material adverse effect on its operations or financial
condition. However, it recognizes that failing to resolve year 2000 issues on a
timely basis would, in a most reasonable worst case scenario, significantly
limit its ability to acquire and distribute energy or process its daily business
transactions for a period of time, especially if such failure is coupled with
third party or infrastructure failures. Similarly, BEC could be significantly
affected by the failure of one or more significant suppliers, customers or
components of the infrastructure to conduct their respective operations normally
after 1999. Adverse effects on BEC could include, among other things, business
disruption, increased costs, loss of business and other similar risks.
BEC's year 2000 program includes contingency plans. If required, these plans are
intended to address both internal risks as well as potential external risks
related to vendors, customers and energy suppliers. Plans have been developed in
conjunction with available national and regional guidance and are based on
system emergency plans that were developed and successfully tested over the past
several years. Included within its contingency plans are procedures for the
procurement of short-term power supplies and emergency distribution system
restoration procedures. The contract with ISO New England requires that ISO New
England dispatch at all times sufficient resources to meet total New England
load requirements. ISO New England has the responsibility and authority to
dispatch all regional generation sources including maintaining sufficient
operating reserves to respond to unanticipated system conditions. ISO New
England, in conjunction with the New England Power Pool has an extensive year
2000 readiness program underway to ensure that it will have sufficient
generation and transmission resources to
25
<PAGE>
reliably serve load. In addition, ISO New England plans to increase its
operating reserves during the early year 2000 period from approximately 15% to
40%.
The foregoing discussion regarding year 2000 project timing, effectiveness,
implementation and costs includes forward-looking statements that are based on
management's current evaluation using available information. Factors that might
cause material changes include, but are not limited to, the availability of key
year 2000 personnel, the readiness of third parties and BEC's ability to respond
to unforeseen year 2000 complications.
Other Matters
Environmental
Boston Edison is an owner or operator of approximately 20 properties where oil
or hazardous materials were spilled or released. Boston Edison also continues
to face possible liability as a potentially responsible party in the cleanup of
five multi-party hazardous waste sites in Massachusetts and other states where
it is alleged to have generated, transported or disposed of hazardous waste at
the sites. Refer to Note K.4. to the Consolidated Financial Statements for more
information regarding hazardous waste issues.
Uncertainties continue to exist with respect to the disposal of both spent
nuclear fuel and low-level radioactive waste resulting from the operation of
nuclear generating facilities. The United States Department of Energy (DOE) is
responsible for the ultimate disposal of spent nuclear fuel. However,
uncertainties regarding the DOE's schedule of acceptance of spent fuel for
disposal continue to exist. Under the purchase and sale agreement with Entergy,
Entergy will assume full liability and responsibility for decommissioning and
waste disposal at Pilgrim Station. Refer to Note D to the Consolidated
Financial Statements for further discussion regarding nuclear decommissioning
and waste disposal.
Public concern continues regarding electromagnetic fields (EMF) associated with
electric transmission and distribution facilities and appliances and wiring in
buildings and homes. Such concerns have included the possibility of adverse
health effects caused by EMF as well as perceived effects on property values.
Some scientific reviews conducted to date have suggested associations between
EMF and potential health effects, while other studies have not substantiated
such associations. The National Research Council previously reported that there
is no conclusive evidence that exposure to EMF from power lines and appliances
presents a health hazard. The panel of scientists, working with the National
Academy of Sciences, report that more than 500 studies over the last several
years have produced no proof that EMF causes leukemia or other cancers or harms
human health in other ways. Boston Edison continues to support research into
the subject and participates in the funding of industry-sponsored studies. It
is aware that public concern regarding EMF in some cases has resulted in
litigation, in opposition to existing or proposed facilities in proceedings
before regulators or in requests for legislation or regulatory standards
concerning EMF levels. It has addressed issues relative to EMF in various legal
and regulatory proceedings and in discussions with customers and other concerned
persons; however, to date it has not been significantly affected by these
developments. Boston Edison continues to monitor all aspects of the EMF issue.
26
<PAGE>
Industry and corporate restructuring legal proceedings
The DTE order approving the Boston Edison settlement agreement and the DTE order
approving the formation of BEC as a holding company were appealed by certain
parties to the Massachusetts Supreme Judicial Court (SJC). In December 1998,
the SJC dismissed the appeal of the order approving the holding company
formation. One settlement agreement appeal remains pending, however there has
to date been no briefing, hearing or other action taken with respect to this
proceeding.
In addition, along with other Massachusetts investor-owned utilities, Boston
Edison has been named as a defendant in a class action suit seeking to declare
certain provisions of the Massachusetts electric industry restructuring
legislation unconstitutional.
Management is currently unable to determine the outcome of these outstanding
proceedings however, if an unfavorable outcome were to occur, there could be a
material adverse impact on business operations, the consolidated financial
position or results of operations for a reporting period.
Regulatory proceedings
In October 1997, the DTE opened a proceeding to investigate Boston Edison's
compliance with the 1993 order which permitted the formation of BETG and
authorized Boston Edison to invest up to $45 million in unregulated activities.
Hearings began in the fourth quarter of 1998 and are expected to be completed in
the first half of 1999.
Each of the Reading Municipal Light Department, the Littleton Electric Light
Department and the West Boylston Municipal Light Department have filed separate
claims for arbitration in Massachusetts alleging that the proposed transfer of
Pilgrim Station constitutes a breach of their respective power sale agreements
and seeking to terminate those agreements. The remaining municipal light
departments have also indicated that they plan to file similar claims for
arbitration. Boston Edison has requested the FERC to exercise its pre-emptive
authority to consider the claims of the municipal light departments. In the
event that either the FERC determines, or as a result of the arbitrations, that
the contracts should be terminated, Boston Edison would continue to be obligated
to purchase power from Entergy that it intended to resell to the municipal light
departments. Boston Edison may not be able to resell such power in the short-
term power exchange at a price equal to or greater than the price it is required
to pay to Entergy. However, Boston Edison has filed at the DTE for recovery of
any such shortfall as part of its Pilgrim divestiture filing through the
transition charge.
Management is currently unable to determine the outcome of these proceedings
however, if an unfavorable outcome were to occur, there could be a material
adverse impact on business operations, the consolidated financial position or
results of operations for a reporting period.
Other litigation
In October 1998, the town of Plymouth, Massachusetts, the site of Pilgrim
Station, filed suit against Boston Edison. The town claims that Boston Edison
has wrongfully failed to execute an agreement with the town for payments in
addition to taxes due to the town under the Massachusetts electric industry
27
<PAGE>
restructuring legislation. Boston Edison has disputed the town's claim and will
vigorously defend itself. In addition to this pending litigation, Boston Edison
and the town of Plymouth are also parties in proceedings before the Appellate
Tax Board and the DTE concerning substantially the same dispute. Management is
unable to determine the ultimate outcome of these proceedings however, if an
unfavorable outcome were to occur, there could be a material adverse impact on
business operations, the consolidated financial position or results of
operations for a reporting period.
In the normal course of its business BEC and its subsidiaries are also involved
in certain other legal matters. Management is unable to fully determine a range
of reasonably possible legal costs in excess of amounts accrued. Based on the
information currently available, it does not believe that it is probable that
any such additional costs will have a material impact on its consolidated
financial position. However, it is reasonably possible that additional legal
costs that may result from a change in estimates could have a material impact on
the results of a reporting period in the near term.
Refer to Note K.6. to the Consolidated Financial Statements for more information
on legal matters.
Interest rate risk
BEC is exposed to changes in interest rates. Carrying amounts and fair values
of mandatory redeemable cumulative preferred stock, sewage facility revenue
bonds and unsecured debt as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Carrying Fair Weighted average
(in thousands) amount value interest rate
- --------------------------------- -------- -------- -----------------
<S> <C> <C> <C>
Mandatory redeemable cumulative
preferred stock $ 49,040 $ 54,190 8.00%
Sewage facility revenue bonds $ 30,900 $ 33,914 7.32%
Unsecured debt $930,000 $994,294 7.79%
</TABLE>
Safe harbor cautionary statement
BEC occasionally makes forward-looking statements such as forecasts and
projections of expected future performance or statements of its plans and
objectives. These forward-looking statements may be contained in filings with
the SEC, press releases and oral statements. Actual results could potentially
differ materially from these statements. Therefore, no assurances can be given
that the outcomes stated in such forward-looking statements and estimates will
be achieved.
The preceding sections include certain forward-looking statements about the
merger with CES, the divestiture of nuclear generating assets, operating
results, year 2000 and environmental and legal issues.
The merger with CES could differ from current expectations. This could occur if
the requisite approvals are delayed or not obtained.
The nuclear divestiture plan could differ from current expectations. The timing
and a final closing of the sale may differ from management's expectations if
required approvals are delayed or not obtained.
The impacts of continued cost control procedures on operating results could
differ from current expectations. The effects of changes in economic
28
<PAGE>
conditions, tax rates, interest rates, technology and the prices and
availability of operating supplies could materially affect the projected
operating results.
The timing and total costs related to the year 2000 plan could differ from
current expectations. Factors that may cause such differences include the
ability to locate and correct all relevant computer codes and the availability
of personnel trained in this area. In addition, BEC cannot predict the nature
or impact on operations of third party noncompliance.
The impacts of various environmental and legal issues could differ from current
expectations. New regulations or changes to existing regulations could impose
additional operating requirements or liabilities other than expected. The
effects of changes in specific hazardous waste site conditions and cleanup
technology could affect the estimated cleanup liabilities. The impacts of
changes in available information and circumstances regarding legal issues could
affect the estimated litigation costs.
29
<PAGE>
Item 8. Financial Statements and Supplementary Financial Information
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
Consolidated Statements of Income
years ended December 31,
(in thousands, except earnings per share) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $1,622,515 $1,778,531 $1,668,856
- ----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Fuel and purchased power 567,806 679,131 588,893
Operations and maintenance 386,340 423,040 422,642
Depreciation and amortization 191,701 189,489 186,117
Demand side management and
renewable energy programs 51,839 29,790 30,825
Taxes-property and other 84,091 106,428 107,086
Income taxes 97,798 93,709 88,313
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,379,575 1,521,587 1,423,876
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income 242,940 256,944 244,980
Other income (expense), net (11,811) (6,392) 3,741
- ----------------------------------------------------------------------------------------------------------------------------------
Operating and other income 231,129 250,552 248,721
- ----------------------------------------------------------------------------------------------------------------------------------
Interest charges:
Long-term debt 82,951 92,489 94,823
Other 8,800 14,610 14,644
Allowance for borrowed funds used
during construction (1,668) (1,189) (2,292)
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest charges 90,083 105,910 107,175
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 141,046 144,642 141,546
Preferred dividends of subsidiary 8,765 13,149 15,365
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings available for common
shareholders $ 132,281 $ 131,493 $ 126,181
==================================================================================================================================
Weighted average common shares outstanding:
Basic 47,973 48,515 48,265
Diluted 48,149 48,562 48,265
Earnings per common share:
Basic $2.76 $2.71 $2.61
==================================================================================================================================
Diluted $2.75 $2.71 $2.61
==================================================================================================================================
Consolidated Statements of Retained Earnings
years ended December 31,
(in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at the beginning of the year $ 328,802 $ 292,191 $ 257,749
Net income 141,046 144,642 141,546
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal 469,848 436,833 399,295
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends declared:
Preferred stock 8,765 13,149 15,365
Common stock 90,610 91,208 90,834
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal 99,375 104,357 106,199
- ----------------------------------------------------------------------------------------------------------------------------------
Provision for preferred stock
redemption and issuance costs (a) 7,833 3,674 905
Common share repurchase program 2,131 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at the end of the year $ 360,509 $ 328,802 $ 292,191
==================================================================================================================================
</TABLE>
(a) Refer to Note A.7. to the Consolidated Financial Statements.
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
(in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Utility plant in service, at
original cost $2,720,681 $4,457,831
Less: accumulated depreciation 926,020 $1,794,661 1,713,067 $2,744,764
- ----------------------------------------------------------------------------------------------------------------------------------
Generation-related regulatory
asset, net 366,336 0
Nuclear fuel, net 68,706 67,935
Construction work in progress 40,965 33,291
- ----------------------------------------------------------------------------------------------------------------------------------
Net utility plant 2,270,668 2,845,990
Nonutility property 21,565 8,137
Nuclear decommissioning trust 172,908 151,634
Equity investments 84,770 35,455
Other investments 30,206 7,107
Current assets:
Cash and cash equivalents 98,989 4,140
Accounts receivable 202,275 207,093
Accrued unbilled revenues 14,322 30,048
Fuel, materials and supplies,
at average cost 15,474 60,834
Prepaids and other 102,448 433,508 31,283 333,398
- ----------------------------------------------------------------------------------------------------------------------------------
Deferred debits:
Regulatory assets 167,642 195,370
Other 32,632 45,256
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $3,213,899 $3,622,347
==================================================================================================================================
Capitalization and Liabilities
Common equity $1,051,898 $1,073,454
Cumulative preferred stock of
subsidiary 92,040 161,093
Long-term debt 955,563 1,057,076
Current liabilities:
Long-term debt/preferred
stock due within one year $ 667 $ 102,667
Notes payable 78,000 137,013
Accounts payable 110,194 87,015
Accrued interest 20,516 24,289
Dividends payable 23,878 24,748
Other 183,664 416,919 128,061 503,793
- ----------------------------------------------------------------------------------------------------------------------------------
Deferred credits:
Accumulated deferred income taxes 348,557 485,738
Accumulated deferred investment
tax credits 45,930 60,736
Nuclear decommissioning liability 176,578 155,182
Power contracts 58,415 71,445
Other 67,999 53,830
Commitments and contingencies
- ----------------------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $3,213,899 $3,622,347
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
years ended December 31,
(in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 141,046 $144,642 $141,546
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 229,668 223,529 228,259
Deferred income taxes and investment tax
credits (152,798) (21,664) (4,506)
Allowance for borrowed funds used during
construction (1,668) (1,189) (2,292)
Net changes in:
Accounts receivable and accrued
unbilled revenues 20,544 45,678 (11,719)
Fuel, materials and supplies 29,565 (5,486) (2,171)
Accounts payable 23,179 (47,068) 609
Other current assets and liabilities (28,705) 25,428 (44,514)
Other, net 14,021 (4,640) 50,815
- ----------------------------------------------------------------------------------------------
Net cash provided by operating activities 274,852 359,230 356,476
- ----------------------------------------------------------------------------------------------
Investing activities:
Plant expenditures (excluding AFUDC) (120,202) (114,110) (145,347)
Proceeds from sale of fossil assets 533,633 0 0
Nuclear fuel expenditures (26,182) (4,089) (52,967)
Investments (81,589) (27,689) (34,314)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 305,660 (145,888) (232,628)
- ----------------------------------------------------------------------------------------------
Financing activities:
Issuances/(repurchases):
Common shares (53,285) 144 12,559
Long-term debt 0 100,000 0
Redemptions:
Preferred stock (71,519) (44,000) (4,000)
Long-term debt (201,600) (101,600) (101,600)
Net change in notes payable (59,013) (64,441) 75,013
Dividends paid (100,246) (104,956) (106,010)
- ----------------------------------------------------------------------------------------------
Net cash used in financing activities (485,663) (214,853) (124,038)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 94,849 (1,511) (190)
Cash and cash equivalents at the
beginning of the year 4,140 5,651 5,841
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 98,989 $ 4,140 $ 5,651
==============================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $ 89,720 $100,795 $100,810
Income taxes $ 230,260 $ 99,326 $ 98,668
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE>
Notes to Consolidated Financial Statements
Note A. Summary of Significant Accounting Policies
1. Nature of Operations
Boston Edison Company (Boston Edison) received final approval of its
reorganization plan to form a holding company structure from the Securities and
Exchange Commission (SEC) in May 1998. Effective May 20, 1998 the holding
company, BEC Energy (BEC), was formed with Boston Edison as a wholly owned
subsidiary of BEC.
Within its newly restructured industry, BEC has announced its intention to focus
its utility operations on the transmission and distribution of energy. The sale
of Boston Edison's fossil generating assets to Sithe Energies, Inc. (Sithe) was
completed in May 1998. In November 1998, Boston Edison signed an agreement
with Entergy Nuclear Generating Company (Entergy) to sell its wholly owned
nuclear generating unit, Pilgrim Nuclear Power Station (Pilgrim). BEC signed a
merger agreement with Commonwealth Energy System (CES) in December 1998 that
will create an energy delivery company serving approximately 1.3 million
customers located entirely within Massachusetts, including more than one million
electric customers in 81 communities and 240,000 gas customers in 51
communities.
Boston Edison currently supplies electricity at retail to an area of 590 square
miles, including the city of Boston and 39 surrounding cities and towns. It
also supplies electricity at wholesale for resale to other utilities and
municipalities. Electric operating revenues are approximately 90% retail and
10% wholesale. Unregulated activities continue to be conducted through Boston
Energy Technology Group (BETG). Refer to Note J to these Consolidated Financial
Statements for information on BEC's nonutility operations.
2. Basis of Consolidation and Accounting
Under the new holding company structure the owners of Boston Edison's common
stock became BEC common shareholders. Existing debt and preferred stock of
Boston Edison remained obligations of the regulated utility business. Effective
June 25, 1998, BETG ceased being a subsidiary of Boston Edison and became a
wholly owned subsidiary of BEC. The accompanying consolidated financial
statements reflect the results of operations and cash flows of Boston Edison
prior to the reorganization. The consolidated balance sheet at December 31,
1997 reflects the financial position of Boston Edison which also included BETG.
The consolidated financial statements also include the activities of Boston
Edison's wholly owned subsidiary, Harbor Electric Energy Company (HEEC). All
significant intercompany transactions have been eliminated. Certain
reclassifications have been made to the prior year data to conform with the
current presentation.
Boston Edison follows accounting policies prescribed by the Federal Energy
Regulatory Commission (FERC) and the Massachusetts Department of
Telecommunications and Energy (DTE). In addition, BEC and its subsidiaries are
subject to the accounting and reporting requirements of the SEC. The
consolidated financial statements conform with generally accepted accounting
principles (GAAP). As a rate-regulated company Boston Edison has been subject
to Statement of Financial Accounting Standards No. 71, Accounting for the
Effects of Certain Types of Regulation (SFAS 71), under GAAP. The application
of SFAS 71 results in differences in the timing of recognition of certain
expenses from that of other businesses and industries. As a result of the
33
<PAGE>
Massachusetts electric industry restructuring legislation enacted in November
1997 and the DTE order regarding the related Boston Edison settlement agreement,
as of December 31, 1997, the provisions of SFAS 71 are no longer being applied
to the generation business. The distribution business remains subject to rate-
regulation and continues to meet the criteria for application of SFAS 71. Refer
to Note B to these Consolidated Financial Statements for more information on the
accounting implications of the electric utility industry restructuring.
The preparation of financial statements in conformity with GAAP requires BEC and
its subsidiaries to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
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 these estimates.
3. Revenues
Estimates of retail base (transmission and distribution) revenues for
electricity used by customers but not yet billed are recorded at the end of each
accounting period.
4. Utility Plant
Utility plant is stated at original cost of construction. The costs of
replacements of property units are capitalized. Maintenance and repairs and
replacements of minor items are expensed as incurred. The original cost of
property retired, net of salvage value, and the related costs of removal are
charged to accumulated depreciation.
5. Depreciation and Nuclear Fuel Amortization
Depreciation of utility plant is computed on a straight-line basis using
composite rates based on the estimated useful lives of the various classes of
property. Excluding the effect of the adjustment discussed below, the overall
composite depreciation rates were 3.28%, 3.30% and 3.33% in 1998, 1997 and 1996,
respectively.
Upon the completion of a review of Boston Edison's electric generating units,
management determined that the oldest and least efficient fossil units (Mystic
4, 5 and 6) were unlikely to provide competitively-priced power beyond the year
2000. Therefore the estimated remaining economic lives of these units was
revised to five years in 1996. These units were sold in May 1998. Refer to
Note B to these Consolidated Financial Statements.
The cost of decommissioning Pilgrim Station is excluded from depreciation rates.
Refer to Note D to these Consolidated Financial Statements for a discussion of
nuclear decommissioning. The cost of nuclear fuel is amortized based on the
amount of energy Pilgrim Station generates. Nuclear fuel expense also includes
an amount for the estimated costs of ultimately disposing of spent nuclear fuel
and for assessments for the decontamination and decommissioning of United States
Department of Energy nuclear enrichment facilities.
6. Deferred Nuclear Outage Costs
The incremental costs associated with nuclear refueling and maintenance outages
are deferred when incurred and amortized over Pilgrim Station's two-year
operating cycle.
34
<PAGE>
7. Costs Associated with Issuance and Redemption of Debt and Preferred Stock
Consistent with the recovery in electric rates, discounts, redemption premiums
and related costs associated with the issuance and redemption of long-term debt
and preferred stock are deferred. The costs related to long-term debt are
recognized as an addition to interest expense over the life of the original or
replacement debt. Beginning in 1996, consistent with an accounting order
received from the FERC, costs related to preferred stock issuances and
redemptions are reflected as a direct reduction to retained earnings upon
redemption or over the average life of the replacement preferred stock series as
applicable.
8. Allowance for Borrowed Funds Used During Construction (AFUDC)
AFUDC represents the estimated costs to finance utility plant construction. In
accordance with regulatory accounting, AFUDC is included as a cost of utility
plant and a reduction of current interest charges. Although AFUDC is not a
current source of cash income, the costs are recovered from customers over the
service life of the related plant in the form of increased revenues collected as
a result of higher depreciation expense. AFUDC rates in 1998, 1997 and 1996
were 5.88%, 6.04% and 5.87%, respectively, and represented only the cost of
short-term debt.
9. Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid securities with
maturities of 90 days or less when purchased. BEC's banking arrangement does
not require it to fund checks until they are presented for payment. Therefore,
outstanding checks are included in cash and accounts payable until presented for
payment.
10. Allowance for Doubtful Accounts
Accounts receivable are substantially recoverable. This recovery occurs both
from customer payments and from the portion of customer charges that provides
for the recovery of bad debt expense. Accordingly, a significant allowance for
doubtful accounts balance has not been maintained.
11. Regulatory Assets
Regulatory assets represent costs incurred which are expected to be collected
from customers through future charges in accordance with agreements with
regulators. These costs are expensed when the corresponding revenues are
received in order to appropriately match revenues and expenses. The majority of
these costs is currently being recovered from customers over varying time
periods. Refer to Note B to these Consolidated Financial Statements for
information regarding the recovery of regulatory assets related to the
generation business.
35
<PAGE>
Regulatory assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
- ---------------------------------------------------------
<S> <C> <C>
Power contracts $ 58,415 $ 71,445
Income taxes, net 52,168 51,096
Redemption premiums 23,419 27,019
Postretirement benefits costs 21,592 22,441
Decontamination and decommissioning 11,351 12,282
Other 697 11,087
- ---------------------------------------------------------
$167,642 $195,370
=========================================================
</TABLE>
12. Earnings Per Common Share
Basic earnings per common share (EPS) is calculated by dividing net income,
after deductions for preferred dividends, by the weighted average common shares
outstanding during the year. Statement of Financial Accounting Standards No.
128, Earnings per Share, requires the disclosure of diluted EPS. Diluted EPS is
similar to the computation of basic EPS except that the weighted average common
shares is increased to include the number of dilutive potential common shares.
Diluted EPS reflects the impact on shares outstanding of the deferred
(nonvested) shares and stock options granted under the Stock Incentive Plan.
The following table summarizes the reconciling amounts between basic and diluted
EPS:
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings available for common shareholders $132,281 $131,493 $126,181
Basic EPS $ 2.76 $ 2.71 $ 2.61
Diluted EPS $ 2.75 $ 2.71 $ 2.61
Weighted average common shares outstanding
for basic EPS 47,973 48,515 48,265
Effect of dilutive shares:
Weighted average dilutive potential common
shares 176 47 -
- --------------------------------------------------------------------------
Weighted average common shares outstanding
for diluted EPS 48,149 48,562 48,265
==========================================================================
</TABLE>
13. RCN Joint Venture
BETG is a participant in a telecommunications venture with RCN Telecom Services,
Inc. (RCN). As part of the joint venture agreement, BETG has the option to
exchange certain portions of its joint venture interest for shares of RCN
Corporation common stock. During 1998, BETG exercised its option to convert a
portion of its interest with a cost of $11 million. BETG expects to receive
approximately 1.1 million RCN Corporation common shares during the first quarter
of 1999.
36
<PAGE>
Note B. Electric Utility Industry Restructuring
1. Accounting Implications
Under the traditional revenue requirements model, electric rates have been based
on the cost of providing electric service. Under this model, Boston Edison has
been subject to certain accounting standards that are not applicable to other
businesses and industries in general. The application of SFAS 71 requires
companies to defer the recognition of certain costs when incurred if future rate
recovery of these costs is expected. As a result of the Massachusetts electric
industry restructuring legislation enacted in November 1997 and the DTE order
regarding Boston Edison's related settlement agreement, as of December 31, 1997,
the provisions of SFAS 71 are no longer being applied to the generation
business. Under the settlement agreement, approximately 75% of the net assets
of Pilgrim Station are recoverable through the non-bypassable transition charge
of the utility's distribution business. The distribution business continues to
be subject to rate-regulation. The remaining 25% is collected under Pilgrim's
wholesale power contracts. The 1998 consolidated balance sheet reflects a
reclassification of the Pilgrim net assets recoverable through the transition
charge from utility plant to regulatory asset. This Pilgrim regulatory asset,
included in the generation-related regulatory asset on the consolidated balance
sheet continues to be grouped with utility plant for financial statement
presentation.
Completion of the sale of Boston Edison's fossil generating assets took place in
May 1998. Boston Edison received proceeds from the sale of $655 million,
including $121 million for a six-month transitional power purchase contract.
The amount received above net book value on the sale of these assets is being
returned to Boston Edison's customers over the settlement period. That amount
is partially offset by certain costs recoverable through the transition charge
due to the support of standard offer service provided by Boston Edison's fossil
generating assets prior to the divestiture. The net deferred gain is included
as a reduction to the generation-related regulatory asset on the 1998
consolidated balance sheet. In addition, Boston Edison received $19 million
from Sithe for inventory and other closing adjustments.
The implementation of the Boston Edison settlement agreement had certain
accounting implications. The highlights of these include:
Generation-related plant and other regulatory assets
Plant and other regulatory assets related to the generation business, except for
those related to Pilgrim's wholesale contracts, are recovered through the
transition charge. This recovery, which includes a return, will occur over a
twelve-year period that began on March 1, 1998 (the retail access date).
Depreciation
The composite depreciation rate for distribution utility plant increased from
2.38% to 2.98% as of the retail access date.
Fuel and purchased power charge
The fuel and purchased power charge ceased as of the retail access date. The
net remaining overcollection of fuel and purchased power costs will be reflected
in future customer billings. These over recovered costs are included as an
offset to the settlement recovery mechanisms on the 1998 consolidated balance
sheet.
37
<PAGE>
Standard offer charge
Customers have the option of continuing to buy power from the electric delivery
business at standard offer prices as of the retail access date. The standard
offer charge began at 2.8 cents/kWh at the retail access date, increased to 3.2
cents/kWh on June 1, 1998, to 3.69 cents/kWh on January 1, 1999 and is scheduled
to increase to 5.1 cents/kWh by 2004. The cost of providing standard offer
service, which includes fuel and purchased power costs, is recovered from
standard offer customers on a fully reconciling basis.
Distribution and transmission charges
Distribution rates are subject to a minimum and maximum return on average common
equity (ROE) through December 31, 2000. The ROE is subject to a floor of 6% and
a ceiling of 11.75%. If the ROE is below 6%, Boston Edison is authorized to add
a surcharge to distribution rates in order to achieve the 6% floor. If the ROE
is above 11%, it is required to adjust distribution rates by an amount necessary
to reduce the calculated ROE between 11% and 12.5% by 50%, and a return above
12.5% by 100%. No adjustment is made if the ROE is between 6% and 11%. In
addition, distribution rates will be adjusted for any changes in tax laws or
accounting principles that result in a change in costs of more than $1 million.
The cost of providing transmission service to distribution customers is
recovered on a fully reconciling basis.
Nuclear generation
Under the settlement agreement, the annual performance adjustment charge ceased
and the cost recovery mechanism for Pilgrim Station changed effective March 1,
1998. Approximately 25% of the operations and capital costs, including a return
on investment, continues to be collected under Pilgrim's wholesale contracts.
Through Pilgrim's sale closing date, 25% of any profit or loss from the sale of
Pilgrim's output will be shared with distribution customers through the
transition charge. In addition, Boston Edison will obtain transition payments
up to a maximum of $23 million per year depending on the level of costs incurred
for such items as property taxes, insurance, regulatory fees and security
requirements.
2. Generating Assets Divestiture
The Boston Edison restructuring settlement agreement included a provision for
the divestiture of its fossil generating assets no later than six months after
the retail access date. In December 1997, Boston Edison entered into a purchase
and sale agreement with Sithe Energies, a privately-held company headquartered
in New York, to purchase these non-nuclear generating assets. The sale of these
assets was finalized on May 15, 1998.
In April 1998, Boston Edison began soliciting expressions of interest for the
sale of its nuclear generating unit, Pilgrim Station as part of the previously
announced strategy to exit the generation business. On November 19, 1998,
Boston Edison announced the selection of Entergy, a subsidiary of New Orleans-
based Entergy Corporation, as the winning bidder for the purchase of Pilgrim.
Entergy is expected to purchase Pilgrim in a deal valued at an estimated $121
million. In addition, under the agreement Boston Edison will fully fund and
transfer its decommissioning trust fund to Entergy and Entergy will then assume
full liability and responsibility for decommissioning the Pilgrim site. A
purchase and sale agreement has been signed and all required approvals are
anticipated in the second quarter of 1999. The purchase price includes
reimbursement for certain costs to be expended by Boston Edison in 1999.
38
<PAGE>
Therefore, the actual proceeds could be impacted by the ultimate timing of the
transaction.
As part of a benefits package offered to employees affected by the nuclear
divestiture, eligible non-represented nuclear and designated nuclear support
employees were offered unreduced retirement and transition benefits under a
voluntary early retirement program (VERP). Sixteen employees elected to
participate in the VERP. A retention benefit program was offered to all non-
represented nuclear and designated nuclear support employees that did not elect
or were ineligible to retire under the VERP who continue to work through the
sale closing date. It is anticipated that approximately 300 non-represented
nuclear and designated nuclear employees will receive one-time retention
payments under this program. Costs associated with the VERP and retention
program are recoverable under Boston Edison's settlement agreement.
3. Nuclear Asset Impairment
As part of the settlement agreement, the net investment in Pilgrim Station as of
December 31, 1995 (adjusted for depreciation through 1997) is recovered through
the distribution transition charge. Due to the market pressures in the
industry, the ultimate recovery of investments made in Pilgrim since 1995 is not
certain. Therefore, in 1997 the investment in Pilgrim was reduced by the $13
million invested in the plant since January 1, 1996 as an impairment loss under
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. An
after tax charge of approximately $8 million due to this reduction was recorded
to non-operating expense on the consolidated statement of income in the fourth
quarter of 1997.
Note C. Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109
requires the recognition of deferred tax assets and liabilities for the future
tax effects of temporary differences between the carrying amounts and the tax
basis of assets and liabilities. In accordance with SFAS 109 net regulatory
assets of $52.2 million and $51.1 million and corresponding net increases in
accumulated deferred income taxes were recorded as of December 31, 1998 and
1997, respectively. The regulatory assets represent the additional future
revenues to be collected from customers for deferred income taxes.
Accumulated deferred income taxes consisted of the following:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1998 1997
- ------------------------------------------- -------- --------
<S> <C> <C>
Deferred tax liabilities:
Plant-related $412,358 $535,460
Other 85,497 79,930
- ------------------------------------------- -------- --------
497,855 615,390
-------- --------
Deferred tax assets:
Plant-related 13,174 11,926
Investment tax credits 29,622 33,125
Other 106,502 84,601
- ------------------------------------------- -------- --------
149,298 129,652
- ------------------------------------------- -------- --------
Net accumulated deferred income taxes $348,557 $485,738
=========================================== ======== ========
</TABLE>
No valuation allowances for deferred tax assets are deemed necessary.
39
<PAGE>
Previously deferred investment tax credits are amortized over the estimated
remaining lives of the property giving rise to the credits.
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
years ended December 31,
(in thousands) 1998 1997 1996
- -------------------------------------- ---------- --------- --------
<S> <C> <C> <C>
Current income tax expense $ 239,717 $115,373 $92,370
Deferred income tax expense (137,992) (14,104) 14
Investment tax credit amortization (3,927) (7,560) (4,071)
- -------------------------------------- --------- -------- -------
Income taxes charged to operations 97,798 93,709 88,313
- -------------------------------------- --------- -------- -------
Taxes on other income (24,116) (11,254) (331)
- -------------------------------------- --------- -------- -------
Total income tax expense $ 73,682 $ 82,455 $87,982
====================================== ========= ======== =======
</TABLE>
The effective income tax rates reflected in the consolidated financial
statements and the reasons for their differences from the statutory federal
income tax rate were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State income tax, net of federal income
tax benefit 5.2 4.5 4.3
Investment tax credit amortization (6.9) (3.3) (1.8)
Other 1.0 0.1 0.7
- -------------------------------------------- ---- ---- ----
Effective tax rate 34.3% 36.3% 38.2%
============================================ ==== ==== ====
</TABLE>
The 1998 effective tax rate declined by 5.1% as a result of the recognition in
net income of the remaining unamortized investment tax credits related to Boston
Edison's fossil generating assets at the time of their sale. This shareholder
benefit is included in other expense, net on the 1998 consolidated statement of
income.
The 1997 effective tax rate declined by 0.8% as a result of the favorable
outcome of an Internal Revenue Service appeal related to investment tax credits.
Note D. Nuclear Decommissioning and Nuclear Waste Disposal
1. Nuclear Decommissioning
As a nuclear generating facility, Pilgrim Station will be required to be
decommissioned upon the expiration of its operating license. Decommissioning
means to remove nuclear facilities from service safely and reduce residual
radioactivity to a level that permits termination of the Nuclear Regulatory
Commission (NRC) license and release of the property for unrestricted use.
Estimated decommissioning costs are recorded to depreciation expense on the
consolidated statements of income over Pilgrim's expected service life. These
costs are recovered through charges to retail and wholesale contract customers.
In November 1998, Boston Edison filed an update of Pilgrim Station's
decommissioning cost study with the DTE. The updated study includes an estimate
of decommissioning and fuel storage costs of approximately $600 million in 1997
dollars.
2. Spent Nuclear Fuel
The spent fuel storage facility at Pilgrim Station is expected to provide
storage capacity through approximately 2003. Boston Edison has a license
amendment from the NRC to modify the facility to provide sufficient room for
spent nuclear fuel generated through the end of Pilgrim's operating license in
2012; however, any further modifications are subject to review by the DTE.
40
<PAGE>
Delays in identifying a permanent storage site have continually postponed plans
for the United States Department of Energy's (DOE) long-term storage and
disposal for spent nuclear fuel. The DOE's current estimate for an available
site is no earlier than 2010. In November 1997, the U.S. Court of Appeals for
the District of Columbia Circuit ruled that the lack of an interim storage
facility does not excuse the DOE from meeting its contract obligation to begin
accepting spent nuclear fuel no later than January 31, 1998. This decision was
in response to petitions filed by Boston Edison and other interested parties
seeking declaratory rulings concerning enforcement and remedies for the DOE's
failure to accept spent fuel in a timely manner. The court directed the
plaintiffs to pursue relief under terms of their contracts with the DOE. Based
on this ruling, the DOE may have to pay contract damages for not taking the
spent nuclear fuel as scheduled. Under the Nuclear Waste Policy Act of 1982, it
is the ultimate responsibility of the DOE to permanently dispose of spent
nuclear fuel. Boston Edison currently pays a fee of $1.00 per net megawatthour
sold from Pilgrim Station generation under a nuclear fuel disposal contract with
the DOE.
The DOE denied Boston Edison's petition to suspend payments to the Nuclear Waste
Fund based on its interpretation of the U.S. Court of Appeal's decision made in
November 1997. The DOE has, however, made an offer to consider amendments to
existing contracts to address the hardships the anticipated delay in accepting
spent fuel may cause individual contract holders.
3. Nuclear Divestiture
As discussed in Note B to these Consolidated Financial Statements, in November
1998 Boston Edison announced the selection of Entergy as the winning bidder for
the purchase of Pilgrim. A purchase and sale agreement has been signed and all
required approvals are anticipated in the second quarter of 1999. Under the
agreement Boston Edison will fully fund and transfer its decommissioning trust
fund to Entergy and Entergy will then assume full liability and responsibility
for decommissioning and waste disposal at Pilgrim Station.
Note E. Pensions and Other Postretirement Benefits
The following information is presented in accordance with Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, effective for fiscal years beginning after December 15,
1997.
1. Pensions
Boston Edison has a defined benefit funded retirement plan with certain
contributory features that covers substantially all employees and an unfunded
supplemental retirement plan for certain management employees.
41
<PAGE>
The changes in the benefit obligation and plan assets were as follows:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1998 1997
- ------------------------------------------------------ ---------- -------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at the beginning of the year $457,436 $409,760
Service cost 13,645 12,625
Interest cost 31,981 31,537
Plan participants' contributions 214 248
Plan amendments - 1,081
Actuarial loss 67,564 32,762
Curtailment gain (15,644) (6,916)
Special termination benefits 665 3,530
Settlement payments (16,246) -
Benefits paid (41,627) (27,191)
- ------------------------------------------------------ -------- --------
Benefit obligation at the end of the year $497,988 $457,436
====================================================== ======== ========
Change in plan assets:
Fair value of plan assets at the beginning of
the year $401,182 $331,299
Actual return on plan assets 44,589 60,602
Employer contribution 86,440 36,224
Plan participants' contributions 214 248
Settlement payments (16,246) -
Benefits paid (41,627) (27,191)
- ------------------------------------------------------ -------- --------
Fair value of plan assets at the end of the year $474,552 $401,182
====================================================== ======== ========
The plans' funded status were as follows:
December 31,
(in thousands) 1998 1997
- ------------------------------------------------------ -------- --------
Funded status $(23,436) $(56,254)
Unrecognized actuarial net loss 96,310 50,646
Unrecognized transition obligation 3,856 5,704
Unrecognized prior service cost 15,557 19,121
- ------------------------------------------------------ -------- --------
Net amount recognized $ 92,287 $ 19,217
====================================================== ======== ========
Amount recognized in the consolidated
balance sheets consist of:
Prepaid retirement cost $ 94,049 $ 20,584
Accrued supplemental retirement liability (9,856) (9,763)
Intangible asset 8,094 8,396
- ------------------------------------------------------ -------- --------
Net amount recognized $ 92,287 $ 19,217
====================================================== ======== ========
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the supplemental retirement plan with accumulated benefit
obligations in excess of plan assets were $11,387,000, $9,856,000 and $0,
respectively, as of December 31, 1998, and $11,076,000, $9,763,000 and $0,
respectively, as of December 31, 1997.
Weighted average assumptions were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Discount rate at the end of the year 6.50% 7.25% 7.75%
Expected return on plan assets for the year 10.00% 10.00% 10.00%
Rate of compensation increase at the end of
the year 4.00% 4.25% 3.90%
</TABLE>
42
<PAGE>
Components of net periodic benefit cost were as follows:
<TABLE>
<CAPTION>
years ended December 31,
(in thousands) 1998 1997 1996
- ----------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost $ 13,645 $ 12,625 $ 13,452
Interest cost 31,981 31,537 32,325
Expected return on plan assets (39,140) (31,250) (29,826)
Amortization of prior service cost 1,847 1,827 1,831
Amortization of transition obligation 860 934 934
Recognized actuarial loss 808 1,799 3,790
- ----------------------------------------- -------- -------- --------
Net periodic benefit cost $ 10,001 $ 17,472 $ 22,506
========================================= ======== ======== ========
</TABLE>
As a result of the fossil and nuclear divestitures discussed in Note B to these
Consolidated Financial Statements, amounts recognized for curtailment,
settlement and special termination benefit costs were $2,705,000, $0 and
$665,000, respectively for 1998 and $1,300,000, $3,162,000 and $3,530,000,
respectively for 1997. These amounts are recoverable under Boston Edison's
settlement agreement.
Boston Edison experienced a high number of employee retirements from 1994 to
1996. A large number of these retirements were as a direct result of the 1995
corporate restructuring. In 1997, a review of the accounting for the pension
expense related to the retirements revealed that an adjustment to the pension
costs related to these employees was necessary. Therefore, pension regulatory
asset was increased by $8.6 million in 1997 for the adjustment related to the
period covered by the 1992 Boston Edison settlement agreement. Through 1995, in
accordance with the 1992 settlement agreement, the difference between the net
pension cost of the retirement plan and its annual funding amount was deferred.
The remaining adjustment did not have a material impact on the consolidated
results of operations or financial position.
Boston Edison also provides defined contribution 401(k) plans for substantially
all employees. It matches a portion of employees' voluntary contributions to
the plans. Matching contributions of $8 million were made in 1998, 1997 and
1996, respectively.
2. Other Postretirement Benefits
In addition to pension benefits, Boston Edison also provides health care and
other benefits to retired employees who meet certain age and years of service
liability requirements. These benefits are not available to management
employees hired on or after January 1, 1995.
43
<PAGE>
The changes in the benefit obligation and plan assets were as follows:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1998 1997
- ------------------------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at the beginning of the year $ 237,616 $ 230,905
Service cost 3,892 3,543
Interest cost 16,895 17,006
Plan participants' contributions 1,178 395
Actuarial loss 27,845 4,093
Curtailment gain (14,665) (5,531)
Special termination benefits 75 450
Benefits paid (14,080) (13,245)
- ------------------------------------------------------------------------------------------------- --------- ------------
Benefit obligation at the end of the year $ 258,756 $ 237,616
================================================================================================= ========= ============
Change in plan assets:
Fair value of plan assets at the beginning of
the year $ 103,989 $ 72,702
Actual return on plan assets 14,344 18,852
Employer contribution 8,387 25,285
Plan participants' contributions 1,178 395
Benefits paid (14,080) (13,245)
- ------------------------------------------------------------------------------------------------- --------- ------------
Fair value of plan assets at the end of the year $ 113,818 $ 103,989
================================================================================================= ========= ============
</TABLE>
The plan's funded status and amount recognized in the consolidated balance
sheets were as follows:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1998 1997
- ------------------------------------------------------------------------------------------------- --------- ------------
<S> <C> <C>
Funded status $(144,938) $(133,627)
Unrecognized actuarial net loss 24,922 12,916
Unrecognized transition obligation 88,814 127,107
Unrecognized prior service cost (9,827) (14,128)
- ------------------------------------------------------------------------------------------------- --------- ------------
Net amount recognized $ (41,029) $ (7,732)
================================================================================================= ========= ============
</TABLE>
Weighted average assumptions were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- --------- ------------
<S> <C> <C> <C>
Discount rate at the end of the year 6.50% 7.25% 7.75%
Expected return on plan assets for the year 9.00% 9.00% 9.00%
</TABLE>
For measurement purposes, a 5% annual rate of increase on the per capita cost of
covered health care benefits was assumed. A 13% annual rate of increase on the
per capita cost of covered prescription drug benefits was assumed, decreasing
gradually to 5% in the year 2012 and remaining level thereafter. A 4% annual
rate of increase on the per capita cost of covered dental benefits was assumed.
