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, 1996
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 0-7624
WESTERN MASSACHUSETTS ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1961130
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
174 BRUSH HILL AVENUE, WEST SPRINGFIELD, MASSACHUSETTS 01090-0010
(Address of principal executive offices) (Zip Code)
(413) 785-5871
(Registrant's telephone number, including area code)
Not Applicable
(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, 1996
Common Shares, $25.00 par value 1,072,471 shares
WESTERN MASSACHUSETTS ELECTRIC COMPANY
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 1996 and
December 31, 1995 2
Statements of Income - Three Months and Six
Months Ended June 30, 1996 and 1995 4
Statements of Cash Flows - Six Months Ended
June 30, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote
of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
PART I. FINANCIAL INFORMATION
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 1,247,314 $ 1,234,738
Less: Accumulated provision for depreciation......... 480,336 462,872
------------- ------------
766,978 771,866
Construction work in progress........................... 15,017 18,957
Nuclear fuel, net....................................... 30,002 31,574
------------- ------------
Total net utility plant............................. 811,997 822,397
------------- ------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 73,390 69,903
Investments in regional nuclear generating
companies, at equity................................... 14,955 14,820
Other, at cost.......................................... 4,291 4,018
------------- ------------
92,636 88,741
------------- ------------
Current Assets:
Cash.................................................... 123 202
Receivables, net........................................ 39,428 42,164
Accounts receivable from affiliated companies........... 790 951
Accrued utility revenues................................ 13,079 11,119
Fuel, materials, and supplies, at average cost.......... 5,328 5,114
Recoverable energy costs, net--current portion.......... 8,366 2,595
Prepayments and other................................... 8,894 6,581
------------- ------------
76,008 68,726
------------- ------------
Deferred Charges:
Regulatory assets:
Income taxes, net...................................... 81,769 87,829
Unrecovered contractual obligation..................... 14,007 18,814
Recoverable energy costs............................... 10,927 10,974
Other.................................................. 29,922 43,369
Unamortized debt expense................................ 1,402 1,496
Other................................................... 143 -
------------- ------------
138,170 162,482
------------- ------------
Total Assets........................................ $ 1,118,811 $ 1,142,346
============= ============
</TABLE>
See accompanying notes to financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- ------------
(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................................ 150,324 150,182
Retained earnings....................................... 116,010 115,296
------------- ------------
Total common stockholder's equity.............. 293,146 292,290
Preferred stock not subject to mandatory redemption..... 53,500 53,500
Preferred stock subject to mandatory redemption......... 21,000 22,500
Long-term debt.......................................... 333,739 347,470
------------- ------------
Total capitalization........................... 701,385 715,760
------------- ------------
Obligations Under Capital Leases.......................... 19,471 20,855
------------- ------------
Current Liabilities:
Notes payable to affiliated company..................... 3,000 24,050
Long-term debt and preferred stock--current
portion................................................ 16,200 1,500
Obligations under capital leases--current
portion................................................ 12,469 15,156
Accounts payable........................................ 13,353 14,475
Accounts payable to affiliated companies................ 10,154 11,604
Accrued taxes........................................... 11,804 1,686
Accrued interest........................................ 5,597 5,670
Other................................................... 17,805 7,768
------------- ------------
90,382 81,909
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 247,086 259,595
Accumulated deferred investment tax credits............. 25,568 26,302
Deferred contractual obligation......................... 14,007 18,814
Other................................................... 20,912 19,111
------------- ------------
307,573 323,822
------------- ------------
Commitments and Contingencies (Note 4)<F4>
------------- ------------
Total Capitalization and Liabilities........... $ 1,118,811 $ 1,142,346
============= ============
</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,
------------------- -------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues............................. $102,602 $100,593 $217,399 $207,277
