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 June 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-7624
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WESTERN MASSACHUSETTS ELECTRIC COMPANY
--------------------------------------
(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 July 31, 1995
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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 - June 30, 1995 and
December 31, 1994 2
Statements of Income - Three and Six
Months Ended June 30, 1995 and 1994 4
Statements of Cash Flows - Six Months
Ended June 30, 1995 and 1994 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. Other Information
Item 4. Submission of Matters to a Vote
of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I. FINANCIAL INFORMATION
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
------
Utility Plant, at original cost:
Electric................................................ $ 1,221,215 $ 1,214,326
Less: Accumulated provision for depreciation......... 442,007 425,019
------------- ------------
779,208 789,307
Construction work in progress........................... 18,338 19,187
Nuclear fuel, net....................................... 37,215 38,000
------------- ------------
Total net utility plant............................. 834,761 846,494
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Other Property and Investments:
Nuclear decommissioning trusts, at market............... 64,262 56,123
Investments in regional nuclear generating
companies, at equity................................... 14,826 14,927
Other, at cost.......................................... 3,980 3,941
------------- ------------
83,068 74,991
------------- ------------
Current Assets:
Cash and special deposits............................... 109 105
Notes receivable from affiliated companies.............. - 8,750
Receivables, net........................................ 35,840 35,427
Accounts receivable from affiliated companies........... 922 1,108
Accrued utility revenues................................ 14,213 15,766
Fuel, materials, and supplies, at average cost.......... 5,097 4,829
Prepayments and other................................... 7,801 9,215
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63,982 75,200
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Deferred Charges:
Regulatory assets:
Income taxes, net...................................... 93,859 86,357
Amortizable property investment--Millstone 3........... 11,200 16,800
Deferred costs--Millstone 3............................ - 7,836
Unrecovered contract obligation--Yankee Atomic
Electric Company...................................... 27,070 28,572
Recoverable energy costs............................... 8,324 8,324
Other.................................................. 41,643 36,337
Unamortized debt expense................................ 1,608 1,733
Other................................................... - 974
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183,704 186,933
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Total Assets........................................ $ 1,165,515 $ 1,183,618
============= ============
</TABLE>
See accompanying notes to financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- ------------
(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................................ 150,042 149,683
Retained earnings....................................... 109,158 111,586
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Total common stockholder's equity.............. 286,012 288,081
Preferred stock not subject to mandatory redemption..... 53,500 68,500
Preferred stock subject to mandatory redemption......... 22,500 24,000
Long-term debt.......................................... 346,702 345,669
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Total capitalization........................... 708,714 726,250
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Obligations Under Capital Leases.......................... 26,157 23,852
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Current Liabilities:
Notes payable to banks.................................. 10,000 -
Long-term debt and preferred stock--current
portion................................................ 35,800 34,975
Obligations under capital leases--current
portion................................................ 11,167 12,945
Accounts payable........................................ 11,381 20,396
Accounts payable to affiliated companies................ 6,192 17,352
Accrued taxes........................................... 1,945 5,160
Accrued interest........................................ 6,672 6,702
Other................................................... 9,326 7,584
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92,483 105,114
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Deferred Credits:
Accumulated deferred income taxes....................... 265,385 253,821
Accumulated deferred investment tax credits............. 26,968 27,822
Deferred contract obligation--Yankee Atomic 27,070 28,572
Electric Company.......................................