44
<PAGE>
A 1% change in the assumed health care cost trend rate would have the following
effects:
<TABLE>
<CAPTION>
One-Percentage-Point
Increase Decrease
--------- ---------
<S> <C> <C>
Effect on total of service and interest cost
components for 1998 $ 3,319 $ (2,605)
Effect on December 31, 1998 postretirement benefit
obligation $34,088 $(27,270)
</TABLE>
Components of net periodic benefit cost were as follows:
<TABLE>
<CAPTION>
years ended December 31,
(in thousands) 1998 1997 1996
- ---------------------------------------------------------- ------- ------- --------
<S> <C> <C> <C>
Service cost $ 3,892 $ 3,543 $ 4,616
Interest cost 16,895 17,006 16,815
Expected return on plan assets (8,563) (6,421) (4,738)
Amortization of prior service cost (942) (1,017) (1,614)
Amortization of transition obligation 8,474 9,151 9,151
Recognized actuarial loss 662 1,003 1,977
- ---------------------------------------------------------- ------- ------- --------
Net periodic benefit cost $20,418 $23,265 $ 26,207
</TABLE>
As a result of the fossil and nuclear divestitures discussed in Note B to these
Consolidated Financial Statements, amounts recognized for curtailment and
special termination benefit costs were $21,187,000 and $79,000, respectively for
1998 and $7,895,000 and $456,000, respectively for 1997. These amounts are
recoverable under Boston Edison's settlement agreement.
Note F. Stock-Based Compensation
In 1997, Boston Edison initiated a Stock Incentive Plan (the Plan) which was
adopted by the board of directors and approved by common stockholders. The Plan
permits a variety of stock and stock-based awards, including stock options and
deferred (nonvested) stock to be granted to certain key employees. The Plan
limits the terms of awards to ten years. Subject to adjustment for stock-splits
and similar events, the aggregate number of shares of common stock that may be
delivered under the Plan is 2,000,000, including shares issued in lieu of or
upon reinvestment of dividends arising from awards. During 1998, 19,150 shares
of deferred stock and 419,200 ten-year non-qualified stock options were granted
under the plan. During 1997, 73,820 shares of deferred stock and 298,400 ten-
year non-qualified stock options were granted. The weighted average grant date
fair value of the deferred stock issued during 1998 and 1997 is $39.75 and
$27.26, respectively. The options were granted at the full market price of the
stock on the date of the grant. Both awards vest ratably over a three-year
period.
45
<PAGE>
Compensation cost for stock-based awards is recognized under the provisions of
Accounting Principals Board Opinion 25, which requires compensation cost to be
measured by the quoted stock market price at the measurement date less the
amount, if any, an employee is required to pay. The required fair value method
disclosures are as follows:
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1998 1997
- ---------------------------------------------------------- -------- --------
<S> <C> <C>
Net income
Actual $141,046 $144,642
Pro forma $140,661 $144,572
Basic earnings per common share
Actual $ 2.76 $ 2.71
Pro forma $ 2.75 $ 2.71
Diluted earnings per common share
Actual $ 2.75 $ 2.71
Pro forma $ 2.74 $ 2.71
</TABLE>
Stock option activity of the Plan was as follows:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------- -------- --------
<S> <C> <C>
Options outstanding at January 1 273,000 0
Options granted 419,200 298,400
Options exercised (3,800) 0
Options forfeited (21,800) (25,400)
- ---------------------------------------------------------- -------- --------
Options outstanding at December 31 666,600 273,000
========================================================== ======== ========
</TABLE>
Summarized information regarding stock options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Range of Weighted Average Remaining Weighted Average
Exercise Prices Contractual Life (Years) Exercise Price
- --------------- -------------------------- ----------------
<S> <C> <C>
$25.75-$26.00 8.44 $ 25.85
$39.75-$40.50 9.30 $ 39.75
</TABLE>
There were 87,200 stock options exercisable at December 31, 1998 with a weighted
average exercise price of $25.85.
The stock options granted during 1998 have a weighted average grant date fair
value of $4.61. The fair value was estimated using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<S> <C>
Expected life (years) 4.0
Risk-free interest rate 5.66%
Volatility 16%
Dividends 4.88%
</TABLE>
Compensation cost recognized in the consolidated statements of income for stock-
based compensation awards in 1998 and 1997 was $850,000 and $275,000,
respectively.
46
<PAGE>
Note G. Capital Stock
<TABLE>
<CAPTION>
December 31,
(dollars in thousands, except per share amounts) 1998 1997
- ------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Common equity:
Common stock, par value $1 per share,
100,000,000 shares authorized; 47,184,073
and 48,514,973 shares issued and
outstanding: $ 47,184 $ 48,515
Premium on common stock 644,205 696,137
Retained earnings 360,509 328,802
- ------------------------------------------------------------------- ---------- ----------
Total common equity $1,051,898 $1,073,454
=================================================================== ========== ==========
</TABLE>
Dividends declared per share of common stock were $1.895 in 1998
and $1.88 in 1997 and 1996.
Cumulative preferred stock:
Par value $100 per share, 2,890,000 shares
authorized; issued and outstanding:
Nonmandatory redeemable series:
<TABLE>
<CAPTION>
Current Shares Redemption
Series Outstanding Price/Share
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4.25% 180,000 $103.625 $ 18,000 $ 18,000
4.78% 250,000 $102.800 25,000 25,000
7.75% - - 0 40,000
- -------------------------------------------------------------------------------------------------------------
Total nonmandatory redeemable series $ 43,000 $ 83,000
=============================================================================================================
<CAPTION>
Mandatory redeemable series:
Current Shares Redemption
Series Outstanding Price/Share
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7.27% - - $ 0 $ 36,000
8.00% 500,000 - 50,000 50,000
- -------------------------------------------------------------------------------------------------------------
50,000 86,000
Less: redemption and issuance costs (960) (5,907)
due within one year 0 (2,000)
- -------------------------------------------------------------------------------------------------------------
Total mandatory redeemable series $ 49,040 $ 78,093
=============================================================================================================
</TABLE>
1. Common Stock
Common stock issuances and repurchases in 1996 through 1998 were
as follows:
<TABLE>
<CAPTION>
Number Total Premium on
(in thousands) of Shares Par Value Common Stock
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 48,003 $ 48,003 $683,686
Dividend reinvestment plan 507 507 12,037
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 48,510 48,510 695,723
Dividend reinvestment plan 5 5 414
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 48,515 48,515 696,137
Common share repurchase program (1,331) (1,331) (49,823)
Stock incentive plan - - (2,109)
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 47,184 $ 47,184 $644,205
=========================================================================================================
</TABLE>
2. Cumulative Mandatory Redeemable Preferred Stock
Boston Edison redeemed the remaining 360,000 shares of 7.27% sinking fund series
cumulative preferred stock during 1998. The stock was subject to a mandatory
sinking fund requirement of 20,000 shares each May at par plus accrued
dividends. Boston Edison also had the noncumulative option each May
47
<PAGE>
to redeem additional shares, not to exceed 20,000, through the sinking fund at
$100 per share plus accrued dividends. It redeemed, at par value, 40,000 shares
in 1998, 1997 and 1996. In addition, 320,000 shares were redeemed in 1998 at
$101.94 per share.
Boston Edison is not able to redeem any part of the 500,000 shares of 8% series
cumulative preferred stock prior to December 2001. The entire series is subject
to mandatory redemption in December 2001 at $100 per share plus accrued
dividends.
<TABLE>
<CAPTION>
Note H. Indebtedness
December 31,
(in thousands) 1998 1997
- ------------------------------------------------ -------- ----------
<S> <C> <C>
Long-term debt:
Debentures:
5.950%, due March 1998 $ 0 $ 100,000
6.800%, due February 2000 65,000 65,000
6.050%, due August 2000 100,000 100,000
6.800%, due March 2003 150,000 150,000
7.800%, due May 2010 125,000 125,000
9.875%, due June 2020 100,000 100,000
9.375%, due August 2021 115,000 115,000
8.250%, due September 2022 60,000 60,000
7.800%, due March 2023 200,000 200,000
- ------------------------------------------------ -------- ----------
Total debentures 915,000 1,015,000
Less: due within one year 0 (100,000)
- ------------------------------------------------ -------- ----------
Net long-term debentures 915,000 915,000
- ------------------------------------------------ -------- ----------
Sewage facility revenue bonds 30,900 32,500
Less: due within one year (667) (667)
Less: funds held by trustee (4,670) (4,757)
- ------------------------------------------------ -------- ----------
Net long-term sewage facility revenue bonds 25,563 27,076
- ------------------------------------------------ -------- ----------
Massachusetts Industrial Finance Agency bonds:
5.750%, due February 2014 15,000 15,000
6.662% bank loan, due 1999 0 100,000
- ------------------------------------------------ -------- ----------
Total long-term debt $955,563 $1,057,076
================================================ ======== ==========
Short-term debt:
Notes payable:
Bank loans $ 78,000 $ 94,013
Commercial paper 0 43,000
- ------------------------------------------------ -------- ----------
Total notes payable $ 78,000 $ 137,013
================================================ ======== ==========
</TABLE>
1. Long-term Debt
The 9 7/8% debentures due 2020 are first redeemable in June 2000 at a redemption
price of 104.483%, the 9 3/8% series due 2021 are first redeemable in August
2001 at 104.612%, the 8.25% series due 2022 are first redeemable in September
2002 at 103.780% and the 7.80% series due 2023 are first redeemable in March
2003 at 103.730%. No other series are redeemable prior to maturity. There is
no sinking fund requirement for any series of debentures.
Sewage facility revenue bonds were issued by HEEC. The bonds are tax-exempt,
subject to annual mandatory sinking fund redemption requirements and mature
48
<PAGE>
through 2015. Scheduled redemptions of $1.6 million were made in 1998, 1997 and
1996. The weighted average interest rate of the bonds is 7.3%. A portion of
the proceeds from the bonds is in reserve with the trustee. If HEEC should have
insufficient funds to pay for extraordinary expenses, Boston Edison would be
required to make additional capital contributions or loans to the subsidiary up
to a maximum of $1 million.
The 5.75% tax-exempt unsecured bonds due 2014 are redeemable beginning in
February 2004 at a redemption price of 102%. The redemption price decreases to
101% in February 2005 and to par in February 2006.
The aggregate principal amounts of Boston Edison's long-term debt (including
HEEC sinking fund requirements) due through 2003 are $1.6 million in 1999,
$166.6 million in 2000, $1.6 million in 2001 and 2002 and $151.6 million in
2003.
2. Short-term Debt
In 1998, BEC established a $225 million revolving credit agreement with a group
of banks effective through July 2001. Under the terms of this agreement, it is
required to maintain a consolidated common equity ratio of not less than 35% at
all times and to maintain a ratio of consolidated earnings before interest and
taxes to consolidated total interest expense of not less than 2 to 1 for each
period of four consecutive fiscal quarters. Commitment fees must be paid on the
total agreement amount. Approximately $78 million was outstanding under this
agreement as of December 31, 1998.
Boston Edison currently has regulatory authority to issue up to $350 million of
short-term debt. Boston Edison has a $200 million revolving credit agreement
with a group of banks. This agreement is intended to provide a standby source
of short-term borrowings. Under the terms of this agreement Boston Edison is
required to maintain a common equity ratio of not less than 30% at all times.
Commitment fees must be paid on the unused portion of the total agreement
amount. It also has arrangements with several banks to provide additional
short-term credit on an uncommitted and as available basis.
Information regarding consolidated BEC short-term borrowings is as follows:
<TABLE>
<CAPTION>
(dollars in thousands) 1998 1997 1996
- ------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Maximum short-term borrowings $219,000 $316,100 $272,500
Weighted average amount outstanding $ 76,249 $212,663 $208,914
Weighted average interest rates excluding
commitment fees 5.85% 5.85% 5.65%
- ------------------------------------------- -------- -------- --------
</TABLE>
Note I. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of securities for which it is practicable to estimate the value:
Nuclear decommissioning trust:
The cost of $173 million approximates fair value based on quoted market prices
of securities held.
Cash and cash equivalents:
The carrying amount of $99 million approximates fair value due to the short-term
nature of these securities.
49
<PAGE>
Mandatory redeemable cumulative preferred stock, sewage facility revenue bonds
and unsecured debt:
The fair values of these securities are based upon the quoted market prices of
similar issues. Carrying amounts and fair values as of December 31, 1998, are
as follows:
<TABLE>
<CAPTION>
Carrying Fair
(in thousands) Amount Value
- ------------------------------------------------- --------- ---------
<S> <C> <C>
Mandatory redeemable cumulative preferred stock $ 49,040 $ 54,190
Sewage facility revenue bonds $ 30,900 $ 33,914
Unsecured debt $930,000 $994,294
- ------------------------------------------------- -------- --------
</TABLE>
Note J. Segment and Related Information
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information, requires the disclosure of certain
financial and descriptive information by operating segments. For the purpose of
providing segment information, BEC's principal operating segment, or its
traditional core business, is the electric utility that provides electric energy
service, primarily in the city of Boston and 39 surrounding cities and towns.
The utility also supplies electricity at wholesale for resale to other utilities
and municipalities. The unregulated operating segment engages in certain
nonutility business activities. Such activities include telecommunications,
construction management and district energy primarily in the Boston area.
Financial data for the operating segments are as follows (dollars in thousands):
50
<PAGE>
<TABLE>
<CAPTION>
Electric Unregulated
Utility Nonutility Consolidated
Operations Operations Total
---------- -------------- ----------------
<S> <C> <C> <C>
1998
- ----
Operating revenues $1,622,435 $ 80 $1,622,515
Interest charges $ 88,516 $ 1,567 $ 90,083
Depreciation and amortization $ 188,738 $ 2,963 $ 191,701
Operating income tax expense
(benefit) $ 101,492 $ (3,694) $ 97,798
Segment net income (loss) $ 170,374 $(29,328)(a) $ 141,046
Equity income (loss) in investments
accounted for by the equity method $ 1,725 $(11,967) $ (10,242)(b)
Equity investments $ 20,769 $ 64,001 $ 84,770
Segment assets $3,082,921 $130,978 $3,213,899
Expenditures for property $ 108,344 $ 11,858 $ 120,202
1997
- ----
Operating revenues $1,776,233 $ 2,298 $1,778,531
Interest charges $ 105,710 $ 200 $ 105,910
Depreciation and amortization $ 188,687 $ 802 $ 189,489
Operating income tax expense
(benefit) $ 95,021 $ (1,312) $ 93,709
Segment net income (loss) $ 153,738 $ (9,096)(a) $ 144,642
Equity income (loss) in investments
accounted for by the equity method $ 1,534 $ (5,571) $ (4,037)(b)
Equity investments $ 23,326 $ 12,129 $ 35,455
Segment assets $3,584,384 $ 37,963 $3,622,347
Expenditures for property $ 106,659 $ 7,451 $ 114,110
1996
- ----
Operating revenues $1,666,303 $ 2,553 $1,668,856
Interest charges $ 107,082 $ 93 $ 107,175
Depreciation and amortization $ 185,494 $ 623 $ 186,117
Operating income tax expense
(benefit) $ 88,703 $ (390) $ 88,313
Segment net income (loss) $ 144,476 $ (2,930)(a) $ 141,546
Equity income (loss) in investments
accounted for by the equity method $ 1,880 $ - $ 1,880 (b)
Equity investments $ 23,054 $ 5,698 $ 28,752
Segment assets $3,719,248 $ 10,043 $3,729,291
Expenditures for property $ 145,131 $ 216 $ 145,347
</TABLE>
(a) During the latter half of 1998 BEC decided to discontinue the operations
of Coneco, a wholly owned unregulated subsidiary that provided energy
management services and to cease its participation in EnergyVision, an
energy marketing joint venture with Williams Energy Services Company.
The net income (loss) from these businesses was ($11,450,000),
($3,160,000) and $209,000 for 1998, 1997 and 1996, respectively.
(b) The net equity income (loss) from equity investments is included in
other income (expense), net on the consolidated statements of income.
Note K. Commitments and Contingencies
1. Contractual Commitments
At December 31, 1998, BEC and its subsidiaries had estimated contractual
obligations for plant and equipment of approximately $28 million. This includes
$13.5 million for nuclear fuel fabrication. Under the Pilgrim
51
<PAGE>
purchase and sale agreement, Entergy will assume any unpaid portion of this
obligation for the current refueling and maintenance outage scheduled for May
1999 upon the sale closing date.
BEC and its subsidiaries also have leases for certain facilities and equipment.
The estimated minimum rental commitments under both transmission agreements and
noncancellable leases for the years after 1998 are as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------
<S> <C>
1999 $ 18,905
2000 18,188
2001 15,160
2002 13,710
2003 11,617
Years thereafter 94,484
- ------------------------------------------------------
Total $172,064
======================================================
</TABLE>
The total of future minimum rental income to be received under noncancellable
subleases related to the above leases is $146,125.
BEC and its subsidiaries will capitalize a portion of lease rentals as part of
plant expenditures in the future. The total expense for both lease rentals and
transmission agreements was $29.6 million in 1998, $27.5 million in 1997 and
$26.3 million in 1996, net of capitalized expenses of $1.6 million in 1998, $1.2
million in 1997 and $2.9 million in 1996.
Boston Edison had previously entered into various take or pay and throughput
agreements, primarily to supply the New Boston fossil generating station with
natural gas. As part of the fossil divestiture agreement, Sithe Energies
assumed these obligations. The total expense under these agreements was $47.1
million in 1997 and $49.5 million in 1996.
2. Electric Company Investments
Boston Edison has an approximately 11% equity investment in two companies which
own and operate transmission facilities to import electricity from the Hydro-
Quebec system in Canada. As an equity participant Boston Edison is required to
guarantee, in addition to its own share, the total obligations of those
participants who do not meet certain credit criteria. At December 31, 1998,
Boston Edison's portion of these guarantees was $15.2 million.
Boston Edison has a 9.5% equity investment of approximately $2 million in Yankee
Atomic Electric Company (Yankee Atomic). In 1992 the board of directors of
Yankee Atomic decided to discontinue operations of the Yankee Atomic nuclear
generating station permanently and decommission the facility.
Yankee Atomic received approval from the FERC to continue to collect its
investment and decommissioning costs through 2000, the period of the plant's
operating license. The estimate of Boston Edison's share of Yankee Atomic's
investment and costs of decommissioning is approximately $8 million as of
December 31, 1998. This estimate is recorded on the consolidated balance sheet
as a power contract liability and an offsetting regulatory asset.
Boston Edison also has a 9.5% equity investment in Connecticut Yankee Atomic
Power Company (CYAPC) of approximately $10 million. In December 1996, the board
of directors of CYAPC, which owns and operates the Connecticut Yankee nuclear
electric generating unit (Connecticut Yankee), unanimously voted to retire the
unit. The decision was based on an economic analysis of the costs of operating
the unit through 2007, the period of its operating license,
52
<PAGE>
compared to the costs of closing the unit and incurring replacement power costs
for the same period.
Boston Edison's share of Connecticut Yankee's remaining investment and estimated
costs of decommissioning is approximately $51 million as of December 31, 1998.
This estimate is recorded on the consolidated balance sheet as a power contract
liability and an offsetting regulatory asset similar to Yankee Atomic.
In December 1996, CYAPC filed for rate relief at the FERC seeking to recover
certain post-operating costs, including decommissioning. In August 1998, the
FERC Administrative Law Judge (ALJ) released an initial decision regarding
CYAPC's filing. This decision called for the disallowance of the common equity
return on the CYAPC investment subsequent to the shutdown. The decision also
stated that decommissioning collections should continue to be based on a
previously approved estimate, with an adjustment for inflation, until a more
reliable estimate is developed. In October 1998, both CYAPC and Northeast
Utilities, a 49% equity investor in CYAPC, filed briefs on exceptions to the ALJ
decision. If the initial decision is upheld, CYAPC could be required to write
off a portion of its investment in the generating unit and refund a portion of
the previously collected return on investment. Management is currently unable
to determine the ultimate outcome of this proceeding, however, the estimate of
the effect of the ALJ's initial decision does not have a material impact on its
consolidated financial position or results of operations.
3. Nuclear Insurance
The federal Price-Anderson Act currently provides $9.8 billion of financial
protection for public liability claims and legal costs arising from a single
nuclear-related accident. The first $200 million of nuclear liability is
covered by commercial insurance. Additional nuclear liability insurance up to
$9.6 billion is provided by a retrospective assessment of up to $88.1 million
per incident levied on each of the 109 nuclear generating units currently
licensed to operate in the United States, with a maximum assessment of $10
million per reactor per accident in any year.
Boston Edison has purchased insurance from Nuclear Electric Insurance Limited
(NEIL) to cover some of the costs to purchase replacement power during a
prolonged accidental outage and the cost of repair, replacement, decontamination
or decommissioning of utility property resulting from covered incidents at
Pilgrim Station. Boston Edison's maximum potential total assessment for losses
which occur during current policy years is $8.1 million under both the
replacement power and excess property damage, decontamination and
decommissioning policies.
4. Hazardous Waste
Boston Edison is an owner or operator of approximately 20 properties where oil
or hazardous materials were spilled or released. As such, Boston Edison is
required to clean up these remaining properties in accordance with a timetable
developed by the Massachusetts Department of Environmental Protection. There
are uncertainties associated with these costs due to the complexities of cleanup
technology, regulatory requirements and the particular characteristics of the
different sites. Boston Edison also faces possible liability as a potentially
responsible party in the cleanup of five multi-party hazardous waste sites in
Massachusetts and other states where it is alleged to have generated,
transported or disposed of hazardous waste at the sites. Boston
53
<PAGE>
Edison is one of many potentially responsible parties and currently expects to
have only a small percentage of the total potential liability for these sites.
Through December 31, 1998, BEC had approximately $6 million accrued on its
consolidated balance sheet related to these cleanup liabilities. Management is
unable to fully determine a range of reasonably possible cleanup costs in excess
of the accrued amount. Based on its assessments of the specific site
circumstances, it does not believe that it is probable that any such additional
costs will have a material impact on its consolidated financial position.
However, it is reasonably possible that additional provisions for cleanup costs
that may result from a change in estimates could have a material impact on the
results of a reporting period in the near term.
5. Generating Unit Performance Program
Boston Edison's generating unit performance program ceased March 1, 1998. Under
this program the recovery of incremental purchased power costs resulting from
generating unit outages occurring through the retail access date is subject to
review by the DTE. Proceedings relative to generating unit performance remain
pending before the DTE. These proceedings will include the review of
replacement power costs associated with the shutdown of the Connecticut Yankee
nuclear electric generating unit which is discussed in item 2. Management is
unable to fully determine a range of reasonably possible disallowance costs in
excess of amounts accrued. Based on its assessment of the information currently
available, it does not believe that it is probable that any such additional
costs will have a material impact on its consolidated financial position.
However, it is reasonably possible that additional disallowance costs that may
result from a change in estimates could have a material impact on the results of
a reporting period in the near term.
6. Legal Proceedings
Industry and corporate restructuring legal proceedings
The DTE order approving the Boston Edison settlement agreement and the DTE order
approving the formation of BEC as a holding company were appealed by certain
parties to the Massachusetts Supreme Judicial Court (SJC). In December 1998,
the SJC dismissed the appeal of the order approving the holding company
formation. One settlement agreement appeal remains pending, however there has
to date been no briefing, hearing or other action taken with respect to this
proceeding.
In addition, along with other Massachusetts investor-owned utilities, Boston
Edison has been named as a defendant in a class action suit seeking to declare
certain provisions of the Massachusetts electric industry restructuring
legislation unconstitutional.
Management is currently unable to determine the outcome of these outstanding
proceedings however, if an unfavorable outcome were to occur, there could be a
material adverse impact on business operations, the consolidated financial
position or results of operations for a reporting period.
A referendum seeking repeal of the Massachusetts electric industry restructuring
legislation that was enacted in November 1997 was overwhelmingly defeated by a
better than 70% to 30% margin in a state-wide general election held on November
3, 1998. This outcome allows the comprehensive framework established for the
restructuring of the electric industry to continue as intended under the enacted
legislation.
54
<PAGE>
Regulatory proceedings
In October 1997, the DTE opened a proceeding to investigate Boston Edison's
compliance with the 1993 order which permitted the formation of BETG and
authorized Boston Edison to invest up to $45 million in unregulated activities.
Hearings began in the fourth quarter of 1998 and are expected to be completed in
the first half of 1999.
Each of the Reading Municipal Light Department, the Littleton Electric Light
Department and the West Boylston Municipal Light Department have filed separate
claims for arbitration in Massachusetts alleging that the proposed transfer of
Pilgrim Station constitutes a breach of their respective power sale agreements
and seeking to terminate those agreements. The remaining municipal light
departments have also indicated that they plan to file similar claims for
arbitration. Boston Edison has requested the FERC to exercise its pre-emptive
authority to consider the claims of the municipal light departments. In the
event that either the FERC determines, or as a result of the arbitrations, that
the contracts should be terminated, Boston Edison would continue to be obligated
to purchase power from Entergy that it intended to resell to the municipal light
departments. Boston Edison may not be able to resell such power in the short-
term power exchange at a price equal to or greater than the price it is required
to pay to Entergy. However, Boston Edison has filed at the DTE for recovery of
any such shortfall as part of its Pilgrim divestiture filing through the
transition charge.
Management is currently unable to determine the outcome of these proceedings
however, if an unfavorable outcome were to occur, there could be a material
adverse impact on business operations, the consolidated financial position or
results of operations for a reporting period.
Other litigation
In October 1998, the town of Plymouth, Massachusetts, the site of Pilgrim
Station, filed suit against Boston Edison. The town claims that Boston Edison
has wrongfully failed to execute an agreement with the town for payments in
addition to taxes due to the town under the Massachusetts electric industry
restructuring legislation. Boston Edison has disputed the town's claim and will
vigorously defend itself. In addition to this pending litigation, Boston Edison
and the town of Plymouth are also parties in proceedings before the Appellate
Tax Board and the DTE concerning substantially the same dispute. Management is
unable to determine the ultimate outcome of these proceedings however, if an
unfavorable outcome were to occur, there could be a material adverse impact on
business operations, the consolidated financial position or results of
operations for a reporting period.
In the normal course of its business BEC and its subsidiaries are also involved
in certain other legal matters. Management is unable to fully determine a range
of reasonably possible legal costs in excess of amounts accrued. Based on the
information currently available, it does not believe that it is probable that
any such additional costs will have a material impact on its consolidated
financial position. However, it is reasonably possible that additional legal
costs that may result from a change in estimates could have a material impact on
the results of a reporting period in the near term.
55
<PAGE>
Note L. Long-Term Power Contracts
1. Long-Term Contracts for the Purchase of Electricity
Boston Edison entered into a 13-month agreement effective December 1, 1998 to
transfer all of the unit output entitlements from its long-term power purchase
contracts to Select Energy (Select), a subsidiary of Northeast Utilities, Inc.
In return, Select will provide full energy service requirements to Boston
Edison, including NEPOOL capability responsibilities, at FERC approved tariff
rates through December 31, 1999.
Information relating to the contracts as of December 31, 1998 is as follows:
<TABLE>
<CAPTION>
proportionate share (in thousands)
Units of -----------------------------------
Capacity Debt
Contract Purchased Minimum Outstanding
Expiration ----------- Debt Through Cont. Annual
Generating Unit Date % MW Service Exp. Date Cost
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Canal Unit 1 2002 25.0 141 $ 1,433 $ 4,496 $ 22,936
Mass. Bay Trans-
portation
Authority - 1 2005 100.0 34 - - 1,089
Ocean State Power -
Unit 1 2010 23.5 72 3,996 15,970 22,120
Ocean State Power -
Unit 2 2011 23.5 72 3,420 14,370 23,111
Northeast Energy
Associates (a) (a) 219 - - 116,248
L'Energia (b) 2013 73.0 63 - - 28,220
MassPower 2013 44.3 117 10,727 65,127 53,143
Mass. Bay Trans-
portation
Authority - 2 2019 100.0 34 - - 450
- ------------------------------------------------------------------------------
Total $19,576 $99,963 $267,317
==============================================================================
</TABLE>
(a) Boston Edison purchases 75.5% of the energy output of this unit under
two contracts. One contract represents 135MW and expires in the year
2015. The other contract is for 84MW and expires in 2010. Energy is
paid for based on a price per kWh actually received. Boston Edison does
not pay a proportionate share of the unit's capital and fixed operating
costs.
(b) Boston Edison pays for this energy based on a price per kWh actually
received. An agreement has been made with L'Energia to terminate this
contract. FERC approval of this agreement is pending.
56
<PAGE>
Boston Edison's total fixed and variable costs associated with these contracts
in 1998, 1997 and 1996 were approximately $267 million, $288 million and $281
million, respectively. Boston Edison's minimum fixed payments under these
contracts for the years after 1998 are as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------
<S> <C>
1999 $ 86,072
2000 88,291
2001 88,662
2002 91,431
2003 81,927
Years thereafter 856,790
- ------------------------------------------------------
Total $1,293,173
======================================================
Total present value $ 743,716
======================================================
</TABLE>
2. Long-Term Power Sales Contracts
In addition to other wholesale power sales, Boston Edison sells a percentage of
Pilgrim Station's output to other utilities and municipalities under long-term
contracts. Information relating to these contracts is as follows:
<TABLE>
<CAPTION>
Contract
Expiration Units of Capacity Sold
-----------------------
Contract Customer (a) Date % MW
- ------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Commonwealth Electric Company 2012 11.0 73.7
Montaup Electric Company 2012 11.0 73.7
Various municipalities 2000 (b) 3.7 25.0
- ------------------------------- ---------- ---- -----
Total 25.7 172.4
=============================== ==== =====
</TABLE>
(a) Under these contracts, the utilities and municipalities pay their
proportionate share of the costs of operating Pilgrim Station and
associated transmission facilities. These costs include operation and
maintenance expense, insurance, local taxes, depreciation,
decommissioning and a return on investment. The long-term power sales
contracts with Commonwealth Electric Company and Montaup Electric Company
will be terminated upon the closing of the sale of Pilgrim Station to
Entergy. The contracts with the municipalities remain in place whereby
Boston Edison will purchase power for resale to the municipalities under
a purchase power agreement entered into with Entergy.
(b) Subject to certain adjustments.
57
<PAGE>
Selected Consolidated Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(in thousands, except earnings per share)
Earnings Basic
Available Earnings
Operating Operating Net for Common Per Average
Revenues Income Income Shareholders Common Share(a)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
- ----
First quarter $394,117 $ 49,203 $22,859 $19,940 $0.41
Second quarter 385,708 64,748 34,323 31,452 0.65
Third quarter 479,537 100,047 75,490 74,004 1.55
Fourth quarter 363,153 28,942 8,374 6,885 0.15
1997
- ----
First quarter $422,856 $ 47,138 $20,935 $17,118 $0.35
Second quarter 426,835 59,633 33,978 30,484 0.63
Third quarter 520,414 106,673 81,418 78,499 1.62
Fourth quarter 408,426 43,500 8,311 5,392 0.11
</TABLE>
(a) Based on the weighted average number of common shares outstanding during
each quarter.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
58
<PAGE>
Part III
--------
Item 10. Trustees and Executive Officers of the Registrant
- -----------------------------------------------------------
(a) Identification of Trustees
- -------------------------------
Information about Nominees and Incumbent Trustees
Throughout Item 10, there are references to Trustees/Directors of BEC Energy and
Boston Edison. Note that prior to the reorganization into the holding company
structure, Boston Edison Company was the parent company of the consolidated
group.
The BEC Energy board has fixed the number of trustees at eleven as permitted
under its bylaws. BEC Energy's declaration of trust provides for the
classification of the BEC Energy board into three classes serving staggered
three-year terms. The four persons named below have been nominated by the BEC
Energy board for election as Class II trustees for a term expiring at the year
2002 annual meeting and until their successors are duly chosen and qualified.
The remaining trustees will continue to serve as provided below, with the Class
III trustees having terms expiring in 2000 and the Class I trustees having terms
expiring in 2001. If any of the nominees shall be unavailable as a candidate at
the BEC Energy annual meeting by reason of death, disability or resignation,
votes exercised through the proxies will be cast for a substitute candidate as
may be designated by the BEC Energy board, or in the absence of a designation,
in a manner the trustees may determine in their discretion. Alternatively, in
this situation, the BEC Energy board may take action to fix the number of
trustees for the ensuing year at the number of nominees named herein who are
then able to serve.
The BEC Energy board has adopted the following trustee retirement policy.
Trustees who are employees of BEC Energy or Boston Edison Company, with the
exception of the chief executive officer, retire from the BEC Energy board when
they retire from employment with BEC Energy or Boston Edison Company. Under the
BEC Energy board's current policy, trustees who are not employees of BEC Energy
or Boston Edison Company or who have served as chief executive officer retire
from the board at the annual shareholder meeting following their seventieth
birthday.
The BEC Energy board, which held five regular meetings and two special meetings
in 1998 since the establishment of BEC Energy on May 20, 1998, has an Executive
Committee, an Audit, Finance and Risk Management Committee, an Executive
Personnel Committee, and a Pricing Committee. During 1998, the Executive
Committee met three times. The Executive Committee is authorized to act as a
nominating committee and to review trustee compensation during the intervals
between BEC Energy's board meetings. The Audit, Finance and Risk Management
Committee met one time. Its responsibilities include recommendations as to the
selection of independent auditors, review of the scope of the independent audit,
annual financial statements, internal audit reports, and financial and
accounting controls and procedures, and review of BEC Energy's financial
requirements, insurance coverages, and legal compliance programs. The Executive
Personnel Committee, which is responsible for reviewing executive officer
compensation, personnel planning and performance, some company benefit programs,
and human resources policies, also met one time. The Pricing Committee, which
is authorized to approve the terms of debt and equity offerings, did not meet in
1998. All trustees attended at least 75% of the aggregate of the total number
of meetings of the BEC Energy board and the total number of meetings held by all
committees of the BEC Energy
59
<PAGE>
board on which he or she served, with the exception of Mr. Egan, who attended
65% of these meetings.
(b) Identification of Executive Officers
- -----------------------------------------
The information required by this item is included at the end of Part I of this
Form 10-K/A under the caption Executive Officers of the Registrant.
(c) Identification of Certain Significant Employees
- ----------------------------------------------------
Not applicable.
(d) Family Relationships
- -------------------------
Not applicable.
(e) Business Experience
- ------------------------
The names of the nominees as Class II trustees and the incumbent Class I and
Class III trustees and selected information concerning them are shown in the
table below. Unless a specific time period is indicated, each nominee and
trustee has held the position first listed across from his or her name for at
least five years.
Nominees as Class II Trustees - Terms Expiring in 2002
------------------------------------------------------
<TABLE>
<CAPTION>
Nominees Principal Occupation and Directorships
- --------------------------- --------------------------------------------------------------
<S> <C>
Charles K. Gifford Chairman (since 1997 and from 1995-1996) and
Age: 56 Chief Executive Officer (since 1995), formerly
Trustee since: 1998 President (1989-1995), BankBoston Corporation
Boston Edison Company (Bank Holding Company), and Chairman and Chief
Director since: 1990 Executive Officer (since 1995), formerly
Member: Audit, Finance President (1989-1996), BankBoston, N.A.;
and Risk Management, Director, Boston Edison Company, BankBoston
Executive Personnel Corporation, BankBoston, N.A., Massachusetts
And Pricing Committees Mutual Life Insurance Company.
Paul A. LaCamera President and General Manager (since 1997),
Age: 55 WCVB-TV Channel 5, formerly Vice President and
Trustee and Boston General Manager (1994-1997); Director, Boston
Edison Company Director Edison Company.
since: 1998
Member: Audit, Finance
and Risk Management
Committee
Thomas J. May Chairman, President and Chief Executive Officer
Age: 51 (since 1998), BEC Energy, and Chairman,
Trustee since: 1998 President (since 1995) and Chief Executive
Boston Edison Company Officer, Boston Edison Company; Director, Boston
Director since: 1991 Edison Company, BankBoston Corporation,
Member: Executive BankBoston, N.A., Liberty Mutual Insurance
and Pricing Committees Company, Liberty Mutual Fire Insurance Company,
Liberty Financial Companies, Inc., RCN
Corporation.
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Nominees Principal Occupation and Directorships
- ----------------------- -----------------------------------------------
<S> <C>
Sherry H. Penney Chancellor (1988-1995 and 1996 to present),
Age: 61 University of Massachusetts at Boston, formerly
Trustee since: 1998 President (1995) (interim), University of
Boston Edison Company Massachusetts; Director, Boston Edison Company.
Director since: 1990
Member: Audit, Finance
and Risk Management and
Executive Personnel
Committees
<CAPTION>
Incumbent Class III Trustees - Terms Expiring in 2000
-----------------------------------------------------
Trustees Principal Occupation and Directorships
- --------------------------- ------------------------------------------------
<S> <C>
Gary L. Countryman Chairman of the Board, Liberty Mutual Insurance
Age: 59 Company and Liberty Life Assurance Company of
Trustee since: 1998 Boston, formerly Chief Executive Officer (1985-
Boston Edison 1998), Liberty Mutual Insurance Company and
Company Director Liberty Life Assurance Company of Boston;
since: 1986 Director, Boston Edison Company, Liberty Mutual
Member: Executive Insurance Company, Liberty Life Assurance
And Executive Company of Boston, Liberty Mutual Fire Insurance
Personnel Committees Company, Liberty Financial Companies, Inc.,
BankBoston Corporation, BankBoston, N.A., The
Neiman-Marcus Group, Inc., Alliance of American
Insurers.
Thomas G. Dignan, Jr. (1) Partner, Ropes & Gray (Law Firm); Director,
Age: 58 Boston Edison Company.
Trustee since: 1998
Boston Edison Company
Director since: 1983
Member: Executive
Committee
Herbert Roth, Jr. Former Chairman of the Board (1978-1985) and
Age: 70 Chief Executive Officer (1968-1985), LFE
Trustee since: 1998 Corporation (Traffic and Industrial Process
Boston Edison Company Control Systems); Director/Trustee, Boston
Director since: 1978 Edison Company, Landauer, Inc., Tech/Ops Sevcon,
Member: Audit, Inc., Phoenix Home Life Mutual Insurance
Finance and Risk Company, Phoenix Series Fund, Phoenix Total
Management Committee Return Fund, Inc., Phoenix Multi-Portfolio Fund,
The Bid Edge Series Fund, Mark IV Industries.
Stephen J. Sweeney Former Chairman of the Board (1986-1992) and
Age: 70 Chief Executive Officer (1984-1990), Boston
Trustee since: 1998 Edison Company; Director, Boston Edison Company,
Boston Edison Company Selecterm, Inc., Liberty Mutual Insurance
Director since: 1983 Company, Liberty Mutual Fire Insurance Company,
Member: Audit, Liberty Life Assurance Company of Boston,
Finance and Risk Liberty Financial Companies, Inc., Uno
Management Committee Restaurant Corporation.
</TABLE>
61
<PAGE>
Incumbent Class I Trustees - Terms Expiring in 2001
---------------------------------------------------
<TABLE>
<CAPTION>
Trustees Principal Occupation and Directorships
- ----------------------- ------------------------------------------------
<S> <C>
Nelson S. Gifford Principal, Fleetwing Capital (Venture
Age: 68 Investments); formerly Chairman (1986-1990) and
Trustee since: 1998 Chief Executive Officer (1975-1990), Dennison
Boston Edison Company Manufacturing Company (Stationery Products,
Director since: 1981 Systems and Packaging); Director, Boston Edison
Member: Executive Company, John Hancock Mutual Life Insurance
Committee Company, Reed and Barton, J.M. Huber Corp.,
Nypro Inc, Partners Fund.
Richard J. Egan Chairman of the Board, EMC Corporation (Storage
Age: 63 Related Computer System Products); Director,
Trustee since: 1998 Boston Edison Company, Cognition Inc., Shiva
Boston Edison Company Corporation, New York Stock Exchange Listed
Director since: 1997 Company Advisory Committee.
Member: Executive
Personnel Committee
Matina S. Horner Executive Vice President, Teachers Insurance and
Age: 59 Annuity Association/College Retirement Equities
Trustee since: 1998 Fund; formerly President (1972-1989), Radcliffe
Boston Edison Company College; Director, Boston Edison Company, The
Director since: 1988 Neiman-Marcus Group, Inc.
Member: Executive,
Audit, Finance and
Risk Management and
Pricing Committees
</TABLE>
(1) During 1998, Boston Edison Company and BEC Energy paid legal fees to the
firm of Ropes & Gray.
(f) Involvement in Certain Legal Proceedings
- ---------------------------------------------
Not applicable.
(g) Promoters and Control Persons
- ----------------------------------
Not applicable.
Item 11. Executive Compensation
- --------------------------------
Trustee Compensation
In 1998, the compensation programs for trustees were reviewed and revised with
the assistance of an external compensation consultant. The review was initiated
to assure that the level of compensation be appropriate in reference to
comparable programs, the plan design supports BEC Energy's strategic objectives,
and the interests of the trustees are aligned with those of shareholders.
Each trustee who is not an employee of BEC Energy receives an annual board
retainer of $20,000 in cash. Each trustee also receives an annual retainer of
$20,000 worth of BEC Energy common shares which is deferred until the trustee
retires from the board. Each non-employee trustee who is a member of the
Executive Committee receives an additional retainer of $3,000 and each trustee
who chairs a BEC Energy board committee receives an additional retainer of
62
<PAGE>
$3,000. All other retainers were discontinued as of October 1998. Each trustee
who is not an employee of BEC Energy receives $1,000 for attendance in person at
each meeting of the BEC Energy board or a committee and $500 for participating
in a meeting by telephone. Trustees may elect to defer part or all of their
trustees' fees under BEC Energy's deferred fee plan. Two programs were
discontinued: the 1991 Director Stock Plan and the 1993 Directors' Retirement
Benefit. An amount equal to the present value of the benefit each outside
trustee accrued under the Directors' Retirement Benefit was deposited in
deferred accounts. Receipt is deferred until the trustee's retirement from the
BEC Energy board.
Report of the Executive Personnel Committee
Under the rules established by the SEC, BEC Energy is required to provide
specified data and information with regard to the compensation and benefits
provided to its executive officers, including BEC Energy's chief executive
officer and the four other most highly compensated executive officers. The
disclosure requirements for these officers (the "Named Executive Officers")
include tables summarizing total compensation and a report explaining the
rationale and considerations that led to fundamental executive compensation
decisions affecting those individuals for the prior year.
The Executive Personnel Committee
BEC Energy's executive compensation program is administered by the Executive
Personnel Committee, a committee of the BEC Energy board composed of the four
non-employee trustees listed as signatories to this report. Except as discussed
below, none of these non-employee trustees has any interlocking or other
relationship with BEC Energy that would require disclosure to the SEC.
Generally, all decisions of the Executive Personnel Committee regarding the
compensation of the chief executive officer are subject to the approval of the
non-employee trustees of BEC Energy, none of whom is eligible to participate in
the incentive plans described below. The Executive Personnel Committee
administers the 1997 Stock Incentive Plan discussed below.
The Named Executive Officers
The officers identified as the five most highly compensated executive officers
of BEC Energy are all employees of Boston Edison Company, BEC Energy's principal
subsidiary. Three of the Named Executive Officers, Messrs. May, Horan and
Judge, also serve as officers of BEC Energy, in the following capacities: Mr.
May as Chairman, President and Chief Executive Officer; Mr. Horan as Senior Vice
President and General Counsel; and Mr. Judge as Senior Vice President and
Treasurer. BEC Energy does not have any employees of its own.
Compensation Philosophy
The executive compensation philosophy of BEC Energy is to provide competitive
levels of compensation that advance BEC Energy's annual and long-term
performance objectives, reward corporate performance, and assist BEC Energy in
attracting, retaining and motivating highly qualified executives. The framework
for the compensation committee's executive compensation program is to establish
base salaries which are competitive with electric utilities in general and to
incentivize excellent performance by providing executives with the opportunity
to earn additional remuneration under the annual and long-term incentive plans.
The incentive plan goals are designed to improve the effectiveness and enhance
the efficiency of BEC Energy's operations and to create value for shareholders.
The committee also seeks to link executive and
63
<PAGE>
shareholder interests through equity-based incentive plans. Accordingly, in
1997, upon the committee's recommendation, the Boston Edison board approved
stock ownership guidelines of three times base salary for the chief executive
officer and one to one-and one-half times base salary for the other executive
officers of BEC Energy and Boston Edison Company. These guidelines allow the
executives five years to acquire this amount of stock.
Components of Compensation
Compensation paid to the Named Executive Officers, as reflected in the following
tables, consists of three primary elements: base salary, annual incentive
awards, and long-term incentive awards. BEC Energy compares its compensation
levels against those of other growth-oriented investor-owned electric utility
companies. BEC Energy's strategy is to establish total compensation, i.e., base
salary and annual incentives, at the 60th percentile of the utility industry,
and to compare its long-term incentive plan to those of more aggressive
utilities and general industry companies that focus on value creation.
