SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission Registrants, State of Incorporation I.R.S. Employer
File Number Address; and Telephone Number Identification
No.
1-5366 EASTERN UTILITIES ASSOCIATES 04-1271872
(A Massachusetts voluntary association)
One Liberty Square
Boston, Massachusetts 02109
Telephone (617) 357-9590
0-2602 Blackstone Valley Electric Company 05-0108587
(A Rhode Island Corporation)
750 W. Center Street
West Bridgewater, Massachusetts 02379
Telephone (508) 559-1000
0-8480 Eastern Edison Company 04-1123095
(A Massachusetts Corporation)
750 W. Center Street
West Bridgewater, Massachusetts 02379
Telephone (508) 559-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Registrant Title of Each Class on which registered
Eastern Utilities Common Shares, New York Stock Exchange
Associates par value $5 per share Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Each Class
Blackstone Valley 4.25% Non-Redeemable Preferred Stock,
Electric Company $100 Par Value
5.60% Non-Redeemable Preferred Stock,
$100 Par Value
Eastern Edison 6.625% Redeemable Preferred Stock,
Company $100 Par Value
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrants. As of March 15, 1999:
Eastern Utilities Associates Common Shares, $5 par value - $579,871,415
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Eastern Utilities Associates Common Shares
Outstanding at March 15, 1999: 20,435,997
Blackstone Valley Electric Company Common Shares
Outstanding at March 15, 1999: 184,062
Eastern Edison Company Common Shares
Outstanding at March 15, 1999: 2,339,401
Portions of the Annual Reports to Shareholders of Eastern Utilities
Associates, Blackstone Valley Electric Company, and Eastern Edison Company for
the year ended December 31, 1998, are incorporated by reference into Part II.
Portions of the Eastern Utilities Associates Proxy Statement, to be filed on or
about April 14, 1999 are incorporated by reference into Part III.
EASTERN UTILITIES ASSOCIATES
BLACKSTONE VALLEY ELECTRIC COMPANY
EASTERN EDISON COMPANY
1998 Annual Report on Form 10-K
Table of Contents
Table of Contents. . . . . . . . . . . . . . . . . . . . . . . .I
GLOSSARY OF DEFINED TERMS. . . . . . . . . . . . . . . . . . . IV
PART I
Item 1. BUSINESS. . . . . . . . . . . . . . . . . . . . .1
System Overview . . . . . . . . . . . . . . . . . . . . . .1
Proposed Merger Agreement . . . . . . . . . . . . . . . . .1
General - Core Electric Business. . . . . . . . . . . . . .2
Electric Utility Industry Restructuring . . . . . . . . . .5
Generation Divestiture . . . . . . . . . . . . . . . . .6
General - EUA Cogenex . . . . . . . . . . . . . . . . . . 7
General - EUA Energy Investment . . . . . . . . . . . . . 9
Capital Requirements . . . . . . . . . . . . . . . . . . 10
Capital Requirements - EUA. . . . . . . . . . . . . . . 10
Construction Program - Blackstone . . . . . . . . . . . 10
Construction Program - Eastern Edison . . . . . . . . . 11
Fuel for Generation . . . . . . . . . . . . . . . . . . . 11
Nuclear Power Issues . . . . . . . . . . . . . . . . . . 14
General . . . . . . . . . . . . . . . . . . . . . . . . 14
Decommissioning . . . . . . . . . . . . . . . . . . . . 15
Millstone 3 . . . . . . . . . . . . . . . . . . . . . . 15
Connecticut Yankee . . . . . . . . . . . . . . . . . . .16
Maine Yankee . . . . . . . . . . . . . . . . . . . . . .17
NRC Oversight . . . . . . . . . . . . . . . . . . . . . 18
Public Utility Regulation . . . . . . . . . . . . . . . . 18
Rates . . . . . . . . . . . . . . . . . . . . . . . . . 19
FERC Proceedings - Transmission . . . . . . . . . . . . 20
FERC Proceedings - Supply . . . . . . . . . . . . . . . 21
Rhode Island Proceedings . . . . . . . . . . . . . . . 22
Massachusetts Proceedings . . . . . . . . . . . . . . . 23
Environmental Regulation . . . . . . . . . . . . . . . . 24
General . . . . . . . . . . . . . . . . . . . . . . . . 24
Preconstruction Reviews . . . . . . . . . . . . . . . . 24
Solid and Hazardous Waste Regulation. . . . . . . . . . 25
Superfund Requirements. . . . . . . . . . . . . . . . . 25
Chemical Regulation . . . . . . . . . . . . . . . . . . 25
Potential Regulation of Electric and Magnetic Fields. . 25
Water Regulation. . . . . . . . . . . . . . . . . . . . 26
Air Regulation. . . . . . . . . . . . . . . . . . . . . 27
Permit Transfers . . . . . . . . . . . . . . . . . . . .28
Other Requirements. . . . . . . . . . . . . . . . . . . 29
Environmental Regulation of Nuclear Power . . . . . . . . 29
The Year 2000 Issue . . . . . . . . . . . . . . . . . . . 29
EUA's State of Readiness . . . . . . . . . . . . . . . 30
Costs to Address EUA's Year 2000 Issues . . . . . . . . 30
Risks of EUA's Year 2000 Issues . . . . . . . . . . . . 30
Year 2000 Contingency Plans . . . . . . . . . . . . . . 31
Summary of the Year 2000 Issue. . . . . . . . . . . . . 31
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . 32
Power Supply . . . . . . . . . . . . . . . . . . . . . . 32
Other Property. . . . . . . . . . . . . . . . . . . . . . 34
Item 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . 35
Rate Proceeding . . . . . . . . . . . . . . . . . . . . . 35
Environmental Proceedings . . . . . . . . . . . . . . . . 35
Other Proceedings . . . . . . . . . . . . . . . . . . . . 39
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.40
Executive Officers of Eastern Utilities Associates. . . . 40
PART II
Item 5. MARKET FOR EUA'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . 41
Item 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . 41
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . 41
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . 41
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES. . . . . . . 41
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANTS. . . . . . . . . . . . . . . . . . . 42
Eastern Utilities Associates. . . . . . . . . . . . . . . 42
Blackstone and Eastern Edison . . . . . . . . . . . . . . 42
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . 43
Eastern Utilities Associates. . . . . . . . . . . . . . . 43
Blackstone and Eastern Edison . . . . . . . . . . . . . . 43
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . 44
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . 44
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K . . . . . . . . . . . . . . . . . . . . . . 44
(a)(1) Financial Statements . . . . . . . . . . . . . . . 44
(a)(2) Financial Statement Schedules . . . . . . . . . . 45
(a)(3) Exhibits (*denotes filed herewith).. . . . . . . . 45
(b) Reports on Form 8-K. . . . . . . . . . . . . . . . . 59
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Report of Independent Accountants. . . . . . . . . . . . . . . 71
Consent of Independent Accountants . . . . . . . . . . . . . . 73
GLOSSARY OF DEFINED TERMS
The following is a glossary of frequently used abbreviations and/or acronyms
found throughout this report:
The EUA System Companies
Blackstone Blackstone Valley Electric Company
Eastern Edison Eastern Edison Company
EUA Eastern Utilities Associates
EUA BIOTEN EUA BIOTEN Inc.
EUA Cogenex EUA Cogenex Corporation
EUA Day EUA Day Company, a division of EUA Cogenex
EUA Ocean State EUA Ocean State Corporation
EUA Service EUA Service Corporation
EUA Energy EUA Energy Investment Corporation
EUA Energy Services EUA Energy Services Corporation
EUA Telecommunications EUA Telecommunications Corporation
EUA TransCapacity EUA TransCapacity, Inc.
Montaup Montaup Electric Company
Newport Newport Electric Corporation
Registrants EUA, Blackstone and Eastern Edison
Renova Renova LLC (formerly EUA Nova)
Retail Subsidiaries Blackstone, Eastern Edison and Newport
Non-Affiliated Companies
Connecticut Yankee Connecticut Yankee Atomic Power Company
Maine Yankee Maine Yankee Atomic Power Company
OSP Ocean State Power Project Units 1 and 2
Vermont Yankee Vermont Yankee Power Corporation
Yankee Atomic Yankee Atomic Electric Company
Regulators/Regulations
1935 Act Public Utility Holding Company Act of 1935
CERCLA Federal Comprehensive Environmental
Response, Compensation and Liability
Act of 1980
Chapter 21E Massachusetts Oil and Hazardous Material
Release Prevention and Response Act
Clean Air Act Amendments Clean Air Act Amendments of 1990
GLOSSARY OF DEFINED TERMS (Cont'd)
Regulators/Regulations (continued)
DEQE Massachusetts Department of Environmental
Quality Engineering
DOE Department of Energy
DTE Massachusetts Department of Telecommunications
and Energy (formerly Massachusetts Department
of Public Utilities)
Energy Policy Act Energy Policy Act of 1992
EPA Federal Environmental Protection Agency
FERC Federal Energy Regulatory Commission
IRS Internal Revenue Service
MADEP Massachusetts Department of Environmental
Protection
MADOER Massachusetts Department of Energy Resources
NESCAUM Northeast States for Coordinated Air Use
Management
NRC Nuclear Regulatory Commission
NWPA Nuclear Waste Policy Act
Price-Anderson Act The Price-Anderson Act, as amended by the
Price-Anderson Amendments of 1988
PURPA Public Utility Regulatory Policies Act
of 1978
RIDEM Rhode Island Department of Environmental
Management
RIDIV Rhode Island Division of Public Utilities
and Carriers
RIPUC Rhode Island Public Utilities Commission
SEC Securities and Exchange Commission
TSCA Toxic Substances Control Act
Other
BTU British Thermal Unit
DSM Demand Side Management
EMF Electric and Magnetic Fields
EWG Exempt Wholesale Generator
IDIQ Indefinite Delivery and Indefinite
Quantity Contract
IPP Independent Power Producer
ISO Independent System Operator
kv Kilovolt
GLOSSARY OF DEFINED TERMS (Cont'd)
Other (continued)
kWh Kilowatthour
mmBtu Millions of British Thermal Units
mw Megawatt
NEPOOL New England Power Pool
PCB Polychlorinated Biphenyls
PRP Potentially Responsible Party
QF Qualifying cogeneration and small power
production facilities pursuant to PURPA
Seabrook Project Seabrook Nuclear Power Project located in
Seabrook, New Hampshire
PART I
Item 1. BUSINESS
System Overview
Eastern Utilities Associates is a Massachusetts voluntary association
organized and existing under a Declaration of Trust dated April 2, 1928, as
amended, and is a registered holding company under the 1935 Act. Blackstone, a
registered retail electric utility organized under the laws of the State of
Rhode Island in 1912 operates in northern Rhode Island. Eastern Edison, a
registered retail electric utility company, was organized under the laws of the
Commonwealth of Massachusetts in 1883 and operates in southeastern
Massachusetts. EUA owns directly all of the shares of common stock of
Blackstone, Eastern Edison, and Newport, a retail electric utility which
operates in south coastal Rhode Island. These subsidiaries are collectively
referred to as the Retail Subsidiaries. Eastern Edison owns all of the
permanent securities of Montaup, a generation and transmission company, which
currently supplies electricity to Eastern Edison, Blackstone, Newport and two
unaffiliated utilities for resale. EUA also owns directly all of the shares of
common stock of EUA Cogenex, EUA Energy, EUA Ocean State, EUA Energy Services,
EUA Service and EUA Telecommunications. EUA Service provides various
accounting, financial, engineering, planning, data processing and other
services to all EUA System companies. EUA Cogenex is an energy services
company. EUA Energy invests in energy-related projects. EUA Ocean State owns
a 29.9% interest in OSP's two gas-fired generating units. (See Item 2.
PROPERTIES --Power Supply.) EUA Telecommunications provides telecommunications
and information services. The holding company system of EUA, the Retail
Subsidiaries, Montaup, EUA Service, EUA Cogenex, EUA Energy, EUA Ocean State,
EUA Energy Services, and EUA Telecommunications is referred to as the EUA
System. The EUA System is organized into a business unit structure. The Core
Electric Business consists of the Retail Subsidiaries and Montaup. (See
Electric Utility Industry Restructuring for a discussion of changes taking
place in the utility industry in the territories served by EUA's Core Electric
Business.) The Energy Related Business includes EUA Cogenex, EUA Energy, EUA
Ocean State, EUA Energy Services and EUA Telecommunications. The Corporate
Business is made up of EUA and EUA Service.
Proposed Merger Agreement
On February 1, 1999, EUA and New England Electric System (NEES) announced a
merger agreement under which NEES will acquire all outstanding shares of EUA
for $31 per share in cash. The merger agreement, which is subject to the
approval of EUA shareholders and various regulatory agencies, values the equity
of EUA at approximately $634 million, which represents a 23% premium above the
price of EUA shares on December 4, 1998, the last trading day before other
regional merger announcements affected EUA's share price. EUA shareholders
will continue to receive dividends at the current level as declared by the
Board of Trustees, until closing of the merger, which is expected to occur by
early 2000.
General - Core Electric Business
As of December 31, 1998, the number of regular employees in the core electric
and corporate business units was 950. Blackstone had 93 regular non-union
employees. Eastern Edison and Montaup had 256 regular employees. Newport and
EUA Service employed 50 and 551, respectively, at December 31, 1998. Labor
bargaining unit contracts covering approximately 66 employees of Eastern Edison
in the Fall River area, approximately 56 employees of Montaup, and 48 employees
of Newport expire in June 1999, January 2000, and March 2002, respectively.
Relations with employees are considered to be satisfactory.
The Core Electric Business supplies retail electric service in 33 cities and
towns in southeastern Massachusetts and Rhode Island. The largest communities
served are the cities of Brockton and Fall River, Massachusetts. The retail
electric service territory covers approximately 597 square miles and has an
estimated population of approximately 740,000. At December 31, 1998, Core
Electric Business served approximately 305,000 retail customers.
Blackstone serves a territory of about 150 square miles in portions of
northern Rhode Island with a population of approximately 207,000. At December
31, 1998, Blackstone furnished retail electric service to approximately 86,000
customers in the cities of Central Falls, Pawtucket and Woonsocket, and four
surrounding towns.
Eastern Edison supplies retail electric service in 22 cities and towns in
southeastern Massachusetts. The largest communities served are the cities of
Brockton and Fall River, Massachusetts. The retail electric service territory
covers approximately 392 square miles and has an estimated population of
approximately 463,000. At December 31, 1998, Eastern Edison served
approximately 186,000 retail customers.
Newport supplies retail electric service to approximately 33,000 customers in
the cities of Jamestown, Middletown, Newport, and Portsmouth, Rhode Island.
The retail electric service territory covers approximately 55 square miles and
has an estimated population of approximately 70,000.
The Core Electric Business accounted for approximately 89% of total operating
revenues of the EUA System in 1998, 1997 and 1996. The remaining balance of
operating revenues during these periods were primarily attributable to EUA
Cogenex.
In 1998, Montaup was required to backstop the Retail Subsidiaries' standard
offer energy requirements. (See Electric Utility Industry Restructuring below.)
In 1998, about 52% of the current net generating capacity of the EUA System
came from a combination of the following sources: (i) wholly owned EUA System
generating plants, primarily Montaup's 163-mw Somerset facility located in
Somerset, Massachusetts; (ii) Montaup's net entitlement of 248 mw from the
565-mw Canal No. 2 unit, which is located in Sandwich, Massachusetts and is 50%
owned by Montaup; and, (iii) entitlements from units in which Montaup has
partial ownership interests (by joint ownership through tenancy-in-common or by
stock ownership) that are 4.5% or less. The remaining 48% of the net
generating capacity of the EUA System came from units in which Montaup has
long-term or short-term power contracts for shares ranging from 5.1% to 41.7%
of the unit's capacity, including 28% of the OSP Units 1 and 2 in which EUA
Ocean State has a 29.9% partnership interest, or entitlements from the Hydro-
Quebec Project through NEPOOL. (See Item 2. PROPERTIES -- Power Supply for
further details of the EUA System's sources of power supply).
Consistent with Electric Utility Industry Restructuring legislation passed
in Rhode Island and Massachusetts and settlement agreements approved by
regulators in those states and at FERC, Montaup has agreed to sell its
generating assets. (See "Divestiture" under Electric Utility Industry
Restructuring for further discussion of the divestiture process.)
The Retail Subsidiaries and Montaup hold valid franchises, permits and
other rights which are necessary to allow these companies to conduct electric
business within the territories which they serve. Such franchises, permits and
other rights contain no unduly burdensome restrictions or limitations upon
duration. Section 312 of the Massachusetts Electric Industry Restructuring Act
signed into law on November 25, 1997 directs the DTE in conjunction with the
Massachusetts Department of Energy Resources (MADOER) to commence, no sooner
than January 1, 2000, an investigation and review of the manner in which
metering, billing and information services (MBIS) are provided and the
exclusivity of electric distribution service territories. In the event that
the DTE determines that such services should be subject to competition or that
territorial exclusivity shall be terminated or altered in any manner, the DTE
shall, by no later than January 1, 2001, file its recommendations, along with
drafts of legislation necessary to implement said recommendations, with the
clerk of the house of representatives. Any unbundling and creation of
competition of such services shall not commence unless statutorily authorized.
The EUA System's electric sales are seasonal to some extent due to
electricity usage for heating and lighting in the winter and air conditioning
in the summer. The EUA System is not dependent on a single customer or a few
customers for its electric sales.
There is no competition from other electric distribution utilities within
the retail territories served by the Retail Subsidiaries at this time.
The electric generation, or supply, function is now a competitive industry
in Rhode Island and Massachusetts, and initiatives nationwide are considering
adopting similar principles. Recently announced sales of generating portfolios
by regional utility companies, including Montaup, should generate a more robust
energy market in the regions served by EUA's Core Electric Business as new
supply entrants vie for customers. Montaup faces competition from these new
suppliers as well as existing suppliers and marketers in selling the output of
its current generating capacity and its capacity remaining after divestiture.
Competition in the generation sector has been developing for two decades,
enabled and encouraged by federal and state initiatives. PURPA was intended,
among other things, to promote national energy independence and diversification
of energy supply and to improve the overall efficiency of energy usage. PURPA
created a class of non-utility power generation facilities called qualifying
facilities or QFs. PURPA currently allows QFs to sell power generated by the
QFs to local utilities at specified rates based on each utility's avoided cost.
In order to further promote competition in energy supply, the Energy Policy Act
established another class of non-utility generators, referred to as EWGs, which
are exempt from the 1935 Act. EWGs and another class of non-utility wholesale
generators, generally known as independent power producers or IPPs, are subject
to FERC regulations under the Federal Power Act as well as various other
federal, state, and local regulations. The Energy Policy Act also increased
FERC's power to order transmission access, resulting in FERC's open access
transmission order and Regional Transmission Group Policy. As a complement to
the federal initiatives, the DTE and the RIPUC implemented regulations in the
1980's and early 1990's which require utilities to integrate least-cost
planning with competitive proposals to meet requirements for new generation.
Both states also approved in 1993 a Memorandum of Understanding among Montaup
and the Retail Subsidiaries that establishes a framework which makes possible a
coordinated, regional review of the resource planning and procurement process
of the EUA System Companies. (See Electric Utility Industry Restructuring
and Public Utility Regulation below).
On April 24, 1996, FERC issued Orders No. 888 and No. 889 to encourage
competition in the bulk power market by requiring all public utilities that
own, operate or control interstate transmission to file tariffs that offer
others the same transmission services they provide themselves, under comparable
terms and conditions, establishing the right and a mechanism for recovery of
prudently incurred stranded costs and requiring public utilities to implement
standards of conduct and an Open Access Same-time Information System (OASIS).
FERC also issued a Notice of Proposed Rulemaking (NOPR) requesting comment on
replacing the single tariff contained in the final open access rule with a
capacity reservation tariff that would reveal how much transmission is
available at any given time. (See Public Utility Regulation below.)
NEPOOL is a voluntary organization open to any person engaged in the
electric business such as investor-owned utilities, municipals, cooperative
utilities, power marketers, brokers and load aggregators. On December 31, 1996,
NEPOOL, on behalf of its participants, filed a restructuring proposal with
FERC. The NEPOOL restructuring proposal was the product of over two years of
intense discussions, deliberations and negotiations among the over 130 NEPOOL
member participants and many non-participants, including New England state
regulators. The key elements of the restructuring proposal were the
implementation of a regional NEPOOL Open Access Transmission Tariff (NEPOOL
Tariff), the creation of an Independent System Operator (ISO), and the
restatement of the NEPOOL Agreement to establish a broader governance structure
for NEPOOL and to develop a more open competitive market structure.
The NEPOOL Tariff, which became effective on March 1, 1997, ensures non-
discriminatory open access to the regional transmission network by providing a
single rate for all transactions that utilize the NEPOOL's bulk power
transmission facilities. The NEPOOL Tariff promotes competition in the New
England power market through its single transmission rate structure. All
regional service within NEPOOL, except for wheeling through or out, is to be
provided as a network service.
On June 25, 1997, FERC issued an order conditionally authorizing the
establishment of an ISO by NEPOOL effective July 1, 1997, affirming that the
transfer of control of transmission facilities owned by the public utility
members of NEPOOL to the ISO is consistent with the public interest under
Section 203 of the Federal Power Act.
On April 20, 1998, FERC accepted the NEPOOL Tariff conditional on NEPOOL's
compliance with a number of issues raised by FERC. On July 22, 1998, NEPOOL
made its compliance filing at FERC. The NEPOOL Tariff changes and amendments
to the Restated NEPOOL Agreement included in the filing effected compliance
with the Commission's April 20, 1998 Order. While there were a large number of
changes in the filing, the principal areas of change relate to the addition in
the NEPOOL Tariff of a separately available Internal Point to Point Service,
the addition of a mechanism to allocate costs to update the regional
transmission system, and the replacement of a Non-Use Charge with an In-Service
Charge across interconnections.
To give market participants more choice and to foster competition, the
restructured NEPOOL proposes the unbundling of electric service in the NEPOOL
control area. The restructured NEPOOL calls for the development of competitive
wholesale markets for installed capability, operable capability, energy,
automatic generation control, and reserves. These wholesale products will be
market-priced based on bid clearing pricing rather than the current cost-based
pricing. Market participants will be able to meet their responsibility for
these products by buying or selling these various services through bilateral
transactions or through the regional power exchange that will be administered
through the ISO. On October 29, 1997, FERC issued an order permitting
implementation of the installed capability market, which occurred in April of
1998. The remaining markets - operable capability, energy, automatic
generation control and the reserve markets are expected to start on April 1,
1999. A favorable FERC order was received on December 17, 1998. Pursuant to
the order, NEPOOL made a compliance filing on January 19, 1999, which includes
the NEPOOL market rules and procedures. FERC has sixty days to rule on this
filing.
In general, the EUA System companies support the changes to NEPOOL because
much of the cross-subsidies for sharing costs will be eliminated. These changes
will have an impact on the Company's operating revenues and costs as NEPOOL
transitions from a cost-based to a bid-based system.
Electric Utility Industry Restructuring
Legislation enacted in Rhode Island in 1996 and Massachusetts in 1997
along with approved electric utility industry restructuring settlement
agreements in both states and at the federal level granted EUA's Rhode Island
and Massachusetts electric customers with choice of electricity supplier
and rate reductions commencing January 1, 1998 and March 1, 1998, respectively.
Until a customer chooses an alternative supplier, that customer will receive
standard offer service from the EUA retail distribution company. Blackstone
and Newport are required to arrange for standard offer service through December
31, 2009 and Eastern Edison must arrange for this service through February 28,
2005. Under the approved settlement agreements, Montaup had guaranteed
standard offer supply at a fixed price schedule for the duration of the
standard offer periods and Blackstone, Newport and Eastern Edison agreed to
subject their standard offer requirements to a competitive bidding process
in which competitive suppliers would bid against the guaranteed price. Through
its successful divestiture process, combined with a competitive bidding process
conducted in late 1998, Montaup has assigned 100% of its standard offer
obligation to purchasers of its generating assets. The guaranteed standard
offer price will increase over time to encourage customers to leave standard
offer service and enter the competitive power supply market.
Provisions of the approved settlement agreements also allowed Montaup to
replace its all-requirements wholesale contracts with its affiliated retail
distribution companies with a contract termination charge (CTC) which permits
Montaup to recover, among other things, its above market investments and
commitments in generation assets. Montaup began billing the CTC coincident
with retail access and the distribution companies are recovering the CTC
through a non-bypassable transition charge to all of their distribution
customers.
As part of the approved settlement agreements, Montaup agreed to divest
its entire generation portfolio. The net proceeds of the sale, as defined in
the settlement agreements, will be used to mitigate Montaup's CTC to its retail
affiliates via a Residual Value Credit (RVC). The RVC will reduce the fixed
component of the CTC by an amount equal to the net proceeds, with a return,
over the period commencing on the date the RVC is implemented through December
31, 2009. Montaup has filed to implement the RVC effective April 1, 1999 and
is awaiting FERC approval.
Generation Divestiture
Montaup now has agreements to sell all of its non-nuclear power generation
assets and its 2.9% ownership share of the Seabrook Nuclear Station and has
agreements to transfer all of its remaining purchased power contracts with the
exception of its purchase power commitment with the Vermont Yankee Nuclear
Station.
On January 5, 1999, EUA announced that Montaup had agreed to transfer its
remaining non-nuclear power purchase contracts, amounting to approximately 177
mw to Constellation Power Source, Inc. Montaup previously entered into
agreements to sell: its 160-mw Somerset, Massachusetts electric generating
station for approximately $55 million to NRG Energy, Inc.; its 2.6% (16 mw)
share of the W. F. Wyman Unit 4 in Yarmouth, Maine to the Florida based FPL
Group for approximately $2.4 million; and its 2.9% share (34 mw) of the
Seabrook Station nuclear power plant to the Great Bay Power Corporation, a
subsidiary of BayCorp Holdings, Ltd. for $3.2 million. Montaup has also signed
agreements for the transfer of power purchase contracts for approximately 170
mw between Montaup and Ocean State Power and for the buyout of its 11% (73
mw) power entitlement from the Pilgrim Nuclear Power Station in Plymouth,
Massachusetts. All of the sale and contract transfer agreements are subject to
federal and/or state regulatory approvals, including that of the Nuclear
Regulatory Commission with respect to the Seabrook sale. Closing of the non-
nuclear sale agreements are anticipated to take place in the first quarter of
1999. The Seabrook sale and Pilgrim buyout are expected to take place later in
1999.
The sale of Montaup's 50% share (280 mw) of Unit 2 of the Canal generating
station in Sandwich, Massachusetts to Southern Energy for $75 million, which
was announced in May 1998, was completed on December 30, 1998, and the sale of
two diesel-powered generating units (totaling approximately 16 mw) owned by
Newport to Illinois-based Wabash Power Equipment Co. for $1.5 million closed on
October 1, 1998.
Montaup's remaining generating capacity includes approximately 46 mw from
its 4.0% joint ownership share of Millstone 3 nuclear unit and 12 mw from its
2.25% equity ownership of the Vermont Yankee nuclear facility. EUA will
continue to attempt to sell and/or transfer its minority interests in these
units.
General - EUA Cogenex
EUA Cogenex is a wholly owned subsidiary of EUA. EUA Cogenex is an
energy services company that employs energy efficient technology and equipment
intended to reduce the energy consumption and costs of its customers. Such
technology and equipment include building automation systems, lighting
modifications, boiler and chiller replacements and other mechanical
measures such as motors and drives. EUA Cogenex may design, install, own,
operate, maintain, and finance specific energy efficient applications for its
customers.
EUA Cogenex is compensated for these services primarily through energy
services agreements in which EUA Cogenex and the customer who occupies or owns
a facility agree upon a prescribed base year and a set of savings calculations.
EUA Cogenex then receives payments based on a portion of the savings that
result from the installation and maintenance of the energy efficient equipment
in the facility. Some of EUA Cogenex revenues under these agreements are
dependent upon the actual achievement of energy savings. In addition, EUA
Cogenex participates in demand side management (DSM) programs sponsored by
electric utilities as a means to decrease both base load and peak demand on the
utilities' systems. In utility DSM programs, EUA Cogenex contracts with the
utility and its commercial and industrial customers in order to decrease the
overall demand on the utility system or to reduce peak demand, curtailing the
need for costly capacity additions. EUA Cogenex contracts for utility DSM
programs through a bidding process or participates in the utility's "Fixed Rate
Program." EUA Cogenex also may, from time to time, acquire existing DSM
contracts or energy services agreements, or the benefits from those contracts
from other energy services companies through its "flexifund" finance division.
EUA Cogenex's principal markets include institutional, commercial,
industrial, government entities and, through its EUA Citizens Conservation
Services subsidiary, public and private multi-family housing.
On October 23, 1998, an arbitrators' panel rendered their decision in a
matter involving the 1995 sale of a portfolio of cogeneration units by EUA
Cogenex to Ridgewood/Mass Power Partners, et al (Ridgewood). Ridgewood claimed
that financial and other warranties in the purchase and sale agreement had been
breached. Cogenex entered counterclaims seeking recovery of costs of certain
services performed for Ridgewood. The arbitration panel found for the buyer on
some of the warranty claims, and awarded damages of approximately $2.6 million
plus interest of approximately $900,000 (an amount substantially less than
claimed). Cogenex was awarded approximately $400,000 plus interest of
approximately $130,000 on its counterclaim. Cogenex has paid the arbitration
panel's net award less interest and has recorded this charge to earnings during
the quarter ended December 31, 1998. Ridgewood has claimed attorney fees and
costs in excess of $900,000. The issue of the parties' respective rights to
attorney's fees has been heard and is under advisement. Cogenex has taken the
position that the claim is excessive and that in fact EUA Cogenex should be
awarded a substantial portion of attorney fees and costs incurred by it as a
prevailing party against several claimants and otherwise.
Through May 1, 1998, EUA Cogenex also operated a lighting services
division, Renova. Renova provides lighting products designed to achieve an
efficiency gain through the integration of various lamp, ballast and light
reflector products. In order that EUA Cogenex concentrate on its core
business, the assets and liabilities of RENOVA were transferred to EUA Energy
Investment. EUA Cogenex also operates a controls division, EUA Day. EUA Day is
primarily engaged in the business of customization, installation and servicing
of building temperature control systems, monitoring and verification systems
and process control systems for the purpose of energy conservation. These
systems are primarily designed for regulating lighting and heating, ventilation
and air-conditioning, but can also simultaneously be used for security
surveillance, building entry and exit, equipment monitoring and air quality
monitoring.
EUA Cogenex also provides consulting services to its customers in the form
of training in the proper use and maintenance of the energy equipment. This
service includes instruction in the use of existing equipment as well as newly
installed equipment so that further energy savings can be realized. In
addition, EUA Cogenex monitors installed projects on a 24-hour basis and
dispatches third party contractors to make repairs and/or adjustments.
At December 31, 1998, EUA Cogenex employed 187 persons in its operations.
EUA Cogenex's competition is comprised primarily of the manufacturers and
distributors of the energy efficiency equipment which it installs, other
utility-owned energy services companies, engineering consulting firms and from
financial institutions who provide capital to finance energy efficiency
projects.
The deregulation of the electric utility industry may have an effect on
EUA Cogenex. Electric industry deregulation may present new markets and
opportunities in which EUA Cogenex may participate. However, some electric
utilities have, or announced plans to establish, subsidiaries that will
compete directly with EUA Cogenex. In 1996, the move toward electric industry
deregulation resulted in a reduction of electric utility sponsored DSM programs
which resulted in a reduction of EUA Cogenex's revenues. However, certain
electric industry restructuring statutes have created additional DSM spending
requirements and those requirements should provide greater revenue
opportunities for EUA Cogenex.
In addition, EUA Cogenex has recently concentrated on obtaining contract
awards under the Department of Energy's (DOE) Energy Saving Performance
Contracting Programs. In 1998, EUA Cogenex was awarded the DOE's Midwest
region's Indefinite Delivery and Indefinite Quantity (IDIQ) contract to
provide energy conservation services to reduce energy and water consumption and
associated utility costs. Early in 1999, EUA Cogenex was awarded its second
IDIQ from the DOE to provide energy-saving services in the Mid-Atlantic region.
The DOE has authorized $750 million in capital expenditures under this
contract.
Under the Mid-Atlantic IDIQ contract, EUA Cogenex will provide energy
conservation services in federally-owned facilities in the six-state area of
Delaware, Maryland, New Jersey, Pennsylvania, Virginia, and West Virginia, in
addition to Washington, D.C.
Over the past year, EUA Cogenex has been involved in energy saving
projects at numerous federal facilities such as the U.S. Department of Energy
Headquarters in Washington, D.C, the U.S. Army Base at Fort Lewis, Washington,
the National Cancer Institute and U.S. Army Garrison at Fort Detrick, Maryland
and the Department of Veterans Affairs Medical Center in West Haven,
Connecticut.
As of December 31, 1998, EUA Cogenex participated in five partnerships.
It is the managing general partner in all of the partnerships and has limited
partnership interest in certain of the partnerships. EUA Cogenex has provided
virtually all of the capital to the partnerships and is generally entitled to a
return of, and on, this capital before any significant partnership distribution
is made to the other general partners. All partnerships and their customers
are subject to the same selection and screening process to establish acceptable
credit quality.
The rates charged by EUA Cogenex to customers through its energy service
agreements are not subject to the jurisdiction of any regulatory agency.
Difficulties in turning project proposals into signed contracts, the
virtual elimination of utility sponsored DSM programs and the termination of
two joint ventures hampered EUA Cogenex's 1996 earnings. As a result, a write-
off of certain start-up costs of abandoned joint ventures, and expenses related
to certain project proposals along with a reduction in carrying value of
certain on-going projects necessitated by market conditions resulted in a $5.9
million pre-tax ($3.7 million after-tax or 18 cents per share) charge to
earnings in the second quarter of 1996.
The following table sets forth the amounts of revenues, pre-tax income,
net earnings and identifiable assets attributable to the consolidated
operations of EUA Cogenex:
Year Ended December 31,
1998 1997 1996
(In Thousands)
Operating Revenues $54,776 $61,321 $56,317
Pre-tax Income (Loss) $(2,090)(1) $769 $(10,186)(2)
Net Earnings (Loss) $(1,299)(1) $202 $(6,522)(2)
Total Assets $157,188 $188,351 $195,161
(1) Includes after-tax charge of $2.1 million related to the 1995 sale of
cogeneration projects.
(2) Includes pre-tax charge of $5.9 million, $3.7 million after-tax, related to
the June 1996 write down of certain project costs.
General - EUA Energy Investment
EUA Energy Investment is a wholly owned subsidiary of EUA. EUA Energy
Investment invests in energy related projects such as EUA BIOTEN, Separation
Technologies, Inc. and EUA TransCapacity. EUA BIOTEN is an investment in a
general partnership which is developing a generating unit that burns biomass-
agricultural waste and creates renewable energy. EUA BIOTEN is currently in
negotiations with a third party investor for the restructuring of the BIOTEN
G.P. into a corporation. EUA BIOTEN intends to transfer its total partnership
investment of approximately $13.5 million at December 31, 1998, into a non-
voting preferred equity ownership interest in a newly-formed corporation.
Effective March 1, 1999, EUA BIOTEN will no longer have any funding
obligations to the BIOTEN Partnership or the restructured entity. Separation
Technologies, Inc. of which EUA Energy Investment has a 20% equity interest,
markets and installs patented technology that separates unburned carbon from
coal fly-ash, which enables the customer to sell the fly-ash to secondary
markets and to reburn the separated carbon. EUA TransCapacity is an investment
in a limited partnership which has developed and now markets software system of
data acquisition, delivery and coordination using electronic data interchange
(EDI) for the natural gas industry. RENOVA operations were transferred from
EUA Cogenex to EUA Energy Investment in May 1998. EUA Energy Investment is
continuing in its efforts to negotiate strategic alliances or sales of its
other energy related investments, including EUA Transcapacity and RENOVA.
See Note I - Financial Information by Business Segment, of Consolidated
Financial Statements contained in the EUA's Annual Report to Shareholders for
the year ended December 31, 1998 (Exhibit 13-1.03 filed herewith).
Capital Requirements
Capital Requirements - EUA:
The EUA System's cash construction expenditures for the year ended
December 31, 1998 were approximately $51.2 million.
Planned core electric cash construction expenditures and energy related
capital requirements for 1999, 2000 and 2001 as set forth below, are estimated
to total $270.2 million, and are expected to be financed with internally
generated funds.
<TABLE>
EUA SYSTEM CONSTRUCTION PROGRAM
(In Thousands)
<CAPTION>
1999 2000 2001 3-Yr. Total
<S> <C> <C> <C> <C>
Generation $5,310 $3,573 $3,573 $12,456
Transmission 8,328 8,578 8,835 25,741
Distribution 19,582 20,169 20,775 60,526
General 473 487 502 1,462
Total Utility Construction
Requirements 33,693 32,807 33,685 100,185
EUA Cogenex Capital
Requirements 51,240 55,926 61,315 168,481
EUA Energy Capital
Requirements 1,500 - - 1,500
Total $86,433 $88,733 $95,000 $270,166
</TABLE>
Construction Program - Blackstone:
Blackstone's cash construction expenditures for the year ended December
31, 1998 were approximately $6.0 million, related primarily to its electric
distribution system.
Planned cash construction expenditures for 1999, 2000 and 2001, as set
forth below, are estimated to total $26.7 million.
<TABLE>
BLACKSTONE CONSTRUCTION PROGRAM
(In Thousands)
<CAPTION>
1999 2000 2001 3-Yr. Total
<S> <C> <C> <C> <C>
Transmission $1,966 $2,025 $2,086 $6,077
Distribution 6,598 6,796 7,000 20,394
General 87 90 92 269
Total $8,651 $8,911 $9,178 $26,740
</TABLE>
Construction Program - Eastern Edison:
Eastern Edison's cash construction expenditures for the year ended
December 31, 1998 were approximately $14.0 million.
