FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-7624
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WESTERN MASSACHUSETTS ELECTRIC COMPANY
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1961130
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
174 BRUSH HILL AVENUE, WEST SPRINGFIELD, MASSACHUSETTS (01090-0010)
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(Address of principal executive offices) (Zip Code)
(413) 785-5871
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
___ ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 29, 1994
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Common Shares, $25.00 par value 1,072,471 shares
WESTERN MASSACHUSETTS ELECTRIC COMPANY
TABLE OF CONTENTS
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 1994
and December 31, 1993 2
Statements of Income - Three
Months Ended March 31, 1994 and 1993 4
Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>1
PART I. FINANCIAL INFORMATION
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- - ------
Utility Plant, at original cost:
Electric........................................... $ 1,186,811 $ 1,183,410
Less: Accumulated provision for depreciation.... 406,141 395,190
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780,670 788,220
Construction work in progress...................... 27,050 23,790
Nuclear fuel, net.................................. 37,315 35,727
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Total net utility plant........................ 845,035 847,737
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Other Property and Investments:
Nuclear decommissioning trusts, at market in 1994
and at cost in 1993 (Note 2)<F2>.................. 53,852 49,155
Investments in regional nuclear generating
companies, at equity.............................. 14,725 14,633
Other, at cost..................................... 3,840 3,840
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72,417 67,628
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Current Assets:
Cash and special deposits.......................... 180 185
Notes receivable from affiliated companies......... 98,250 -
Receivables, net................................... 41,601 36,437
Accounts receivable from affiliated companies...... 967 4,972
Accrued utility revenues........................... 13,206 17,362
Fuel, materials, and supplies, at average cost..... 5,871 7,057
Prepayments and other.............................. 9,750 9,613
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169,825 75,626
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Deferred Charges:
Regulatory asset--income taxes..................... 92,102 94,414
Amortizable property investment--Millstone 3....... 25,201 28,001
Deferred costs--Millstone 3........................ 19,068 22,667
Unrecovered contract obligation--YAEC.............. 23,239 24,150
Deferred DOE assessment............................ 8,907 8,908
Unamortized debt expense........................... 2,185 1,842
Other.............................................. 34,983 33,669
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205,685 213,651
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Total Assets................................... $ 1,292,962 $ 1,204,642
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>2
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
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(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock--$25 par value.
Authorized and outstanding 1,072,471 shares......... $ 26,812 $ 26,812
Capital surplus, paid in............................. 149,392 149,319
Retained earnings.................................... 102,888 97,627
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Total common stockholder's equity........... 279,092 273,758
Preferred stock not subject to mandatory redemption.. 73,500 73,500
Preferred stock subject to mandatory redemption...... 24,000 25,500
Long-term debt....................................... 379,106 393,232
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Total capitalization........................ 755,698 765,990
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Obligations Under Capital Leases....................... 27,180 24,014
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Current Liabilities:
Notes payable to banks............................... - 6,000
Long-term debt and preferred stock--current
portion............................................. 105,069 1,500
Obligations under capital leases--current
portion............................................. 13,159 12,888
Accounts payable..................................... 10,378 17,493
Accounts payable to affiliated companies............. 10,874 12,016
Accrued taxes........................................ 14,612 7,022
Accrued interest..................................... 7,007 6,478
Refundable energy costs.............................. 5,647 8,676
Other................................................ 15,663 11,727
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182,409 83,800
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Deferred Credits:
Accumulated deferred income taxes.................... 251,311 253,547
Accumulated deferred investment tax credits.......... 35,771 36,083
Deferred contract obligation--YAEC................... 23,239 24,150
Deferred DOE obligation.............................. 7,268 7,268
Other................................................ 10,086 9,790
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327,675 330,838
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Commitments and Contingencies (Note 4)<F4>
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Total Capitalization and Liabilities........ $ 1,292,962 $ 1,204,642
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>3
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1994 1993
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(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.................................... $ 112,984 $ 108,950
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Operating Expenses:
Operation --
Fuel, purchased and net interchange power........ 17,107 18,458
Other............................................ 35,391 34,746
Maintenance......................................... 9,146 8,232