--------- --------- --------- ---------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power. 20,777 26,605 46,597 44,274
Other..................................... 34,062 32,697 75,288 68,548
Maintenance.................................. 15,598 8,154 25,214 15,924
Depreciation................................. 9,852 9,264 19,637 18,844
Amortization of regulatory assets............ 4,117 7,223 7,135 14,111
Federal and state income taxes............... 4,111 3,069 10,196 8,860
Taxes other than income taxes................ 4,708 4,604 10,263 9,654
--------- --------- --------- ---------
Total operating expenses............... 93,225 91,616 194,330 180,215
--------- --------- --------- ---------
Operating Income............................... 9,377 8,977 23,069 27,062
--------- --------- --------- ---------
Other Income:
Equity in earnings of regional nuclear
generating companies....................... 533 541 1,033 824
Other, net................................... 302 802 215 1,362
Income taxes................................. (120) 55 58 211
--------- --------- --------- ---------
Other income, net...................... 715 1,398 1,306 2,397
--------- --------- --------- ---------
Income before interest charges......... 10,092 10,375 24,375 29,459
--------- --------- --------- ---------
Interest Charges:
Interest on long-term debt................... 6,017 7,049 11,996 14,009
Other interest............................... 59 37 254 85
--------- --------- --------- ---------
Interest charges, net.................. 6,076 7,086 12,250 14,094
--------- --------- --------- ---------
Net Income..................................... $ 4,016 $ 3,289 $ 12,125 $ 15,365
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1996 1995
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 12,125 $ 15,365
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 19,637 18,844
Deferred income taxes and investment tax credits, net... (6,082) 3,294
Recoverable energy costs, net of amortization........... (5,724) (216)
Deferred nuclear refueling outage, net of amortization.. 3,551 (6,469)
Nuclear compliance reserves............................. 8,991 -
Other sources of cash................................... 15,348 20,745
Other uses of cash...................................... (5,766) (257)
Changes in working capital:
Receivables and accrued utility revenues................ 937 1,326
Fuel, materials, and supplies........................... (214) (268)
Accounts payable........................................ (2,572) (20,175)
Accrued taxes........................................... 10,118 (3,215)
Other working capital (excludes cash)................... (1,340) 3,342
----------- -----------
Net cash flows from operating activities.................... 49,009 32,316
----------- -----------
Financing Activities:
Net (decrease) increase in short-term debt................ (21,050) 10,000
Reacquisitions and retirements of preferred stock......... (1,500) (15,675)
Cash dividends on preferred stock......................... (2,424) (2,404)
Cash dividends on common stock............................ (8,987) (15,133)
----------- -----------
Net cash flows used for financing activities................ (33,961) (23,212)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................. (10,358) (12,100)
Nuclear fuel............................................ 554 (1,561)
----------- -----------
Net cash flows used for investments in plant.............. (9,804) (13,661)
NU System Money Pool...................................... - 8,750
Investments in nuclear decommissioning trusts............. (4,915) (4,252)
Other investment activities, net.......................... (408) 62
----------- -----------
Net cash flows used for investments......................... (15,127) (9,101)
----------- -----------
Net (Decrease) Increase In Cash For The Period.............. (79) 3
Cash - beginning of period.................................. 202 89
----------- -----------
Cash - end of period........................................ $ 123 $ 92
=========== ===========
</TABLE>
See accompanying notes to financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Presentation
The accompanying unaudited financial statements should be read in
conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) in this Form 10-Q, the
Annual Report of Western Massachusetts Electric Company (the company
or WMECO) on Form 10-K for the year ended December 31, 1995 (1995 Form
10-K), the First Quarter 1996 Form 10-Q, and the company's Form 8-Ks
dated January 31, 1996, March 30, 1996, June 6, 1996, June 28, 1996,
and July 22, 1996. In the opinion of the company, the accompanying
financial statements contain all adjustments necessary to present
fairly the financial position as of June 30, 1996, the results of
operations for the three-month and six-month periods ended June 30,
1996 and 1995, and the statements of cash flows for the six-month
periods ended June 30, 1996 and 1995. All adjustments are of a
normal, recurring, nature except those described below in Note 4B. The
results of operations for the three-month and six-month periods ended
June 30, 1996 and 1995 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.