Cash construction expenditures of Eastern Edison and Montaup for 1999,
2000 and 2001 as set forth below, are estimated to total $61.9 million.
<TABLE>
EASTERN EDISON CONSTRUCTION PROGRAM
(In Thousands)
<CAPTION>
1999 2000 2001 3-Yr. Total
Eastern Eastern Eastern Eastern
Edison Montaup Edison Montaup Edison Montaup Edison Montaup Combined
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Generation $ $5,252 $ $3,573 $ $3,573 $ $12,398 $12,398
Transmission 1,319 4,557 1,359 4,694 1,399 4,835 4,077 14,086 18,163
Distribution 10,108 10,411 10,724 31,243 31,243
General 34 35 36 105 105
Total $11,461 $9,809 $11,805 $8,267 $12,159 $8,408 $35,425 $26,484 $61,909
</TABLE>
Fuel for Generation
In 1998, the Retail Subsidiaries relied primarily on power purchased from
Montaup to meet the electric energy requirements of their standard offer and
default service customers. The standard offer requirement became subject to a
competitive solicitation in the third quarter of 1998. Alternate suppliers
will begin satisfying the requirements of the Retail Subsidiaries in 1999.
Completion of the competitive solicitation for default service requirements is
expected by the second quarter of 1999. (See Electric Utility Industry
Restructuring above.)
The Retail Subsidiaries recover their costs associated with the purchase
of power to meet their standard offer and default service through the operation
of revenue adjustment clauses which are designed to provide recovery of such
costs.
For 1998, the EUA System's sources of energy, by fuel type, were as
follows: 26% oil, 29% gas, 17% coal, 23% nuclear, and 6% other. During 1998,
Montaup had an average inventory of 58,795 tons of coal for its steam
generating unit at the Somerset Station, the equivalent of 65 days' supply
(based on average daily output at 80% capacity factor for the coal unit (see
Item 2. PROPERTIES -- Power Supply). The cost of coal averaged about $49.50
per ton in 1998 which is equivalent to oil at $11.15 per barrel. Montaup coal
is under contract, and coal prices have historically been very stable. Montaup
also maintained an average inventory of Nos. 2 and 6 oil of 1,748 barrels and
60,066 barrels, respectively. These fuels are used for start-up and flame
stabilization for Montaup's steam generating unit. The cost of Nos. 2 and 6
oil averaged $16.55 per barrel and $12.45 per barrel in 1998, respectively.
Montaup also maintained an average inventory of jet oil of 2,132 barrels at an
average cost per barrel of $20.75 during 1998 for its two peaking units at the
Somerset Station.
Currently, Montaup has a one year purchase order effective through
December 1999 with a coal producer. Barge and rail agreements for coal
transportation are also in place through 1999. The 1998 year-end coal
inventory of approximately 93,072 tons is all 0.6% to 0.7% sulfur coal which is
compliant with Clean Air Act requirements. Montaup has an agreement to sell
its Somerset Generating Station, expected to be completed in the first quarter
of 1999.
Canal Electric Company (Canal), on behalf of itself, Montaup and others
had a one year contract with a supplier for up to 100% of the fuel-oil
requirements of Canal Unit Nos. 1 and 2 that expired in March of 1999. Those
contracts permitted up to 50% of fuel oil purchases in the spot market. Fuel
prices are based on oil market posting at the time of delivery. For 1998, the
cost of oil per barrel at Canal averaged $12.90. Additionally, Canal had a
contract in 1998 with a gas supplier of Canal No. 2's daily gas requirements
from March through October 1998. On December 30, 1998, Montaup sold its 50%
ownership interest in Canal 2 and has an agreement to transfer its obligations
under a power purchase contract from Canal 1 expected to be effective in the
first quarter of 1999.
Montaup's costs of fossil and nuclear fuels for the years 1996 through
1998, together with the weighted average cost of all fuels, are set forth
below:
Mills* per kWh
1998 1997 1996
Nuclear . . . . . . . . . 5.0 5.7 5.0
Gas . . . . . . . . . 15.6 16.4 14.4
Coal . . . . . . . . . 18.9 18.6 19.6
Oil . . . . . . . . . 22.3 31.0 37.7
All fuels . . . . . . . . . 15.7 19.2 16.7
*One Mill is 1/10 of one cent
OSP has two gas supply contracts which expire on September 30, 2011, for
its two 250 mw generators. The cost of gas for 1998 averaged $1.38 per mmBtu
or approximately $11.5 mills per kWh generated.
The owners (or lead participants) of the nuclear units in which Montaup
has an interest have made, or expect to make, various arrangements for the
acquisition of uranium concentrate, the conversion, enrichment, fabrication and
utilization of nuclear fuel and the disposition of that fuel after use. The
owners (or lead participants) of United States nuclear units have entered into
contracts with the DOE for disposal of spent nuclear fuel in accordance with
the NWPA. The NWPA requires (subject to various contingencies) that the
federal government design, license, construct and operate a permanent
repository for high level radioactive wastes and spent nuclear fuel and
establish a prescribed fee for the disposal of such wastes and nuclear fuel.
The NWPA specifies that the DOE provide for the disposal of such waste and
spent nuclear fuel starting in 1998. Objections on environmental and other
grounds have been asserted against proposals for storage as well as disposal
of spent nuclear fuel. The DOE now estimates that a permanent disposal site
for spent fuel will not be ready to accept fuel for storage or disposal until
at least the year 2010. Montaup currently owns a 4.01% interest in Millstone 3
and a 2.9% interest in Seabrook I. Montaup has an agreement to sell its 2.9%
ownership interest in the Seabrook Nuclear Station, expected to be completed in
the later part of 1999. Northeast Utilities, the operator of the units,
indicates that Millstone 3 has sufficient on-site storage facilities which,
with rack additions, can accommodate its spent fuel for the projected life of
the unit. At the Seabrook Project, there is on-site storage capacity which,
with rack additions, will be sufficient until at least the year 2011.
The Energy Policy Act of 1992 requires that a fund be created for the
decommissioning and decontamination of the DOE uranium enrichment facilities.
The fund will be financed in part by special assessments on nuclear power
plants in which Montaup has an interest. These assessments are calculated
based on the utilities' prior use of the government facilities and have been
levied by the DOE, starting in September 1993, and will continue over 15 years.
This cost is passed on to the joint owners or power buyers as an additional
fuel charge on a monthly basis and is currently being recovered by Montaup
through the contract termination charge.
In early 1998, Yankee Atomic, Maine Yankee and Connecticut Yankee,
individually, as well as a number of other utilities, filed suit in federal
appeals court seeking a court order to require the DOE to immediately establish
a program for the disposal of spent nuclear fuel. Under the Nuclear Waste
Policy Act of 1992, the DOE was to provide for the disposal of radioactive
wastes and spent nuclear fuel starting in 1998 and has collected funds from
owners of nuclear facilities to do so.
On February 19, 1998, Maine Yankee also filed a petition in the U.S. Court
of Appeals seeking to compel the Department of Energy to remove and dispose of
the spent fuel at the Maine Yankee site. Under their Standard Contract, the
DOE had a deadline for beginning the removal process at all nuclear plants on
January 31, 1998, which was not met. On May 5, 1998, the Court of Appeals
denied several motions brought in the proceeding, including several motions for
injunctive relief brought by the utility petitioners. In particular, the Court
denied the requests to require the DOE to immediately establish a program for
the disposal of spent nuclear fuel.
Also, Yankee Atomic, Connecticut Yankee, and Maine Yankee filed lawsuits
against the DOE in the U.S. Court of Federal Claims seeking damages of $70
million, $90 million and $128 million, respectively, as a result of the DOE's
refusal to accept the spent nuclear fuel. In late October and early November
1998, the U.S. Court of Federal Claims issued rulings with respect to Yankee
Atomic, Maine Yankee, and Connecticut Yankee finding that the DOE was
financially responsible for failing to accept spent nuclear fuel. These
rulings clear the way for Yankee Atomic, Connecticut Yankee and Maine Yankee to
pursue at trial their individual damage claims. Management cannot predict at
this time the ultimate outcome of these actions.
Nuclear Power Issues
General:
Nuclear generating facilities, including those in service in which Montaup
participates, as shown in the table under Item 2. PROPERTIES -- Power Supply,
are subject to extensive regulation by the NRC. The NRC is empowered to
authorize the siting, construction and operation of nuclear reactors after
consideration of public health, safety, environmental and anti-trust matters.
The NRC has promulgated numerous requirements affecting safety systems,
fire protection, emergency response planning and notification systems, and
other aspects of nuclear plant construction, equipment and operation. These
requirements have caused modifications to be made at some of the nuclear units
in which Montaup has an interest. Montaup has been affected, to the extent of
its proportionate share, by the costs of such modifications.
Nuclear units in the United States have been subject to widespread
criticism and opposition. Some nuclear projects have been canceled following
substantial construction delays and cost overruns as the result of licensing
problems, unanticipated construction problems and other difficulties. Various
groups have by litigation, legislation and participation in administrative
proceedings sought to prohibit the completion and operation of nuclear units
and the disposal of nuclear waste. In the event of cancellation or shutdown of
any unit, the unit must be decontaminated of any residual radioactivity so as
to satisfy NRC regulations which generally require that the property be
releasable for unrestricted use. The cost of such decommissioning, depending
on the circumstances, could substantially exceed the owners' investment at the
time of cancellation.
Joint owners of nuclear projects are subject to the risk that one of their
number may be unable or unwilling to finance its share of the project's costs,
thus jeopardizing continuation of the project. Also, the continuing public
controversy concerning nuclear power could affect the operating units in which
Montaup has an interest. While management cannot predict the ultimate effect
of such controversy, it is possible that it could result in the premature
shutdown of one or more of the units.
The Price-Anderson Act provides, among other things, that the limit of
liability for a nuclear incident would not exceed an amount which at present is
about $9.9 billion. Under the Price-Anderson Act, prior to operation of a
nuclear reactor, the facility is required to insure against this exposure by
purchasing the maximum amount of liability insurance available from private
sources currently $200 million and to maintain the insurance available under a
mandatory industry-wide retrospective rating program. Should liability for an
incident exceed $200 million, the difference between such liability and the
overall maximum liability, currently about $9.7 billion, will be made up by the
retrospective rating program. Under such a program, each operating nuclear
facility may be assessed a retrospective premium of up to a limit of $88.1
million (which shall be adjusted for inflation at least every five years) for
each reactor owned in the event of any one nuclear incident occurring at any
reactor in the United States, with provision for payment of such assessment to
be made over time as necessary to limit the payment in any one year to no more
than $10 million per reactor owned. With respect to operating nuclear
facilities of which it is a part owner or from which it contracts (on terms
reflecting such liability) to purchase power, Montaup would be obligated to
pay its proportionate share of any such assessment.
Decommissioning:
Vermont Yankee, an operating nuclear generating company in which Montaup
has an equity ownership interest (see Item 2. PROPERTIES -- Power Supply) has
developed its estimate of the cost of decommissioning its unit and has received
the approval of FERC to include charges for the estimated costs of
decommissioning its unit in the cost of energy which it sells. From time to
time, Vermont Yankee re-estimates the cost of decommissioning and applies to
FERC for increased rates in response to increased decommissioning costs. Maine
Yankee has filed a decommissioning financing plan under a Maine statute which
requires the establishment of a decommissioning trust fund. That statute also
provides that if the trust has insufficient funds to decommission the plant,
the licensee (Maine Yankee) is responsible for the deficiency and, if the
licensee is unable to provide the entire amount, the "owners" of the licensee
are jointly and severally responsible for the remainder. The definition of
"owner" under the statute includes Montaup and may include companies affiliated
with Montaup. The applicability and effect of this statute cannot be
determined at this time. Montaup would seek to recover through its rates any
payments that might be required. (See "Connecticut Yankee" and "Maine Yankee"
below.)
Montaup is recovering through rates its share of estimated decommissioning
costs for Millstone 3 and Seabrook I. Montaup's share of the current estimate
of total costs to decommission Millstone 3 is $22.4 million in 1998 dollars,
and Seabrook I is $14.4 million in 1998 dollars. These figures are based on
studies performed for the lead owners of the plants. In addition, pursuant to
contractual arrangements with other nuclear generating facilities in which
Montaup has an equity ownership interest or life of the unit entitlement,
Montaup pays into decommissioning reserves. Such expenses are currently
recoverable through rates.
Millstone 3:
Montaup has a 4.01% ownership interest in Millstone 3, an 1154-mw nuclear
unit that is jointly owned by a number of New England utilities, including
subsidiaries of Northeast Utilities (Northeast). Subsidiaries of Northeast are
the lead participants in Millstone 3. On March 30, 1996, it was necessary to
shut down the unit following an engineering evaluation which determined that
four safety-related valves would not be able to perform their design function
during certain postulated events.
In October 1996, the NRC, which had raised numerous issues with respect to
Millstone 3 and certain of the other nuclear units in which Northeast and its
subsidiaries, who either individually or collectively have the largest
ownership shares, informed Northeast that it was establishing a Special
Projects Office to oversee inspection and licensing activities at Millstone.
The Special Projects Office was responsible for (1) licensing and inspection
activities at Northeast's Connecticut plants, (2) oversight of an Independent
Corrective Action Verification Program, (3) oversight of Northeast's corrective
actions related to safety issues involving employee concerns, and (4)
inspections necessary to implement NRC oversight of the plants' restart
activities. Also, the NRC directed Northeast to submit a plan for disposition
of safety issues raised by employees and retain an independent third-party to
oversee implementation of this plan.
On April 8, 1998, Northeast announced that Millstone 3 was ready for NRC
inspection indicating that virtually all of the restart-required physical work
had been completed. On June 29, 1998, the NRC authorized Northeast to begin
restart activities of Millstone 3. The authorization was given after the NRC
staff verified that several final technical and programmatic issues were
resolved. Millstone 3 was restarted during the first week of July, and on July
14, 1998, Millstone 3 returned to full power operations. The NRC will continue
to closely monitor Millstone 3's performance.
In August 1997, nine non-operating owners, including Montaup, who together
own approximately 19.5% of Millstone 3, filed a demand for arbitration against
Connecticut Light and Power (CL&P) and Western Massachusetts Electric Company
(WMECO) as well as lawsuits against Northeast and its Trustees. CL&P and
WMECO, owners of approximately 65% of Millstone 3, are Northeast subsidiaries
that agreed to be responsible for the proper operation of the unit.
The non-operating owners of Millstone 3 claim that Northeast and its
subsidiaries failed to comply with NRC regulations, failed to operate the
facility in accordance with good utility operating practice and attempted to
conceal their activities from the non-operating owners and the NRC. The
arbitration and lawsuits seek to recover costs associated with replacement
power and O&M costs resulting from the shutdown of Millstone 3. The non-
operating owners conservatively estimate that their losses will exceed $200
million. Montaup's share of this estimate is approximately $8.0 million. In
December 1997, Northeast filed a motion to dismiss the non-operating owners'
claims, or alternatively to stay the pending lawsuit until after resolution of
the arbitration case. These requests were denied in July 1998.
Montaup paid its share of Millstone 3's O&M expenses during the prolonged
outage on a reservation of right basis. The fact that Montaup made payment for
these expenses is not an admission of financial responsibility for expenses
incurred during the outage.
EUA cannot predict the ultimate outcome of the NRC inquiries or legal
proceedings brought against CL&P, WMECO and Northeast or the impact which they
may have on Montaup and the EUA system.
Connecticut Yankee:
Connecticut Yankee, a 582-mw nuclear unit, was taken off-line in July 1996
because of issues related to certain containment air recirculation and service
water systems. Montaup has a 4.5% equity ownership in Connecticut Yankee.
In October 1996, Montaup, as one of the joint owners, participated in an
economic evaluation of Connecticut Yankee which recommended permanently closing
the unit and replacing its output with less expensive energy sources. In
December 1996, the Board of Directors of Connecticut Yankee voted to retire the
generating station. Connecticut Yankee certified to the NRC that it had
permanently closed power generation operations and removed fuel from the
reactor. Montaup's share of the total estimated costs for the permanent
shutdown, decommissioning, and recovery of the investment in Connecticut Yankee
is approximately $23.8 million and is included with Other Liabilities on the
Consolidated Balance Sheet as of December 31, 1998. The recovery of this
estimated amount, elements of which have been disputed by certain intervening
parties, is subject to approval of FERC. Also, due to anticipated
recoverability, a regulatory asset has been recorded for the same amount and is
included with Other Assets.
On August 31, 1998, a FERC law judge rejected Connecticut Yankee's plan to
decommission the plant. The judge claimed that estimates of clean-up costs
were flawed and certain restoration costs were not supported. The judge also
said Connecticut Yankee could not pass on spent fuel storage costs to rate-
payers. The judge recommended that Connecticut Yankee withdraw its
decommissioning plan and submit a new plan which addresses the issues cited by
him. FERC will review the judge's recommendations and issue a decision on this
case in the coming months. If FERC concurs with the judge's recommendation,
this may result in a write down of certain of Connecticut Yankee plant
investments. Montaup cannot predict the ultimate outcome of FERC's
review.
See Fuel for Generation for a discussion of a Connecticut Yankee action against
the DOE.
Maine Yankee:
On August 6, 1997, as the result of an economic evaluation, the Maine
Yankee Board of Directors voted to permanently close that nuclear plant.
Montaup has a 4.0% equity ownership in Maine Yankee. Montaup's share of the
total estimated costs for the permanent shutdown, decommissioning, and recovery
of the remaining investment in Maine Yankee is approximately $31.0 million and
is included with Other Liabilities on the Consolidated Balance Sheet as of
December 31, 1998. Also, due to recoverability, a regulatory asset has been
recorded for the same amount and is included with Other Assets.
On November 6, 1997, Maine Yankee submitted an estimate of its costs,
including recovery of unamortized plant investment (including fuel), to the
FERC reflecting the fact that the plant was no longer operating and had entered
the decommissioning phase. On January 14, 1998, the FERC accepted the new
rates, subject to refund, and amounts of Maine Yankee's collections for
decommissioning. FERC also granted intervention requests and ordered a public
hearing on the prudency of Maine Yankee's decision to shut down the plant and
on the reasonableness of the proposed rate amendments. On January 19, 1999,
Maine Yankee and the active intervening parties, including the Secondary
Purchasers, filed an Offer of Settlement with FERC which was supported
by FERC trial staff on February 8, 1999. Upon commission approval, this
agreement will constitute full settlement of issues raised in this proceeding.
As a result of the August 1997 shutdown, Montaup and the other equity
owners had been notified by the Secondary Purchasers that they would no longer
make payments for purchased power to Maine Yankee. The Secondary Purchase
Contracts are between the equity owners as a group and 30 municipalities
throughout New England. At present, the equity owners are making payments to
Maine Yankee to cover the payments that would be made by the municipals. Prior
to shutdown, the municipals had been assigned 0.41% of Montaup's 4.0% share and
Montaup had retained a 3.59% share.
On November 28, 1997, the Secondary Purchasers sent a Notice of Initiation
of Arbitration to the equity owners of Maine Yankee. On December 15, 1997, the
equity owners as a group filed at FERC a Complaint and Petition for
Investigation, Contract Modification, and Declaratory Order. On April 7, 1998,
a Maine judge denied the Secondary Purchasers' motion to compel arbitration and
indicated the jurisdictional question should be first decided by FERC. On
April 15, 1998, the Secondary Purchasers notified FERC of the judge's decision
and asked for expedited action on the pending complaint against them for non-
payment. A separately negotiated Settlement Agreement filed with FERC on
February 5, 1999, upon approval, would resolve issues raised by the Secondary
Purchasers by limiting the amount they will pay for decommissioning and
settling other points of contention.
Management does not believe that these settlements, if approved, will have
a material effect on EUA's future operating results or financial position.
On August 4, 1998, the Maine Yankee Board of directors selected Stone &
Webster Engineering Corporation to execute a $250 million contract for the
decommissioning and decontamination of Maine Yankee. The decommissioning plan
includes an option for Stone & Webster to repower the Maine Yankee site with a
gas-fired plant.
See Fuel for Generation for a discussion of a Maine Yankee action against the
DOE.
NRC Oversight:
Recent actions by the NRC, some of which are cited above, indicate that
the NRC has become more critical and active in its oversight of nuclear power
plants. EUA is unable to predict at this time what, if any, ramifications
these NRC actions will have on any of the other nuclear power plants in which
Montaup has an ownership interest or power contract.
Public Utility Regulation
Eastern Edison and Montaup are subject to regulation by the DTE with
respect to the issuance of securities, the form of accounts, and in the case of
Eastern Edison, rates to be charged, services to be provided, and other
matters. Blackstone and Newport are subject to regulation in numerous respects
by the RIPUC and the RIDPUC, including matters pertaining to financing, sales
and transfers of utility properties, accounting, rates and service. In
addition, by reason of its ownership of fractional interests in certain
facilities located in other states, Montaup is subject to limited regulation in
those states.
IPPs, including OSP in which EUA Ocean State has a 29.9% ownership
interest, do not benefit from the PURPA exemptions and are subject to FERC
regulation under the Federal Power Act as well as various other federal, state
and local regulations.
The EUA System is subject to the jurisdiction of the SEC under the 1935
Act by virtue of which the SEC has certain powers of regulation, including
jurisdiction over the issuance of securities, changes in the terms of
outstanding securities, acquisition or sale of securities or utility assets or
other interests in any business, intercompany loans and other intercompany
transactions, payment of dividends under certain circumstances, and related
matters. Eastern Edison is a holding company under the 1935 Act by reason of
its ownership of securities of Montaup. As a subsidiary of EUA, a registered
holding company, Eastern Edison is exempted from registering as a holding
company by complying with the applicable rules thereunder.
The Retail Subsidiaries and Montaup are also subject to the jurisdiction
of FERC under Parts II and III of the Federal Power Act. That jurisdiction
includes, among other things, rates for sales for resale, interconnection of
certain facilities, accounts, service, and property records.
See Rates with respect to regulation of rates charged to customers. See
Environmental Regulation. See Fuel for Generation with respect to the disposal
of spent nuclear fuel. See Environmental Regulation of Nuclear Power and see
Nuclear Power Issues with respect to regulation of nuclear facilities by the
NRC. See also Electric Utility Industry Restructuring. Rates
Rates charged by Montaup (which sells power only for resale) are subject
to the jurisdiction of FERC. The rates for services rendered by the Retail
Subsidiaries for the most part are subject to approval by and are on file with
the DTE in the case of Eastern Edison and with the RIPUC in the case of
Blackstone and Newport. For the twelve months ended December 31, 1998, 60% of
EUA's consolidated revenues were subject to the jurisdiction of FERC, 16% to
that of the DTE and 13% to that of the RIPUC. The remaining 11% of
consolidated revenues were generated from EUA Cogenex and EUA Energy Investment
and are not subject to jurisdiction of utility commissions. For the twelve
months ended December 31, 1998, 79.5% of Eastern Edison's consolidated revenues
were subject to the jurisdiction of the FERC and 20.5% to DTE. Additionally,
rates charged by OSP are subject to the jurisdiction of FERC. All OSP (Unit 1
and Unit 2) power contracts have been approved by FERC. However, pursuant to
the OSP unit power agreements, rate supplements are required to be filed
annually subject to FERC approval. This process may result in rate increases
or decreases to OSP power purchasers.
Recent general rate increases for Montaup and the Retail Subsidiaries are
as follows (In Thousands):
Applied For Effective (1)
Annual Annual
Revenue Date Revenue Date
Federal
- Montaup See Electric Utility Industry Restructuring
Massachusetts
None
Rhode Island
- Blackstone
RIPUC - 2498 3,094 11/15/96(2) 2,821 1/1/97
RIPUC - 2498 2,265 11/15/97(3) 2,265 1/1/98
- Newport
RIPUC - 2499 1,437 11/15/96(2) 1,425 1/1/97
RIPUC - 2499 1,031 11/15/97(3) 1,055 1/1/98
Notes:
(1) Per final order or settlement agreement.
(2) The revenue requirement represents the compliance with
R.I.G.L. 39-1-27.4 to file performance based rates reflecting the
change in the Consumer Price Index for the most recent 12 months
ended September 30, 1996.
(3) The revenue requirement represents the compliance with
R.I.G.L. 39-1-27.4 to file rates reflecting the change in the
Consumer Price Index for the most recent 12 months ended September 30,
1997.
FERC Proceedings - Transmission:
On October 31, 1997 Montaup filed an amendment to its open access
transmission tariff to include retail transmission service to customers of the
Pascoag Fire District. This filing was accepted by FERC subject to refund and
became effective on January 1, 1998. Montaup has concluded settlement
discussions with the Pascoag Fire District and filed an Offer of Settlement on
January 23, 1998.
On December 15, 1997 Montaup reached a settlement with its wholesale
customers and FERC to resolve FERC Docket ER97-4691-000. This docket
established a formula rate schedule for Montaup's annual transmission revenue
requirement. Filing of the settlement has been delayed by the Commission's
decision on January 14, 1998 to consolidate FERC Docket ER98-861-000 into this
proceeding.
On January 20, 1998 Montaup revised its Network Transmission Agreements
with its retail affiliates to eliminate a provision for an access charge to
comply with a prior FERC order.
On November 25, 1997 Montaup filed an amendment to its open access
transmission tariff to include support payments made by Montaup for Pool
Transmission Facilities (PTF). The impact of this filing in FERC Docket ER98-
861-000 is to increase Montaup's annual transmission revenue requirement by
approximately $1.8 million. On January 14, 1998 the Commission consolidated
this filing with FERC Docket ER97-4691-000. This docket established a formula
rate schedule for Montaup's annual transmission revenue requirement. Montaup
reached a settlement with the municipals and the FERC Staff in these dockets
and filed an Offer Settlement on all rate issues on March 6, 1998 with FERC and
was accepted by FERC on June 25, 1998.
On March 26, 1998 Montaup filed a revision to Schedule 13 of its Open
Access Transmission Tariff. This filing provides for the collection of Rhode
Island Gross Receipts Tax. This filing was accepted by the FERC on April 24,
1998.
On September 21, 1998 Montaup filed an amendment to its Open Access
Transmission Tariff. The amendment was precipitated by a FERC order on July
22, 1998 of NOATT. Three municipals intervened in Montaup's filing. On
October 28, 1998, Montaup and the municipals agreed upon a settlement.
On December 14, 1998 Montaup filed revisions to its Standard of Conduct to
comply with a FERC order on November 30, 1998.
FERC Proceedings - Supply:
On October 29, 1997 Montaup filed settlement agreements in Dockets ER97-
2800 and ER97-3121 among Montaup, Blackstone, Newport, RIDIV, RIPUC and the
R.I. Attorney General; a settlement agreement among Montaup, the Division of
Energy Resources of the Office of the Attorney General of Massachusetts and
Eastern Edison; separate settlements between Montaup and the Middleborough Gas
and Electric Department; Montaup and the Pascoag Fire District; and a
settlement between Montaup and Taunton Municipal Lighting Plant. These
settlements shorten the notice of termination from three years to 90 days.
(See Electric Utility Industry Restructuring for further discussion of the
termination of Montaup's all-requirements contracts with its affiliated
customers and other electric utility industry restructuring issues.)
On August 7, 1998, Montaup petitioned FERC to approve the sale of its 50%
interest in the Canal 2 generating facility to Southern Energy New England, LLC
for $75 million. Approval was granted in an order issued by FERC on November
12, 1998.
On October 2, 1998, Montaup filed with FERC an agreement for the transfer
of its OSP I and OSP II purchased power obligations to TransCanada Power
Marketing LTD (TransCanada) in exchange for fixed monthly contributions from
Montaup beginning in 1999 and ending December 31, 2007. TransCanada will
assume all future OSP I and OSP II contractual obligations of Montaup less the
fixed monthly contributions for the balance of the contracts periods. FERC
accepted the agreement on October 29, 1998.
On November 30, 1998, Montaup petitioned FERC to approve the sales of its
160 mw Somerset Station to Somerset Power, LLC for approximately $55 million
and its 2.63% interest in Wyman Station electric generating plant to FPL Energy
Wyman IV LLC for approximately $2.4 million. This filing is currently pending
before FERC.
On January 7, 1999, Montaup petitioned FERC to approve the sale of its
2.9% interest in the Seabrook nuclear generating facility to Great Bay Power
Corporation for approximately $3.2 million. The agreement also provides that
Montaup prefund its 2.9% share of the unit's decommissioning liability up to an
agreed upon amount at the time of sale. Great Bay will assume all future
operating and decommissioning obligations of the unit. This filing is
currently pending before FERC.
On February 1, 1999, Montaup filed with FERC an agreement for the transfer
of approximately 177 mw of its purchased power obligations to Constellation
Power Source Inc. (Constellation) in exchange for fixed monthly contributions
from Montaup beginning in 1999 and ending December 31, 2009. Constellation
will assume all future Canal I, McNeil, Northeast Energy Associates, Blackstone
Hydro Electric and Hydro Quebec Firm Energy contractual obligations of Montaup
less the fixed monthly contribution for the balance of the contracts periods.
This filing is currently pending before FERC.
On February 5, 1999, Montaup petitioned FERC for a declaratory order
approving Montaup's Recovery of a proposed buyout of Montaup's obligations
under the Pilgrim Nuclear Station Purchased Power Agreement with Boston Edison
(BEC) and above market costs of a purchase power agreement with the station's
prospective owner. The buyout agreement is in conjunction with BEC's plans to
sell the unit to Entergy Nuclear Generating Co. (Entergy). Along with the
buyout payment of $115.8 million, assuming a June 30, 1999 closing, Montaup has
agreed to a short-term, fixed price purchased power contract with Entergy for
declining shares of Pilgrim's output beginning with 11% in 1999 and ending
with 5.5% in 2004. Entergy will assume all future operating and decommissioning
obligations of the unit. This filing is currently being litigated.
On February 12, 1999, Montaup petitioned FERC to implement a RVC effective
April 1, 1999. This filing seeks approval to lower Montaup's CTC to the Retail
Subsidiaries as a result of Montaup's generation assets divestiture and other
adjustments. Montaup is requesting to lower the CTC it bills from 3.04 cents
per kWh to 2.10 per cents kWh for Eastern Edison and from 3.0 cents per kWh to
2.04 cents per kWh and 2.06 cents per kWh in the case of Blackstone and
Newport, respectively. This filing is currently being litigated. See Electric
Utility Industry Restructuring.
Rhode Island Proceedings:
On November 13, 1997, Blackstone and Newport filed a report on their
annual return on equity for the twelve months ended September 30, 1997 as
prescribed in the URA. These filings resulted in the refund of approximately
$307,000 and $136,000 to customers of Blackstone and Newport, respectively.
The annual return on equity reports for the twelve months ended December 31,
1998 were filed on February 16, 1999 resulting in approximately $300,000 and
$438,000 being refunded to Blackstone and Newport customers, respectively.
On April 1, 1998, Blackstone and Newport filed their Annual Performance
Standards Report in Compliance with Order 15383. This report presented
Blackstone's and Newport's performance against each of the Performance
Standards based on actual data for the twelve months ending December 31,
1997 resulting in revenue increases of $127,288 for Blackstone and $69,088 for
Newport. These increases are being collected through a per-kilowatthour factor
effective July 1, 1998 through June 30, 1999. The factor for Blackstone is
$0.00010/kWh and the factor of Newport of $0.00012/kWh. Blackstone and Newport
will be making their Annual Performance Standard Report filing for the twelve
months ending December 31, 1998 in early 1999.
On April 15, 1998, Blackstone and Newport made a Standard Offer Service
and Last Resort Service filing, docket No. 2716 with the RIPUC. The purpose of
the filing was to comply with the URA by replacing the Interim Generation
Service and Last Resort Service tariffs approved for service on and after
January 1, 1998. The tariffs were approved in Order 15640 for consumption on
and after June 1, 1998.
On October 30, 1998, Blackstone and Newport made a Standard Offer Service
Tariff Advice Filing with the RIPUC, docket No. 2834. The purpose of this
filing was to update the Companies' tariffs to reflect the change in Montaup's
Standard Offer Rate effective January 1, 1999 and also to update the Companies'
Last Resort Service rates. These rates were approved by the RIPUC in Order
15756, however, the Companies are required to procure Last Resort Service
through a competitive solicitation once the NEPOOL energy markets are operating
in early 1999. Effective January 1, 1999, Blackstone and Newport began billing
the new Standard Offer Rate at an average of 3.5 cents per kilowatthour.
On March 1, 1999, Blackstone and Newport filed with the RIPUC to reduce
their access charge from 2.8 cents per kilowatthour to 2.04 cents and 2.06
cents per kilowatthour, respectively. This filing will change their rates to
reflect the residual value credit calculated from the divestiture of Montaup's
generation assets which lowers the contract termination charge that Montaup
charges Blackstone and Newport.
Massachusetts Proceedings:
On December 31, 1997, Eastern made a partial compliance filing of
unbundled rates and Terms and Conditions to facilitate its Settlement Agreement
and received an order approving them on January 8, 1998. On February 9, 1998,
Eastern made a second compliance filing of retail delivery rates, standard
offer service, and default service. On February 25, 1998, Eastern submitted
revisions to its February 9, 1998 compliance filing and on February 27, 1998,
the DTE approved the filing. Rates were effective March 1, 1998 coincident
with retail choice of electricity supplier. On that date, Eastern Edison began
billing an access charge of 3.04 cents per kilowatthour and a Standard Offer
rate of 2.8 cents per kilowatthour.
On July 1, 1997, the EUA companies filed their Plan for Implementing
Divestiture and Corporate Restructuring with the DTE, Docket DTE 97-105. The
plan was updated in a supplemental filing on November 21, 1997.
On August 7, 1998, Montaup petitioned the DTE to approve the sale of its
50% interest in the Canal 2 generating facility to Southern Energy New England,
LLC. This filing was docketed DTE 98-83 and consolidated with Docket DTE 98-
78, the ComEnergy companies' petition for sale of its generating assets.
Approval of the sale was granted in an order issued by the DTE on October 30,
1998.
On December 4, 1998, Montaup petitioned the DTE to approve the sales of
its 160 mw Somerset Station to Somerset Power, LLC and its 1.96% interest in
Wyman Station electric generating plant to FPL Energy Wyman IV LLC. This
filing is part of Docket 97-105 and is currently being litigated.
On January 9, 1999, Montaup petitioned the DTE to approve the sale of its
2.9% interest in the Seabrook nuclear generating facility to Great Bay Power
Corporation. This has been docketed DTE 99-9 by the DTE and is currently being
litigated.
On February 16, 1999, Eastern Edison petitioned the DTE to approve its
guaranty of the obligations of Montaup pursuant to Montaup's purchase and sale
agreement with Constellation Power Source. This has been docketed DTE 99-21 by
the DTE and is scheduled for a hearing in March 1999.
On March 12, 1999, Eastern Edison made a filing with the DTE to reduce its
access charge from 3.04 cents per kilowatthour to 2.10 cents per kilowatthour.
This filing will change Eastern Edison's rates to reflect the residual value
credit calculated from the divestiture of Montaup's generation assets which
lowers the contract termination charge that Montaup charges Eastern Edison.
This filing also requests an increase in Eastern Edison's Standard Offer Rate
from the current 3.1 cents per kilowatthour, which became effective January 1,
1999, to 3.5 cents per kilowatthour. This filing is currently being litigated.
Environmental Regulation
General:
The Retail Subsidiaries and Montaup and other companies owning generating
units from which power is obtained are subject, like other electric utilities,
to environmental and land use regulations at the federal, state and local
levels. The EPA, and certain state and local authorities, have jurisdiction
over releases of pollutants, contaminants and hazardous substances into the
environment and have broad authority in connection therewith, including the
ability to require installation of pollution control devices and remedial
actions. In 1994, EUA instituted an environmental audit program for Montaup
and the Retail Subsidiaries, designed to ensure compliance with environmental
laws and regulations and to identify and reduce liability with respect to those
requirements.
Preconstruction Reviews:
Federal, Massachusetts and Rhode Island legislation and regulations
require the preparation of reports evaluating the environmental impact of large
projects and of ways for limiting their adverse impact as a prerequisite to the
granting of various government permits and licenses. Federal, Massachusetts
and Rhode Island air quality regulations also require that plans for
construction or modification of fossil fuel generating facilities (including
procedures for operation and maintenance) receive prior approval from the MADEP
or RIDEM. In addition, in Massachusetts, certain electric generation and
transmission facilities will be permitted to be built only if they are
consistent with a long-range forecast of energy demand filed by the utility
concerned and approved by the Massachusetts Energy Facilities Siting Council.
In Rhode Island, siting, construction and modification of major electric
generating and transmission facilities must be approved by the Rhode Island
Energy Facility Siting Board.
Generating facilities owned or operated by Montaup and Newport as well as
those in which they have an interest, and are required to pay a share of the
costs, are also subject, like other electric utilities, to regulation with
regard to zoning, land use, and similar controls by various state and local
authorities.
Solid and Hazardous Waste Regulation:
Federal, Massachusetts and Rhode Island legislation and regulations impose
requirements on the generation, transportation, storage and disposal of
hazardous and solid wastes. In Massachusetts, the state and some of the
federal requirements are implemented and enforced by the MADEP, whereas in
Rhode Island, RIDEM carries out these activities. Generating facilities owned
or operated by Montaup and Newport, as well as those in which they have an
interest and must pay a share of the costs, are subject to these requirements.