Depreciation........................................ 9,400 9,210
Amortization of regulatory assets................... 6,841 7,519
Federal and state income taxes...................... 10,608 8,384
Taxes other than income taxes....................... 5,023 4,742
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Total operating expenses...................... 93,516 91,291
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Operating Income...................................... 19,468 17,659
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Other Income:
Allowance for other funds used during construction.. 176 79
Deferred Millstone 3 return--other funds............ 253 415
Equity in earnings of regional nuclear generating
companies......................................... 467 391
Other, net.......................................... 9 741
Income taxes--credit................................ 411 166
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Other income, net............................. 1,316 1,792
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Income before interest charges................ 20,784 19,451
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Interest Charges:
Interest on long-term debt.......................... 7,097 8,294
Other interest...................................... 47 150
Allowance for borrowed funds used during
construction...................................... (132) (113)
Deferred Millstone 3 return--borrowed funds......... (189) (308)
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Interest charges, net......................... 6,823 8,023
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Income before cumulative effect of
accounting change................................... 13,961 11,428
Cumulative effect of accounting change (Note 2)<F2>... - 3,922
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Net Income............................................ $ 13,961 $ 15,350
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>4
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE> Three Months Ended
<CAPTION> March 31,
------------------------
1994 1993
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(Thousands of Dollars)
<S> <C> <C>
Cash Flows From Operations:
Net Income .............................................. $ 13,961 $ 15,350
Adjusted for the following:
Depreciation .......................................... 9,400 9,210
Deferred income taxes and investment tax credits, net.. 959 (2,454)
Deferred nuclear plants return, net of amortization.... 3,250 2,947
Deferred fuel, net of amortization..................... (3,029) 5,002
Other sources of cash.................................. 3,520 7,511
Other uses of cash..................................... (3,542) (773)
Changes in working capital:
Receivables and accrued utility revenues............... 2,997 1,699
Fuel, materials, and supplies.......................... 1,186 768
Accounts payable....................................... (8,257) (14,334)
Accrued taxes.......................................... 7,590 5,813
Other working capital (excludes cash).................. 3,134 4,718
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Net Cash Flows From Operations............................. 31,169 35,457
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Cash Flows From Financing Activities:
Long-term debt........................................... 90,000 60,000
Net decrease in short-term debt.......................... (6,000) (41,500)
Reacquisitions and retirements of long-term debt
and preferred stock.................................... (1,500) (1,500)
Cash dividends on preferred stock........................ (1,343) (1,377)
Cash dividends on common stock........................... (7,357) (7,196)
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Net cash flows from financing activities................... 73,800 8,427
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Investment Activities:
Investment in plant:
Electric utility plant................................. (7,130) (7,587)
Nuclear fuel........................................... 2,406 (2,063)
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Net cash flows used for investments in plant............. (4,724) (9,650)
NU System Money Pool, net................................ (98,250) (32,500)
Other investment activities, net......................... (2,000) (1,776)
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Net cash flows used for investments........................ (104,974) (43,926)
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Net Decrease In Cash for the Period........................ (5) (42)
Cash-beginning of period................................... 185 165
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Cash-end of period......................................... $ 180 $ 123
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>5
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
<F1>1. General
The accompanying unaudited financial statements should be read in conjunction
with the Annual Report of Western Massachusetts Electric Company (the company
or WMECO) on Form 10-K for the year ended December 31, 1993 (1993 Form 10-K).
In the opinion of the company, the accompanying financial statements contain
all adjustments necessary to present fairly the financial position as of
March 31, 1994, the results of operations for the three months ended March
31, 1994 and 1993, and the statements of cash flows for the three months
ended March 31, 1994 and 1993. The results of operations for the three
months ended March 31, 1994 and 1993 are not necessarily indicative of the
results expected for a full year.
Certain amounts in the accompanying financial statements of the company for
the period ended March 31, 1993 have been reclassified to conform with the
March 31, 1994 presentation.
<F2>2. Changes in Accounting Principles
Statement of Financial Accounting Standards No. 115 (SFAS 115): In May 1993,
the Financial Accounting Standards Board (FASB) issued SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities." SFAS 115 addresses
the accounting and reporting for certain investments in debt and equity
securities, and expands the use of fair value accounting for these
securities. SFAS 115 is applicable to WMECO with respect to its investments
in nuclear decommissioning trusts.