Northeast Utilities (NU) is the parent company of the Northeast
Utilities system (the system). The system furnishes retail
electric service in Connecticut, New Hampshire, and western
Massachusetts through four wholly owned subsidiaries, The Connecticut
Light and Power Company (CL&P), Public Service Company of New
Hampshire (PSNH), WMECO, and Holyoke Water Power Company (HWP). A
fifth wholly owned subsidiary, North Atlantic Energy Corporation
(NAEC), sells all of its capacity and output of the Seabrook nuclear
power plant to PSNH. In addition to its retail electric service, the
system furnishes firm and other wholesale electric services to various
municipalities and other utilities. The system serves about 30
percent of New England's electric needs and is one of the 20 largest
electric utility systems in the country as measured by revenues.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent 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 those estimates.
2. NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
established accounting standards for evaluating and recording asset
impairment. The company adopted SFAS 121 as of January 1, 1996. SFAS 121
requires the evaluation of long-lived assets for impairment when certain
events occur or when conditions exist that indicate the carrying amounts of
assets may not be recoverable.
Based on the current regulatory environment in the system's service
areas, as of June 30, 1996, SFAS 121 did not have a material impact on the
company's financial position or results of operations. This conclusion may
change in the future as competitive factors influence wholesale and retail
pricing in the electric utility industry or if the cost-of-service based
regulatory structure were to change. For further information, see WMECO's
First Quarter 1996 Form 10-Q and WMECO's 1995 Form 10-K.
3. NUCLEAR DECOMMISSIONING
For information on nuclear decommissioning, see the company's First Quarter
1996 Form 10-Q and the company's 1995 Form 10-K.
4. COMMITMENTS AND CONTINGENCIES
A. Construction Program: For information regarding WMECO's construction
program, see WMECO's 1995 Form 10-K.
B. Nuclear Performance:
Millstone: WMECO has disclosed in its 1995 Form 10-K, its First
Quarter 1996 Form 10-Q and its Form 8-Ks dated January 31, 1996, March
30, 1996, June 6, 1996, June 28, 1996, and July 22, 1996 that among
other things, the Millstone power station was placed on the NRC's
watch list, the three Millstone units are currently out of service,
the company is currently responding to NRC requests for information,
and the company is currently incurring costs, including replacement
power costs, while the three Millstone units are down.
Management cannot predict when the NRC will allow any of the Millstone
units to return to service and thus cannot estimate the total
replacement power costs the companies will ultimately incur.
Management now estimates WMECO will expense about $23 million of
incremental nuclear operation and maintenance costs in 1996.
Approximately $16 million of the $23 million was expensed in the first
and second quarters of 1996. It is likely this estimate will rise as
WMECO and the NRC identify additional issues that need to be resolved.
The recovery of fuel, purchased power, and other outage-related costs
is subject to prudence reviews. While it is too early to estimate the
total amount of such costs or the results of any prudence reviews,
management believes that there is significant exposure to non-recovery
of a material amount of such costs.
For further information, see the SEC filings referenced above and the
MD&A in this Form 10-Q.
Connecticut Yankee (CY): For information regarding CY, see the MD&A
in this Form 10-Q, WMECO's First Quarter 1996 Form 10-Q, and Form 8-Ks
dated June 6, 1996 and July 22, 1996.
C. Environmental Matters: For information regarding environmental
matters, see WMECO's 1995 Form 10-K.
D. Nuclear Insurance Contingencies: For information regarding nuclear
insurance contingencies, see WMECO's 1995 Form 10-K.
E. Long-Term Contractual Arrangements: For information regarding long-
term contractual arrangements, see WMECO's 1995 Form 10-K.
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 WMECO's financial
statements and footnotes in this Form 10-Q, the 1995 Form 10-K, the First
Quarter 1996 Form 10-Q, and the Form 8-Ks dated January 31, 1996, March 30,
1996, June 6, 1996, June 28, 1996, and July 22, 1996.
FINANCIAL CONDITION
Overview
Net income was approximately $4 million for the three months ended June 30,
1996, an increase of approximately $1 million from the same period in 1995.
Earnings were higher primarily due to higher retail sales in 1996, lower
amortization due to the completion of the Millstone 3 phase-in during 1995, and
lower interest expense. These increases were partially offset by higher
operating costs and reserves related to the outages at the Millstone units.