During 1998, the committee thoroughly reviewed data collected by nationally
recognized compensation experts as well as by Boston Edison's human resources
group to determine whether BEC Energy's compensation strategy was being met.
The review evaluated base salary and annual incentives of nearly all electric
utility companies, and long-term incentives of a blend of utilities and general
industry. The data demonstrated that BEC Energy was in conformity with its
compensation strategy to the satisfaction of the committee.
The income tax deductions of publicly traded companies may be limited to the
extent total compensation for particular executive officers exceeds one million
dollars during any year. This deduction limit, however, does not apply to
payments which qualify as "performance based". The committee has reviewed the
regulations issued by the Internal Revenue Service and will continue to review
the application of these rules to future compensation. However, the committee
intends to continue basing its executive compensation decisions primarily upon
performance achieved, both corporate and individual, while retaining the right
to make subjective decisions and to award compensation that may or may not meet
all of the Internal Revenue requirements for deductibility.
Annual Incentive Plan
Annual incentive payments to the Named Executive Officers, reported in the
fourth column of the Summary Compensation Table below, are based on both
corporate and business unit performance objectives which are derived from the
corporate operating plan and approved by the committee. Corporate performance
objectives include a comparison of target to actual earnings per share from
operations. Business unit performance objectives include predetermined levels
for operating and capital budgets, as well as key operating goals. The annual
incentive plan award for Mr. May is based solely on BEC Energy's achieving the
earnings per share objective. In 1998, basic earnings per share were $2.76,
which exceeded the plan target. The annual incentive plan awards for Messrs.
Gustin, Horan, Judge and Ledgett were based 50% on earnings per share and 50% on
specific business unit performance objectives to achieve various budget and
operating plan targets. All four officers exceeded the specified business unit
performance levels.
64
<PAGE>
Long-Term Compensation
Under the 1997 Stock Incentive Plan, executive officers and other key employees
are eligible to receive grants from time to time of stock-related awards of
seven general types: (i) stock options, (ii) stock appreciation rights, (iii)
restricted stock awards, (iv) deferred stock awards, (v) performance unit
awards, (vi) dividend equivalent awards, and (vii) other stock-based awards.
The long-term grant in May of 1998 consisted of non-qualified stock options,
deferred shares and dividend equivalents on the deferred shares, and was based
upon the committee's evaluation of performance towards key strategic objectives,
and competitive award data provided by an external consultant. The committee
did not weight any of these factors. The options and the deferred shares vest
at the rate of 33% per year over a three-year period from the date of grant, and
the options may be exercised over a ten-year period.
Other Plans
At various times in the past, BEC Energy and Boston Edison Company have adopted
various broad-based employee benefit plans in which officers are permitted to
participate on the same terms as non-executive employees who meet applicable
eligibility criteria. These plans include pension, life, and health insurance
plans, as well as a section 401(k) savings plan which includes a company
matching contribution equal to the first six percent of pay contributed by the
employee up to a maximum excludable 401(k) contribution allowed by the Internal
Revenue Code. In addition, Boston Edison Company has a deferred compensation
plan in which officers and senior managers may elect to participate.
In 1996, the committee implemented a supplemental executive retirement plan
which provides eligible participates with supplementary retirement income of up
to 60% of final average cash compensation, depending upon each participant's
years of service, reduced by 50% of the participant's social security benefit
and further reduced by benefits the participant receives under Boston Edison's
pension plan.
Mr. May's 1998 Compensation
The Executive Personnel Committee makes decisions regarding the compensation of
the chief executive officer using the same philosophy and criteria described
above. As with the compensation of all officers, BEC Energy compares
compensation levels for the chief executive officer to those of all other
investor-owned electric utility companies.
Each year BEC Energy approves the adjustment of salary ranges for the chief
executive officer and other corporate officers based on studies conducted by
external executive compensation consultants and Boston Edison Company's human
resources group. The 1998 studies found BEC Energy's executive compensation
levels to be within the approved 60th percentile position to market. Mr. May
received a 5% increase to his base salary in 1998.
Mr. May's annual incentive award, shown in the fourth column of the Summary
Compensation Table below, was in conformity with the provisions of the annual
incentive plan described above, and was based on BEC Energy surpassing its
operating plan targets. The committee's policy is to base individual long-term
incentive awards on an annual study by the compensation consultant comparing the
value of long-term incentive grants to salary levels for a blend of electric
utility and general industry companies. The 6,000 deferred shares and 60,000
options granted Mr. May in 1998 reflect this policy.
65
<PAGE>
Compensation Committee Interlocks and Insider Participation
Charles K. Gifford, who is a member of BEC Energy's Executive Personnel
Committee, is Chairman and Chief Executive Officer of BankBoston Corporation and
BankBoston, N.A. Thomas J. May, BEC Energy's Chairman, President and Chief
Executive Officer, serves on the boards of directors of BankBoston Corporation
and BankBoston, N.A.
Gary L. Countryman, who is the Chairman of BEC Energy's Executive Personnel
Committee, is Chairman of the Board and Chief Executive Officer of Liberty
Mutual Insurance Company and Liberty Mutual Fire Insurance Company and Chairman
of the Board of Liberty Financial Companies, Inc. Mr. May serves on the boards
of directors of Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance
Company, and Liberty Financial Companies, Inc.
By the Executive Personnel Committee,
Gary L. Countryman (Chairman)
Richard J. Egan
Charles K. Gifford
Sherry H. Penney
Executive Compensation Tables
The following information is given regarding annual and long-term compensation
earned by the chief executive officer and the four other most highly compensated
executive officers of BEC Energy and Boston Edison Company with respect to the
years 1996, 1997 and 1998.
66
<PAGE>
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards Payouts
------------------ ------------------------- ----------
Securities
Other Deferred Underlying
Name and Annual Share Options/ LTIP All Other
Principal Position Year Salary Bonus Compensation(1) Awards(2) SARs(#) Payouts Compensation(3)
- ------------------- ----- -------- -------- -------------- ------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas J. May..... 1998 $519,583 $600,000 - 238,500 60,000 - $ 9,600
Chairman, 1997 496,875 498,750 - 426,400 100,000 - 9,600
President and 1996 463,625 324,750 - - - - 9,000
Chief Executive
Officer
BEC Energy and
Boston Edison
Company
Ronald A. Ledgett. 1998 277,875 248,850 - 99,375 27,000 - 84,600
Executive Vice 1997 232,500 216,750 - 118,450 28,600 - 9,600
President, 1996 193,667 119,300 - - - - 9,000
Boston Edison
Company
Douglas S. Horan.. 1998 208,750 196,750 - 59,625 14,000 - 59,600
Senior Vice 1997 195,417 140,000 - 103,000 25,000 - 9,600
President, 1996 175,833 83,750 - - - - 9,000
BEC Energy and
Boston Edison
Company
James J. Judge.... 1998 205,417 196,750 - 59,625 14,000 - 59,600
Senior Vice 1997 183,667 136,400 - 97,850 23,400 - 9,600
President, 1996 167,000 80,000 - - - - 9,000
BEC Energy and
Boston Edison
Company
L. Carl Gustin.... 1998 194,375 163,875 - 51,675 12,000 - 9,600
Senior Vice 1997 187,813 121,250 - 97,850 23,800 - 9,600
President, 1996 182,507 67,262 - - - - 9,000
Boston Edison
Company
</TABLE>
(1) None of the Named Executive Officers received amounts of other annual
compensation in 1996, 1997, or 1998 which would require disclosure
under SEC rules.
(2) Deferred common share awards are valued at the closing market price as
of the date of the grant. The awards vest one-third on each of the
first, second and third anniversaries of the date of the grant.
Dividends will accrue on the awards from the date of grant and will be
be payable in the form of additional shares which will vest at the same
time the awards vest. Aggregate deferred common share holdings and
values based on the closing price of the common shares on December 31,
1998 are as follows: Mr. May, 16,933 shares ($697,428); Mr. Ledgett,
5,567 shares ($229,291); Mr. Gustin, 3,833 shares ($157,872); Mr. Horan,
4,167 shares ($171,628) and Mr. Judge, 4,033 shares ($166,109).
(3) Messrs. Ledgett, Horan and Judge received payments in the amounts of
$75,000, $50,000 and $50,000 respectively, under retention agreements
entered into in 1996. All other amounts in this column represent Boston
Edison's matching contribution under its 401(k) plan.
67
<PAGE>
Option Grants in Last Fiscal Year
---------------------------------
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
% of
Total
Options Grant
Number of Granted Exercise Date
Securities to or Present
Underlying Employees Base Expiration Value
Name Options Granted(1) in 1998 Price Date (2)
- ---- ----------------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Thomas J. May................................. 60,000 14.3% $ 39.75 4/22/08 $276,600
Ronald A. Ledgett. 27,000 6.4% $ 39.75 4/22/08 $124,470
L. Carl Gustin................................ 12,000 2.9% $ 39.75 4/22/08 $ 55,320
Douglas S. Horan.............................. 14,000 3.3% $ 39.75 4/22/08 $ 64,540
James J. Judge................................ 14,000 3.3% $ 39.75 4/22/08 $ 64,540
</TABLE>
(1) Options vest one-third annually beginning April 22, 1999.
(2) The grant date present values were determined using the Black-Scholes
option pricing model. There is no assurance that the value realized would
be at or near the value estimated by the Black-Scholes model. Assumptions
used for the model are as follows: stock volatility, 16%; risk-free
interest rate, 5.66%; dividend yield, 4.88%; and time to exercise, four
years.
Aggregated Option/SAR Exercises and Fiscal Year-End
---------------------------------------------------
Option Value Table
------------------
<TABLE>
<CAPTION>
Number of Securities Value of Securities
Underlying Underlying Unexercised
Unexercised Options In-the-Money Options
Shares/SARs At Fiscal Year-End At Fiscal Year-End (1)
Acquired on Value --------------------------- -------------------------
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------------------------------- ----------- --------- --------------------------- --------------------------
<S> <C> <C> <C> <C>
Thomas J. May................................. 0 $0 33,333 / 126,667 $506,245 / $1,098,755
Ronald A. LedgettA............................ 0 $0 9,533 / 46,067 $147,166 / $333,159
L. Carl Gustin................................ 0 $0 7,933 / 27,867 $122,466 / $262,197
Douglas S. Horan.............................. 0 $0 8,333 / 30,667 $128,641 / $277,422
James J. Judge................................ 0 $0 7,800 / 29,600 $120,413 / $260,950
</TABLE>
(1) Based on the closing price of BEC Energy common shares on December 31,
1998 of $41.1875.
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<PAGE>
Pension Plan Table
The following table shows the estimated annual retirement benefits payable to
executive officers under the qualified pension plan and the supplemental
executive retirement plan, assuming retirement at age 65. The supplemental
executive retirement plan is a non-qualified pension plan providing a maximum
benefit of 60% of compensation after the executive has accumulated 20 years of
credited service and has reached age 60. The supplemental executive retirement
plan provides the incremental benefits in excess of the benefits paid under the
qualified plan necessary to reach the benefit shown in the table. Each of the
officers named in the Summary Compensation Table participates in the
supplemental executive retirement plan. The benefits presented are based on a
straight life annuity and do not take into account a reduction in benefits of up
to 50% of the participant's primary social security benefit.
<TABLE>
<CAPTION>
Years of Credited Service
Average Annual ----------------------------
Compensation 10 15 20
- ---------------- -------- -------- --------
<S> <C> <C> <C>
$200,000........ $ 60,000 $ 90,000 $120,000
$300,000........ 90,000 135,000 180,000
$400,000........ 120,000 180,000 240,000
$500,000........ 150,000 225,000 300,000
$600,000........ 180,000 270,000 360,000
$700,000........ 210,000 315,000 420,000
$800,000........ 240,000 360,000 480,000
$900,000........ 270,000 405,000 540,000
</TABLE>
For purposes of the retirement plans, Messrs. May, Ledgett, Gustin, Horan and
Judge currently have 23, 18, 18, 21 and 21 years of credited service,
respectively.
Final average compensation for purposes of calculating the benefits under the
supplemental executive retirement plan is the highest average annual
compensation of the participant during any consecutive 36-month period.
Compensation taken into account in calculating the benefits described above
includes salary and annual bonus, including any amounts deferred under the terms
of the deferred compensation plan.
Mr. May can elect, and Mr. Ledgett receives, an alternative supplemental
retirement benefit equal to 33% of final base salary annually for 15 years,
which at the current level would provide Mr. Ledgett with approximately $7,000
in excess of the amounts shown in the table above.
Change of Control Agreements
BEC Energy, through its Boston Edison Company subsidiary has change of control
agreements with various key employees, including those named in the Summary
Compensation Table, which provide severance benefits in the event of specified
terminations of employment following a change in control of Boston Edison.
Events which constitute a change of control under these agreements are described
below. If, following a change in control, the employee's employment is
terminated without cause or the employee terminates employment for good reason,
the employee receives severance pay in an amount equal to two times, three times
in the case of Mr. May, the sum of annual base salary (at the rate in effect
immediately prior to the date of termination or immediately before the change of
control, whichever is higher) plus actual bonus paid in respect of the most
recently completed fiscal year or target bonus for the fiscal year in which the
termination occurs, whichever is higher. In addition, the change
69
<PAGE>
of control agreements provide for a pro rated bonus payment for the year in
which the termination occurs, the immediate vesting of bonus awards, immediate
payment of deferred compensation amounts upon the termination and payments equal
to the benefit the employee would have received under Boston Edison Company's
retirement plan assuming the executive was vested and remained employed for an
additional two years, three years in the case of Mr. May. For two years, three
years in the case of Mr. May, following termination of employment, the employee
would be entitled to continue to participate in all welfare plans provided by
Boston Edison Company. The change of control agreements further provide for a
"gross-up" payment under which, if amounts paid under these agreements would be
effectively reduced a federal excise tax on "excess parachute payments," Boston
Edison Company will pay the employee an additional amount of cash, so that,
after payment of all parachute taxes by the employee, the employee will have
received the amount the employee would have received in the absence of any such
tax. A change of control under these agreements generally includes the following
events: (i) a person or group becomes the beneficial owner of more than 30% of
the voting power of Boston Edison Company's securities; (ii) continuing
directors cease to be a majority of the Boston Edison Company board; (iii) a
consolidation, merger or other reorganization or sale or other disposition of
all or substantially all of the assets of Boston Edison Company, other than
certain defined transactions; or (iv) approval by the stockholders of a complete
liquidation or dissolution of Boston Edison Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
- ----------------------------------------------------
To the knowledge of management, no person owns beneficially more than five
percent of the BEC Energy common shares.
(b) Security Ownership of Management
- -------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of BEC Energy common shares as of January 31, 1999, assuming the
exercise of all options exercisable on, or within 60 days of, such date, by (i)
each trustee, (ii) the chief executive officer and each of the other four most
highly compensated executive officers of BEC Energy/Boston Edison Company, (iii)
all executive officers and trustees as a group. None of the individual or
collective holdings below exceeds 1% of the outstanding BEC Energy common
shares. No member of the group is the beneficial owner of Boston Edison
Company's cumulative preferred stock.
70
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of
BEC Energy Common
Name of Beneficial Owner Stock Beneficially Owned
- ------------------------ ------------------------
<S> <C>
Gary L. Countryman................................ 4,614
Thomas G. Dignan, Jr.............................. 5,290
Richard J. Egan................................... 1,777
Charles K. Gifford................................ 3,515
Nelson S. Gifford................................. 8,412
L. Carl Gustin.................................... 18,684
Douglas S. Horan.................................. 17,609
Matina S. Horner.................................. 4,365
James J. Judge.................................... 16,437
Paul A. LaCamera.................................. 233
Ronald A. Ledgett................................. 22,523
Thomas J. May..................................... 74,445
Sherry H. Penney.................................. 4,342
Herbert Roth, Jr.................................. 8,759
Stephen J. Sweeney................................ 5,873
All trustees and executive officers as a group,
including those named above (18 persons).......... 228,586
</TABLE>
(1) The following BEC Energy common shares are held in Boston Edison
Company's Deferred Compensation Trust due to deferrals by the following
participants under Boston Edison Company's Deferred Compensation Plan:
Mr. Horan, 1,564 shares; Mr. Judge, 1,351 shares; Mr. Ledgett, 4,052
shares; Mr. May, 13,813 shares; all executive officers as a group,
25,725 shares. Trustees and officers who are participants in Boston
Edison Company's Deferred Compensation Plan may instruct the trustee to
vote BEC Energy common shares held in the trust in accordance with their
allocable share of such deferrals, but trustee participants have no
dispositive power with respect to shares held in the trust.
(2) These totals include the following number of BEC Energy common shares
held in Boston Edison Company's 401(k) Plan: Mr. Gustin, 4,346 shares;
Mr. Horan, 2,772 shares; Mr. Judge, 2,655 shares; Mr. Ledgett, 3,062
shares; Mr. May, 8,163 shares; all executive officers as a group, 28,713
shares.
(3) 3,629 of Mr. Sweeney's 5,873 shares are held in a charitable annuity
remainder trust, of which he, as a co-trustee of the trust, shares
dispositive and voting power with respect to the shares.
(c) Changes in Control
- -----------------------
Not applicable.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Not applicable.
71
<PAGE>
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as part of this Form 10-K/A:
1. Financial Statements:
Page
----
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996 30
Consolidated Statements of Retained Earnings for the
years ended December 31, 1998, 1997 and 1996 30
Consolidated Balance Sheets as of December 31, 1998 and 1997 31
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996 32
Notes to Consolidated Financial Statements 33
Selected Consolidated Quarterly Financial Data (Unaudited) 58
Report of Independent Accountants 81
2. Financial Statement Schedules:
No financial statement schedules are included as they are either not required or
not applicable.
3. Exhibits:
Refer to the exhibits listing beginning on the following page.
(b) Reports on Form 8-K:
A Form 8-K dated November 23, 1998, was filed during the fourth quarter of 1998
disclosing that Entergy Nuclear Company was selected as the winning
bidder for the purchase of Pilgrim Station. In addition, a Form 8-K dated
December 10, 1998, was filed announcing that BEC and Commonwealth Energy System
entered into an Agreement and Plan of Merger.
72
<PAGE>
Exhibit SEC Docket
------- ----------
Exhibit 2 Plan of Acquisition, Reorganization,
- --------- ------------------------------------
Arrangement, Liquidation or Succession
--------------------------------------
Incorporated herein by reference:
2.1 Agreement and Plan of Merger by and 2.1 1-14768
among BEC Energy, Boston Energy Form 8-K
Technology Group, Inc., Commonwealth dated
Energy System, COM/Energy Resources, December 10,
Inc. and BEC Newco, Inc., dated 1998
December 5, 1998
Exhibit 3 Articles of Incorporation and By-Laws
- --------- -------------------------------------
Incorporated herein by reference:
3.1 Restated Articles of Organization 3.1 1-2301
Form 10-Q
for the
quarter ended
June 30, 1994
3.2 Boston Edison Company Bylaws 3.1 1-2301
April 19, 1977, as amended Form 10-Q
January 22, 1987, January 28, 1988, for the
May 24, 1988 and November 22, 1989 quarter ended
June 30, 1990
3.3 BEC Energy Declaration of Trust 3.1.1 Registration on
Form S-4
(File No.
333-23439)
3.4 BEC Energy Bylaws 3.1.2 Registration on
Form S-4
(File No.
333-23439)
Exhibit 4 Instruments Defining the Rights of
- --------- ----------------------------------
Security Holders, Including Indentures
--------------------------------------
Incorporated herein by reference:
4.1 Medium-Term Notes Series A - Indenture 4.1 1-2301
dated September 1, 1988, between Form 10-Q
Boston Edison Company and Bank of for the
Montreal Trust Company quarter ended
September 30,
1988
73
<PAGE>
Exhibit SEC Docket
------- ----------
4.1.1 First Supplemental Indenture 4.1 1-2301
dated June 1, 1990 to Form 8-K
Indenture dated September 1, 1988 dated
with Bank of Montreal Trust Company - June 28, 1990
9 7/8% debentures due June 1, 2020
4.1.2 Indenture of Trust and Agreement among 4.1.26 1-2301
the City of Boston, Massachusetts Form 10-K
(acting by and through its Industrial for the
Development Financing Authority) and year ended
Harbor Electric Energy Company and December 31,
Shawmut Bank, N.A., as Trustee, dated 1991
November 1, 1991
4.1.3 Votes of the Pricing Committee of the 4.1.27 1-2301
Board of Directors of Boston Edison Form 10-K
Company taken August 5, 1991 re for the
9 3/8% debentures due August 15, 2021 year ended
December 31,
1991
4.1.4 Revolving Credit Agreement dated 4.1.24 1-2301
February 12, 1993 Form 10-K
for the
year ended
December 31,
1992
4.1.4.1 First Amendment to Revolving Credit 4.1.10 1-2301
Agreement dated May 19, 1995 Form 10-K
for the
year ended
December 31,
1995
4.1.4.2 Second Amendment to Revolving Credit 4.1.4.2 1-2301
Agreement dated July 1, 1997 Form 10-K
for the
year ended
December 31,
1997
4.1.5 Votes of the Pricing Committee of the 4.1.25 1-2301
Board of Directors of Boston Edison Form 10-K
Company taken September 10, 1992 re for the
8 1/4% debentures due September 15, 2022 year ended
December 31,
1992
74
<PAGE>
Exhibit SEC Docket
------- ----------
4.1.6 Votes of the Pricing Committee of the 4.1.26 1-2301
Board of Directors of Boston Edison Form 10-K
Company taken January 27, 1993 re for the
6.80% debentures due February 1, 2000 year ended
December 31,
1992
4.1.7 Votes of the Pricing Committee of the 4.1.27 1-2301
Board of Directors of Boston Edison Form 10-K
Company taken March 5,1993 re for the
6.80% debentures due March 15, 2003, year ended
7.80% debentures due March 15, 2023 December 31,
1992
4.1.8 Votes of the Pricing Committee of the 4.1.28 1-2301
Board of Directors of Boston Edison Form 10-K
Company taken August 18, 1993 re for the
6.05% debentures due August 15, 2000 year ended
December 31,
1993
4.1.9 Votes of the Pricing Committee of the 4.1.9 1-2301
Board of Directors of Boston Edison Form 10-K
Company taken May 10, 1995 re for the
7.80% debentures due May 15, 2010 year ended
December 31,
1995
Management agrees to furnish to the Securities and Exchange Commission, upon
request, a copy of any agreements or instruments defining the rights of holders
of any long-term debt whose authorization does not exceed 10% of total assets.
Exhibit SEC Docket
------- ----------
Exhibit 10 Material Contracts
- ---------- ------------------
Incorporated herein by reference:
10.1 Key Executive Benefit Plan 10.3.1 1-2301
Standard Form of Agreement, May Form 10-K
1986, with modifications for the
year ended
December 31,
1991
75
<PAGE>
Exhibit SEC Docket
------- ----------
10.2 Executive Annual Incentive 10.5 1-2301
Compensation Plan Form 10-K
for the
year ended
December 31,
1988
10.2.1 Supplemental Executive Retirement 10.1 1-2301
Plan Form 10-Q
for the
quarter ended
June 30, 1997
10.2.2 1997 Stock Incentive Plan 10.2 1-2301
Form 10-Q
for the
quarter ended
June 30, 1997
10.3 Boston Edison Company Deferred 10.11 1-2301
Fee Plan dated January 14, 1993 Form 10-K
for the
year ended
December 31,
1992
10.4 Deferred Compensation Trust 10.10 1-2301
between Boston Edison Company Form 10-K
and State Street Bank and for the
Trust Company dated year ended
February 2, 1993 December 31,
1992
10.4.1 Amendment No. 1 to Deferred 10.5.1 1-2301
Compensation Trust dated Form 10-K
March 31, 1994 for the
year ended
December 31,
1994
10.5 Boston Edison Company Deferred 10.9 1-2301
Compensation Plan, Amendment and Form 10-K
Restatement dated January 31, 1995 for the
year ended
December 31,
1994
76
<PAGE>
Exhibit SEC Docket
------- ----------
10.6 Employment Agreement applicable to 10.10 1-2301
Ronald A. Ledgett dated April 30, 1987 Form 10-K
for the
year ended
December 31,
1994
10.7 Change in Control Agreement applicable 10.2 1-2301
to Thomas J. May dated July 8, 1996 Form 10-Q
for the
quarter ended
June 30, 1996
10.8 Form of Change in Control Agreement 10.3 1-2301
applicable to Ronald A. Ledgett, Form 10-Q
L. Carl Gustin, Douglas S. Horan, for the
James J. Judge and certain other quarter ended
officers dated July 8, 1996 June 30, 1996
10.9 Boston Edison Company Restructuring 10.12 1-2301
Settlement Agreement dated July 1997 Form 10-K
for the
year ended
December 31,
1997
10.10 Boston Edison Company and Sithe 10.1 1-2301
Energies, Inc. Purchase and Sale Form 10-Q
and Transition Agreements dated for the
December 10, 1997 quarter ended
March 31, 1998
Filed herewith:
10.11 Boston Edison Company Directors'
Deferred Fee Plan Restatement
effective October 1, 1998
10.12 Boston Edison Company and Entergy
Nuclear Generation Company Purchase
and Sale Agreement dated November 18,
1998
Exhibit 21 Subsidiaries of the Registrant
- ---------- ------------------------------
21.1 Boston Edison Company (incorporated
in Massachusetts), a wholly owned
subsidiary of BEC Energy
77
<PAGE>
Exhibit SEC Docket
------- ----------
21.2 Boston Energy Technology Group, Inc.
(incorporated in Massachusetts),
a wholly owned subsidiary of BEC
Energy
21.3 Harbor Electric Energy Company
(incorporated in Massachusetts),
a wholly owned subsidiary of Boston
Edison Company
Exhibit 23 Consent of Independent Accountants
- ---------- ----------------------------------
Filed herewith:
23.1 Consent of Independent Accountants
to incorporate by reference their
opinion included with this Form
10-K/A in the Form S-3 Registration
Statement filed by BEC Energy on
July 2, 1998 (File No. 33-59693);
Form S-8 Registration Statements
filed by BEC Energy on June 17,
1998 (File Nos. 33-58457, 33-59662
and 33-59682) and June 29, 1998
(File No. 333-30975-99)
Exhibit 27 Financial Data Schedule
- ---------- -----------------------
Filed herewith:
27.1 Schedule UT
Exhibit 99 Additional Exhibits
- ---------- -------------------
Incorporated herein by reference:
99.1 Settlement Agreement between Boston 28.1 1-2301
Edison Company and Commonwealth Form 8-K
Electric Company, Montaup Electric dated
Company and the Municipal December 21,
Light Department of the Town of 1989
Reading, Massachusetts, dated
January 5, 1990
99.2 Settlement Agreement Between Boston 28.2 1-2301
Edison Company and City of Holyoke Form 10-Q
Gas and Electric Department et. al., for the
dated April 26, 1990 quarter ended
March 31, 1990
78
<PAGE>
Exhibit SEC Docket
------- ----------
99.3 Information required by SEC Form 1-2301
11-K for certain employee benefit Form 10-K/A
plans for the years ended Amendments to
December 31, 1997, 1996 and 1995 Form 10-K for
the years ended
December 31,
1997, 1996 and
1995 dated
June 25,1998,
June 26, 1997
and June 27,
1996,
respectively
79
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BEC ENERGY
By: /s/ Robert J. Weafer, Jr.
--------------------------------------
Robert J. Weafer, Jr.
Vice President-Finance, Controller
and Chief Accounting Officer
Date: May 12, 1999
80
<PAGE>
Report of Independent Accountants
To the Shareholders and Trustees of BEC Energy:
In our opinion, the accompanying consolidated financial statements listed in
Item 14(a) of this Form 10-K/A present fairly, in all material respects, the
consolidated financial position of BEC Energy and its subsidiaries at December
31, 1998 and 1997 and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of BEC's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 28, 1999
81
<PAGE>
Exhibit 10.11
BOSTON EDISON COMPANY
DIRECTORS' DEFERRED FEE PLAN
(Restated Effective October 1, 1998)
1. Purpose and Effective Date
This Plan provides an arrangement whereby Outside Directors can elect
to defer receipt of designated percentages or amounts of their retainers and
meeting fees. This Plan also provides Outside Directors with nonelective
Company credits. This Plan document constitutes an amendment, restatement
and continuation of the Directors' Deferred Fee Plan, previously restated
effective January 1, 1998. This Plan document, along with prior plan
restatements replace the form of deferred fee agreement approved, authorized
and adopted by the Board of Directors at its November 27, 1985 meeting and
amended at its November 26, 1986 and August 24, 1989 meetings (agreements in
such individual form being hereinafter referred to as the "Prior Agreements").
This Plan document also replaces the Outside Directors retirement benefit
adopted by the Board of Directors at its meeting on April 6, 1993 and
terminated effective as of September 30, 1998. This amended Plan is effective
October 1, 1998.
2. Definitions
(a) "Board of Directors" means the board of directors of the Company.
(b) "Change of Control" has the meaning set forth in Appendix A.
(c) "Code" means the Internal Revenue Code of 1986 as amended from
time to time.
(d) "Company" means Boston Edison Company.
(e) "Company Credit Account" means the Company credit account
described in Section 7.
(f) "Deferral Account" means the deferral account described in Section
6.
(g) "Outside Director" means a member of the Board of Directors who is
not an employee of the Company or any of its affiliates. Solely for purposes
of elective deferrals under Section 4, "Outside Director" also means a member
of the board of trustees of BEC Energy who is not an employee of BEC Energy or
any of its affiliates.
(h) "Participant" means an Outside Director who participates in the
Plan.
(i) "Plan" means Boston Edison Company Directors' Deferred Fee Plan as
set forth herein and as from time to time amended.
(j) "Plan Administrator" means the Board of Directors or other person
or persons authorized to administer the Plan in accordance with Section 10.
(k) "Retirement" means the termination of a Participant's service as a
member of the Board of Directors (or as a member of the board of trustees of
BEC Energy) other than by reason of death.
(l) "Shares" means shares of BEC Energy.
3. Eligibility
An Outside Director shall be eligible to participate in the Plan
provided he or she completes such forms as the Plan Administrator may require.
Effective as of January 1, 1990 amounts deferred pursuant to a Prior Agreement
in respect of any person who is a Participant hereunder shall be payable from
his or her Deferral Account under this Plan and not separately
<PAGE>
under such Prior Agreement. To the extent a Prior Agreement would conflict
with the terms and conditions of this Plan (including in such terms and
conditions any election by the Participant in connection with enrollment in
this Plan), the terms and conditions of this Plan shall control.
4. Elective Deferrals
A Participant may elect to defer all or any portion of his or her
retainers or other fees otherwise payable by the Company (or BEC Energy in the
case of an Outside Director of BEC Energy) in or for a calendar year, subject
to such minimum deferral amounts as the Plan Administrator may prescribe prior
to the start of such calendar year.
5. Deferral Elections
A Participant's election of deferral under Section 4 shall be in such
form and subject to such terms and conditions as the Plan Administrator shall
prescribe. The election of deferral must be filed prior to the first day of
the "Deferral Period" as hereinafter defined. Each election shall specify the
percentage or amount of the Participant's retainers or other fees to be
credited to his or her Deferral Account instead of being paid currently to the
Participant, and the payment period (including a single lump-sum payment if so
elected) for the distribution in respect of such deferral. Each election
shall be binding with respect to the retainers and other fees for such period
(not less than one year) as the Plan Administrator shall specify (the
"Deferral Period") and shall be irrevocable after January 1 of the calendar
year to which it applies, or in the case of a Deferral Period of more than one
year, January 1 of the first calendar year to which it applies.
<PAGE>
6. Deferral Account
The Plan Administrator shall maintain a Deferral Account on the books
and records of the Company for each Participant as follows:
(a) Opening Balance. If the Participant has deferred retainers or
---------------
fees prior to January 1, 1990 pursuant to one or more Prior Agreements, the
Plan Administrator shall credit to the Deferral Account for the Participant
the amount credited to the Participant's account or accounts determined as of
December 31, 1989 under such Prior Agreements.
(b) Deferrals. For each deferral election made by the Participant in
---------
respect of periods on and after January 1, 1990, the Plan Administrator shall
credit to the Participant's Deferral Account the amounts of retainers or other
fees, as applicable, which the Participant has elected to defer. In each case
credits shall be made as of the dates the retainers or other fees would have
been payable if not deferred.
(c) Investment Measurements. From time to time the Company will
-----------------------
establish investment measurements to be used to adjust the balance of each
Participant's Deferral Account. Such investment measurements may be changed
from time to time by the Company. The Plan Administrator may establish rules
and procedures to permit Participants to select notational investments for
their respective Deferral Accounts from among available investment
measurements. From time to time, as determined by the Plan Administrator,
each Participant's Deferral Account will be adjusted to reflect such
investment measurements.
7. Company Credit Account
Effective as of October 1, 1998 the Plan Administrator shall maintain
a Company Credit Account on the books and records of the Company for each
Participant as follows:
<PAGE>
(a) Opening Balance. If a Participant was entitled to a retirement
---------------
benefit from the Company prior to October 1, 1998, the Plan Administrator
shall credit to the Company Credit Account for the Participant an amount equal
to the lump sum actuarial equivalent value of such retirement benefit
determined by the Company in its sole discretion as of September 30, 1998.
(b) Company Credits. As of October 1, 1998, and as of each April 1
---------------
and October 1, thereafter, provided the Participant is an Outside Director on
such date, the Plan Administrator will credit to the Participant's Company
Credit Account the amount of $10,000, or such other amount as the Company
shall determine.
(c) Investment Measurement. The sole investment measurement for
----------------------
determining the value of the Participant's Company Credit Account shall be the
value of Shares which could be purchased (or which are purchased) with Company
Credits as soon as possible following the date of such Credits. Any dividends
on such Shares will be reinvested or deemed reinvested in such Shares. In
such manner and at such time as the Plan Administrator shall determine, each
Participant's Company Credit Account will be adjusted to reflect such
investment measurement. The Company may, but shall not be required to,
purchase Shares to satisfy its obligations to Participants under this
paragraph. If such Shares are purchased, the Company may, in its discretion
and subject to such limitations as it may determine, permit a Participant to
exercise voting rights with respect to Shares allocated to his or her Company
Credit Account.
8. Commencement of Distributions; Payment Periods
(a) Inservice Distributions. At the time the Participant makes an
-----------------------
election of deferral under Section 4, and subject to the conditions of this
Section, a Participant may also elect to
<PAGE>
receive a lump sum payment from his or her Deferral Account of all or a
specified portion of the amount attributable to such deferral on a fixed date
prior to the Participant's Retirement (hereinafter referred to as the "initial
fixed date"). Such initial fixed date must be at least five years after the
date of such deferral. In addition, at least two years prior to the initial
fixed date, a Participant may elect to defer payment of such amount to a later
fixed date (hereinafter referred to as the "subsequent fixed date") which must
be at least three years after the initial fixed date. Furthermore, at least
two years prior to the subsequent fixed date, a Participant may elect to defer
payment of such amount until his or her Retirement. The rules and procedures
for such elections will be promulgated by the Plan Administrator. All
elections under this Section 8(a) require the consent of the Company to become
effective. No portion of a Participant's Company Credit Account may be paid
under this Section 8(a).
(b) Retirement. Upon the Participant's Retirement, the Participant
----------
shall be entitled to receive the balance in each of his or her Deferral
Accounts and his or her Company Credit Account. The Participant's Deferral
Account shall be payable as the Participant shall have specified in his or her
election of deferral from among the lump sum and installment options
prescribed by the Plan Administrator and, if payment is made other than in an
immediate lump sum, shall be adjusted to reflect the investment measurements
in such manner as the Plan Administrator shall prescribe. The Participant's
Company Credit Account shall be payable in a lump sum. Payment of the
Participant's Company Credit Account shall be in the form of Shares (plus cash
for any fractional shares). Payment of Deferral Accounts and Company Credit
Accounts shall be made or commence on the first day of the calendar quarter
following Retirement or as soon as practicable thereafter.
<PAGE>
(c) Death. If the Participant dies prior to the payment or
-----
commencement of payment of his or her Deferral Account or Company Credit
Account as described in Section 8(b), the Participant's designated beneficiary
or beneficiaries shall be entitled to receive the balance in the Participant's
Deferral Account and Company Credit Account as of the date of death. Payments
shall be made in a lump sum on the first day of the second month following the
month in which the Participant dies or as soon as practicable thereafter.
Payment of a Participant's Company Credit Account shall be in the form of
Shares (plus cash for any fractional shares). If the Participant dies after
payment of his or her Deferral Account has commenced to be paid in
installments but prior to the exhaustion of such Account, payment of the
remaining balance of such Account (adjusted as provided in Section 8(b)) shall
continue to the Participant's designated beneficiary or beneficiaries over the
installment period selected by the Participant. Designation of a beneficiary
or beneficiaries for purposes of the Plan shall be made on a form and in a
manner prescribed or approved by the Plan Administrator. If no beneficiary
has been designated, payment due under this Section will be made to the
Participant's estate.
9. Emergency Benefit
If a Participant suffers a financial emergency, upon the written
request of the Participant, the Plan Administrator, in its sole discretion,
may distribute that portion of the Participant's Deferral Account, if any,
which it determines to be necessary to meet the immediate financial emergency.
A financial emergency shall include major uninsured medical expense, major
uninsured casualty or property losses, and such other financial emergencies as
the Plan Administrator may, in its sole discretion, determine, provided that
the Participant
<PAGE>
demonstrates to the Plan Administrator's satisfaction that he or she lacks
available resources to meet the emergency. Any such distribution shall reduce
the balance in the Participant's Deferral Account available for distribution
in accordance with Section 8. No portion of a Participant's Company Credit
Account may be paid under this Section 9.
10. Administration of the Plan
For purposes of prescribing the forms and conditions for deferral
elections under Section 5 and inservice distributions under Section 8(a) (or
other forms required to administer the Plan), and for purposes of Sections 6
and 7, the functions of the Plan Administrator shall be performed by the Chief
Financial Officer of the Company in his or her sole discretion or by his or
her delegates. All other administrative and interpretative functions under
the Plan shall be vested in the sole discretion of the Board of Directors. A
decision by the Plan Administrator shall be final, conclusive and binding on
all Participants and any person claiming under or through any Participant.
The Plan Administrator shall exercise its functions hereunder in such manner
as it deems appropriate and may, in its discretion, waive the application of
any rule to any Participant. The Plan Administrator shall have no
responsibility to exercise its discretion in a uniform manner among similarly
situated Participants, and no decision with respect to any Participant shall
give any other Participant the right to have the same decision applied to him
or her. The Plan Administrator shall have all powers necessary or appropriate
to discharge its duties and responsibilities under the Plan.
11. Nature of Claim for Payments
Except as herein provided, the Company shall not be required to set
aside or segregate any assets of any kind to meet any of its obligations
hereunder, and all obligations of the
<PAGE>
Company shall be reflected by book entries only. The Participant shall have
no rights on account of this Plan in or to any specific assets of the Company.
Any rights that the Participant may have on account of this Plan shall be
those of a general, unsecured creditor of the Company. However, the Company
may establish a trust of which the Company is treated as the owner under
Subpart E of Subchapter J, Chapter 1 of the Code (a "grantor trust"), and may
from time to time deposit funds (which funds shall be in the form of Shares
with respect to a Participant's Credit Account) in such trust to facilitate
payment of the benefits provided under the Plan. In the event the Company
establishes such a grantor trust with respect to the Plan and, at the time of
a Change of Control, such trust (i) has not been terminated or revoked and
(ii) is not "fully funded" (as hereinafter defined), the Company shall within
ten days of such Change of Control deposit in such grantor trust assets
sufficient to cause the trust to be "fully funded" as of the date of the
deposit. For purposes of this paragraph, the grantor trust shall be deemed
"fully funded" as of any date if, as of that date, the fair market value of
the assets held in trust with respect to this Plan (such fair market value to
include, in the case of any insurance policy or contract held in the trust,
only that amount which can be promptly realized in cash through borrowing
under the policy or contract) is not less than the sum of the Deferral Account
balances and the Company Credit Account balances as of that date, including
without limitation the remaining balance in any Deferral Account in pay status
that has not been fully distributed. If, prior to the Change of Control, the
Company has deposited in such grantor trust amounts estimated to be sufficient
to cause the trust to be "fully funded," the Company shall be under no
obligation following the Change of Control to deposit additional amounts in
trust.
<PAGE>
In the event a grantor trust is established and, following a Change of
Control, the Company obtains an opinion of counsel acceptable to itself and to
the trustee of such trust that amounts held by the grantor trust with respect
to the Plan would by reason of the existence of such trust be includible in
the income of Participants prior to distribution, and as a result thereof the
grantor trust is terminated, all Deferral Accounts and Company Credit
Accounts, to the extent of the assets then held in such trust, shall become
payable in the form of lump sum distributions.
12. Rights Are Non-Assignable
Neither the Participant nor any beneficiary nor any other person shall
have any right to assign or otherwise alienate the right to receive payments
hereunder, in whole or in part, which payments are expressly agreed to be non-
assignable and non-transferable, whether voluntarily or involuntarily.
13. Termination; Amendment
The Plan shall continue in effect until terminated by action of the
Board of Directors. Upon termination of the Plan, no deferral of retainers or
other fees thereafter paid or payable to a Participant shall be made, no
additional Company credits shall be made to the Participant's Company Credit
Account, and no individual not a Participant as of the date of termination
shall become a Participant thereafter. If, at the time of termination, there
is any Participant or beneficiary of a Participant who is or will be entitled
to a payment hereunder, the Plan Administrator shall elect either (a) to make
payments to such Participants or beneficiaries in the normal course as if the
Plan had continued in effect, or (b) to pay to such Participants or
<PAGE>
beneficiaries the balance in the Participants' Deferral Accounts and Company
Credit Account in a single lump sum payment.
The Board of Directors may at any time and from time to time amend the
Plan in any manner; provided that no such amendment shall reduce the amounts
previously credited to the Deferral Accounts or Company Credit Account of any
Participant, and provided, further, that no amendment following a Change of
Control shall eliminate or reduce the Company's obligation to deposit assets
in the grantor trust as described in Section 11.
BOSTON EDISON COMPANY
By: /s/ Alison Alden
------------------------------
Alison Alden
Date: September 22, 1998
------------------
<PAGE>
APPENDIX A
----------
"Change of Control"
-------------------
A "Change of Control" will occur for purposes of this Plan if (i) any
individual, corporation, partnership, company or other entity (a "Person"),
which term shall include a group, becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of securities of the Company representing more than 30% of
the combined voting power of the Company's then-outstanding securities (other
than as a result of acquisitions of such securities from the Company), (ii)
there is a change of control of the Company of a kind which would be required
to be reported under Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Exchange Act) (or a similar item in a similar schedule or form),
whether or not the Company is then subject to such reporting requirement,
(iii) the Company is a party to, or the stockholders approve, a merger,
consolidation, or other reorganization (other than (a) a merger, consolidation
or other reorganization which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent, either
by remaining outstanding or by being converted into vested securities of the
surviving entity, more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger, consolidation, or other reorganization, or (b) a merger,
consolidation, or other reorganization effected to implement a
recapitalization of the Company or establish a holding company structure, or
similar transaction in which no Person acquires more than 20% of the combined
voting power of the Company's then outstanding securities, a sale of all or
substantially all assets, or a plan of liquidation or (iv) individuals who, at
the date hereof, constitute the Board cease for any reason to constitute a
majority thereof; PROVIDED, HOWEVER, that any director who is not in office at
the date hereof but whose election by the Board or whose nomination
<PAGE>
for election by the Company's stockholders was approved by a vote of at least
a majority of the directors then still in office who either were directors at
the date hereof or whose election or nomination for election was previously so
approved (other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the Directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) shall be deemed to have been in office at the date hereof for purpose of
this definition.