SFAS 115 requires investments in decommissioning trusts to be presented at
fair value and was adopted by WMECO on a prospective basis in the first
quarter of 1994.
As a result of the adoption of SFAS 115, WMECO increased its investment in
nuclear decommissioning trusts by approximately $2.7 million, with a
corresponding offset to the accumulated provision for depreciation. The $2.7
million increase represents the cumulative total gross unrealized holding
gains for 1994. There was no increase in funding of the trusts nor any
impact on earnings as a result of the adoption of SFAS 115.
Property Taxes: WMECO adopted a one-time change in the method of accounting
for municipal property tax expense for their Connecticut properties. Most
municipalities in Connecticut assess property values as of October 1. Prior
to January 1, 1993, the company accrued Connecticut property tax expense over
the period October 1 through September 30 based on the lien-date method.
During the first quarter of 1993, WMECO changed its method of accounting for
Connecticut municipal property taxes to recognize the expense from July 1
through June 30, to match the payments and services provided by the
municipalities. This one-time change increased net income by approximately
$3.9 million for WMECO in 1993.
<F3>3. Capitalization
On March 22, 1994, WMECO issued $40 million of First Mortgage Bonds, Series X
and $50 million of First Mortgage Bonds, Series Y. The Series X
<PAGE>6
Bonds bear interest at an annual rate of 6-1/4 percent, and will mature on
March 1, 1999. The Series Y Bonds bear interest at an annual rate of 7-3/4
percent, and will mature on March 1, 2024.
The net proceeds from the issuance and sale of Series X and Series Y bonds,
together with the proceeds from the issuance of short-term debt, were used to
redeem at their general redemption prices the following outstanding WMECO
First Mortgage Bonds on April 4, 1994: The 7-3/8 percent Series H ($15
million), the 7-3/4 percent Series J ($30 million), the 9-3/4 percent Series
R ($24.75 million), and the 10-1/8 percent Series T (approximately $33.8
million).
<F4>4. Commitments and Contingencies
Construction Program: For information regarding WMECO's construction
program, see the Notes to Financial Statements in WMECO's 1993 Form 10-K.
Nuclear Performance: On May 5, 1994, WMECO and the Attorney General of the
Commonwealth of Massachusetts filed a settlement with the DPU. If approved
by the DPU, this agreement would settle a number of outstanding issues,
including the termination of pending performance review proceedings for the
years between June 1987 and May 1993. For further information regarding
Nuclear Performance and the recovery of replacement power costs, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations in this Form 10-Q and the Notes to Financial Statements in WMECO's
1993 Form 10-K.
Environmental Matters: For information regarding Environmental Matters, see
the Notes to Financial Statements in WMECO's 1993 Form 10-K.
Nuclear Insurance Contingencies: For information regarding Nuclear Insurance
Contingencies, see the Notes to Financial Statements in WMECO's 1993 Form 10-
K.
Financing Arrangements for the Regional Nuclear Generating Companies: For
information regarding Financing Arrangements for the Regional Nuclear
Generating Companies, see the Notes to Financial Statements in WMECO's 1993
Form 10-K.
Purchased Power Arrangements: For information regarding Purchased Power
Arrangements, see the Notes to Financial Statements in WMECO's 1993 Form 10-
K.
Hydro-Quebec: For information regarding Hydro-Quebec, see the Notes to
Financial Statements in WMECO's 1993 Form 10-K.
Property Taxes: For information regarding Property Taxes, see the Notes to
Financial Statements in WMECO's 1993 Form 10-K.
<PAGE>7
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of Western Massachusetts
Electric Company's (WMECO or the company) financial condition and the
principal factors having an impact on the results of operations. The company
is a wholly owned subsidiary of Northeast Utilities (NU). This discussion
should be read in conjunction with the company's financial statements and
footnotes and the 1993 Form 10-K.
FINANCIAL CONDITION
Overview
The company's net income decreased to $14.0 million for the three months
ended March 31, 1994, from $15.4 million for the same period in 1993. Net
income in 1993 reflects the cumulative effect of a change in accounting for
Connecticut municipal property taxes. The company adopted a one-time change
in the method of accounting for Connecticut municipal property tax expense in
the first quarter of 1993. This change resulted in a one-time contribution to
net income of $3.9 million.