Superfund Requirements:
Remediation of contaminated sites is subject to federal and state
legislation and regulation. At the federal level, the governing statute is the
Comprehensive Environmental Responsibility, Compensation, and Liability Act of
1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization Act
of 1986. In Massachusetts, the superfund statute is known as Chapter 21E,
while in Rhode Island it is called the "Industrial Property Site Remediation
and Reuse Act." In addition, certain sections of the Massachusetts and Rhode
Island hazardous waste requirements are relevant to the reporting, study, and
cleanup of site contamination. Such authorities impose liability for site
contamination and spills and authorize response by government agencies. Under
these provisions, joint and several liability may be imposed for cleanup costs
upon, among others, the owners or operators of a facility where hazardous
substances were disposed, the party who generated the substances, or any
party who arranged for the disposition or transport of the substances. Due to
the nature of the business of EUA's utility subsidiaries, certain materials are
generated that may be classified as hazardous under CERCLA, Chapter 21E and
Rhode Island law. As a rule, the subsidiaries employ licensed contractors
to dispose of such materials. (See Item 3. LEGAL PROCEEDINGS -- Environmental
Proceedings, for a discussion of specific sites where such authorities have
been invoked.)
Chemical Regulation:
The EPA, pursuant to the Toxic Substances Control Act (TSCA),
regulates the use, storage, and disposal of polychlorinated biphenyls (PCBs)
and other dielectric fluids. Because the EUA System had owned and used some
electrical transformers containing PCBs, it is subject to EPA regulation under
TSCA. These PCB transformers have been either declassified or disposed of in
accordance with TSCA requirements. EUA currently uses electrical equipment
containing mineral oil in which there may be traces of PCBs. Such equipment
may therefore be subject to regulations pursuant to TSCA.
Potential Regulation of Electric and Magnetic Fields:
A number of scientific studies in the past several years have examined the
possibility of health effects from Electric and Magnetic Fields (EMF) that are
found wherever there is electricity. While some of the studies have indicated
some association between exposure to EMF and health effects, many others have
indicated no direct association. On October 31, 1996, the National Academy of
Sciences issued a literature review of all research to date, "Possible Health
Effects of Exposure to Residential Electric and Magnetic Fields." Its most
widely reported conclusion stated, "No clear, convincing evidence exists to
show that residential exposures to EMF are a threat to human health."
Additional studies, which are intended to provide a better understanding of
EMF, are continuing.
Some states have enacted regulations to limit the strength of EMF at the
edge of transmission line rights-of-way. The Rhode Island legislation has
enacted a statute which authorizes and directs the Rhode Island Energy Facility
Siting Board to establish rules and/or regulations governing construction
of high voltage transmission lines of 69 kv or more. In addition, an energy
facility siting application, in Rhode Island must include, when applicable, any
current independent, scientific research pertaining to EMF exposure for review
by the Board. Management cannot predict the impact if any, which
legislation(s) or other developments concerning EMF may have on the EUA System.
Water Regulation:
The objective of the Federal Water Pollution Control Act (FWPCA) is to
restore and maintain the chemical, physical, and biological integrity of the
nation's surface waters, and it prohibits the discharge of pollutants
(including heat) into navigable waters without a permit. Similar laws have
been adopted in Massachusetts and Rhode Island. All wastewater discharge
permits for plants in Massachusetts, including those for the Somerset plant,
are issued jointly by the EPA and MADEP. These same agencies also regulate
certain industrial stormwater discharges. In addition, the EPA has promulgated
requirements under the authority of the FWPCA regarding the preparation of oil
spill prevention, countermeasure and control (SPCC) plans for certain oil
storage facilities that are located near a waterway. Similar requirements are
imposed under the authority of the Oil Pollution Act of 1990 and mandate the
preparation of contingency plans to prevent releases of oil into waters of the
United States and to ensure that sufficient resources are in place and ready to
respond to any release of oil.
Standards have been established to control the dredging and filling or
alteration of wetlands under the FWPCA, the Massachusetts Wetlands Protection
Act, and the Rhode Island Wetlands Act, and of land alterations in close
proximity to a river under the Massachusetts Rivers Protection Act. The EPA,
the Army Corps of Engineers, RIDEM, the Rhode Island Coastal Resources
Management Council and the MADEP are pursuing a non-degradation (no loss)
policy for wetlands. In addition, the MADEP is responsible for promulgating
regulations relating to water usage and conservation, under the Massachusetts
Water Management Act, and for licensing structures (Chapter 91 licenses) in
Massachusetts waterways.
Most of the generating units from which Montaup obtains power operate
under permits which limit their wastewater discharges into waterways, require
monitoring and, in some instances, biological studies and toxicity testing of
the impact of the discharges. Such permits are issued for a period of not
more than five years, at the expiration of which renewal must be sought.
Reapplication for the Somerset plant permit was made on April 3, 1998 in
accordance with the necessary procedures prior to its expiration on September
30, 1998, and thus the permit conditions remain in effect until agency action
is completed on the renewal application. Such units are also subject to
stormwater discharge and wetlands permitting requirements, and the Somerset
plant and the South Somerset property have been issued Chapter 91 licenses.
Effective April 5, 1998, the Somerset plant's stormwater discharges, previously
covered under the wastewater permit, became covered under a Multi-Sector Group
Permit issued by EPA. In addition, the Somerset plant has an approved
contingency plan under the Oil Pollution Act, as well as an SPCC Plan pursuant
to the EPA rules.
Air Regulation:
All fossil fuel plants from which Montaup obtains power operate under
permits which limit their emissions into the air and require monitoring of the
emissions. Air quality requirements adopted by state authorities in
Massachusetts pursuant to the Clean Air Act impose limitations with respect to
pollutants such as sulfur dioxide (SO2), oxides of nitrogen (NOx) and
particulate matter. Montaup's Somerset Station is permitted to burn coal which
results in SO2 emissions not in excess of 1.2 pounds per million BTU heat
release potential (approximately 0.75% sulfur content coal).
The EPA has established clean air standards for certain pollutants,
including standards limiting emissions from coal-fired and oil-fired
generators. The 1990 amendments to the federal Clean Air Act created additional
regulatory programs and strengthened air pollution control requirements that
affect electric generating facilities. Title IV of the Clean Air Act
Amendments addresses acid deposition abatement and establishes a two-phase
utility power plant pollution control program to reduce emissions of SO2 and
NOx. The first phase began in 1995 and affected approximately 261 large units
in 21 eastern and midwestern states. Phase II, which begins in the year 2000,
imposes more stringent emission limits on these larger plants and also sets
restrictions on smaller, cleaner plants fired by coal, oil and gas. Montaup's
Somerset Station is classified as a Phase II facility with a compliance
deadline set for the end of 1999. The control program establishes a national
cap of 8.90 million tons per year for SO2 emissions from utilities. Beginning
in the year 2000, the EPA will issue these allowances to utilities on an annual
basis.
MADEP regulations established a statewide cap on SO2 emissions and
required Montaup's facilities to meet an average emission rate of 1.2 pounds of
SO2 per million BTU of fuel input by the end of 1994. Under Title IV of the
Clean Air Act, Montaup would not be required to meet this SO2 emission level
until the year 2000. As required by state regulations, Montaup submitted and
received approval of a plan detailing how it would meet the 1995 SO2 standard.
Montaup is now achieving compliance by using lower sulfur content fuels.
Other provisions of the Clean Air Act Amendments will likely impact
Montaup. Title I of the Act establishes a strategy to be followed by the
states in order to attain national air quality standards, particularly the
ozone standard. NOx is an important precursor in the formation of ozone.
Title I requires additional controls on industrial sources of NOx, including
utility power plants. It also creates the Northeast Ozone Transport Region
covering a multi-state area that includes Massachusetts and Rhode Island.
Areas within the transport region will become subject to enhanced control
requirements for NOx emissions.
In April 1992, the Northeast States for Coordinated Air Use Management
(NESCAUM), an environmental advisory group for eight Northeast states including
Massachusetts and Rhode Island, issued recommendations with respect to NOx
controls for existing utility boilers required to meet the ozone non-attainment
requirements of the Clean Air Act Amendments. The NESCAUM recommendations
cover more facilities than EPA's requirements. The MADEP and RIDEM have
amended their regulations in accordance with the NESCAUM recommendations and
require that Reasonably Available Control Technology (RACT) be implemented at
all stationary sources potentially emitting 50 tons per year or more of NOx.
Montaup has received NOx RACT approvals for a boiler and two combustion
turbines at the Somerset facility and has initiated compliance through, among
other things, selective noncatalytic reduction processes. In 1996, MADEP
issued regulations that establish an emissions budget for NOx in the
Commonwealth and that require additional NOx emission reductions beginning on
May 1, 1999.
Title V of the Clean Air Act Amendments provides for the issuance of
federally enforceable operating permits which contain limits and conditions
necessary to comply with all applicable air requirements. Montaup submitted its
initial Operating Permit Application under this program on May 5, 1995. On
September 20, 1995, MADEP issued Montaup an Administrative Completeness
Determination and Application Shield for its Operating Permit Application, and
a permit is expected to be issued in 1999.
On July 16, 1997, the EPA issued a new and more stringent rule covering
ozone and particulate matter under the federal Clean Air Act to be followed by
promulgation of more stringent ozone and particulate matter standards. The
states will prepare plans for meeting these standards beginning about 2004.
On October 28, 1997, Eastern Edison, Montaup, the Massachusetts Attorney
General and the Massachusetts Division of Energy Resources entered into a
settlement regarding electric utility restructuring in the State of
Massachusetts which was approved by the FERC, subject to compliance with
certain conditions, on December 19, 1997. The settlement includes a plan for
emissions reductions related to Montaup's Somerset Station Units 5 and 6. The
basis for SO2 and NOx emission reductions in the proposed settlement is an
allowance cap calculation. Within this allowance cap, the following
commitments were made:
- Montaup may meet its allowance caps (effective emission rates) by any
combination of control technologies, fuel switching, operational
changes, and/or the use of purchased or surplus emission allowances;
- By January 1, 2000, Somerset Units 5 & 6 must comply with an effective
annual SO2 emission rate of 0.30 lbs/mmBtu;
- By January 1, 2000, Units 5 & 6 must comply with an effective NOx
emission rate of 0.21 lbs/mmBtu for the seven months outside the ozone
season, and 0.15 lbs/mmBtu during the five month ozone season (May
through September). For Unit 6, the cost of compliance with this NOx
limit is capped at $405,000 per year until January 1, 2003. Unit 5, if
reactivated, must comply with the more stringent of: (1) best available
control technology (or BACT), and (2) the emission rates set forth above
with no cost cap; and
- By January 1, 2003, Unit 6 must comply with an effective annual emission
limit of 0.15 lbs Nox/mmBtu. Unit 5, if reactivated, must comply with
the more stringent of: (1) BACT, or (2) 0.15 lbs NOx /mmBtu.
Permit Transfers:
Because the electric generation of Montaup's Somerset Station are under
agreement to be sold to NRG Energy (NRG), the environmental permits covering
operation of those assets are in the process of being transferred to NRG. The
transfer will be completed on or about March 31, 1999 and no interruption in
operation or other adverse impact is expected to occur as a result of the
transfer.
Other Requirements:
The EPA and state and local authorities may, after appropriate
proceedings, require modification of generating facilities for which
construction permits or operating licenses have already been issued, or impose
new conditions on such permits or licenses, and may require that the operation
of a generating unit cease or that its level of operation be temporarily or
permanently reduced. Such action may result in increases in capital costs and
operating costs which may be substantial, in delays or cancellation of
construction of planned facilities, or in modification or termination of
operations of existing facilities.
See "Generation Divestiture" under Electric Utility Industry Restructuring
for a discussion of Montaup's divestiture of its generation assets.
Other activities of the EUA System from time to time are subject to the
jurisdiction of various other local, state and federal regulatory agencies. It
is not possible to predict with certainty what effects the above described
statutes and regulations or activities will have on the EUA System.
Environmental Regulation of Nuclear Power
The NRC has promulgated a variety of standards to protect the public from
radiological pollution caused by the normal operation of nuclear generating
facilities. For example, the NRC requires licensed facilities to develop plans
to respond to unexpected developments.
Under the Nuclear Waste Policy Act (NWPA), the federal government is
charged with providing facilities for the disposal or permanent storage of
civilian nuclear waste. (See Fuel for Generation above.) The NRC has
promulgated regulations for the protection of the public from radiological
dangers in connection with the disposal of nuclear waste materials.
In certain instances the NRC and the EPA have overlapping jurisdiction.
Thus, NRC regulations are supplemented by requirements imposed by the EPA under
a variety of federal environmental statutes. Those include requirements for
permits covering the discharge of pollutants (including heat) into the nation's
waters and compliance with EPA standards for so-called mixed waste (i.e.
hazardous waste which contains radioactive materials) and for certain toxic air
pollutants which include radionuclides. The EPA has also promulgated
environmental radiation protection standards for nuclear power plants to
regulate the doses of radiation received by the general public.
Environmental regulation of nuclear facilities in which the EUA System has
an interest or from which they purchase power may result in significant
increases in capital and operating costs. They could also result in delays or
cancellation of construction of planned improvements, or in modification or
termination of existing facilities.
The Year 2000 Issue
EUA's Year 2000 Program (the Program) is proceeding on schedule. The
Program is addressing the potential impact on computer systems and embedded
systems and components resulting from a common software program code convention
that utilizes two digits instead of four to represent a year. If not
addressed, the year 2000 may be systemically recognized as the year 1900, which
could cause system or equipment failures or malfunctions, and ultimately result
in disruptions to Company operations.
EUA's State of Readiness:
To address potential Year 2000 issues, EUA has divided the focus of its
Year 2000 Program into three major categories of business activity: the
generation and delivery of electricity to customers, the acquisition of goods
and services (including purchased power), and, ongoing general and
administrative activities relating to the corporate infrastructure and support
functions, which includes among other things, billings and collections.
EUA has adopted a four phase approach in addressing information technology
(IT) issues. As of January 31, 1999, each phase was at the following percentage
of completion: analysis - 100%; remediation - 79%; unit testing - 78%; and
integrated testing - 11%. EUA is on schedule to achieve Year 2000 readiness
for 100% of mission critical projects by June 30, 1999. For non-IT projects,
approximately 90% are either Year 2000 ready or not affected by the Year 2000.
The remaining items are in the process of being remediated and tested and are
scheduled to be Year 2000 ready by June 30, 1999.
EUA has an ongoing process to identify and assess the Year 2000 readiness
of third parties with which it has a material relationship. Where necessary,
contingency plans will be developed. This process is on schedule to be
completed by June 30, 1999.
Costs to Address EUA's Year 2000 Issues:
Through December 31, 1998, EUA has incurred costs of approximately $3.0
million to address Year 2000 issues, including approximately $1.5 million of
non-incremental labor, $1.2 million of capital expenditures and $300,000 of
consulting and other costs. EUA estimates it will incur additional costs
approximating $7.0 million during the period January 1, 1999 through March 31,
2000, to complete its resolution of Year 2000 issues including approximately
$5.5 million of non-incremental labor, $500,000 of capital expenditures and
$1.0 million of consulting and other costs. Because 70% of the total
estimated costs associated with the Year 2000 issue relate to non-incremental
internal labor, management continues to believe that the Year 2000 will not
present a material incremental impact to future operating results or financial
condition.
Risks of EUA's Year 2000 Issues:
EUA's first priority continues to be the minimization of any potential
disruptions to electric service as a result of the Year 2000. The provision of
electric service depends in large part on the viability of the New England
power grid which is managed by ISO/NEPOOL. EUA is actively participating on
ISO/NEPOOL's Year 2000 operating and oversight committees. EUA's assessment of
its own transmission and distribution equipment and facilities indicated that
the risk of failure of this equipment does not appear to be significant.
However, due to the interconnectivity to the New England power grid, and the
reliance on many other entities also connected to the grid, it is not possible
to conclude with certainty that there will be no significant interruptions in
service.
In addition, dependable voice and data telecommunications are critical to
EUA's ongoing operations. EUA's internal telecommunication systems are either
Year 2000 ready now, or on schedule to become Year 2000 ready by June 30, 1999.
EUA also relies heavily on external telecommunication systems, i.e., the local
and regional telephone systems, and has identified these providers as critical
vendors. EUA has made direct contact with representatives of the telephone
companies on which EUA depends, each of which anticipates being Year 2000 ready
and devoid of major system failures.
No other significant reasonably likely failure scenarios stemming solely
from Year 2000 related problems have been identified thus far. Accordingly,
EUA does not currently believe that any Year 2000 related risks in and of
themselves constitute reasonably likely worst case scenarios. Rather, EUA's
most reasonably likely Year 2000 related worst case scenario would be the
occurrence of isolated Year 2000 failures such as described above in
conjunction with a severe winter storm. However, EUA believes that such Year
2000 failures would not likely affect whether the storm event would have a
material impact on EUA's business or financial condition.
Year 2000 Contingency Plans:
Contingency planning teams consisting of managers and employees
experienced in system reliability, disaster recovery and risk have been
established and are responsible for developing contingency plans. The overall
strategy will be to identify Year 2000 risks, both internal and external to
EUA, that could have a material impact on EUA's operations or financial well
being. Preliminary plans are expected by the end of the first quarter of 1999.
Final plans are scheduled to be in place and ready to implement, if necessary,
by June 30, 1999.
Summary of the Year 2000 Issue:
The amount of effort and resources necessary to address Year 2000 issues
and make EUA Year 2000 ready is significant. There are dedicated teams in place
to ensure EUA's transition into the next century occurs with minimal
disruption. EUA's Year 2000 program is on schedule and in accordance
with timetables and progress points published by the North American Electric
Reliability Council. In addition, EUA is utilizing outside technical
consultants and other experts to help ensure EUA's Year 2000 program remains on
schedule and effective. Management believes EUA's Year 2000 project is well
managed and has the appropriate resources and plans in place to ensure the
Company is positioned for a successful transition to the Year 2000.
The foregoing constitutes a Year 2000 Statement and Readiness Disclosure
subject to the protections afforded by the federal Year 2000 Information and
Readiness Disclosure Act of 1998.
Other
EUA occasionally makes forward-looking projections of expected future
performance or statements of our plans and objectives. These forward-looking
statements may be contained in filings with the SEC, press releases and oral
statements. This report contains information about the Company's future
business prospects including, without limitation, statements about the
potential impact of Year 2000 issues on the Company's financial condition or
results. These statements are considered "forward-looking" within the meaning
of the Private Securities Litigation Reform Act. These statements are based
on the Company's current plans and expectations and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the forward-
looking statements. The Company expressly undertakes no duty to update any
forward-looking statement.
Item 2. PROPERTIES
Power Supply
In 1998, the EUA System's wholly owned generating units referred to in the
following table consisted of Montaup's jet-fueled peaking units (Somerset Jet 1
and Jet 2) and Somerset 6 which was converted from oil to coal burning in 1983,
Blackstone's Pawtucket Hydro, which was repowered in 1985 and Newport's diesel
peaking units (Eldred in Jamestown and Jepson in Portsmouth), leased to
Montaup, which supply the EUA System with 8.0 mw and 8.9 mw, respectively.
With the exception of Somerset's Jet 1 and Jet 2, Montaup has not significantly
increased its wholly owned generating units since 1959. The EUA System has
found it more economically beneficial to join with other utilities in the joint
ownership of large generating units and in long-term purchase contracts, and to
supplement these sources with short-term purchases as required. EUA believes
that spreading the EUA System's sources of electricity among a number of plants
should improve the reliability of its power supply and limit the financial
exposure relating to construction and potentially prolonged outages of a
Restructuring for a discussion of future power needs and divestiture of
Montaup's generating assets.)
The EUA System (including retail load served by alternate suppliers)
experienced a new all-time peak demand of approximately 940 mw on July 23,
1998.
<TABLE>
EUA SYSTEM CAPABILITY
GENERATING UNITS AS OF DECEMBER 31, 1998
<CAPTION>
GROSS WINTER MAX GROSS NET
IN SYSTEM CLAIMED SYSTEM UNIT SYSTEM
SERVICE SHARE CAPABILITY SHARE SALES SHARE
DATE UNIT NAME FUEL TYPE OWNER/OPERATOR % mw mw mw mw
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100% OWNERSHIP:
1959 SOMERSET 6 COAL MONTAUP ELECTRIC CO. 100.00 113.10 113.10 0.00 113.10
1970 SOMERSET J1 JET OIL MONTAUP ELECTRIC CO. 100.00 24.00 24.00 0.00 24.00
1971 SOMERSET J2 JET OIL MONTAUP ELECTRIC CO. 100.00 25.80 25.80 0.00 25.80
1985 PAWTUCKET HYDRO HYDRO BLACKSTONE VALLEY ELEC. 100.00 1.24 1.24 0.00 1.24
1961 JEPSON DIESEL NEWPORT ELECTRIC CORP. 100.00 8.00 8.00 0.00 8.00
1978 ELDRED DIESEL NEWPORT ELECTRIC CORP. 100.00 8.90 8.90 0.00 8.90
SUBTOTAL: 181.04 0.00 181.04
JOINT OWNERSHIP:
1976 CANAL 2 <F1> NO. 6 OIL CANAL ELECTRIC COMPANY 50.00 565.00 282.50 34.67 247.83
1978 WYMAN 4 NO. 6 OIL CENTRAL MAINE POWER CO. 2.63 620.00 16.30 0.00 16.30
1986 MILLSTONE 3 NUCLEAR NORTHEAST UTILITIES 4.01 1140.00 45.70 0.00 45.70
1990 SEABROOK NUCLEAR NORTH ATLANTIC ENERGY CORP 2.90 1162.00 33.70 0.00 33.70
SUBTOTAL: 378.20 34.67 343.53
EQUITY OWNERSHIP:
1972 VERMONT YANKEE NUCLEAR VT. YANKEE NUCLEAR POWER 2.25 529.08 11.90 0.00 11.90
SUBTOTAL: 11.90 0.00 11.90
PURCHASED POWER:
1968 CANAL 1 NO. 6 OIL CANAL ELECTRIC COMPANY 25.00 566.00 141.50 0.00 141.50
1972 PILGRIM 1 NUCLEAR BOSTON EDISON COMPANY 11.00 667.48 73.42 0.00 73.42
1977 POTTER 2 GAS/OIL BRAINTREE ELEC. LIGHT DEPT 41.03 97.50 40.00 0.00 40.00
1975 CLEARY 9 <F2> GAS/OIL TAUNTON MUNIC. LIGHTING 13.64 110.00 15.00 0.00 15.00
1984 MCNEIL WOOD VERMONT ELECTRIC POWER 15.24 53.00 8.08 0.00 8.08
1990 OSP 1 GAS OCEAN STATE POWER 28.00 310.00 86.80 0.00 86.80
1991 OSP 2 GAS OCEAN STATE POWER 28.00 307.00 85.96 0.00 85.96
1991 NEA GAS NORTHEAST ENERGY ASSOC. 8.62 333.43 28.74 0.00 28.74
SUBTOTAL: 479.50 0.00 479.50
HYDRO QUEBEC ENTITLEMENT:
1991 HYDRO QUEBEC I&II HYDRO HQ / ISO - NE 4.06 630.00 25.57 0.00 25.57
SUBTOTAL: 25.57 0.00 25.57
TOTAL GROSS SYSTEM CAPABILITY (mw) ------------------------------ 1,076.21
LESS: UNIT CONTRACT SALES (mw) --------------------------------------- 34.67
TOTAL NET SYSTEM CAPABILITY (mw) ---------------------------------- 1,041.54
<FN>
<F1> On December 30, 1998, Montaup sold its 50 percent (283-mw) share in the Canal 2 Generating Station to Southern Energy.
<F2> Contract was terminated on December 31, 1998 as a result of the sale of Canal 2.
</FN>
</TABLE>
Montaup's participation in generating units of which it is not the sole
owner takes various forms including stock (equity) ownership, joint ownership
and purchase contracts. In most cases (other than short-term purchased power
contracts) the purchaser is required to pay its share (i.e., the same
percentage as the percentage of its entitlement to the output) of all of the
costs of the generating unit (whether or not the unit is operating) including
fixed costs, operating costs, costs of additional construction or modification,
costs associated with condemnation, shutdown, retirement, or decommissioning of
the unit, and certain transmission charges. Under its contracts with Maine
Yankee, Connecticut Yankee Atomic Power Company, Vermont Yankee Nuclear Power
Corporation and Yankee Atomic and, under its agreements relating to Phase II of
the interconnection with Hydro-Quebec, Montaup may be called upon to provide
additional capital and/or other types of direct or indirect financial support.
(See Item 1. BUSINESS -- Nuclear Power Issues.) (See also Item 1. BUSINESS --
Electric Utility Industry Restructuring regarding Montaup's disposition of its
generating assets.)
Other Property
The EUA System owns approximately 7,100 miles of transmission and
distribution lines and approximately 84 substations located in the cities and
towns served.
Blackstone owns approximately 1,700 miles of transmission and distribution
lines and approximately 26 substations located in the cities and towns served.
Blackstone also owns 100% of a 1.2-mw hydroelectric generating plant located in
Pawtucket, Rhode Island, the dam and generating equipment of which is under
agreement to be sold to Pawtucket Generating Company, L.L.C. for $250,000. See
Note E of Notes to Financial Statements in Blackstone's 1998 Annual Report
(Exhibit 13-1.01 filed herewith) regarding encumbrances.
Eastern Edison and Montaup own approximately 4,600 miles of transmission
and distribution lines and approximately 44 substations located in the cities
and towns served. See Note F of Notes to Consolidated Financial Statements in
Eastern Edison's 1998 Annual Report (Exhibit 13-1.08 filed herewith) regarding
encumbrances.
Newport owns approximately 800 miles of transmission and distribution
lines and approximately 14 substations located in the cities and towns served.
See Note E to Notes to Consolidated Financial Statements contained in EUA's
Annual Report to Shareholders for the year ended December 31, 1998, (Exhibit
13-1.03 filed herewith) regarding encumbrances.
In addition to the above, the Retail Subsidiaries, Montaup, and EUA
Service also own several buildings which house distribution, maintenance or
general office personnel. See Note E of Notes to Consolidated Financial
Statements contained in EUA's Annual Report to Shareholders for the year ended
December 31, 1998, (Exhibit 13-1.03 filed herewith) regarding encumbrances.
Item 3. LEGAL PROCEEDINGS
Rate Proceeding
See descriptions of proceedings under Item 1. BUSINESS -- Rates.
Environmental Proceedings
1. In March 1985, Blackstone was notified by the DEQE, which is now the
MADEP, that it had been identified, along with other parties, as a potentially
responsible party (PRP) under Massachusetts law with respect to a condition of
soil and ground water contamination at a site in Lowell, Massachusetts. The
site in question was occupied by a scrap metal reclamation facility which
received transformers and other electrical equipment from utility companies and
other facilities from in the early 1960s and until 1984. Among the
contaminants apparently released at the site were PCBs. The PRPs, including
Blackstone, performed site studies and proposed a remedial action plan which
was approved by the DEQE several years ago. The remediation option selected
was solidification of onsite material. However, as a result of a risk
assessment required under MADEP's current regulations, the PRPs may instead
choose to cap the site with the cost of remediation ranging from $250,000 for
capping to $600,000 for solidification. Blackstone is alleged to be the fifth
ranked generator, and its estimated 2% share allocation is considerably less
than the shares of the four largest contributors at the site. In 1997,
the PRPs resolved outstanding issues with the MADEP relative to the status of
the site under the current Massachusetts Contingency Plan (MCP). A Phase II
site study has been completed and site remediation should be underway in the
near future; Blackstone's share of these costs is expected to be minimal.
2. On July 14, 1987, the Commonwealth of Massachusetts (the Common-
wealth), on behalf of the MADEP, filed a cost recovery action pursuant to
CERCLA and Massachusetts General Law Chapter 21E against Blackstone in the
United States District Court for the District of Massachusetts (District
Court). The Complaint seeks $2.2 million in costs incurred by the MADEP in the
cleanup of an alleged coal gasification disposal waste site at Mendon Road in
Attleboro, Massachusetts. Blackstone has contested the MADEP's cost recovery
action, arguing, inter alia, that the ferric ferrocyanide (FFC) waste removed
from the Mendon Road site was not "hazardous" within the meaning of CERCLA or
Massachusetts General Laws Chapter 21E, and that the MADEP's cleanup actions
were inconsistent with the National Contingency Plan (NCP). On November 25,
1991, the District Court held that the waste was "hazardous" within the meaning
of both statutes and on December 20, 1992, the District Court held Blackstone
and a co-defendant, the Courtois Sand & Gravel Co. (Courtois) liable for an
undetermined amount of cleanup costs. The District Court remanded the case to
the MADEP to supplement the administrative record with Blackstone's oral and
written comments concerning the cleanup. On March 19, 1993, Blackstone made an
oral presentation to the MADEP and on April 19, 1993, Blackstone submitted
written comments. On December 13, 1994, the District Court issued a judgment
against Blackstone finding Blackstone liable to the Commonwealth for the full
amount of response costs incurred by the Commonwealth in the cleanup of the
Mendon Road site. The judgment also found Blackstone liable for interest and
litigation expenses calculated to the date of judgment. The total liability at
December 31, 1994 was approximately $5.9 million, including approximately $3.6
million in interest which had accumulated since 1985.
On January 20, 1995, Blackstone entered into an escrow agreement with the
Commonwealth whereby Blackstone deposited $5.9 million with an escrow agent who
transferred the funds into an interest bearing money market account. The
distribution of the proceeds of the escrow account will be determined upon the
final resolution of the judgment. No additional interest expense will accrue
on the judgment amount.
Blackstone filed a Notice of Appeal of the District Court's judgment and
filed its brief with the United States Court of Appeals for the First Circuit
(Circuit Court) on February 24, 1995. On October 6, 1995, the Circuit Court
vacated the District Court's $5.9 million judgement. Rather than remand the
case to the District Court for a trial on the issue of whether FFC is a
hazardous substance, the Circuit Court exercised its primary jurisdictional
powers to send the matter to the EPA for an administrative determination on the
issue. Given the present posture of the case, Blackstone may not be liable to
reimburse the Commonwealth for the Mendon Road cleanup costs. On January 9,
1997, Blackstone met with representatives of EPA and the Commonwealth to
discuss the procedure EPA would follow in resolving the FFC issue. In January
1997, Blackstone submitted written comments which were followed by the
Commonwealth's written reply in March 1997. Both parties submitted additional
memoranda to the EPA during the remainder of the year. The EPA will now
determine whether FFC is hazardous substance. Further court proceedings are
likely.
In October 1987, without admitting liability, Blackstone entered into an
Administrative Consent Order with the MADEP regarding the Mendon Road site and
another alleged coal gasification site discovered by the MADEP approximately
1/4 mile away in Attleboro known as the Lawn Street site. Under the Order,
Blackstone agreed to perform preliminary assessments at both sites in order to
determine what remediation, if any, is necessary at the sites. On August 15,
1996, Blackstone entered into an Amended Administrative Consent Order to
complete investigation and cleanup of these sites pursuant to the revised
Massachusetts Contingency Plan, and in 1998 Blackstone purchased properties at
both sites to facilitate site closure. Investigation of the Mendon Road site
was completed in 1998, and it was concluded that no future remedial action will
be required at the site. Investigation and cleanup of the Lawn Street site is
expected to be completed in 1999 for a cost of approximately $650,000.
On January 28, 1994, Blackstone filed a Complaint in the Massachusetts
District Court seeking, among other relief, contribution and reimbursement from
Stone & Webster Inc., of New York City and several of its affiliated companies
(Stone & Webster), and Valley Gas Company of Cumberland, Rhode Island (Valley)
for any damages incurred by Blackstone regarding the Mendon Road site. The
District Court has denied motions to dismiss the complaint filed by Stone &
Webster and Valley in 1994. This proceeding was stayed in December 1995
pending final EPA determination as to whether FFC is a hazardous substance.
On March 22, 1996, Blackstone and Valley filed a Complaint in the Rhode
Island District Court seeking contribution from Stone & Webster for the cleanup
of the Tidewater site mentioned below. On June 27, 1997, that case was stayed
for the same reasons that the Massachusetts case was stayed.
3. On October 28, 1986, RIDEM notified Blackstone that there may have been
a release of hazardous material at the Tidewater Plant site in Pawtucket, Rhode
Island. The site was placed on EPA's CERCLA list in 1987. The site includes
the Tidewater Plant owned by Valley Gas Company (approximately 8 acres), the
No. 1 Station owned by Blackstone (approximately 12 acres), and land formerly
owned by Blackstone that was sold in 1968 to the City of Pawtucket
(approximately 8 acres). RIDEM told Blackstone that the site contained
hazardous materials and petroleum-contaminated soils due to tanks formerly
located at the site. In December, 1990, after obtaining approval from RIDEM,
Blackstone removed approximately 1,000 tons of soil from the site. On
September 3, 1991, RIDEM initiated a site investigation which constitutes the
second step in a site screening and assessment process established by the EPA
to determine whether the site should be listed as a Superfund site. On
February 3, 1993, RIDEM notified Blackstone that it required further assessment
and evaluation of site conditions to determine if the site qualifies for review
pursuant to the Hazard Ranking System. On September 12, 1995, RIDEM notified
Blackstone and Valley of their responsibility regarding the release of
hazardous substances at the Tidewater Plant site. RIDEM ordered Blackstone and
Valley to conduct an environmental study of the Tidewater Plant site and
adjoining lots. On the adjacent lots are the Francis J. Varieur Elementary
School and the Max Read Field athletic facility and ball fields. Blackstone
and Valley have entered into an agreement to share the expenses of conducting
the study and/or retaining an environmental consulting firm to conduct a
Remedial Investigation. A work plan was submitted to RIDEM in April 1996 and
it was approved on June 14, 1996. Preliminary field work was completed in
September 1996. However, RIDEM required additional sampling to be conducted by
Blackstone and Valley. In 1997, that sampling was completed, and in 1998 RIDEM
completed its review of the draft Remedial Investigation Report and followup
documents and requested additional information. A risk assessment and
feasibility study will be conducted in 1999.
4. On September 12, 1995, RIDEM demanded payment of $296,000 which
represents the amount of money plus interest RIDEM expended to clean up oxide
box waste at the Cumberland, Rhode Island site. Following extended discussions
and negotiations with legal counsel on behalf of RIDEM, Blackstone reached an
agreement with RIDEM to escrow approximately $296,000 in an interest-bearing
account pending the outcome of EPA's remand proceedings to determine whether
FFC is a hazardous substance. This money has been placed in an interest-
bearing escrow account by Blackstone pending the outcome of EPA's proceedings
for the Mendon Road site described above. If EPA finds that FFC is not a
hazardous substance, Blackstone will be able to recover the escrowed funds on
the ground that RIDEM's cleanup of the site in 1986 was not required by law.
In 1998, representatives of Blackstone and RIDEM discussed implementation of
certain actions under Rhode Island regulations to close the site. In
accordance with these discussions, Blackstone may initiate an investigation in
1999 to determine whether RIDEM's 1986 removal action meets current RIDEM
regulations, in order to close the site.
5. On February 11, 1997, RIDEM ordered Blackstone and Valley to conduct
a site assessment of Valley's Woonsocket property (the Hamlet Avenue,
Woonsocket site), which is the site of a former manufactured gas plant owned by
Blackstone's and Valley's predecessor, Blackstone Valley Gas & Electric
Company, and the predecessor of that company, which was Woonsocket Gas Company.
The site also includes an active electric substation, and a former electric
generating facility previously owned by Blackstone Valley Gas & Electric
Company and a predecessor, Woonsocket Electric Machine and Power Company. The
entire site consists of several adjoining properties encompassing approximately
nine acres. Blackstone and Valley submitted a Work Plan on June 16, 1997.
RIDEM approved the Work Plan in 1998. Phase I studies were undertaken in 1998;
further field work has been required by RIDEM under Phase I, and that work will
be performed in 1999.
6. In accordance with the regulations implementing Chapter 21E, Montaup
notified MADEP on October 2, 1998 of contamination at the South Somerset
property resulting from prior permitted deposits of ash. On November 17, 1998,
MADEP issued a Notice of Responsibility to Montaup with respect to
investigation and remediation of the contamination at the South Somerset site.
Montaup expects to complete the investigation during 1999, and to complete the
remediation work during 1999 or 2000. The estimated cost of cleanup work is
$700,000.
7. In May 1989, the U.S. Environmental Protection Agency issued an
Administrative Consent Order to Bay State Gas Company to conduct contaminant
removal activities under CERCLA at a site know as Lot 55 Brockton,
Massachusetts. These removal actions, which were completed in 1990,
impacted an adjacent, downgradient parcel (Lot 94-1) owned by Eastern Edison.
The removal work included the installation of an engineered cap over fill
material and the erection of a security fence on part of Lot 94-1 without the
prior knowledge or consent of Eastern Edison.
Subsequent to these actions, in 1998, MADEP required Bay State Gas to
conduct further investigations in accordance with regulations implementing MGL
Chapter 21E. In October 1998, Bay State Gas informed Eastern Edison for the
first time of the prior work conducted on Lot 94-1. It also requested
permission to access the parcel in order to conduct these further investi-
gations. The investigation now being undertaken by Bay State Gas Company
includes the installation of groundwater monitoring wells and the collection of
soil, surface water, and groundwater samples. Until these further investi-
gations have been completed, it is not possible to determine the need for, or
extent of, response actions at Lot 94-1. However, it should be noted that the
regulations implementing Chapter 21E provide relief for landowners located
downgradient from the source of groundwater contamination.
Blackstone has notified certain liability insurers and has filed claims
with respect to the Mendon Road site. In addition, Blackstone submitted claims
to various carriers with respect to the Mendon Road, Tidewater, Lawn Street,
Cumberland, and Hamlet Avenue, sites.