Notwithstanding the foregoing provisions of this APPENDIX A, a "Change
of Control" will not be deemed to have occurred solely because of the
acquisition of securities of the Company (or any reporting requirement under
the Exchange Act relating thereto) by an employee benefit plan maintained by
the Company for its employees.
<PAGE>
Exhibit 10.12
PURCHASE AND SALE AGREEMENT
FOR PILGRIM NUCLEAR POWER STATION
AND RELATED AGREEMENTS
BOSTON EDISON COMPANY
ENTERGY NUCLEAR GENERATION
COMPANY
COMMONWEALTH ELECTRIC COMPANY
MONTAUP ELECTRIC COMPANY
VOLUME 1 of 2
NOVEMBER 18, 1998
<PAGE>
BOSTON EDISON COMPANY
and
ENTERGY NUCLEAR GENERATION COMPANY
NOVEMBER 18, 1998
INDEX
-----
Volume 1 of 2
-------------
SUBJECT TAB
------- ---
Purchase and Sale Agreement: Boston Edison Company - Entergy Nuclear 1
Generation Company
Exhibits to P&S 2
Deeds A
Bill of Sale B
Assignment and Assumption Agreement C
Asset Demarcation Agreement D
Property Tax Agreement E
Chapter 61 Affidavit F
Interconnection and Operation Agreement G
Schedules to P&S 3
Guaranty: Entergy International Holdings LLC 4
Volume 2 of 2
-------------
Interconnection and Operation Agreement: Boston Edison Company - 5
Entergy Nuclear Generation Company
Power Purchase Agreement: Entergy Nuclear Generation Company - 6
Boston Edison Company
Power Purchase Agreement with respect to Municipal Customers: Entergy 7
Nuclear Generation Company - Boston Edison Company
Power Purchase Agreement: Entergy Nuclear Generation Company - 8
Commonwealth Electric Company
Power Purchase Agreement: Entergy Nuclear Generation Company - 9
Montaup Electric Company
Fourth Amendment of Power Sale Agreement: Boston Edison Company - 10
Commonwealth Electric Company
Third Amendment of Power Sale Agreement: Boston Edison - Montaup 11
Electric Company
Partial Assignment of Municipal Power Sale Agreements: Entergy Nuclear 12
Generation Company - Boston Edison Company
<PAGE>
EXECUTION COPY
--------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
PURCHASE AND SALE AGREEMENT
BETWEEN
ENTERGY NUCLEAR GENERATION COMPANY
AND
BOSTON EDISON COMPANY
November 18, 1998
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. Preamble .......................................................... 1
--------
2. Acquisition of Assets by Buyer .................................... 1
------------------------------
2.1. Purchase and Sale of Assets ................................ 1
---------------------------
2.2. Excluded Assets ............................................ 3
---------------
2.3. Assumption of Liabilities .................................. 4
-------------------------
2.4. Liabilities Not Assumed .................................... 5
-----------------------
2.5. Purchase Price ............................................. 6
--------------
2.6. Adjustment to Purchase Price ............................... 7
----------------------------
2.7. Allocation of Purchase Price ............................... 9
----------------------------
2.8. Proration .................................................. 10
---------
2.9. The Closing ................................................ 11
-----------
2.10. Deliveries by the Seller at the Closing .................... 11
---------------------------------------
2.11. Deliveries by Buyer at the Closing ......................... 13
----------------------------------
3. Representations, Warranties and Disclaimers of the Seller ......... 14
---------------------------------------------------------
3.1. Organization of the Seller ................................. 14
--------------------------
3.2. Authorization of Transaction ............................... 14
----------------------------
3.3. Noncontravention ........................................... 14
----------------
3.4. Brokers' Fees .............................................. 15
-------------
3.5. Title to Acquired Assets ................................... 15
------------------------
3.6. Legal and Other Compliance ................................. 15
--------------------------
3.7. Taxes ...................................................... 15
-----
3.8. Contracts and Leases ....................................... 15
--------------------
3.9. Insurance .................................................. 16
---------
3.10. Litigation ................................................. 16
----------
3.11. Employees .................................................. 16
---------
3.12. Environmental Matters ...................................... 17
---------------------
3.13. Condemnation ............................................... 17
------------
3.14. Regulation as a Utility .................................... 17
-----------------------
3.16. Operability ................................................ 17
-----------
3.17. NRC Generic Letter 98-01 ................................... 17
------------------------
3.18. Disclaimers Regarding Acquired Assets ...................... 17
-------------------------------------
-i-
<PAGE>
4. Representations and Warranties of the Buyer ....................... 18
-------------------------------------------
4.1. Organization of the Buyer .................................. 18
-------------------------
4.2. Authority of Transaction ................................... 18
------------------------
4.3. Noncontravention ........................................... 19
----------------
4.4. Brokers' Fees .............................................. 19
-------------
4.5. Litigation ................................................. 19
----------
4.6. No Knowledge of the Seller's Breach ........................ 19
-----------------------------------
4.7. "As Is Sale" ............................................... 20
------------
4.8. Qualified Buyer ............................................ 20
---------------
5. Covenants ......................................................... 20
---------
5.1. General .................................................... 20
-------
5.2. Notices, Consents and Approvals ............................ 20
-------------------------------
5.3. Operation of Business During Interim Period ................ 22
-------------------------------------------
5.4. Access and Investigations During Interim Period ............ 23
-----------------------------------------------
5.5. Interim Period Notice ...................................... 25
---------------------
5.6. Further Assurances ......................................... 26
------------------
5.7. Employee Matters ........................................... 28
----------------
5.8. Cooperation after Closing .................................. 30
-------------------------
5.9. NEPOOL ..................................................... 31
------
5.10. Risk of Loss ............................................... 32
------------
5.11. Remittance of Pilgrim Fixed Operating Costs ................ 33
-------------------------------------------
5.12. Nuclear Insurance .......................................... 33
-----------------
5.13. Nonwaiver of Third Party Environmental Liabilities ......... 34
--------------------------------------------------
5.14. Site Contamination Validation .............................. 34
-----------------------------
5.15. Remediation ................................................ 34
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5.16. Refueling Costs ............................................ 34
---------------
5.17. Post-Closing Services ...................................... 35
---------------------
5.18. Gas Supply Line ............................................ 35
---------------
5.19. Maintenance of Financial Stability ......................... 35
----------------------------------
5.20. Availability of Funds ...................................... 35
---------------------
5.21. Funding of the Decommissioning Trust and the Provisional
--------------------------------------------------------
Trust ................................................... 35
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5.22. Early Shutdown Study ....................................... 37
-------------------
6. Conditions to Obligation to Close ................................. 37
---------------------------------
6.1. Conditions to Obligation of the Buyer to Close ............. 37
----------------------------------------------
6.2. Conditions to Obligation of the Seller to Close ............ 39
-----------------------------------------------
7. Confidentiality ................................................... 41
---------------
8. Taxes ............................................................. 43
-----
-ii-
<PAGE>
9. Non-Survival; Effect of Closing and Indemnification ............... 43
---------------------------------------------------
9.1. Non-Survival of Representations and Warranties; Survival
--------------------------------------------------------
of Covenants and Agreements ............................. 43
--------------------------
9.2. Effect of Closing .......................................... 43
-----------------
9.3. Indemnity by the Seller .................................... 44
-----------------------
9.4. Indemnity by Buyer ......................................... 44
-----------------
9.5. Exclusive Remedy ........................................... 45
----------------
9.6. Matters Involving Third Parties ............................ 45
-------------------------------
9.7. Net of Taxes and Insurance ................................. 46
--------------------------
9.8. Release .................................................... 46
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9.9. No Recourse ................................................ 47
-----------
9.10. Survival ................................................... 47
--------
10. Termination ....................................................... 47
-----------
10.1. Termination of Agreement ................................... 47
------------------------
10.2. Effect of Termination ...................................... 49
---------------------
11. Miscellaneous ..................................................... 49
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11.1. Press Releases and Public Announcements .................... 49
---------------------------------------
11.2. No Third Party Beneficiaries ............................... 49
----------------------------
11.3. No Joint Venture ........................................... 49
----------------
11.4. Entire Agreement ........................................... 49
----------------
11.5. Succession and Assignment .................................. 49
-------------------------
11.6. Counterparts ............................................... 50
------------
11.7. Headings ................................................... 50
--------
11.8. Notices .................................................... 50
-------
11.9. Governing Law .............................................. 51
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11.10. Change in Law .............................................. 51
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11.11. Consent to Jurisdiction .................................... 51
-----------------------
11.12. Amendments and Waivers ..................................... 51
----------------------
11.13. Severability ............................................... 52
------------
11.14. Expenses ................................................... 52
--------
11.15. Construction ............................................... 52
------------
11.16. Incorporation of Exhibits and Schedules .................... 52
---------------------------------------
11.17. Specific Performance ....................................... 52
--------------------
11.18. Dispute Resolution ......................................... 52
------------------
11.19. Bulk Transfer Laws ......................................... 53
------------------
12. Definitions ....................................................... 53
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-iii-
<PAGE>
Exhibits
--------
A - Deed
B - Bill of Sale
C - Assignment and Assumption Agreement
D - Asset Demarcation Agreement
E - Property Tax Agreement
F - Chapter 61 Affidavit
G - Interconnection and Operation Agreement
Schedules
---------
Schedule 1.1 - Easements
Schedule 2.1 - Pilgrim and Chiltonville Training Center
Schedule 2.1(a) - Real Property
Schedule 2.1(b) - Personal Property
Schedule 2.1(c) - Leases
Schedule 2.1(d) - Transferable Permits
Schedule 2.1(e) - Material Contracts
Schedule 2.1(g) - Names of Facilities
Schedule 2.1(l)(i) - Emergency Preparedness Equipment
Schedule 2.1(l)(ii) - Emergency Preparedness Agreements
Schedule 2.1(m) - Vehicles
-iv-
<PAGE>
Schedule 2.1(o) - Intellectual Property
Schedule 2.2(a) - Excluded Assets
Schedule 2.2(d) - Municipal Contract Customers
Schedule 2.10(k) - Matters for Opinion from Counsel to the Seller
Schedule 2.11(j) - Matters for Opinion from Counsel to the Buyer
Schedule 3.3 - Matters of Contravention
Schedule 3.5 - Title Commitments
Schedule 3.6 - Compliance
Schedule 3.9 - Insurance
Schedule 3.10 - Litigation
Schedule 3.11 - Labor Matters
Schedule 3.12 - Environmental
Schedule 3.13 - Condemnation
Schedule 3.15(a) - Trust Agreement
Schedule 4.3 - Noncontravention
Schedule 5.3 - Pre-Approved Projects
Schedule 5.12 - Nuclear Insurance
Schedule 5.14(a) - Criteria for Site Assessment
Schedule 5.15 - Known Remediation Concerns
Schedule 5.17 - Post-Closing Services
Schedule 5.21 - Funding of the Decommissioning Trust and the
Provisional Trust
-v-
<PAGE>
Schedule 6.1(c) - Buyer's Regulatory Approvals
Schedule 6.2(c) - Seller's Regulatory Approvals
-vi-
<PAGE>
PURCHASE AND SALE AGREEMENT
1. Preamble
--------
This Purchase and Sale Agreement (the "Agreement") is entered into on
November 18, 1998, by and between Entergy Nuclear Generation Company, a
Delaware corporation (the "Buyer"), and Boston Edison Company, a Massachusetts
corporation (the "Seller"). The Buyer and the Seller are each referred to
herein as a "Party" or, collectively, as the "Parties."
This Agreement contemplates a transaction in which the Buyer will
purchase certain assets of the Seller (as defined in Section 2.1 below) in
consideration of the Purchase Price (as defined in Section 2.5 below).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
2. Acquisition of Assets by Buyer.
------------------------------
2.1. Purchase and Sale of Assets. The Seller agrees to sell,
---------------------------
assign and transfer to the Buyer, and the Buyer agrees to purchase from the
Seller at the Closing, subject to and upon the terms and conditions contained
herein, free and clear of any Lien, all of the right, title and interest in
and to the following properties and assets constituting, or used in and
necessary for the operation of, the Facilities (collectively, the "Acquired
Assets"):
(a) the real property and Improvements thereon as described in
Schedule 2.1(a), subject to and only to the extent provided in the Title
Commitments and the exceptions listed therein (the "Real Property");
(b) the machinery, equipment, furniture and other personal property
owned by the Seller and located at the Site at the Closing Date, and
Inventories, including without limitation all Radioactive Material owned by
the Seller and the items of personal property described on Schedule 2.1(b)
(including the telephone switch and related equipment currently under lease
described therein, which shall be bought out by Seller prior to the Closing,
subject to the purchase price adjustment set forth in Section 2.6) as well as
all warranties from manufacturers or vendors relating thereto, to the extent
that such warranties are transferable without any further action by the
Seller;
(c) all assignable rights with respect to leasehold interests and
subleases and rights thereunder relating to the Real Property, including
without limitation those as set forth on Schedule 2.1(c) (the "Leases");
<PAGE>
(d) all Permits relating to ownership or operation of the Facilities
which are transferable by the Seller to the Buyer by assignment, or which will
pass to the Buyer as successor in title to the Facilities by operation of law,
including without limitation those as set forth on Schedule 2.1(d) (the
"Transferable Permits");
(e) except as provided in Section 2.2(e) and Section 2.10(g), all
rights of the Seller under the contracts, agreements, software licenses and
personal property leases relating to the operation of Facilities described in
Schedule 2.1(e) (the "Material Contracts"), provided that Seller shall retain
the rights held by it prior to the Closing under any document expressly
providing it continued indemnity and exculpation rights for pre-Closing
occurrences for which it remains liable and for which Seller indemnifies Buyer
under this Agreement;
(f) all books, records, engineering designs, blueprints, as-built
plans, specifications, procedures, studies, reports and equipment repair,
safety, maintenance or service records of the Seller relating specifically to
the design, construction, licensing, regulation, operation or decommissioning
of the Facilities, but expressly excluding financial records and books of
account;
(g) all rights of the Seller in and to the use of the names of the
Facilities as described in Schedule 2.1(g);
(h) all right, title and interest (legal or beneficial) of the Seller
in the Decommissioning Trust and the Provisional Trust (if any);
(i) all right, title and interest of the Seller to the NRC License;
(j) all right, title and interest of the Seller in Nuclear Fuel and
Spent Nuclear Fuel on the Closing Date;
(k) all rights to the Seller's Nuclear Electric Insurance Limited
Accounts as provided in Schedule 5.12 and Section 2.5(b);
(l) all right, title and interest of the Seller in the property and
assets used or usable in providing emergency warning or associated with
emergency preparedness, as set forth in Schedule 2.1(l)(i) (the "Emergency
Preparedness Equipment") and all rights of the Seller that the Seller has the
right to transfer under the contracts and agreements associated with emergency
preparedness as set forth in Schedule 2.1(l)(ii) (the "Emergency Preparedness
Agreements");
(m) all right, title and interest of the Seller in the vehicles as
set forth in Schedule 2.1(m) that the Buyer notifies the Seller prior to the
Closing that it desires to purchase subject to the purchase price adjustment
as provided in Section 2.6 (the "Vehicles");
-2-
<PAGE>
(n) any rights of Seller under purchase orders, licenses or contracts
that are not Material Contracts but that are identified by the parties during
the Interim Period and mutually agreed in writing to be an obligation to be
assigned to and assumed by Buyer;
(o) all trade secrets, copyrights, patents, trademarks or other
intellectual property rights of Seller developed or owned by Seller
exclusively in connection with the operation of the Facilities, including
without limitation all rights to the Seller-owned software applications listed
on Schedule 2.1(o) (collectively, the "Intellectual Property"); provided that
Seller shall have no obligation following the Closing to provide Buyer with
any updates, maintenance or technical support with respect to the Intellectual
Property; and provided further that Seller shall retain an irrevocable,
perpetual and fully paid-up license to use the Intellectual Property;
(p) the right to use the drawings, designs, specifications and other
documents necessary for the licensing, operation and decommissioning of the
Facilities;
(q) American Nuclear Insurers (ANI) nuclear liabilities policies and
reserve premium to the extent provided in Schedule 5.12;
(r) the Seller's VEBA assets to the extent and at the time provided
in Section 5.7; and
(s) the Transferred Voting Shares.
2.2. Excluded Assets. Notwithstanding anything to the contrary in
---------------
this Agreement, there shall be excluded from the Acquired Assets to be sold,
assigned, transferred, conveyed or delivered to the Buyer hereunder, and to
the extent in existence on the Effective Date or on the Closing Date, there
shall be retained by the Seller, any and all right, title or interest to the
following assets, properties and rights (collectively, the "Excluded Assets"):
(a) the property comprising or constituting any or all of the T&D and
Telecommunications Assets;
(b) all Cash, accounts and notes receivable, checkbooks and canceled
checks, bank deposits and property or income tax receivables (except for
property tax abatements to be apportioned pursuant to Section 2.8(b);
(c) all contracts, instruments or other agreements between the Seller
and each of Commonwealth Electric and Montaup relating to the sale by the
Seller of electric capacity or energy under wholesale rates, or otherwise
subject to regulation by the FERC (the "Wholesale Power Contracts");
-3-
<PAGE>
(d) all contracts, instruments or other agreements between the Seller
and the municipalities set forth on Schedule 2.2(d) relating to the sale by
the Seller of electric capacity or energy under wholesale rates, or otherwise
subject to regulation by the FERC (the "Municipal Contracts");
(e) all rights of the Seller in and to any causes of action against a
Third Party relating to any period through the Closing Date, whether received
as a payment or credit against future liabilities, including without
limitation any refunds relating to property Taxes paid by the Seller for any
period prior to the Closing Date (except for property tax abatements to be
apportioned pursuant to Section 2.8(b)), insurance proceeds and condemnation
awards; provided that Seller shall not institute or settle any such cause of
action that would have a Buyer Material Adverse Effect;
(f) all rights of the Seller to the words "BECo" and "Boston Edison
Company" and any Trademark which is comprised of or comprises any derivative
thereof; and
(g) any claims of Seller related or pertaining to the Department of
Energy's defaults under the DOE Standard Contract accrued as of the Closing
Date, whether relating to periods prior to or following the Closing Date.
2.3. Assumption of Liabilities. On the terms and subject to the
-------------------------
conditions set forth herein, from and after the Closing, the Buyer will assume
and satisfy or perform all of the following Liabilities of the Seller (the
"Assumed Liabilities"):
(a) all Environmental Liabilities and Remediations, except as and to
the extent set forth in Section 2.4(b) and subject to Seller's prior
Remediations as required by Section 5.15 below;
(b) only to the extent all rights under such agreements and permits
are assigned to Buyer, all Liabilities under (i) the Material Contracts,
Leases, Emergency Preparedness Agreements and the Transferable Permits in
accordance with the terms thereof, (ii) the other contracts, leases and other
agreements entered into by the Seller with respect to the Acquired Assets that
are identified in accordance with Section 2.1(n), and (iii) the contracts,
leases, commitments and other agreements entered into by the Seller with
respect to the Acquired Assets during the Interim Period relating to Pre-
Approved Projects or Required Nuclear Expenditures; except in each case, to
the extent such Liabilities, but for a breach or default by the Seller, would
have been paid, performed or otherwise discharged on or prior to the Closing
Date, or to the extent the same arise out of any such breach or default;
(c) all Liabilities under the Permitted Encumbrances, except as
excluded pursuant to Section 2.4(i);
-4-
<PAGE>
(d) all Liabilities for which the Buyer is responsible under Section
5.7 relating to Employees;
(e) all Liabilities of the Seller in respect of (i) the
decommissioning of PNPS following permanent cessation of operations, (ii) the
management, storage, transportation and disposal of Spent Nuclear Fuel, and
(iii) any other post-operative disposition of PNPS or any other of the
Acquired Assets;
(f) all Liabilities from and after the Closing Date relating to the
Decommissioning Trust and the Provisional Trust (if any), including the
obligation of due and punctual performance of all of the covenants and
conditions in the Trust Agreement and the Provisional Trust Agreement (if
any);
(g) any Liability of Seller for any Price-Anderson Secondary Financial
Protection retrospective premium obligations for (i) Seller's nuclear worker
liability attributable to employment prior to Closing or (ii) for any third-
party nuclear Liability arising out of any pre-Closing occurrence;
(h) all Liabilities under the NRC License including fees or charges
imposed after the Closing Date by the NRC or any other Governmental Authority;
(i) all other Liabilities expressly allocated to the Buyer in this
Agreement or in any of the Related Agreements, including, without limitation,
any Liabilities for Taxes allocated to the Buyer pursuant to Section 8; and
(j) all Liabilities of Seller for retrospective premium obligations
under Seller's Nuclear Electric Insurance Limited policies, subject to the
conditions set forth in Schedule 5.12.
2.4. Liabilities Not Assumed. Notwithstanding any provision hereof
-----------------------
to the contrary, the Buyer shall not assume, pay or perform any Liabilities of
Seller that are not expressly identified as an Assumed Liability, including,
without limitation, the following excluded liabilities:
(a) any Liability in respect of the Excluded Assets or any other
assets of the Seller that are not Acquired Assets;
(b) any Liabilities, including without limitation any Environmental
Liabilities, relating to the disposal, storage, transportation, discharge,
Release, recycling, or the arrangement for such activities, by the Seller, of
Hazardous Substances that were generated at the Site, at any Offsite Hazardous
Substance Facility or at another location that is not the Site (other than as
a result of migration from the Site), where the disposal, storage,
transportation, discharge, Release or recycling occurred on or prior to the
Closing Date;
-5-
<PAGE>
(c) any Liability of the Seller arising from the making or performance
of this Agreement or a Related Agreement or the transactions contemplated
hereby or thereby;
(d) any Liability arising out of any Employee Benefit Plan established
or maintained by the Seller or to which the Seller contributes or any
Liability for the termination of any such plan;
(e) any Liability arising out of the Wholesale Power Contracts and any
Liability of the Seller arising out of the Power Purchase Agreements;
(f) any Liability to make payments in addition to or in lieu of
property Taxes under Section 71 of the Act, including any liability under any
agreements entered into by the Seller regarding such payments ("Section 71
Transition Payments"), whether such agreements are entered into prior to, on
or after the Closing, and any Liability in respect of Taxes attributable to
the Acquired Assets for taxable periods ending on or before the Closing Date,
except those Taxes expressly allocated to the Buyer pursuant to Section 8;
(g) any Liability arising out of the Municipal Contracts;
(h) any Liabilities of Seller for wages, withholding obligations,
workers compensation, overtime, severance, employment taxes or similar
obligations accruing on or prior to the Closing Date and all Liabilities for
which the Seller is responsible under Section 5.7 relating to Employees;
(i) any Liabilities arising from Seller's breach on or prior to the
Closing Date of any contract, license, permit or other instrument relating to
the Acquired Assets; and
(j) all Liabilities of the Seller for assessments for enrichment
decommissioning and decontamination fund fees under 42 USC Section 2297g-1.
2.5. Purchase Price.
--------------
(a) The Buyer agrees to assume at the Closing the Assumed Liabilities
and pay to the Seller at the Closing an aggregate amount equal to $ 80,000,000
(the "Purchase Price"). Such Purchase Price shall be adjusted pursuant to
Section 2.6 and shall be payable in cash by wire transfer to the Seller in
accordance with written instructions of the Seller given to the Buyer at least
three (3) Business Days prior to the Closing. The Buyer's agreement to assume
the Assumed Liabilities and pay the Purchase Price to the Seller is expressly
premised upon the Seller's delivery of a Fully Funded Decommissioning Trust
pursuant to Section 2.1(h), the conditions of Section 6.1 and the Seller's
delivery of the Seller's VEBA assets to the extent and at the time provided in
Section 5.7.
-6-
<PAGE>
(b) In addition to the amount due pursuant to Section 2.5(a) and in
consideration of the assignment to Buyer of all of Seller's right, title and
interest in Seller's Nuclear Electric Limited Insurance Accounts ("Seller's
NEIL Member Accounts") including without limitation Seller's interest in the
account balances therein as of the Closing Date and all earnings thereon and
distributions therefrom all as referred to in Section 2.1(k), Buyer shall pay
Seller on December 31 next following the Closing Date and on each December 31
thereafter to and including the later of (i) December 31 of the year in which
Buyer gives the NRC Notice of Permanent Cessation of Operations pursuant to
10 C.F.R., sec. 50.82(a)(1)(i) of Pilgrim, and (ii) December 31, 2012
("Termination Date") 85% of the cash distributions or dividends, if any,
actually received by Buyer during the calendar year ending on such December 31
from and in respect to the Seller's NEIL Member Accounts. It is expressly
understood that Buyer's obligation to pay Seller pursuant to this Section
2.5(b) shall be limited by and to the extent Buyer actually receives cash
distributions or dividends (whether such distributions are of earnings or the
account balance itself) with respect to the Seller's NEIL Member Accounts and
is otherwise without recourse to Buyer. Credits made to Buyer's account
without the actual distribution of cash are not a distribution for purposes
hereof. The NEIL Bye-Laws presently do not give a member the option to elect
to reduce its current NEIL premium in exchange for accepting a lesser cash
distribution or dividend with respect to its member accounts. However, in the
event this option is made available to Buyer in the future, Buyer will not
elect to reduce its premium so as to reduce the cash distributions or
dividends which would otherwise be payable to Seller under this Section
2.5(b). It is also expressly understood that for purposes of determining the
fund with respect to which any dividend or distribution is made the Seller's
NEIL Member Accounts refer only to the account balance amount transferred
pursuant to the transaction contemplated by this Agreement as subsequently
increased by earnings and credits thereto and decreased by distributions and
debits therefrom and shall not include, and Seller shall have no right
whatsoever in, any other Nuclear Electric Insurance account balances of Buyer,
whether existing on the date hereof or at any time hereafter and whether
relating to Pilgrim or any other facility. Buyer and Seller shall request
Nuclear Electric Insurance Limited ("NEIL") to create a subaccount, if
possible, to segregate the Seller's NEIL Member Accounts from Buyer's
accounts. As soon as possible after the Closing, Buyer and Seller will in
conjunction with NEIL determine and certify as to the actual Closing Date
balance of Seller's NEIL Member Accounts as transferred pursuant to this
Agreement.
2.6. Adjustment to Purchase Price. The Purchase Price shall be
----------------------------
increased or reduced as set forth in this Section 2.6.
(a) Such increases or reductions, as the case may be, shall be
referred to herein as the "Purchase Price Adjustment" and shall be determined
and paid as set forth below:
(i) The Purchase Price shall be increased by the net
book value of all Inventories (excluding the value of items
that are no longer useable at or for
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PNPS under applicable laws and regulations) held by the Seller
as of the Closing Date less $20,053,272, the net book value of
the Seller's 1997 year-end Inventory. In the event that the
net book value of all Inventory held by the Seller as of the
Closing Date less $20,053,272 is a negative number, the
Purchase Price shall be decreased by the difference between
such amounts;
(ii) The Purchase Price shall be increased to
account for the net book value of all the Seller's Nuclear
Fuel as of the Closing Date less $67,934,706, the net book
value of the Seller's 1997 year-end Nuclear Fuel. In the
event that the net book value of the Seller's Nuclear Fuel as
of the Closing Date less $67,934,706 is a negative number, the
Purchase Price shall be decreased by the difference between
such amounts;
(iii) The Purchase Price shall be increased by any
expenses related to Required Nuclear Expenditures actually
paid by the Seller during the Interim Period;
(iv) The Purchase Price shall be decreased to the
extent any of the Pre-Approved Projects have not been
completed and paid for prior to the Closing Date, but the
decrease shall be the lesser of (i) the budgeted amount for
------
the incomplete portion of the Pre-Approved Project as set
forth in Schedule 5.3 or (ii) the amounts that Buyer is
required to pay for such Pre-Approved Projects following the
Closing;
(v) Assuming completion of the Refueling Outage
prior to Closing, the Purchase Price shall be decreased by the
amortized portion of the Refueling Costs as of the Closing
Date (which shall be amortized by the Seller over a 24 month
period commencing the Business Day following the completion of
the Refueling Outage);
(vi) The Purchase Price shall be decreased by the
amount as of the Closing Date reflected in Seller's Low Level
Waste Disposal Account, Acct. No. 253360; and
(vii) The Purchase Price shall be increased by an
amount equal to the cost to the Seller to buy-out the
telephone switch and related equipment lease described in
Schedule 2.1(b) and the leases in respect of any Vehicles
identified by Buyer pursuant to Section 2.1(m).
(b) at least twenty (20) Business Days prior to the Closing Date, the
Seller shall prepare and deliver to the Buyer an Estimated Closing Statement
(the "Estimated Closing Statement") that shall set forth the Seller's best
estimate of all adjustments to the Purchase
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<PAGE>
Price required by Section 2.6(a) (the "Estimated Adjustment"). Within ten
(10) Business Days following the delivery of the Estimated Closing Statement
by the Seller to the Buyer, the Buyer may object in good faith to the
Estimated Adjustment in writing. If the Buyer objects to the Estimated
Adjustment, the Parties shall attempt to resolve such dispute by negotiation.
If the Parties are unable to resolve such dispute before five (5) Business
Days prior to the Closing Date (or if the Buyer fails to object to the
Estimated Adjustment), the Purchase Price shall be adjusted (the "Closing
Adjustment") for the Closing by the amount of the Estimated Adjustment not in
dispute; and
(c) within thirty (30) days following the Closing Date, the Seller
shall prepare and deliver to the Buyer a closing statement that shall set
forth the Seller's completion of the Purchase Price Adjustment and the
components thereof (the "Post-Closing Statement"). Within twenty (20) days
following the delivery of the Post-Closing Statement by the Seller to the
Buyer, the Buyer may object to the Post-Closing Statement in writing. The
Seller agrees to cooperate with the Buyer to provide to the Buyer or the
Buyer's Representatives information used to prepare the Post-Closing Statement
and information relating thereto. If the Buyer objects to the Post-Closing
Statement, the Parties shall attempt to resolve such dispute by negotiation.
If the Parties are unable to resolve such dispute within twenty (20) days of
any objection by the Buyer, the Parties shall appoint Arthur Andersen LLC, who
shall, at the Seller's and the Buyer's joint expense, review the Closing
Statement and determine the appropriate Purchase Price Adjustment under this
Section 2.6. The agreed upon Post-Closing Statement or the finding of such
accounting firm, as the case may be, shall be the Purchase Price Adjustment
and shall be binding on the Parties. Upon the determination of the Purchase
Price Adjustment, the Party owing the Purchase Price Adjustment shall deliver
the Purchase Price Adjustment, increased or decreased as the case may be, by
amounts paid pursuant to the Estimated Adjustment, to the other Party no later
than two (2) Business Days after such determination in immediately available
funds or in any other manner as reasonably requested by the payee. The
acceptance by the Buyer and the Seller of the Purchase Price Adjustment shall
not constitute or be deemed to constitute a waiver of the rights of such Party
in respect of any other provision of this Agreement.
2.7. Allocation of Purchase Price. The Buyer and the Seller shall
----------------------------
use their good faith best efforts to agree upon an allocation among the
Acquired Assets of the sum of the Purchase Price and the Assumed Liabilities
consistent with Section 1060 of the Code and the Treasury Regulations
thereunder within 120 days of the Effective Date (or such later date as the
Parties may mutually agree) but in no event fewer than 30 days prior to the
Closing. Because the assets of the Decommissioning Trust and the Provisional
Trust (if any) are exclusively and unalterably dedicated to secure the
liability for decommissioning Pilgrim when its license expires, the Parties
intend and expect that the Buyer's assumption of the Pilgrim decommissioning
liabilities pursuant to Section 2.3(e) will constitute purchase price paid for
Seller's right, title and interest in the Decommissioning Trust and the
Provisional Trust, and concomitantly intend that purchase price represented by
such assumed liabilities will be
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allocated between the Decommissioning Trust and the Provisional Trust in
proportion to their respective fair market values as of the Closing Date. The
Buyer and the Seller may jointly agree to obtain the services of an
independent engineer or appraiser (the "Independent Appraiser") to assist the
Parties in determining the fair value of the Acquired Assets solely for
purposes of such allocation under this Section 2.7. If such an appraisal is
made, both the Buyer and the Seller agree to accept the Independent
Appraiser's determination of the fair value of the Acquired Assets. The cost
of the appraisal shall be borne equally by the Buyer and the Seller. Each of
the Buyer and the Seller agrees to file Internal Revenue Service Form 8594 and
all federal, state, local and foreign Tax Returns in accordance with such
agreed allocation. Except to the extent required to comply with audit
determinations by a taxing authority with jurisdiction over either party, both
the Buyer and the Seller shall report the transactions contemplated by this
Agreement and the Related Agreements for federal Income Tax and all other Tax
purposes in a manner consistent with the allocation determined pursuant to
this Section 2.7. Each of the Buyer and the Seller agrees to provide the
other promptly with any other information required to complete Form 8594.
Each of the Buyer and the Seller shall notify and provide the other with
reasonable assistance in the event of an examination, audit or other
proceeding regarding the agreed upon allocation of the Purchase Price.
2.8. Proration.
---------
(a) The Buyer and the Seller agree that all of the items normally
prorated, including those listed below, relating to the business and
operations of the Acquired Assets will be prorated as of the Closing Date,
with the Seller liable to the extent such items relate to any period through
the Closing Date, and the Buyer liable to the extent such items relate to
periods after the Closing Date: (i) personal property, Real Property,
occupancy and water, Taxes, assessments and other charges of the type that
could give rise to a Permitted Encumbrance, if any, on or associated with the
Acquired Assets; (ii) rent, Taxes and other items payable by or to the Seller
under any of the Contracts, Emergency Preparedness Agreements or Leases
assigned to and assumed by the Buyer hereunder; (iii) any Permit, license,
registration or fees with respect to any Transferable Permit assigned to Buyer
associated with the Acquired Assets; (iv) sewer rents and charges for water,
telephone, electricity and other utilities; (v) any fees or charges imposed
by INPO, NEI, the NRC or any other Governmental Authority; and (vi) payments
regarding the Pilgrim Fixed Operating Costs pursuant to Section 5.11.
(b) In connection with the prorations referred to in Section 2.8(a),
if the actual figures are not available at the Closing Date, the proration
shall be based upon the actual Taxes or fees for the preceding year (or
appropriate period) for which actual Taxes or fees are available and such
Taxes or fees shall be re-prorated upon request of either the Seller, on the
one hand, or the Buyer, on the other hand, made within 60 days of the date the
actual amounts become available. If the Taxes which are apportioned are
thereafter reduced by abatement, the amount of such abatement, less the
reasonable cost of obtaining the same, shall be apportioned between the
Parties; provided that neither party shall be obligated to institute or
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prosecute an abatement unless required pursuant to the Property Tax Agreement
or otherwise agreed in writing. The Seller and the Buyer agree to furnish
each other with such documents and other records that may be reasonably
requested in order to confirm all adjustment and proration calculations made
pursuant to this Section to 2.8.
2.9. The Closing. Unless otherwise agreed to by the Parties, the
-----------
closing of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Ropes & Gray, One International Place,
Boston, Massachusetts, commencing at 9:00 a.m. eastern time on the date that
is fifteen (15) days (or, if the fifteenth day is not a Business Day, then the
next Business Day following such fifteenth day) following the date on which
all of the conditions set forth in Sections 6.1 and 6.2 have either been
satisfied or waived by the Party for whose benefit such condition exists, such
satisfaction or waiver to conform to Section 11.8, provided, however, that the
-------- -------
deliveries contemplated by Sections 2.10 and 2.11 shall not be considered when
determining whether the conditions to obligations to Close set forth in
Sections 6.1 and 6.2 have been satisfied. The date of Closing is hereinafter
called the "Closing Date" and shall be effective for all purposes herein as of
11:59 p.m. eastern time on the Closing Date.
2.10. Deliveries by the Seller at the Closing. At the Closing, the
---------------------------------------
Seller shall deliver the following to the Buyer, duly executed and properly
acknowledged, if appropriate:
(a) the deed for the Real Property and Improvements, substantially in
the form attached hereto as Exhibit A, reserving the necessary Easements to be
retained by the Seller;
(b) the Bill of Sale, substantially in the form attached hereto as
Exhibit B, for the tangible personal property included in the Acquired Assets;
(c) the Assignment and Assumption Agreement, substantially in the form
attached hereto as Exhibit C, in recordable form if necessary;
(d) the Asset Demarcation Agreement, substantially in the form
attached hereto as Exhibit D;
(e) a FIRPTA Affidavit by the Seller;
(f) the Property Tax Agreement, substantially in the form attached
hereto as Exhibit E;
(g) copies of all consents, waivers or approvals obtained by the
Seller with respect to the Acquired Assets, the transfer of the Transferable
Permits or the consummation of the transactions contemplated by this Agreement
and the Related Agreement, to the extent specifically required under this
Agreement or the Related Agreements (without limiting the generality of the
foregoing, Seller is specifically required to provide Buyer with copies of
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written consents to assign to Buyer each of the Material Contracts executed by
the third parties to such Material Contracts or include within the opinion
referenced in clause (k) below an assurance that Seller's rights under such
Material Contracts may be assigned without such third party consent); provided
that if a Material Contract cannot be effectively assigned to Buyer at
Closing, then Seller shall notify Buyer of such nonassignability, and, subject
to Buyer's prior written consent (which shall not be unreasonably withheld),
Seller shall, at its sole discretion, enter into substitute contracts (the
"Substitute Material Contracts") prior to the Closing that will provide Buyer
with substantially similar benefits and obligations to those that would have
been provided if the nonassignable Material Contracts had been transferred to
Buyer at Closing and shall provide evidence at the Closing that such
Substitute Material Contracts are effectively assigned to Buyer at the
Closing. To the extent that, as a result of any payment or other
consideration provided by Seller, either Seller or Buyer is able to obtain
pricing or terms for a Substitute Material Contract more favorable than those
under the existing Material Contracts which cannot be assigned to Buyer, Buyer
shall pay to Seller as and when such favorable benefits are realized by Buyer
an amount equal to the value differential between the price or terms of such
Substitute Material Contract and the Material Contract that the Seller could
not assign, up to a maximum amount equal to 100% of the costs incurred by
Seller in obtaining consents to the assignment of all Material Contracts;
(h) a certificate from an authorized officer of the Seller, dated the
Closing Date, to the effect that, to such officer's Knowledge, the conditions
set forth in Section 6.1 have been satisfied;
(i) a copy, certified by the Clerk of the Seller, of corporate
resolutions authorizing the execution and delivery of this Agreement and the
Related Agreements and instruments attached as exhibits hereto and thereto,
and the consummation of the transactions contemplated hereby and thereby;
(j) a certificate of the Clerk of the Seller which shall identify by
name and title and bear the signature of the officers of the Seller authorized
to execute and deliver this Agreement and the Related Agreements and
instruments attached as exhibits hereto and thereto;
(k) an opinion or opinions from one or more counsel to the Seller (who
shall be reasonably satisfactory to Buyer and any of whom may be an employee
of the Seller), dated the Closing Date and reasonably satisfactory in form to
the Buyer and its counsel, covering substantially the matters set forth in
Schedule 2.10(k);
(l) all such other instruments of sale, transfer, conveyance,
assignment or assumption as the Buyer and its counsel may reasonably request
in connection with the sale of the Acquired Assets, provided however, that
this subsection (l) shall not require the Seller to prepare or obtain any
surveys relating to the Real Property;
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<PAGE>
018
(m) a Certificate from an authorized Officer of Seller, dated the
Closing Date that each of the concerns referenced in Section 5.15 below have
been fully and successfully addressed and no longer constitute Environmental
Liabilities;
(n) the items and documents listed in Section 2.1(f); and
(o) the items to be delivered by Seller pursuant to Section 6.1(h).
2.11. Deliveries by Buyer at the Closing. At the Closing, the Buyer
----------------------------------
shall deliver to the Seller, properly executed and acknowledged, if
appropriate:
(a) the Purchase Price;
(b) the Assignment and Assumption Agreement, substantially in the form
attached hereto as Exhibit C to the Agreement, and if necessary or desirable
to the Seller, in recordable form;
(c) the Asset Demarcation Agreement, substantially in the form
attached hereto as Exhibit D;
(d) the Chapter 61 Affidavit, substantially in the form attached
hereto as Exhibit F.
(e) the Property Tax Agreement, substantially in the form attached
hereto as Exhibit E;
(f) a certificate from an authorized officer of the Buyer, dated the
Closing Date, to the effect that, to such officer's Knowledge, the conditions
set forth in Section 6.2 have been satisfied;
(g) a copy, certified by the Clerk of the Buyer, of resolutions
authorizing the execution and delivery of this Agreement and the Related
Agreements and instruments attached as exhibits hereto and thereto, and the
consummation of the transactions contemplated hereby and thereby;
(h) a certificate of the Clerk of the Buyer which shall identify by
name and title and bear the signature of the officers of the Buyer authorized
to execute and deliver the Agreement and the Related Agreements and
instruments attached as exhibits hereto and thereto;
(i) evidence of the Buyer's membership in NEPOOL;
(j) an opinion or opinions from one or more counsel to the Buyer (who
shall be reasonably satisfactory to the Seller and any of whom may be an
employee of the Buyer),
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<PAGE>
dated the Closing Date and reasonably satisfactory in form to the Seller and
its counsel, covering substantially the matters set forth in Schedule 2.11(j);
and
(k) all such other instruments of sale, transfer, conveyance,
assignment or assumption as the Seller and its counsel may reasonably request
in connection with the sale of the Acquired Assets or assumption of the
Assumed Liabilities.
3. Representations, Warranties and Disclaimers of the Seller. The Seller
---------------------------------------------------------
represents and warrants to the Buyer that, to the Seller's Knowledge, the
statements contained in this Section 3 are correct and complete as of the
Effective Date.
3.1. Organization of the Seller. The Seller is duly organized,
--------------------------
validly existing and in good standing under the laws of The Commonwealth of
Massachusetts. Copies of the articles of organization and by-laws of the
Seller, each as amended to date, have been heretofore delivered to the Buyer
and are accurate and complete.
3.2. Authorization of Transaction. The Seller has the power and
----------------------------
authority (including full corporate power and authority) to execute and
deliver this Agreement and the Related Agreements and, subject to receipt of
all Seller's Regulatory Approvals, to perform its obligations hereunder and
thereunder. All corporate actions or proceedings to be taken by or on the
part of the Seller to authorize and permit the due execution and valid
delivery by the Seller of this Agreement and the Related Agreements and the
instruments required to be duly executed and validly delivered by the Seller
pursuant hereto and thereto, the performance by the Seller of its obligations
hereunder and thereunder, and the consummation by the Seller of the
transactions contemplated herein and therein, have been duly and properly
taken. This Agreement has been duly executed and validly delivered by the
Seller and constitutes the valid and legally binding obligation of the Seller,
enforceable in accordance with its terms and conditions and when each Related
Agreement has been executed and delivered, such Related Agreement will
likewise constitute a valid and legally binding obligation of the Seller,
enforceable in accordance with its terms.
3.3. Noncontravention. Subject to the Seller obtaining the
----------------
Seller's Regulatory Approvals, neither the execution and the delivery of this
Agreement or any of the Related Agreements, nor the consummation of the
transactions contemplated hereby and thereby (including the assignments and
assumptions referred to in Sections 2.10(p) and 2.11(l) above), will (a)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, license or other restriction of any
Governmental Authority to which the Seller or any of its property is subject
or any provision of the articles of organization or by-laws of the Seller, or
(b) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which the Seller
is bound or to which any of the Acquired Assets is subject (or
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result in the imposition of any Lien upon any of the Acquired Assets), except
for matters that, in the aggregate, will not have a Material Adverse Effect or
that are disclosed in Schedule 3.3 or any other Schedule.
3.4. Brokers' Fees. The Seller has no Liability or obligation to
-------------
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
3.5. Title to Acquired Assets. Except for Permitted Encumbrances,
------------------------
the Seller holds good and marketable title to the Real Property to the extent,
and only to the extent, specified in the title policy commitment attached
hereto on Schedule 3.5 (the "Title Commitment"). Except as set forth in
Schedule 3.5 and except for Permitted Encumbrances, the Seller has good and
valid title to or a valid leasehold interest in the other Acquired Assets.
There are no Permitted Encumbrances arising out of any Tax or other charge as
assessed by any Government Authority except for which the Seller will
indemnify the Buyer pursuant to Section 9.3.