Other................................................... 18,738 18,187
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338,161 328,402
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Commitments and Contingencies (Note 3)<F3>
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Total Capitalization and Liabilities........... $ 1,165,515 $ 1,183,618
============= ============
</TABLE>
See accompanying notes to financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues............................. $100,593 $101,188 $207,277 $214,172
--------- --------- --------- ---------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power. 26,605 8,811 44,274 25,918
Other..................................... 32,697 31,334 68,548 66,725
Maintenance.................................. 8,154 8,071 15,924 17,217
Depreciation................................. 9,264 8,655 18,844 18,055
Amortization of regulatory assets............ 7,223 7,303 14,111 14,144
Federal and state income taxes............... 3,329 11,193 9,375 21,801
Taxes other than income taxes................ 4,604 4,553 9,654 9,576
--------- --------- --------- ---------
Total operating expenses............... 91,876 79,920 180,730 173,436
--------- --------- --------- ---------
Operating Income............................... 8,717 21,268 26,547 40,736
--------- --------- --------- ---------
Other Income:
Deferred Millstone 3 return--other funds..... 54 213 108 466
Equity in earnings of regional nuclear
generating companies....................... 541 528 824 995
Other, net................................... 748 745 1,254 930
Income taxes--credit......................... 315 126 726 537
--------- --------- --------- ---------
Other income, net...................... 1,658 1,612 2,912 2,928
--------- --------- --------- ---------
Income before interest charges......... 10,375 22,880 29,459 43,664
--------- --------- --------- ---------
Interest Charges:
Interest on long-term debt................... 7,049 6,947 14,009 14,044
Other interest............................... 78 57 166 (28)
Deferred Millstone 3 return--borrowed funds.. (41) (159) (81) (348)
--------- --------- --------- ---------
Interest charges, net.................. 7,086 6,845 14,094 13,668
--------- --------- --------- ---------
Net Income..................................... $ 3,289 $ 16,035 $ 15,365 $ 29,996
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1995 1994
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(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 15,365 $ 29,996
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 18,844 18,055
Deferred income taxes and investment tax credits, net... 3,294 7,640
Deferred return - Millstone 3, net of amortization...... 7,147 6,567
Recoverable energy costs, net of amortization........... (216) (13,942)
Other sources of cash................................... 7,129 6,666
Other uses of cash...................................... (256) (11,476)
Changes in working capital:
Receivables and accrued utility revenues................ 1,326 1,250
Fuel, materials, and supplies........................... (268) 1,418
Accounts payable........................................ (20,175) (7,320)
Accrued taxes........................................... (3,215) (874)
Other working capital (excludes cash)................... 3,342 5,446
----------- -----------
Net cash flows from operating activities.................... 32,317 43,426
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Financing Activities:
Issuance of long-term debt................................ - 90,000
Net increase in short-term debt........................... 10,000 6,000
Reacquisitions and retirements of long-term debt.......... - (103,569)
Reacquisitions and retirements of preferred stock......... (15,675) (1,500)
Cash dividends on preferred stock......................... (2,404) (2,799)
Cash dividends on common stock............................ (15,133) (14,714)
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Net cash flows used for financing activities................ (23,212) (26,582)
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Investment Activities:
Investment in plant:
Electric utility plant.................................. (12,100) (14,800)
Nuclear fuel............................................ (1,561) 1,742
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Net cash flows used for investments in plant.............. (13,661) (13,058)
NU System Money Pool...................................... 8,750 -
Other investment activities, net.......................... (4,190) (3,855)
----------- -----------
Net cash flows used for investments......................... (9,101) (16,913)
----------- -----------
Net Increase (Decrease) In Cash For The Period.............. 4 (69)
Cash and special deposits - beginning of period............. 105 185
----------- -----------
Cash and special deposits - end of period................... $ 109 $ 116
=========== ===========
</TABLE>
See accompanying notes to financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. General
The accompanying unaudited financial statements should be read in conjunction
with the Annual Report of Western Massachusetts Electric Company (the company or
WMECO), a wholly owned subsidiary of Northeast Utilities (NU), on Form 10-K for
the year ended December 31, 1994 (1994 Form 10-K). In the opinion of the
company, the accompanying financial statements contain all adjustments necessary
to present fairly the financial position as of June 30, 1995, the results of
operations for the three and six months ended June 30, 1995 and 1994, and the
statements of cash flows for the six months ended June 30, 1995 and 1994. The
results of operations for the three and six months ended June 30, 1995 and 1994
are not necessarily indicative of the results expected for a full year.
Certain reclassifications of prior period data have been made to conform with
the current period presentation.