Blackstone, Montaup and Eastern Edison are not able to predict the outcome
of any of the foregoing environmental matters or to estimate the potential
costs which may ultimately result. It is the policy of EUA System Companies in
such cases to provide notice to liability insurers and to make claims.
However, it is not possible at this time to predict whether the insurance
carriers will honor such claims, or whether such claims can be enforced against
them. With respect to any liability under CERCLA, each responsible party can
be held "jointly and severally" liable for clean-up costs. EUA or a subsidiary
could thus be held fully liable for environmental damages for which they were
only partially responsible. However, EUA might then be entitled to recover
costs from other PRPs.
As of December 31, 1998, the EUA System has incurred costs of
approximately $7.7 million (excluding the Mendon Road judgment) in connection
with the foregoing environmental matters. These amounts have been financed
primarily by internally generated cash. EUA estimates that additional
expenditures (excluding the Mendon Road judgment) may be incurred through 1999
of up to $2.5 million, $1.8 million of which relates to Blackstone, and
$700,000 which relates to Montaup.
As a general matter, the EUA System will seek to recover costs relating to
environmental proceedings in their rates. Blackstone is currently amortizing
all of its incurred costs over a five-year period consistent with prior
regulatory recovery periods and is recovering certain of those costs in rates.
Estimated amounts after 1999 are not now determinable since site studies which
are the basis of these estimates have not been completed. As a result of the
recoverability in current rates and the uncertainty regarding both its
estimated liability, as well as potential contributions from insurance carriers
and other responsible parties, EUA does not believe that the ultimate impact of
the environmental costs will be material to the financial position of the EUA
System or to any individual subsidiary and thus, no loss provision is required
at this time.
Other Proceedings
On December 15, 1995, Eastern Edison exercised its right to terminate a
Power Purchase Agreement (PPA) entered into with the Meridian Middleboro
Limited Partnership (MMLP) and a related entity on September 20, 1993. In
February and May of 1996, MMLP made demands for over $25 million under the
termination provision of the PPA. On June 17, 1996, Eastern Edison responded
to MMLP's demand stating that if Eastern Edison were to be liable for payments,
only approximately $170,000 would be due under the termination provision. On
July 18, 1996, Eastern Edison filed a declaratory judgement action in Suffolk
Superior Court in Boston, Massachusetts against MMLP seeking a declaration of
the rights of the parties under the PPA. MMLP's response to the complaint,
filed on August 8, 1996, included counterclaims in excess of $20 million and a
request for treble damages. Eastern Edison paid MMLP, under a reservation of
rights, approximately $192,000 as the amount Eastern Edison might owe to MMLP.
On July 20, 1998, the judge granted limited summary judgement in favor of
Eastern Edison Company, finding that MMLP had not done an audit by an
independent auditor as required under the subject agreement. To date, no such
audit has been done. The Company has filed a motion for partial summary
judgement. The Company will continue to defend itself from the counterclaims,
and cannot determine the outcome of this proceeding at this time.
In 1997, the Internal Revenue Service (IRS) issued a report in connection
with its examination of the consolidated federal income tax returns of EUA for
1992 and 1993. This report included an adjustment to disallow EUA's inclusion
of its investment in EUA Power's Preferred Stock as a deduction in determining
Excess Loss Account (ELA) taxable income in 1992 relating to EUA Power's
Common and Preferred Stock that was redeemed in 1993. EUA filed an
administrative appeal contesting the IRS's position. In January 1999, EUA
reached an understanding with the IRS Appeals Office concerning settlement of
this matter. Reductions in EUA's tax reserves, to reflect this and other
items, resulted in a net $1.9 million addition to fourth quarter 1998 earnings.
Since early 1997, fourteen plaintiffs brought suits against numerous
defendants, including EUA, for injuries and illness allegedly caused by
exposure to asbestos over approximately a thirty-year period, at various
premises, including some owned by EUA companies. The total damages claimed in
all of these complaints is $34 million in compensatory and punitive damages,
plus exemplary damages and interest and costs. Each complaint names between
fifteen and twenty-eight defendants, including EUA. These complaints have been
referred to the applicable insurance companies. Counsel has been retained
by the insurers and is actively defending all cases. Four cases have been
dismissed as against EUA companies. EUA cannot predict the ultimate outcome of
this matter at this time.
A pending class action, filed on March 2, 1998, in the Massachusetts
Supreme Judicial Court naming all Massachusetts electric distribution
companies, including Eastern Edison, and certain Massachusetts state agencies
as defendants, seeks to invalidate certain sections of the Electric Utility
Restructuring Act of 1997. The Act directs the DTE to impose mandatory charges
on all electricity sold to customers, except those served by a municipal
lighting plant, to fund energy efficient activities and to promote renewable
energy projects. In addition to declaratory judgment, plaintiffs seek
remittance of monies paid to each distribution company by customers along with
any interest earned. The outcome of this class action is unknown at this time,
however Eastern Edison is vigorously defending the lawsuit.
See Item 1. BUSINESS -- Fuel for Generation for a discussion of legal
actions filed against the DOE. Also, see Item 1. BUSINESS -- General-EUA
Cogenex, for a discussion of an arbitrators panel's decision in a matter
involving the 1995 sale of a portfolio of cogeneration units by EUA Cogenex to
Ridgewood/Mass Power Partners et al (Ridgewood).
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
Executive Officers of Eastern Utilities Associates
The names, ages and positions of all of the executive officers of EUA as
of March 15, 1999, are listed below along with their business experience during
the past five years. Officers are elected annually by the Trustees at the
following meeting of Trustees after the Annual Meeting of Shareholders.
The 1999 Annual Meeting of Shareholders is scheduled to be held on May 17,
1999. There are no family relationships among these officers, nor any
arrangement or understanding between any officer and any other person pursuant
to which the officer was selected. The executive officers also serve as
officers/or directors of various subsidiary companies.
Name, Age and Position Business Experience During Past 5 Years
John D. Carney, 54 Executive Vice President since April 1995;
Executive Vice President President of Eastern Edison Company since
January 1990; President of Blackstone and
Newport since April 1995. Responsible for the
day-to-day activities of The EUA System's
retail electric operations.
Clifford J. Hebert, Jr., 51 Treasurer since April 1986; Secretary since
Treasurer and May, 1995. Treasurer and Responsible for
Secretary financial, treasury and corporate affairs
of the EUA System.
Donald G. Pardus, 58 Chairman since July 1990; Chief Executive
Chairman of the Board, Officer since April 1989. Responsible for the
Chief Executive Officer overall management of the EUA System.
and Trustee
Robert G. Powderly, 51 Executive Vice President since April 1992.
Executive Vice President Responsible for purchasing, customer information
services, information systems, human resources,
marketing and rate activities of the EUA System.
John R. Stevens, 58 President since July 1990; Chief Operating
President, Chief Operating Officer since January 1990. Responsible for
Officer and Trustee retail operations and new ventures of the EUA
System.
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
PART II
Item 5. MARKET FOR EUA'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption "QUARTERLY FINANCIAL AND
COMMON SHARE INFORMATION" included in EUA's Annual Report to Shareholders for
the year ended December 31, 1998 (Exhibit 13-1.03 filed herewith) is
incorporated herein by reference.
The information required by this item for Blackstone and Eastern Edison is
incorporated by reference to information contained under the like captioned
sections of Blackstone's and Eastern Edison's 1998 Annual Reports (Exhibit 13-
1.01 and 13-1.08, respectively, filed herewith).
As of February 1, 1999 there were 10,227 EUA common shareholders of
record.
The closing price of EUA's Common Shares as reported by the Wall Street
Journal on March 15, 1999 was $28.375.
Item 6. SELECTED FINANCIAL DATA
The information set forth under the caption "SELECTED CONSOLIDATED
FINANCIAL DATA" included in EUA's Annual Report to Shareholders and Eastern
Edison's Annual Report for the year ended December 31, 1998, (Exhibit 13-1.03
and 13-1.08, respectively, filed herewith) and the information set forth under
the caption "SELECTED FINANCIAL DATA" included in the Annual Report for the
year ended December 31, 1998 for Blackstone (Exhibit 13-1.01 filed herewith)
are incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated herein by reference
to pages 7 through 24 in the 1998 EUA Annual Report to Shareholders, pages 3
through 10 in the 1998 Blackstone Annual Report and pages 3 through 14 in the
1998 Eastern Edison Annual Report (Exhibits 13-1.03, 13-1.01 and 13-1.08 for
EUA, Blackstone and Eastern Edison, respectively, filed herewith).
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference
to pages 26 through 41 in the 1998 EUA Annual Report to Shareholders, page 2
and pages 12 through 31 in the 1998 Blackstone Annual Report and, page 2 and
pages 16 through 38 in the 1998 Eastern Edison Annual Report (Exhibits 13-1.03,
13-1.01 and 13-1.08 for EUA, Blackstone and Eastern Edison, respectively, filed
herewith).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Eastern Utilities Associates
The information concerning trustees and executive officers set forth under
the caption "ELECTION OF TRUSTEES AND OWNERSHIP OF COMMON SHARES" in EUA's
Definitive Proxy Statement to be mailed to shareholders in connection with the
Shareholders' Annual Meeting to be held on May 17, 1999, and filed with the SEC
is incorporated herein by reference. (See Item 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY-HOLDERS -- Executive Officers of Eastern Utilities
Associates.)
Blackstone and Eastern Edison
The names, ages and positions of all of the directors and executive
officers of Blackstone and Eastern Edison as of March 15, 1999 are listed below
with their business experience during the past five years. The directors of
Blackstone and the directors, Treasurer and Clerk of Eastern Edison are each
elected to serve until the next Annual Stockholders' Meeting. All other
officers are elected to serve until the next meeting of directors following the
Annual Stockholders' Meeting. There is no family relationship between any of
the directors or officers of Blackstone and Eastern Edison. Messrs. Pardus
and Stevens are Trustees of EUA. Certain officers of Blackstone and Eastern
Edison are, or at various times in the past have been, officers and/or
directors of the System Companies with which Blackstone and Eastern Edison have
entered into contracts and had other business relations.
Name, Age and Position Business Experience During Past 5 Years
John D. Carney, 54* President and Director of Blackstone and Newport
Director and President since April 1995; President and Director of
Eastern Edison since January 1990.
Barbara A. Hassan, 49 Vice President of Blackstone since April 1995;
Vice President Vice President of Eastern Edison since January
1990. Responsible for employee benefits,
wages, risk management and labor relations.
Clifford J. Hebert, Jr., 51* Director of both Blackstone and Eastern Edison
Director, Treasurer and since April 1997; Treasurer since April 1986 and
Secretary/Clerk Secretary/Clerk since April 1995 of both
Blackstone and Eastern Edison.
Michael J. Hirsh, 44 Vice President of Blackstone since July 1991;
Vice President Vice President of Eastern Edison since April
1995; prior to that he was either a Director or
Manager of the Engineering or Resource Planning
Departments of EUA Service for more than five
years. Responsible for all engineering and
technical services.
Kevin A. Kirby, 48 Vice President of Blackstone and Eastern Edison
Vice President since April, 1995; prior to that he was a
Director of the Integrated Resource Management
department of EUA Service for five years.
Responsible for the resource planning, power
supply and contract administration activities
of the EUA System.
Marc F. Mahoney, 44 Vice President of Blackstone and Eastern Edison
Vice President since July 1997; prior to that he was Director of
Transmission & Distribution for Blackstone and
Eastern Edison since April 1995 and Distribution
Superintendent of Eastern Edison since November
1991. Responsible for the operation and
maintenance of the transmission and distri-
bution facilities.
Donald G. Pardus, 58* Chairman of the Board since July 1989 and
Director and Director since 1979 of both Blackstone and Eastern
Chairman of the Board Edison.
Robert G. Powderly, 51* Executive Vice President and Director since March
Director and Executive 1992 of both Blackstone and Eastern Edison.
Vice President
John R. Stevens, 58* Vice Chairman of the Board since July 1989 and
Director and Vice Director since July 1987 of both Blackstone and
Chairman of the Board Eastern Edison.
* Please refer to the material supplied under the caption "EXECUTIVE OFFICERS
OF EASTERN UTILITIES ASSOCIATES" following Item 4 herein for other
information regarding this officer.
Item 11. EXECUTIVE COMPENSATION
Eastern Utilities Associates
The information concerning executive compensation set forth under the
caption "COMPENSATION AND OTHER TRANSACTIONS" in EUA's Definitive Proxy
Statement to be mailed to shareholders in connection with the Shareholders'
Annual Meeting to be held on May 17, 1999 and to be filed with the SEC is
incorporated herein by reference with the exception of the Report of the
Compensation and Nominating Committee on Compensation of Executive Officers
and accompanying Corporate Performance Graph that appears therein and which are
specifically not incorporated herein by reference.
Blackstone and Eastern Edison
The Chief Executive Officer and the four other most highly compensated
executive officers of Blackstone and Eastern Edison hold the same or similar
positions with EUA and are not paid directly by either Blackstone or Eastern
Edison. The information required by this item is incorporated herein by
reference to the material under the caption "COMPENSATION AND OTHER
TRANSACTIONS" in the definitive Proxy Statement of EUA, to be mailed to
shareholders in connection with the Shareholders' Annual Meeting to be held on
May 17, 1999 and to be filed with the SEC, with the exception of the Report of
the Compensation and Nominating Committee on Compensation of Executive Officers
and accompanying Corporate Performance Graph that appears therein and which are
specifically not incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners of Blackstone and
Eastern Edison.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Amount (number of
Name and Address of shares) and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class
Common Stock Eastern Utilities Associates 2,339,401 of Eastern Edison* 100%
One Liberty Square 184,062 of Blackstone* 100%
Boston, Massachusetts
</TABLE>
_______________
*All shares, which are the only voting securities of Eastern Edison and
Blackstone, are registered in the name of the beneficial owner.
(b) Security ownership of certain beneficial owners of EUA and management
of EUA, Blackstone and Eastern Edison.
The statements concerning security ownership of certain beneficial owners
and management set forth under the caption "ELECTION OF TRUSTEES AND OWNERSHIP
OF COMMON SHARES" in EUA's Definitive Proxy Statement to be mailed to
shareholders in connection with the Shareholders' Annual Meeting to be held on
May 17, 1999 and to be filed with the SEC are incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The response to this portion of Item 14 is set forth under Item 8.
(a)(2) Financial Statement Schedules
The following additional consolidated financial statement schedules filed
herewith for EUA and Blackstone should be considered in conjunction with
the financial statements in the EUA's Annual Report to Shareholders and
Blackstone's Annual Report for the year ended December 31, 1998 (Exhibit
13-1.03 and 13-1.01, respectively, filed herewith):
1. Financial Statement Schedules:
EUA
Schedule II - Valuation and Qualifying Accounts for the three years ended
December 31, 1998.
Blackstone
Schedule II - Valuation and Qualifying Accounts for the three years
ended December 31, 1998.
(a)(3) Exhibits (*denotes filed herewith)
Articles of Incorporation and By-Laws:
-EUA-
3-1.03 - Declaration of Trust of EUA, dated April 2, 1928, as amended
(Exhibit A-3, File No. 70-3188; Exhibit 1 to EUA's 8-K Reports
for April in each of the years 1957, 1962, 1966, 1968, 1972, and
1973, File No. 1-5366; Exhibit A-1 (a), Amendment No. 2 to Form
U-1, File No. 70-5997; Exhibit 4-3, Registration No. 2-72589;
Exhibit 1 to Certificate of Notification, File No. 70-6713;
Exhibit 1 to Certificate of Notification, File No. 70-7084;
Exhibit 3-2, Form 10-K of EUA or 1987, File No. 1-5366).
- Eastern Edison -
3-1.08 - Form of Restated and Amended Articles of Organization (filed as
Exhibit B-1 to Form U5S of EUA for 1993).
Instruments Defining the Rights of Shareholders, Including Indentures:
- Eastern Edison -
4-1.08 - Indenture of First Mortgage and Deed of Trust dated as of
September 1, 1948 of Eastern Edison (Exhibit 4-1, Registration
No. 2-77468), and twenty-seven supplements thereto (Exhibit A,
File No. 70-3015; Exhibit A-3, File No. 70-3371; Exhibit C to
Certificate of Notification, File No. 70-3371; Exhibit D to
Certificate of Notification, File No. 70-3619; Exhibit D to
Certificate of Notification, File No. 70-3798; Exhibit F to
Certificate of Notification, File No. 70-4164; Exhibit D to
Certificate of Notification, File No. 70-4748; Exhibit C to
Certificate of Notification, File No. 70-5195; Exhibit F to
Certificate of Notification, File No. 70-5379; Exhibit C to
Certificate of Notification, File No. 70-5719; Exhibit 5-24,
Registration No. 2-65785; Exhibit F to Certificate of
Notification, File No. 70-6463; Exhibit C to Certificate of
Notification, File No. 70-6608; Exhibit C to Certificate of
Notification, File No. 70-6737; Exhibit F to Certificate of
Notification, File No. 70-6851; Exhibit 4-31, Form 10-K of EUA for
1984, File No. 1-5366; Exhibit F to Certificate of Notification,
File No. 70-7254; Exhibit C to Certificate of Notification, File
No. 70-7373; Exhibit C to Certificate of Notification, File No.
70-7373; Exhibit C to Certificate of Notification, File
No. 70-7373; Exhibit F to Certificate of Notification, File No.
70-7511; Exhibit 4-34, Form 10-K of Eastern Edison for 1990, File
No. 0-8480; Exhibit 4-24, Form 10-K of Eastern Edison for 1992,
File No. 0-8480; Exhibit 4-35, Form 10-K of Eastern Edison for
1990, File No. 0-8480; Exhibit 4-36, Form 10-K of Eastern Edison
for 1990, File No. 0-8480; Exhibit C-33 to Form U5S of EUA for
1993; Exhibit C-34 to Form U5S of EUA for 1993; Exhibit 4-29.08,
Form 10-K of Eastern Edison for 1994, File No. 0-8480;
Exhibit 4-1.09, Form 10-K of EUA for 1997, File No. 1-5366).
- Montaup -
4-1.05 - Form of 8% Debenture Bonds due 2000 of Montaup (Exhibit 4-10,
Registration No. 2-41488).
4-2.05 - Form of 8-1/4% Debenture Bonds due 2003 of Montaup (Exhibit B-3,
Form U5S of EUA for year 1973).
4-3.05 - Form of 10% Debenture Bonds due 2008 of Montaup (Exhibit 5-3,
Registration No. 2-65785).
4-4.05 - Form of 12-3/8% Debenture Bonds due 2013 of Montaup (Exhibit 4-13,
Form 10-K of EUA for 1983, File No. 1-5366).
4-5.05 - Form of 10-1/8% Debentures due 2008 of Montaup (Exhibit 4, Form
10-Q of Eastern Edison for quarter ended September 30, 1983, File
No. 0-8480).
4-6.05 - Form of 9% Debenture Bonds due 2020 of Montaup (Exhibit 4-10, Form
10-K of Eastern Edison for 1990, File No. 0-8480).
4-7.05 - Form of 9 3/8% Debenture Bonds due 2020 of Montaup (Exhibit 4-11,
Form 10-K of Eastern Edison for 1990, File No. 0-8480).
- Blackstone -
4-1.01 - First Mortgage Indenture and Deed of Trust dated as of December 1,
1980 of Blackstone (Exhibit A, Form 8-K of EUA dated January 14,
1981, File No. 1-5366) and two supplements thereto (Exhibit 4-33,
Form 10-K of EUA for 1989, File No. 1-5366; Exhibit 4-3, Form 10-K
of BVE for 1990, File No. 0-2602).
4-4.01 - Loan Agreement between Rhode Island Industrial Facilities
Corporation and Blackstone dated as of December 1, 1984 (Exhibit
10-72, Form 10-K of EUA for 1984, File No. 1-5366).
- EUA Service -
4-1.07 - Note Purchase Agreement dated as of January 13, 1988 of Service
(Exhibit 4-38, Form 10-K of EUA for 1987, File No. 1-5366).
- EUA Cogenex -
4-1.10 - Note Agreement dated as of June 28, 1990 of EUA Cogenex with the
Prudential Insurance Company of America (Exhibit 4-46, Form 10-K
of EUA for 1990, File No. 1-5366).
4-2.10 - Note Agreement dated as of October 29, 1991 between EUA Cogenex and
Prudential Insurance Company of America (Exhibit 4-55, Form 10-K
of EUA for 1991, File No. 1-5366).
4-3.10 - Indenture dated September 1, 1993 between EUA Cogenex and the Bank
of New York as Trustee (Exhibit 4-4.10, Form 10-K of EUA for 1993,
File No. 1-5366).
- Newport -
4-1.14 - Indenture of First Mortgage dated as of June 1, 1954 of Newport,
as supplemented on August 1, 1959, April 1, 1962, October 1, 1964,
April 1, 1967, September 1, 1969, September 1, 1970, June 1, 1978,
October 1, 1978, May 1, 1986, December 1, 1987 and November 1,
1989 (Exhibit 4-49, Form 10-K of EUA for 1990, File No. 1-5366).
4-2.14 - United States Government Small Business Administration Loan to
Newport entitled, "Base Closing Economic Injury Loan", signed May
30, 1975 and amended on October 6, 1983 (Exhibit 4-50, Form 10-K
of EUA for 1990, File No. 1-5366).
4-3.14 - Indenture of Second Mortgage dated as of September 1, 1982 of
Newport, as supplemented on December 1, 1988 (Exhibit 4-51, Form
10-K of EUA for 1990, File No. 1-5366).
4-4.14 - Loan Agreement between the Rhode Island Port Authority and
Economic Development Corporation and Newport Electric Corporation
dated as of January 6, 1994 (Exhibit 4-4.14, Form 10-K of EUA for
1993, File No. 1-5366).
4-5.14 - Trust Indenture between the Rhode Island Authority and Economic
Development Corporation and Newport Electric Corporation dated as
of January 1, 1994 (Exhibit 4-5.14, Form 10-K of EUA for 1993,
File No. 1-5366).
4-6.14 - Letter of Credit and Reimbursement Agreement dated January 6, 1994
(Exhibit 4-6.14, Form 10-K of EUA for 1993, File No. 1-5366).
- EUA Ocean State -
4-1.12 - Note Purchase Agreement dated as of January 16, 1992 between EUA
Ocean State Corporation and John Hancock Mutual Life Insurance
Company (Exhibit 4-56, Form 10-K of EUA for 1991, File No. 1-5366;
Exhibit 10-18.03, Form 10-K of EUA for 1997, File No. 1-5366).
Material Contracts:
- EUA -
10-1.03 - Employees' Retirement Plan of Eastern Utilities Associates and its
Subsidiary Companies Trust Agreement as amended and restated,
effective July 1, 1981 (Exhibit 10-1, Registration No. 2-80205;
Exhibit 10-18.03, Form 10-K of EUA for 1997, File No. 1-5366).
10-2.03 - Eastern Utilities Associates Employees' Savings Plan Trust
Agreement (Exhibit 10-3, Form 10-K of EUA for 1992, File No.
1-5366).
10-3.03 - Eastern Utilities Associates Employees' Savings Plan as amended
and restated effective January 1, 1989 (including amendments
through January 1, 1992) and December 21, 1994 (Exhibit 10-15.03,
Form 10-K of EUA for 1995, File No. 1-5366; Exhibit 10-17.03 Form
10-K of EUA for 1995, File No. 1-5366; Exhibit 10-15.03, Form 10-K
of EUA 1997, File No. 1-5366; Exhibit 10-16.03, Form 10-K of EUA
for 1997, File No. 1-5366; Exhibit 10-17.03, Form 10-K EUA for
1997, File No. 1-5366).
10-4.03 - Stock Purchase Agreement dated as of December 10, 1986, among
Eastern Utilities Associates, Citizens Corporation and Citizens
Energy Corporation (Exhibit 10-104, Form 10-K of EUA for 1986,
File No. 1-5366).
10-5.03 - Precedent Agreement dated as of November 29, 1989 between EUA and
NECO Enterprises, Inc. (Exhibit B-4, Form U-1, File No. 70-7677).
10-6.03 - Amendment to and Restatement of Stock Purchase Agreement dated as
of February 1, 1990 between EUA, NECO Enterprises, Inc., Newport
Electric Corporation and a special-purpose subsidiary of EUA for
the acquisition by EUA of the stock of Newport Electric
Corporation (Exhibit B-3, Form U-1, File No. 70-7677).
10-7.03 - Letter of Assurance in connection with the Credit Agreement
between Vermont Electric Transmission Company, Inc. and Bank of
America National Trust and Savings Association dated July 19, 1983
(Exhibit 10-111, Form 10-K of EUA for 1990, File No. 1-5366).
10-8.03 - Amended and Restated Equity Maintenance Agreement dated as of
September 29, 1992 among EUA and The Prudential Insurance Company
of America and Pruco Life Insurance Company (Exhibit 10-9, EUA
10-K for 1992, File No. 1-5366).
10-9.03 - Guaranty, dated June 28, 1990 made by EUA in favor of The
Prudential Life Insurance Company of America (Exhibit 10-10, EUA
10-K for 1992, File No. 1-5366).
10-10.03 - Guaranty, dated January 16, 1992 made by EUA in favor of John
Hancock Mutual Life Insurance Company (Exhibit 4-125, Form 10-K
of EUA for 1991, File No. 1-5366).
10-11.03 - Form of Service Contract between EUA Service Corporation and each
of the other companies (including EUA) in the EUA System (Exhibit
13-1.03, Registration No. 2-55990).
10-12.03 - Form of EUA Restricted Stock Plan effective July 17, 1989 as
amended (Exhibit 10-13, EUA Form 10-K for 1992, File No. 1-5366;
Exhibit 10-19.03, Form 10-K of EUA for 1997, File No. 1-5366).
10-13.03 - Eastern Utilities Associates Employees' Share Ownership Plan Trust
Agreement (Exhibit 5, Form 10-K of EUA for 1977, File No. 1-5366).
10-14.03 - Employees' Retirement Plan of Eastern Utilities Associates and Its
Affiliated Companies as amended and restated effective January 1,
1989, and December 21, 1994 (Exhibit 10-14.03, Form 10-K of EUA
for 1995, File No. 1-5 366; Exhibit 10-16.03, Form 10-K of EUA for
1995, File No. 1-5366).
*10-15.03 - Fifth Amendment to the Eastern Utilities Associates Employees'
Savings Plan dated April 23, 1998.
*10-16.03 - Sixth Amendment to the Eastern Utilities Associates Employees'
Savings Plan dated September 28, 1998.
*10-17.03 - Third Amendment to the Employees' Retirement Plan of Eastern
Utilities Associates dated April 20, 1998.
*10-18.03 - Fourth Amendment to the Employees' Retirement Plan of Eastern
Utilities Associates dated April 30, 1998.
*10-19.03 - Agreement and Plan of Merger dated as of February 1, 1999 by and
among New England Electric System, Research Drive LLC and Eastern
Utilities Associates.
- Eastern Edison -
10-1.08 - Trust Agreement dated as of July 1, 1993 between Massachusetts
Industrial Finance Agency and Shawmut Bank, N.A. (filed as Exhibit
10-1.08 to Eastern Edison's Form 10-K for 1993, File No. 0-8480).
10-2.08 - Loan Agreement dated as of July 1, 1993 between Massachusetts
Industrial Finance Agency and Eastern Edison (filed as Exhibit
10-2.08 to Eastern Edison's Form 10-K for 1993, File No. 0-8480).
10-3.08 - Power Purchase Agreement entered into as of September 20, 1993 by
and between Meridian Middleboro Limited Partnership and Eastern
Edison Company (filed as Exhibit 10-3.08 to Eastern Edison's Form
10-K for 1993, File No. 0-8480).
10-4.08 - Inducement Letter dated July 14, 1993 from Eastern Edison to the
Massachusetts Industrial Finance Agency and Goldman, Sachs &
Company and Citicorp Securities Markets, Inc. (filed as Exhibit
10-4.08 to Eastern Edison's Form 10-K for 1993, File No. 0-8480).
*10-5.08 - Wholesale Standard Offer Service Agreement between Blackstone
Valley Electric Company, Eastern Edison Company, Newport Electric
Corporation and TransCanada Power Marketing LTD., dated April 7,
1998.
*10-6.08 - Wholesale Standard Offer Service Agreement between Blackstone
Valley Electric Company, Eastern Edison Company, Newport Electric
Corporation and NRG Energy Power Marketing, Inc., dated October
13, 1998.
*10-7.08 - Wholesale Standard Offer Service Agreement (20.1775%) between
Blackstone Valley Electric Company, Eastern Edison Company,
Newport Electric Corporation and Constellation Power Sources,
Inc., dated December 21, 1998.
*10-8.08 - Wholesale Standard Offer Service Agreement (35.7695%) between
Blackstone Valley Electric Company, Eastern Edison Company,
Newport Electric Corporation and Constellation Power Sources,
Inc., dated December 21, 1998.
- Montaup -
10-1.05 - Montaup Contract, as amended (Exhibit 4-B, Registration
No. 2-14119; Exhibit 13-A1, Registration No. 2-14718; Exhibit
4-B-2, Registration No. 2-26509; Exhibit 4-B-3, Registration No.
2-33061; Exhibits 13-3 and 13-4, Registration No. 2-48966; Exhibit
B-2, Form U5S of EUA for year 1974 and Exhibit 5-40, Registration
No. 2-62862).
10-2.05 - Power Contract (composite copy) between Connecticut Yankee Atomic
Power Company and Montaup dated July 1, 1964 as amended and
supplemented March 1, 1978, August 22, 1980, October 15, 1982, and
December 4, 1996 (Exhibit B-1, File No. 70-4245; Exhibit 20, Form
10-K of EUA for 1977, File No. 1-5366; Exhibit 10-52, Form 10-K for
EUA for 1981, File No. 1-5366; Exhibit 10-67, Form 10-K for EUA
for 1983, File No. 1-5366; Exhibit 10-37.05, Form 10-K for EUA for
1996, File No. 1-5366).
10-3.05 - Capital Funds Agreement (composite copy) between Connecticut
Yankee Atomic Power Company and Montaup dated September 1, 1964
(Exhibit B-2, File No. 70-4245).
10-4.05 - Stockholder Agreement (composite copy) among Connecticut Yankee
Atomic Power Company's Sponsors, including Montaup, dated July 1,
1964 (Exhibit B-4, File No. 70-4245).
10-5.05 - Contract for sale of power to Montaup by Canal Electric Company
dated December 1, 1965 (Exhibit 2D, File No. 0-688).
10-6.05 - Capital Funds Agreement (composite copy) between Vermont Yankee
Nuclear Power Corporation and Montaup dated as of February 1,
1968, and Amendment thereto dated as at March 12, 1968 (Exhibit
B-2, File No. 70-4611; Exhibit B-3, File No. 70-4611).
10-7.05 - Form of Power Contract between Vermont Yankee Nuclear Power
Corporation and Montaup dated as of February 1, 1968, as amended
June 1, 1972, April 15, 1983, April 24, 1985, June 1, 1985, May 6,
1988 (2), June 15, 1989 and December 1, 1989 (Exhibit B-4, File No.
70-4591; Exhibit 13-21, Registration No. 2-46612; Exhibit 10-63,
Form 10-K of EUA for 1983, File No. 1-5366; Exhibit 10-74, Form
10-K of EUA for 1985, File No. 1-5366; Exhibit 10-78, Form 10-K
of EUA for 1986, File No. 1-5366; Exhibits 10-97 and 10-98, Form
10-K of EUA for 1988, File No. 1-5366; Exhibit 10-95, Form 10-K
of EUA for 1989, File No. 1-5366; Exhibit 10-80, Form 10-K of
Eastern Edison for 1990, File No. 0-8480).
10-8.05 - Sponsor Agreement (composite copy) among Vermont Yankee Nuclear
Power Corporation's Sponsors, including Montaup, dated as of
August 1, 1968 (Exhibit 4-0, Registration No. 2-33061).
10-9.05 - Capital Funds Agreement (composite copy) between Maine Yankee and
Montaup dated May 20, 1968 and as amended August 1, 1985 (Exhibit
B-2, File No. 70-4658; Exhibit 10-78, Form 10-K of EUA for 1985,
File No. 1-5366).
10-10.05 - Power Contract (composite copy) between Maine Yankee Atomic and
Montaup dated May 20, 1968, as amended December 19, 1983 and
January 1, 1984 (Exhibit B-3, File No. 70-4658; Exhibit 10-64,
Form 10-K of EUA for 1983, File No. 1-5366; Exhibit 10-66, Form
10-K of EUA for 1984, File No. 1-5366).
10-11.05 - Stockholder Agreement (composite copy) among Maine Yankee Sponsors,
including Montaup, dated May 20, 1968 (Exhibit B-4, File 70-4658).
10-12.05 - Agreement (composite copy) among Vermont Yankee Nuclear Power
Corporation's Sponsors, including Montaup, dated as of April 30,
1969 (Exhibit B-7, File No. 70-4435).
10-13.05 - Form of Agreement among Maine Yankee Atomic Power Company's
Sponsors dated as of May 20, 1969 (Exhibit B-5, File No. 70-4658).
10-14.05 - Form of New England Power Pool Agreement dated as of September 1,
1971, as amended as of July 1, 1972, March 1, 1973, April 2, 1973,
March 15, 1974, June 1, 1975, September 1, 1975, December 31,
1976, January 31, 1977, July 1, 1977, August 1, 1977, August 15,
1978, January 31, 1980, February 1, 1980, September 1, 1981,
December 1, 1981, June 1, 1982, June 15, 1983, October 1, 1983,
August 1, 1985, August 15, 1985, January 1, 1986, September 1,
1986, March 1, 1988, May 1, 1988, March 15, 1989, October 1, 1990,
September 15, 1992, May 1, 1993, and December 31, 1996, (Exhibit
13-45, Registration No. 2-41488; Exhibit 13-38, Registration No.
2-46612; Exhibits 13-39 and 13-40, Registration No. 2-48966;
Exhibit B-3, Form U5S of EUA for year 1974; Exhibit 13-35(a),
Registration No. 2-54449; Exhibit 13-35, Registration No.
2-55990, Exhibits 5-69 and 5-70, Registration Exhibit 13-35(a),
Registration No. 2-54449; Exhibit 13-35, Registration No. 2-55990,
Exhibits 5-69 and 5-70, Registration No. 2-58625; Exhibit 6, Form
10-K of EUA for 1977, File No. 1-5366; Exhibit 1, Form 10-K of EUA
for 1979, File No. 1-5366; Exhibit No. 10-67, Registration No.
2-80205; Exhibit 10-65, Form 10-K of EUA for 1983, File No.
1-5366; Exhibit 10-66, Form 10-K of EUA for 1983, File No. 1-5366;
Exhibits 10-75, 10-76, and 10-77, Form 10-K of EUA for 1985, File
No. 1-5366; Exhibit 10-79, Form 10-K of EUA for 1986, File No.
1-5366; Exhibits 10-99 and 10-100, Form 10-K of EUA for 1988, File
No. 1-5366; Exhibit 10-96, Form 10-K of EUA for 1989, File No.
1-5366; Exhibit 10-81, Form 10-K of Eastern Edison for 1990, File
No. 0-8480; Exhibit 10-38.05, Form 10-K of EUA for 1995, File No.
1-5366; Exhibit 10-39.05, Form 10-K of EUA for 1995, File No.
1-5366; Exhibit 10-40.05, Form 10-K of EUA for 1995, File No.
1-5366 Exhibit 10-38.05 Form 10-K of EUA for 1996, File No.
1-5366).
10-15.05 - Unit Participation Agreement between Maine Electric Power Company,
Inc. and New Brunswick Electric Power Commission dated November
15, 1971 (Exhibit 13-43.1, Registration No. 2-44377).
10-16.05 - Assignment Agreement dated March 20, 1972 between Maine Electric
Power Company, Inc. and New Brunswick Electric Power Commission
(Exhibit 13-43.3, Registration No. 2-44377).
10-17.05 - Agreement between Montaup and Boston Edison Company dated August
1, 1972 and as amended January 1, 1985 for purchase of power from
Pilgrim No. 1 nuclear unit at Plymouth, Massachusetts (Exhibit
13-41, Registration No. 2-46612; Exhibit 10-67, Form 10-K of EUA
for 1984, File No. 1-5366).
10-18.05 - Agreement dated as of May 1, 1973 for Joint Ownership,
Construction and Operation of New Hampshire Nuclear Units among
Public Service Company of New Hampshire and other utilities
including Montaup, as amended as of May 24, 1974, June 21, 1974,
September 25, 1974, October 25, 1974, January 31, 1975, as
supplemented by Letter Agreement dated April 27, 1978 and amended
as of April 18, 1979 (two amendments), April 25, 1979, June 8,
1979, October 11, 1979, December 15, 1979, June 16, 1980, December
31, 1980, June 1, 1982, April 27, 1984, June 15, 1984, March 8,
1985, March 14, 1986, May 1, 1986, September 19, 1986, November 5,
1987, January 13, 1989 and November 1, 1990. (Exhibit 13-57,
Registration No. 2-48966; Exhibit B-6, Form U5S of EUA for year
1974; Exhibit 5-130, Registration No. 2-62862; Exhibit 5-70,
Registration No. 2-65785; Exhibit 2, Form 10-K of EUA for 1979,
File No. 1-5366; Exhibit 5-34, Registration No. 2-69052; Exhibit
20-1, Form 10-K of EUA for 1980, File No. 1-5366; Exhibit 10-69,
Registration No. 2-80205; Exhibit 2, Form 10-Q of EUA for the
Quarter Ended March 31, 1984, File No. 1-5366; Exhibit 3, Form
10-Q of EUA for the Quarter Ended June 30, 1984, File No. 1-5366;
Exhibit 10-70, Form 10-K of EUA for 1985, File No. 1-5366;
Exhibits 10-80 and 10-81, Form 10-K of EUA for 1986, File No.