3.6. Legal and Other Compliance. The Seller has not received
--------------------------
written notice from any Governmental Authority that it is not in compliance in
all material respects with all Laws, applicable to the condition or operation
of the Acquired Assets, other than as disclosed in Schedule 3.6 and Seller has
not violated Laws, except for violations that, in the aggregate, will not have
a Material Adverse Effect. Seller has duly filed all reports and returns
required to be filed by it with Governmental Authorities and obtained
governmental permits and licenses and other governmental consents which are
required in connection with the business of owning and/or operating the
Facilities, the failure of which to file and obtain likely would have a
Material Adverse Effect. All such permits, licenses and consents are in full
force and effect and no proceedings for the suspension or cancellation of any
of them is pending or threatened.
3.7. Taxes. The Seller has filed all Tax Returns that it was
-----
required to file, and has paid all Taxes that have become due as indicated
thereon, except where the Seller is contesting the same in good faith by
appropriate proceeding, where the failure so to file or pay could have a
Material Adverse Effect. There is no unpaid Tax due and payable that could
have a Material Adverse Effect on the Buyer's ownership, operation or use of
the Acquired Assets for which the Buyer could become liable.
3.8. Contracts and Leases.
--------------------
(a) Except (i) as listed in Schedule 2.1(e) or 2.1(c) or any other
Schedule, (ii) for contracts, agreements, personal property leases,
commitments, understandings or instruments which will be fully performed or
terminated prior to the Closing Date, and (iii) for agreements with suppliers
entered into in the ordinary course of business that are subject to being
assumed by and assigned to Buyer in absence of a third party consent thereto,
the Seller is not a party to
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any written contract, agreement, personal property lease, commitment,
understanding or instrument which is material to the business or operations of
the Acquired Assets.
(b) Each of the Material Contracts constitutes a valid and binding
obligation of the Buyer and is in full force and effect.
(c) Seller has complied with all of the material provisions of each of
the Material Contracts and there does not exist any event of default under any
such Material Contract or any event which, after notice of lapse of time or
both, would constitute an event of default under any such Material Contract.
There is no action, suit, proceeding or investigation pending, or threatened
against Seller before any court or before any governmental or administrative
agency for the renegotiation of or any other adjustment of any such Material
Contract or any other agreement to be assigned to Buyer hereunder.
3.9. Insurance. The policies of liability, fire, worker's
---------
compensation and other forms of insurance owned or held by the Seller as set
forth in Schedule 3.9 and in Section 5.12 are in full force and effect, all
premiums with respect thereto covering all periods up to and including the
Closing Date have been or will be paid prior to the Closing (other than
retroactive premiums and any retrospective premium adjustments which may be
payable by Seller) and no written notice of cancellation or termination has
been received with respect to any such policy which was not replaced on
substantially similar terms prior to the date of such cancellation. Except as
described in Schedule 3.9, the Seller has not been refused any insurance with
respect to the Acquired Assets nor has its coverage been limited by any
insurance carrier to which it has applied for any such insurance or with which
it has carried insurance during the last twelve months. The policies of
insurance identified in Schedule 3.9 insure Seller, its properties and those
aspects of its business pertaining to the ownership or operation of the
Facilities against such losses and risks, and in such amounts, as are adequate
for its business. Seller is not, and no party is, in breach of default of any
such policy (including with respect to the giving of notices) and no event has
occurred which, with notice of lapse of time, would constitute such breach or
default or permit termination, modification or acceleration under the policy.
3.10. Litigation. Except as disclosed in Schedule 3.10, no claims
----------
are pending or threatened, that would be reasonably likely to result, in the
aggregate, in a Material Adverse Effect or that question the validity of this
Agreement or the Related Agreements or of any action taken or to be taken
pursuant to or in connection with the provisions of this Agreement or the
Related Agreements. There are no judgments, orders, decrees, citations,
fines or penalties heretofore assessed against the Seller that, in the
aggregate, have a Material Adverse Effect. A petition filed or pending under
10 C.F.R. Section 2.206 or Section 2.802, or any claim for review of any
action thereon, shall not be considered to be within the scope of this
representation.
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3.11. Employees. Schedule 3.11 contains a list of all collective
---------
bargaining agreements to which the Seller is a party and which relate to
employees of the Seller where employment relates primarily to the Acquired
Assets (the "Collective Bargaining Agreements"), true and correct copies of
which have heretofore been delivered to the Buyer. As of the Effective Date,
except as described in Schedule 3.11: (i) the Seller has not experienced any
labor disputes or work stoppage due to labor disagreements in the past five
(5) years; (ii) the Seller is in compliance with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours; (iii) the Seller has not received written
notice from any Governmental Authority of any unfair labor practice charge or
complaint against the Seller pending or threatened before the National Labor
Relations Board; and (iv) no arbitration proceeding arising out of or under
any collective bargaining agreement with respect to the Acquired Assets is
pending against the Seller.
3.12. Environmental Matters. Except as disclosed in Schedule 3.12,
---------------------
the Seller has not received any written notice from any Governmental Authority
that it is not or has not been in compliance with Environmental Laws the
violation of which could have a Material Adverse Effect and there are no known
Environmental Liabilities existing at the Site, except as disclosed in the
Phase I Site Assessment, that, in the aggregate, would be expected to require
Remediation in excess of One Million Dollars ($1,000,000), except for such
matters as Seller has agreed to Remediate at Seller's expense.
3.13. Condemnation. Except as set forth in Schedule 3.13, the
------------
Seller has received no written notice from any Governmental Authority of any
pending or threatened proceeding to condemn or take by power of eminent domain
or otherwise, by any Governmental Authority, all or any part of the Acquired
Assets, which would constitute a Material Adverse Effect.
3.14. Regulation as a Utility. The Seller is an "electric company"
-----------------------
within the meaning of Chapter 164 of the Massachusetts General Laws.
3.15. Decommissioning Trust. Schedule 3.15(a) contains a true and
---------------------
correct copy of the Trust Agreement.
3.16. Operability. The Acquired Assets constitute all of the assets
-----------
necessary for the Seller to operate Pilgrim substantially in the manner as it
has been operated by the Seller.
3.17. NRC Generic Letter 98-01. Seller has adopted and is
------------------------
implementing a Pre-Approved Project designed to meet the requirements of NRC
Generic Letter 98-01.
3.18. Disclaimers Regarding Acquired Assets. EXCEPT FOR ANY
-------------------------------------
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS SECTION 3, THE ACQUIRED
ASSETS ARE SOLD "AS IS, WHERE IS," AND THE SELLER EXPRESSLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND OR
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NATURE, EXPRESS OR IMPLIED, AS TO LIABILITIES, OPERATIONS OF THE FACILITIES,
TITLE, CONDITION, VALUE OR QUALITY OF THE ACQUIRED ASSETS OR THE PROSPECTS
(FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE ACQUIRED ASSETS
AND THE SELLER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF
MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH
RESPECT TO THE ACQUIRED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP
THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR
COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR AS TO THE CONDITION OF THE
ACQUIRED ASSETS, OR ANY PART THEREOF, OR WHETHER THE SELLER POSSESSES
SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE ACQUIRED ASSETS.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, THE SELLER FURTHER
SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF
HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER
ENVIRONMENTAL LAWS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT
AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE SELLER EXPRESSLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION OF THE ACQUIRED
ASSETS OR THE SUITABILITY OF THE FACILITIES FOR OPERATION AS POWER PLANTS AND
NO OTHER MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY THE
SELLER OR ITS AGENTS, OR BY ANY BROKER OR INVESTMENT BANKER, INCLUDING WITHOUT
LIMITATION ANY INFORMATION OR MATERIAL CONTAINED IN THE OFFERING MEMORANDUM
DATED JUNE 1998 AND ANY ORAL, WRITTEN OR ELECTRONIC RESPONSE TO ANY
INFORMATION REQUEST PROVIDED TO THE BUYER, WILL CAUSE OR CREATE ANY WARRANTY,
EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE
ACQUIRED ASSETS.
4. Representations and Warranties of the Buyer. The Buyer represents and
-------------------------------------------
warrants to the Seller, to the Buyer's Knowledge, that the statements
contained in this Section 4 are correct and complete as of the Effective Date.
4.1. Organization of the Buyer. The Buyer, a Delaware corporation,
-------------------------
is duly organized, validly existing and in good standing under the laws of the
State of Delaware. Copies of the articles of organization and bylaws of the
Buyer, each as amended to date, have been heretofore delivered to the Seller
and are accurate and complete.
4.2. Authority of Transaction. The Buyer has the power and
------------------------
authority (including full corporate power and authority) to execute and
deliver this Agreement and the Related Agreements and, subject to receipt of
all Buyer's Regulatory Approvals, to perform its obligations hereunder and
thereunder. All corporate actions or proceedings to be taken by or
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on the part of the Buyer to authorize and permit the due execution and valid
delivery by the Buyer of this Agreement and the instruments required to be
duly executed and validly delivered by the Buyer pursuant hereto and thereto,
the performance by the Buyer of its obligations hereunder and thereunder, and
the consummation by the Buyer of the transactions contemplated herein and
therein, have been duly and properly taken. This Agreement has been duly
executed and validly delivered by the Buyer and constitutes the valid and
legally binding obligation of the Buyer, enforceable in accordance with its
terms and conditions and when each Related Agreement has been executed and
delivered, such Related Agreement will likewise constitute a valid and legally
binding obligation of the Buyer, enforceable in accordance with its terms.
4.3. Noncontravention. Subject to the Buyer obtaining the Buyer's
----------------
Regulatory Approvals, neither the execution and the delivery of this Agreement
or any of the Related Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in Sections 2.10(o) and 2.11(m) above), will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, license or other restriction of any Governmental Authority to
which the Buyer is subject or any provision of the articles of organization or
bylaws of the Buyer or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject, except for matters that will not constitute a Buyer Material Adverse
Effect or that are disclosed on Schedule 4.3.
4.4. Brokers' Fees. The Buyer has no Liability or obligation to
-------------
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
4.5. Litigation. No claim, demand, action or suit is pending or
----------
threatened that would be reasonably likely to result in a Buyer Material
Adverse Effect or that questions the validity of this Agreement or the Related
Agreements or of any action taken or to be taken pursuant to or in connection
with the provisions of this Agreement or the Related Agreements. There are no
judgments, orders, decrees, citations, fines or penalties heretofore assessed
against the Buyer that have a Buyer Material Adverse Effect or impair, estop,
impede, restrain, ban or otherwise adversely affect Buyer's ability to satisfy
or perform of the Assumed Liabilities under any federal, state or local Law.
For purposes of this Section 4.5, a petition filed or pending under 10 C.F.R.
Section 2.206 or Section 2.802, or any claim for review of any action thereon,
shall not be considered to be within the scope of this representation.
4.6. No Knowledge of the Seller's Breach. On the Effective Date,
-----------------------------------
the Buyer has no Knowledge of any breach by the Seller of any representation
or warranty contained in Section
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3 hereof, or of any condition or circumstance that would excuse the Buyer from
performance of its obligations under this Agreement or the Related Agreements.
4.7. "As Is Sale". The representations and warranties set forth in
------------
Section 3 and Section 4 hereof constitute the sole and exclusive
representations and warranties of the Seller and Buyer in connection with the
transactions contemplated hereby. There are no representations, warranties,
covenants, understandings or agreements among the Parties regarding the
Acquired Assets or their transfer other than those incorporated in this
Agreement. Except for the representations and warranties expressly set forth
in Section 3, the Buyer disclaims reliance on any representations, warranties
or guarantees, either express or implied by the Seller, including but not
limited to any representation or warranty expressed or implied in the Offering
Memorandum dated June 1998 and any oral, written or electronic response to any
information request provided to the Buyer. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED HEREIN, THE BUYER ACKNOWLEDGES AND AGREES THAT THE ACQUIRED ASSETS
ARE BEING ACQUIRED "AS IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR
CONDITION ON THE CLOSING DATE, AND THAT THE BUYER IS RELYING ON ITS OWN
EXAMINATION OF THE ACQUIRED ASSETS, AND IS NOT RELYING ON ANY REPRESENTATION
OR WARRANTY MADE BY THE SELLER OR ITS AGENTS, OR ANY BROKER OR INVESTMENT
BANKER EXCEPT FOR WARRANTIES, IF ANY, SET FORTH IN ARTICLE 3 AND THE
INSTRUMENTS OF TRANSFER AND CONVEYANCE.
4.8. Qualified Buyer. The Buyer is qualified, or will be qualified
---------------
as of the Closing Date, to obtain any Permits necessary for the Buyer to own
and operate the Acquired Assets as of the Closing Date, to the extent such
operation is either required by any Related Agreement or this Agreement, or is
contemplated by the Buyer.
5. Covenants. The Parties agree as follows:
---------
5.1. General. Each of the Parties will use its best efforts to
-------
take all actions and to do all things necessary, proper or advisable in order
to consummate and make effective the transactions contemplated by this
Agreement and the Related Agreements (including satisfaction, but not waiver,
of the closing conditions set forth in Section 6 below).
5.2. Notices, Consents and Approvals.
-------------------------------
(a) The Seller and the Buyer shall each file or cause to be filed with
the Federal Trade Commission and the United States Department of Justice any
notifications required to be filed under the Hart-Scott-Rodino Act and the
rules and regulations promulgated thereunder with respect to the transactions
contemplated hereby. The Parties shall use their best efforts to make such
filings as promptly as possible after the Effective Date, to respond promptly
to any requests for additional information made by either of such agencies.
The Buyer will pay all
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filing fees under the Hart-Scott-Rodino Act, but each Party will bear its own
costs for the preparation of any filing. Both Parties shall use Commercially
Reasonable Efforts to cause any waiting period under the Hart-Scott-Rodino Act
with respect to the transactions contemplated by this Agreement and the
Related Agreements to expire or terminate at the earliest possible time.
(b) The Seller and the Buyer shall cooperate with each other and use
all Commercially Reasonable Efforts to (i) promptly prepare and file all
necessary documentation, (ii) effect all necessary applications, notices,
petitions and filings and execute all agreements and documents, (iii) obtain
the transfer, issuance or reissuance to the Buyer of all necessary Permits
and (iv) obtain all necessary consents, approvals and authorizations of all
other parties necessary or advisable to consummate the transactions
contemplated by this Agreement or in any of the Related Agreements (including,
without limitation, the Seller's Regulatory Approvals and the Buyer's
Regulatory Approvals) or required by the terms of the Trust Agreement or any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument to which the Seller or the
Buyer is a party or by which either of them is bound. Both Parties shall
have the right to review in advance all characterizations of the information
relating to the transactions contemplated by this Agreement or in any of the
Related Agreements which appear in any filing made by either Party in
connection with the transactions contemplated hereby or thereby.
(c) Nuclear Regulatory Commission Approval.
--------------------------------------
1. Application. As promptly after the Effective
-----------
Date as may be feasible, the Buyer and the Seller shall
jointly prepare and file with the NRC an Application.
Thereafter, the Buyer and the Seller shall cooperate with one
another to facilitate review of the Application by the NRC
Staff, including but not limited to the prompt provision to
the NRC Staff of any and all documents or information in the
possession of either Buyer or Seller that the NRC Staff may
request.
2. Prosecution of Application. The Application
--------------------------
shall identify the Buyer and the Seller as separate parties to
the Application, with separate representation. In the event
that the NRC processing of the Application becomes a Contested
Proceeding, and until such Contested Proceeding becomes Final,
the Buyer and the Seller shall separately appear therein by
their own counsel, and shall continue to cooperate with each
other to facilitate a favorable result.
3. Costs of Application and Prosecution. The Buyer
------------------------------------
and the Seller will each bear their own costs of the
preparation, submission and processing of the Application,
including any Contested Proceeding that
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may occur in respect thereof, provided, however, that the
Buyer shall bear the costs of all NRC staff fees payable in
connection with the Application.
5.3. Operation of Business During Interim Period.
-------------------------------------------
(a) During the Interim Period, the Seller will operate and maintain
the Acquired Assets in the ordinary course consistent with Prudent Utility
Practices unless otherwise contemplated by this Agreement or with the prior
written consent of the Buyer. Without limiting the generality of the
foregoing, the Seller shall not, without the prior written consent of the
Buyer, during the Interim Period, with respect to the Acquired Assets:
(i) sell, lease (as lessor), transfer or otherwise
dispose of, any of the Acquired Assets, other than as used,
consumed or replaced in the ordinary course of business
consistent with Prudent Utility Practices, or encumber,
pledge, mortgage or suffer to be imposed on any of the
Acquired Assets any encumbrance other than Permitted
Encumbrances;
(ii) make any material change in the levels of
Inventories customarily maintained by the Seller with respect
to the Acquired Assets, except for such changes that are
consistent with Prudent Utility Practices;
(iii) enter into, amend, or otherwise modify any
real or personal property Tax agreement, treaty or settlement,
other than as contemplated by the Property Tax Agreement;
(iv) enter into any commitment for the purchase or
sale of fuel, other than Nuclear Fuel, (whether commodity or
transportation) having a term greater than six (6) months and
not terminable either (x) automatically on the Closing Date;
or (y) by option of the Buyer in its sole discretion at any
time after the Closing Date, where the aggregate payment under
such fuel commitment and all other then outstanding fuel
commitments would be expected to exceed $1 million;
(v) enter into any commitment for the purchase of
Nuclear Fuel;
(vi) terminate or materially amend any of the
Material Contracts or the Transferrable Permits except as may
be necessary in order to transfer Seller's rights thereunder
to Buyer at the Closing; or
(vii) enter into any contract or commitment which
individually exceeds $1,000,000 or in the aggregate exceeds
$10,000,000, unless such contract or
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commitment is to be fully performed prior to the Closing or
can be terminated by Buyer at its option at any time following
the Closing without penalty or cancellation charge.
Notwithstanding anything in this Section 5.3(a) to the
contrary, the Seller may, in its sole discretion, make or incur an
obligation to make subject to the adjustment provisions as set forth in
Section 2.6, (i) Pre-Approved Projects as set forth in Schedule 5.3,
and (ii) Required Nuclear Expenditures.
(b) During the Interim Period, in the interest of facilitating an
orderly transition of the management of the Acquired Assets in contemplation
of NRC approval of the Transfer of License and permitting informed action by
the Buyer regarding its rights pursuant to Section 5.3(a) to grant consent or
to waive prohibitions or limitations under Section 5.3(a), the Parties agree
as follows:
(i) A committee comprised of two individuals
designated by the Seller and two individuals designated by the
Buyer, and such additional individuals as may be appointed by
the individuals originally appointed to such committee (the
"Transition Committee") will be established as soon after the
Effective Date as is practicable to examine the business
issues affecting the Acquired Assets during the Interim
Period, giving emphasis to cooperation between the Buyer and
the Seller. From time to time, the Transition Committee shall
report its findings to the senior management of each of the
Seller and the Buyer; provided, however, that the Seller shall
be under no obligation to act on or follow any such findings
and the Seller shall be entitled, subject to this Agreement,
to conduct its business in accordance with its own judgment
and discretion. The Transition Committee shall have no
authority to bind or make agreements on behalf of the Seller
or the Buyer; or to issue instructions to or direct or
exercise authority over the Seller or the Buyer or any of
their respective officers, employees, advisors or agents.
(c) Seller will continue to operate and maintain the Facilities in
substantially the same manner as prior to the Effective Date. However,
notwithstanding anything to the contrary herein, the Seller shall have the
right, until the Closing has occurred, in its sole discretion, to shut down
Pilgrim and file a Notice of Permanent Cessation of Operations with the NRC,
pursuant to 10 C.F.R., sec. 50.82(a)(1)(i), and exercise the termination
provision contained in Section 10.1(c)(viii).
5.4. Access and Investigations During Interim Period. During the
-----------------------------------------------
Interim Period, the Seller will permit one or more designated officers,
employees or agents of the Buyer to have access upon reasonable notice, in a
manner so as not to interfere with the normal business operations of the
Seller, to observe and inspect all premises, properties, management,
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personnel, books, records, (including tax records), and other information,
including without limitation all information necessary to enable Buyer to
verify Seller's representations and warranties as set forth in Article 3 are
correct and that Seller has complied with the covenants set forth herein, and
any other information or documents associated with or pertaining to the
Acquired Assets. Such inspections are contemplated to include Buyer's
environmental inspections and testing by an environmental engineering firm at
Buyer's expense of the Site and Facilities. However, all access and Buyer's
inspections are subject to the following provisions:
(a) Costs. All costs of such investigations and observations,
-----
including but not limited to the compensation paid to the persons involved and
their expenses, and including also any discrete incremental costs incurred by
Seller in connection with such investigation and observation, shall be borne
by Buyer.
(b) Physical Access (Escorted and Unescorted).
-----------------------------------------
(i) For each person whom Buyer wishes be provided
with escorted access to PNPS, it will make a request therefor
(directed to Mr. Marc Potkin at (508) 830-8254) not less than
24 hours before the time at which the person is to arrive,
providing the following information for each individual:
name, date of birth, social security number, and the name of
each nuclear power plant at which the person has a current
badge for unescorted access. The Seller reserves the right
where necessary to limit the number of persons to whom
escorted access is provided at any one time on account of
reasonable logistical considerations.
(ii) For each person whom Buyer wishes be provided
with unescorted access to PNPS, the person must comply with
all existing PNPS and NRC requirements for unescorted access,
including (but not limited to) background investigation, GET
and other training requirements, fitness-for-duty
requirements, a psychological assessment and behavioral
observation.
(iii) In the event that the Buyer has its own
fitness-for-duty program meeting the requirements of
10 C.F.R., Part 26, the Buyer may request that any person
subject to the Buyer's program be excused from compliance
with the Seller's program, in which event the provisions of
10 C.F.R. Section 26.23 shall be applicable to unescorted
access granted to the person(s) subject to the Buyer's
program, and the Buyer shall reimburse the Seller for the cost
of reviewing and auditing the Buyer's program, as required by
10 C.F.R. Section 26.23.
(iv) Regardless of whether a person has qualified
for escorted or unescorted access, the Seller will withhold
access to any area of the PNPS
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<PAGE>
facility that would reveal "Safeguards Information,"
"classified National Security Information" or "Restricted
Data" to any person to whom such information is not to be made
available under the following sub-section.
(c) Access to Records and Information.
---------------------------------
(i) Except as provided in the next paragraph, the
Seller will not provide access to any documents or information
constituting or containing "Safeguards Information."
(ii) In the event that the Buyer wishes for one or
more designated persons acting on its behalf to have access to
"Safeguards Information," the Buyer must first obtain
authorization or concurrence from the NRC for the disclosure
of such information to such person(s).
(iii) Under no circumstances will the Seller provide
access to any documents or information constituting or
containing "classified National Security Information" or
"Restricted Data."
(iv) Except as provided in paragraphs (i)-(iii)
above, Buyer shall have the right to receive copies of all
documentary information and records associated with the
Acquired Assets subject to the nondisclosure provisions of
Article 7.
(d) Limitations. Notwithstanding anything to the contrary in this
-----------
Section 5.4, the Seller shall: (i) only furnish or provide such access to
personnel records and medical records as is allowed by any Law, (ii) not
provide any information that the Seller or the Seller's counsel believes
constitutes or could be deemed to constitute a waiver of the attorney-client
privilege, and (iii) not be required to supply the Buyer with any information
that the Seller is under a legal obligation not to supply.
5.5. Interim Period Notice.
---------------------
(a) The Buyer shall notify the Seller promptly if any
information comes to its attention that would or might excuse the Buyer from
the performance of its obligations under this Agreement or the Related
Agreements or would or might cause any condition to close set forth in
Sections 6.1 or 6.2 not to be satisfied. In the event that the Buyer fails to
so notify the Seller within thirty (30) days of obtaining Knowledge of such
information, the Buyer shall be deemed to have waived the performance of such
obligations or the fulfillment of such conditions.
(b) The Seller shall notify the Buyer promptly if any information
comes to its attention that would or might excuse the Seller from the
performance of its obligations under this
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Agreement or the Related Agreements or would or might cause any condition to
close set forth in Sections 6.1 or 6.2 not to be satisfied. In the event that
the Seller fails to so notify the Buyer within thirty (30) days of obtaining
Knowledge of such information, the Seller shall be deemed to have waived the
performance of such obligations or the fulfillment of such conditions.
(c) The Seller may elect at any time to notify the Buyer of the
existence of any matter, which if in existence on the Effective Date or the
Closing Date would or might cause any of the representations or warranties in
Section 3 above to be untrue or incorrect. Unless the Buyer has the right to
terminate this Agreement pursuant to Section 10.1(b)(vii) below by reason of
such notice and exercises that right within the period of 15 days referred to
in Section 10.1(b)(vii) below, the written notice pursuant to this Section
5.5(c) shall be deemed to have amended the appropriate Schedule or Schedules
as of the Effective Date, to have qualified the representations and warranties
contained in Section 3 above as of the Effective Date, and to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of the existence of such matter.
(d) The Buyer may elect at any time to notify the Seller of the
existence of any matter, which if in existence on the Effective Date or the
Closing Date would or might cause any of the representations or warranties in
Section 4 above to be untrue or incorrect. Unless the Seller has the right to
terminate this Agreement pursuant to Section 10.1(c)(vii) below by reason of
such notice and exercises that right within the period of 15 days referred to
in Section 10.1(c)(vii) below, the written notice pursuant to this Section
5.5(d) shall be deemed to have amended the appropriate Schedule or Schedules
as of the Effective Date, to have qualified the representations and warranties
contained in Section 4 above as of the Effective Date, and to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of the existence of such matter.
5.6. Further Assurances.
------------------
(a) At any time and from time to time after the Closing,
without further payment, at the request of a Party, the other Party will
execute and deliver such instruments of sale, transfer, conveyance, assignment
and confirmation and take such action as is necessary to transfer, convey and
assign to the Buyer, and to confirm the Buyer's title to or interest in the
Acquired Assets and Assumed Liabilities or to put the Buyer in actual
possession and operating control of the Acquired Assets.
(b) In the event that any asset that is an Acquired Asset
shall not have been conveyed to the Buyer at the Closing, the Seller shall,
without further payment, subject to Section 5.6(d), use its best efforts to
convey such asset to the Buyer as promptly as is practicable after the
Closing. In the event that any Easement shall not have been retained by
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the Seller after the Closing, the Buyer shall use its best efforts to grant
such Easement to the Seller as promptly as is practicable after the Closing.
(c) To the extent that the Seller's rights under any contract
included as an Acquired Asset, other than a Material Contract, may not be
assigned without the consent of another Person which consent has not been
obtained by the Closing Date, this Agreement shall not constitute an agreement
to assign the same if an attempted assignment would constitute a breach
thereof or be unlawful, and the Seller, at its expense, shall use its
Commercially Reasonable Efforts to obtain any such required consent(s) as
promptly as possible. The Seller and the Buyer agree that if any consent to
an assignment shall not be obtained, or if any attempted assignment would be
ineffective or would impair the Buyer's rights and obligations under the
contract in question, so that the Buyer would not in effect acquire the
benefit of all such rights and obligations, the Seller, to the maximum extent
permitted by law and such contract, shall, after the Closing, appoint the
Buyer to be the Seller's agent with respect to such contract, and the Seller
shall, to the maximum extent permitted by law and such contract, enter into
such reasonable arrangements with the Buyer as are necessary to provide the
Buyer with the benefits and obligations of such contract. The Seller and the
Buyer shall cooperate and shall each use their Commercially Reasonable Efforts
after the Closing to obtain an assignment of such contract to the Buyer;
provided that the Buyer shall not have any obligation to offer or pay any
consideration in order to obtain any such consents.
(d) Except for warranties contained in the Material
Contracts, to the extent that the Seller's rights under any warranty or
guaranty described in Section 2.1(b) may not be assigned without the consent
of another Person, which consent has not been obtained by the Closing Date,
this Agreement shall not constitute an agreement to assign the same, if an
attempted assignment would constitute a breach thereof, or be unlawful. The
Seller and the Buyer agree that if any consent to an assignment of any such
warranty or guaranty would be ineffective or would impair the Buyer's rights
and obligations under the warranty or guaranty in question, so that the Buyer
would not in effect acquire the benefit of all such rights and obligations,
the Seller, shall use Commercially Reasonable Efforts, at the Buyer's sole
cost and expense, to the extent permitted by law and such warranty or
guaranty, to enforce such warranty or guaranty for the benefit of the Buyer so
as to the maximum extent possible to provide the Buyer with the benefits and
obligations of such warranty or guaranty. Notwithstanding the foregoing, the
Seller shall not be obligated to bring or file suit against any Third Party,
provided that if the Seller shall determine not to bring or file suit after
being requested by the Buyer to do so, the Seller shall assign, to the extent
permitted by law of any applicable agreement or contract, its rights in
respect of the claims so that the Buyer may bring or file such suit.
(e) To the extent that any lease of personal property that is
not a Material Contract cannot be assigned to the Buyer or is not subject to
arrangements described in Section 5.6(c), upon the Buyer's request and at the
Buyer's sole expense, the Seller will use
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<PAGE>
Commercially Reasonable Efforts to acquire the assets relating to such lease
and to include them in the Acquired Assets before the Closing Date.
5.7. Employee Matters.
----------------
(a) Buyer is required to offer employment to those employees of the
Seller who were employed in non-managerial positions and whose employment
relates primarily to providing services for operation of the Acquired Assets
("Non-Managerial Employees") at any time during the three month period prior
to the Closing Date, at levels of wages and overall compensation not lower
than the employees' prior levels, for a period of six months beginning at the
Closing Date. All union represented Non-Managerial Employees shall be vested
as of the Closing Date in the Seller's tax-qualified plans under Section
401(a) of the Internal Revenue Code.
(b) Buyer has the option, but is not required, to offer employment to
employees of the Seller who were employed in managerial positions and whose
responsibilities primarily relate to the Acquired Assets. Buyer will enroll
any of these managerial employees, along with any non-represented non-
supervisory employees and confidential employees, who are offered and who
accept employment with the Buyer (collectively, the "Nonrepresented
Employees") in those of Buyer's Employee Welfare Benefit Plans providing for
retiree health and life insurance benefits which are provided to Buyer's
similarly situated employees. To the extent that, at least 60 days prior to
the Closing, any such Nonrepresented Employees enter into a Special Retention
Agreement with the Seller (the "Special Retention Employees"), Buyer will
apply such Special Retention Employees' prior service with Seller towards any
eligibility, vesting or other waiting period requirements under such retiree
plans, and will waive any pre-existing condition provisions. All
Nonrepresented Employees shall be vested as of the Closing Date in the
Seller's tax-qualified plans under Section 401(a) of the Internal Revenue
Code. Buyer shall have no obligation for severance payments or other benefits
of any kind with respect to Nonrepresented Employees to whom it does not offer
employment or who do not accept employment if offered.
(c) Within six months after the Closing Date, Seller will deliver to
Buyer a schedule which defines the amount of the unreduced age 65 accrued
benefit as of the Closing Date payable to each of Seller's employees hired by
Buyer, as a single life annuity from Seller's tax-qualified defined benefit
pension plan.
(d) Within 30 days after the Closing Date, Seller will cause the
trustees of Seller's VEBAs to transfer the Transferred Amount (as defined
below) to the trustees of Buyer's VEBA for the purpose of providing retiree
health and life insurance benefits to any Special Retention Employees and to
the union represented employees of Seller who became employees of Buyer on the
Closing Date (collectively, the "Transferred VEBA Eligible Employees").
Transferred VEBA Eligible Employees do not include (1) Seller's employees who
as of the
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Closing Date have attained age 55 and have satisfied Seller's age and service
qualification requirements for the receipt of Seller's retiree health and life
insurance benefits nor (2) Nonrepresented Employees hired by Seller after
December 31, 1994. The Transferred VEBA Eligible Employees shall not be
eligible for retiree health and life insurance from Seller. The "Transferred
Amount" shall be (A) with respect to the Special Retention Employees, the
lesser of the amount calculated under paragraph (i) below and the amount
calculated under paragraph (ii) below, and (B) with respect to the employees
represented by a union, the lesser of the amount calculated under paragraph
(i) below and $5.0 million:
(i) the amount necessary to fund the accumulated
post-retirement benefit obligation ("APBO") for retiree health
and life insurance benefits (determined as of the Closing
Date) relating to the Transferred VEBA Eligible Employees,
determined using the actuarial assumptions and plan provisions
from the FAS 106 valuation of the Buyer except for the
following:
1. Medical claim costs to be adjusted for
geographic cost differences;
2. Attribution period in determining APBO
begins at a Transferred VEBA Eligible
Employee's date of hire with the
Seller and ends at the Closing Date;
3. Discount rate equal to the annual rate
of interest on the 30-year Treasury
Securities on the Closing Date plus
135 basis points.
(ii) the amount necessary to fund the APBO for
retiree health and life insurance benefits (determined as of
the Closing Date) relating to the Transferred VEBA Eligible
Employees, determined using the actuarial assumptions and plan
provisions from the FAS 106 valuation of the Seller except for
the following:
1. Attribution period in determining APBO
begins at a Transferred VEBA Eligible
Employee's date of hire with the
Seller and ends at the Closing Date;
2. Discount rate equal to the annual rate
of interest on the 30-year Treasury
securities on the Closing Date plus
135 basis points.
For the purposes of both (i) and (ii), the FAS 106 valuation to be used shall
be the actuarial valuation reflected in the party's most recent annual
corporate financial disclosure as of the
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Closing Date. Buyer's Employee Welfare Benefit Plan will provide the
Transferred VEBA Eligible Employees with retiree health and life insurance
benefits funded through the Buyer's VEBA with a value, determined under
generally accepted accounting principles, at least equal to the Transferred
Amount.
(e) With respect to the business or operations of the Acquired Assets,
the Seller shall not, except as otherwise required by the terms of the
Collective Bargaining Agreements or in the ordinary course of business: (i)
hire in connection with, or transfer to, the Acquired Assets any new employees
prior to the Closing Date other than to fill vacancies in existing positions
in the reasonable discretion of Seller; (ii) increase salaries or wages of
employees prior to the Closing Date; (iii) take any action prior to the
Closing Date to effect a change in the Collective Bargaining Agreements; or
(iv) take any other action prior to the Closing Date to amend, adopt or
terminate any benefit plans applicable to employees, except as required by
law.
(f) Any individual covered as of the Closing Date pursuant to the
provisions of COBRA under any Seller Employee Benefit Plan that is a Group
Health Plan, or with respect to whom a qualifying event, as defined under
COBRA, has occurred on or prior to the Closing Date and who later elects
continuation coverage under COBRA for such qualifying event, shall continue to
be covered by such Group Health Plan after Closing in accordance with the
provisions of COBRA and such Group Health Plan after Closing. On or before
the Closing Date, Seller shall relocate or terminate the employment of all of
its employees (both Managerial and Non-Managerial) whose responsibilities
primarily relate to the Acquired Assets and shall be solely responsible for
payments of all wages and compensation including, without limitation, accrued
and unused vacation pay, bonuses, severance pay, overtime, all benefits under
any Seller's Employee Benefit Plan that become payable on account of such
termination of employment, or any other amounts to which those employees may
be entitled for services rendered prior to their termination or by virtue of
their termination. Seller agrees to timely perform and discharge all
requirements under the WARN Act and under applicable state and local laws and
regulations for the notification of its employees arising from the sale of the
Acquired Assets to Buyer up to and including the Closing Date. After the
Closing Date, Buyer shall be responsible for all legally required employee
notification with respect to the Acquired Assets.
(g) As of the Effective Date, the authorized employee complement for
PNPS includes approximately 630 site personnel and 38 corporate support
personnel.
5.8. Cooperation after Closing.
-------------------------
(a) Records and Support. After the Closing Date, the Seller shall
-------------------
have reasonable access and rights to copy to all of the records, books and
documents related to the Acquired Assets to the extent that such access may
reasonably be required by the Seller in connection
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<PAGE>
with matters relating to or affected by the operation of the Facility by the
Seller prior to the Closing Date. Such access shall be afforded by Buyer upon
receipt of reasonable advance notice and during normal business hours. The
Seller shall be solely responsible for any costs or expenses incurred by it
pursuant to this Section 5.8(a). However, Buyer will not have any obligation
to Seller under this Agreement to maintain any records, books or documents
relating to operations prior to Closing beyond five (5) years from the Closing
Date, except to the extent that such records, books or documents are required
to be maintained under applicable law, rule or regulation. If the Buyer shall
desire to dispose of any of records, books or documents that may relate to
operation of the Facility prior to the Closing Date, the Buyer shall, prior to
such disposition, give to the Seller a reasonable opportunity, at the Seller's
expense, to segregate and remove such records, books or documents as the
Seller may select.
(b) Employees. After the Closing Date, both parties shall have
---------
reasonable access to the employees of the other party, for purposes of
consultation or otherwise, to the extent that such access may reasonably be
required in connection with matters relating to or affected by the operations
of the Seller prior to the Closing.
(c) Both parties agree to cooperate with each other in connection with
any investigation by any Governmental Authority, litigation or regulatory or
other proceeding which may arise following the Closing Date and which relates
to the operation of the Facilities by Seller prior to the Closing Date; and
both parties agree to cooperate with each other with respect to any litigation
or regulatory or other proceeding relating or pertaining to the Department of
Energy's defaults under the DOE Standard Contract, including the providing of
access to records and employees.
5.9. NEPOOL.
------
(a) On and after the Closing Date, the Buyer agrees to maintain
membership in good standing in NEPOOL, and to submit to the governance of the
ISO as established by the NEPOOL Agreement.
(b) The Seller shall assign at the Closing, to the Buyer, and the
Buyer shall assume, the portion of the Seller's Voting Shares that are based
on Generation Ownership Shares which relate to the generation assets of the
Seller that are Acquired Assets (the "Transferred Voting Shares"). The
Transferred Voting Shares will be assigned in full to the Buyer as of the
Closing Date and the Seller shall have no further right or obligation relating
to such Transferred Voting Shares pertaining to periods following the Closing
Date, all of which right and obligation shall rest with the Buyer. The
intended effect of this assignment is that items "C" and "X" (subparagraph (i)
only) of Section 6.3 of the NEPOOL Agreement shall be calculated: (a) with
respect to the Seller, as though the Seller did not own the generation assets
that are Acquired Assets during the twelve month period preceding the Closing
and (b) with respect to the Buyer, as though the Buyer owned the generation
assets that are Acquired Assets during the
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<PAGE>
twelve month period preceding the Closing. Accordingly, the assignment of
such Transferred Voting Shares to the Buyer will not result in a greater
aggregate number of Voting Shares that are based on the Generation Ownership
Shares which are related to the Acquired Assets for the Buyer and the Seller
together than the Seller would have had in the absence of this Agreement and
the transactions contemplated thereby.
(c) In accordance with Section 21.3 of the NEPOOL Agreement, the Buyer
hereby expressly assumes all of the Seller's rights and obligations under the
NEPOOL Agreement with respect to the generation assets that are Acquired
Assets (collectively, the "NEPOOL Obligations"), and such NEPOOL Obligations
hereby shall become the binding rights and obligations of the Buyer.
5.10. Risk of Loss. Except as otherwise provided in this Section
------------
5.10, during the Interim Period all risk of loss or damage to the property
included in the Acquired Assets shall be borne by the Seller. If during the
Interim Period the Acquired Assets are damaged by fire or other casualty (each
such event, an "Event of Loss"), or are taken by a Governmental Authority by
exercise of the power of eminent domain (each, a "Taking"), then the following
provisions shall apply:
(a) the occurrence of (i) any one or more Events of Loss, of which the
aggregate costs to restore, repair or replace, less any insurance proceeds
received or payable to the Seller in connection with such Event or Events of
Loss (provided that any insurance proceeds received or payable in connection
with the Event or Events of Loss are either used to restore, repair or replace
such Event or Events of Loss or made available to the Buyer) that do not
constitute a Material Adverse Effect, and/or (ii) any one or more Takings, of
which the aggregate condemnation proceeds equal an amount that would not
constitute a Material Adverse Effect, shall have no effect on the transactions
contemplated hereby;
(b) upon the occurrence of (i) any one or more Events of Loss, of
which the aggregate costs to restore, repair or replace, less any insurance
proceeds received or payable to the Seller in connection with such Event or
Events of Loss (provided that any insurance proceeds received or payable in
connection with the Event or Events of Loss are either used to restore, repair
or replace such Event or Events of Loss or made available to the Buyer) that
does constitute a Material Adverse Effect, (ii) any one or more Takings, of
which the aggregate condemnation proceeds equal an amount that constitutes a
Material Adverse Effect (a "Major Loss"), the Seller shall have, in the case
of a Major Loss relating to one or more Events of Loss, the option, exercised
by notice to the Buyer, to restore, repair or replace the damaged Acquired
Assets prior to Closing. If the Seller elects to restore, repair or replace
the Acquired Assets relating to a Major Loss, which election shall be made by
notice to the Buyer prior to Closing within fifteen (15) days following the
occurrence of the Major Loss, the completion of the repair, replacement or
restoration will be a condition to the Closing and the Closing Date shall be
postponed at the election of the Seller for the amount of time reasonably
necessary to
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<PAGE>
complete the restoration, repair or replacement, not to exceed one hundred and
eighty (180) days without the Buyer's consent. If the Seller elects not to
restore, repair or replace the Acquired Assets affected by a Major Loss, or
such Major Loss is the result of one or more Takings, the provisions of
Section 5.10 (c) will apply;
(c) in the event that the Seller elects not to restore, repair or
replace a Major Loss, or in the event that the Seller, having elected to
repair, replace or restore the Major Loss, fails to complete the repair,
replacement or restoration within the one hundred eighty (180) days, or in the
event that a Major Loss is the result of one or more Takings, then the Parties
shall, within thirty (30) days following the Seller's election, failure to
complete, or the occurrence of such Takings, as the case may be, negotiate in
good faith an equitable adjustment in the Purchase Price to reflect the impact
of the Major Loss, as mitigated by any repair, replacement or restoration work
actually completed by the Seller, on the Acquired Assets being sold to the
Buyer, and proceed to Closing. To assist the Buyer in its evaluation of any
and all Events of Loss, the Seller shall provide the Buyer such access to the
Acquired Assets and such information as the Buyer may reasonably request in
connection therewith; and
(d) in the event that the parties fail to reach agreement on an
equitable adjustment of the Purchase Price within the thirty (30) days
provided in Section 5.10(c), then the Buyer shall have the election,
exercisable by notice to the Seller within fifteen (15) days immediately
following the expiration of the thirty (30) day period, to either (a) proceed
with the consummation of the transaction at Closing, with a reduction in the
Purchase Price consistent with the Seller's last offer communicated to the
Buyer, in which event the Seller shall assign over or deliver to the Buyer at
Closing all condemnation proceeds or insurance proceeds which the Seller
receives, or to which the Seller becomes entitled by virtue of the Events of
Loss, less any costs and expenses reasonably incurred by the Seller in
obtaining such condemnation proceeds or insurance proceeds, or (b) terminate
this Agreement, in which event this Agreement shall terminate and neither
Party shall thereafter have any obligation or liability to the other by reason
of this Agreement. If the Buyer fails to make the election within the fifteen
(15) day period, The Buyer will be deemed to have made the election to proceed
with the Closing.
5.11. Remittance of Pilgrim Fixed Operating Costs. For each month
-------------------------------------------
during the period commencing on the Closing Date through December 31, 2000,
the Seller will remit to the Buyer $1,916,666.66 (equal to 1/12 of the Pilgrim
Fixed Operating Cost component of the Access Charge (as that term is used in
Section 2.1(a) of the Settlement Agreement)), such amount to be pro-rated for
any partial month during such period. Such amount shall be paid by Seller in
arrears on the fifteenth day of each month, commencing on the fifteenth day
following the first full month during such period.
5.12. Nuclear Insurance. The Parties' respective rights and
-----------------
obligations with respect to nuclear insurance matters shall be as set forth in
Schedule 5.12.