2. Accounting Change
The company's accounting policies and the accompanying financial statements
conform to generally accepted accounting principles applicable to rate-regulated
enterprises and reflect the effects of the ratemaking process in accordance with
Statement of Financial Accounting Standards No. 71, "Accounting for Certain
Types of Regulation" (SFAS 71). In the event that any portion of the company's
operations is no longer subject to the provisions of SFAS 71, as a result of a
change in the cost-of-service based regulatory structure or the effects of
competition, the company would be required to write off related regulatory
assets and liabilities. In addition, the company would be required to determine
any impairment to other assets and write down these assets to their fair value.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS
121), issued in March 1995 and effective January 1, 1996, establishes accounting
standards for the impairment of long-lived assets. SFAS 121 requires that
regulatory assets which are no longer probable of recovery through future
revenues be charged to earnings. Based on the current regulatory environment in
the company's operating service area, it is not expected that SFAS 121 would
have a material impact on the financial position or results of operations of the
company upon adoption. This conclusion may change in the future as competitive
factors influence wholesale and retail pricing in the electric utility industry,
or if the cost-of-service based regulatory structure were to change.
3. Commitments and Contingencies
Construction Program: For information regarding WMECO's construction program,
see the Notes to Financial Statements in WMECO'S 1994 Form 10-K.
Nuclear Performance: For further information regarding the performance of the
WMECO nuclear units, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this Form 10-Q and the Notes to
Financial Statements in WMECO's 1994 Form 10-K.
Environmental Matters: For information regarding environmental matters, see the
Notes to Financial Statements in WMECO's 1994 Form 10-K.
Nuclear Insurance Contingencies: For information regarding nuclear insurance
contingencies, see the Notes to Financial Statements in WMECO's 1994 Form 10-K.
Purchased Power Arrangements: For information regarding purchased power
arrangements, see the Notes to Financial Statements in WMECO's 1994 Form 10-K.
Hydro-Quebec: For information regarding Hydro-Quebec, see the Notes to
Financial Statements in WMECO's 1994 Form 10-K.
4. Workforce Reduction
For information regarding the NU system's workforce reduction program, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," in this Form 10-Q.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of WMECO's(the company)financial
condition and the principal factors having an impact on the results of
operations. The company is a wholly owned subsidiary of Northeast
Utilities(NU). This discussion should be read in conjunction with the company's
financial statements, footnotes and Management's Discussion and Analysis in the
1994 Form 10-K and the First Quarter 1995 Form 10-Q.
FINANCIAL CONDITION
Overview
The company's net income decreased to $15 million for the six months ended June
30, 1995, from $30 million for the same period in 1994. Net income decreased to
$3 million for the three months ended June 30, 1995, from $16 million for the
same period in 1994. The decreases in net income from 1994 for the three- and
six-month periods are primarily attributable to one-time benefits in May 1995
from a 1994 settlement agreement and higher 1995 fuel and purchased-power costs.
The six-month period was further impacted by lower retail kilowatt-hour sales
in 1995 as a result of a mild winter. WMECO's retail kilowatt-hour sales
through June 1995 were down by 3.5 percent from 1994, which had colder than
normal weather in the first quarter.
Workforce Reductions
In July 1995, NU announced a program aimed at reducing the nuclear
organization's total workforce by approximately 250 employees by the end of
January 1996. An early retirement program is available to approximately 155
eligible employees of NU's subsidiaries, who will be at least age 55 with ten
years of service as of January 1, 1996. The employees have until September 15,
1995, to make their decisions. The balance of the workforce reduction will be
achieved through attrition and layoffs. The NU system-wide estimated cost of
the early retirements and layoffs could be in the range of $10 to $12 million.
Regulatory Matters
As of June 30, 1995, WMECO completed its amortization of the Millstone 3
deferred return. The annual amortization was approximately $15 million.
Nuclear Performance
The composite capacity factor of the five nuclear generating units that the NU
system operates -- including the Connecticut Yankee nuclear unit (CY) -- was
61.7 percent for the six months ended June 30, 1995, as compared with 61.0
percent for the same period in 1994. The low capacity factor in 1995 is
primarily the result of the extended refueling and maintenance outage for
Millstone 2.