Net income was approximately $12 million for the six months ended June 30, 1996,
a decrease of approximately $3 million from the same period in 1995. Earnings
were lower primarily due to higher operating costs and reserves related to the
outages at the Millstone units. This decrease was partially offset by higher
retail sales in 1996, lower amortization due to the completion of the Millstone
3 phase-in during 1995, lower interest expense, and a one-time tax benefit from
a favorable tax ruling, recognized in the first quarter of 1995.
WMECO expects to continue incurring substantial costs during the remainder of
1996 as a result of the Millstone outages, which could result in a loss for the
third quarter. A key factor affecting 1996 net income will be the level of costs
expended to address Nuclear Regulatory Commission (NRC) concerns and the
replacement-power costs incurred to serve WMECO's customers in the absence of
energy from the Millstone units. Management currently estimates that it will
expense about $23 million of incremental operation and maintenance costs in
1996, approximately $16 million of which were expensed during the first six
months of 1996, including a reserve for future costs of $9 million. It is likely
that these costs will rise as NU and the NRC identify additional issues that
need to be resolved. Monthly replacement-power costs for WMECO attributable to
the three Millstone outages are expected to be approximately $3 to $5 million.
Nuclear Performance
Millstone
WMECO has a 19-percent ownership interest in Millstone units 1 and 2, and a
12.24-percent ownership interest in Millstone 3.
Millstone units 1, 2, and 3 have been out-of-service since November 4, 1995,
February 21, 1996, and March 30, 1996, respectively. For further information on
the current Millstone outages see WMECO's 1995 Form 10-K, Form 8-Ks dated
January 31, 1996, March 30, 1996, June 6, 1996, June 28, 1996, and July 22,
1996, and the First Quarter 1996 Form 10-Q.
The NRC has recently informed NU that it will require the creation of an
independent, third-party corrective action verification team to verify that
corrective actions have been taken at Millstone to address design and
configuration management issues. The NRC has indicated that it will issue an
order confirming the requirement for such a team and reconfirming its
requirement that NU seek formal approval by the NRC commissioners for restart of
the Millstone units. Management cannot presently estimate the effect these
efforts will have on the timing of restart or what additional costs, if any,
this may cause.
Connecticut Yankee
WMECO has a 9.5-percent ownership interest in the Connecticut Yankee Atomic
Power Company (CYAPC) which operates the Connecticut Yankee nuclear power plant
(CY).
On July 22, 1996, CY was taken out of service as a precautionary measure to
address a hypothetical accident scenario involving the plant's service water
system. On August 8, 1996, after evaluating certain other pending technical and
regulatory issues, CY's management decided to delay the restart of the unit and
to begin a scheduled September refueling outage. The refueling outage was
accelerated in order to allow time to resolve the pending issues.
On August 9, 1996, the NRC requested that CYAPC submit, within thirty days,
additional information that would reconfirm the basis for continued operation of
CY and address the implications of certain issues related to CY's design basis.
NU cannot estimate at this time whether compliance with this request will impact
the restart date for CY.
CYAPC cannot presently estimate whether the outage will extend beyond the 60
days planned for the refueling outage. Although a vote by the NRC Commissioners
is not required prior to restart of the unit at this time, CYAPC will work
closely with the NRC staff to evaluate and implement the corrective actions
necessary to address the pending issues. Management cannot presently estimate
the additional costs associated with the outage.
For further information on CY see WMECO's Form 8-Ks dated June 6, 1996, and July
22, 1996, and the First Quarter 1996 Form 10-Q.
Rate Matters
On May 1, 1996, the Massachusetts Department of Public Utilities (DPU) issued
draft rules and an explanatory statement in its continuing efforts on electric-
power industry restructuring. The proposed rules and explanatory statement
address complex and interrelated topics concerning the generation, transmission,
distribution, and sales of electricity, as well as corporate structure and asset
ownership, that could have far-reaching effects on utilities. Western
Massachusetts Electric Company (WMECO) has taken several steps to affect the
final disposition of these DPU actions, including: filing initial and
supplemental comments on May 24 and May 31, 1996; participation in most of the
15 days of hearings; and submittal of final written comments on August 2, 1996.