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<PAGE>
5.13. Nonwaiver of Third Party Environmental Liabilities. In the
--------------------------------------------------
event Buyer, either before or after the Closing Date, discovers Environmental
Liabilities assumed pursuant to Section 2.3(a) the genesis of which occurred,
in whole or in part, prior to the Closing Date, Seller agrees to cooperate
and provide Buyer with any information in Seller's possession that will assist
Buyer in locating any Third Party who may be a "responsible party" as defined
by any Environmental Laws with respect thereto, and Seller shall not waive or
excuse the liability of any Third Party who may share responsibility for any
of such Environmental Liabilities that will have adverse effect on Buyer.
5.14. Site Contamination Validation.
-----------------------------
(a) Assessment. Seller will, at its own expense, prior to Closing,
----------
cause an assessment of the Site's contamination to be conducted and completed
by Duke Engineering & Services, Inc. using the criteria set forth in Schedule
5.14(a). The results of such assessment will be provided to Buyer at least
twelve (12) weeks prior to the Closing.
(b) Adjustment. Buyer will use the results from the assessment
----------
performed pursuant to Section 5.14(a) in order to develop and submit to Seller
an estimate of the actual volume of contamination at the Site and a proposed
adjustment to the Decommissioning Trust Closing Amount for Seller's review
(based on Envirocare's then prevailing per volume rate multiplied by such
volume) and approval at least nine (9) weeks prior to Closing. Within two (2)
weeks following Buyer's delivery of such volume estimate and proposed
adjustment, Seller shall either accept or object in good faith thereto. Any
objection shall be in writing and shall state with specificity any
calculations or assumptions that Seller disputes. If the parties are unable
to resolve any such dispute before six (6) weeks prior to the Closing, then
the parties shall jointly engage a mutually acceptable independent firm (or,
in the event that the Parties cannot agree, an independent firm chosen by Duke
Engineering & Services, Inc.), who shall, at the Parties' joint expense,
review the Phase I Site Assessment, the Assessment pursuant to Section
5.14(a), any Buyer assessments pursuant to Section 5.4, the proposed volume
estimate and adjustment submitted by Buyer pursuant to this Section and
Seller's disputes relating thereto and shall determine the appropriate
adjustment to the Decommissioning Trust Closing Amount prior to Closing. Such
determination shall be binding upon the Parties. On or before the Closing
Date, the Decommissioning Trust Closing Amount shall be adjusted as determined
by such independent firm in the case of a dispute or as proposed by Buyer if
Seller did not dispute such proposal.
5.15. Remediation. Prior to the Closing, and at its expense, Seller
-----------
shall fully and successfully correct and complete the Remediation of the
recognized environmental concerns described in the Phase I Site Assessment as
listed in Schedule 5.15.
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<PAGE>
5.16. Refueling Costs. In the event that the Closing occurs prior
---------------
to the commencement of the Refueling Outage, Seller shall pay to Buyer the
lesser of (i) $40 million or (ii) costs actually incurred by Buyer after the
Closing that relate to the Refueling Outage. Such payment will be made within
ten (10) days of Seller's receipt of Buyer's bi-weekly statements of cost
actually incurred by Buyer relating to the Refueling Outage.
5.17. Post-Closing Services. Buyer recognizes that the Seller is
---------------------
currently evaluating and reorganizing various corporate support functions and
systems. The Seller agrees at the request of Buyer to provide the support
functions identified in Schedule 5.17 (to the extent that the resources
necessary to provide these functions are still available to Seller following
such evaluation and reorganization; provided that, notwithstanding such
evaluation and reorganization, Seller shall make available and support the
MMAPPS application until the earlier of (i) December 31, 1999 and (ii) the six
month anniversary of the Closing Date) for a period not to exceed six (6)
months from the Closing Date. Buyer shall reimburse Seller for all costs
properly chargeable or allocable to the services performed, including all
direct and indirect labor costs and related overheads. Seller will bill Buyer
for such services monthly and will provide adequate information and detail to
support such invoices. Buyer shall pay all such bills within thirty (30) days
after receiving them. The parties shall use good faith efforts to execute and
deliver a transitional services agreement on or before the Closing Date.
5.18. Gas Supply Line. At Buyer's request prior to or following the
---------------
Closing Date, Seller shall negotiate with Buyer in good faith for possible
easements or other rights relating to installation of a gas supply line at
locations other than the Site. Such easements or other rights, if agreed to,
shall be subject to any required approvals of Governmental Authorities, as
well as all applicable laws, rules and regulations.
5.19. Maintenance of Financial Stability. During the term on the
----------------------------------
NRC License, the Buyer shall at all times maintain itself in full compliance
with all applicable financial qualification requirements imposed upon it by
the NRC and shall provide the Seller with copies of all filings with the NRC
made by the Buyer relating to its fulfillment of such requirements.
5.20. Availability of Funds. By January 31, 1999, the Buyer shall
---------------------
have delivered to the Seller evidence of sufficient funds available to it or
binding written commitments from responsible financial institutions to provide
sufficient funds to pay the Purchase Price in accordance with Section 2.5.
5.21. Funding of the Decommissioning Trust and the Provisional
--------------------------------------------------------
Trust.
-----
(a) On the Closing Date, Seller shall fully fund and transfer to Buyer
in accordance with this Section 5.21 an aggregate amount equal to or greater
than the minimum amount required by the Nuclear Regulatory Commission
regulations for the decommissioning of
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<PAGE>
Pilgrim. Such funding and transfer is intended to occur in as tax efficient
manner as possible in order to minimize the rate impact on Seller's
ratepayers. Accordingly, Seller shall have or establish as of the Closing
Date a Decommissioning Trust and, if necessary, a Provisional Trust. Absent
any pre-closing change in the tax law, rule or regulation as in existence on
the Effective Date, or an IRS ruling issued to either the Seller or Buyer, the
aggregate amount to be funded for decommissioning in both the Decommissioning
Trust and the Provisional Trust shall be based upon the assumption that the
Decommissioning Trust and the Provisional Trust will be treated upon transfer
to the Buyer as one hundred percent (100%) "non-qualified" pursuant to Section
468A of the Code. If the Closing Date is April 1, 1999, and no Pre-Closing
Change (as defined below) has occurred, the Decommissioning Trust Closing
Amount shall be $396 million, and the amount of funding for the Provisional
Trust shall be $70 million. If the Closing Date is June 30, 2000, and no Pre-
Closing Change has occurred, the Decommissioning Trust Closing Amount shall be
$418 million, and the amount of the funding for the Provisional Trust shall be
$70 million. If the Closing Date occurs on a date between April 1, 1999 and
June 30, 2000, the Parties shall determine the Decommissioning Trust Closing
Amount by computing a daily adjustment factor determined on the basis of the
difference in the funding amount necessary for such two closing dates and the
amount of funding for the Provisional Trust shall be $70 million.
(b) If before the Closing Date there is an amendment of Section 468A
of the Code or the Treasury regulations promulgated thereunder, or the IRS's
interpretations thereof, which has the effect of causing the funds of the
Decommissioning Trust to accumulate more rapidly than possible under the
federal tax laws as of the Effective Date (e.g., the applicability of a lower
tax rate) (a "Pre-Closing Change"), the funding amount for the Provisional
Trust described above shall be decreased in accordance with Schedule 5.21;
provided, that if such amount is decreased to zero, no Provisional Trust shall
be established.
(c) If on or after the Closing Date and before December 31, 2002,
there is an amendment of Section 468A of the Code or the Treasury regulations
promulgated thereunder, or the IRS's interpretations thereof, which has the
effect of causing the funds of the Decommissioning Trust to accumulate more
rapidly than possible under the federal tax laws as of the Closing Date (e.g.,
the applicability of a lower tax rate) (the "Post-Closing Change"), the amount
of funds in the Provisional Trust shall be reduced in accordance with Schedule
5.21 and such reduction shall be rebated in accordance with the Provisional
Trust; provided, however, that any such reduction and rebate shall be
accomplished in a manner consistent with the Atomic Energy Act, the Code and
other applicable law. Under no condition shall Buyer be personally liable for
any payments or refunds except to the extent permitted to be paid from the
Provisional Trust under applicable law.
(d) Prior to the Closing, the Trust Agreement shall not be amended by
the Seller to provide for the consolidation of its Qualified Fund and Non-
Qualified Fund, and shall not be amended in any other manner if and to the
extent such amendment would constitute a
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<PAGE>
Disqualification Event, as defined herein. Following the Closing and prior to
December 31, 2002, the Trust Agreement shall not be amended by the Buyer to
provide for the consolidation of its Qualified Fund and Non-Qualified Fund,
and shall not be amended in any other manner if and to the extent such
amendment would constitute a Disqualification Event, as defined herein. As
used herein, the term "Disqualification Event" shall mean any amendment to the
Trust Agreement which, assuming that the Qualified Fund was not disqualified
upon the Closing, would disqualify such fund under (1) Section 468A of the
Code and the Regulations promulgated thereunder as in effect on the Closing;
(2) any federal legislation that has been introduced into Congress; (3) any
final, temporary or proposed regulations published by the Department of
Treasury; or (4) any other written guidance published by the Internal Revenue
Service. The execution and delivery of the Supplemental Indenture by the
Buyer and Seller shall not be deemed an amendment prohibited by this Section
5.21(d).
5.22. Early Shutdown Study. Buyer recognizes that Seller is
--------------------
required under its Settlement Agreement in Attachment 3 section 2.1(b) to
perform steps to minimize costs in the event of an unanticipated early
shutdown. These steps include, but are not limited to: establishing the
optimum strategy for spent fuel storage; executing long-lead portions of the
plan necessary to minimize fuel storage costs (e.g. dry fuel storage/crane
upgrade/spent fuel pool cooling); creating the regulatory infrastructure to
allow an effective transition to decommissioning (e.g. defueled technical
specifications, emergency plan, security plan); and conducting a radiological
and non-radiological site characterization initiative (such site
characterization to be performed and paid for by Seller as provided in Section
5.14). The Buyer has indicated to the Seller that it also intends to
undertake decommissioning pre-planning work and agrees that it will work
jointly with the Seller to expeditiously define a mutually acceptable scope of
work, the estimated costs of which shall not exceed $3 million. The Buyer
recognizes that the Seller is required to pursue these steps on an expedited
basis and agrees to perform such work in accordance with the mutually agreed
scope. Buyer will pay for such work. In the event that the Closing does not
occur, Seller agrees to reimburse Buyer for costs incurred under this Section
5.22 up to a maximum of $3 million and Buyer will transfer all material,
assets and rights associated with this project to the Seller.
6. Conditions to Obligation to Close.
---------------------------------
6.1. Conditions to Obligation of the Buyer to Close. The
----------------------------------------------
obligation of the Buyer to consummate the transactions to be performed by it
in connection with the Closing is subject to satisfaction of the following
conditions precedent:
(a) Representations and Warranties. The representations and
------------------------------
warranties set forth in Section 3 above shall be true and correct in all
material respects as though made at and as of the Closing Date (except with
respect to any representation or warranty expressly made as of the Effective
Date, which shall be deemed made as of the Effective Date);
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<PAGE>
(b) Performance by the Seller. The Seller shall have performed and
-------------------------
complied in all material respects with all of its covenants, agreements and
obligations hereunder through the Closing;
(c) Buyer's Regulatory Approval. The Buyer shall have received the
---------------------------
consents, approvals and authorizations referenced in Section 5.2(b) and the
Buyer's Regulatory Approvals specified in Schedule 6.1(c) in each case without
terms and conditions that unacceptably affect the Buyer in the Buyer's
reasonable discretion, except for matters that, in the aggregate, have no
Material Adverse Effect;
(d) Absence of Litigation. No suit, action or other proceeding
---------------------
against any Party or its Affiliates or any of the Acquired Assets shall be
pending before any Governmental Authority which seeks to restrain or prohibit
any of the transactions contemplated by this Agreement or to obtain damages or
other relief in connection with this Agreement or the actions contemplated
hereby, except for matters that, in the aggregate, will not have a Material
Adverse Effect. There shall not be any injunction, judgment, order, decree,
ruling, charge or laws in effect preventing consummation of any of the
transactions contemplated by this Agreement or the Related Agreements, except
as shall not have a Material Adverse Effect;
(e) Anti-trust Matters. All applicable waiting periods (and any
------------------
extensions thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated;
(f) Deliveries. The Seller shall have complied in all material
----------
respects with the delivery requirements of Section 2.10;
(g) Decommissioning Trust Fully Funded. On the Closing Date, the
----------------------------------
Decommissioning Trust shall be Fully Funded and the Provisional Trust (if any)
shall be funded in accordance with Section 5.21, and the Decommissioning Trust
and the Provisional Trust (if any) shall have been amended by a Supplemental
Indenture;
(h) Title Commitment. Commonwealth Land Title Insurance Company shall
----------------
have provided a commitment to the Buyer in the form of the Title Commitment
for a policy to be issued immediately following the Closing, which policy
shall provide for a coverage amount equal to the value determined pursuant to
Section 2.7 (which may include reinsurance through other reasonably acceptable
title insurance companies). Seller shall have signed customary closing
affidavits with respect to mechanic's liens and parties in possession and
shall satisfy the conditions enumerated in Schedule B, Section 1 of the Title
Commitment, except for item numbers 5, 9 (with respect to shareholders), 10,
11 and 14;
(i) Material Adverse Effect. Since the Effective Date, there shall
-----------------------
not have occurred and be continuing a Material Adverse Effect, other than such
arising from facts or circumstances (i) that were within Buyer's Knowledge on
the Effective Date and were not
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<PAGE>
041
required to be corrected or Remediated before Closing by this Agreement, or
(ii) that were disclosed on any of the Schedules;
(j) Tax Rulings. Buyer shall have received an opinion of counsel to
-----------
the Buyer, or one or more private letter rulings shall have been issued by the
National Office of the Internal Revenue Service, to the effect that:
(i) Buyer shall recognize no taxable income as a
result of the transfer to it of the Acquired Assets (including
beneficial interests in any decommissioning trusts);
(ii) Immediately after the transaction, the tax
basis of the assets in any decommissioning trusts the
beneficial interests in which are transferred to Buyer will
equal the fair market value of these assets on the date of
transfer; and
(iii) Any decommissioning trust the sole beneficial
interest in which is transferred to Buyer will be treated as a
"Grantor Trust" under Code sections 671 through 677 with Buyer
as the grantor;
(k) Outage. Neither the Refueling Outage nor any other outage shall
------
be in progress or continuing on the date of Closing;
(l) PPA's. The PPA's shall be in full force and effect as of the
-----
Closing Date.
(m) Interconnection and Operation Agreement. The Interconnection and
---------------------------------------
Operation Agreement shall be in full force and effect as of the Closing Date.
The Buyer may waive any condition specified in this Section 6.1 if it executes
a writing so stating at or prior to the Closing and such waiver shall not be
considered a waiver of any other provision in this Agreement unless the
writing specifically so states.
6.2. Conditions to Obligation of the Seller to Close. The
-----------------------------------------------
obligation of the Seller to consummate the transactions to be performed by it
in connection with the Closing is subject to satisfaction of the following
conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties set forth in Section 4 above shall be true and correct in all
material respects at and as of the Closing Date (except with respect to any
representation or warranty expressly made as of the Effective Date, which
shall be deemed made as of the Effective Date);
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<PAGE>
(b) Performance by Buyer. The Buyer shall have performed and complied
--------------------
in all material respects with all of its covenants, agreements and obligations
hereunder through the Closing;
(c) Seller's Regulatory Approval. The Seller shall have received the
----------------------------
Seller's Regulatory Approvals specified in Schedule 6.2(c), in each case
without terms and conditions that unacceptably affect the Seller in the
Seller's reasonable discretion, except for matters that, in the aggregate,
have no material adverse effect on Seller;
(d) Absence of Litigation. No suit, action or other proceeding
---------------------
against any Party or its Affiliates or any of the Acquired Assets shall be
pending before any Governmental Authority which seeks to restrain or prohibit
any of the transactions contemplated by this Agreement or to obtain damages or
other relief in connection with this Agreement or the actions contemplated
hereby, except for matters that, in the aggregate, will not have a material
adverse effect on Seller. There shall not be any injunction, judgment, order,
decree, ruling, charge or laws in effect preventing consummation of any of the
transactions contemplated by this Agreement or the Related Agreements, except
as shall not have a material adverse effect on Seller;
(e) D.T.E. Approval. The D.T.E. Approval shall have occurred and all
---------------
the terms and conditions of the D.T.E. Approval shall be acceptable to the
Seller in its sole discretion;
(f) Deliveries. The Buyer shall have complied in all material
----------
respects with the delivery requirements of Section 2.11;
(g) NEPOOL. The Buyer shall be a member of NEPOOL;
------
(h) Anti-trust Matters. All applicable waiting periods (and any
------------------
extensions thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated;
(i) Securitization. The Seller shall have issued, pursuant to Section
--------------
1H of Chapter 164, Electric Rate Reduction Bonds that have been securitized by
the recovery of reimbursable transition costs set forth in Section
1G(b)(1)(ii) of Chapter 164, in an amount sufficient to ensure that (a) the
Decommissioning Trust Value is equal to the Decommissioning Trust Closing
Amount and (b) the Provisional Trust is funded in accordance with Section
5.21;
(j) Decommissioning Trust Transfer. With respect to federal income
------------------------------
taxes, either (1) prior to Closing, federal legislation has been enacted that
will permit the Seller to fund the Decommissioning Trust in an amount equal to
the Decommissioning Trust Closing Amount and to take a current income tax
deduction for all amounts contributed by the Seller to the Decommissioning
Trust; or (2) the Seller shall have received, prior to Closing, an opinion of
counsel to the Seller, in form and substance satisfactory to the Seller in the
Seller's sole
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discretion, to the effect that although the legislation referred to in Clause
(1) has not been enacted prior to Closing, the federal income tax consequences
to the Seller of transferring the Decommissioning Trust to the Buyer, with a
balance equal to the Decommissioning Trust Closing Amount, are not materially
worse than if the legislation referred to in Clause (1) were enacted;
(k) Host Community Tax Agreement. The Seller shall have either (i)
----------------------------
entered into a Host Community Tax Agreement or (ii) arbitrated at the D.T.E. a
final resolution of the Seller's liability under Section 71 of the Act;
(l) Municipal Contracts and Wholesale Power Contracts. The Seller
-------------------------------------------------
shall have resolved, through termination, amendment, assignment or otherwise,
to its sole satisfaction, any issues (including receipt of any related
approvals of Governmental Authorities by any party to the Municipal Contracts
and the Wholesale Power Contracts, and any required approvals by either
Commonwealth Electric or Montaup of such regulatory approvals) related to the
Municipal Contracts and the Wholesale Power Contracts;
(m) PPA's. The PPA's shall be in full force and effect as of the
-----
Closing Date.
(n) Interconnection and Operation Agreement. The Interconnection and
---------------------------------------
Operation Agreement shall be in full force and effect as of the Closing Date;
and
(o) Decommissioning Funding. Notwithstanding any other provision of
-----------------------
this Agreement, Seller shall not be required to proceed with the Closing in
the event that the specific dollar amounts identified in Section 5.21(a) as
the Decommissioning Trust Closing Amount and the required funding for the
Provisional Trust are in the aggregate less than the minimum amount required
as of the Closing Date by NRC regulations for the decommissioning of Pilgrim.
The Seller may waive any condition specified in this Section 6.2 if it
executes a writing so stating at or prior to the Closing and such waiver shall
not be considered a waiver of any other provision in this Agreement unless the
writing specifically so states.
7. Confidentiality.
---------------
(a) Each Receiving Party will treat and hold as such all of the
Proprietary Information, refrain from using any of the Proprietary Information
except in connection with this Agreement and the Related Agreements and
transactions contemplated hereby and thereby, and, if this Agreement is
terminated prior to Closing, deliver promptly to the Disclosing Party or
destroy, at the request and option of the Disclosing Party, all tangible
embodiments (and all copies) of the Proprietary Information which are in his
or its possession. All Proprietary Information relating to the Acquired
Assets as may be delivered to Buyer prior to Closing shall
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<PAGE>
become Buyer's Proprietary Information and Buyer shall be deemed to be the
Disclosing Party with respect thereto upon consummation of the Closing and
Seller shall not thereafter disclose any such Proprietary Information except
to the extent allowed herein. In the event that the Receiving Party is
requested or required (by oral question or request for information or
documents in any legal proceeding, including without limitation the Buyer's
Regulatory Approval and the Seller's Regulatory Approval processes,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Proprietary Information, the Receiving Party will notify the
Disclosing Party promptly of the request or requirement so that the Disclosing
Party may seek an appropriate protective order or waive compliance with the
provisions of this Section 7. If, in the absence of a protective order or the
receipt of a waiver hereunder, the Receiving Party is, on the advice of
counsel, compelled to disclose any Proprietary Information to any tribunal or
else stand liable for contempt, that the Receiving Party may disclose the
Proprietary Information to the tribunal; provided, however, that the Receiving
Party shall use its best efforts to obtain, at the request of the Disclosing
Party, an order or other assurance that confidential treatment will be
accorded to such portion of the Proprietary Information required to be
disclosed as the Disclosing Party shall designate.
(b) The obligations of the Party contained in this Section 7 shall be
in full force and effect for three (3) years from the date hereof and will
survive the termination of this Agreement, the discharge of all other
obligations owed by the Parties to each other and any transfer of title to the
Acquired Assets. Nothing in this Section 7 shall in any way alter the Buyer's
obligations under the Confidentiality Agreement dated April 29, 1998, by and
between the Buyer and the Seller.
(c) Upon the Disclosing Party's prior written approval (which will not
be unreasonably withheld), the Receiving Party may provide Proprietary
Information to the D.T.E., the NRC, the FERC or any other Governmental
Authority with jurisdiction, as necessary, to obtain any consents, waivers or
approvals as may be required for the Receiving Party to undertake the
transactions contemplated herein. The Receiving Party will seek confidential
treatment for such Proprietary Information provided to any such Governmental
Authority and the Receiving Party will notify the Disclosing Party as far in
advance as is practicable of its intention to release to any such Governmental
Authority any such Proprietary Information.
(d) Notwithstanding anything set forth herein, nothing in this
Agreement shall be interpreted as precluding either Party from reporting or
disclosing any information (i) to the NRC of or concerning any perceived
safety issue within the NRC's regulatory jurisdiction (ii) with the prior
written consent of the Disclosing Party or (iii) to its Affiliates, attorneys,
financial advisors and accountants who are assisting either Party in
connection with the transactions contemplated by this Agreement.
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<PAGE>
8. Taxes.
-----
(a) All transfer and sales Taxes incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the
Buyer, including, without limitation (a) Massachusetts state sales/use tax,
and (b) the Massachusetts excise tax on deeds imposed by M.G.L. c. 64D Section
1, and the Buyer, at its own expense, will file, to the extent required by
applicable law, all necessary Tax Returns and other documentation with respect
to all such transfer or sales/use Taxes, and, if required by applicable law,
the Seller will join in the execution of any such Tax Returns or other
documentation.
(b) With respect to Taxes to be prorated in accordance with Section
2.8 of this Agreement only, the Buyer shall prepare and timely file all Tax
Returns required to be filed after the Closing with respect to the Acquired
Assets, if any, and shall duly and timely pay all such Taxes shown to be due
on such Tax Returns. The Buyer's preparation of any such Tax Returns shall be
subject to the Seller's approval, which approval shall not be unreasonably
withheld. Within twenty (20) Business Days after the Tax Returns are
prepared, the Buyer shall make such Tax Returns available for the Seller's
review and approval. The Seller shall respond no later than twenty-five (25)
Business Days prior to the due date for filing such Tax Return. With respect
to such Tax Return, the Seller shall pay to the Buyer its appropriate share of
the amount shown as due on the Tax Returns determined in accordance with
Section 2.8 of this Agreement.
(c) The Property Tax Agreement shall set forth the agreement between
the Parties with respect to property Taxes.
9. Non-Survival; Effect of Closing and Indemnification.
---------------------------------------------------
9.1. Non-Survival of Representations and Warranties; Survival of
-----------------------------------------------------------
Covenants and Agreements. The representations and warranties in this
- ------------------------
Agreement shall terminate at the Closing or the termination of this Agreement
pursuant to Section 10.1, as the case may be. The covenants and agreements
contained in this Agreement that by their terms survive the Closing or
termination of this Agreement shall survive such Closing or termination, as
the case may be, and all other covenants and agreements shall terminate at the
Closing or the termination of this Agreement pursuant to Section 10.1, as the
case may be.
9.2. Effect of Closing. Except as otherwise provided herein, upon
-----------------
the Closing any condition in favor of either Party that has not been
satisfied, or any representation, warranty or covenant, that has been breached
or left unsatisfied by either Party will be deemed waived by the Parties as of
the Closing Date, and each Party will be deemed to fully release and forever
discharge the other Party on account of any and all claims, demands or
charges, known or unknown, with respect to the same. Nothing in this
provision shall affect or cause to be
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waived those matters specifically stated to survive or to occur after the
Closing pursuant to this Agreement.
9.3. Indemnity by the Seller. The Seller hereby agrees to
-----------------------
indemnify, defend and hold harmless the Buyer, its Affiliates and any of their
officers, directors, employees or agents against and in respect of all claims,
Liabilities, obligations, judgments, Liens, injunctions, charges, orders,
decrees, rulings, damages, dues, assessments, Taxes, losses, fines, penalties,
damages, expenses, fees, costs, amounts paid in settlement (including
reasonable attorneys' and expert witness fees and disbursements in connection
with investigating, defending or settling any action or threatened action),
arising out of any claim, damages, complaint, demand, cause of action, audit,
investigation, hearing, action, suit or other proceeding asserted or initiated
or otherwise existing in respect of any matter (collectively, the "Losses"),
provided that such Losses exceed One Million Dollars ($1,000,000) in the
aggregate and result or arise from:
(a) any Liability of the Seller that becomes a Liability of the Buyer
under any bulk transfer law of any jurisdiction;
(b) any Third-Party Claim against the Buyer based on Seller's
ownership, operation or use of the Acquired Assets prior to the Closing that
is not related to the Assumed Liabilities;
(b) the Excluded Assets;
(d) Liabilities not assumed by Buyer within the scope of Section 2.4;
(e) Any breach by Seller of any covenant, agreement or obligation of
the Seller contained in this Agreement or any certificate required to be
delivered by Seller pursuant to this Agreement and any intentional
misrepresentation or fraudulent breach of representation or warranty inducing
Buyer to proceed to the Closing and causing Buyer to suffer Losses; or
(f) Any contracts, leases or other agreements or commitments entered
into or made by Seller with respect to the Acquired Assets, unless Buyer has
agreed to assume Liabilities under such agreements or commitments.
9.4. Indemnity by Buyer. The Buyer hereby agrees to indemnify,
------------------
defend and hold harmless the Seller and its Affiliates and any of their
officers, directors, employees or agents against and in respect of all Losses,
provided that such Losses exceed One Million Dollars ($1,000,000) in the
aggregate and result or arise from:
(a) any Third Party Claim against the Seller based on or relating to
the Buyer's ownership, operation or use of the Acquired Assets after the
Closing;
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<PAGE>
(b) any Third Party Claim arising out of, or related to the contracts,
warranties or guaranties, or any agreements or that have been properly
transferred or assigned to Buyer by Seller except to the extent the Third
Party Claim arises from a breach of the contract or agreement by Seller prior
to Closing;
(c) the Assumed Liabilities;
(d) any breach by Buyer of any covenant, agreement or obligation of
Buyer contained in this Agreement and any intentional misrepresentation or
fraudulent breach of warranty inducing Seller to enter into this Agreement and
causing Seller to suffer Losses; or
(e) any action or inaction by Buyer in connection with the maintenance
or provision of post-retirement health and welfare benefits to Special
Retention Employees.
9.5. Exclusive Remedy. From and after the Closing, the remedies
----------------
set forth in this Section 9 constitute the sole and exclusive remedy for any
and all claims, damages, complaints, demands, causes of action,
investigations, hearings, actions, suits or other proceedings relating to this
Agreement and are in lieu of any and all other rights and remedies which the
Seller or the Buyer may have under this Agreement or otherwise for monetary
relief with respect to any breach or failure to perform or with respect to the
Assumed or Excluded Liabilities other than equitable remedies for fraud and
except for obligations to be performed after the Closing hereunder. Each
Party waives any provision of law to the extent that it would limit or
restrict the agreements contained in this Section 9. Nothing herein shall
prevent either Party from terminating this Agreement in accordance with
Section 10.
9.6. Matters Involving Third Parties.
-------------------------------
(a) If any Third Party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 9, then the Indemnified Party shall promptly notify
the Indemnifying Party thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying the Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend, at its
expense, the Indemnified Party against the Third Party Claim with counsel of
its choice reasonably satisfactory to the Indemnified Party so long as (i) the
Indemnifying Party notifies the Indemnified Party in writing within fifteen
days after the Indemnified Party has given notice of the Third Party Claim
that the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Losses the Indemnified Party may suffer resulting
from, arising
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<PAGE>
out of, relating to, in the nature of, or caused by the Third Party Claim,
(ii) the Indemnifying Party provides the Indemnified Party with evidence
acceptable to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (iii) the Third Party Claim involves
only money damages and does not seek an injunction or other equitable relief,
settlement of, or an adverse judgment with respect to, the Third Party Claim
is not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice adverse to the continuing business
interests of the Indemnified Party, and (iv) the Indemnifying Party conducts
the defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 9.6(b) above, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (ii) the Indemnified
Party will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (which consent shall not unreasonably be
withheld), and (iii) the Indemnifying Party will not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party
Claim unless written agreement is obtained releasing the Indemnified Party
from all liability thereunder.
(d) In the event any of the conditions in Section 9.6(b) above is or
becomes unsatisfied, however, (i) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including attorneys' fees and
expenses, notwithstanding Section 9.3), and (iii) the Indemnifying Party will
remain responsible for any Losses the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Section 9.
9.7. Net of Taxes and Insurance. Any calculation of a Loss under
--------------------------
this Section 9 shall, in each case, give full effect to (i) any and all income
Tax benefits to the Indemnified Party in respect of the Loss, and (ii) any and
all insurance or other proceeds received or payable to the Indemnified Party
in respect of the Loss. Any Party seeking indemnity hereunder shall use
Commercially Reasonable Efforts to seek coverage for both costs of defense and
indemnity under applicable insurance policies.
9.8. Release. Except as provided in Section 9.3, the Buyer hereby
-------
releases, holds harmless and forever discharges the Seller from any and all
claims, damages, complaints, demands, causes of action, investigations,
hearings, actions, suits or other proceedings of any kind or character whether
known or unknown, hidden or concealed resulting from or arising
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<PAGE>
from any Environmental Liability, except for the Environmental Liability
retained by Seller pursuant to Section 2.4(b). The Buyer hereby waives any
and all rights and benefits that it now has, or in the future may have
conferred upon it by virtue of any statute or common law principle which
provides that a general release does not extend to claims which a party does
not know or suspect to exist in its favor at the time of such release, which
if known, would have materially affected such Party's settlement with the
other Party. In this connection, the Buyer hereby acknowledges that factual
matters now unknown to it may have given or may hereafter give rise to claims,
damages, complaints, demands, causes of action, investigations, hearings,
actions, suits or other proceedings that are presently unknown, unanticipated
and unsuspected, and it further agrees that this Section 9.8 has been
negotiated and agreed upon in light of that awareness and it nevertheless
hereby intends to release the Seller as set forth in the first sentence of
this Section 9.8.
9.9. No Recourse. To the extent the transfer, conveyance,
-----------
assignment and delivery of the Acquired Assets to the Buyer as provided in
this Agreement is accomplished by deeds, assignments, easements, leases,
licenses, bills of sale, or other instruments of transfer and conveyance,
whether executed at the Closing or thereafter, these instruments are made
without representation or warranty by, or recourse against, the Seller, except
as expressly provided in this Agreement or in any such instrument.
9.10. Survival. The provisions of this Article 9 shall survive the
--------
Closing.
10. Termination.
-----------
10.1. Termination of Agreement. The Parties may terminate this
------------------------
Agreement as provided below:
(a) the Parties may terminate this Agreement by mutual written consent
at any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written notice to
the Seller at any time prior to the Closing if any of the following has
occurred: (i) the Seller has breached any representation, warranty or
covenant contained in this Agreement in any material respect, the Buyer has
notified the Seller of the breach, and the breach has continued without cure
for a period of 30 days after the notice of breach; (ii) the Closing shall not
have occurred on or before December 31, 1999 (provided that such date shall be
extended to June 30, 2000, in the event that the Closing shall not have
occurred due to the pending appeal of any of Seller's Regulatory Approvals or
Buyer's Regulatory Approvals) by reason of the failure of any condition
precedent under Section 6.1 hereof (unless the failure results primarily from
the Buyer itself breaching any representation, warranty, or covenant contained
in this Agreement); (iii) any of the Buyer's Regulatory Approvals shall have
been finally denied or shall have been granted subject to terms or conditions
that unacceptably affect Buyer, in Buyer's reasonable
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<PAGE>
discretion, except for any matters that have no Material Adverse Effect, and
all appeals of such determination shall have been taken and have been
unsuccessful; (iv) one or more courts of competent jurisdiction shall have
issued an order, judgment or decree permanently restraining, enjoining or
otherwise prohibiting the Closing, which order, judgment or decree shall have
become final and non-appealable; (v) any statute, rule or regulation shall
have been enacted by any Governmental Authority which, directly or indirectly,
prohibits the consummation of the transactions contemplated hereby; (vi) in
accordance with Section 5.10 hereof; (vii) (W) the Seller has within the then
previous 15 days given the Buyer any notice pursuant to Section 5.5(c) above
and the matter that is the subject of such notice, if in existence on the
Effective Date or the Closing Date, would cause the representations and
warranties of the Seller set forth in Section 3 hereof not to be true and
correct, (X) such matter would have a Material Adverse Effect, (Y) the Buyer
has notified the Seller of its intent to terminate pursuant to this Section
10.1(b)(vii), and (Z) the matter that is the subject of such notice continues
to exist for a period of 30 consecutive days after such notice by the Buyer;
or (viii) any outage of six (6) consecutive months or longer is ongoing;
(c) the Seller may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Closing if any of the following has
occurred: (i) the Buyer has breached any representation, warranty, or
covenant contained in this Agreement in any material respect, the Seller has
notified the Buyer of the breach, and the breach has continued without cure
for a period of 30 days after the notice of breach; (ii) the Closing shall not
have occurred on or before December 31, 1999 (provided that such date shall be
extended to June 30, 2000, in the event that the Closing shall not have
occurred due to the pending appeal of any of Seller's Regulatory Approvals or
Buyer's Regulatory Approvals) by reason of the failure of any condition
precedent under Section 6.2 hereof (unless the failure results primarily from
the Seller itself breaching any representation, warranty, or covenant
contained in this Agreement); (iii) any of the Seller's Regulatory Approvals
shall have been finally denied or shall have been granted subject to terms or
conditions that unacceptably affect Seller, in Seller's reasonable discretion,
except for any matters that, in the aggregate, have no material adverse effect
on Seller, and all appeals of such determination shall have been taken and
have been unsuccessful, (iv) one or more courts of competent jurisdiction
shall have issued an order, judgment or decree permanently restraining,
enjoining or otherwise prohibiting the Closing, which order, judgment or
decree shall have become final and non-appealable; (v) any statute, rule or
regulation shall have been enacted by any Governmental Authority which,
directly or indirectly, prohibits the consummation of the transactions
contemplated hereby; (vi) in accordance with Section 5.10 hereof, (vii) (W)
the Buyer has within the then previous 15 days given the Seller any notice
pursuant to Section 5.5(d) above and the matter that is the subject of such
notice, if in existence on the Effective Date or the Closing Date, would cause
the representations and warranties of the Buyer set forth in Section 4 hereof
not to be true and correct, (X) such matter would have a material adverse
effect on Seller, (Y) the Seller has notified the Buyer of its intent to
terminate pursuant to this Section 10.1(c)(vii), and (Z) the matter that is
the subject of such notice continues to exist for a period of 30 consecutive
days
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after such notice by the Seller; or (viii) the Seller has filed a Notice of
Cessation of Operation pursuant to Section 5.3 hereof; and
(d) the Seller may, on thirty (30) days' notice at any time after the
issuance of the D.T.E. Approval, terminate this Agreement if in its sole
discretion the Seller finds one or more terms of the D.T.E. Approval
unacceptable.
10.2. Effect of Termination. If any Party terminates this Agreement
---------------------
pursuant to Section 10.1 above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other
Party (except for any Liability of any Party then in breach).
11. Miscellaneous.
-------------
11.1. Press Releases and Public Announcements. No Party shall issue
---------------------------------------
any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior approval of
the other Party; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in
which case the disclosing Party will provide the other Party with the
opportunity to review in advance the disclosure).
11.2. No Third Party Beneficiaries. This Agreement shall not confer
----------------------------
any rights or remedies upon any Third Party.
11.3. No Joint Venture. Nothing in this Agreement creates or is
----------------
intended to create an association, trust, partnership, joint venture or other
entity or similar legal relationship between the Parties, or impose a trust,
partnership or fiduciary duty, obligation, or liability on or with respect to
either Party. Except as provided in Section 5.6 hereof, neither Party is or
shall act as or be the agent or representative of the other Party.
11.4. Entire Agreement. This Agreement (including the Related
----------------
Agreements and any other documents referred to herein) constitutes the entire
agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral, to
the extent they related in any way to the subject matter hereof, provided
however, that the Confidentiality Agreement dated as of April 29, 1998, and
executed by the Buyer shall remain in full force and effect without regard to
any provision of this Agreement. All conflicts or inconsistencies between the
terms hereof and the terms of any of the Related Agreements, if any, shall be
resolved in favor of this Agreement.
11.5. Succession and Assignment. This Agreement shall be binding
-------------------------
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns.
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<PAGE>
No Party may assign either this Agreement or the Related Agreements or any of
its rights, interests, or obligations hereunder or thereunder without the
prior written approval of the other Party.
11.6. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
11.7. Headings. The section headings contained in this Agreement
--------
are inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
11.8. Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) upon
confirmation of facsimile, (ii) one Business Day following the date sent when
sent by overnight delivery and (iii) five Business Days following the date
mailed when mailed by registered or certified mail return receipt requested
and postage prepaid at the following address:
If to the Seller:
----------------
Douglas S. Horan, Esq.
Senior Vice President and General Counsel
Boston Edison Company
800 Boylston Street, 36th Floor
Boston, MA 02199
Copy to:
-------
David A. Fine, Esq.
Ropes & Gray
One International Place
Boston, MA 02110-2624
If to the Buyer:
---------------
Carolyn C. Shanks, CPA
Vice President, Finance and Administration
Entergy Nuclear Generation Company Street Address
P.O. Box 31995 --------------
Jackson, MS 39286-1995 1340 Echelon Parkway
Jackson, MS 39213
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<PAGE>
Copy to:
-------
Joseph L. Blount, Esq.
General Attorney
Entergy Nuclear Generation Company Street Address
P.O. Box 31995 --------------
Jackson, MS 39286-1995 1340 Echelon Parkway
Jackson, MS 39213
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set forth.
11.9. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the domestic laws of the Commonwealth of
Massachusetts without giving effect to any choice or conflict of law provision
or rule (whether of the Commonwealth of Massachusetts or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the Commonwealth of Massachusetts.
11.10. Change in Law. If and to the extent that, during the Interim
-------------
Period, any laws or regulations that govern any aspect of this Agreement shall
change, so as to make any aspect of this transaction unlawful, then the
Parties agree to use good faith efforts to negotiate such modifications to
this Agreement as may be reasonably necessary for the Agreement to accommodate
any such legal or regulatory changes, without materially changing the overall
benefits or consideration expected hereunder by either party.
11.11. Consent to Jurisdiction. Each of the Seller and the Buyer
-----------------------
consents to the nonexclusive jurisdiction of any local, state or federal court
located within the City of Boston, Suffolk County, Commonwealth of
Massachusetts, for adjudication of any suit, claim, action or other proceeding
at law or in equity relating to this Agreement, or to any transaction
contemplated hereby. The Seller and the Buyer each accept, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts and
waive any objection as to venue, and any defense of forum non conveniens.
11.12. Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
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default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
11.13. Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
11.14. Expenses. Each of the Buyer and the Seller will bear its own
--------
costs and expenses (including legal and accounting fees and expenses, except
as otherwise provided in Section 9 above) incurred in connection with this
Agreement and the transactions contemplated hereby.
11.15. Construction. Ambiguities or uncertainties in the wording of
------------
this Agreement will not be construed for or against any Party, but will be
construed in the manner that most accurately reflects the Parties' intent as
of the Effective Date they executed this Agreement. The Parties acknowledge
that they have been represented by counsel in connection with the review and
execution of this Agreement, and, accordingly, there shall be no presumption
that this Agreement or any provision hereof be construed against the Party
that drafted this Agreement.
11.16. Incorporation of Exhibits and Schedules. The Exhibits and
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Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
11.17. Specific Performance. Each of the Parties acknowledges and
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agrees that the other Party would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Party shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter in addition to any other remedy
to which it may be entitled, at law or in equity.
11.18. Dispute Resolution. Prior to instituting any litigation or
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alternative dispute resolution mechanism, the Parties will attempt in good
faith to resolve any dispute or claim promptly by referring any such matter to
their respective chief executive officers for resolution. Either Party may
give the other Party written notice of any dispute or claim. Within ten (10)
days after delivery of said notice, the executives will meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem
necessary to exchange information and to attempt to resolve the dispute or
claim within thirty (30) days.
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11.19. Bulk Transfer Laws. Without admitting the applicability of
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the bulk transfer laws of any jurisdiction, the Parties agree that they will
not comply with any applicable bulk transfer or similar law in connection with
the transactions contemplated by this Agreement.
12. Definitions.
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"Acquired Assets" has the meaning set forth in Section 2.1.
"Act" means "An Act Relative to Restructuring the Electric Utility
Industry in the Commonwealth, Regulating the Provision of Electricity and
Other Services, and Promoting Enhanced Consumer Protection Therein," St. 1997,
Ch. 164.
"ADEA" means the Age Discrimination in Employment Act of 1967, as
amended.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"Agreement" has the meaning set forth in the preamble above.
"APBO" has the meaning set forth in Section 5.7(d)(i).
"Application" means whatever steps may be determined necessary or
appropriate to request NRC action in respect of a Transfer of License.
"Asset Demarcation Agreement" means the agreement between the Parties
evidencing their agreement as to the demarcation of ownership with respect to
certain assets not situated wholly on real property owned, or to be owned, by
either the Seller or the Buyer, in substantially the form attached hereto as
Exhibit D.
"Assignment and Assumption Agreement" means the agreement between the
Parties by which the Seller shall assign certain rights, liabilities and
obligations and the Buyer shall assume the Assumed Liabilities, in
substantially the form attached hereto as Exhibit C.
"Assumed Liabilities" has the meaning set forth in Section 2.3.
"Atomic Energy Act" or "AEA" is the Atomic Energy Act of 1954, as
amended, 42 U.S.C. Section 2011 et seq., or any successor statute.
"Bill of Sale" means the form of bill of sale by which the title to
personal property shall be conveyed to the Buyer, substantially in the form
attached hereto as Exhibit B.
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"Business Day" means any day other than a Saturday, Sunday or day on
which banks are legally closed for business in Boston, Massachusetts.
"Buyer" has the meaning set forth in the preamble above.
"Buyer Material Adverse Effect" means any material adverse change in,
or effect on, the business, financial condition, operations, results of
operations or future prospects of Buyer, including any change or effect that
is materially adverse to the Buyer's ability to own, operate or use the
Acquired Assets as so owned, operated and used by the Seller prior to the
Effective Date, taken as a whole; provided that any change or effect that is
cured prior to Closing shall not be considered a Buyer Material Adverse
Effect.
"Buyer's Regulatory Approvals" means those approvals identified on
Schedule 6.1(c) attached hereto to be obtained by the Buyer as a condition to
the Buyer's obligation under this Agreement.
"Cash" means cash and cash equivalents (including marketable securities
and short term investments) calculated in accordance with GAAP.
"Chapter 61 Affidavit" means the affidavit, substantially in the form
attached hereto as Exhibit F.
"Chiltonville Training Center" means the facility identified in
Schedule 2.1
"Closing" has the meaning set forth in Section 2.9.