The Millstone Unit 2 refueling and maintenance outage extended into July 1995 in
order to complete previously identified work. The Nuclear Regulatory Commission
completed its assessment of the unit's readiness to restart in late June, and in
a letter dated July 20, 1995, concluded that the deficiencies responsible for
the extended shutdown had been addressed and sufficient progress had been
demonstrated to support safe restart of the unit.
Additional work identified during start-up testing was completed, and the unit
returned to service on August 4, 1995. However, on August 8, 1995, the unit
shut down due to a pipe break in the turbine building, and the unit's return to
service is under evaluation.
Total replacement power costs attributable to the extension of the outage for
WMECO are in the range of $2 million per month. In addition, operation and
maintenance (O&M) costs to be incurred during the outage are estimated to be $13
million, an increase of $7 million as a result of the extended outage. O&M
costs associated with the refueling outage are deferred and amortized through
rates for WMECO. The recovery of the replacement power and O&M costs is subject
to prudence reviews.
While the company is unable to predict the outcome of possible prudence reviews
of its nuclear operations, management believes that the ultimate resolution of
these matters will not have a material adverse impact on the company's financial
position or the results of its operations.
In June 1995, Maine Yankee Atomic Power Company (Maine Yankee) began an
operation to sleeve all 17,000 tubes in the plant's three steam generators.
Maine Yankee expects that the plant will return to service near the end of 1995.
The approximate cost to Maine Yankee of the sleeving operation has been
determined to be $40 million which will be expensed. The company will be billed
by Maine Yankee for its pro rata share (3 percent) of these capital costs over
the next six months, under its power contract. In addition, WMECO will incur
additional costs for replacement power (estimated at $150,000 per month) until
Maine Yankee returns to service.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $11 million for the first
six months of 1995 primarily due to lower revenues from lower kilowatt-hour
sales. Cash used for financing activities decreased approximately $3 million.
Cash used for investments was approximately $8 million lower in 1995, primarily
due to a decrease in loans to other companies under the NU system money pool.
RESULTS OF OPERATIONS
Comparison of the Second Quarter of 1995 with the Second Quarter
----------------------------------------------------------------
of 1994
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Operating revenues decreased approximately $1 million in the second quarter of
1995, as compared with 1994. The components of the change in operating revenues
are as follows:
Changes in Operating Revenues Increase/(Decrease)
----------------------------- -------------------
(Millions of Dollars)
Fuel and purchased power cost recoveries 4
Retail sales volume (1)
Other revenues (4)
---
Total revenue change $(1)
===
Fuel and purchased power cost recoveries increased primarily due to higher
energy costs. Other revenues includes the June 1994 retail rate reduction and
additional negotiated rate reductions for retail customers in 1995. Retail
kilowatt-hour sales were unchanged from 1994 for the quarter.
Fuel, purchased, and net interchange power expense increased approximately $18
million in the second quarter of 1995, as compared with 1994, primarily because
of one-time benefits in May 1994 from the WMECO settlement agreement and higher
energy costs as a result of the extended Millstone 2 outage.
Federal and state income taxes decreased approximately $8 million in the first
six months of 1995, as compared with 1994, primarily because of lower book
taxable income.
Comparison of the First Six Months of 1995 with the First Six
-------------------------------------------------------------
Months of 1994
--------------
Operating revenues decreased approximately $7 million in the first six months of
1995, as compared with 1994. The components of the change in operating revenues
are as follows:
Changes in Operating Revenues Increase/(Decrease)
----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $(3)
Retail sales volume (8)
Fuel and purchased power cost recoveries 4
---
Total revenue change $(7)
===
Revenues related to regulatory decisions decreased primarily because of the
retail rate reduction for WMECO beginning in June 1994. Retail sales volume
decreased 3.5 percent for the first six months of 1995 from 1994 sales level
primarily due to mild weather in the first quarter of 1995. Fuel and purchased-
power cost recoveries increased primarily due to higher energy costs, partially
offset by lower interchange revenues.
Fuel, purchased, and net interchange power expense increased approximately $18
million in the first six months of 1995, as compared with 1994, primarily
because of one-time benefits in May 1994 from the WMECO settlement agreement and
higher energy costs as a result of the extended Millstone 2 outage.