On August 9, 1996, the DPU stated in a scheduling order that it would endeavor
to issue final restructuring regulations by the end of 1996. The DPU also
indicated that it would issue a schedule at a later date for the filing by WMECO
and other electric companies of unbundled rate tariffs; the DPU previously
stated that such unbundled tariffs would be ordered into effect in 1997. In its
August 9 order, the DPU also stated that it remains committed to bringing full
retail choice to all Massachusetts electricity customers by January 1, 1998.
While the DPU's proposed rules indicate that utilities will have a reasonable
opportunity to recover stranded costs resulting from industry restructuring, the
criteria to be used in this process is not clearly defined at this time and will
likely be subject to review in a rate proceeding. However, if either the final
rules or a rate proceeding indicate that WMECO's financial results will be
adversely impacted, WMECO will pursue actions deemed necessary to prevent such
outcomes, including pursuit of litigation.
Liquidity And Capital Resources
Cash provided from operations increased approximately $17 million in the first
six months of 1996, from 1995, primarily due to higher retail sales and higher
funds from working capital, partially offset by higher cash operating expenses.
Cash used for financing activities increased approximately $11 million primarily
due to a net decrease in short-term debt, partially offset by lower
reacquisitions and retirements of preferred stock and lower common stock
dividends. Cash used for investments increased approximately $6 million
primarily due to loan repayments from other companies under the NU system Money
Pool during 1995.
In May 1996 Standard & Poor's Rating Group (S&P) and Moody's Investors Service
downgraded all debt and preferred stock of WMECO and bonds of CYAPC. All WMECO
securities remain on S&P's CreditWatch. These rating actions could adversely
affect the future availability and cost of funds.
WMECO is taking actions to ensure that they will have access to adequate cash
resources, at reasonable cost, even if the nuclear outages extend significantly
longer, or the associated costs are significantly greater, than management
currently foresees.
WMECO applied to the Securities and Exchange Commission for an aggregate
increase of $90 million in the agreement under which it effects revolving credit
borrowings. This increase would raise WMECO's short-term debt level up to $150
million. WMECO is also evaluating the issuance of additional first-mortgage
bonds and sale of its accounts receivable.
RESULTS OF OPERATIONS
Comparison of the Second Quarter of 1996 with the Second Quarter of 1995
Changes in Operating Revenues Increase/(Decrease)
(Millions of Dollars)
Retail sales $5
Fuel and purchased-power cost recoveries (5)
Wholesale revenues 4
Other revenues (2)
----
Total revenue change $2
Retail kilowatt-hour sales increased 6.1 percent primarily due to modest
economic growth in 1996. Fuel and purchased-power cost recoveries decreased
primarily due to lower energy costs and lower average fossil fuel prices.
Wholesale revenues increased primarily due to higher sales to outside utilities.
Fuel, purchased, and net interchange power expense decreased approximately $6
million primarily due to the timing of the recognition of costs under the
company's fuel clauses and lower fossil and nuclear generation, partially offset
by higher outside energy costs in 1996.
Other operation and maintenance expense increased approximately $9 million
primarily due to higher costs associated with the nuclear outages ($9 million,
including $7 million of reserves for future costs).
Amortization of regulatory assets, net decreased approximately $3 million
primarily due to the completion of the amortization of Millstone 3 phase-in
costs in June 1995.
Federal and state income taxes increased approximately $1 million primarily due
to higher book taxable income.
Interest on long-term debt decreased approximately $1 million primarily due to
lower average 1996 outstanding debt levels.
Comparison of the First Six Months of 1996 with the First Six Months of 1995
Changes in Operating Revenues Increase/(Decrease)
(Millions of Dollars)
Retail sales $ 8
Wholesale revenues 4
Other revenues (2)
-----
Total revenue change $10
Retail kilowatt-hour sales increased 4.7 percent primarily due to modest
economic growth in 1996 and mild weather in the first quarter of 1995. Wholesale
revenues increased primarily due to higher sales to outside utilities.
Fuel, purchased, and net interchange power expense increased approximately $2
million primarily due to higher 1996 outside energy costs, partially offset by
the timing of the recognition of costs under the company's fuel clauses and
lower fossil and nuclear generation.