"Closing Adjustment" has the meaning set forth in Section 2.6(c).
"Closing Date" has the meaning set forth in Section 2.9.
"C.M.R." means Code of Massachusetts Regulations.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collective Bargaining Agreements" has the meaning set forth in Section
3.11.
"Commercially Reasonable Efforts" means efforts which are reasonably
within the contemplation of the Parties at the Effective Date and which do not
require the performing Party to expend any funds other than expenditures which
are customary and reasonable in
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transaction of the kind and nature contemplated by this Agreement in order for
the performing Party to satisfy its obligations hereunder.
"Commonwealth Electric" shall mean the Commonwealth Electric Company.
"Contested Proceeding," when used in connection with a Transfer of
License, means a proceeding commenced by the issuance of a "notice of hearing"
under 10 C.F.R. Section 2.104 or Section 2.105 Subsection (e)(2), as the case
may be.
"Decommissioning Trust" shall mean the irrevocable trust created
pursuant to the Trust Agreement, consisting of assets held in a "qualified
nuclear decommissioning reserve fund," as defined in Internal Revenue Code
468A (a "Qualified Fund") and of assets held in a non-qualified fund (a
"Non-Qualified Fund").
"Decommissioning Trust Closing Amount" shall mean the amount determined
pursuant to Section 5.21.
"Decommissioning Trust Value" shall mean the fair market value of the
property in the Decommissioning Trust from time to time, as from time to time
certified by the Trustee.
"Deed" means the form of deed by which the Real Property shall be
conveyed to the Buyer, substantially in the form attached hereto as Exhibit A.
"Disclosing Party" has the meaning set forth in the definition of
Proprietary Information.
"DOE Standard Contract" means the Contract for Disposal of Spent
Nuclear Fuel and/or High-Level Radioactive Waste, No. DE-CR01-83NE, dated as
of June 17, 1983, between the United States of America, represented by the
United States Department of Energy, and Boston Edison Company.
"D.T.E." means the Massachusetts Department of Telecommunications and
Energy.
"D.T.E. Approval" means the order or orders of the D.T.E. approving
this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby and all related matters,
including without limitation (a) approval of the proceeds of the sale of the
Acquired Assets and (b) authorization and approval to recover and securitize,
pursuant to Section 1H of Chapter 164, those transition costs specified in
Section 1G(b)(1)(ii) of Chapter 164, such order or orders to be in a form
which is Final.
"Easements" means the reservations of easements to be included in the
Deed, substantially as set forth hereto in Schedule 1.1.
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"Effective Date" means the date on which this Agreement has been duly
executed and validly delivered by the Parties.
"Electric Rate Reduction Bonds" has the meaning set forth in Section
1H(a) of Chapter 164.
"Emergency Preparedness Equipment" has the meaning set forth in Section
2.1(l).
"Emergency Preparedness Agreement" has the meaning set forth in Section
2.1(l).
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or
arrangement which is an Employee Pension Benefit Plan, (c) qualified defined
benefit retirement plan or arrangement which is an Employee Pension Benefit
Plan (including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program or (e) profit sharing, bonus, stock
option, stock purchase, equity, stock appreciation, deferred compensation,
incentive, severance plan or other benefit plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3 Subsection (2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3 Subsection (1).
"Environment" means soil, land surface or subsurface strata, real
property, surface waters (including navigable waters, ocean waters, streams,
ponds, drainage basins and wetlands), groundwater, water body sediments,
drinking water supply, stream sediments, ambient air (including indoor air),
plant and animal life (including fish and all other aquatic life) and any
other environmental medium or natural resource.
"Environmental Laws" mean the Massachusetts Contingency Plan (310
C.M.R. 40.000), the Massachusetts Hazardous Waste Management Act (M.G.L. 21C),
the Massachusetts Oil and Hazardous Material Release Prevention Act (M.G.L.
21E), the Comprehensive Environmental Response, Compensation and Liability
Act, the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et.
seq.), the Clean Air Act (42 U.S.C. Section 1860 et. seq.), and the Clean
Water Act (33 U.S.C. Section 1251 et. seq.), each, as amended or hereinafter
in effect and any other federal, state, local or foreign law, regulation or
legal requirement, as now or hereinafter in effect, relating to: (a) the
Release, containment, removal, remediation, response, cleanup or abatement of
any sort of any Hazardous Substance; (b) the manufacture, generation,
formulation, processing, labeling, distribution, introduction into commerce,
use, treatment, handling, storage, recycling, disposal or transportation of
any Hazardous Substance; (c) exposure of persons, including employees, to any
Hazardous Substance; (d) the physical structure, use or condition of a
building, facility,
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fixture or other structure, including, without limitation, those relating to
the management, use, storage, disposal, cleanup or removal of asbestos,
asbestos-containing materials, polychlorinated biphenyls or any other
Hazardous Substance; (e) the pollution, protection or clean up of the
Environment; or (f) noise.
"Environmental Liabilities" means any Liability under or related to
former or current Environmental Laws or the common law, whether such liability
or obligation or responsibility is known or unknown, contingent or accrued,
arising as a result of or in connection with (i) any violation or alleged
violation of Environmental Law, prior to, on or after the Closing Date, with
respect to the ownership, operation or use of the Acquired Assets other than
any fines or penalties imposed by a Governmental Agency to the extent such
obligations arise out of or relate to acts or omissions of the Seller that
constitute criminal violations; (ii) loss of life, injury to persons, property
or business or damage to natural resources (whether or not such loss, injury
or damage arose or was made manifest before the Closing Date or arises or
becomes manifest after the Closing Date), caused (or allegedly caused) by the
presence or Release of Hazardous Substances at, on, in, under, adjacent to or
migrating from the Acquired Assets prior to, on or after the Closing Date,
including, but not limited to, Hazardous Substances contained in building
materials at the Acquired Assets or in the soil, surface water, sediments,
groundwater, landfill cells, or in other environmental media at or adjacent to
the Acquired Assets; (iii) the investigation and/or Remediation (whether or
not such investigation or Remediation commenced before the Closing Date or
commences after the Closing Date) of Hazardous Substances that are present or
have been Released prior to, on or after the Closing Date at, on, in, under,
adjacent to or migrating from the Acquired Assets, including, but not limited
to, Hazardous Substances contained in building materials at the Acquired
Assets or in the soil, surface water, sediments, groundwater, landfill cells,
or in other environmental media at or adjacent to the Acquired Assets; (iv)
compliance with applicable Environmental Laws prior to, on or after the
Closing Date with respect to the ownership or operation or use of the Acquired
Assets; (v) loss of life, injury to persons, property or business or damage to
natural resources caused (or allegedly caused) by the offsite disposal,
storage, transportation, discharge, Release or recycling, or the arrangement
for such activities, of Hazardous Substances, prior to, on or after the
Closing Date, in connection with the ownership or operation of the Acquired
Assets; and (vi) the investigation and/or remediation of Hazardous Substances
that are disposed, stored, transported, discharged, Released, recycled, or the
arrangement of such activities, prior to, on or after the Closing Date, in
connection with the ownership or operation of the Acquired Assets.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Estimated Adjustment" has the meaning set forth in Section 2.6(c).
"Estimated Closing Statement" has the meaning set forth in Section
2.6(c).
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"Event of Loss" has the meaning set forth in Section 5.10.
"Excluded Assets" has the meaning set forth in Section 2.2.
"Exhibits" means the exhibits to this Agreement.
"Facility" means either of and "Facilities" means both of Pilgrim and
the Chiltonville Training Center.
"FERC" means the Federal Energy Regulatory Commission, or its
regulatory successor, as applicable.
"Final" or "finally," when applied to a decision, approval or act of
any Governmental Authority, means that the decision, approval or act has
occurred, purports to be the final resolution and is unappealable by any
Person, including exhaustion of all administrative and judicial appeals or
remedies and the running of time periods and statutes of limitation for
rehearing and judicial review.
"Final Purchase Price Adjustment" has the meaning set forth in Section
2.6(c).
"Fully Funded" as applied to the Decommissioning Trust, means that
there has been deposited to the Decommissioning Trust on or prior to the
Closing Date an amount equal to or greater than the difference between (i) the
Decommissioning Trust Value certified by the Trustee, upon request of the
Seller, as of the 14th day prior to the Closing Date, and (ii) the
Decommissioning Trust Closing Amount.
"FIRPTA Affidavit" means the affidavit to be delivered by the Parties
at Closing pursuant to Section 1445(b)(2) of the Internal Revenue Code, to
establish that each Party is not a "foreign person" within the meaning of that
Section.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Generation Ownership Shares" has the meaning set forth in the NEPOOL
Agreement.
"Governmental Authority" means any federal, state, local or other
governmental, regulatory or administrative agency, commission, department,
board, or other governmental subdivision, court, tribunal, arbitral body or
other governmental authority, but excluding the Buyer and any subsequent owner
of the Sites (if otherwise a Governmental Authority under this definition).
"Group Health Plan" has the meaning set forth in Section 5000
Subsection (b)(1) of the Code.
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"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Hazardous Material" or "Hazardous Materials" means oil and hazardous
materials or wastes, air emissions, hazardous or toxic substances, wastewater
discharges and any chemical, material or substance or other emissions that may
give rise to liability under, or is listed or regulated under, applicable Laws
as a "hazardous" or "toxic" substance or waste, or as a "contaminant," or is
otherwise listed or regulated under applicable Laws because it poses a hazard
to human health or the environment.
"Hazardous Substance" means any Hazardous Material or Radioactive
Material, including any substance that may be both a Hazardous Material and a
Radioactive Material.
"Host Community Tax Agreement" means an agreement or agreements with
the Town of Plymouth regarding property taxes in accordance with Section 71 of
the Act.
"Improvements" means all buildings, structures (including all fuel
handling and storage facilities), machinery and equipment, fixtures,
construction in progress, including all piping, cables and similar equipment
forming part of the mechanical, electrical, plumbing or HVAC infrastructure of
any building, structure or equipment, located on and affixed to the Sites.
"Indemnified Party" has the meaning set forth in Section 9.6(a).
"Indemnifying Party" has the meaning set forth in Section 9.6(a).
"Independent Appraiser" has the meaning set forth in Section 2.7.
"INPO" means Institute of Nuclear Power Operations.
"Interim Period" means that period of time commencing on the Effective
Date and ending on the Closing Date.
"Inspections" means all tests, reviews, examinations, inspections,
investigations, verifications, samplings and similar activities conducted by
any Party or such Party's agents or representatives with respect to the
Acquired Assets prior to the Closing.
"Intellectual Property" has the meaning set forth in Section 2.1(o).
"Interconnection and Operation Agreement" means the agreement between
the Parties relating to the interconnection of the Acquired Assets with the
regional transmission facilities retained by Seller, substantially in the form
attached as Exhibit G.
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"Inventory" or "Inventories" means fuel inventories, but not Nuclear
Fuel or Spent Nuclear Fuel, materials, spare parts, consumable supplies and
chemical and gas inventories located at the Site, in transit to the Site or
identified in any Schedule to the extent owned and paid for by the Seller
prior to Closing.
"ISO New England" means the Independent System Operator of New England,
as established by NEPOOL.
"Knowledge" means the actual, current knowledge (without independent
investigation) or reckless disregard of facts, duty or obligations of due
inquiry that would result in such knowledge of a Party's Board of Directors or
any of its corporate officers charged with responsibility for the function at
the relevant time or, with respect to any certificate delivered pursuant to
this Agreement, on the date of delivery of the certificate.
"Laws" means all laws, rules, regulations, codes, injunctions,
judgments, orders, decrees, rulings, interpretations, constitution, ordinance,
common law, or treaty, of any federal, state, local municipal and foreign,
international, or multinational government or administration and related
agencies.
"Leases" has the meaning set forth in Section 2.1(c).
"Liability" or "Liabilities" means any liability or obligation (whether
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
whether incurred or consequential and whether due or to become due), including
any liability for Taxes.
"Lien" means any mortgage, pledge, lien, security interest, charge,
claim, equitable interest, infringement of a third party patent, copyright,
trade secret or other intellectual property right, encumbrance, restriction on
transfer, conditional sale or other title retention device or arrangement
(including, without limitation, a capital lease), transfer for the purpose of
subjection to the payment of any indebtedness, or restriction on the creation
of any of the foregoing, whether relating to any property or right or the
income or profits therefrom; provided, however, that the term "Lien" shall not
include any of the following "Permitted Encumbrances": (i) Liens for Taxes or
other charges or assessments by any Governmental Authority to the extent that
the payment thereof is not in arrears or otherwise due or is being contested
in good faith, (ii) encumbrances in the nature of zoning restrictions,
building and land use laws, ordinances, orders, decrees, restrictions or any
other conditions imposed by any Governmental Authority provided the same do
not materially detract from operation or use of such property or the business
of the Seller; (iii) easements (including without limitation the Easements and
any other easement or like right granted by an instrument executed in
connection with this Agreement or the Related Agreements or the transactions
contemplated hereby or thereby, but excluding such encumbrances that secure
indebtedness), rights,
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restrictions, conditions, title imperfections and similar matters if the same
do not materially detract from the operation or use of such property in the
business of the Seller and do not materially detract from the value of the
Acquired Assets; (iv) deposits or pledges made in connection with, or to
secure payment of, worker's compensation, unemployment insurance, old age
pension programs mandated under applicable laws or other social security
regulations; (v) statutory or common law liens in favor of carriers,
warehousemen, mechanics and materialmen, statutory or common law liens to
secure claims for labor, materials or supplies and other like liens, which
secure obligations to the extent that payment thereof is not in arrears or
otherwise due in the case of (i) - (v), which have been incurred under Prudent
Utility Practices; (vi) any Lien with respect to the Acquired Assets that
arises under Prudent Utility Practices and is not material to the operation or
use of the Acquired Assets in the business of the Seller and which does not
materially detract from the value of the Acquired Assets; (vii) any Lien or
title imperfection with respect to the Acquired Assets created by or resulting
from any act or omission of the Buyer; and (viii) all exceptions set forth in
the Title Commitment.
"Local 369" means the Utility Workers of America, Local 369, Production
and Maintenance Unit.
"Local 387" means the Utility Workers of America, Local 387, Office
Technical and Professional Unit.
"Losses" has the meaning set forth in Section 9.3.
"Major Loss" has the meaning set forth in Section 5.10(b).
"Material Adverse Effect" means any unexpected losses, claims or
occurrences relating to the Acquired Assets prior to the Closing that are not
disclosed on any Schedule and that would reasonably be expected to require
Buyer to (i) expend within two (2) years following the Closing Date funds
greater than or equal to $5,000,000 per incident of loss, claim or occurrence,
or (ii) expend within five (5) years following the Closing funds greater than
or equal to $10,000,000 in the aggregate (provided that no individual loss,
claim or occurrence shall be considered in calculating such aggregate amount
unless it exceeds $1,000,000); other than any such losses, claims, occurrences
resulting from: (a) changes in the international, national, regional or local
wholesale or retail markets for electric power or fuel used in connection with
the Acquired Assets or (b) changes in the North American, national, regional
or local electric transmission systems or operations thereof; and provided
that any loss, claim, occurrence, change or effect that is cured prior to
Closing or that Seller commits to cure after the Closing at Seller's expense
shall not be considered a Material Adverse Effect.
"Material Contracts" has the meaning set forth in Section 2.1(e).
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"Montaup" shall mean Montaup Electric Company.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3
Subsection (37).
"Municipal Contracts" has the meaning set forth in Section 2.2(d).
"NEI" means Nuclear Energy Institute.
"NEPOOL" means the New England Power Pool, established by the NEPOOL
Agreement, or its successor.
"NEPOOL Agreement" means the Agreement establishing NEPOOL, dated
September 1, 1971, as amended by the Restated NEPOOL Agreement filed with FERC
on December 31, 1996, as finally approved by FERC and as further amended from
time to time.
"NEPOOL Obligations" has the meaning set forth in Section 5.9(c).
"Non-Managerial Employees" has the meaning set forth in Section 5.7(a).
"Nonrepresented Employees" has the meaning set forth in Section 5.7(b).
"Non-Qualified" has the meaning set forth in the definition of
Decommissioning Trust.
"NRC" is the United States Nuclear Regulatory Commission, as
established by Section 201 of the Energy Reorganization Act of 1974, as
amended, 42 U.S.C. Section 5841, or any successor commission, agency or
officer.
"NRC License" means any and all licenses, permits, approvals or other
official acts by the NRC on the basis of which Boston Edison is authorized to
own, possess and operate PNPS, including but not limited to Facility Operating
License No. DPR-35
"NRC Regulations" are the regulations from time to time promulgated by
the NRC and in effect, including but not limited to those found at 10 C.F.R.,
Part 50.
"NRC Staff" means the regulatory Staff of the NRC.
"Nuclear Fuel" means all fuel assemblies in the PNPS reactor on the
Closing Date and any irradiated fuel assemblies that have been temporarily
removed from the PNPS reactor as of that date and all unirradiated fuel
assemblies awaiting insertion into the PNPS reactor as well as all fuel
constituents in any stage of the fuel cycle which are in the process of
fabrication for use in the PNPS reactor, which are owned by the Seller on the
Closing Date.
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"Offsite Hazardous Material Facility" means a location, other than a
Facility, which regularly accepts or accepted Hazardous Materials from the
Seller and other Persons.
"Partial Assignments" means the agreements between the Buyer and the
Seller, dated as of the date hereof, relating to the Seller's assignment to
the Buyer, effective as of the Closing Date, of certain of the Seller's
obligations under the Municipal Contracts.
"Party" and "Parties" have the meanings set forth in the preamble
above.
"Permits" means all certificates, licenses, permits, approvals,
consents, orders, exemptions, decisions and other actions of a Governmental
Authority pertaining to a particular Acquired Asset, or the ownership,
operation or use thereof.
"Permitted Encumbrances" has the meaning set forth in the definition of
Lien.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, a limited
liability company, an unincorporated organization, or a governmental entity
(or any department, agency, or political subdivision thereof).
"Phase I Site Assessment" means the September 1998 report of ENSR
(Document Number 0970-018) as supplied by Seller to Buyer prior to the
Effective Date.
"Pilgrim" or "PNPS" refers to that portion of the Acquired Assets
constituting the land, buildings, equipment and other property constituting
the nuclear utilization facility presently owned and operated by the Seller at
Plymouth, Massachusetts, as identified on Schedule 2.1.
"Post-Closing Change" has the meaning set forth in Section 5.21(b).
"Post-Closing Statement" has the meaning set forth in Section 2.6(c).
"Power Purchase Agreements" or "PPAs" means (i) the agreement between
the Buyer and the Seller, dated as of the date hereof, relating to the
purchase by the Seller of certain capacity, energy and ancillary services from
Pilgrim; (ii) the agreement between the Buyer and Commonwealth Electric, dated
as of the date hereof, relating to the purchase by Commonwealth Electric of
certain capacity, energy and ancillary services from Pilgrim; (iii) the
agreement between the Buyer and Montaup, dated as of the date hereof, relating
to the purchase by Montaup of certain capacity, energy and ancillary services
from Pilgrim; and (iv) the agreement between the Buyer and the Seller, dated
as of the date hereof, relating to the purchase by the Seller from the Buyer
and the re-sale by the Seller pursuant to the Municipal Contracts of certain
capacity, energy and ancillary services from Pilgrim.
"Pre-Approved Projects" means those projects set forth on Schedule 5.3.
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"Pre-Closing Change" has the meaning set forth in Section 5.21(b).
"Property Tax Agreement" means the agreement between the Parties,
substantially in the form attached hereto as Exhibit E.
"Proprietary Information" means all information about either Party (the
"Disclosing Party") or its properties or operations furnished to the other
Party (the "Receiving Party") or its Representatives by the Disclosing Party
or its Representatives, regardless of the manner or medium in which it is
furnished. Proprietary Information does not include information that (a) is
or becomes generally available to the public, other than as a result of a
disclosure by the Receiving Party or its Representatives in violation of this
Agreement; (b) was available to the Receiving Party on a nonconfidential basis
prior to its disclosure by the Disclosing Party or its Representatives; (c)
becomes available to the Receiving Party on a nonconfidential basis from a
person, other than the Disclosing Party or its Representatives, each of whom,
to the Receiving Party's Knowledge, is not otherwise bound by a
confidentiality agreement with the Disclosing Party or its Representatives, or
is not otherwise under any obligation to the Disclosing Party or any of its
Representatives not to transmit the information to the Receiving Party or its
Representatives, or (d) the Disclosing Party discloses to others on a non-
confidential basis.
"Provisional Trust" shall mean the decommissioning trust established
and funded pursuant to the Provisional Trust Agreement.
"Provisional Trust Agreement" shall mean an agreement executed with an
independent trustee with terms including the following: (i) the Provisional
Trust shall terminate on a date no later than December 31, 2002; (ii) the
Provisional Trust trustee shall be required to make payments to Seller or its
designees in amounts determined by reference to Schedule 5.21 in the event
that there is a Post-Closing Change; (iii) the Provisional Trust trustee shall
make any such payments within 60 days after the occurrence of the Post-Closing
Change; and (iv) upon the termination of the Provisional Trust, the remaining
corpus and income in such trust shall be paid into the Decommissioning Trust,
as amended by a Supplemental Indenture.
"Prudent Utility Practices" means any of the practices, methods and
acts engaged in or approved by a significant portion of the electric utility
industry in New England during the relevant time period, or any of the
practices, methods or acts which, in the exercise of reasonable judgment in
light of the facts known at the time the decision was made, could have been
expected to accomplish the desired result at a reasonable cost consistent with
applicable Laws and good business practices, reliability, safety and
expedition. Prudent Utility Practices are not intended to be limited to the
optimum practice, method or act to the exclusion of all others, but rather to
be acceptable practices, methods or acts generally accepted in the region.
"Purchase Price" has the meaning set forth in Section 2.5(a).
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<PAGE>
"Purchase Price Adjustment" has the meaning set forth in Section 2.6.
"Qualified Fund" has the meaning set forth in the definition of
Decommissioning Trust.
"Radioactive Material" means any material that is radioactive or
contaminated with radioactivity.
"Real Property" has the meaning set forth in Section 2.1(a).
"Receiving Party" has the meaning set forth in the definition of
Proprietary Information.
"Refueling Costs" means all costs actually incurred by the Seller
during the period of the Refueling Outage, provided, however, that the
Refueling Costs shall not exceed $40 million and shall not include any costs
for the Pre-Approved Projects.
"Refueling Outage" means the Pilgrim refueling outage currently
scheduled for April of 1999.
"Related Agreements" means the Assignment and Assumption Agreement, the
Bill of Sale, the Deed, the Interconnection and Operation Agreement, the
Partial Assignments, the Power Purchase Agreements, the Supplemental Indenture
(if any), the Property Tax Agreement and the Asset Demarcation Agreement.
"Release" means any actual, threatened or alleged spilling, leaking,
pumping, pouring, emitting, dispersing, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing of any Hazardous Substance into the
Environment that may cause an Environmental Liability (including the disposal
or abandonment of barrels, containers, tanks or other receptacles containing
or previously containing any Hazardous Substance).
"Remediation" means any or all of the following activities to the
extent they relate to or arise from the presence of Hazardous Substances at a
Site: (a) monitoring, investigation, assessment, treatment, cleanup
containment, removal, mitigation, response or restoration work; (b) obtaining
any permits, consents, approvals or authorizations of any Governmental
Authority necessary to conduct any such activity; (c) preparing and
implementing any plans or studies for any such activity; (d) obtaining a
written notice from a Governmental Authority with jurisdiction over the Sites
under Environmental Laws that no material additional work is required by such
Governmental Authority; (e) obtaining a written opinion of a Licensed Site
Professional (as defined in M.G.L. c.21A, Section 19), as contemplated by the
relevant Environmental Laws and in lieu of a written notice from a
Governmental Authority, that no material additional work is required to
address Hazardous Substances at the Sites; and (f) any
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<PAGE>
other activities reasonably determined by a Party to be necessary or
appropriate or required under Environmental Laws to address the presence of
Hazardous Substances at the Sites.
"Representative" means, as to any Person, such person's Affiliates and
its and their directors, officers, employees, agents, advisors (including,
without limitation, financial advisors, counsel and accountants).
"Required Nuclear Expenditure" means a capital expenditure that (i) is,
in the Seller's judgment, required in order to satisfy an NRC Order, (ii) is,
in the Seller's reasonable judgment, required in order to preclude, forestall
or satisfy any form of NRC enforcement action (including, without limiting the
generality of the foregoing, a so-called "confirmatory action letter"), or
(iii) is, in the Seller's reasonable judgment, necessary in order to cause
PNPS to meet NRC regulations.
"Schedule" means a schedule to this Agreement.
"Section 71 Transition Payments" has the meaning set forth in Section
2.4(f).
"Seller" has the meaning set forth in the preamble.
"Seller's Regulatory Approvals" means those approvals identified on
Schedule 6.2(c) hereto to be obtained by the Seller as a condition to the
Seller's obligation to close under this Agreement.
"Settlement Agreement" means the Restructuring Settlement Agreement
filed by the Seller on July 9, 1997, with the Massachusetts Department of
Public Utilities (now the D.T.E.) in Dockets Nos. 96-100 and 96-23.
"Site" means the Real Property and Improvements forming a part of, or
used or usable in connection with, a Facility. Any reference to a Site shall
include, by definition, the surface and subsurface elements, including the
soils and groundwater present at such Site, and any reference to items "at the
Site" shall include all items "at, on, in, upon, over, across, under and
within" the Site.
"Special Retention Agreement" means an agreement between any
Nonrepresented Employee and the Seller relating to the Boston Edison Company
Nuclear Divestiture Retention Program pursuant to which (i) the Special
Retention Employee will not receive retention benefits equal to the portion of
the Transferred Amount attributable to such employee, calculated in the manner
set forth in Section 5.7(d), but rather will receive credit for prior service
with Seller towards any eligibility, vesting, or waiting periods under Buyer's
Employee Welfare Benefit Plans providing retiree health and life insurance
benefits; and (ii) the Special
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<PAGE>
Retention Employee will release the Seller from any ADEA or other claims
potentially arising in connection therewith.
"Spent Nuclear Fuel" means all fuel assemblies and greater than Class C
Waste that have been, or hereafter are, permanently withdrawn from the PNPS
reactor and stored in the PNPS spent fuel pool or reprocessed.
"Substitute Material Contracts" has the meaning set forth in Section
2.10(k).
"Supplemental Indenture" shall mean (i) a supplemental indenture
between the Seller, the Buyer and The Bank of New York amending and
supplementing the Trust Agreement in a manner acceptable to Buyer and Seller,
and (ii) a supplemental indenture between the Seller, the Buyer and the
trustee of the Provisional Trust amending and supplementing the Provisional
Trust Agreement in a manner acceptable to Buyer and Seller; in each case
pursuant to which (a) the Buyer shall agree to assume the due and punctual
performance of all Liabilities of the Seller arising after the Closing Date
under the relevant trust agreement (except to the extent provided in the last
sentence of Section 5.21(c)), (b) the Buyer shall succeed to and be
substituted for the Seller thereunder, (c) the relevant trust agreement shall
be amended as necessary to ensure that Buyer has the right to appoint and
remove the trustee and the investment manager and the ability to direct the
investment of funds in the Decommissioning Trust in any investment permitted
by applicable law, rule or regulation.
"T&D and Telecommunications Assets" means the transmission,
distribution, communication, substation and other assets necessary to current
or future transmission and distribution operations of the Seller (whether or
not regarded as a "transmission", "distribution" or "generation" asset for
regulatory or accounting purposes), as well as all Permits and Contracts, to
the extent they relate exclusively thereto, and those certain assets and
facilities identified for use or used by the Seller or others pursuant to an
agreement or agreements with the Seller for telecommunications purposes, all
as and only to the extent identified in Schedule 2.1(b) -- "Pilgrim
Communications Divestiture Summary", Schedule 2.2(a), the Interconnection and
Operation Agreement or the Asset Demarcation Agreement, or any document or
exhibit referred to or incorporated in the Interconnection and Operation
Agreement or the Asset Demarcation Agreement.
"Taking" has the meaning set forth in Section 5.10.
"Tax" or "Taxes" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar, including FICA), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added,
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<PAGE>
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
"Third Party" means a Person who is not a Party, an Affiliate of a
Party, a Representative of a Party, a Representative of an Affiliate of a
Party or a shareholder of any of a Party, a Party's Affiliate or a Party's
Representative.
"Third Party Claim" has the meaning set forth in Section 9.6.
"Title Commitments" has the meaning set forth in Section 3.5.
"Trademarks" means any trademarks, service marks, trade dress, and
logos, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith.
"Transfer of License" means the transfer of the NRC License from the
Seller to the Buyer and includes any act for which the approval of the NRC is
required by AEA Section 184 and 10 C.F.R. Section 50.80 or otherwise.
"Transferable Permits" has the meaning set forth in Section 2.1(d).
"Transferred Amount" has the meaning set forth in Section 5.7(d).
"Transferred Nonqualified Employees" has the meaning set forth in
Section 5.7(d).
"Transferred Voting Shares" has the meaning set forth in Section
5.9(b).
"Transition Committee" has the meaning set forth in Section 5.3(b)(i).
"Trust Agreement" means the Master Decommissioning Trust Agreement
dated January 1, 1995 between the Seller and The Bank of New York, as Trustee,
as amended by the First Amendment thereto dated December 12, 1996.
"Trustee" has the meaning set forth in the definition of "Trust
Agreement".
"VEBA" means a trust which constitutes a "Voluntary Employees'
Beneficiary Association" as defined in Section 501(c)(9) of the Code which is
used to fund post-retirement Employee Welfare Benefit Plan Obligations.
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<PAGE>
"Vehicles" has the meaning set forth in Section 2.1(m).
"Voting Shares" has the meaning set forth in the NEPOOL Agreement.
"WARN" means Workers Adjustment and Retraining Notification Act of
1988, as amended.
"Wholesale Power Contracts" has the meaning set forth in Section
2.2(c).
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<PAGE>
Purchase and Sale Agreement
---------------------------
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
ENTERGY NUCLEAR GENERATION COMPANY
By: /s/Donald C. Hintz
______________________________________
Name: Donald C. Hintz
Title: Chairman and Chief
Executive Officer
BOSTON EDISON COMPANY
By: /s/ Thomas J. May
______________________________________
Name: Thomas J. May
Title: Chairman, President and
Chief Executive Officer
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<PAGE>
PURCHASE AND SALE AGREEMENT
FOR PILGRIM NUCLEAR POWER STATION
AND RELATED AGREEMENTS
BOSTON EDISON COMPANY
ENTERGY NUCLEAR GENERATION
COMPANY
COMMONWEALTH ELECTRIC COMPANY
MONTAUP ELECTRIC COMPANY
VOLUME 2 of 2
NOVEMBER 18, 1998
<PAGE>
BOSTON EDISON COMPANY
and
ENTERGY NUCLEAR GENERATION COMPANY
NOVEMBER 18, 1998
INDEX
-----
Volume 1 of 2
-------------
SUBJECT TAB
------- ---
Purchase and Sale Agreement: Boston Edison Company - Entergy Nuclear 1
Generation Company
Exhibits to P&S 2
Deeds A
Bill of Sale B
Assignment and Assumption Agreement C
Asset Demarcation Agreement D
Property Tax Agreement E
Chapter 61 Affidavit F
Interconnection and Operation Agreement G
Schedules to P&S 3
Guaranty: Entergy International Holdings LLC 4
Volume 2 of 2
-------------
Interconnection and Operation Agreement: Boston Edison Company - 5
Entergy Nuclear Generation Company
Power Purchase Agreement: Entergy Nuclear Generation Company - 6
Boston Edison Company
Power Purchase Agreement with respect to Municipal Customers: Entergy 7
Nuclear Generation Company - Boston Edison Company
Power Purchase Agreement: Entergy Nuclear Generation Company - 8
Commonwealth Electric Company
Power Purchase Agreement: Entergy Nuclear Generation Company - 9
Montaup Electric Company
Fourth Amendment of Power Sale Agreement: Boston Edison Company - 10
Commonwealth Electric Company
Third Amendment of Power Sale Agreement: Boston Edison - Montaup 11
Electric Company
Partial Assignment of Municipal Power Sale Agreements: Entergy Nuclear 12
Generation Company - Boston Edison Company
<PAGE>
POWER PURCHASE AGREEMENT
BETWEEN
ENTERGY NUCLEAR GENERATION COMPANY
AND
BOSTON EDISON COMPANY
FOR PILGRIM NUCLEAR POWER STATION
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE 1. Definitions .................................................... 1
ARTICLE 2. Purchase and Sale of Installed Capability, Operable
Capability and Energy .......................................... 3
ARTICLE 3. Term, Termination .............................................. 4
ARTICLE 4. Purchase Rate for Installed Capability, Operable
Capability and Energy .......................................... 4
ARTICLE 5. Dispatch ....................................................... 4
ARTICLE 6. Billing, Meter Reading ......................................... 5
ARTICLE 7. Limitation of Liability; Indemnification; Insurance;
Relationship of Parties ........................................ 6
ARTICLE 8. Miscellaneous Provisions ....................................... 7
ARTICLE 9. Assignment ..................................................... 8
ARTICLE 10. Force Majeure ................................................. 8
ARTICLE 11. Default ....................................................... 9
ARTICLE 12. Governing Law, Dispute Resolution ............................ 10
ARTICLE 13. Waiver ....................................................... 10
ARTICLE 14. Corporate Authorization ...................................... 10
ARTICLE 15. Notice ....................................................... 12
<PAGE>
POWER PURCHASE AGREEMENT
BETWEEN
ENTERGY NUCLEAR GENERATION COMPANY AND BOSTON EDISON COMPANY
AGREEMENT entered into this 18th day of November 1998 by and between
Entergy Nuclear Generation Company, a Delaware corporation (hereafter referred
to as "Seller"), and Boston Edison Company, a Massachusetts corporation having
its principal place of business at 800 Boylston Street, Boston, Massachusetts
02199, (hereafter referred to as "Company").
WHEREAS, Seller wishes to sell to Company and Company wishes to
purchase from Seller, Installed Capability, Operable Capability, and Energy
following the closing pursuant to the Purchase and Sale Agreement dated
November 18,1998 by and between Company and Seller (the "Purchase and Sale
Agreement") pursuant to which Seller shall purchase the specific generating
facility known as Pilgrim Nuclear Power Station, from the Company, and Seller
and Company shall enter into the Interconnection and Operation Agreement of
even date herewith (the "Interconnection Agreement").
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, Seller and Company hereby agree as follows:
ARTICLE 1. Definitions
When used with initial capitalizations, whether in the singular or in
the plural, the following terms shall have the meanings set forth
below.
(a) Agreement: This document, including its appendices, as amended
---------
from time to time.
(b) Capability Audit: The procedure used pursuant to the NEPOOL
----------------
Agreement to determine the Summer Net Capability and the Winter
Net Capability of the Facility as currently set forth in the
NEPOOL Standards.
(c) Company's Entitlement: The percentage specified below of the
---------------------
Installed Capability, Operable Capability and Energy of the
Facility for the applicable calendar years.
1999 74.26867%
2000 74.26867%
2001 74.26867%
2002 58.66867%
2003 35.26867%
2004 35.26867%
(d) Energy: The actual hourly electricity production of the Facility
------
adjusted for station service use and transformer losses.
Page 1 of 12
<PAGE>
(e) Delivery Point: The point where capacity and energy generated by
--------------
the Facility is delivered to the Pool Transmission Facilities, as
defined by the NEPOOL Agreement.
(f) Facility: The Pilgrim Nuclear Power Station, a 670 MW nuclear
--------
generating facility located in Plymouth, Massachusetts.
(g) FERC: The Federal Energy Regulatory Commission.
----
(h) Installed Capability: The Winter Net Capability during the
--------------------
Winter Period and the Summer Net Capability during the Summer
Period.
(i) ISO-NE: The Independent System Operator of New England provided
------
for in the NEPOOL Agreement, or its successor.
(j) MDTE: The Massachusetts Department of Telecommunications and
----
Energy.
(k) NEPOOL: The New England Power Pool, established by the NEPOOL
------
Agreement, or its successor.
(l) NEPOOL Agreement: The agreement, dated September 1, 1971, as
----------------
amended from time to time, governing the operation of NEPOOL, as
in full force and effect.
(m) NEPOOL Standards: All Criteria, Rules and Standards (CRS),
----------------
NEPOOL Automated Billing System Procedures (NABS), Operating
Procedures (OP), and Market Rules (MR) issued or adopted by
NEPOOL, ISO-NE and its satellite agencies, or their successors,
as amended from time to time and all successor regulations, rules
and standards.
(n) Operable Capability: The portion of Installed Capability of the
-------------------
Facility which is operating or available to respond within an
appropriate period (as defined by NEPOOL) to the ISO-NE call to
meet the Energy requirements of the NEPOOL operating area.
(o) Party: Seller or Company and its respective successors or
-----
assigns.
(p) Prime Rate: That rate as announced by BankBoston (or its
----------
successor) as its prime rate in effect on the first day of the
month.
(q) Prudent Utility Practice: Any practices, methods and acts
------------------------
engaged in or approved by a significant portion of the electric
utility industry during the relevant time period, or any of the
practices, methods and acts which, in the exercise of reasonable
judgment in light of facts known at the time the decision was
made, could have been expected to accomplish the desired result
at a reasonable cost consistent with good business practices,
reliability, safety and expedition and giving due regard for the
requirements of governmental agencies having jurisdiction.
Prudent Utility Practice is not intended to be limited to the
optimum practice, method, or act to the exclusion of all others,
but
Page 2 of 12
<PAGE>
rather to be acceptable practices, methods, or acts generally
accepted in the electric utility industry.
(r) Summer Net Capability (Capability): The Maximum Claimed
----------------------------------
Capability, as defined in NEPOOL CRS - 4 , of the Facility during
the Summer Period, expressed in kilowatts, and as determined by
Capability Audit, exclusive of the capacity required for Facility
use.
(s) Summer Period: Summer Period shall have the meaning set forth in
-------------
the NEPOOL Agreement.
(t) Winter Net Capability (Capability): The Maximum Claimed
----------------------------------
Capability, as defined in NEPOOL CRS - 4 , of the Facility
during the Winter Period, expressed in kilowatts, and as
determined by Capability Audit, exclusive of the capacity
required for Facility use.
(u) Winter Period: Winter Period shall have the meaning set forth in
-------------
the NEPOOL Agreement.
ARTICLE 2. Purchase and Sale of Installed Capability, Operable Capability
and Energy
(a) Seller agrees to sell and to deliver and Company agrees to
purchase and to accept delivery of the Company's Entitlement at
the Delivery Point, for Company's own use and/or sale to others
for the term of this Agreement.
(b) Seller shall use Prudent Utility Practices in all aspects of the
management and operation of the Facility. Seller shall use
commercially reasonable efforts to maintain the Facility's
Installed Capability at the level demonstrated by the most recent
Capability Audit at the time of the Purchase and Sale Agreement
and use its commercially reasonable efforts to make Energy and
Operable Capability available to Company on an ongoing basis.
Notwithstanding the foregoing, Seller may permanently retire the
Facility upon 30 days written notice to the Company, at which
time this Agreement will terminate.
(c) Periodically after the execution of this Agreement, Seller shall
undergo Capability Audits pursuant to NEPOOL Standards to
demonstrate and audit the Summer Net Capability and/or the Winter
Net Capability of the Facility. The Capability Audit shall be
performed pursuant to NEPOOL Standards or standards mutually
agreed to by the Parties if NEPOOL ceases to establish such
standards. Seller agrees to provide to Company the results of
the demonstrations and audits (NX-17s and supporting material).
(d) Seller shall schedule maintenance activities in accordance with
NEPOOL Standards. As soon as practically possible, Seller shall
provide advance notice of planned
Page 3 of 12
<PAGE>
maintenance activities and unplanned outages by telephone or
telecopy to Company's designated agent.
ARTICLE 3. Term, Termination
(a) The obligations of the Parties under this Agreement shall
commence on the Closing Date as defined in the Purchase and Sale
Agreement and, subject to the termination provisions set forth in
this Agreement, shall continue through December 31, 2004. In
addition, applicable provisions of this Agreement shall remain in
effect after termination hereof, including Article 7 and
provisions necessary to provide for final billings, billing
adjustments, and payments.
(b) Notwithstanding the foregoing, the obligations of the Parties
under this Agreement are subject to and contingent upon receipt
of an acceptable (in each Party's sole discretion) final, non-
appealable order of (i) the MDTE approving this Agreement and
(ii) the FERC accepting this Agreement.
ARTICLE 4. Purchase Rate for Installed Capability, Operable Capability and
Energy
(a) Company shall pay Seller monthly (on a $/Mwh basis) for Installed
Capability, Operable Capability and Energy, according to the
following formula:
TMA = P x U
t t t
where:
TMA = Total monthly amount due in month (t)
t
P = The Purchase price expressed in $/Mwh
t
= 35.00 $/Mwh for all the months in the year 1999
= 38.00 $/Mwh for all the months in the year 2000
= 35.19 $/Mwh for all the months in the year 2001
= 38.89 $/Mwh for all the months in the year 2002
= 43.52 $/Mwh for all the months in the year 2003
= 47.22 $/Mwh for all the months in the year 2004
U = The Energy portion of the Company's Entitlement
t delivered to Company in month (t) expressed in
megawatthours.
ARTICLE 5. Dispatch
(a) Seller shall make the Facility available for dispatch by ISO-NE.
Page 4 of 12
<PAGE>
(b) Seller shall comply with all NEPOOL Standards applicable to
Seller.
(c) Seller shall submit all forms to ISO-NE with a copy to Company.
(d) Seller's and Company's designated agent shall mutually agree to
any revision to the existing ISO-NE NX-12B Forms to be submitted
to ISO-NE in accordance with the provisions of the NEPOOL
Agreement and NEPOOL Standards.
(e) Whenever Company's system or the systems with which it is
directly interconnected experience an emergency, as designated by
the affected utility, or whenever it is necessary to aid in the
restoration of service on Company's system or on the systems with
which it is directly or indirectly interconnected, or, whenever
requested by ISO-NE, Seller or its designee shall curtail or
interrupt the delivery of all or a portion of the production of
electricity at the Facility provided such curtailment or
interruption shall continue only for as long as reasonably
necessary to deal with the emergency.
(f) Whenever Seller's Facility experiences an emergency, Seller or
its designee shall have the right to curtail or interrupt all or
a portion of Seller's obligation hereunder, provided such
curtailment or interruption shall continue only for so long as
reasonably necessary to deal with the emergency, and provided
Seller promptly notifies Company of the occurrence of such an
emergency.
ARTICLE 6. Billing, Meter Reading
(a) Seller shall deliver Company's Entitlement to the Delivery Point.
Seller is responsible for maintaining metering and telemetering
equipment at the Facility. The metering equipment shall be
capable of registering and recording instantaneous, and time-
differentiated electric energy and other related data from the
Facility, and shall comply with the requirements of NEPOOL's
Standards as may be issued or revised from time to time. The
telemetering shall be capable of transmitting such data to
location(s) specified by Company.
(b) Each day, Seller shall be required to provide Company with hourly
integrated megawatt hour readings for each hour of the previous
day. Seller shall record hourly meter readings and log sheets
and, upon Company's request, provide copies of daily meter
recordings and log sheets by electronic means with hard copy
back-up. All metering equipment installed shall be routinely
tested in accordance with Prudent Utility Practice. Any meter
tested and found to register within one-half of one percent
(0.5%) of the recognized comparative standard shall be considered
correct and accurate. If at any time, any metering equipment is
found to be defective or inaccurate, Seller shall cause such
metering equipment to be made accurate or replaced at Seller's
expense. Notwithstanding subarticle (e) below, in such event, a
billing adjustment shall be made by Seller correcting all
measurements made by the defective meter for either: (i) the
actual period during which inaccurate measurements were made, if
such period is determinable to the mutual satisfaction of the
Company and Seller; or (ii) if such period
Page 5 of 12
<PAGE>
is not determinable, for a period equal to one-half the time
elapsed since the prior test, but in no event greater than six
months.