Federal and state income taxes decreased approximately $13 million in the first
six months of 1995, as compared with 1994, primarily because of lower book
taxable income.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
In a written Consent in Lieu of an Annual Meeting of Stockholders of WMECO
("Consent") dated March 1, 1995, stockholders voted to fix the number of
directors for the ensuing year at nine. The vote fixing the number of directors
at nine was 1,072,471 shares in favor, representing 100 percent of the issued
and outstanding shares of common stock of WMECO.
Through the Consent the following nine directors were elected, each by a vote of
1,072,471 shares in favor, to serve on the Board of Directors for the ensuing
year: Robert G. Abair, Robert E. Busch, William B. Ellis, Bernard M. Fox,
William T. Frain, Jr., Cheryl W. Grise, John B. Keane, Hugh C. MacKenzie, and
John F. Opeka.
Item 5. Other Information
1. On June 20, 1995, the staff of the Securities and Exchange Commission
recommended "conditional repeal" of the Public Utility Holding Company Act of
1935 and substantial loosening of rules presently restricting NU's capital-
raising and diversification activities. Repeal is subject to approving
legislation in Congress, which has yet to be introduced. Comments on the rules
are due in September.
For additional information on this matter, see "Business - Public Utility
Regulation" in WMECO's 1994 Form 10-K.
2. In June 1995, the State of South Carolina withdrew from membership in the
Southeast Interstate Low-Level Radioactive Waste Management Compact and re-
opened its Barnwell low-level radioactive waste (LLRW) disposal facility to low-
level waste generators from states situated outside the compact's region. NU is
arranging for disposal of its LLRW at Barnwell, and shipments are presently
scheduled to begin in mid-August. NU continues to explore other LLRW disposal
options.
For additional information on this matter, see "Business - Electric Operations -
Nuclear Generation - Low-Level Radioactive Waste" in WMECO's 1994 Form 10-K.
3. On June 22, 1995, The United States Court of Federal Claims held in Yankee
------
Atomic Electric Company v. The United States that as applied to Yankee Atomic
--------------------------------------------
Electric Company (YAEC), the Uranium Enrichment Decontamination and
Decommissioning Fund, which pursuant to the 1992 Energy Policy Act imposes an
annual "special assessment" on domestic utilities, is an unlawful add-on to the
bargained-for contract price for enriched uranium. As a result, the federal
government must refund the approximately $3.0 million that YAEC has paid into
the fund since its inception. NU is evaluating the applicability of this
decision to the $21 million that the System companies have already paid into the
fund, and whether this alters the System companies' obligation to pay such
special assessments in the future. This decision is subject to appeal.
For additional information on this proceeding, see "Business - Electric
Operations - Nuclear Generation - Decommissioning" in WMECO's 1994 Form 10-K.
4. On May 25, 1995, approximately 370 union employees of WMECO and Holyoke
Water Power Company initiated a strike against their respective companies. The
strike has had no material financial effect on WMECO to date.
For additional information on this proceeding, see "Business - Employees" in
WMECO's 1994 Form 10-K.
5. On August 1, 1995, pursuant to a management succession plan that was
introduced on January 29, 1992, William B. Ellis resigned as Chairman of NU's
Board of Trustees, and Bernard M. Fox assumed that position. Mr. Ellis also
resigned from the Board of Directors of WMECO and certain other NU subsidiaries.
For more information regarding this matter, see "Item 5. Other Events" in
WMECO's Form 8-K, dated January 29, 1992.
Item 6. Exhibits and Reports on Form 8-K
(a) Listing of Exhibits:
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during this reporting period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
--------------------------------------
Registrant
Date August 14, 1995 By /s/ Bernard M. Fox
-------------------- ------------------------------
Bernard M. Fox
Vice Chairman and Director
Date August 14, 1995 By /s/ John W. Noyes
-------------------- ------------------------------
John W. Noyes
Vice President and
<TABLE> <S> <C>
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<NAME>WESTERN MASSACHUSETTS ELECTRIC COMPANY
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