Other operation and maintenance expense increased approximately $16 million
primarily due to higher costs associated with the nuclear outages ($18 million,
including $9 million of reserves for future costs).
Amortization of regulatory assets, net decreased approximately $7 million
primarily due to the completion of the amortization of Millstone 3 phase-in
costs in June 1995.
Federal and state income taxes increased approximately $1 million primarily due
to tax benefits from a favorable tax ruling recognized during the first quarter
of 1995, partially offset by lower 1996 book taxable income.
Interest on long-term debt decreased approximately $2 million primarily due to
lower average 1996 debt levels.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NU has learned that the Office of the U.S. Attorney for Connecticut
together with the U.S. Environmental Protection Agency is investigating possible
criminal violations of federal environmental laws at the Millstone facilities.
This investigation may have arisen out of allegations made by a former employee
in a Connecticut state lawsuit alleging he was wrongfully terminated in the
January 1996 nuclear workforce reduction. NU has been informed by the
government that it is a target of the investigation, but that no one in senior
management is either a target or a subject of this investigation.
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 6, 1996, stockholders voted to fix the number of directors
for the ensuing year at seven. The vote fixing the number of directors at seven
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 seven 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, Bernard M. Fox, William T. Frain, Jr.,
Cheryl W. Grise, John B. Keane and Hugh C. MacKenzie.
ITEM 5. OTHER INFORMATION
1. On July 23, 1996, the United States Court of Appeals for the District of
Columbia held that the United States Department of Energy (DOE) is obligated
under the Nuclear Waste Policy Act (NWPA) of 1982 to start disposing spent
nuclear fuel (SNF) no later than January 31, 1998. This decision followed a
request by numerous utilities, including certain NU subsidiaries, and state
utility commissions to review the DOE's final interpretation declaring that it
had no obligation under the NWPA or its contracts with utilities to accept SNF
absent an operational repository. The decision of the DOE was vacated, and the
case was remanded for further proceedings consistent with the appellate court's
opinion.
For additional information on this proceeding, see "Item 1. Business - Electric
Operations - Nuclear Generation - High-Level Radioactive Waste" in WMECO's 1995
Form 10-K.
2. On July 24, 1996, NU submitted the report of the Fundamental Cause
Assessment Team (FCAT) to the NRC. The FCAT was created by the nuclear
committee of the NU Board of Trustees to assist it in identifying fundamental
causes of the decline in performance of the Millstone Units. The FCAT
identified the following fundamental causes: (1) the top levels of NU management
did not consistently exercise effective leadership and articulate and implement
appropriate vision and direction, (2) the nuclear organization did not establish
and maintain high standards and expectations, and (3) the nuclear organization's
leadership, management and interpersonal skills were weak. The FCAT's findings
will be factored into the recovery plan that is being developed for the
Millstone Units.
For additional information regarding actions taken by the Board of Trustees with
respect nuclear performance, WMECO's Form 10-Q for the quarter ended March 31,
1996.
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:
1. WMECO filed a Form 8-K dated June 6, 1996 disclosing:
- The NRC had issued a report critical to the operations at Millstone.
In addition, the NRC is requiring NU to perform inspections at the
three Millstone plants and to submit a response to the NRC prior to
the restart of the three Millstone units.
- CY filed documents with the NRC expressing its view that the specific
issues identified at Millstone are not present to the same degree.
2. WMECO filed a Form 8-K dated June 28, 1996 disclosing:
- On July 2, 1996, Northeast Utilities Service Company, acting as agent
for the system companies, filed a response to the NRC outlining design
and configuration discrepancies at Millstone 3 and the costs estimated
to repair them.
3. WMECO filed a Form 8-K dated July 22, 1996 disclosing:
- Revised estimates for replacement power and the incremental costs
associated with getting the nuclear units back on-line.
- CY was shutdown voluntarily by its operator, Connecticut Yankee Atomic
Power Company, to analyze CY's service water system.
- WMECO's operational actions in the event of long periods of hot
weather.
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 13, 1996 By: /s/ Bernard M. Fox
Bernard M. Fox
Chairman and Director
Date August 13, 1996 By: /s/ John J. Roman
John J. Roman
Vice President and Controller
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