(c) Seller shall submit, by telecopy or other agreeable same day
delivery mechanism, an invoice for all applicable Article 4
charges to Company as soon as practicable after the end of each
calendar month that shall include the time and date of the meter
readings. This invoice shall include such reasonable detail to
enable the Company to determine the basis for the charges of such
month. Seller and Company agree to provide additional
information reasonably requested by the other Party as necessary
for billing purposes or data verification. Invoices may be
rendered on an estimated basis. Each invoice shall be subject to
adjustment for any errors in arithmetic, computing, estimating or
otherwise. Seller and Company shall include any such invoicing
adjustments as promptly as practicable.
(d) All payments shown to be due on such invoice, except amounts in
dispute, shall be due and payable as shown on the invoice.
Company shall pay by wire transfer per instructions on the
invoice on or before ten (10) days after receipt of the invoice.
(e) Any undisputed amounts unpaid after the Due Date shall bear
interest at a rate equal to the Prime Rate then in effect on the
Due Date, compounded on a monthly basis. Company may dispute all
or any part of any invoice by written notification to Seller
within 30 days of receipt of such invoice. All amounts paid by
the Company which are subsequently determined to have been
improperly invoiced by Seller under this Agreement shall be
subject to refund with interest at a rate equal to the Prime Rate
then in effect on the Due Date, compounded on a monthly basis.
(f) Seller shall keep complete and accurate records and meter
readings of its operations and shall maintain such data for a
period of at least one (1) year after invoice for the final
billing is rendered. Company shall have the right, upon five (5)
business days prior notice, during normal business hours, to
examine and inspect all such records and meter readings in so far
as may be necessary for the purpose of ascertaining the
reasonableness and accuracy of all relevant data, estimates or
statements of charges submitted to it hereunder but shall not
impair or interfere with the operation of the Facility owned by
Seller.
ARTICLE 7. Limitation of Liability; Indemnification; Insurance; Relationship
of Parties
(a) Notwithstanding subarticle (b) hereof or any other provision of
this Agreement to the contrary, neither Company nor Seller nor
their respective officers, directors, agents, employees, parent,
subsidiaries or affiliates or their officers, directors, agents
or employees shall be liable or responsible to the other Party or
its parent, subsidiaries, affiliates, officers, directors,
agents, employees, successors or assigns, or their respective
insurers, for incidental, indirect, exemplary, punitive or
consequential damages, connected with or resulting from
performance or non-performance of this Agreement, or anything
done in connection therewith including, without limitation,
Page 6 of 12
<PAGE>
claims in the nature of lost revenues, income or profits (other
than payments expressly required and properly due under this
Agreement), and increased expense of, reduction in or loss of
power generation production or equipment used therefor,
irrespective of whether such claims are based upon breach of
warranty, tort (including negligence, whether of Seller, Company
or others), strict liability, contract, operation of law or
otherwise, but excluding acts of gross negligence or willful
misconduct.
(b) Each Party (the "Indemnifying Party") shall defend, indemnify and
save the other Party (the "Indemnified Party"), its officers,
directors, agents, employees and affiliates and their respective
officers, directors, agents and employees harmless from and
against any and all claims, liabilities, demands, judgments,
losses, costs, expenses (including reasonable attorneys' fees),
suits, or damages arising by reason of bodily injury, death or
damage to third party property sustained by any person or entity
(whether or not a party to this Agreement) caused by or
attributable to a breach of this Agreement by the Indemnifying
Party or an action of gross negligence or willful misconduct of
the Indemnifying Party or an officer, director, agent or employee
of Indemnifying Party.
(c) Seller shall maintain insurance coverage at its sole expense.
(d) The rights, obligations and protections afforded by subarticles
(a) and (b) above shall survive the termination, expiration or
cancellation of this Agreement, and shall apply to the full
extent permitted by law.
(e) Nothing in this Agreement shall be construed as creating any
relationship between the Parties other than that of independent
contractors for the sale and purchase of Installed Capability,
Operable Capability and Energy generated at the Facility. The
Parties do not intend to create any rights, or grant any remedies
to, any third party beneficiary of this Agreement.
ARTICLE 8. Miscellaneous Provisions
(a) The Parties hereto agree that time shall be of the essence of
this Agreement.
(b) This Agreement may not be modified or amended except in writing
signed by or on behalf of both Parties by their duly authorized
officers, and if applicable, after obtaining any required
regulatory approvals.
(c) It shall be the responsibility of Seller to take all necessary
actions to satisfy any regulatory requirements which may be
imposed on Seller by any statute, rule or regulation concerning
the sale of Installed Capability, Operable Capability and Energy.
Company shall cooperate with Seller and provide information or
such other assistance, without cost to Company, as may be
reasonably necessary for Seller to satisfy regulatory
requirements relating specifically and only to the sale of
Installed Capability, Operable Capability and Energy from the
Facility. Seller shall cooperate with Company and provide
information or such other assistance, without cost to Seller, as
may be reasonably necessary for Company to satisfy regulatory
requirements relating
Page 7 of 12
<PAGE>
specifically and only to the purchase of Installed Capability,
Operable Capability and Energy from the Facility.
(d) Notwithstanding subarticle (c) above, Seller agrees to provide,
at no cost to Company, all necessary forms, data, and other
information reasonably requested of Company by ISO-NE, NEPOOL,
or any governmental or regulatory agency or authority having
jurisdiction.
ARTICLE 9. Assignment
(a) Neither Party shall have the right to assign this Agreement or
its rights or obligations hereunder without the express written
consent of the other Party. Such consent shall not be
unreasonably withheld. No assignment shall be effective until
any and all necessary regulatory approvals of the assignment have
been obtained.
(b) Notwithstanding the provisions in Section 9(a) above:
(i) Seller may assign this Agreement to any affiliate to whom
the Facility is transferred, without the Company's prior
consent; provided that Seller shall not be released from
liability hereunder without the Company's prior written
consent.
(ii) Seller may collaterally assign its rights in this
Agreement to its lenders.
(iii) The Company has the right to assign or transfer all of
its rights and obligations under this Agreement without
the consent of Seller provided that Company shall first
provide Seller with thirty (30) days prior written notice
of the proposed assignment or transfer and documentary
evidence of the assignee's or transferee's financial
capacity to satisfy any and all obligations so assigned;
and provided further that such documentary evidence may
be that such assignee or transferee has a current agency
report indicating an investment grade rating from any two
of the following: Standard & Poor's, Moody's, Duff &
Phelps, or Fitch. Any assignment or transfer by the
Company shall include an explicit requirement that the
assignee or transferee agrees to undertake each and every
obligation that the Company has under this Agreement.
The Seller understands and acknowledges that the Company
intends to assign or transfer all of its rights and
obligations under this Agreement.
ARTICLE 10. Force Majeure
(a) If either Party is rendered wholly or partly unable to perform
its obligations under this Agreement because of a Force Majeure
event, that Party shall be excused from whatever performance is
affected by the Force Majeure event to the extent so affected,
provided that the non-performing Party shall: (i1) provide
prompt notice to the other Party of the
Page 8 of 12
<PAGE>
occurrence of the Force Majeure event giving an estimation of its
expected duration and the probable impact on the performance of
its obligations hereunder and submitting good and satisfactory
evidence of the existence of the Force Majeure event; (ii)
exercise all reasonable efforts to continue to perform its
obligations hereunder; (iii) expeditiously take action to correct
or cure the Force Majeure event and submit good and satisfactory
evidence that it is making all reasonable efforts to correct or
cure the Force Majeure event; (iv) exercise all reasonable
efforts to mitigate or limit damages to the other Party to the
extent such action shall not adversely effect its own interests;
and (v) provide prompt notice to the other Party of the cessation
of the Force Majeure event; provided further that any obligations
of either Party which arose before the occurrence of the Force
Majeure event causing non-performance shall not be excused as a
result of the occurrence of a Force Majeure event.
(b) "Force Majeure" means the failure or imminent threat of failure
of facilities or equipment, flood, freeze, earthquake, storm,
fire, lighting, other acts of God, epidemic, war, acts of a
public enemy, riot, civil disturbance or disobedience, strike,
lockout, work stoppages, other industrial disturbance or dispute,
sabotage, restraint by court order or other public authority, and
action or non-action by, or failure or inability to obtain the
necessary authorizations or approvals from, any governmental
agency or authority, which by the exercise of due diligence such
Party could not reasonably have been expected to avoid and by
exercise of due diligence its effect can not be overcome.
Nothing contained herein shall be construed so as to require the
Parties to settle any strike, lockout, work stoppage or any
industrial disturbance or dispute in which it may be involved, or
to seek review of or take an appeal from any administrative or
judicial action. In no event shall the lack of funds or an
inability to obtain funds or any action by any governmental
authority that disallows, prevents or limits the recovery through
rates of all or any portion of the charges imposed by this
Agreement be a Force Majeure event.
ARTICLE 11. Default
(a) "Event of Default" shall mean, in relation to a Party (the
"Defaulting Party"):
(i) the Defaulting Party fails to perform any of its material obligations
hereunder, and such failure is not excused by Force
Majeure and continues for thirty (30) days after the
Defaulting Party receives written notice from the Non-
Defaulting Party of such failure; provided, however, if a
period in excess of thirty (30) days is required to cure
such failure, the Defaulting Party shall have additional
amount of time, not to exceed 180 days, as may be
necessary to cure such failure provided that the
Defaulting Party uses reasonable diligence to remedy such
failure and provided further that, the foregoing "cure"
provisions shall not apply to: y) failure by Company to
make payments to Seller pursuant to Article 6, or z)
failure by Seller to make available and deliver Company's
Entitlement; or
Page 9 of 12
<PAGE>
(ii) the Defaulting Party makes an assignment or general
arrangement for the benefit of creditors, files a
petition, or otherwise commences any proceeding, in
bankruptcy or under similar law, otherwise becomes
bankrupt (however evidenced) or is unable to pay its
debts as they fall due.
(b) Upon an Event of Default, the Non-Defaulting Party may resort to
all remedies available at law or in equity, including, without
limitation: (i) the termination of service; (ii) specific
enforcement of the provisions of this Agreement; and/or (iii) the
recovery of damages except to the extent such damages are waived
or limited pursuant to this Agreement.
ARTICLE 12. Governing Law, Dispute Resolution
(a) The interpretation and performance of this Agreement shall be in
accordance with, and controlled by the law, of the Commonwealth
of Massachusetts, notwithstanding its conflicts of law's
principles.
(b) If any dispute, disagreement, claim or controversy exists between
Seller and Company arising out of or relating to this Agreement,
such disputed matter shall be submitted to a committee comprised
of one designated agent of each Party. Such committee shall be
instructed to attempt to resolve the matter within twenty (20)
days thereafter. If Company's and Seller's designees do not
agree upon a decision within thirty (30) days after the
submission of the matter to them, either Party may institute
formal legal proceedings.
ARTICLE 13. Waiver
The failure of either Party to require compliance with any provision of
this Agreement shall not affect that Party's right to later enforce the
same. It is agreed that the waiver by either Party of performance of
any of the terms of this Agreement, or of any breach thereof, shall not
be held or deemed to be a waiver by that Party of any subsequent
failure to perform the same, or any other term or condition of this
Agreement, or of any breach thereof.
ARTICLE 14. Corporate Authorization
Prior to or simultaneous with the Effective Date of this Agreement, the
Parties shall provide sufficient evidence to each other that each has
the legal power and authority to perform this Agreement, that their
respective officers executing this Agreement have been duly authorized
to do so and that this Agreement, upon execution and delivery, shall be
legally binding and enforceable.
Page 10 of 12
<PAGE>
ARTICLE 15. Notice
Except as otherwise provided herein, any notice, invoice or other
communication which is required or permitted by this Agreement shall be
in writing and delivered by personal service, telecopy, or mailed
certified or registered first class mail, postage prepaid, properly
addressed as follows:
a) In the case of Company to:
Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199 U.S.A.
Attention: Manager - Power Contracts Department
Telecopy No: 617-424-3407
b) In the case of Seller to:
Carolyn C. Shanks, CPA
Vice President, Finance and Administration
Entergy Nuclear Generation Company
P.O. Box 31995
Jackson, MS 39286-1995
Street Address:
1340 Echelon Parkway
Jackson, MS 39213
Telecopy No: 601-368-5323
Page 11 of 12
<PAGE>
Another address or addressee may be specified in a notice duly given as
provided. Each notice, invoice or other communication which shall be
mailed, delivered or transmitted in the manner described above shall be
deemed sufficiently given and received for all purposes at such time as
it is delivered to the addressee (with return receipt, the delivered
receipt, the affidavit of the messenger or with respect to a telecopy,
the answer back, being deemed conclusive evidence of such delivery) or
at such time as delivery is refused by the addressee upon presentation.
IN WITNESS WHEREOF the Parties have executed this Agreement as of the date
first written above.
ENTERGY NUCLEAR GENERATION COMPANY
By: /s/ Donald C. Hintz
---------------------------------
Name: Donald C. Hintz
Title: President and Chief Executive
Officer
BOSTON EDISON COMPANY
By: /s/ Douglas S. Horan
---------------------------------
Name: Douglas S. Horan
Title: Senior Vice President and
General Counsel
Page 12 of 12
<PAGE>
POWER PURCHASE AGREEMENT
WITH RESPECT TO MUNICIPAL ENTITLEMENTS
BETWEEN
ENTERGY NUCLEAR GENERATION COMPANY
AND
BOSTON EDISON COMPANY
FOR PILGRIM NUCLEAR POWER STATION
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE 1. Definitions .................................................... 1
ARTICLE 2. Purchase and Sale of Installed Capability, Operable
Capability and Energy .......................................... 3
ARTICLE 3. Term, Termination and Company's Entitlement .................... 4
ARTICLE 4. Purchase Rate for Installed Capability, Operable
Capability and Energy .......................................... 4
ARTICLE 5. Dispatch ....................................................... 5
ARTICLE 6. Billing, Meter Reading ......................................... 5
ARTICLE 7. Seller's Obligations with Respect to Power Sales
Agreements with Municipals ..................................... 7
ARTICLE 8. Limitation of Liability; Indemnification; Insurance;
Relationship of Parties ........................................ 7
ARTICLE 9. Miscellaneous Provisions ....................................... 8
ARTICLE 10. Assignment .................................................... 8
ARTICLE 11. Force Majeure ................................................. 9
ARTICLE 12. Default ...................................................... 10
ARTICLE 13. Governing Law, Dispute Resolution ............................ 10
ARTICLE 14. Waiver ....................................................... 10
ARTICLE 15. Corporate Authorization ...................................... 11
ARTICLE 16. Notice ....................................................... 11
<PAGE>
POWER PURCHASE AGREEMENT
WITH RESPECT TO MUNICIPAL ENTITLEMENTS
BETWEEN
ENTERGY NUCLEAR GENERATION COMPANY
AND BOSTON EDISON COMPANY
AGREEMENT entered into this 18th day of November 1998 by and between
Entergy Nuclear Generation Company, a Delaware corporation (hereafter referred
to as "Seller"), and Boston Edison Company, a Massachusetts corporation having
its principal place of business at 800 Boylston Street, Boston, Massachusetts
02199, (hereafter referred to as "Company").
WHEREAS, Seller wishes to sell to Company and Company wishes to
purchase from Seller, Installed Capability, Operable Capability, and Energy
following the closing pursuant to the Purchase and Sale Agreement dated
November 18,1998 by and between Company and Seller (the "Purchase and Sale
Agreement") pursuant to which Seller shall purchase the specific generating
facility known as Pilgrim Nuclear Power Station, from the Company, and Seller
and Company shall enter into the Interconnection and Operation Agreement of
even date herewith (the "Interconnection Agreement"; and
WHEREAS, Company is a party to fourteen Power Sale Agreements ("PSAs")
with the following: City of Holyoke Gas and Electric Department, City of
Westfield Gas and Electric Light Department, Marblehead Municipal Light
Department, Middleborough Gas and Electric Department, North Attleboro
Electric Department, Peabody Municipal Light Plant, Shrewsbury's Electric
Light Plant, Templeton Municipal Light Plant, Town of Boylston Municipal Light
Department, Town of Hudson Light and Power Department, Littleton Electric
Light Department, Town of Wakefield Municipal Light Department, Reading
Municipal Light Department, and West Boylston Municipal Lighting Department
(collectively, the "Municipals"); and
WHEREAS, Company and Seller have entered into Partial Assignments with
respect to the PSAs of each of these Municipals pursuant to which Company has
assigned to Seller certain obligations under the PSAs including Company's
obligation to provide capacity and energy from Pilgrim Nuclear Power Station
to each of the Municipals;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, Seller and Company hereby agree as follows:
ARTICLE 1. Definitions
When used with initial capitalizations, whether in the singular or in
the plural, the following terms shall have the meanings set forth
below.
(a) Agreement: This document, including its appendices, as amended
---------
from time to time.
Page 1 of 12
<PAGE>
(b) Capability Audit: The procedure used pursuant to the NEPOOL
----------------
Agreement to determine the Summer Net Capability and the Winter
Net Capability of the Facility as currently set forth in the
NEPOOL Standards.
(c) Company's Entitlement: 3.73133% of the Installed Capability,
---------------------
Operable Capability and Energy of the Facility, unless such
percentage is decreased by Company in accordance with Article
3(a) hereof.
(d) Energy: The actual hourly electricity production of the Facility
------
adjusted for station service use and transformer losses.
(e) Delivery Point: The point where capacity and energy generated by
--------------
the Facility is delivered to the Pool Transmission Facilities, as
defined by the NEPOOL Agreement.
(f) Facility: The Pilgrim Nuclear Power Station, a 670 MW nuclear
--------
generating facility located in Plymouth, Massachusetts.
(g) FERC: The Federal Energy Regulatory Commission.
----
(h) Installed Capability: The Winter Net Capability during the
--------------------
Winter Period and the Summer Net Capability during the Summer
Period.
(i) ISO-NE: The Independent System Operator of New England provided
------
for in the NEPOOL Agreement, or its successor.
(j) Market Price: The wholesale electricity price in a given month,
------------
which shall equal the sum of a) the applicable monthly average
non-weighted hourly clearing price in the NEPOOL energy market
expressed in $/MWh, b) the applicable monthly average non-
weighted hourly clearing price in the NEPOOL operable capability
market expressed in $/MWh, and c) the applicable monthly clearing
price in the NEPOOL installed capability market converted into an
equivalent $/MWh rate using a load factor of 80% in 2005 and 90%
in 2006.
(k) MDTE: The Massachusetts Department of Telecommunications and
----
Energy.
(l) NEPOOL: The New England Power Pool, established by the NEPOOL
------
Agreement, or its successor.
(m) NEPOOL Agreement: The agreement, dated September 1, 1971, as
----------------
amended from time to time, governing the operation of NEPOOL, as
in full force and effect.
(n) NEPOOL Standards: All Criteria, Rules and Standards (CRS),
----------------
NEPOOL Automated Billing System Procedures (NABS), Operating
Procedures (OP), and Market Rules (MR) issued or adopted by
NEPOOL, ISO-NE and its satellite agencies, or their successors,
as amended from time to time and all successor regulations, rules
and standards.
Page 2 of 12
<PAGE>
(o) Operable Capability: The portion of Installed Capability of the
-------------------
Facility which is operating or available to respond within an
appropriate period (as defined by NEPOOL) to the ISO-NE call to
meet the Energy requirements of the NEPOOL operating area.
(p) Party: Seller or Company and its respective successors or
-----
assigns.
(q) Prime Rate: That rate as announced by BankBoston (or its
----------
successor) as its prime rate in effect on the first day of the
month.
(r) Prudent Utility Practice: Any practices, methods and acts
------------------------
engaged in or approved by a significant portion of the electric
utility industry during the relevant time period, or any of the
practices, methods and acts which, in the exercise of reasonable
judgment in light of facts known at the time the decision was
made, could have been expected to accomplish the desired result
at a reasonable cost consistent with good business practices,
reliability, safety and expedition and giving due regard for the
requirements of governmental agencies having jurisdiction.
Prudent Utility Practice is not intended to be limited to the
optimum practice, method, or act to the exclusion of all others,
but rather to be acceptable practices, methods, or acts generally
accepted in the electric utility industry.
(s) Summer Net Capability (Capability): The Maximum Claimed
----------------------------------
Capability, as defined in NEPOOL CRS - 4 , of the Facility during
the Summer Period, expressed in kilowatts, and as determined by
Capability Audit, exclusive of the capacity required for Facility
use.
(t) Summer Period: Summer Period shall have the meaning set forth in
-------------
the NEPOOL Agreement.
(u) Winter Net Capability (Capability): The Maximum Claimed
----------------------------------
Capability, as defined in NEPOOL CRS - 4 , of the Facility
during the Winter Period, expressed in kilowatts, and as
determined by Capability Audit, exclusive of the capacity
required for Facility use.
(v) Winter Period: Winter Period shall have the meaning set forth in
-------------
the NEPOOL Agreement.
ARTICLE 2. Purchase and Sale of Installed Capability, Operable Capability
and Energy
(a) Company agrees to purchase and Seller agrees to sell and to
deliver Company's Entitlement pursuant to the Partial Assignments
with respect to the Municipals' PSAs. In the event that any of
the Municipals refuse to accept delivery pursuant to such Partial
Assignment or such Partial Assignments are no longer in effect,
Company agrees to purchase and to accept delivery of the
Company's Entitlement at the Delivery Point, for Company's own
use and/or sale to others for the term of this Agreement.
(b) Seller shall use Prudent Utility Practices in all aspects of the
management and operation of the Facility. Seller shall use
commercially reasonable efforts to maintain the Facility's
Installed Capability at the level demonstrated by the most recent
Capability Audit at the time of the Purchase and Sale Agreement
and use its commercially reasonable efforts to make Energy and
Operable Capability available to Company on an ongoing basis.
Page 3 of 12
<PAGE>
Notwithstanding the foregoing, Seller may permanently retire the
Facility upon 30 days written notice to the Company, at which
time this Agreement will terminate.
(c) Periodically after the execution of this Agreement, Seller shall
undergo Capability Audits pursuant to NEPOOL Standards to
demonstrate and audit the Summer Net Capability and/or the Winter
Net Capability of the Facility. The Capability Audit shall be
performed pursuant to NEPOOL Standards or standards mutually
agreed to by the Parties if NEPOOL ceases to establish such
standards. Seller agrees to provide to Company the results of
the demonstrations and audits (NX-17s and supporting material).
(d) Seller shall schedule maintenance activities in accordance with
NEPOOL Standards. As soon as practically possible, seller shall
provide advance notice of planned maintenance activities and
unplanned outages by telephone or telecopy to Company's
designated agent.
ARTICLE 3. Term, Termination, and Company's Entitlement
(a) The obligations of the Parties under this Agreement shall
commence on the Closing Date as defined in the Purchase and Sale
Agreement and shall be conterminous with Company's obligation to
provide capacity and energy from the Facility to the Municipals
under the PSAs, provided that, in no event shall this Agreement
terminate prior to December 31, 2004. Company may decrease
Company's Entitlement at any time after December 31, 2004 by
providing one hundred and twenty (120) days prior written notice
to Seller. In no event may Company increase Company's
Entitlement at any time. Notwithstanding the foregoing,
applicable provisions of this Agreement shall remain in effect
after termination hereof, including Articles 7 and 8 and
provisions necessary to provide for final billings, billing
adjustments, and payments.
(b) Notwithstanding the foregoing, the obligations of the Parties
under this Agreement are subject to and contingent upon receipt
of an acceptable (in each Party's sole discretion) final, non-
appealable order of (i) the MDTE approving this Agreement and
(ii) the FERC accepting this Agreement.
ARTICLE 4. Purchase Rate for Installed Capability, Operable Capability and
Energy
(a) Company shall pay Seller monthly (on a $/Mwh basis) for Installed
Capability, Operable Capability and Energy, according to the
following formula:
TMA = P x U
t t t
where:
TMA = Total monthly amount due in month (t)
t
P = The Purchase price expressed in $/Mwh
t
= 35.00 $/Mwh for all the months in the year 1999
Page 4 of 12
<PAGE>
= 38.00 $/Mwh for all the months in the year 2000
= 35.19 $/Mwh for all the months in the year 2001
= 38.89 $/Mwh for all the months in the year 2002
= 43.52 $/Mwh for all the months in the year 2003
= 47.22 $/Mwh for all the months in the year 2004
= Market Price for each month, commencing
January 2005
U = The Energy portion of the Company's Entitlement
t delivered to Company in month (t) expressed in
megawatthours.
ARTICLE 5. Dispatch
(a) Seller shall make the Facility available for dispatch by ISO-NE.
(b) Seller shall comply with all NEPOOL Standards applicable to
Seller.
(c) Seller shall submit all forms to ISO-NE with a copy to Company.
(d) Seller's and Company's designated agent shall mutually agree to
any revision to the existing ISO-NE NX-12B Forms to be submitted
to ISO-NE in accordance with the provisions of the NEPOOL
Agreement and NEPOOL Standards.
(e) Whenever Company's system or the systems with which it is
directly interconnected experience an emergency, as designated by
the affected utility, or whenever it is necessary to aid in the
restoration of service on Company's system or on the systems with
which it is directly or indirectly interconnected, or, whenever
requested by ISO-NE, Seller or its designee shall curtail or
interrupt the delivery of all or a portion of the production of
electricity at the Facility provided such curtailment or
interruption shall continue only for as long as reasonably
necessary to deal with the emergency.
(f) Whenever Seller's Facility experiences an emergency, Seller or
its designee shall have the right to curtail or interrupt all or
a portion of Seller's obligation hereunder, provided such
curtailment or interruption shall continue only for so long as
reasonably necessary to deal with the emergency, and provided
Seller promptly notifies Company of the occurrence of such an
emergency.
ARTICLE 6. Billing, Meter Reading
(a) Seller shall deliver Company's Entitlement to the Delivery Point.
Seller is responsible for maintaining metering and telemetering
equipment at the Facility. The metering equipment shall be
capable of registering and recording instantaneous, and time-
differentiated electric energy and other related data from the
Facility, and shall comply with the requirements of NEPOOL's
Standards as may be issued or revised from time to time. The
telemetering shall be capable of transmitting such data to
location(s) specified by Company.
Page 5 of 12
<PAGE>
(b) Each day, Seller shall be required to provide Company with hourly
integrated megawatt hour readings for each hour of the previous
day. Seller shall record hourly meter readings and log sheets
and, upon Company's request, provide copies of daily meter
recordings and log sheets by electronic means with hard copy
back-up. All metering equipment installed shall be routinely
tested in accordance with Prudent Utility Practice. Any meter
tested and found to register within one-half of one percent
(0.5%) of the recognized comparative standard shall be considered
correct and accurate. If at any time, any metering equipment is
found to be defective or inaccurate, Seller shall cause such
metering equipment to be made accurate or replaced at Seller's
expense. Notwithstanding subarticle (e) below, in such event, a
billing adjustment shall be made by Seller correcting all
measurements made by the defective meter for either: (i) the
actual period during which inaccurate measurements were made, if
such period is determinable to the mutual satisfaction of the
Company and Seller; or (ii) if such period is not determinable,
for a period equal to one-half the time elapsed since the prior
test, but in no event greater than six months.
(c) Seller shall submit, by telecopy or other agreeable same day
delivery mechanism, an invoice for all applicable Article 4
charges to Company as soon as practicable after the end of each
calendar month, that shall include the time and date of the meter
readings. This invoice shall include such reasonable detail to
enable the Company to determine the basis for the charges of such
month. Seller and Company agree to provide additional
information reasonably requested by the other Party as necessary
for billing purposes or data verification. Invoices may be
rendered on an estimated basis. Each invoice shall be subject to
adjustment for any errors in arithmetic, computing, estimating or
otherwise. Seller and Company shall include any such invoicing
adjustments as promptly as practicable.
(d) All payments shown to be due on such invoice, except amounts in
dispute, shall be due and payable as shown on the invoice.
Company shall pay by wire transfer per instructions on the
invoice on or before ten (10) days after receipt of the invoice.
(e) Any undisputed amounts unpaid after the Due Date shall bear
interest at a rate equal to the Prime Rate then in effect on the
Due Date, compounded on a monthly basis. Company may dispute all
or any part of any invoice by written notification to Seller
within 30 days of receipt of such invoice. All amounts paid by
the Company which are subsequently determined to have been
improperly invoiced by Seller under this Agreement shall be
subject to refund with interest at a rate equal to the Prime Rate
then in effect on the Due Date, compounded on a monthly basis.
(f) Seller shall keep complete and accurate records and meter
readings of its operations and shall maintain such data for a
period of at least one (1) year after invoice for the final
billing is rendered. Company shall have the right, upon five (5)
business days prior notice, during normal business hours, to
examine and inspect all such records and meter readings in so far
as may be necessary for the purpose of ascertaining the
reasonableness and accuracy of all relevant data, estimates or
statements of charges submitted to it hereunder but shall not
impair or interfere with the operation of the Facility owned by
Seller.
Page 6 of 12
<PAGE>
ARTICLE 7. Sellers Obligations with Respect to Power Sales Agreements with
Municipals
(a) Seller agrees to maintain its books and records regarding the
Facility in compliance with the FERC Uniform System of Accounts,
codified at C.F.R. Part 101. Seller agrees to a reasonable audit
of such books and records by Company and/or the Municipals, at
Company's expense, on thirty days' notice. If Company requests
more than one such audit in a calendar year, Seller's reasonable
costs in responding to such additional audits shall be reimbursed
by Company.
(b) Each of Company's PSAs with the Municipals, as amended, obligates
Company to provide certain information and documents to and
conduct consultations with the Municipals or their
representative. Seller agrees to provide the said information
and documents to and conduct consultations with Company and the
Municipals, as described in each PSA, in order to ensure
fulfillment of said obligations.
(c) Seller shall cooperate with Company and provide information or
such other assistance, without cost to Seller, as may be
reasonably necessary for Company to satisfy its contractual
obligations to the Municipals under the PSAs.
ARTICLE 8. Limitation of Liability; Indemnification; Insurance; Relationship
of Parties
(a) Notwithstanding subarticle (b) hereof or any other provision of
this Agreement to the contrary, neither Company nor Seller nor
their respective officers, directors, agents, employees, parent,
subsidiaries or affiliates or their officers, directors, agents
or employees shall be liable or responsible to the other Party or
its parent, subsidiaries, affiliates, officers, directors,
agents, employees, successors or assigns, or their respective
insurers, for incidental, indirect, exemplary, punitive or
consequential damages, connected with or resulting from
performance or non-performance of this Agreement, or anything
done in connection therewith including, without limitation,
claims in the nature of lost revenues, income or profits (other
than payments expressly required and properly due under this
Agreement), and increased expense of, reduction in or loss of
power generation production or equipment used therefor,
irrespective of whether such claims are based upon breach of
warranty, tort (including negligence, whether of Seller, Company
or others), strict liability, contract, operation of law or
otherwise, but excluding acts of gross negligence or willful
misconduct.
(b) Each Party (the "Indemnifying Party") shall defend, indemnify and
save the other Party (the "Indemnified Party"), its officers,
directors, agents, employees and affiliates and their respective
officers, directors, agents and employees harmless from and
against any and all claims, liabilities, demands, judgments,
losses, costs, expenses (including reasonable attorneys' fees),
suits, or damages arising by reason of bodily injury, death or
damage to third party property sustained by any person or entity
(whether or not a party to this Agreement) caused by or
attributable to a breach of this Agreement by the Indemnifying
Party or an action of gross negligence or willful misconduct of
the Indemnifying Party or an officer, director, agent or employee
of Indemnifying Party.
(c) Seller shall maintain insurance coverage at its sole expense.
Page 7 of 12
<PAGE>
ARTICLE 7. Sellers Obligations with Respect to Power Sales Agreements with
Municipals
(a) Seller agrees to maintain its books and records regarding the
Facility in compliance with the FERC Uniform System of Accounts,
codified at C.F.R. Part 101. Seller agrees to a reasonable audit
of such books and records by Company and/or the Municipals, at
Company's expense, on thirty days' notice. If Company requests
more than one such audit in a calendar year, Seller's reasonable
costs in responding to such additional audits shall be reimbursed
by Company.
(b) Each of Company's PSAs with the Municipals, as amended, obligates
Company to provide certain information and documents to and
conduct consultations with the Municipals or their
representative. Seller agrees to provide the said information
and documents to and conduct consultations with Company and the
Municipals, as described in each PSA, in order to ensure
fulfillment of said obligations.
(c) Seller shall cooperate with Company and provide information or
such other assistance, without cost to Seller, as may be
reasonably necessary for Company to satisfy its contractual
obligations to the Municipals under the PSAs.
ARTICLE 8. Limitation of Liability; Indemnification; Insurance; Relationship
of Parties
(a) Notwithstanding subarticle (b) hereof or any other provision of
this Agreement to the contrary, neither Company nor Seller nor
their respective officers, directors, agents, employees, parent,
subsidiaries or affiliates or their officers, directors, agents
or employees shall be liable or responsible to the other Party or
its parent, subsidiaries, affiliates, officers, directors,
agents, employees, successors or assigns, or their respective
insurers, for incidental, indirect, exemplary, punitive or
consequential damages, connected with or resulting from
performance or non-performance of this Agreement, or anything
done in connection therewith including, without limitation,
claims in the nature of lost revenues, income or profits (other
than payments expressly required and properly due under this
Agreement), and increased expense of, reduction in or loss of
power generation production or equipment used therefor,
irrespective of whether such claims are based upon breach of
warranty, tort (including negligence, whether of Seller, Company
or others), strict liability, contract, operation of law or
otherwise, but excluding acts of gross negligence or willful
misconduct.
(b) Each Party (the "Indemnifying Party") shall defend, indemnify and
save the other Party (the "Indemnified Party"), its officers,
directors, agents, employees and affiliates and their respective
officers, directors, agents and employees harmless from and
against any and all claims, liabilities, demands, judgments,
losses, costs, expenses (including reasonable attorneys' fees),
suits, or damages arising by reason of bodily injury, death or
damage to third party property sustained by any person or entity
(whether or not a party to this Agreement) caused by or
attributable to a breach of this Agreement by the Indemnifying
Party or an action of gross negligence or willful misconduct of
the Indemnifying Party or an officer, director, agent or employee
of Indemnifying Party.
(c) Seller shall maintain insurance coverage at its sole expense.
Page 7 of 12
<PAGE>
(d) The rights, obligations and protections afforded by subarticles
(a) and (b) above shall survive the termination, expiration or
cancellation of this Agreement, and shall apply to the full
extent permitted by law.
(d) Nothing in this Agreement shall be construed as creating any
relationship between the Parties other than that of independent
contractors for the sale and purchase of Installed Capability,
Operable Capability, and Energy generated at the Facility. The
Parties do not intend to create any rights, or grant any remedies
to, any third party beneficiary of this Agreement.
ARTICLE 9. Miscellaneous Provisions
(a) The Parties hereto agree that time shall be of the essence of
this Agreement.
(b) This Agreement may not be modified or amended except in writing
signed by or on behalf of both Parties by their duly authorized
officers, and if applicable, after obtaining any required
regulatory approvals.
(c) It shall be the responsibility of Seller to take all necessary
actions to satisfy any regulatory requirements which may be
imposed on Seller by any statute, rule or regulation concerning
the sale of Installed Capability, Operable Capability and Energy.
Company shall cooperate with Seller and provide information or
such other assistance, without cost to Company, as may be
reasonably necessary for Seller to satisfy regulatory
requirements relating specifically and only to the sale of
Installed Capability, Operable Capability and Energy from the
Facility. Seller shall cooperate with Company and provide
information or such other assistance, without cost to Seller, as
may be reasonably necessary for Company to satisfy regulatory
requirements relating specifically and only to the purchase of
Installed Capability, Operable Capability and Energy from the
Facility.
(d) Notwithstanding subarticle (c) above, Seller agrees to provide,
at no cost to Company, all necessary forms, data, and other
information reasonably requested of Company by ISO-NE, NEPOOL,
or any governmental or regulatory agency or authority having
jurisdiction.
ARTICLE 10. Assignment
(a) Neither Party shall have the right to assign this Agreement or
its rights or obligations hereunder without the express written
consent of the other Party. Such consent shall not be
unreasonably withheld. No assignment shall be effective until
any and all necessary regulatory approvals of the assignment have
been obtained.
(b) Notwithstanding the provisions in Section 10(a) above:
(i) Seller may assign this Agreement to any affiliate to whom
the Facility is transferred, without the Company's prior
consent; provided that Seller shall not be released from
liability hereunder without the Company's prior written
consent.
Page 8 of 12
<PAGE>
(ii) Seller may collaterally assign its rights in this
Agreement to its lenders.
(iii) The Company has the right to assign or transfer all of
its rights and obligations under this Agreement without
the consent of Seller provided that Company shall first
provide Seller with thirty (30) days prior written notice
of the proposed assignment or transfer and documentary
evidence of the assignee's or transferee's financial
capacity to satisfy any and all obligations so assigned;
and provided further that such assignee or transferee has
a current agency report indicating an investment grade
rating from any two of the following: Standard & Poor's,
Moody's, Duff & Phelps, or Fitch. Any assignment or
transfer by the Company shall include an explicit
requirement that the assignee or transferee agrees to
undertake each and every obligation that the Company has
under this Agreement. The Seller understands and
acknowledges that the Company intends to assign or
transfer all of its rights and obligations under this
Agreement.
ARTICLE 11. Force Majeure
(a) If either Party is rendered wholly or partly unable to perform
its obligations under this Agreement because of a Force Majeure
event, that Party shall be excused from whatever performance is
affected by the Force Majeure event to the extent so affected,
provided that the non-performing Party shall: (i) provide
prompt notice to the other Party of the occurrence of the Force
Majeure event giving an estimation of its expected duration and
the probable impact on the performance of its obligations
hereunder and submitting good and satisfactory evidence of the
existence of the Force Majeure event; (ii) exercise all
reasonable efforts to continue to perform its obligations
hereunder; (iii) expeditiously take action to correct or cure the
Force Majeure event and submit good and satisfactory evidence
that it is making all reasonable efforts to correct or cure the
Force Majeure event; (iv) exercise all reasonable efforts to
mitigate or limit damages to the other Party to the extent such
action shall not adversely effect its own interests; and (v)
provide prompt notice to the other Party of the cessation of the
Force Majeure event; provided further that any obligations of
either Party which arose before the occurrence of the Force
Majeure event causing non-performance shall not be excused as a
result of the occurrence of a Force Majeure event.
(b) "Force Majeure" means the failure or imminent threat of failure
of facilities or equipment, flood, freeze, earthquake, storm,
fire, lighting, other acts of God, epidemic, war, acts of a
public enemy, riot, civil disturbance or disobedience, strike,
lockout, work stoppages, other industrial disturbance or dispute,
sabotage, restraint by court order or other public authority, and
action or non-action by, or failure or inability to obtain the
necessary authorizations or approvals from, any governmental
agency or authority, which by the exercise of due diligence such
Party could not reasonably have been expected to avoid and by
exercise of due diligence its effect can not be overcome.
Nothing contained herein shall be construed so as to require the
Parties to settle any strike, lockout, work stoppage or any
industrial disturbance or dispute in which it may be involved, or
to seek review of or take an appeal from any administrative or
judicial action. In no event shall the lack of funds or an
inability to obtain funds or any action by any governmental
authority that disallows,
Page 9 of 12
<PAGE>
prevents or limits the recovery through rates of all or any
portion of the charges imposed by this Agreement be a Force
Majeure event.
ARTICLE 12. Default
(a) "Event of Default" shall mean, in relation to a Party (the
"Defaulting Party"):
(i) the Defaulting Party fails to perform any of its material
obligations hereunder, and such failure is not excused by
Force Majeure and continues for thirty (30) days after
the Defaulting Party receives written notice from the
Non-Defaulting Party of such failure; provided, however,
if a period in excess of thirty (30) days is required to
cure such failure, the Defaulting Party shall have
additional amount of time, not to exceed 180 days, as may
be necessary to cure such failure provided that the
Defaulting Party uses reasonable diligence to remedy such
failure and provided further that, the foregoing "cure"
provisions shall not apply to: y) failure by Company to
make payments to Seller pursuant to Article 6, or z)
failure by Seller to make available and deliver Company's
Entitlement; or
(ii) the Defaulting Party makes an assignment or general
arrangement for the benefit of creditors, files a
petition, or otherwise commences any proceeding, in
bankruptcy or under similar law, otherwise becomes
bankrupt (however evidenced) or is unable to pay its
debts as they fall due.
(b) Upon an Event of Default, the Non-Defaulting Party may resort to
all remedies available at law or in equity, including, without
limitation: (i) the termination of service; (ii) specific
enforcement of the provisions of this Agreement; and/or (iii) the
recovery of damages except to the extent such damages are waived
or limited pursuant to this Agreement.
ARTICLE 13. Governing Law, Dispute Resolution
(a) The interpretation and performance of this Agreement shall be in
accordance with, and controlled by the law, of the Commonwealth
of Massachusetts, notwithstanding its conflicts of law's
principles.
(b) If any dispute, disagreement, claim or controversy exists between
Seller and Company arising out of or relating to this Agreement,
such disputed matter shall be submitted to a committee comprised
of one designated agent of each Party. Such committee shall be
instructed to attempt to resolve the matter within twenty (20)
days thereafter. If Company's and Seller's designees do not
agree upon a decision within thirty (30) days after the
submission of the matter to them, either Party may institute
formal legal proceedings.
ARTICLE 14. Waiver
The failure of either Party to require compliance with any provision of
this Agreement shall not affect that Party's right to later enforce the
same. It is agreed that the waiver by either Party of
Page 10 of 12
<PAGE>
performance of any of the terms of this Agreement, or of any breach
thereof, shall not be held or deemed to be a waiver by that Party of
any subsequent failure to perform the same, or any other term or
condition of this Agreement, or of any breach thereof.
ARTICLE 15. Corporate Authorization
Prior to or simultaneous with the Effective Date of this Agreement, the
Parties shall provide sufficient evidence to each other that each has
the legal power and authority to perform this Agreement, that their
respective officers executing this Agreement have been duly authorized
to do so and that this Agreement, upon execution and delivery, shall be
legally binding and enforceable.
ARTICLE 16. Notice
Except as otherwise provided herein, any notice, invoice or other
communication which is required or permitted by this Agreement shall be
in writing and delivered by personal service, telecopy, or mailed
certified or registered first class mail, postage prepaid, properly
addressed as follows:
a) In the case of Company to:
Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199 U.S.A.
Attention: Manager - Power Contracts Department
Telecopy No: 617-424-3407
b) In the case of Seller to:
Carolyn C. Shanks, CPA
Vice President, Finance and Administration
Entergy Nuclear Generation Company
P.O. Box 31995
Jackson, MS 39286-1995
Street Address:
1340 Echelon Parkway
Jackson, MS 39213
Telecopy No: 601-368-5323
Page 11 of 12
<PAGE>
Another address or addressee may be specified in a notice duly given as
provided. Each notice, invoice or other communication which shall be
mailed, delivered or transmitted in the manner described above shall be
deemed sufficiently given and received for all purposes at such time as
it is delivered to the addressee (with return receipt, the delivered
receipt, the affidavit of the messenger or with respect to a telecopy,
the answer back, being deemed conclusive evidence of such delivery) or
at such time as delivery is refused by the addressee upon presentation.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first written above.
ENTERGY NUCLEAR GENERATION COMPANY
By: /s/ Donald C. Hintz
---------------------------------
Name: Donald C. Hintz
Title: President and Chief Executive
Officer
BOSTON EDISON COMPANY
By: /s/ Douglas S. Horan
---------------------------------
Name: Douglas S. Horan
Title: Senior Vice President and
General Counsel
Page 12 of 12
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of BEC Energy on Form S-3 (File No. 33-59693) and on Form S-8
(File Nos. 33-58457, 33-59662, 33-59682 and 333-30975-99) of our report
dated January 28, 1999 on our audits of the consolidated financial statements
of BEC Energy as of December 31, 1998 and 1997 and for each of the three years
in the period ended December 31, 1998, which report is included in this Annual
Report on Form 10-K/A.
By: /s/ PricewaterhouseCoopers LLP
----------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 12, 1999
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