1-5366; Exhibits 10-95 and 10-96, Form 10-K of EUA for 1987, File
No. 1-5366; Exhibit 10-101, Form 10-K of EUA for 1988, File No.
1-5366; Exhibit 10-82, Form 10-K of Eastern Edison for 1990, File
No. 0-8480).
10-19.05 - Sharing Agreement dated as of September 1, 1973 among The
Connecticut Light and Power Company and other utilities, including
Montaup, concerning participation in a nuclear generating unit
located in Connecticut (Millstone Unit No. 3), as amended and
supplemented by Amendatory Agreement dated May 11, 1984 as amended
as of April 1, 1986 (Exhibit B-17, Form U5S of EUA for year 1973;
Exhibit B-8, as amended as of April 11, 1986, Form U5S of EUA for
year 1974; Exhibit B-30, Form U5S of EUA for year 1976; Exhibit
10-68, Form 10-K of EUA for 1984, File No. 1-5366; Exhibit 10-82,
Form 10-K of EUA for 1986, File No. 1-5366).
10-20.05 - Agreement for Joint Ownership, Construction and Operation of
William F. Wyman Unit No. 4 dated November 1, 1974 as amended June
30, 1975, August 16, 1976 and December 31, 1978 among Central
Maine Power Company and other utilities including Montaup (Exhibit
B-9, Form U5S of EUA for year 1974; Exhibit 13-58, Registration
No. 2-55990; Exhibit 5-95, Registration No. 2-58625; Exhibit 5-40,
Registration No. 2-69052).
10-22.05 - Guarantee Agreement (composite copy) dated as of November 13, 1981
between The Connecticut Bank and Trust Company, as Trustee, and
Montaup relating to debentures of Connecticut Yankee Atomic Power
Company (Exhibit 10-61, Form 10-K of EUA for 1981, File No.
1-5366).
10-23.05 - Agreement for Seabrook Project Disbursing Agent, dated as of May
23, 1984, as amended March 8, 1985, May 20, 1985, June 18, 1985,
January 1, 1986, November, 1987, August 1, 1989, and restated as
of November 1, 1990, among the participants in the Seabrook
nuclear generating project, including Montaup and Yankee Atomic
Electric Company (Exhibit 2, Form 10-Q of EUA for the Quarter
Ended June 30, 1984, File No. 1-5366; Exhibit 10-69, Form 10-K of
EUA for 1985, File No. 1-5366; Exhibits 10-86, 10-87 and 10-88,
Form 10-K of EUA for 1986, File No. 1-5366; Exhibit 10-97, Form
10-K of EUA for 1987, File No. 1-5366; Exhibit 10-105, Form 10-K
of EUA for 1989, File No. 1-5366; Exhibit 10-84, Form 10-K of
Eastern Edison for 1990, File No. 0-8480).
10-24.05 - Guarantee Agreement dated as of August 1, 1985 among The
Connecticut Bank and Trust Company, Connecticut Yankee Atomic
Power Company and Montaup Electric Company relating to Revolving
Credit Loans of Connecticut Yankee (Exhibit 10-85, Form 10-K of
EUA for 1985, File No. 1-5366).
10-25.05 - Equity Funding Agreement for New England Hydro-Transmission
Corporation dated as of June 1, 1985, between New England
Hydro-Transmission Corporation and several New England electric
utilities, including Montaup as amended as of May 1, 1986 and
September 1, 1987 (Exhibits 10-96 and 10-97, Form 10-K of EUA for
1986, File No. 1-5366; Exhibit 10-116, Form 10-K of EUA for 1987,
File No. 1-5366).
10-26.05 - Equity Funding Agreement for New England Hydro-Transmission
Electric Company, Inc. dated as of June 1, 1985, between New
England Hydro-Transmission Electric Company, Inc. and several New
England electric utilities, including Montaup as amended as of May
1, 1986 and September 1, 1987 (Exhibits 10-98 and 10-99, Form 10-K
of EUA for 1986, File No. 1-5366; Exhibit 10-117, Form 10-K of EUA
for 1987, File No. 1-5366).
10-27.05 - Unit Power Agreement for the Sale of Unit Capacity and Energy from
Ocean State Power Project to Montaup Electric Company dated as of
May 14, 1986 as amended as of August 27, 1986, September 27, 1988,
October 21, 1988, July 21, 1989, February 7, 1990, December 21,
1990, and February 12, 1996 (Exhibits 10-101 and 10-102, Form 10-K
of EUA for 1986, File No. 1-5366; Exhibits 10-106 and 10-107, Form
10-K of EUA for 1988, File No. 1-5366; Exhibit 10-106, Form 10-K
of EUA for 1989, File No. 1-5366; Exhibits 10-86 and 10-87, Form
10-K of Eastern Edison for 1990, File No. 0-8480; Exhibit 10-39.05
and 10-40.05, Form 10-K of EUA for 1996, File No. 1-5366).
10-28.05 - Power Purchase Agreement dated as of October 17, 1986, between
Northeast Energy Associates and Montaup as amended as of June 28,
1989 (Exhibit 10-103, Form 10-K of EUA for 1986, File No. 1-5366;
Exhibit 10-103, Form 10-K of EUA for 1989, File No. 1-5366).
10-29.05 - Settlement Agreement dated as of January 13, 1989 among Montaup,
EUA Power, certain past and present owners of the Seabrook Project
and Yankee Atomic Electric Company (Exhibit 10-110, Form 10-K of
EUA for 1988, File No. 1-5366).
10-30.05 - Unit Power Agreement for the Sale of Second Unit Capacity and
Energy from Ocean State Power Project to Montaup Electric Company
dated as of September 28, 1988 as amended as of July 21, 1989,
February 7, 1990, and February 12, 1996 and a Supplemental
Agreement dated July 21, 1989 (Exhibit 10-104, Form 10-K of EUA
for 1989, File No. 1-5366; Exhibits 10-41.05 and 10-42.05, Form
10-K of EUA for 1996, File No. 1-5366; Exhibit No. 10-88, Form
10-K of Eastern Edison for 1990, File No. 0-8480).
10-31.05 - Purchase Power Contract between Newport and Montaup dated July 23,
1963, as revised on March 23, 1983 (Exhibit 10-108, Form 10-K of
EUA for 1990, File No. 1-5366).
10-32.05 - Purchase Power Contract between Newport and Montaup for Contract
Demand Service effective May 1, 1983, as amended on July 1, 1983,
December 28, 1983 and November 1, 1984 (Exhibit 10-89, Form 10-K
of Eastern Edison for 1990, File No. 0-8480 and Exhibit 10-109,
Form 10-K of EUA for 1990, File No. 1-5366).
10-33.05 - Power Contract (composite copy) between Yankee Atomic Electric
Company and Montaup dated June 30, 1959 as revised April 1, 1975,
as further amended October 1, 1980, April 1, 1985, May 6, 1988,
June 26, 1989, July 1, 1989 and February 1, 1992 (Exhibit 10-6,
Registration No. 2-72655; Exhibit 10-73, Form 10-K of EUA for
1985, File No. 1.5366; Exhibit 10-96, Form 10-K of EUA for 1988,
File No. 1-5366; Exhibits 10-93 and 10-94, Form 10-K of EUA for
1989, File No. 1-5366; Exhibit 10-46 Form 10-K of Eastern Edison
for 1992, File No. 0-8480).
*10-34.05 - Amended and Restated Power Sales Contract by and between Southern
Eenrgy Canal L.L.C. (as assignee of Canal Electric Company) and
Montaup Electric Company, dated December 18, 1998 and effective on
December 30, 1998.
*10-35.05 - Third Amendment to the Pilgrim Power Sale Agreement between Boston
Edison Company and Montaup Electric Company, dated Novemeber 18,
1998.
*10-36.05 - Power Purchase Agreement between Entergy Nuclear Generation
Company and Montaup Electric Company, dated November 18, 1998.
*10-37.05 - Power Purchase and Sale Agreement between Montaup Electric Company
and Constellation Power Source, Inc., dated December 21, 1998.
*10-38.05 - PPA Transfer Agreement between Montaup Electric Company and
TransCanada Power Marketing Ltd, dated April 7, 1998.
- Blackstone -
10-1.01 - Trust Indenture between Rhode Island Industrial Facilities
Corporation and the Rhode Island Hospital Trust Company dated as
of December 1, 1984 (Exhibit 10-73, Form 10-K of EUA for 1984,
File No. 1-5366).
10-2.01 - Remarketing Agreement between Rhode Island Hospital Trust Company,
Citibank and Blackstone dated as of December 19, 1984 (Exhibit
10-74, Form 10-K of EUA for 1984, File No. 1-5366).
10-3.01 - Letter of Credit and Reimbursement Agreement between Blackstone
Valley Electric Company and The Bank of New York dated as of
January 21, 1993 (Exhibit 10-10, Form 10-K of Blackstone for 1992,
File No. 0-2602).
10-4.01 - Interconnection Agreement by and between Blackstone and Ocean
State Power dated November 1, 1988, as amended and restated
effective August 16, 1989 by and among Blackstone, Ocean State
Power I and Ocean State Power II (Exhibit 10-100, Form 10-K of EUA
for 1989, File No. 1-5366).
10-5.01 - Power Purchase Agreement between Blackstone and Blackstone Hydro,
Inc. dated as of January 8, 1989 and assignment to Montaup
(Exhibits 10-101 and 10-102, Form 10-K of EUA for 1989, File No.
1-5366).
- See Exhibits 10-5.08, 10-6.08, 10-7.08 for Exhibits involving
Blackstone, Eastern Edison and Newport.
- Newport -
10-1.14 - Phase I Vermont Transmission Line Support Agreement dated as of
December 1, 1981 and as amended as of June 1, 1982, November 1,
1982 and January 1, 1986 between Vermont Electric Transmission
Company, Inc. and several New England utilities, including Montaup
(Exhibit 10-65, Form 10-K of EUA for 1981, File No. 1-5366;
Exhibit 10-72, Registration No. 2-80205; Exhibit 10-64, Form 10-K
of EUA for 1982, File No. 1-5366; Exhibit 10-84. Form 10-K of EUA
for 1986, File No. 1-5366).
10-2.14 - Letter amendment dated August 4, 1983 reallocating the partici-
pating shares originally assigned to the Chicopee Municipal
Lighting Plant and the Taunton Municipal Lighting Plant under the
Phase I Vermont Transmission Line Support Agreement between
Vermont Electric Transmission Company, Inc. and several New
England electric utilities, including Newport, dated December 1,
1981, as amended on June 1, 1982 and November 1, 1982 (Exhibit
10-110, Form 10-K of EUA for 1990, File No. 1-5366).
10-3.14 - Phase I Terminal Facility Support Agreement dated December 1, 1981
and as amended as of June 1, 1982, November 1, 1982 and January
1, 1986 between New England Electric Transmission Corporation and
several New England utilities, including Montaup (Exhibit 10-68,
Form 10-K of EUA for 1981, File No. 1-5366; Exhibit 10-74,
Registration No. 1-5366; Exhibit 10-68. Form 10-K of EUA for 1986,
File No. 1-5366).
10-4.14 - Letter amendment dated July 29, 1983 reallocating the partici-
pating shares originally assigned to the Chicopee Municipal
Lighting Plant and the Taunton Municipal Lighting Plant under the
Phase I Terminal Facility Support Agreement between New England
Transmission Corporation and several New England electric
utilities, including Newport, dated December 1, 1981, as amended
on June 1, 1982 and November 1, 1982 (Exhibit 10-112, Form 10-K of
EUA for 1990, File No. 1-5366).
10-5.14 - Purchase Power Contract between Newport and City of Burlington
Electric Department (life of the unit contract) for purchase of
15.24% of net capability of station output from Joseph C. McNeil
Electric Generating Station located in Burlington, Vermont dated
December 19, 1984 (Exhibit 10-115, Form 10-K of EUA for 1990,
File No. 1-5366).
10-6.14 - Firm Energy Contract between Hydro-Quebec and several New England
electric utilities, including Newport, dated as of October 14,
1985 (Exhibit 10-116, Form 10-K of EUA for 1990, File No. 1-5366).
10-7.14 - Unit Power Agreement for the Sale of Unit Capacity and Energy from
Ocean State Power Project to Newport Electric Corporation dated
May 14, 1986, as amended on August 20, 1986, July 12, 1988,
September 23, 1988, October 21, 1988, July 21, 1989, February 7,
1990 and December 21, 1990 (Exhibit 10-117, Form 10-K for 1990,
File No. 1-5366).
10-8.14 - Unit Power Agreement for the Sale of Second Unit Capacity and
Energy from Ocean State Power Project to Newport Electric
Corporation dated July 12, 1988 as amended and supplemented
September 23, 1988, July 21, 1989 and February 7, 1990 (Exhibit
10-118, Form 10-K for 1990, File No. 1-5366).
10-9.14 - Agreement for Joint Ownership, Construction and Operation of
William F. Wyman Unit No. 4 dated November 1, 1974 as amended June
30, 1975, August 16, 1976 and December 31, 1978 among Central Maine
Power Company and other utilities including Newport (Exhibit B-9,
Form U5S of EUA for year 1974; Exhibit 13-58, Registration No.
2-55990; Exhibit 5-95, Registration No. 2-58625; Exhibit 5-40,
Registration No. 2-69052).
- See Exhibits 10-5.08, 10-6.08, 10-7.08 for Exhibits involving
Blackstone, Eastern Edison and Newport.
- EUA Ocean State -
10-1.12 - Ocean State Power Amended and Restated General Partnership
Agreement among EUA Ocean State, Ocean State Power Company, TCPL
Power Ltd., Narragansett Energy Resources Company and NECO Power,
Inc. (collectively, the "OSP Partners") dated as of December 2,
1988, as amended March 27, 1989, December 31, 1990, November 12,
1992 and February 23, 1993 (Exhibit 10-107, Form 10-K of EUA for
1989; File No. 1-5366, Exhibits 10-3.12, 10-4.12 and 10-5.12,
Form 10-K of EUA for 1994, File No. 1-5366).
10-2.12 - Ocean State Power II Amended and Restated General Partnership
Agreement among EUA Ocean State, JMC Ocean State Corporation,
Makowski Power, Inc., TCPL Power Ltd., Narragansett Energy
Resources Company and Newport Electric Power Corporation
(collectively, the "OSP II Partners") dated as of September 29,
1989 (Exhibit 10-110, Form 10-K of EUA for 1989, File No. 1-5366).
Annual Reports to Shareholders:
*13-1.03 - Annual Report to Shareholders of EUA for 1998, portions of which
are incorporated by reference in this Annual Report on Form 10-K.
Only the portions expressly so incorporated under PART II, Items
5, 6, 7 and 8 are to be deemed filed herewith.
*13-1.01 - Annual Report to Shareholders of Blackstone for 1998, portions of
which are incorporated by reference in this Annual Report on Form
10-K. Only the portions expressly so incorporated under PART II,
Items 5, 6, 7 and 8 are to be deemed filed herewith.
*13-1.08 - Annual Report to Shareholders of Eastern Edison for 1998, portions
of which are incorporated by reference in this Annual Report on
Form 10-K. Only the portions expressly so incorporated under PART
II, Items 5, 6, 7 and 8 are to be deemed filed herewith.
Subsidiaries of EUA:
21-1.03 - Direct subsidiaries of Eastern Utilities Associates and the state
of organization of each are: Blackstone Valley Electric Company
(Rhode Island), Eastern Edison Company (Massachusetts), EUA
Cogenex Corporation (Massachusetts), EUA Service Corporation
(Massachusetts), EUA Ocean State Corporation (Rhode Island), EUA
Energy Investment Corporation (Massachusetts), Newport Electric
Corporation (Rhode Island), EUA Energy Services, Inc.
(Massachusetts) and EUA Telecommunications (Massachusetts).
Montaup Electric Company (Massachusetts) is a subsidiary of
Eastern Edison Company. Each of the above subsidiaries does
business under its indicated corporate name.
Consent of Experts and Counsel:
*23-1.03 - Consent of Independent Accountants.
(b) Reports on Form 8-K
Eastern Utilities Associates
On February 5, 1999, EUA filed a Current Report on Form 8-K with respect to
Item 5 (Other Events).
On January 5, 1999, EUA filed a Current Report on Form 8-K with respect to
Item 5 (Other Events).
On November 19, 1998, EUA filed a Current Report on Form 8-K with respect to
Item 5 (Other Events).
On October 15, 1998, EUA filed a Current Report on Form 8-K with respect to
Item 5 (Other Events).
Eastern Edison Company
On January 5, 1999, Eastern Edison Company filed a Current Report on Form 8-K
with respect to Item 5 (Other Events).
On November 19, 1998, Eastern Edison Company filed a Current Report on Form
8-K with respect to Item 5 (Other Events).
On October 15, 1998, Eastern Edison Company filed a Current Report on Form
8-K with respect to Item 5 (Other Events).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Signature Title Date
EASTERN UTILITIES ASSOCIATES
By /s/ John R. Stevens President and Chief Operating Officer March 15, 1999
John R. Stevens (Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Donald G. Pardus Chairman and Chief Executive Officer
Donald G. Pardus (Principal Executive Officer) and Trustee
/s/ John R. Stevens President and Chief Operating Officer
John R. Stevens (Principal Accounting Officer) and Trustee
/s/ Clifford J. Hebert, Jr. Treasurer
Clifford J. Hebert, Jr. (Principal Financial Officer)
Russell A. Boss Trustee
Paul J. Choquette, Jr. Trustee
March 15, 1999
/s/ Peter S. Damon Trustee
Peter S. Damon
/s/ Peter B. Freeman Trustee
Peter B. Freeman
/s/ Larry A. Liebenow Trustee
Larry A. Liebenow
/s/ Jacek Makowski Trustee
Jacek Makowski
/s/ Wesley W. Marple, Jr. Trustee
Wesley W. Marple, Jr.
/s/ Margaret M. Stapleton Trustee
Margaret M. Stapleton
/s/ W. Nicholas Thorndike Trustee
W. Nicholas Thorndike
[This page left blank intentionally]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Signature Title Date
BLACKSTONE VALLEY ELECTRIC COMPANY
By /s/ John R. Stevens Vice Chairman and Director March 15, 1999
John R. Stevens Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Donald G. Pardus Chairman of the Board and
Donald G. Pardus Director (Principal Executive Officer)
/s/ John R. Stevens Vice Chairman and Director
John R. Stevens (Principal Accounting Officer)
/s/ Clifford J. Hebert, Jr. Treasurer and Director
Clifford J. Hebert, Jr. (Principal Financial Officer)
/s/ John D. Carney President and Director March 15, 1999
John D. Carney
/s/ Robert G. Powderly Executive Vice President and
Robert G. Powderly Director
[This page left blank intentionally]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Signature Title Date
EASTERN EDISON COMPANY
By /s/ John R. Stevens Vice Chairman and Director March 15, 1999
John R. Stevens (Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Donald G. Pardus Chairman of the Board and Director
Donald G. Pardus (Principal Executive Officer)
/s/ John R. Stevens Vice Chairman and Director
John R. Stevens (Principal Accounting Officer)
/s/ Clifford J. Hebert, Jr. Treasurer and Director March 15, 1999
Clifford J. Hebert, Jr. (Principal Financial Officer)
/s/ John D. Carney President and Director
John D. Carney
/s/ Robert G. Powderly Executive Vice President and
Robert G. Powderly Director
[This page left blank intentionally]
EASTERN UTILITIES ASSOCIATES AND SUBSIDIARY COMPANIES
Item 14(a)(2). Financial Statement Schedules
[This page left blank intentionally]
<TABLE>
Schedule II
Eastern Utilities Associates and Subsidiary Companies
Valuation and Qualifying Accounts
(In Thousands)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(1) (2)
Balance at Charged to Charged Balance at
Beginning Costs and to Other Deductions End of
Description of Period Expenses Accounts Describe Period
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1998:
Allowance for Doubtful Accounts $1,109 $1,378 $893 (a) $2,079 (b) $1,301
For the Year Ended December 31, 1997:
Allowance for Doubtful Accounts $976 $1,090 $450 (a) $1,407 (b) $1,109
For the Year Ended December 31, 1996:
Allowance for Doubtful Accounts $690 $1,754 $292 (a) $1,760 (b) $976
(a) Recoveries of accounts previously written off.
(b) Principally Accounts Receivable written off.
</TABLE>
<TABLE>
Schedule II
Blackstone Valley Electric Company
Valuation and Qualifying Accounts
(In Thousands)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(1) (2)
Balance at Charged to Charged Balance at
Beginning Costs and to Other Deductions End of
Description of Period Expenses Accounts Describe Period
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1998:
Allowance for Doubtful Accounts $149 $795 $246 (a) $1,044 (b) $146
For the Year Ended December 31, 1997:
Allowance for Doubtful Accounts $151 $550 $332 (a) $884 (b) $149
For the Year Ended December 31, 1996:
Allowance for Doubtful Accounts $127 $800 $232 (a) $1,008 (b) $151
(a) Recoveries of accounts previously written off.
(b) Principally Accounts Receivable written off.
</TABLE>
[This page left blank intentionally]
Report of Independent Accountants
To the Trustees and Shareholders of
Eastern Utilities Associates:
Our report on the consolidated financial statements of Eastern Utilities
Associates and subsidiaries has been incorporated by reference in this Form
10-K from page 40 of the 1998 Annual Report to Shareholders of Eastern
Utilities Associates. In connection with our audits of such consolidated
financial statements, we have also audited the related consolidated financial
statement schedule listed in Item 14 (a)(2) of this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information required
to be included therein.
PriceWaterhouseCoopers LLP
Boston, Massachusetts
March 5, 1999
Report of Independent Accountants
To the Directors and Shareholder of
Blackstone Valley Electric Company:
Our report on the financial statements of Blackstone Valley Electric Company
has been incorporated by reference in this Form 10-K from page 31 of the 1998
Annual Report of Blackstone Valley Electric Company. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in Item 14 (a)(2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PriceWaterhouseCoopers LLP
Boston, Massachusetts
March 5, 1999
[This page left blank intentionally]
FIFTH AMENDMENT
TO THE
EASTERN UTILITIES ASSOCIATES
EMPLOYEES' SAVINGS PLAN
WHEREAS, Eastern Utilities Associates (the "Employer") previously established
the Eastern Utilities Associates Employees' Savings Plan (the "Plan") effective
January 1, 1982; and
WHEREAS, the Employer Amended and Restated the Plan effective January
1, 1989; and
WHEREAS, the Employer reserved the right to amend the Plan from time to
time under Section 13.2 of the Plan.
NOW, THEREFORE, in accordance with and pursuant to the foregoing,
effective April 1, 1998, the Plan is amended as follows:
1. By deleting the second sentence of Section 3.1 of the Plan in its
entirety and by substituting therefor the following:
"This reduction in Earnings shall be in any whole percentage from 1% to
20% of such Earnings or, if permitted by the Committee, in a flat
dollar amount not less than 1% and not to exceed 20% of such Earnings,
provided however, that if an Eligible Employee is a member of a
collective bargaining unit, the figure "20%" in this Section 3.1 shall
be replaced by "15%," unless the collective bargaining agreement under
which such Employee is covered provides otherwise."
2. By deleting the second sentence of Section 3.2 of the Plan in its
entirety and by substituting therefor the following:
"The contribution rate shall be in any whole percentage from 1% to 20%
of such Earnings or, if permitted by the Committee, in a flat dollar
amount not less than 1% and not to exceed 20% of such Earnings,
provided that such After-Tax Participant Contribution(s) shall not
exceed the difference between 20% and the contribution percentage such
Eligible Employee has currently authorized for Pre-Tax Participant
Contribution(s). Notwithstanding the foregoing, if an Eligible
Employee is a member of a collective bargaining unit, the figure "20%"
in this Section 3.2 shall be replaced by "15%," unless the collective
bargaining agreement under which such Employee is covered provides
otherwise."
3. By deleting Section 4.5(a)(ii) in its entirety and by substituting
therefor the following:
"25% of the Employee's compensation (as defined by Code Section
415(c)(3), including amounts deferred pursuant to Code Section 401(k)
and amounts which are contributed or deferred and which are not
included in the Employee's income by reason of Code Section 125 or
457) from the Participating Employer."
IN WITNESS WHEREOF, EASTERN UTILITIES ASSOCIATES has caused this instrument to
be executed and delivered on its behalf by the undersigned on this
23rd day of April, 1998.
ATTEST: EASTERN UTILITIES ASSOCIATES
/s/Clifford J. Hebert, Jr. By:/s/Donald G. Pardus
Clifford J. Hebert, Jr. Donald G. Pardus
Secretary
Its: Chairman
(Corporate Seal)
SIXTH AMENDMENT
TO THE
EASTERN UTILITIES ASSOCIATES
EMPLOYEES' SAVINGS PLAN
WHEREAS, Eastern Utilities Associates (the "Employer") previously established
the Eastern Utilities Associates Employees' Savings Plan (the "Plan") effective
January 1, 1982; and
WHEREAS, the Employer amended and restated the Plan effective January
1, 1989; and
WHEREAS, the Employer reserved the right to amend the Plan from time to
time under Section 13.2 of the Plan.
NOW, THEREFORE, in accordance with and pursuant to the foregoing, the
Plan is amended, effective October 1, 1998, as follows:
Section 4.1 of the Plan is hereby amended by deleting the first
sentence of said section in its entirety and by substituting therefore the
following:
"Each Participating Employer shall make a Matching Contribution on
behalf of each of its Participants in an amount equal to 100% of the first 3%
of Earnings with respect to which such Participant makes Pre-Tax Participant
Contribution(s)."
IN WITNESS WHEREOF, EASTERN UTILITIES ASSOCIATES has caused this instrument to
be executed and delivered on its behalf by the undersigned on this
28th day of September, 1998.
ATTEST: EASTERN UTILITIES ASSOCIATES
/s/Clifford J. Hebert, Jr. By:/s/Donald G. Pardus
Clifford J. Hebert, Jr. Donald G. Pardus
Secretary
Its: Chairman
(Corporate Seal)
THIRD AMENDMENT
TO THE
EMPLOYEES' RETIREMENT PLAN
OF
EASTERN UTILITIES ASSOCIATES
AND ITS AFFILIATED COMPANIES
WHEREAS, Eastern Utilities Associates (the "Employer") previously
established the Employees' Retirement Plan of Eastern Utilities Associates and
Its Affiliated Companies (the "Plan"); and
WHEREAS, the Employer amended and restated the Plan effective January
1, 1989; and
WHEREAS, the Employer has reserved the right to amend the Plan from
time to time under Section 12.1 of the Plan;
NOW, THEREFORE, in accordance with and pursuant to the foregoing, the
Plan is amended effective as of May 1, 1998 (except where indicated to the
contrary) as follows:
1. Section 1.3(a) is hereby amended by deleting the same in its entirety
and by substituting therefor the following:
"(a) for lump sum payments made under the Plan and the determination
of the Pension Make Whole Benefit under Addendum Number Four,
an interest rate equal to the average annual rate of interest
on 30-year Treasury securities in effect for t he first month
of the three month period immediately preceding the calendar
quarter in which the lump sum payment occurs, and a mortality
assumption determined under the "applicable mortality table"
(as defined in Section 417(e)(3)(A)(ii)(I) of the C ode);
provided, however, that lump sum payments under Section 6.4 or
8.6 made in the one-year period beginning on April 1, 1998
shall not be less than the present value determined using the
annual rate of interest on 30-year Treasury securities
published for the month of January of the Plan Year in which
the lump sum payment occurs, and a mortality assumption
determined under the "applicable mortality table" (as defined
in Section 417(e)(3)(A)(ii)(I) of the Code).
2. The following shall be substituted for the last sentence of
subparagraph (iii) of Section 3.3(a) of the Plan:
"For purposes of determining actuarial equivalence hereunder, the
interest assumption shall not be less than the greater of 5% per year
or the rate specified in Section 1.3(a)."
3. "Section 1.3(a)" shall be substituted for "Section 1.3" where the
latter appears in the last sentence of subparagraph (iv) of Section
3.3(a).
4. "Section 1.3(a)" shall be substituted for "Section 1.3" where the
latter appears in the last sentence of subparagraph (ix) of Section
3.3(a).
5. The following shall be added after the last sentence of the second
paragraph of Section 1.43 of the Plan:
"Solely for purposes of this paragraph, a Participant who receives
benefits under the Long-Term Disability Plan of EUA Service
Corporation and Its Affiliated Companies after completing 30 or more
years of vesting service shall be considered a n Active Participant
who retired prior to his Normal Retirement Date.
6. By substituting "$5,000" for "$3,500" where the latter appears in
Sections 6.4 and 8.6 of the Plan.
7. Effective as of the Montaup Divestiture Date (as defined in Addendum
Number Four below), the following new Addendum Number Four to the Plan
shall be added immediately following Addendum Number Three thereof:
ADDENDUM NUMBER FOUR
TO THE
EMPLOYEES' RETIREMENT PLAN
OF
EASTERN UTILITIES ASSOCIATES AND ITS AFFILIATED COMPANIES
CERTAIN CHANGES WITH RESPECT TO RETIREE ELIGIBLE PARTICIPANTS
EMPLOYED BY MONTAUP ELECTRIC COMPANY
This Addendum Number Four sets forth provisions relating specifically
to certain Employees employed by Montaup Electric Company (hereinafter referred
to as "Montaup") who are eligible to receive an Early Retirement Benefit from
the Plan. The provisions set forth in the Plan document shall govern
participation in the Plan and the calculation of benefits (including but not
limited to the benefit limitations set forth in Article IV of the Plan) for
these employees except as set forth below.
This Addendum Number Four is effective as of the Montaup Divestiture
Date, as defined in Section D.1.5. below. Notwithstanding the foregoing, the
Employer authorizes the Retirement Board (and its designees) to take all
necessary and proper actions prior to the Montaup Divestiture Date to implement
Addendum Number Four on the Montaup Divestiture Date. All capitalized terms in
this Addendum Number Four shall have the same meanings as set forth in the Plan
unless specifically indicated to the contrary below.
D.1.0. Application of Addendum. This Addendum shall apply to all Active
Participants employed by Montaup on October 16, 1997 who either: (i)
will have attained age fifty-five and completed at least ten Years of
Vesting Service not later than December 31, 1998 or (ii) will have a
combined age plus Years of Vesting Service at l east equal to eighty-
five during 1998, and in either case, such Active Participant (iii)
elected to retire no later than the Montaup Divestiture Date (or who
elects to retire on such later date with Montaup or an Affiliated
Employer as determined by the Board in its sole discretion) in
accordance with procedures established by the Retirement Board, and
(iv) did not receive (or elect to receive) severance benefits from the
Employer or an Affiliated Employer (hereinafter referred to as a
"Montaup Retiree").
D.1.1. Basic Pension Supplement. The monthly Early Retirement Benefit of a
Montaup Retiree shall be equal to such Participant's Early Retirement
Benefit under Section 4.2(a) of the Plan as of his or her Early
Retirement Date based on:
(a) such Retiree's Years of Credited Service on such date plus
five additional years of such service,
(b) such Retiree's age as of his or her birthday in 1998,
regardless of such Retiree's Early Retirement Date, plus
five additional years of age solely for purposes of
determining the appropriate early reduction factor, and
(c) such Retiree's reduction factor for commencement prior to
Normal Retirement Age shall be determined assuming that
such Retiree has satisfied the requirements for Special
Early Retirement under Section 4.4 of the Plan.
D.1.2. Income Supplement. A Montaup Retiree who elects to retire prior to
attaining age sixty-two shall receive a Income Supplement. The Income
Supplement shall be equal to a monthly benefit of $750 per month for
the period beginning on such Retiree's Early Retirement Date and ending
on the earlier of such Retiree's death or with the payment due for the
month before which the Retiree attains age sixty-two or otherwise
becomes entitled to receive a Social Security disability benefit. No
Income Supplement shall be payable to a Montaup Retiree who has
attained age sixty-two as of his or her Early Retirement Date.
D.1.3. Pension Make Whole Benefit. A Montaup Retiree also may be entitled to
a Pension Make Whole Benefit. The Pension Make Whole Benefit, when
expressed as a single sum amount, shall equal:
(1) the pre-tax amount of severance benefit the Montaup
Retiree would have been entitled to if Montaup had
involuntarily severed the Montaup Retiree's
employment (other than for cause), less
(2) the sum of the Montaup Retiree's Basic Pension
Supplement (as defined in Section D.1.1) and Income
Supplement (as defined in Section D.1.2), if any,
when expressed as an Actuarial Equivalent single
sum amount.
No Pension Make Whole Benefit shall be paid if the amount in (2) equals
exceeds the amount in (1) above. For purposes of this section, the Vice
President of Human Resources (or her designee) shall certify the amount
of severance benefits under (1) above.
D.1.4. Payment of Supplemental Benefits.
(a) Lump Sum Payment
A Montaup Retiree may elect to receive payment equal to
(1) the sum of the Basic Pension Supplement under
Section D.1.1, the applicable Income Supplement under
Section D.1.2., and the Pension Make Whole Benefit
under Section 1 .3, or (2) the sum of the applicable
Income Supplement under Section D.1.2. and the Pension
Make Whole Benefit under Section D.1.3., in the form of
a single lump sum payment. The amount of the lump sum
payment for the Basic Pension Supplement and the
applicable Income Supplement elected by a Montaup
Retiree as set forth in (1) or (2) of this Section
D.1.4.(a) shall be calculated in the manner set forth
in the Plan, as amended by the Third Amendment and as
it may be subsequently amended from time to time.
(b) Annuity Form of Benefit
A Montaup Retiree may elect to receive the Basic
Pension Supplement in Section D.1.1., the Pension Make
Whole Benefit in Section D.1.3, or both in any of the
annuity forms of payment set forth in Article VIII of
the Plan. For purposes of calculating available
annuities under Article VIII for the Pension Make Whole
Benefit, the single life annuity equivalent of the
Pension Make Whole Benefit shall be determined using
the actuarial factors applied in D.1.3.(2) above.
(c) Payment Contingent on Release Agreement
Payment of any of the benefits provided under this
Addendum Number Four are contingent upon the Employer
receiving from the Montaup Retiree an executed release
agreement satisfactory to the Employer. Payment of
these benefits shall commence not earlier than seven
days after receipt of such an executed agreement.
D.1.5. Montaup Divestiture Date. The Montaup Divestiture Date means the first
date on which all of the events set forth in Item I.A. of the
Memorandum of Understanding between Montaup Electric Company and the
Utility Workers' Union of America dated October 16, 1997 (hereafter
referred to as the "MOU") have occurred, as certified by the Chairman
of Eastern Utilities Associates (or his designee).
8. Effective as of the Montaup Divestiture Date (as defined in Addendum
Number Five below), the following new Addendum Number Five to the Plan
shall be added immediately following Addendum Number Four thereof:
ADDENDUM NUMBER FIVE
TO THE
EMPLOYEES' RETIREMENT PLAN
OF
EASTERN UTILITIES ASSOCIATES AND ITS AFFILIATED COMPANIES
CERTAIN CHANGES WITH RESPECT TO PARTICIPANTS EMPLOYED BY
MONTAUP ELECTRIC COMPANY
This Addendum Number Five sets forth provisions relating specifically
to certain Employees employed by Montaup Electric Company (hereinafter referred
to as "Montaup") who are eligible to receive a Termination of Service Benefit
from the Plan. The provisions set forth in the Plan document shall govern
participation in the Plan and the calculation of benefits (including but not
limited to the benefit limitations set forth in Article IV of the Plan) for
those employees except as set forth below.
This Addendum Number Five is effective as of the Montaup Divestiture
Date, as defined in Section D.1.2. below. Notwithstanding the foregoing, the
Employer authorizes the Retirement Board (and its designees) to take all
necessary and proper actions prior to the Montaup Divestiture Date to implement
Addendum Number Five on the Montaup Divestiture Date. All capitalized terms in
this Addendum Number Five shall have the same meanings as set forth in Article
I of the Plan unless specifically indicated to the contrary below.
D.1.0. Application of Addendum. This Addendum shall apply to all Participants
employed by Montaup on October 16, 1997 who are not covered by the
provisions of Addendum Number Four (hereinafter referred to as a
"Vested Montaup Participant").
D.1.1. Lump Sum Payment
In addition to the forms of payment permitted under Article VIII of the
Plan, a Vested Montaup Participant may elect to receive payment of all
vested amounts accrued under the Plan in the form of a single lump sum
payment. The amount of the lump sum payment paid to a Vested Montaup
Participant shall be calculated in the manner set forth in the Plan, as
amended by the Third Amendment and as it may be subsequently amended
from time to time.
D.1.2. Montaup Divestiture Date. The Montaup Divestiture Date means the first
date on which all of the events set forth in Item I.A. of the
Memorandum of Understanding between Montaup Electric Company and the
Utility Workers' Union of America dated October 16, 1997 (hereafter
referred to as the "MOU") have occurred, as certified by the Chairman
of Eastern Utilities Associates (or his designee).
IN WITNESS WHEREOF, EASTERN UTILITIES ASSOCIATES has caused this
instrument to be executed and delivered on its behalf by the undersigned on
this 20th day of April, 1998.