Net income before the cumulative effect of the change in accounting for
property taxes was $11.4 million in 1993. The increase in net income from
1993, excluding the one-time accounting change, is primarily attributable to
higher retail sales in 1994 due primarily to a cold winter, increased
revenues from the July 1993 retail rate increase and lower interest costs,
partially offset by higher operation and maintenance expenses.
Accounting Standards
In 1994, the company adopted Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 supersedes or amends other accounting
pronouncements related to the accounting for marketable securities. As a
result of the adoption of SFAS No. 115, the company increased its investment
in nuclear decommissioning trusts by approximately $2.7 million with a
corresponding offset to accumulated provision for depreciation. The increase
represents the cumulative unrealized gains on the investments in the nuclear
decommissioning trusts. The adoption of SFAS No. 115 has had no impact on
net income.
See the "Notes to Financial Statements" for additional information on this
new accounting standard.
Rate Matters
The ability of retail customers to select an electricity supplier other than
a local company and then force the local electric utility to transmit the
power to the customer's site is known as "retail wheeling." While wholesale
wheeling is mandated by the Energy Policy Act of 1992 under certain
circumstances, retail wheeling is not required in the company's jurisdiction.
In Massachusetts, bills being reviewed by Legislative committees would permit
limited retail wheeling in economically distressed
<PAGE>8
areas and to municipal and state- owned facilities as well as increased
opportunities for self-generation.
On May 5, 1994, WMECO and the Attorney General of the Commonwealth of
Massachusetts signed a settlement agreement (the agreement). Under the
agreement, which is subject to the approval of the Department of Public
Utilities (DPU), WMECO's customers will receive a base rate reduction of $8.0
million annually for a 20-month period effective June 1, 1994 and a guarantee
of no general base rate increases before February 1996. This agreement, if
approved, settles a number of outstanding issues including termination,
without findings, of all performance review proceedings regarding the
treatment of replacement power costs incurred by WMECO during outages at
Millstone nuclear units from mid-1987 through mid-1993. In addition, under
the agreement, large-use customers (1,000 kWhs or more of demand) will be
offered discounts on their electric bills in return for providing WMECO with
five years' notice of any plans to self-generate or purchase electricity from
a different provider. The combined base rate reduction and service extension
discounts will total five percent for those large customers. The agreement
is not expected to have a significant adverse impact on WMECO's 1994
earnings.
WMECO has a conservation charge (CC) in effect to recover the cost of
conservation and load management (C&LM) programs above or below the base rate
recovery levels. WMECO filed a new CC in February 1994. On March 1, 1994,
the DPU approved the new CC effective immediately. WMECO expects to spend
about $14 million in 1994 on C&LM programs.
Liquidity and Capital Resources
Cash provided from operations decreased $4.3 million for the first three
months of 1994, compared with the same period in 1993. Cash provided from
financing activities was $65.4 million higher in 1994, as compared with 1993,
primarily due to lower repayment of short-term debt and an increase in long-
term debt. Cash used for investments increased $61.0 million, primarily due
to an increase in loan to other system companies under the NU system money
pool.
On March 22, 1994, WMECO issued two new First Mortgage Bonds, the $40 million
1994 Series X Bonds and the $50 million 1994 Series Y Bonds, at annual
interest rates of 6-1/4 percent and 7-3/4 percent, respectively. The Series
X Bonds will mature on March 1, 1999 and the Series Y Bonds will mature on
March 1, 2024. Proceeds from these issues, together with proceeds from
short-term debt, were used to redeem approximately $104 million of
outstanding First Mortgage Bonds with interest rates ranging from 7-3/8
percent to 10-1/4 percent. Savings from the refinancings are estimated to be
approximately $2.4 million per year in reduced interest costs.
The company's construction program expenditures, including allowance for
funds used during construction (AFUDC), amounted to $7.1 million for the
first three months of 1994 as compared to $7.6 million during the same period
in 1993. The construction program's main focus is maintaining and upgrading
the existing transmission and distribution system as well as nuclear and
fossil-generating facilities. The company does not foresee the need for new
major generating facilities until at least the year 2007.
