SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 31, 1997
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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 of (I.R.S. Employer
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 or former address, if changed since last report)
5. Other Events
1. Connecticut Rate and Nuclear Matters
Connecticut law requires the Connecticut Department of Public Utility
Control (DPUC) to review a utility's rates every four years if there has not
been a rate proceeding during such period. The DPUC conducted such a
proceeding for The Connecticut Light and Power Company (CL&P), a wholly owned
subsidiary of Northeast Utilities (NU), in the second half of 1997. On
December 31, 1997 the DPUC issued its final ruling in this matter. The
decision did not effect a change in CL&P's rates, but set forth findings and
conclusions that could be used to do so in later proceedings. The most
significant conclusion was that Millstone 1 should be removed from CL&P's
rate base, which could cause an annual revenue reduction of approximately
$30.5 million. The decision stated that the DPUC would open an interim rate
proceeding immediately to remove Millstone 1 from CL&P's rates and
simultaneously to remove an additional $110.5 million of other expenses from
rates related to perceived overearnings. The proceeding began on January 5,
1998, and the resulting interim rates are expected to become effective on
March 1, 1998.
CL&P was also directed to file a full rate case on April 1, 1998, to
address potential overearnings amounting to an additional $150 million in
1998.
In addition, the DPUC will schedule hearings for April 1, 1998 and June
1, 1998 to determine the status of Millstone 3 and Millstone 2, respectively.
If the units are not operating by those dates, the DPUC will consider their
removal from rates. On January 8, 1998, Millstone 3 was declared physically
ready for restart, which meant that almost all of the restart-required
physical work had been completed in the plant. Over the next few months, the
Nuclear Regulatory Commission (NRC) will conduct a series of inspections to
determine, among other things, whether the plant has effective leadership and
corrective action and employee concerns programs. The Independent Corrective
Action Verification Program, an NRC-ordered independent review of the plant's
design and licensing bases, is also expected to be completed during this
period. A formal vote of the NRC commissioners is required to restart the
unit. NU hopes to return Millstone 3 to service late in the first quarter of
1998.
On January 14, 1998, CL&P filed written testimony with the DPUC in the
interim rate proceeding to address the financial implications of interim rate
actions proposed in the December 31 decision. In its testimony CL&P urges, in
light of its fragile financial situation, that the DPUC reduce the total
annual revenue dissallowance under this proceeding from $141 million to about
$64 million and consider an accelerated amortization of regulatory assets,
rather than a revenue reduction, as the primary means of addressing
overearnings.
Based on CL&P's current 1998 budget assumptions, which are not yet
final, including reasonably conservative assumptions concerning the ultimate
effect of the DPUC's December 31 decision, CL&P's testimony in the interim
rate case indicates that the company could meet its covenant requirements in
1998 under certain of its existing financing agreements, unless there are a
series of negative developments not factored into the budget. Were covenant
violations to occur, unless CL&P were able to obtain waivers from its lenders
or make alternative financing arrangements, CL&P would not be able to meet
its funding requirements following the end of the second quarter of 1998. The
testimony requests that the DPUC mitigate the effect of the proposed interim
rate reduction to the extent necessary to give CL&P the financial flexibility
to survive future adverse developments.
Management has already taken steps to maintain its access to these
financial agreements by reducing budgeted 1998 operation and maintenance
(O&M) expenses and capital spending. In particular, Northeast Nuclear Energy
Company, which operates the Millstone units as agent for CL&P and Western
Massachusetts Electric Company (WMECO), another wholly owned subsidiary of
NU, has placed Millstone 1 in extended maintenance status. This action is
estimated to reduce CL&P's and WMECO's O&M spending by approximately $77.5
million and $15 million, respectively in 1998. In addition, proposed
reductions in the capital budget for Millstone 1 are estimated to reduce
CL&P's and WMECO's capital spending by $25 million and $6 million,
respectively. Accordingly, Millstone 1 is not expected to return to service
during 1998. Management will review its options with respect to Millstone 1
in 1998, including restart, and other options.
If the return to service of Millstone 3 or 2 is delayed substantially
beyond the present restart estimates, if some borrowing facilities become
unavailable because of difficulties in meeting borrowing conditions or
renegotiating extensions, if CL&P and WMECO encounter additional significant
costs or if any other significant deviations from management's assumptions
occur, CL&P and WMECO could be unable to meet their cash requirements. In any
such circumstance, management would take even more stringent actions to
reduce costs and cash outflows and attempt to obtain additional sources of
funds. The availability of these funds would be dependent upon general
market conditions and CL&P's and WMECO's respective credit and financial
condition at the time.
For more information regarding this matter, see NU's current reports on
Form 8-K dated October 13, 1997 and November 25, 1997, quarterly report on
Form 10-Q for the quarter ending September 30, 1997 and "Item 1.
Business-Rates-Connecticut Retail Rates" in NU's 1996 Form 10-K.
2. Massachusetts Restructuring Plan
On November 19, 1997, the Massachusetts Legislature enacted a
comprehensive electric utility industry restructuring bill, which was signed
into law by the Governor on November 25, 1997. On December 31, 1997, WMECO
filed its restructuring plan with the Massachusetts Department of
Telecommunications and Energy (DTE), formerly the Department of Public
Utilities, consistent with the Massachusetts restructuring legislation. The
plan sets out the process by which WMECO will, beginning March 1, 1998,
initiate a 10 percent rate reduction for all customer rate classes and allow
customers to choose their energy suppliers.
The costs of transitioning to competition will be mitigated through
several steps, including divestiture of WMECO's nonnuclear generation plants
at an auction to be held as soon as June 30, 1998, and securitization of
approximately $500 million in transition costs by September 30, 1998. NU
presently expects to participate, through a competitive affiliate, in the
bidding for WMECO's nonnuclear generation resources. Any net proceeds in
excess of book value received from the divestiture of these units will be
used to mitigate transition costs. As required by the legislation, WMECO will
continue to operate and maintain the transmission and local distribution
network and deliver electricity to all customers. It is expected that the DTE
will issue an interim order on this filing before March 1, 1998.
For more information regarding restructuring initiatives in
Massachusetts, see NU's current report on Form 8-K dated November 25, 1997
and "Item 1. Business-Rates-Massachusetts Retail Rates" in NU's 1996 Form
10-K.
SIGNATURE
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
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Registrant
Date January 27, 1998 By /s/John B. Keane
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John B. Keane
Vice President and Treasurer