ATTEST: EASTERN UTILITIES ASSOCIATES
By: /s/Donald G. Pardus
/s/Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr. Its: Chairman
Secretary
(Corporate Seal)
FOURTH AMENDMENT
TO THE
EMPLOYEES' RETIREMENT PLAN
OF
EASTERN UTILITIES ASSOCIATES
AND ITS AFFILIATED COMPANIES
WHEREAS, Eastern Utilities Associates (the "Employer") previously
established the Employees' Retirement Plan of Eastern Utilities Associates and
Its Affiliated Companies (the "Plan"); and
WHEREAS, the Employer amended and restated the Plan effective January
1, 1989; and
WHEREAS, the Employer has reserved the right to amend the Plan from
time to time under Section 12.1 of the Plan;
NOW, THEREFORE, in accordance with and pursuant to the foregoing, the
Plan is amended effective as indicated below as follows:
1. Effective for amounts paid after December 31, 1997, Section 1.15 is
hereby amended by inserting after the first paragraph, the following:
"Notwithstanding the foregoing, effective for amounts paid after
December 31, 1997, Earnings shall include any special pay not paid as a
commission and bonuses, excluding payments designed to retain an
Employee in the employ of the Employer; provided , however, that in the
case of an Employee covered by a collective bargaining agreement,
Earnings shall not include special pay not paid as a commission and
bonuses unless the bargaining agreement which such Employee is covered
provides otherwise."
2. Effective for deaths occurring after January 1, 1998, Section 7.2
(b)(ii) is hereby amended by substituting "100%" for "50%" wherever it
appears in said section.
IN WITNESS WHEREOF, EASTERN UTILITIES ASSOCIATES has caused this
instrument to be executed and delivered on its behalf by the undersigned on
this 30th day of April, 1998.
ATTEST: EASTERN UTILITIES ASSOCIATES
/s/Clifford J. Hebert, Jr. By: /s/Donald G. Pardus
Clifford J. Hebert, Jr. Donald G. Pardus
Secretary
Its: Chairman
(Corporate Seal)
AGREEMENT AND PLAN OF MERGER
dated as of February 1, 1999
by and among
NEW ENGLAND ELECTRIC SYSTEM, RESEARCH DRIVE LLC
and
EASTERN UTILITIES ASSOCIATES
TABLE OF CONTENTS
Page
No.
ARTICLE I THE MERGER 1
1.01 The Merger 1
1.02 Effective Time 1
1.03 Effects of the Merger 2
ARTICLE II CONVERSION OF SHARES 2
2.01 Conversion of Capital Stock 2
2.02 Surrender of Shares 3
2.03 Withholding Rights 4
ARTICLE III THE CLOSING 4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EUA 5
4.01 Organization and Qualification 5
4.02 Capital Stock 6
4.03 Authority 7
4.04 Non-Contravention; Approvals and Consents 7
4.05 SEC Reports, Financial Statements and Utility Reports 8
4.06 Absence of Certain Changes or Events 9
4.07 Legal Proceedings 9
4.08 Information Supplied 9
4.09 Compliance 10
4.10 Taxes 10
4.11 Employee Benefit Plans; ERISA 12
4.12 Labor Matters 14
4.13 Environmental Matters 15
4.14 Regulation as a Utility 17
4.15 Insurance 17
4.16 Nuclear Facilities 18
4.17 Vote Required 18
4.18 Opinion of Financial Advisor 18
4.19 Ownership of NEES Common Shares 18
4.20 State Anti-Takeover Statutes 18
4.21 Year 2000 19
4.22 EUA Associates 19
ARTICLE V REPRESENTATIONS AND WARRANTIES OF NEES 19
5.01 Organization and Qualification 19
5.02 Authority 20
5.03 Capital Stock 20
5.04 Non-Contravention; Approvals and Consents 20
5.05 Information Supplied 21
5.06 Compliance 21
5.07 Financing. 22
5.08 No Vote Required 22
5.09 Ownership of EUA Shares 22
5.10 Merger with The National Grid Group plc 22
ARTICLE VI COVENANTS 22
6.01 Covenants of EUA 22
6.02 Covenants of NEES 28
6.03 Additional Covenants by NEES and EUA. 29
ARTICLE VII ADDITIONAL AGREEMENTS 30
7.01 Access to Information 30
7.02 Proxy Statement 31
7.03 Approval of Shareholders 31
7.04 Regulatory and Other Approvals 31
7.05 Employee Benefit Plans 32
7.06 Labor Agreements and Workforce Matters 34
7.07 Post Merger Operations 34
7.08 No Solicitations 35
7.09 Directors' and Officers' Indemnification and Insurance 36
7.10 Expenses 37
7.11 Brokers or Finders 37
7.12 Anti-Takeover Statutes 38
7.13 Public Announcements 38
7.14 Restructuring of the Merger 38
ARTICLE VIII CONDITIONS 39
8.01 Conditions to Each Party's Obligation to Effect the Merger 39
8.02 Conditions to Obligation of NEES and LLC to Effect the Merger 39
8.03 Conditions to Obligation of EUA to Effect the Merger 40
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER 41
9.01 Termination 41
9.02 Effect of Termination 43
9.03 Termination Fees 43
9.04 Amendment 44
9.05 Waiver 44
ARTICLE X GENERAL PROVISIONS 44
10.01 Non-Survival of Representations, Warranties,
Covenants and Agreements 44
10.02 Notices 44
10.03 Entire Agreement; Incorporation of Exhibits 46
10.04 No Third Party Beneficiary 46
10.05 No Assignment; Binding Effect 46
10.06 Headings 47
10.07 Invalid Provisions 47
10.08 Governing Law 47
10.09 Enforcement of Agreement 47
10.10 Certain Definitions 47
10.11 Counterparts 48
10.12 WAIVER OF JURY TRIAL 48
GLOSSARY OF DEFINED TERMS
The following terms, when used in this Agreement, have the meanings ascribed
to them in the corresponding Sections of this Agreement listed below:
"1935 Act" -- Section 4.05(b)
"Adjustment Date" -- Section 2.01(c)
"Affected Employees" -- Section 7.05(a)
"affiliate" -- Section 10.11(a)
"Agreement" -- Preamble
"Alternative Proposal" -- Section 7.08
"beneficially" -- Section 10.10(b)
"business day" -- Section 10.10(c)
"Canceled Shares" -- Section 2.02(b)
"Certificates" -- Section 2.02(b)
"Closing" -- Article III
"Closing Agreement" -- Section 4.10(j)
"Closing Date" -- Article III
"Code" -- Section 2.03
"Confidentiality Agreement" -- Section 7.01
"Constituent Entities" -- Section 1.01
"Contracts" -- Section 4.04(a)
"control," "controlling," "controlled by"
and "under common control with" -- Section 10.10(a)
"DOE" -- Section 4.05(b)
"Effective Time" -- Section 1.02
"Environmental Claim" -- Section 4.13(f)(i)
"Environmental Laws" -- Section 4.13(f)(ii)
"Environmental Permits" -- Section 4.13(b)
"ERISA" -- Section 4.11(a)
"ERISA Affiliate" -- Section 4.11(c)
"EUA" -- Preamble
"EUA Associates" -- Section 4.01(b)
"EUA Employee Agreements" -- Section 7.05(d)(ii)
"EUA Executives" -- Section 7.05(d)(ii)
"EUA Shares" -- Preamble
"EUA Disclosure Letter" -- Section 4.01(a)
"EUA Employee Benefit Plans" -- Section 4.11(a)
"EUA Financial Statements" -- Section 4.05(a)
"EUA Nuclear Facilities" -- Section 4.16
"EUA Material Adverse Effect" -- Section 4.01(a)
"EUA Required Consents" -- Section 4.04(a)
"EUA Required Statutory Approvals" -- Section 4.04(b)
"EUA SEC Reports" -- Section 4.05(a)
"EUA Shareholders' Approval" -- Section 7.03
"EUA Shareholders' Meeting" -- Section 7.03
"EUA Significant Subsidiary" -- Section 7.08
"EUA Shares" -- Preamble
"EUA Trust Agreement" -- Section 1.03
"EUA Voting Debt -- Section 4.02(d)
"Evaluation Material" -- Section 7.01(a)
"Exchange Act" -- Section 4.05(a)
"Exchange Fund" -- Section 2.02(a)
"Extended Termination Date" -- Section 9.01(b)
"FCC" -- Section 4.05(b)
"FERC" -- Section 4.05(b)
"Final Order" -- Section 8.01(d)
"Governmental Authority" -- Section 4.04(a)
"Hazardous Materials" -- Section 4.13(f)(iii)
"HSR Act" -- Section 7.04(a)
"Indemnified Liabilities" -- Section 7.09(a)
"Indemnified Party" -- Section 7.09(a)
"Indemnified Parties" -- Section 7.09(a)
"Information Systems" -- Section 4.21
"Initial Termination Date" -- Section 9.01(b)
"IRS" -- Section 4.10(m)
"knowledge" -- Section 10.11(d)
"laws" -- Section 4.04(a)
"Lien" -- Section 4.02(b)
"LLC" -- Preamble
"Massachusetts Secretary" -- Section 1.02
"Merger" -- Preamble
"Merger Consideration" -- Section 2.01(b)(ii)
"MGL" -- Section 1.01
"National Grid Group" -- Section 5.10
"National Grid Merger Agreement" -- Section 5.10
"NEES" -- Preamble
"NEES Disclosure Letter" -- Section 5.03
"NEES Material Adverse Effect" -- Section 5.01
"NEES-EUA Regulatory Approvals" -- Section 7.04(b)
"NEES-EUA Regulatory Proceedings" -- Section 7.04(c)
"NEES Required Consents" -- Section 5.04(a)
"NEES Required Statutory Approvals" -- Section 5.04(b)
"NEES-NGG Regulatory Approvals" -- Section 7.04(c)
"NEES-NGG Regulatory Proceedings" -- Section 7.04(c)
"NEES-NGG Required Statutory Approvals" -- Section 7.04
"NEES-NGG Transactions" -- Section 7.04
"NEES Shares" -- Section 5.03
"NEES Trust Agreement" -- Section 5.01
"NGG Circular" -- Section 7.02
"NRC" -- Section 4.05(b)
"Options" -- Section 4.02(a)
"orders" -- Section 4.04(a)
"Out-of-Pocket Expenses" -- Section 9.03(a)
"Paying Agent" -- Section 2.02(a)
"PBGC" -- Section 4.11(g)
"person" -- Section 10.11(e)
"Per Share Amount" -- Section 2.01(b)(ii)
"Post Closing Plans" -- Section 7.05(b)
"Proxy Statement" -- Section 4.08(a)
"Release" -- Section 4.13(f)(iv)
"Representatives" -- Section 10.11(f)
"SEC" -- Section 4.05(a)
"Securities Act" -- Section 4.05(a)
"Subsidiary" -- Section 10.11(g)
"Surviving Entity" -- Section 1.01
"Tax Ruling" -- Section 4.10(j)
"Taxes" -- Section 4.10
"Tax Return" -- Section 4.10
"US GAAP" -- Section 4.05(a)
"Yankee Companies" -- Section 4.16
"Y2K Consultant" -- Section 6.01(o)
This AGREEMENT AND PLAN OF MERGER, dated as of February 1, 1999 (this
"Agreement"), is made and entered into by and among NEW ENGLAND ELECTRIC
SYSTEM, a Massachusetts business trust ("NEES"), RESEARCH DRIVE LLC ("LLC"),
a Massachusetts limited liability company which is directly and indirectly
wholly owned by NEES, and EASTERN UTILITIES ASSOCIATES, a Massachusetts
business trust ("EUA").
WHEREAS, the Board of Directors of NEES, the Board of Trustees of EUA and
the members of LLC have each determined that it is advisable and in the best
interests of their respective shareholders and members to consummate, and have
approved, the business combination transaction provided for herein in which LLC
would merge with and into EUA, with EUA being the surviving entity (the
"Merger"), pursuant to the terms and conditions of this Agreement, as a result
of which NEES will own, directly or indirectly, all of the issued and
outstanding common shares of EUA (the "EUA Shares");
WHEREAS, NEES, LLC and EUA desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.02), LLC shall be
merged with and into EUA in accordance with Section 2 of Chapter 182 and
Section 59 of Chapter 156C of the Massachusetts General Laws ("MGL"). At the
Effective Time, the separate existence of LLC shall cease and EUA shall
continue as the surviving entity in the Merger. EUA, after the Effective Time,
is sometimes referred to herein as the "Surviving Entity" and EUA and LLC are
sometimes referred to herein as the "Constituent Entities". The effect and
consequences of the Merger shall be as set forth in Article II.
1.02 Effective Time. Subject to the provisions of this Agreement, on
the Closing Date (as defined in Article III), a certificate of merger shall be
executed and filed by EUA and LLC with the Secretary of the Commonwealth o f
Massachusetts (the "Massachusetts Secretary"). The Merger shall become
effective at the time of the filing of the certificate of merger relating to
the Merger with the Massachusetts Secretary, or at such later time as is
specified in the certificate of merger (such date and time being referred to
herein as the "Effective Time").
1.03 Effects of the Merger. At the Effective Time, the Agreement and
Declaration of Trust of EUA (the "EUA Trust Agreement") as in effect
immediately prior to the Effective Time shall be the agreement and declaration
of trust of the Surviving Entity, until thereafter amended as provided by law
and such agreement and declaration of trust. Subject to the foregoing, the
additional effects of the Merger shall be as provided in the applicable
provisions of Section 2 of Chapter 182 of the MGL and Section 62 of the Limited
Liability Company Act of Massachusetts.
ARTICLE II
CONVERSION OF SHARES
2.01 Conversion of Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder thereof:
(a) Membership Interests of LLC. Each one percent of the issued an
outstanding membership interests in LLC shall be converted into one
transferable certificate of participation or share of the Surviving Entity.
(b) Conversion of EUA Shares.
(i) Cancellation of Treasury Shares and Shares Owned by NEES
and Subsidiaries. All EUA Shares that are owned by EUA as treasury shares and
any EUA Shares owned by NEES or any other wholly owned Subsidiary (as defined
in Section 10.11) of NEES shall be canceled and retired and shall cease to
exist and no cash or other consideration shall be delivered in exchange
therefor.
(ii) Conversion of EUA Shares. Each EUA Share issued and
outstanding immediately prior to the Effective Time (other than shares to be
canceled in accordance with Section 2.01(b)(i)) shall be canceled and converted
in accordance with the provision s of this Section 2.01 into the right to
receive cash in the amount (the "Per Share Amount") of $31.00 as such amount
may hereafter be adjusted in accordance with Section 2.01(c) hereof (the
"Merger Consideration"), payable, without interest, to the holder of such EUA
Share, upon surrender, in the manner provided in Section 2.02 hereof, of the
certificate formerly evidencing such share.
(c) Adjustment in Amount of Merger Consideration. In the event that
the Closing Date shall not have occurred on or prior to the date that is the
six (6) month anniversary of the date on which EUA Shareholders' Approval is
obtained (the "Adjustment Date"), the Per Share Amount shall be increased, for
each day after the Adjustment Date up to and including the day which is one day
prior to the earlier of the Closing Date and the Extended Termination Date, by
an amount equal to $0.003.
2.02 Surrender of Shares. (a) Deposit with Paying Agent. Prior to
the Effective Time, NEES shall designate a bank or trust company reasonably
acceptable to EUA to act as agent (the "Paying Agent") for the benefit of the
holders of EUA Shares in connection with the Merger to receive the funds to
which holders of EUA Shares shall become entitled pursuant to Section
2.01(b)(ii) (the "Exchange Fund"). From time to time at, immediately prior to
or after the Effective Time, NEES or LLC shall make or cause to be made
available to the Paying Agent immediately available funds in amounts and at the
times necessary for the payment of the Merger Consideration upon surrender of
Certificates (as defined in Section 2.02(b) ) in accordance with Section
2.02(b), it being understood that any and all interest or other income earned
on funds made available to the Paying Agent pursuant to this Section 2.02(a)
shall belong to and shall be paid (at the time provided for in Section 2.02(e))
as directed by NEES or LLC. Any such funds deposited with the Paying Agent by
NEES shall be invested by the Paying Agent as directed by NEES or LLC.
(b) Exchange Procedure. As soon as practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding EUA Shares (the "Canceled Shares") that
were canceled and became instead the right to receive the Merger Consideration
pursuant to Section 2.01(b)(ii): (i) a letter of transmittal in such form as
NEES and EUA may reasonably agree (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
actual delivery of the Certificates to the Paying Agent) and (ii) instructions
for effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate or Certificates to the Paying
Agent for cancellation (or to such other agent or agents as may be appointed by
NEES and are reasonably acceptable to EUA), together with a duly executed
letter of transmittal and such other documents as the Paying Agent shall
require, the holder of such Certificate shall be entitled to receive the Merger
Consideration in exchange for each EUA Share formerly evidenced by such
Certificate which such holder has the right to receive pursuant to Section
2.01(b)(ii). In the event of a transfer of ownership of Canceled Shares which
is not registered in the transfer records of EUA, the Merger Consideration in
respect of such Canceled Shares may be given to the transferee thereof if the
Certificate or Certificates representing such Canceled Shares is presented to
the Paying Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence satisfactory to the Paying Agent that any
applicable stock transfer taxes have been paid. At any time after the
Effective Time, each Certificate shall be deemed to represent only the right to
receive the Merger Consideration subject to and upon the surrender of such
Certificate as contemplated by this Section 2.02. No interest shall be paid or
will accrue on the Merger Consideration payable to holders of Certificates
pursuant to Section 2.01(b)(ii).
(c) No Further Ownership Rights in EUA Shares. The Merger
Consideration paid upon the surrender of Certificates in accordance with the
terms of Section 2.01(b)(ii) shall be deemed to have been paid at the Effective
Time in full satisfaction of all rights pertaining to EUA Shares represented
thereby. From and after the Effective Time, the share transfer books of EUA
shall be closed and there shall be no further registration of transfers thereon
of EUA Shares which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to NEES for any
reason, they shall be canceled and exchanged as provided in this Section 2.02.
(d) Lost, Stolen or Destroyed Certificates. In the event any
owner of any Certificate shall claim that such Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
owner of such Certificate and delivery of that affidavit to the Paying Agent
and, if required by NEES or LLC, the posting by such person of a bond in
customary amount as indemnity against any claim that may be made against NEES,
EUA or the Surviving Entity with respect to such Certificate, the Paying Agent
will issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration payable upon due surrender of, and deliverable pursuant to
this Section 2.02 in respect of, EUA Shares to which such Certificate relates.
(e) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the shareholders of EUA for one (1) year
after the Effective Time shall be delivered to the Surviving Entity, upon
demand, and any Shareholders of EUA who have not theretofore complied with this
Article II shall thereafter look only to the Surviving Entity (subject to
abandoned property, escheat and other similar laws) as general creditors for
payment of their claim for the Merger Consideration payable upon due surrender
of the Certificates held by them. None of NEES, LLC or the Surviving Entity
shall be liable to any former holder of EUA Shares for the Merger Consideration
delivered to a public official pursuant to any applicable abandon ed property,
escheat or similar law.
2.03 Withholding Rights. Each of the Surviving Entity and NEES shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of EUA Shares such amounts as it is
required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "Code"), or any other
provision of state, local or foreign tax law. To the extent that amounts are
so withheld by the Surviving Entity or NEES, as the case may be, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of EUA Shares in respect of which such deduction and withholding
was made by the Surviving Entity or NEES, as the case may be.
ARTICLE III
THE CLOSING
The closing of the Merger and other transactions contemplated hereby (the
"Closing") will take place at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, 919 Third Avenue, New York, New York 10022, at 10:00 a.m., local
time, on the second business day following satisfaction or waiver (where
applicable) of the conditions set forth in Article VIII (other than those
conditions that by their nature are to be fulfilled at the Closing, but subject
to the fulfillment or waiver of such conditions ), unless another date, time or
place is agreed to in writing by the parties hereto (the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EUA
EUA represents and warrants to NEES and LLC as follows:
4.01 Organization and Qualification. (a) EUA is a voluntary association
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has full power, authority and legal right to
own its property and assets and to transact the business in which it is
engaged. Each of EUA's Subsidiaries is a corporation duly organized or
incorporated, validly existing and in good standing under the laws of its
jurisdiction of organization or incorporation and has full corporate power and
authority to conduct its business as and to the extent now conducted and to
own, use and lease its assets and properties, except where failure to be so
organized or incorporated, existing and in good standing or to have such power
and authority, individually or in the aggregate, could not reasonably be
expected to have an EUA Material Adverse Effect. As used in this Agreement,
the term "EUA Material Adverse Effect" means a material adverse effect on the
business, assets, results of operations, condition (financial or otherwise) or
prospects of EUA and its Subsidiaries taken as a whole. Each of EUA and its
Subsidiaries is duly qualified, licensed or admitted to do business and is in
good standing in each jurisdiction in which the ownership, use or leasing of
its assets and properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except where failure to be so
qualified, licensed or admitted and in good standing, individually or in the
aggregate, could not reasonably be expected to have an EUA Material Adverse
Effect. Section 4.01 of the letter dated the date hereof and delivered to NEES
and LLC by EUA con currently with the execution and delivery of this Agreement
(the "EUA Disclosure Letter") sets forth (i) the name and jurisdiction of
incorporation or organization of each Subsidiary of EUA, (ii) such Subsidiary's
authorized capital stock, (iii) the number of issued and outstanding shares of
capital stock of such Subsidiary and (iv) the number of shares of such
Subsidiary held of record by EUA. EUA has previously delivered to NEES correct
and complete copies of the EUA Trust Agreement and the certificate or articles
of organization or incorporation and bylaws (or other comparable charter
documents) of its Subsidiaries.
(b) Section 4.01 of the EUA Disclosure Letter sets forth a
description as of the date hereof, of all EUA Associates, including (i) the
name of each such entity and EUA's interest therein and (ii) a brief
description of the principal line or lines of business conducted by each such
entity. For purposes of this Agreement "EUA Associates" shall mean any
corporation or other entity (including partnerships and other business
associations) that is not a Subsidiary of EUA in which EUA and/or one or more
of its Subsidiaries, directly or indirectly, owns an equity interest (other
than short-term investments in the ordinary course of business) if such
corporation or other entity (including partnerships and other business
associations) contribute s five percent or more of EUA's consolidated revenues,
assets, income or costs.
4.02 Capital Stock. (a) The authorized equity securities of EUA
consists of 36,000,000 EUA Shares, of which 20,435,997 shares were issued and
outstanding as of the close of business on January 29, 1999. As of the close
of business on January 29, 1999, no EUA Shares were held in the treasury of
EUA. Since such date there has been no change in the sum of the issued and
outstanding EUA Shares. All of the issued and outstanding EUA Shares are duly
authorized, validly issued, fully paid and nonassessable. Except pursuant to
this Agreement and except as described in Section 4.02 of the EUA Disclosure
Letter, on the date hereof there are no outstanding subscriptions, options,
warrants, rights (including share appreciation rights), preemptive rights or
other contracts, commitments, understandings or arrangements, including any
right of conversion or exchange under any outstanding security, instrument or
agreement (together, "Options"), obligating EUA or any of its Subsidiaries to
issue or sell any shares of equity securities of EUA or to grant, extend or
enter into any Option with respect thereto. The EUA Disclosure Letter sets
forth all capital stock authorized, issued and outstanding at subsidiary
levels as of the close of business on January 29, 1999.
(b) Except as disclosed in EUA SEC Reports filed prior to the date of
this Agreement or Section 4.02 of the EUA Disclosure Letter, all of the
outstanding shares of capital stock of each Subsidiary of EUA are duly
authorized, validly issued, full y paid and nonassessable and are owned,
beneficially and of record, by EUA or a Subsidiary, which is wholly owned,
directly or indirectly, by EUA, free and clear of any liens, claims, mortgages,
encumbrances, pledges, security interests, equities and charges of any kind
(each a "Lien"). Except as disclosed in EUA SEC Reports filed prior to the
date of this Agreement or Section 4.02 of the EUA Disclosure Letter, there are
no (i) outstanding Options obligating EUA or any of its Subsidiaries to is sue
or sell any shares of capital stock of any Subsidiary of EUA or to grant,
extend or enter into any such Option or (ii) voting trusts, proxies or other
commitments, understandings, restrictions or arrangements in favor of any
person other than EUA or a Subsidiary which is wholly owned, directly or
indirectly, by EUA with respect to the voting of, or the right to participate
in, dividends or other earnings on any capital stock of any Subsidiary of EUA.
(c) Except as disclosed in EUA SEC Reports filed prior to the date
of this Agreement or Section 4.02 of the EUA Disclosure Letter, there are no
outstanding contractual obligations of EUA or any Subsidiary of EUA to
repurchase, redeem or otherwise acquire any EUA Shares or any capital stock of
any Subsidiary of EUA or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any Subsidiary of EUA or
any other person.
(d) As of the date of this Agreement, no bonds, debentures, notes or
other indebtedness of EUA or any Subsidiary of EUA having the right to vote (or
which are convertible into or exercisable for securities having the right to
vote) (together "EUA Voting Debt") on any matters on which Shareholders may
vote are issued or outstanding nor are there any outstanding Options obligating
EUA or any of its Subsidiaries to issue or sell any EUA Voting Debt or to
grant, extend or enter into any Option with respect thereto.
4.03 Authority. EUA has full power and authority to enter into this
Agreement, to perform its obligations hereunder and, subject to obtaining EUA
Shareholders' Approval (as defined in Section 7.03(b)) and EUA Required
Statutory Approvals (as defined in Section 4.04(b)), to consummate the Merger
and other transactions contemplated hereby. The execution, delivery and
performance of this Agreement by EUA and the consummation by EUA of the Merger
and other transactions contemplated hereby have been duly authorized by all
necessary action on the part of EUA, subject to obtaining EUA Shareholders'
Approval with respect to the consummation of the Merger and the other
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by EUA and constitutes a legal, valid and binding
obligation of EUA enforceable against EUA in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.04 Non-Contravention; Approvals and Consents. (a) The execution and
delivery of this Agreement by EUA do not, and the performance by EUA of its
obligations hereunder and the consummation of the Merger and other transactions
contemplated hereby will not, conflict with, result in a violation or breach
of, constitute (with or without notice or lapse of time or both) a default
under, result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or properties of EUA
or any of its Subsidiaries or any of the terms, conditions or provisions of (i)
the EUA Trust Agreement or the certificates or articles of incorporation or
organization or bylaws (or other comparable charter documents) of EUA's
Subsidiaries, or (ii) subject to the obtaining of EUA Shareholders' Approval,
EUA Required Consents, EUA Required Statutory Approvals and the taking of any
other actions described in this Section 4.04, (x) any statute, law, rule,
regulation or ordinance (together, "laws"), or any judgment, decree, order,
writ, permit or license (together, "orders"), of any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state,
county, city or other political subdivision (a "Governmental Authority")
applicable to EUA or any of its Subsidiaries or any of their respective assets
or properties, or (y) subject to obtaining the third-party consents set forth
in Section 4.04 of the EUA Disclosure Letter (the "EUA Required Consents"), any
note, bond, mortgage, security agreement, indenture, license, franchise,
permit, concession, contract, lease or other instrument, obligation or
agreement of any kind (together, "Contracts") to which EUA or any of its
Subsidiaries is a party or by which EUA or any of its Subsidiaries or any of
their respective assets or properties is bound, excluding from the foregoing
clauses (x) and (y) such conflicts, violations, breaches, defaults, payments or
reimbursements, terminations, cancellations, modifications, accelerations and
creations and impositions of Liens which, individually or in the aggregate,
could not reasonably be expected to have an EUA Material Adverse Effect.
(b) No declaration, filing or registration with, or notice to or
authorization, consent or approval of, any Governmental Authority is necessary
for the execution and delivery of this Agreement by EUA or the consummation by
EUA of the Merger and other transactions contemplated hereby except as
described in Section 4.04 of the EUA Disclosure Letter or the failure of which
to obtain could not reasonably be expected to result in an EUA Material Adverse
Effect (the "EUA Required Statutory Approvals," it being understood that
references in this Agreement to "obtaining" such EUA Required Statutory
Approvals shall mean making such declarations, filings or registrations; giving
such notices; obtaining such authorizations, consents or approvals; and having
such waiting periods expire as are necessary to avoid a violation of law).
4.05 SEC Reports, Financial Statements and Utility Reports. (a)
EUA delivered to NEES prior to the execution of this Agreement a true and
complete copy of each form, report, schedule, registration statement,
registration exemption, if applicable, definitive proxy statement and other
document (together with all amendments thereof and supplements thereto) filed
by EUA or any of its Subsidiaries with the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act") and the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder (the "Exchange
Act") since December 31, 1995 (as such documents have since the time of their
filing been amended or supplemented, the "EUA SEC Reports"), which are all the
documents (other than preliminary materials) that EUA and its Subsidiaries were
required to file with the SEC under the Securities Act and the Exchange Act
since such date. As of their respective dates, EUA SEC Reports (i) complied as
to form in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be , and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Each of the
audited consolidated financial statements and unaudited interim consolidated
financial statements (including, in each case, the notes, if any, thereto)
included in EUA SEC Reports (the "EUA Financial Statements") complied as to
form in all material respects with the published rules and regulations of the
SEC with respect thereto, were prepared in accordance with U.S. generally
accepted accounting principles ("US GAAP") applied on a consistent basis during
the periods involve d (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
10-Q of the SEC) and fairly present (subject, in the case of the unaudited
interim financial statements, to normal, recurring year-end audit adjustments
(which are not expected to be, individually or in the aggregate, materially
adverse to EUA and its Subsidiaries taken as a whole)) the consolidated
financial position of EUA and its consolidated subsidiaries as at the
respective dates thereof and the consolidated results of their operations and
cash flows for the respective periods then ended. Except as set forth in
Section 4.05 of the EUA Disclosure Letter, each Subsidiary of EUA is treated as
a consolidated subsidiary of EUA in EUA Financial Statements for all periods
covered thereby.
(b) All filings (other than immaterial filings) required to be made
by EUA or any of its Subsidiaries since December 31, 1995, under the Public
Utility Holding Company Act of 1935 (the "1935 Act"), the Federal Power Act,
the Atomic Energy Act of 1954, the Communications Act of 1934, and applicable
state laws and regulations, have been filed with the SEC, the Federal Energy
Regulatory Commission (the "FERC"), the Department of Energy (the "DOE"), the
Nuclear Regulatory Commission (the "NRC"), the Federal Communications
Commission (the "FCC") or any appropriate state public utility commissions
(including, without limitation, to the extent required, the state public
utility regulatory agencies of Massachusetts, Rhode Island, New Hampshire,
Maine, Vermont and Connecticut as the case may be, including all forms,
statements, reports, agreements (oral or written) and all documents, exhibits,
amendments and supplements appertaining thereto, including but not limited to
all rates, tariff s, franchises, service agreements and related documents and
all such filings complied, as of their respective dates, in all material
respects with all applicable requirements of the appropriate statutes and the
rules and regulations thereunder.
4.06 Absence of Certain Changes or Events. Except as set forth in
Section 4.06 of the EUA Disclosure Letter or as disclosed in EUA SEC Reports
filed prior to the date of this Agreement since December 31, 1997, EUA and each
of EUA's Subsidiaries have conducted its business only in the ordinary course
of business consistent with past practice and there has not been, and no fact
or condition exists which, individually or in the aggregate, has or could
reasonably be expected to have an EUA Material Adverse Effect.
4.07 Legal Proceedings. Except as disclosed in EUA SEC Reports filed
prior to the date of this Agreement or in Section 4.07 of the EUA Disclosure
Letter and except for environmental matters which are governed by Section 4.
13, (i) there are no actions, claims, hearings, suits, arbitrations or
proceedings pending or, to the knowledge of EUA or any of its Subsidiaries,
threatened against, specifically relating to or affecting, and, to the
knowledge of EUA or any of its Subsidiaries, there are no Governmental
Authority investigations or audits pending or threatened against, specifically
relating to or affecting, EUA or any of its Subsidiaries or any of their
respective assets and properties which, individually or in the aggregate, could
reasonably be expected to have an EUA Material Adverse Effect and (ii) neither
EUA nor any of its Subsidiaries is subject to any order of any Governmental
Authority which, individually or in the aggregate, could reasonably be
expected to have an EUA Material Adverse Effect.
4.08 Information Supplied. (a) The proxy statement relating to
EUA Shareholders' Meeting, as amended or supplemented from time to time (as so
amended and supplemented, the "Proxy Statement"), and any other documents to be
filed by EUA with the SEC (including, without limitation, under the 1935 Act)
or any other Governmental Authority in connection with the Merger and other
transactions contemplated hereby will comply as to form in all material
respects with the requirements of the Exchange Act, the Securities Act and the
1935 Act, as applicable, and will not, on the date of their respective filings
or, in the case of the Proxy Statement, at the date it is mailed to
Shareholders of EUA and at the time of EUA Shareholders' Meeting (as defined in
Section 7.03), contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
(b) Notwithstanding the foregoing provisions of this Section 4.08,
no representation or warranty is made by EUA with respect to statements made or
incorporated by reference in the Proxy Statement based on information supplied
by NEES or LLC for inclusion or incorporation by reference therein.
4.09 Compliance. Except as set forth in Section 4.09 of the EUA
Disclosure Letter, or as disclosed in EUA SEC Reports filed prior to the date
hereof, neither EUA nor any of EUA's Subsidiaries is in violation of, is, to
the knowledge of EUA, under investigation with respect to any violation of, or
has been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any Governmental
Authority, except for possible violations which, individually or in the
aggregate, could not reasonably be expected to have an EUA Material Adverse
Effect. Except as set forth in Section 4.09 of the EUA Disclosure Letter or
as disclosed in EUA SEC Reports filed prior to the date hereof, EUA and EUA's
Subsidiaries have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted except for such failures which could not reasonably be
expected to have an EUA Material Adverse Effect. Neither EUA nor any of EUA's
Subsidiaries is in breach or violation of, or in default in the performance or
observance of any term or provision of, (i) the EUA Trust Agreement, in the
case of EUA, or articles of incorporation or organization or by-laws, in the
case of EUA's Subsidiaries, or (ii) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which it is a party or by which EUA or any Subsidiary of
EUA is bound or to which any of their respective property is subject, except
for possible violations, breaches or defaults which, individually or in the
aggregate, could not reasonably be expected to have an EUA Material Adverse
Effect.
4.10 Taxes. Except as disclosed in Section 4.10 of the EUA Disclosure
Letter:
(a) Filing of Timely Tax Returns. EUA and each of its Subsidiaries
have timely filed all Tax Returns required to be filed by each of them under
applicable law. All Tax Returns were (and, as to Tax Returns not filed as of
the date hereof, will b e) true, complete and correct;
(b) Payment of Taxes. EUA and each of its Subsidiaries have, within
the time and in the manner prescribed by law, paid (and until the Closing Date
will pay within the time and in the manner prescribed by law) all Taxes that
are currently due and payable except for those contested in good faith and for
which adequate reserves have been taken;
(c) Tax Reserves. EUA and its Subsidiaries have established (and
until the Closing Date will maintain) on their books and records adequate
reserves for all Taxes and for any liability for deferred income taxes in
accordance with GAAP;
(d) Extensions of Time for Filing Tax Returns. Neither EUA nor
any of its Subsidiaries has requested any extension of time within which to
file any Tax Return, which Tax Return has not since been filed;
(e) Waivers of Statute of Limitations. Neither EUA nor any of its
Subsidiaries has in effect any extension, outstanding waivers or comparable
consents regarding the application of the statute of limitations with respect
to any Taxes or Tax Returns;
(f) Expiration of Statute of Limitations. The Tax Returns of EUA,
each of its Subsidiaries and any affiliated, consolidated, combined or unitary
group that includes EUA or any of its Subsidiaries either have been examined
and settled with the appropriate Tax authority or closed by virtue of the
expiration of the applicable statute of limitations for all years through and
including 1993;
(g) Audit, Administrative and Court Proceedings. No audits or
other administrative proceedings or court proceedings are presently pending or
threatened with regard to any Taxes or Tax Returns of EUA or any of its
Subsidiaries (other than those being contested in good faith and for which
adequate reserves have been established) and no issues have been raised in
writing by any Tax authority in connection with any Tax or Tax Return;
(h) Tax Liens. There are no Tax liens upon any asset of EUA or
any of its Subsidiaries except liens for Taxes not yet due.
(i) Powers of Attorney. No power of attorney currently in force
has been granted by EUA or any of its Subsidiaries concerning any Tax matter;
(j) Tax Rulings. Neither EUA nor any of its Subsidiaries has,
during the five year period prior to the date of this Agreement, received a Tax
Ruling (as defined below) or entered into a Closing Agreement (as defined
below) with any taxing authority. "Tax Ruling", as used in this Agreement,
shall mean a written ruling of a taxing authority relating to Taxes. "Closing
Agreement", as used in this Agreement, shall mean a written and legally binding
agreement with a taxing authority relating to Taxes;
(k) Availability of Tax Returns. EUA and its Subsidiaries have
made available to NEES complete and accurate copies, covering all years ending
on or after December 31, 1993, of (i) all Tax Returns, and any amendments
thereto, filed by EUA or any of its Subsidiaries, (ii) all audit reports
received from any taxing authority relating to any Tax Return filed by EUA or
any of its Subsidiaries and (iii) any Closing Agreements entered into by EUA or
any of its Subsidiaries with any taxing authority.
(l) Tax Sharing Agreements. No agreements relating to the
allocation or sharing of Taxes exist between or among EUA and any of its
Subsidiaries and neither EUA nor any of its Subsidiaries (i) has been a member
of an affiliated group filing a consolidated federal income tax return (other
than a group the common parent of which was EUA) or (ii) has any liability for
Taxes of any Person (other than EUA or its Subsidiaries) under United States
Treasury Regulation Section 1.1502-6 (or any provision of state, local), or
foreign law, as a transferee or successor, by contract or otherwise;
(m) Code Section 481 Adjustments. Neither EUA nor any of its
Subsidiaries is required to include in income any adjustment pursuant to Code
Section 481(a) by reason of a voluntary change in accounting method initiated
by EUA or any of its Subsidiaries, and, the Internal Revenue Service ("IRS")
has not proposed any such adjustment or change in accounting method;
(n) Code Sections 6661 and 6662. All transactions that could give
rise to an understatement of federal income tax, and within the meaning of Code
Section 6662 have been adequately disclosed (or, with respect to Tax Returns
filed following the Closing, will be adequately disclosed) on the Tax Returns
of EUA and its Subsidiaries in accordance with Code Section 6662(d)(2)(B);
(o) Intercompany Transactions. Neither EUA nor any of its
Subsidiaries has engaged in any intercompany transactions within the meaning of
Treasury Regulations' 1.1502-13 for which any income or gain will remain
unrecognized as of the close of t he last taxable year prior to the Closing
Date; and
(p) Foreign Tax Returns. Neither EUA nor any of its Subsidiaries
is required to file a foreign tax return.