<PAGE>9
RESULTS OF OPERATIONS
Comparison of the First Quarter of 1994 with the First Quarter of 1993
- - ----------------------------------------------------------------------
Operating revenues increased $4.0 million in the first quarter of 1994
compared with the same period in 1993. The components of the change in
operating revenues are as follows:
Changes in Operating Revenues Increase/(Decrease)
- - ----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $2.5
Fuel and purchased power cost recoveries 0.4
Sales volume 4.0
Other revenues (2.9)
----
Total revenue change $4.0
====
Revenues related to regulatory decisions increased primarily because of
retail rate increase in July 1993. Sales volume revenue increased primarily
as a result of higher retail sales in 1994. Retail sales increased 4.5
percent for the first quarter of 1994 compared to 1993 because the first
quarter of 1994 was much colder. Other revenues decreased primarily because
of lower 1994 sales to other utilities.
Fuel, purchased, and net interchange power expense decreased $1.4 million in
1994 because of the timing in the recovery of fuel expenses under the
provisions of the company's fuel adjustment clause and lower nuclear costs,
partially offset by higher interchange purchases.
Other operation and maintenance expenses increased $1.6 million in 1994, as
compared to 1993, primarily due to higher 1994 costs for nuclear outages,
partially offset by the establishment of a reserve for obsolete inventory in
1993.
Interest on long-term debt decreased $1.2 million in 1994, as compared to
1993 primarily because of lower average interest rates as a result of the
company's refinancing activities.
Federal and state income taxes increased $2.0 million in 1994 as compared to
1993, primarily because of higher book taxable income.
The cumulative effect of the accounting change of $3.9 million in 1993
represents the one-time change in the method of accounting for Connecticut
municipal property tax expense recognized in the first quarter of 1993.
<PAGE>10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
1. On September 30, 1993, 29 participants in the New England
Power Pool (NEPOOL) (including WMECO) filed the 30th Amendment to the NEPOOL
Agreement (Amendment) at the Federal Energy Regulatory Commission (FERC).
The Amendment establishes a minimum size for generating units to be
considered for designation as "Pool-Planned Units." Such designation
entitles the owners of an interest in a unit to have their shares of the
output of the unit transmitted to them under a transmission rate that is
generally more favorable than the rates that would be available in the
absence of such a designation. Massachusetts Municipal Wholesale Electric
Company and several other municipal electric utilities moved to intervene and
protest the Amendment, claiming that it discriminates against transmission
dependent utilities.
On April 11, 1994, the FERC issued an Order setting the
Amendment for a "paper hearing" in May 1994. FERC intends to address whether
the Amendment eliminates transmission access and the discounted rates for
Pool-Planned Units. FERC has also broadened the proceeding to consider
whether NEPOOL's activities in this are consistent with the standards of the
Federal Power Act.
Item 5. Other Information
1. Massachusetts law establishes an annual performance program
for utilities related to fuel procurement and use, and requires the DPU to
review a utility's generating unit performance and related fuel costs if that
utility fails to meet the goals set for it. The reviews of WMECO's annual
generating unit performance for the program years between June 1987 and May
1993 are pending either completion of investigations or issuance of decisions
by the DPU. On May 5, WMECO and the Massachusetts Attorney General filed a
settlement with the DPU that would, if approved, terminate those pending
performance review proceedings for the years between June 1987 and May 1993.
Also, the settlement provides, among other things, that: (1) WMECO will
reduce its customers' overall bills by approximately $13.3 million over the
20-month period June 1, 1994 to January 31, 1996; (2) WMECO will not file for
increased base rates effective before February 1, 1996; (3) WMECO will
amortize post-retirement benefits other than pension costs over a three-year
period starting July 1, 1994; and (4) WMECO will offer a 5 percent rate
reduction to its largest customers who agree not to self-generate or take
electricity from another provider for five years.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during this
reporting period.
<PAGE>11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
--------------------------------------
Registrant
Date May 9, 1994 By /s/ Bernard M. Fox
-------------------- ------------------------------
Bernard M. Fox
Vice Chairman and Director
Date May 9, 1994 By /s/ John W. Noyes
-------------------- ------------------------------
John W. Noyes
Vice President and
Controller
<PAGE>12