"Taxes" as used in this Agreement, shall mean any federal, state, county,
local or foreign taxes, charges, fees, levies, or other assessments, including
all net income, gross income, premiums, sales and use, ad valorem, transfer,
gains, profits, wind fall profits, excise, franchise, real and personal
property, gross receipts, capital stock, production, business and occupation,
employment, disability, payroll, license, estimated, stamp, custom duties,
severance or withholding taxes, other taxes or similar charges of any kind
whatsoever imposed by any governmental entity, whether imposed directly on a
Person or resulting under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract or otherwise and includes any interest and penalties on or additions
to any such taxes or in respect of a failure to comply with any requirement
relating to any Tax Return. "Tax Return" as used in this Agreement, shall mean
a report, return or other information required to be supplied to a governmental
entity with respect to Taxes including, where permitted or required, combined,
unitary or consolidated returns for any group of entities.
4.11 Employee Benefit Plans; ERISA. (a) Each "employee benefit plan"
(as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), bonus, deferred compensation, share option or
other written agreement relating to employment or fringe benefits for
employees, former employees, officers, trustees or directors of EUA or any of
its Subsidiaries effective as of the date hereof or providing benefits as of
the date hereof to current employees, former employees, officers, trustees or
directors of EUA or pursuant to which EUA or any of its subsidiaries has or
could reasonably be expected to have any liability (collectively, the "EUA
Employee Benefit Plans") is listed in Section 4.11(a) of the EUA Disclosure
Letter, is in material compliance with applicable law, and has been
administered and operated in all material respects in accordance with its
terms. Each EUA Employee Benefit Plan which is intended to be qualified within
the meaning of Section 401(a) of the Code has received a favorable
determination letter from the IRS as to such qualification and, to the
knowledge of EUA, no event has occurred and no condition exists which could
reasonably be expected to result in the revocation of, or have any adverse
effect on, any such determination.
(b) Complete and correct copies of the following documents have
been made available to NEES as of the date of this Agreement: (i) all EUA
Employee Benefit Plans and any related trust agreements or insurance contracts,
(ii) the most current summary descriptions of each EUA Employee Benefit Plan
subject to ERISA, (iii) the three most recent Form 5500s and Schedules thereto
for each EUA Employee Benefit Plan subject to such reporting, (iv) the most
recent determination of the IRS with respect to the qualified status of each
EUA Employee Benefit Plan that is intended to qualify under Section 401(a) of
the Code, (v) the most recent accountings with respect to each EUA Employee
Benefit Plan funded through a trust and (vi) the most recent actuarial report
of the qualified actuary of each EUA Employee Benefit Plan with respect to
which actuarial valuations are conducted.
(c) Except as set forth in Section 4.11(c) of the EUA Disclosure
Letter, neither EUA nor any Subsidiary maintains or is obligated to provide
benefits under any EUA Employee Benefit Plan (other than as an incidental
benefit under a Plan qualified under Section 401(a) of the Code) which provides
health or welfare benefits to retirees or other terminated employees other than
benefit continuations as required pursuant to Section 601 of ERISA. Each EUA
Employee Benefit Plan subject to the requirements of Section 601 of ERISA has
been operated in material compliance therewith. EUA has not contributed to a
nonconforming group health plan (as defined in Code Section 5000(c)) and no
person under common control with EUA within the meaning of Section 414 of the
Code ("ERISA Affiliate") has incurred a tax liability under Code Section
5000(a) that is or could reasonably be expected to be a liability of EUA's.
(d) Except as set forth in Section 4.11(d) of the EUA Disclosure
Letter, each EUA Employee Benefit Plan covers only employees who are employed
by EUA or a Subsidiary (or former employees or beneficiaries with respect to
service with EUA or a Subsidiary).
(e) Except as set forth in Section 4.11(e) of the EUA Disclosure
Letter, neither EUA, any Subsidiary, any ERISA Affiliate nor any other
corporation or organization controlled by or under common control with any of
the foregoing within the meaning of Section 4001 of ERISA has, within the five-
year period preceding the date of this Agreement, at any time contributed to
any "multiemployer plan," as that term is defined in Section 4001 of ERISA.
(f) No event has occurred, and there exists no condition or set of
circumstances in connection with any EUA Employee Benefit Plan, under which EUA
or any Subsidiary, directly or indirectly (through any indemnification
agreement or otherwise), could be subject to any liability under Section 409 of
ERISA, Section 502(i) of ERISA, Title IV of ERISA or Section 4975 of the Code
except for instances of non-compliance which, individually or in the aggregate,
could not reasonably be expected to have an EUA Material Adverse Effect.
(g) Neither EUA nor any ERISA Affiliate has incurred any liability
to the Pension Benefit Guaranty Corporation (the "PBGC") under Section
302(c)(ii), 4062, 4063, 4064 or 4069 of ERISA, or otherwise that has not been
satisfied in full and no event or condition exists or has existed which could
reasonably be expected to result in any such material liability. As of the
date of this Agreement, no "reportable event" within the meaning of Section
4043 of ERISA has occurred with respect to any EUA Employee Benefit Plan that
is a defined benefit plan under Section 3(35) of ERISA.
(h) Except as set forth in Section 4.11(h) of the EUA Disclosure
Letter, no employer securities, employer real property or other employer
property is included in the assets of any EUA Employee Benefit Plan.
(i) Full payment has been made of all material amounts which EUA
or any affiliate thereof was required under the terms of EUA Employee Benefit
Plans to have paid as contributions to such plans on or prior to the Effective
Time (excluding any amounts not yet due) and no EUA Employee Benefit Plan which
is subject to Part III of Subtitle B of Title I of ERISA has incurred any
"accumulated funding deficiency" within the meaning of Section 302 of ERISA or
Section 412 of the Code, whether or not waived.
(j) Except as set forth in Section 4.11(j) of the EUA Disclosure
Letter, no amounts payable under any EUA Employee Benefit Plan or other
agreement, contract, or arrangement will fail to be deductible for federal
income tax purposes by virtue of Section 280G or Section 162(m) of the Code.
4.12 Labor Matters. As of the date hereof, except as set forth in
Section 4.12 of the EUA Disclosure Letter, neither EUA nor any of its
Subsidiaries is a party to any material collective bargaining agreement or
other labor agreement with any union or labor organization. To the knowledge
of EUA, as of the date hereof, there is no current union representation
question involving employees of EUA or any of its Subsidiaries, nor does EUA
know of any activity or proceeding of any labor organization (or representative
thereof) or employee group to organize any such employees. Except as set forth
in Section 4.12 of the EUA Disclosure Letter, (i) there is no unfair labor
practice, employment discrimination or other employment-related complaint or
proceeding against EUA or any of its Subsidiaries pending or, to the knowledge
of EUA, threatened, which has or could reasonably be expected to have an EUA
Material Adverse Effect, (ii) there is no strike, dispute, slowdown, work
stoppage or lockout pending, or, to the knowledge of EUA, threatened, against
or involving EUA or any of its Subsidiaries which has or could reasonably be
expected to have, an EUA Material Adverse Effect and (iii) there is no
proceeding, claim, suit, or action pending or, to the knowledge of EUA or any
of its Subsidiaries, threatened, nor, to the knowledge of EUA or any of its
Subsidiaries is there any Governmental Authority investigation pending or
threatened, in respect of which any trustee, director, officer, employee or
agent of EUA or any of its Subsidiaries is or may be entitled to claim
indemnification from EUA or any of its Subsidiaries pursuant to the EUA Trust
Agreement, in the case of EUA, and their respective articles of incorporation
and by-laws, in the case of EUA's Subsidiaries, or as provided in the
indemnification agreements listed in Section 4.12 of the EUA Disclosure Letter.
Except as set forth in Section 4.12 of the EUA Disclosure Letter, EUA and its
Subsidiaries are in compliance with all federal, state and local laws with
respect to employment practices and labor relations, including, without
limitation, any provisions relating to affirmative action, employment
discrimination, wages, hours, collective bargaining, and the payment of social
security and similar taxes, safety and health regulations and mass layoffs and
plant closings except for such instances of noncompliance which, individually
or in the aggregate, could not reasonably be expected to have an EUA Material
Adverse Effect.
4.13 Environmental Matters. Except as disclosed in EUA SEC Reports
filed prior to the date of this Agreement or in Section 4.13 of the EUA
Disclosure Letter:
(a) (i) Each of EUA and its Subsidiaries is in
compliance with all applicable Environmental Laws (as hereinafter defined),
except where the failure to be in compliance, in the aggregate could not
reasonably be expected to result in an EUA Material Adverse Effect; and
(ii) Neither EUA nor any of its Subsidiaries has
received any written communication from any person or Governmental Authority
that alleges that EUA or any of its Subsidiaries is not in such compliance
(including the materiality qualifier set forth in clause (i) above) with
applicable Environmental Laws.
(b) Each of EUA and its Subsidiaries has obtained all
environmental, health and safety permits and governmental authorizations
(collectively, the "Environmental Permits") necessary for the construction of
their facilities and the conduct of their operations, as applicable, and all
such Environmental Permits are in good standing or, where applicable, a renewal
application has been timely filed and agency approval is expected in the
ordinary course of business, and EUA and its Subsidiaries are in compliance
with all terms and conditions of the Environmental Permits, except where the
failure have such Environmental Permits, file a renewal application for such
Environmental Permits, or to be in compliance with such Environmental Permits,
in the aggregate could not reasonably be expected to result in an EUA Material
Adverse Effect.
(c) There is no Environmental Claim (as hereinafter
defined) that could, individually or in the aggregate, reasonably be expected
to have an EUA Material Adverse Effect pending (i) against EUA or any of its
Subsidiaries; (ii) against any person o r entity whose liability for any
Environmental Claim EUA or any of its Subsidiaries has or may have retained or
assumed either contractually or by operation of law; or (iii) against any real
or personal property or operations which EUA or any of its Subsidiaries owns,
leases or manages, in whole or in part.
(d) To the knowledge of EUA there have not been any
material Releases (as hereinafter defined) of any Hazardous Material (as
hereinafter defined) that would be reasonably likely to form the basis of any
material Environmental Claim against EUA or any of its Subsidiaries, or against
any person or entity whose liability for any material Environmental Claim EUA
or any of its Subsidiaries has or may have retained or assumed either
contractually or by operation of law, except for any Environmental Claim that,
individually or in the aggregate, could not reasonably be expected to have an
EUA Material Adverse Effect.
(e) To the knowledge of EUA with respect to any
predecessor of EUA or any of its Subsidiaries, there is no material
Environmental Claim pending or threatened, and there has been no Release of
Hazardous Materials that could reasonably be expected to form the basis of any
material Environmental Claim except for any Environmental Claim that,
individually or in the aggregate, could not be reasonably be expected to have
an EUA Material Adverse Effect.
(f) As used in this Section 4.13:
(i) "Environmental Claim" means any and all written
administrative, regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices or
noncompliance, liability or violation by any person or entity (including any
Governmental Authority) alleging potential liability (including, without
limitation, potential responsibility or liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, removal costs
, remedial costs, natural resources damages, property damages, personal
injuries or penalties) arising out of, based on or resulting from
(A) the presence, or Release or threatened Release
into the environment, of any Hazardous Materials at any location, whether or
not owned, operated, leased or managed by EUA or any of its Subsidiaries; or
(B) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law; or
(C) any and all claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or Release of any Hazardous
Materials;
(ii) "Environmental Laws" means all federal, state
and local laws, rules and regulations and binding interpretation thereof,
relating to pollution, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
protection of human health as it relates to the environment including, without
limitation, laws and regulations relating to Releases or threatened Releases of
Hazardous Materials, or otherwise relating to the manufacture, generation,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials;
(iii) "Hazardous Materials" means (A) any petroleum
or petroleum products, radioactive materials, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation, and transformers or
other equipment that contain dielectric fluid containing polychlorinated
biphenyls; and (B) any chemicals, materials or substances which are now defined
as or included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous wastes", "restricted hazardous
wastes", "toxic substances", "toxic pollutants", or words of similar import,
under any Environmental Law; and (c) any other chemical, material, substance or
waste, exposure to which is now prohibited, limited or regulated under any
Environmental Law in a jurisdiction in which EUA or any of its Subsidiaries (x)
operates or (y) stores, treats or disposes of Hazardous Materials; and
(iv) "Release" means any release, spill, emission,
leaking, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water, groundwater or property.
4.14 Regulation as a Utility. (a) EUA is a public utility holding
company registered under Section 5, and subject to the provisions, of the 1935
Act. Section 4.14 of the EUA Disclosure Letter lists the subsidiaries of EUA
that are "public utility companies" within the meaning of Section 2(a)(5) of
the 1935 Act and lists the jurisdictions where each such Subsidiary is subject
to regulation as a public utility company or public service company. Except as
set forth above and as set forth in Section 4.14 of the EUA Disclosure Letter,
neither EUA nor any "subsidiary company" or "affiliate" of EUA is subject to
regulation as a public utility or public service company (or similar
designation) by the federal government of the United States, any state in the
United States or any political subdivision thereof, or any foreign country.
(b) As used in this Section 4.14, the terms "subsidiary
company" and "affiliate" shall have the respective meanings ascribed to them in
Section 2(a)(8) and Section 2(a)(11), respectively, of the 1935 Act.
4.15 Insurance. Except as set forth in Section 4.15 of the EUA
Disclosure Letter, each of EUA and its Subsidiaries is, and has been
continuously since January 1, 1994, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies in the United States conducting the
business conducted by EUA and its Subsidiaries during such time period. Except
as set forth in Section 4.15 of the EUA Disclosure Letter, neither EUA nor any
of its Subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy of EUA or any of its Subsidiaries.
The insurance policies of EUA and each of its Subsidiaries are valid and
enforceable policies.
4.16 Nuclear Facilities. Montaup Electric Company, a Subsidiary of EUA,
is a minority common stockholder of each of Connecticut Yankee Atomic Power
Company, Maine Yankee Atomic Power Company, Vermont Yankee Nuclear Power
Corporation and Yankee Atomic Electric Company (the "Yankee Companies") and a
minority joint owner in Millstone 3 and Seabrook 1 (collectively, as described
in Section 4.16 of the EUA Disclosure Letter, the "EUA Nuclear Facilities").
With respect to its ownership of Millstone 3 and Seabrook 1, Montaup Electric
Company holds the required operating licenses from the NRC. With respect to
the Yankee Companies, each Yankee Company holds its own operating license from
the NRC. Because it is a minority stockholder or a minority joint owner,
Montaup Electric Company does not have responsibility for the operation of EUA
Nuclear Facilities. Except as set forth in Section 4.16 of the EUA Disclosure
Letter or as disclosed in EUA SEC Reports filed prior to the date hereof, to
the knowledge of EUA, neither EUA nor any of its Subsidiaries is in violation
of any applicable health, safety, regulatory and other legal requirement,
including NRC laws and regulations and Environmental Laws, applicable to EUA
Nuclear Facilities except for such failure to comply as could not reasonably be
expected to have a material adverse effect with respect to EUA Nuclear
Facilities and the ownership interest of EUA therein. To the knowledge of EUA,
each of EUA Nuclear Facilities maintains emergency plans designed to respond to
an unplanned release therefrom of radioactive materials into the environment
and insurance coverages consistent with industry practice. EUA has funded, or
has caused the funding of, its portion of the decommissioning cost of each of
the EUA Nuclear Facilities and the storage of spent nuclear fuel consistent
with the most recently approved plan for each of the EUA Nuclear Facilities and
FERC authorized rates. Except as set forth in Section 4.16 of the EUA
Disclosure Letter, to the knowledge of EUA, no EUA Nuclear Facility is as of
the date of this Agreement on the List of Nuclear Power Plants Warranting
Increased Regulatory Attention maintained by the NRC.
4.17 Vote Required. The affirmative vote of two-thirds of the
outstanding EUA Shares voting as a single class (with each EUA Share having one
vote per share) with respect to the approval of the Merger and other
transaction s contemplated hereby is the only vote of the holders of any class
or series of equity securities of EUA or its Subsidiaries required to approve
this Agreement and approve the Merger and other transactions contemplated
hereby.
4.18 Opinion of Financial Advisor. EUA has received the opinion of
Salomon Smith Barney Inc., dated the date of this Agreement, to the effect
that, as of such date, the Merger Consideration is fair from a financial point
of view to the holders of EUA Shares. A true and complete copy of the written
opinion will be delivered to NEES promptly after receipt thereof by EUA.
4.19 Ownership of NEES Common Shares. Neither EUA nor any of its
Subsidiaries or other affiliates beneficially owns any NEES Common Shares.
4.20 State Anti-Takeover Statutes. EUA has taken all necessary
actions so that the provisions of Chapters 110C, 110D or 110F of the MGL will
not apply to this Agreement, the Merger or other transactions contemplated
hereby or thereby.
4.21 Year 2000. The Information Systems operated by EUA and its
Subsidiaries which is used in the conduct of their business is capable of
providing or being adapted to provide uninterrupted millennium functionality to
record, store , process and present calendar dates falling on or after January
1, 2000 in substantially the same manner and with the same functionality as
such Information Systems record, store, process and present such calendar dates
falling on or before December 31, 1999 other than such interruptions in
millennium functionality that could not, individually or in the aggregate,
reasonably be expected to result in a EUA Material Adverse Effect. EUA
reasonably believes as of the date hereof that the remaining cost of
adaptations referred to in the foregoing sentence will not exceed the amounts
reflected in the Form 10-Q filed by EUA for the quarter ended September 30,
1998 (excluding the fees and costs of any Y2K Consultant retained pursuant to
Section 6 .01(o) hereof and of the implementation of any recommendations by
such Y2K Consultant actually made by EUA that are not already part of EUA's
compliance plan as of the date hereof). "Information Systems" means mainframe
and midrange hardware, operating system software and applications programs;
network and desktop (PC) hardware, operating system software and applications
programs; EDI (Electronic Date Interchange) and FTP (File Transfer Protocol)
software; and embedded systems hardware and applications software.
4.22 EUA Associates. The representations and warranties set forth in
Sections 4.04(a), 4.06, 4.07, 4.09, 4.12 and 4.13 are true and correct in all
material respects with regard to EUA Associates.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEES
NEES represents and warrants to EUA as follows:
5.01 Organization and Qualification. NEES is a voluntary association
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has full power, authority and legal right to
own its property and assets and to transact the business in which it is
engaged. Each of the NEES Subsidiaries is a corporation duly organized or
incorporated, validly existing and in good standing under the laws of its
jurisdiction of organization or incorporation and has full corporate power and
authority to conduct its business as and to the extent now conducted and to
own, use and lease its assets and properties, except where failure to be so
organized or incorporated, existing and in good standing or to have such power
and authority, individually or in the aggregate, could not reasonably be
expected to have a NEES Material Adverse Effect. As used in this Agreement,
the term "NEES Material Adverse Effect" means a material adverse effect on the
business, assets, results of operations, condition (financial or otherwise) or
prospects of NEES and its Subsidiaries taken as a whole. LLC is a limited
liability company validly existing under the laws of the Commonwealth of
Massachusetts. LLC was formed solely for the purpose of engaging in the Merger
and other transactions contemplated hereby, has engaged in no other business
activities (other than in connection with the formation and capitalization of
LLC pursuant to or in accordance with the LLC Agreement (as defined below)) and
has conducted its operations only as contemplated hereby and by the LLC
Agreement. Each of NEES and its Subsidiaries is duly qualified, licensed or
admitted to do business and is in good standing in each jurisdiction in which
the ownership, use or leasing of its assets and properties, or the conduct or
nature of its business, makes such qualification, licensing or admission
necessary, except where failure to be so qualified, licensed or admitted and in
good standing, individually or in the aggregate, could not reasonably be
expected to have a NEES Material Adverse Effect. NEES has previously delivered
to EUA correct and complete copies of its Agreement and Declaration of Trust
(the "NEES Trust Agreement") and the articles of association of LLC.
5.02 Authority. Each of NEES and LLC has full power and authority to
enter into this Agreement, and to perform its obligations hereunder, and to
consummate the Merger and other transactions contemplated hereby. The
execution, delivery and performance of this Agreement by each of NEES and LLC
and the consummation by each of NEES and LLC of the Merger and other
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of NEES and all necessary action on the part of
LLC. This Agreement has been duly and validly executed and delivered by each
of NEES and LLC and constitutes a legal, valid and binding obligation of each
of NEES and LLC enforceable against each of NEES and LLC i n accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
5.03 Capital Stock. The authorized equity securities of NEES
consists of 150,000,000 common shares of NEES (the "NEES Shares"), of which
59,170,986 shares were issued and outstanding as of the close of business on
January 29, 1999. As of the close of business on January 29, 1999, 5,798,666
NEES Shares were held in the treasury of NEES. All of the issued and
outstanding NEES Shares are duly authorized, validly issued, fully paid and
nonassessable. Except as may be provided by the New England Electric System
Companies' Incentive Share Plan, the New England Electric System Companies
Incentive Thrift Plan I, the New England Electric System Companies Incentive
Thrift Plan II, the New England Electric Companies Long -Term Performance Share
Award Plan, and the New England Electric System Directors' annual retainer
shares, and except as set forth in Section 5.03 of the letter dated the date
hereof and delivered to EUA by NEES and LLC concurrently with the execution and
delivery of this Agreement (the "NEES Disclosure Letter"), on the date hereof
there are no outstanding Options obligating NEES or any of its Subsidiaries to
issue or sell any shares of equity securities of NEES or to grant, extend or
enter into any Option with respect thereto.
5.04 Non-Contravention; Approvals and Consents. (a) The execution and
delivery of this Agreement by each of NEES and LLC do not, and the performance
by each of NEES and LLC of its obligations here under and the consummation of
the Merger and other transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or without notice or lapse
of time or both) a default under, result in or give to any person any right of
payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any
of the assets or properties of NEES, or LLC under, any of the terms, conditions
or provisions of (i) the NEES Agreement and Declaration of Trust or the
articles of organization of LLC, (ii) subject to the actions described in
paragraph (b) of this Section, (x) any laws or orders of any Governmental
Authority applicable to NEES or LLC or any of their respective assets or
properties, or (y) subject to obtaining the third-party consents (the "NEES
Required Consents") set forth in Section 5.04 of the NEES Disclosure Letter any
Contracts to which NEES is a party or by which NEES or any of its Subsidiaries
or any of their respective assets or properties is bound, excluding from the
foregoing clauses (x) and (y) conflicts, violations, breaches, defaults,
terminations, modifications, accelerations and creations and impositions of
Liens which, individually or in the aggregate, could not reasonably be expected
to have a NEES Material Adverse Effect.
(b) No declaration, filing or registration with, or notice to
or authorization, consent or approval of, any Governmental Authority is
necessary for the execution and delivery of this Agreement by NEES or LLC or
the consummation by NEES or LLC of the Merger and other transactions
contemplated hereby except as described in Section 5.04 of the NEES Disclosure
Letter or the failure of which to obtain could not reasonably be expected to
result in a NEES Material Adverse Effect (the "NEES Required Statutory
Approvals," it being understood that references in this Agreement to
"obtaining" such NEES Required Statutory Approvals shall mean making such
declarations, filings or registrations; giving such notices; obtaining such
authorizations, consents or approvals; and having such waiting periods expire
as are necessary to avoid a violation of law).
5.05 Information Supplied. (a) The information supplied by NEES or LLC
and included in the Proxy Statement with the written consent of NEES or LLC, as
the case may be, will not, at the date mailed to EUA's Shareholders or at the
time of EUA Shareholder's Meeting, contain any untrue statements of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) Notwithstanding the foregoing provisions of this Section
5.05, no representation or warranty is made by NEES with respect to statements
made or incorporated by reference in the Proxy Statement based on information
supplied by EUA for inclusion or incorporation by reference therein or based on
information which is not made in or incorporated by reference in such documents
but which should have been disclosed pursuant to this Section 5.05.
5.06 Compliance. Except as set forth in Section 5.06 of the NEES
Disclosure Letter, or as disclosed in the NEES Reports filed prior to the date
hereof, NEES is not in violation of, is, to the knowledge of NEES, under
investigation with respect to any violation of, or has been given notice or
been charged with any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any Governmental Authority,
except for possible violations which, individually or in the aggregate, could
not reasonably be expected to have a NEES Material Adverse Effect. Except as
set forth in Section 5.06 of the NEES Disclosure Letter or as disclosed in the
NEES Reports filed prior to the date hereof, NEES and its Subsidiaries have all
material permits, licenses and other governmental authorizations, consents and
approvals necessary to conduct their businesses as presently conducted which
are material to the operation of the businesses of NEES. NEES is not in breach
or violation of, or in default in the performance or observance of, any term or
provision of, and no event has occurred which, with lapse of time or action by
a third party, could result in a default by NEES under (i) the NEES Agreement
and Declaration of Trust or by-laws or (ii) any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument t o which it is a party or by which NEES is bound
or to which any of their respective property is subject, except for possible
violations, breaches or defaults which, individually or in the aggregate, could
not reasonably be expected to have a NEES Material Adverse Effect.
5.07 Financing. NEES has or will have available, prior to the Effective
Time, sufficient cash in immediately available funds to pay or to cause LLC to
pay the Merger Consideration pursuant to Article II hereof and to consummate
the Merger and other transactions contemplated hereby.
5.08 No Vote Required. No vote of the NEES Shares or of any class or
series of equity securities of NEES or its Subsidiaries is necessary for the
approval of the Merger and other transactions contemplated hereby.
5.09 Ownership of EUA Shares. Neither NEES nor any of its
Subsidiaries or other affiliates beneficially owns any EUA Shares.
5.10 Merger with The National Grid Group plc. NEES has entered into an
Agreement and Plan of Merger dated as of December 11, 1998 by and among The
National Grid Group plc ("National Grid Group"), NGG Holdings LLC (formerly
known as Iosta LLC) and NEES (the "National Grid Merger Agreement"). Pursuant
to Section 6.01 of the National Grid Merger Agreement, NEES has provided a copy
of this Agreement to National Grid Group, and National Grid Group
has given NEES its written consent to enter into this Agreement and consummate
the Merger on the terms set forth in this Agreement. Prior to the execution
of this Agreement, NEES has provided EUA with a copy of such written consent.
ARTICLE VI
COVENANTS
6.01 Covenants of EUA. At all times from and after the date hereof
until the Effective Time, EUA covenants and agrees as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as set forth in Section 6.01 of the EUA Disclosure Letter, or to
the extent that NEES shall otherwise previously consent in writing):
(a) Ordinary Course. EUA and each of its Subsidiaries shall
conduct their businesses only in, and EUA and each of its Subsidiaries shall
not take any action except in, the ordinary course consistent with good utility
practice. Without limiting the generality of the foregoing, EUA and its
Subsidiaries shall use all commercially reasonable efforts to preserve intact
in all material respects their present business organizations and reputation,
to maintain in effect all existing permits, to keep available the services of
their key officers and employees, to maintain their assets and properties in
good working order and condition, ordinary wear and tear excepted, to maintain
insurance on their tangible assets and businesses in such amounts and against
such risks and losses as are currently in effect, to preserve their
relationships with customers and suppliers and others having significant
business dealings with them and to comply in all material respects with all
laws and orders of all Governmental Authorities applicable to them.
(b) Charter Documents. EUA shall not, nor shall it permit any
of its Subsidiaries to, amend or propose to amend the EUA Trust Agreement, in
the case of EUA, and its certificate or articles of incorporation or
organization or bylaws (or other comparable charter documents), in the case of
EUA's Subsidiaries.
(c) Dividends. EUA shall not, nor shall it permit any of its
Subsidiaries to, (i) declare, set aside or pay any dividends on, or make other
distributions in respect of, any of its capital stock or share capital, except:
(A) that EUA may continue the declaration and payment of
regular quarterly dividends on EUA Shares with usual record and payment dates
not, in any fiscal year, in excess of the dividend for the comparable period in
the prior fiscal year;
(B) that the Subsidiaries of EUA set forth in Section
6.01(c) of the EUA Disclosure Letter may continue the declaration and payment
of dividends on preferred stock in accordance with the terms of such stock,
with the record and payment dates and in the amounts set forth in Section
6.01(c) of the EUA Disclosure Letter;
(C) if the Effective Time does not occur between a record
date and payment date of a regular quarterly dividend, for a special dividend
on EUA Shares with respect to the quarter in which the Effective Time occurs
with a record date on or prior to the date on which the Effective Time occurs,
which does not exceed an amount equal to the product of (x) the number of days
between the last payment date of a regular quarterly dividend and the record
date of such special dividend, multiplied by (y) $.0045; and
(D) for dividends and distributions (including
liquidating distributions) by a direct or indirect Subsidiary of EUA to its
parent.
(ii) split, combine, subdivide, reclassify or take similar action with respect
to any of its capital stock or share capital or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or comprised in its share capital,
(iii) adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing such liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization or (iv) directly or
indirectly redeem, repurchase or otherwise acquire any shares of its capital
stock or any Option with respect thereto except:
(A) in connection with intercompany purchases of capital
stock or share capital,
(B) for the purpose of funding EUA's dividend
reinvestment and share purchase plan in accordance with past practice, or
(C) subject to EUA's obligations under the Securities Act
and the Exchange Act, pursuant to EUA's previously announced share repurchase
program provided that the number of EUA Shares repurchased does not exceed
3,000,000 and the price paid per share does not exceed 95% of the Per Share
Amount.
(d) Share Issuances. EUA shall not, nor shall it permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any Option
with respect thereto (other than the issuance by a wholly owned Subsidiary of
its capital stock to its direct or indirect parent corporation, or modify or
amend any right of any holder of outstanding shares of capital stock or Options
with respect thereto).
(e) Acquisitions. EUA shall not, nor shall it permit any
of its Subsidiaries to acquire or agree to acquire (by merging or consolidating
with, or by purchasing a substantial equity interest in or substantial portion
of the assets of, or by any other manner) any business or any corporation,
partnership, association or other business organization or division thereof.
(f) Dispositions. EUA shall not, nor shall it permit
any of its Subsidiaries to sell, lease, securitize, grant any security interest
in or otherwise dispose of or encumber any of its assets or properties, other
than dispositions in the ordinary course of its business consistent with past
practice and having an aggregate value of less than $1,000,000 for each
disposition and $5,000,000 in the aggregate.
(g) Indebtedness. EUA shall not, nor shall it permit
any of its Subsidiaries to incur or guarantee any indebtedness (including any
debt borrowed or guaranteed or otherwise assumed, including, without
limitation, the issuance of debt securities or warrants or rights to acquire
debt) or enter into any "keep well" or other agreement to maintain any
financial condition of another Person or enter into any arrangement having the
economic effect of any of the foregoing other than (i) short-term indebtedness
in the ordinary course of business consistent with past practice (such as the
issuance of commercial paper or the use of existing credit facilities) in
amounts not exceeding the amounts set forth in Section 6.01(g) of the EUA
Disclosure Letter, (ii) long-term indebtedness in connection with the
refinancing of existing indebtedness either at its stated maturity or at a
lower cost of funds (calculating such cost on an aggregate after-tax basis) or
(iii) guarantees or "keep well" agreements in favor of wholly owned
Subsidiaries of EUA in connection with the conduct of the business of such
wholly owned Subsidiaries of EUA not aggregating more than $1,000,000.
(h) Capital Expenditures. Except (i) as required by law
or (ii) as reasonably deemed necessary by EUA after consulting with NEES
following a catastrophic event, such as a major storm, EUA shall not, nor shall
it permit any of its Subsidiaries to make any capital expenditures or
commitments during any fiscal year that is in excess of 110% of (i) the
aggregate amount set forth in Section 6.01(h) of the EUA Disclosure Letter with
respect to EUA and its Subsidiaries that are public utility companies within
the meaning of Section 2(a)(5) of the 1935 Act or (ii) the amount set forth in
Section 6.01(h) of the EUA Disclosure Letter with respect to each of EUA's
other Subsidiaries.
(i) Employee Benefits. EUA shall not, nor shall it
permit any of its Subsidiaries to enter into, adopt, amend (except as may be
required by applicable law) or terminate any EUA Employee Benefit Plan, or
other agreement, arrangement, plan or policy between EUA or one of its
Subsidiaries and one or more of its trustees, directors, officers, employees or
former employees, or, except for normal increases in the ordinary course of
business, (a) increase in any manner the compensation or fringe benefits of any
trustee, director or executive officer, (b) increase in any manner the
compensation or fringe benefits of any employee, (c) pay any benefit not
required by any plan or arrangement in effect as of the date hereof or, (d)
cause any trustee, director, officer, employee or former employee of EUA to
accrue or receive additional benefits, accelerate vesting or accelerate the
payment of any benefits under any EUA Employee Benefit Plan, or other
agreement, arrangement, plan or policy. EU A, prior to the Closing Date, shall
take all necessary action and make all necessary amendments to its stock-based
plans so that all such plans will be in a form that allows the plans to
function after the Effective Time and after any merger of EUA a nd its
Subsidiaries into NEES or its Subsidiaries. EUA, prior to the Closing Date,
shall take all necessary actions, in a manner satisfactory to NEES, so that on
or after the Closing Date, neither EUA, the Surviving Entity nor their
affiliates' stock or securities will be required to be held in, or distributed
pursuant to, any EUA Employee Benefit Plan.
(j) Labor Matters. Notwithstanding any other provision
of this Agreement to the contrary, EUA or its Subsidiaries may negotiate
successor collective bargaining agreements to those referenced in Section 4.12
hereof, and may negotiate other collective bargaining agreements or
arrangements as required by law or for the purpose of implementing the
agreements referenced in Section 4.12 hereof. EUA will keep NEES informed as
to the status of, and will consult with NEES as to the strategy for, all
negotiations with collective bargaining representatives. EUA and its
Subsidiaries shall act prudently and reasonably and consistent with their
obligation under applicable law in such negotiations.
(k) Discharge of Liabilities. EUA shall not, nor shall
it permit its Subsidiaries to, pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice (which includes
the payment of final and unappealable judgments) or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) of such
party included in EUA SEC Reports, or incurred in the ordinary course of
business consistent with past practice.
(l) Contracts. EUA shall not, nor shall it permit its
Subsidiaries, except in the ordinary course of business consistent with past
practice or as set forth in Section 6.01(l) of the EUA Disclosure Letter, (i)
to modify, amend, terminate or fail to use commercially reasonable efforts to
renew any material Contract to which EUA or any of its Subsidiaries is a party
or waive, release or assign any material rights or claims or (ii) to enter into
any new material Contracts except as expressly permitted by Sections 6.01 (f),
(g) or (i) and 7.06 hereof.
(m) Equity Investments. EUA shall not, nor shall it
permit its Subsidiaries or affiliates to, make equity contributions to non-
affiliates or to its non-utility Subsidiaries.
(n) Loans. EUA shall not, nor shall it permit its
Subsidiaries or affiliates to, loan money to non-affiliates or to its non-
utility Subsidiaries.
(o) Year 2000. EUA, within 15 days of the date of this
Agreement, shall engage a qualified third party ("Y2K Consultant") to conduct a
detailed assessment of the adequacy and state of completion of its Year 2000
Program, including but not limited to assessment and testing of its customer,
accounting, and operational systems. The Y2K Consultant and scope of work of
the Y2K Consultant shall be acceptable to NEES. Such assessment and testing
shall be completed as soon thereafter as practicable. EUA shall have such
assessment updated by the Y2K Consultant at the end of each fiscal quarter of
1999. EUA shall allow designated NEES personnel and representatives access to
the Y2K Consultant's personnel, reports and recommendations and access to EUA's
personnel, documents, and information related to the Y2K issue. EUA and the
third party shall meet with such designated NEES personnel and representatives
on a periodic basis (but not less frequently than monthly) to update NEES on
EUA's Year 2000 Program. If this Agreement is terminated pursuant to Section
9.01 hereof, NEES shall reimburse EUA for the costs and expenses of the Y2K
Consultant.
(p) Insurance. EUA shall, and shall cause its
Subsidiaries to, maintain with financially responsible insurance companies (or
through self-insurance, consistent with past practice) insurance in such
amounts and against such risks and losses as are customary for companies
engaged in their respective businesses.
(q) 1935 Act. EUA shall not, nor shall it permit any of
its Subsidiaries to, engage in any activities which would cause a change in its
status, or that of its Subsidiaries, under the 1935 Act.
(r) Regulatory Matters. Subject to applicable law and
except for non-material filings in the ordinary course of business consistent
with past practice, EUA shall consult with NEES prior to implementing any
changes in its or any of its Subsidiaries' rates or charges, standards of
service or accounting or executing any agreement with respect thereto that is
otherwise permitted under this Agreement and shall, and shall cause its
Subsidiaries to, deliver to NEES a copy of each such filing or agreement at
least four (4) business days prior to the filing or execution thereof so that
NEES may comment thereon. EUA shall, and shall cause its Subsidiaries to, make
all such filings (i) only in the ordinary course of business consistent with
past practice or (ii) as required by a Governmental Authority or regulatory
agency with appropriate jurisdiction.
(s) Accounting. EUA shall not, nor shall it permit any
of its Subsidiaries to make any changes in their accounting methods, policies
or procedures, except as required by law, rule, regulation or applicable
generally accepted accounting principles;
(t) Tax Status. Neither EUA nor any of its Subsidiaries
shall (i) make or rescind any material express or deemed election relating to
Taxes, (ii) make a request for a Tax Ruling or enter into a Closing Agreement,
(iii) settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit, or controversy relating to Taxes
or (iv) change in any material respect any of its methods of reporting income,
deductions or accounting for federal income tax purposes from those employed in
the preparation of its federal income Tax Return for the taxable year ending
December 31, 1997, except as may be required by applicable law.
(u) No Breach. EUA shall not, nor shall it permit any
of its Subsidiaries to willfully take or fail to take any action that would or
is reasonably likely to result in (i) a material breach of any provision of
this Agreement or (ii) its representations and warranties set forth in this
Agreement being untrue in any material respect on and as of the Closing Date.
(v) Advice of Changes. EUA shall confer with NEES on a
regular and frequent basis with respect to EUA's business and operations and
other matters relevant to the Merger to the extent permitted by law, and shall
promptly advise NEES, orally and i n writing, of any material change or event,
including, without limitation, any complaint, investigation or hearing by any
Governmental Authority (or communication indicating the same may be
contemplated) or the institution or threat of material litigation; provided
that EUA shall not be required to make any disclosure to the extent such
disclosure would constitute a violation of any applicable law or regulation.
(w) Notice and Cure. EUA will notify NEES in writing of, and
will use all commercially reasonable efforts to cure before the Closing, any
event, transaction or circumstance, as soon as practical after it becomes known
to EUA, that causes or will or may be likely to cause any covenant or agreement
of EUA under this Agreement to be breached or that renders or will render
untrue in any material respect any representation or warranty of EUA contained
in this Agreement. EUA also will notify NEES in writing of, and will use all
commercially reasonable efforts to cure, before the Closing, any material
violation or breach, as soon as practical after it becomes known to EUA, of any
representation, warranty, covenant or agreement made by EUA. No notice given
pursuant to this paragraph shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein.
(x) Fulfillment of Conditions. Subject to the terms and
conditions of this Agreement, EUA will take or cause to be taken all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each condition to the other's obligations contained in
this Agreement and to consummate and make effective the Merger and other
transactions contemplated by this Agreement, and EUA will not, nor will it
permit any of its Subsidiaries to, take or fail to take any action that could
be reasonably expected to result in the nonfulfillment of any such condition.
(y) Third Party Standstill Agreements. Except as
provided in Section 7.08 hereto, during the period from the date of this
Agreement through the Effective Time, neither EUA nor any of its Subsidiaries
shall terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which it is a party. During such period, EUA shall
take all steps necessary to enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreement.
6.02 Covenants of NEES. At all times from and after the date hereof
until the Effective Time, NEES covenants and agrees that (except as expressly
contemplated or permitted by this Agreement or to the extent that EUA shall
otherwise previously consent in writing):
(a) No Breach. NEES shall not, nor shall it permit any of its
Subsidiaries to, except as otherwise expressly provided for in this Agreement,
willfully take or fail to take any action that would or is reasonably likely to
result in (i) a material breach of any of its covenants or agreements
contained in this Agreement or (ii) any of its representations and warranties
set forth in Sections 5.01, 5.02, 5.03, 5.04, 5.05, 5.06, 5.07, 5.08 and 5.09
of this Agreement being untrue in any material respect on and as of the Closing
Date.
(b) Advice of Changes. NEES shall confer with EUA on a regular
and frequent basis with respect to any matter having, or which, insofar as can
be reasonably foreseen, could reasonably be expected to have, a NEES Material
Adverse Effect or materially impair the ability of NEES to consummate the
Merger and other transactions contemplated hereby; provided that NEES shall not
be required to make any disclosure to the extent such disclosure would
constitute a violation of any applicable law or regulation.
(c) Notice and Cure. NEES will notify EUA in writing of, and will
use all commercially reasonable efforts to cure before the Closing, any event,
transaction or circumstance, as soon as practical after it becomes known to
NEES, that causes or will or may be likely to cause any covenant or agreement
of NEES under this Agreement to be breached or that renders or will render
untrue in any material respect any representation or warranty of NEES contained
in this Agreement. NEES also will notify EUA in writing of, and will use all
commercially reasonable efforts to cure before the Closing, any material
violation or breach, as soon as practical after it becomes known to such party,
of any representation, warranty, covenant or agreement made by NEES. No notice
given pursuant to this paragraph shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein.
(d) Fulfillment of Conditions. Subject to the terms and
conditions of this Agreement, NEES will take or cause to be taken all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each condition to its obligations contained in this
Agreement and to consummate and make effective the Merger and other
transactions contemplated by this Agreement, and NEES will not, nor will it
permit any of its Subsidiaries to, take or fail to take any action that could
be reasonably expected to result in the nonfulfillment of any such condition.
(e) Conduct of Business of LLC. Prior to the Effective Time,
except as may be required by applicable law and subject to the other provisions
of this Agreement, NEES shall cause LLC to (i) perform its obligations under
this Agreement in accordance with its terms, and (ii) not engage directly or
indirectly in any business or activities of any type or kind and not enter into
any agreements or arrangements with any person, or be subject to or bound by
any obligation or undertaking, which is inconsistent with this Agreement.
(f) Certain Mergers. NEES shall not, and shall not permit any of
its Subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of or equity in, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets if the entering into of a definitive agreement
relating to or the consummation of such acquisition, merger or consolidation
could reasonably be expected to (i) impose any material delay in the obtaining
of, or significantly increase the risk of not obtaining, any authorizations,
consents, orders, declarations or approvals of any Governmental Authority
necessary to consummate the Merger or the expiration or termination of any
applicable waiting period, (ii) significantly increase the risk of any
Governmental Authority entering an order prohibiting the consummation of the
Merger, (iii) significantly increase the risk of not being able to remove any
such order on appeal or otherwise or (iv) materially delay the consummation of
the Merger.
6.03 Additional Covenants by NEES and EUA.
(a) Control of Other Party's Business. Nothing contained in this
Agreement shall give NEES, directly or indirectly, the right to control or
direct EUA's operations prior to the Effective Time. Nothing contained in this
Agreement shall give EUA, directly or indirectly, the right to control or
direct NEES' operations prior to the Effective Time. Prior to the Effective
Time, each of EUA and NEES shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
(b) Transition Steering Team. As soon as reasonably practicable
after the date hereof, NEES and EUA shall create a special transition steering
team, with representation from EUA and NEES, that will develop recommendations
concerning the future structure and operations of EUA after the Effective Time,
subject to applicable law. The members of the transition steering team shall
be appointed by the Chief Executive Officers of NEES and EUA. The functions of
the transition steering team shall include (i) to direct the exchange of
information and documents between the parties and their Subsidiaries as
contemplated by Section 7.01 and (ii) the development of regulatory plans and
proposals, corporate organizational and management plans, workforce combination
proposals, and such other matters as they deem appropriate.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.01 Access to Information. EUA shall, and shall cause each of its
Subsidiaries to, and shall use commercially reasonable efforts to cause EUA
Associates to, throughout the period from the date hereof to the Effective Time
to the extent permitted by law, (i) provide NEES and its Representatives with
full access, upon reasonable prior notice and during normal business hours, to
all facilities, operations, officers (including EUA's environmental, health and
safety personnel), employees, agents and accountants of EUA and its
Subsidiaries and Associates and their respective assets, properties, books and
records, to the extent EUA or any Subsidiary of EUA or EUA Associate is not
under a legal obligation not to provide access or to the extent that such
access would not constitute a waiver of the attorney client privilege and does
not unreasonably interfere with the business and operations of EUA and its
Subsidiaries and Associates and (ii) furnish promptly to such persons (x) a
copy of each report, statement, schedule and other document filed or received
by EUA or any of its Subsidiaries pursuant to the requirements of federal or
state securities laws and each material report, statement, schedule an d other
document filed with any other Governmental Authority, and (y) all other
information and data (including, without limitation, copies of Contracts, EUA
Employee Benefit Plans, and other books and records) concerning the business
and operations of EUA and its Subsidiaries as NEES or any of its
Representatives reasonably may request. No review pursuant to this Section
7.01 or otherwise shall affect any representation or warranty contained in this
Agreement or any condition to the obligation s of the parties hereto. Any such
information or material obtained pursuant to this Section 7.01 that constitutes
"Evaluation Material" (as such term is defined in the letter agreement dated as
of December 18, 1998 between EUA and NEES (the "Confidentiality Agreement"))
shall be governed by the terms of the Confidentiality Agreement. NEES may
provide information or materials that it obtains relating to EUA or any EUA
Subsidiary pursuant to this Section 7.01 to National Grid Group; the treatment
by National Grid Group of such information or material shall be governed by the
terms of the letter agreement dated as of December 21, 1998 between EUA and
National Grid Group.
7.02 Proxy Statement. As soon as reasonably practicable after the date
of this Agreement, EUA shall prepare and file the Proxy Statement with the SEC.
NEES and EUA shall cooperate with each other in the preparation of the Proxy
Statement and any amendment or supplement thereto, and EUA shall promptly
notify NEES of the receipt of any comments of the SEC with respect to the Proxy
Statement and of any requests by the SEC for any amendment or supplement
thereto or for additional information, and shall promptly provide to NEES
copies of all correspondence between EUA or any of its Representatives and the
SEC with respect to the Proxy Statement (except reports from financial advisors
other than with the consent of such financial advisors). Each of the parties
hereto shall furnish all information concerning itself which is required or
customary for inclusion in the Proxy Statement. EUA shall consult with NEES
regarding the Proxy Statement and have due regard to any comments NEES may make
in relation to the Proxy Statement. EUA shall give NEES and its counsel the
opportunity to review the Proxy Statement and all responses to requests for
additional information by and replies to comments of the SEC before t heir
being filed with, or sent to, the SEC. Each of EUA and NEES agrees to use its
reasonable best efforts, after consultation with the other parties hereto, to
respond promptly to all such comments of and requests by the SEC. After
obtaining the consent of EUA, which consent shall not be unreasonably withheld,
NEES may provide information supplied to NEES by EUA to National Grid Group for
inclusion of such information in the Super Class 1 circular ("NGG Circular") to
be issued to shareholders of National Grid Group in connection with approval by
such shareholders of the National Grid Merger Agreement. NEES shall use its
best efforts to provide EUA with a draft of any portion of the NGG Circular
with information relating to EUA prior to the issuance of the NGG Circular.
7.03 Approval of Shareholders. EUA shall, through its Board of Trustees,
duly call, give notice of, convene and hold a meeting of its shareholders (the
"EUA Shareholders' Meeting") for the purpose of voting on the approval of the
Merger and other transactions contemplated hereby (the "EUA Shareholders'
Approval") as soon as reasonably practicable after the date hereof; provided,
however, subject to the fiduciary duties of its Board of Trustees and the
requirements of applicable law, EUA shall include in the Proxy Statement the
recommendation of the Board of Trustees of EUA that the Shareholders of EUA
approve the Merger and the other transactions contemplated hereby, and shall
use its reasonable best efforts to obtain such approval.
7.04 Regulatory and Other Approvals. (a) HSR Filings. Each party
hereto shall file or cause to be filed with the Federal Trade Commission and
the Department of Justice any notifications required to be filed by its
respective "ultimate parent" company under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the rules and
regulations promulgated thereunder with respect to the Merger and other
transactions contemplated hereby. Such parties will use all commercially
reasonable efforts to make such filings in a timely manner and to respond on a
timely basis to any requests for additional information made by either of such
agencies.
(b) Other Regulatory Approvals. Each party shall cooperate and
use its best efforts to promptly prepare and file all necessary applications,
notices, petitions, filings and other documents with, and to use all
commercially reasonable efforts to obtain all necessary permits, consents,
approvals and authorizations of, all Governmental Authorities necessary or
advisable to obtain the EUA Required Statutory Approvals, the NEES Required
Statutory Approvals and the approvals of the state utility commissions referred
to in Section 8.01(d) (collectively, the "NEES-EUA Regulatory Approvals"). The
parties agree that they will consult with each other with respect to obtaining
the NEES-EUA Regulatory Approvals; provided, however, that NEES shall have
primary responsibility for the preparation and filing of any related
applications, filings or other material with the SEC, the FERC, the NRC and
state utility commissions. EUA shall have the right to review and approve in
advance drafts of and final applications, filings and other material (including
material with respect to proposed settlements) submitted to or filed with the
SEC, the FERC, the NRC and state utility commissions or parties to such
proceedings before such Governmental Authority, which approval shall not be
unreasonably withheld or delayed.
(c) NEES-NGG Regulatory Proceedings. EUA and NEES acknowledge
that, at the same time EUA and NEES will be seeking to obtain the NEES-EUA
Regulatory Approvals, National Grid Group and NEES will be seeking to obtain
the regulatory approvals (the "NEES-NGG Regulatory Approvals") required to
consummate the transactions contemplated by the National Grid Merger Agreement.
NEES and EUA agree to seek to prosecute the proceedings relating to the NEES-
EUA Regulatory Approvals (the "NEES-EUA Regulatory Proceedings") separately
from the prosecution by National Grid Group and NEES of the proceedings
relating to the NEES-NGG Regulatory Approvals (the "NEES-NGG Regulatory
Proceedings"), but recognize that one or more of the NEES-EUA Regulatory
Proceedings may be consolidated with one or more of the NEES-NGG Regulatory
Proceedings by the relevant Governmental Authority. Upon the request of EUA,
NEES will keep EUA reasonably apprised of the status of the NEES-NGG Regulatory
Proceedings.
7.05 Employee Benefit Plans.
(a) For a period of twelve (12) months immediately following
the Closing Date, the compensation, benefits and coverage provided to those
non-union individuals who continue to be employees of the Surviving Entity (the
"Affected Employees") pursuant to employee benefit plans or arrangements
maintained by NEES or the Surviving Entity shall be, in the aggregate, not less
favorable (as determined by NEES and the Surviving Entity using reasonable
assumptions and benefit valuation methods) than those provided, in the
aggregate, to such Affected Employees immediately prior to the Closing Date.
In addition to the foregoing, NEES shall, or shall cause the Surviving Entity
to, pay any Affected Employee whose employment is terminated by NEES or the
Surviving Entity within twelve (12) months of the Closing Date a severance
benefit package equivalent to the severance benefit package that would be
provided under the NEES Standard Severance Plan as in effect on the date
hereof.
(b) NEES shall, or shall cause the Surviving Entity to, give
the Affected Employees full credit for purposes of eligibility, vesting,
benefit accrual (including, without limitation, benefit accrual under any
defined benefit pension plans) and determination of the level of benefits under
any employee benefit plans or arrangements maintained by NEES or the Surviving
Entity in effect as of the Closing Date for such Affected Employees' service
with EUA or any Subsidiary of EUA (or any prior employer) to the same extent
recognized by EUA or such Subsidiary immediately prior to the Closing Date.
With respect to any employee benefit plan or arrangement established by NEES,
EUA or the Surviving Entity after the Closing Date (the "Post Closing Plans"),
service shall be credited in accordance with the terms of such Post Closing
Plans.
(c) NEES shall, or shall cause the Surviving Entity to, (i)
waive all limitations as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
the Affected Employees under any welfare benefit plan established to replace
any EUA welfare benefit plans in which such Affected Employees may be eligible
to participate after the Closing Date, other than limitations or waiting
periods that are already in effect with respect to such Affected Employees and
that have not been satisfied as of the Closing Date under any welfare plan
maintained for the Affected Employees immediately prior to the Closing Date,
and (ii) provide each Affected Employee with credit for any co-payments a nd
deductibles paid prior to the Closing Date in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
Affected Employees are eligible to participate in after the Closing Date.
(d)(i) NEES shall, or shall cause the Surviving Entity and its
Subsidiaries to, honor, and shall guarantee the obligations of the Surviving
Entity and its Subsidiaries under, all EUA Employee Benefit Plans as in effect
on the date hereof; provided, however, that this Section 7.05(d)(i) is not
intended to prevent NEES or the Surviving Entity from exercising their rights
with respect to all EUA Employee Benefit Plans solely in accordance with their
terms, including but not limited to the right to alter, terminate or otherwise
amend such EUA Employee Benefit Plans.
(ii) NEES shall, or shall cause the Surviving Entity and its
Subsidiaries to, honor, and shall guarantee the obligations of the Surviving
Entity and its Subsidiaries under, (A) all employment severance, consulting and
retention agreements or arrangements as in effect on the date hereof, as set
forth in Section 7.05(d)(ii) of the EUA Disclosure Letter, or as modified in
accordance with Section 6.01(i) of the EUA Disclosure Letter (such agreements
or arrangements, the "EUA Employee Agreements" an d the individuals who are
parties to such EUA Employee Agreements, the "EUA Executives") and (B) all EUA
Employee Benefit Plans in which such EUA Executives participate; provided,
however, that this Section 7.05(d)(i) is not intended to prevent NEES or the
Surviving Entity from exercising their rights with respect to the EUA Employee
Agreements and the EUA Employee Benefit Plans in which such EUA Executives
participate, in each case solely in accordance with their terms, including but
not limited to the right to alter, terminate or otherwise amend such EUA
Employee Agreements and EUA Employee Benefit Plans.
(e) Notwithstanding the foregoing, NEES and the Surviving Entity
and its subsidiaries shall neither be required to or prevented from merging
EUA's benefit plans, agreements, or arrangements into NEES or the Surviving
Entity and its subsidiaries benefit plans, agreements, or arrangements or from
replacing EUA's benefit plans, agreements or arrangements with NEES or the
Surviving Entity and its subsidiaries benefit plans, agreements or
arrangements.
7.06 Labor Agreements and Workforce Matters.
(a) Labor Agreements. NEES shall honor, or shall cause the
appropriate subsidiaries of the Surviving Entity to honor, all collective
bargaining agreements of EUA or its subsidiaries in effect as of the Effective
Time until their expiration; provided, however, that this undertaking is not
intended to prevent NEES or the Surviving Entity and its subsidiaries from
exercising their rights with respect to such collective bargaining agreements
and in accordance with their terms, including any rig ht to amend, modify,
suspend, revoke or terminate any such contract, agreement, collective
bargaining agreement or commitment or portion thereof.
(b) Workforce Matters. Subject to applicable law and
obligations under applicable collective bargaining agreements, for a period of
2 years following the Effective Time, any reductions in workforce in respect of
employees of the Surviving Entity and its Subsidiaries shall be made on a fair
and equitable basis as determined by the Surviving Entity, with due
consideration to prior experience and skills, and any employee whose employment
is terminated or job is eliminated during such period shall be entitled to
participate on a fair and equitable basis as determined by NEES or the
Surviving Entity in the job opportunity and employment placement programs
offered by NEES or the Surviving Entity or any of their Subsidiaries for which
they are eligible. Any workforce reductions carried out following the
Effective Time by the Surviving Entity and its Subsidiaries shall be done in
accordance with all applicable collective bargaining agreements and all laws
and regulations governing the employment relationship and termination thereof
including, without limitation, the Worker Adjustment and Retraining
Notification Act, and the regulations promulgated thereunder, and any
comparable state or local law.
7.07 Post Merger Operations.
(a) NEES Advisory Board. If the Merger is consummated, then,
promptly following the closing of the merger contemplated by the National Grid
Merger Agreement, NEES shall take such action as is necessary to cause all of
the members of the Board of Directors of EUA to be appointed to serve on the
advisory board to be formed pursuant to Section 7.07(e) of the National Grid
Merger Agreement.
(b) Charities. The parties agree that provision of charitable
contribution and community support within the New England region serves a
number of important goals. After the Effective Time, NEES intends to cause the
Surviving Entity to provide charitable contributions and community support
within the New England region at annual levels substantially comparable to the
annual level of charitable contributions and community support provided,
directly or indirectly, by EUA and its public utility subsidiaries within the
New England region during 1998.
7.08 No Solicitations. Prior to the Effective Time, EUA agrees: (a)
that neither it nor any of its Subsidiaries shall, and it shall use its best
efforts to cause its Representatives (as defined in Section 10.10) not to,
knowingly initiate, solicit or encourage, directly or indirectly, any inquiries
or any proposal or offer (including, without limitation, any proposal or offer
to its Shareholders) with respect to a merger, consolidation or other business
combination including EUA or any of its significant Subsidiaries (as defined in
Rule 1-02(W) of Regulation S-X promulgated under the Exchange Act) other than
EUA Cogenex Corporation (an "EUA Significant Subsidiary"), or any acquisition
or similar transaction (including, without limitation, a tender or exchange
offer) involving the purchase of (i) all or any significant portion of the
assets of EUA and its Subsidiaries taken as a whole, (ii) ten percent or more
of the outstanding EUA Shares or (iii) 50% or mo re of the outstanding shares
of the capital stock of any EUA Significant Subsidiary (any such proposal or
offer being hereinafter referred to as an "Alternative Proposal"), or engage in
any negotiations concerning, or provide any confidential information or data
to, or have any other discussions with, any person or group relating to an
Alternative Proposal, or otherwise knowingly facilitate any effort or attempt
to make or implement an Alternative Proposal other than from NEES and its
affiliates ; (b) that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties with respect
to any Alternative Proposal; and (c) that it will notify NEES immediately if
any such inquiries, proposals or offers are received by, any such information
is requested from, or any such negotiations or discussions are sought to be
initiated or continued with, it or any of such persons; provided, however,
that, prior to receipt of the EUA Shareholders' Approval, nothing contained in
this Section 7.08 shall prohibit the Board of Trustees of EUA from (i)
furnishing information to (but only pursuant to a confidentiality agreement in
customary form and having terms and conditions no less favorable to EUA than
the Confidentiality Agreement (as defined in Section 7.01)) or entering into
discussions or negotiations with any person or group that makes an unsolicited
Alternative Proposal, if, and only to the extent that, (A) the Board of
Trustees of EUA, based upon advice of outside counsel with respect to fiduciary
duties, determines in good faith that such action is necessary for the Board of
Trustees to act in a manner consistent with its fiduciary duties to
Shareholders under applicable law, (B) the Board of Trustees of EUA has
reasonably concluded in good faith (after consultation with its financial
advisors) that the person or group making such Alternative Proposal will have
adequate sources of financing to consummate such Alternative Proposal and that
such Alternative Proposal is likely to be more favorable to EUA's shareholders
than the Merger, (C) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or group, EUA provides written
notice to NEES to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or group, which notice shall
identify such person or group and the material terms of the Alternative
Proposal in reasonable detail, and (D) EUA keeps NEES promptly informed of the
status and all material information with respect to any such discussions or
negotiations; and (ii) to the extent required, complying with Rule 14e-2
promulgated under the Exchange Act wit h regard to an Alternative Proposal.
Nothing in this Section 7.08 shall (x) permit EUA to terminate this Agreement
(except as specifically provided in Article IX), (y) permit EUA to enter into
any agreement with respect to an Alternative Proposal for so long as this
Agreement remains in effect (it being agreed that for so long as this Agreement
remains in effect, EUA shall not enter into any agreement with any person or
group that provides for, or in any way knowingly facilitates, an Alternative
Proposal (other than a confidentiality agreement under the circumstances
described above)), or (z) affect any other obligation of EUA under this
Agreement.
7.09 Directors' and Officers' Indemnification and Insurance.
(a) Indemnification. To the extent, if any, not provided by
an existing right of indemnification or other agreement or policy, from and
after the Effective Time, NEES shall, or shall cause the Surviving Entity to,
to the fullest extent permitted by applicable law, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date
hereof, or who becomes prior to the Effective Time, (x) an officer, trustee or
director or (y) an employee covered as of the date hereof (to the extent of the
coverage extended as of the date hereof) of EUA or any Subsidiary of EUA (each
an "Indemnified Party," and collectively, the "Indemnified Parties") against
(i) all losses, expenses (including reasonable attorney's fees and expenses),
claims, damages or liabilities or, subject to the first proviso of the next
succeeding sentence, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Effective Time (and whether asserted or
claim ed prior to, at or after the Effective Time) that are, in whole or in
part, based on or arising out of the fact that such person is or was a
director, trustee, officer or employee of EUA or any Subsidiary of EUA (the
"Indemnified Liabilities"), and (ii) all Indemnified Liabilities to the extent
they are based on or arise out of or pertain to the transactions contemplated
by this Agreement, in each case, to the extent permitted by the EUA Trust
Agreement or the indemnification agreements set fort h in Section 7.09 of the
EUA Disclosure Letter. In the event of any such loss, expense, claim, damage
or liability (whether or not arising before the Effective Time), (i) NEES
shall, or shall cause the Surviving Entity to, pay the reasonable fees an d
expenses of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to NEES or the Surviving Entity, as appropriate,
promptly after statements therefor are received and otherwise advance to such
Indemnified Party upon request, reimbursement of documented expenses reasonably
incurred, in either case to the extent not prohibited by the EUA Trust
Agreement or the indemnification agreements set forth in Section 7.09 of the
EUA Disclosure Letter upon receipt of a n undertaking by or on behalf of such
director, trustee or officer to repay such amounts as and to the extent
required by the EUA Trust Agreement or the indemnification agreements set forth
in Section 7.09 of the EUA Disclosure Letter, (ii) the Surviving Entity shall
cooperate in the defense of any such matter and (iii) any determination
required to be made with respect to whether an Indemnified Party's conduct
complies with the standards set forth under the EUA Trust Agreement or the
indemnification agreements set forth in Section 7.09 of the EUA Disclosure
Letter and the certificate of incorporation or by-laws or similar governing
documents of the Surviving Entity shall be made by independent counsel mutually
acceptable to the Surviving Entity and the Indemnified Party; provided,
however, that the Surviving Entity shall not be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld) and provided further that no indemnification shall be made if such
indemnification is prohibited by the EUA Trust Agreement or the indemnification
agreements set forth in Section 7.09 of the EUA Disclosure Letter.
(b) Insurance. For a period of six years after the Effective
Time, NEES and the Surviving Entity at NEES's election, (i) shall cause to be
maintained in effect an extended reporting period for current policies of
directors' and officers' liability insurance for the benefit of such persons
who are currently covered by such policies of EUA on terms no less favorable
than the terms of such current insurance coverage or (ii) shall provide tail
coverage for such persons which provides such persons with coverage for a
period of six years for acts prior to the Effective Time on terms no less
favorable than the terms of such current insurance coverage.
(c) Successors. In the event the Surviving Entity or any of
its successors or assigns (i) consolidates with or merges into any other person
or entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person or entity, then and in either such case,
proper provisions shall be made so that the successors and assigns of the
Surviving Entity, as applicable, shall assume the obligations set forth in this
Section 7.09.
(d) Survival of Indemnification. To the fullest extent
permitted by law, from and after the Effective Time, all rights to
indemnification as of the date hereof in favor of the employees, agents,
directors, trustees and officers of EUA and EUA's Subsidiaries with respect to
their activities as such prior to the Effective Time, as provided in the EUA
Trust Agreement or the respective certificates of incorporation and by-laws or
similar governing documents in effect on the date hereof, or otherwise in
effect on the date hereof, shall survive the Merger and shall continue in full
force and effect for a period of not less than six years from the Effective
Time.
(e) Benefit. The provisions of this Section 7.09 are intended
to be for the benefit of, and shall be enforceable by, each Indemnified Party,
his or her heirs and his or her representatives.
(f) Amendment of the EUA Trust Agreement. NEES shall not, and
shall ensure that the Surviving Entity shall not, amend the EUA Trust Agreement
to in any way limit the indemnification provided to the Indemnified Parties
under this Section 7.09.
7.10 Expenses Except as set forth in Section 9.03, whether or not the
Merger is consummated, all costs and expenses incurred in connection with the
Merger and other transactions contemplated hereby shall be paid by the party
incurring such cost or expense, except that the filing fees in connection with
the filings required under the HSR Act and the 1935 Act shall be paid by NEES.
7.11 Brokers or Finders EUA represents, as to itself and its affiliates,
that no agent, broker, investment banker, financial advisor or other firm or
person is or will be entitled to any broker's, finder's or investment banker's
fee or any other commission or similar fee in connection with the Merger and
other transactions contemplated by this Agreement except Salomon Smith Barney
Inc., whose fees and expenses will be paid by EUA in accordance with EUA's
agreement with such firm, and EUA shall indemnify and hold NEES harmless from
and against any and all claims, liabilities or obligations with respect to any
other such fee or commission or expenses related thereto asserted by any person
on the basis of any act or statement alleged to have been made by EUA or its
affiliates.
7.12 Anti-Takeover Statutes If any "fair price", "moratorium", "business
combination", "control share acquisition" or other form of anti-takeover
statute or regulation shall become applicable to the Merger or other
transactions contemplated hereby, EUA and the members of the Board of Trustees
of EUA shall grant such approvals and take such actions consistent with their
fiduciary duties and in accordance with applicable law as are reasonably
necessary so that the Merger and other transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of such statute or
regulation on the Merger and other transact ions contemplated hereby.
7.13 Public Announcements Except as otherwise required by law or the
rules of any applicable securities exchange or national market system or any
other Regulatory Authority, so long as this Agreement is in effect, NEES and
EUA will not, and will not permit any of their respective Subsidiaries or
Representatives to, issue or cause the publication of any press release or make
any other public announcement with respect to the Merger and other transactions
contemplated by this Agreement without the consent of the other party, which
consent shall not be unreasonably withheld. NEES and EUA will cooperate with
each other in the development and distribution of all press releases and other
public announcements with respect to the Merger and other transactions
contemplated hereby, and will furnish the other with drafts of any such
releases and announcements as far in advance as practicable.
7.14 Restructuring of the Merger. It may be preferable to effectuate a
business combination between NEES and EUA by means of an alternative structure
to the Merger. Accordingly, if, prior to satisfaction o f the conditions
contained in Article VIII hereto, NEES proposes the adoption of an alternative
structure that otherwise substantially preserves for NEES and EUA the economic
benefits of the Merger and will not materially delay the consummation there of,
then the parties shall use their respective best efforts to effect a business
combination among themselves by means of a mutually agreed upon structure other
than the Merger that so preserves such benefits; provided, however, that prior
to closing any such restructured transaction, all material third party and
Governmental Authority declarations, filings, registrations, notices,
authorizations, consents or approvals necessary for the effectuation of such
alternative business combination shall have been obtained and all other
conditions to the parties' obligations to consummate the Merger and other
transactions contemplated hereby, as applied to such alternative business
combination, shall have been satisfied or waived.
ARTICLE VIII
CONDITIONS
8.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger and other transactions
contemplated hereby is subject to the satisfaction or waiver, at or prior to
the Closing, of each of the following conditions:
(a) Shareholder Approval. EUA Shareholders' Approval shall
have been obtained.
(b) HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under HSR shall have expired or
been terminated.
(c) Injunctions or Restraints. No court of competent
jurisdiction or other competent Governmental Authority shall have enacted,
issued, promulgated, enforced or entered any law or order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
illegal or otherwise restricting, preventing or prohibiting consummation of the
Merger or other transactions contemplated hereby.
(d) Governmental and Regulatory and Other Consents and
Approvals. The NEES Required Statutory Approvals and EUA Required Statutory
Approvals shall have been obtained prior to the Effective Time, and shall have
become Final Orders (as hereinafter defined). The Final Orders shall not,
individually or in the aggregate, impose terms and conditions that (i) could
reasonably be expected to have an EUA Material Adverse Effect; (ii) could
reasonably be expected to have a NEES Material Adverse Effect; or (iii)
materially impair the ability of the parties to complete the Merger. The
parties shall have received Final Orders from the Massachusetts Department of
Telecommunications and Energy and the Rhode Island Public Utilities Commission
pertaining to the recovery of costs (including, without limitation, transaction
premium and integration costs) associated with the Merger that are materially
consistent with existing policy and previous orders of such agencies. "Final
Order" for all purposes of this Agreement means action by the relevant
regulatory authority which has not been reversed, stayed, enjoined, set aside,
annulled or suspended with respect to which any waiting period prescribed by
law before the Merger and other transaction s contemplated hereby may be
consummated has expired, and as to which all conditions to be satisfied before
the consummation of such transactions prescribed by law, regulation or order
have been satisfied.
8.02 Conditions to Obligation of NEES and LLC to Effect the Merger. The
obligation of NEES and LLC to effect the Merger and other transactions
contemplated hereby is further subject to the satisfaction or waiver at or
prior to the Closing, of each of the following additional conditions (all or
any of which may be waived in whole or in part by NEES and LLC in the sole
discretion):
(a) Representations and Warranties. The representations and
warranties made by EUA in this Agreement, in each case made as if none of such
representations or warranties contained any qualification or limitation as to
"materiality" or "EUA Material Adverse Effect", shall be true and correct as so
made as of the Closing Date as though so made on and as of the Closing Date,
except to the extent expressly given as of a specified date, except where the
failure of such representations and warranties to be true and correct as so
made does not have and could not reasonably be expected to have, individually
or in the aggregate, an EUA Material Adverse Effect, and EUA shall have
delivered to NEES a certificate, dated the Closing Date and execute d in the
name and on behalf of EUA by its Chairman of the Board, President or any
Executive or Senior Vice President, to such effect.
(b) Performance of Obligations. EUA shall have performed and
complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by
EUA at or prior to the Closing, and EUA shall have delivered to NEES a
certificate, dated the Closing Date and executed in the name and on behalf of
EUA by its Chairman of the Board, President or any Executive or Senior Vice
President, to such effect.
(c) Material Adverse Effect. No EUA Material Adverse Effect
shall have occurred and there shall exist no facts or circumstances which in
the aggregate could reasonably be expected to have an EUA Material Adverse
Effect.
(d) EUA Required Consents. All EUA Required Consents shall
have been obtained by EUA, except where the failure to receive such EUA
Required Consents could not reasonably be expected to (i) have an EUA Material
Adverse Effect, or (ii) delay or prevent the consummation of the Merger and
other transactions contemplated hereby.
8.03 Conditions to Obligation of EUA to Effect the Merger. The obligation
of EUA to effect the Merger and other transactions contemplated hereby is
further subject to the satisfaction or waiver, at or prior to the Closing, of
each of the following additional conditions (all or any of which may be waived
in whole or in part by EUA in its sole discretion):
(a) Representations and Warranties. The representations and
warranties made by NEES and LLC in Sections 5.01, 5.02, 5.03, 5.04, 5.05, 5.07,
5.08 and 5.09 of this Agreement, in each case made as if none of such
representations or warranties contained any qualification or limitation as to
"materiality" or "NEES Material Adverse Effect," shall be true and correct as
so made as of the Closing Date, except to the extent expressly given as of a
specified date and except where the failure of such representations and
warranties to be so true and correct as so made does not have and could not
reasonably be expected to have, individually or in the aggregate, a NEES
Material Adverse Effect or a material adverse effect on LLC, and NEES and LLC
shall each have delivered to EUA a certificate, dated the Closing Date and
executed in the name and on behalf of NEES by any director of NEES and in the
name and on behalf of LLC by a member of its management committee its Chairman
of the Board, President or any Executive or Senior Vice President to such
effect.
(b) NEES Required Consents. All NEES Required Consents shall
have been obtained by NEES, except where the failure to receive such NEES
Required Consents could not reasonably be expected to (i) have a NEES Material
Adverse Effect or (ii) delay or prevent the consummation of the Merger and
other transactions contemplated hereby.
(c) Performance of Obligations. NEES and LLC shall have
performed and complied with, in all material respects, each agreement, covenant
and obligation required by this Agreement to be so performed or complied with
by NEES or LLC at or prior to t he Closing, and NEES and LLC shall each have
delivered to EUA a certificate, dated the Closing Date and executed in the name
and on behalf of NEES by its Chairman of the Board, President or any Executive
or Senior Vice President, or on behalf of LLC by a member of its management
committee to such effect.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.01 Termination. This Agreement may be terminated, and the Merger and
other transactions contemplated hereby may be abandoned, at any time prior to
the Effective Time, whether prior to or after EUA Shareholders' Approval
(except as otherwise provided in Section 9.01(c) below):
(a) By mutual written agreement of the Board of Directors of
NEES and Board of Trustees of EUA, respectively;
(b) By EUA or NEES, by written notice to the other, if the
Closing Date shall not have occurred on or before December 31, 1999 (the
"Initial Termination Date"); provided, however, that the right to terminate the
Agreement under this Section 9.01( b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of,
or resulted in, the failure of the Effective Time to occur on or before such
date; and provided, further, that if on the Initial Termination Date the
conditions to the Closing set forth in Section 8.01(d) shall not have been
fulfilled but all other conditions to the Closing shall be fulfilled or shall
be capable of being fulfilled, then the Initial Termination Date shall be
extended for four (4) months beyond the Initial Termination Date (the "Extended
Termination Date");
(c) By NEES, by written notice to EUA, if EUA Shareholders'
Approval shall not have been obtained at a duly held meeting of such
Shareholders, including any adjournments thereof;
(d) By EUA or NEES, if any applicable state or federal law or
applicable law of a foreign jurisdiction or any order, rule or regulation is
adopted or issued that has the effect, as supported by the written opinion of
outside counsel for such part y, of prohibiting the Merger or other
transactions contemplated hereby, or if any court of competent jurisdiction or
any Governmental Authority shall have issued a nonappealable final order,
judgment or ruling or taken any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger or other
transactions contemplated hereby (provided that the right to terminate this
Agreement under this Section 9.01(d) shall not be available to any party that
has not defended such lawsuit or other legal proceeding (including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Authority vacated or reversed)).
(e) By EUA upon ten (10) days' prior notice to NEES if the
Board of Trustees of EUA determines in good faith, that termination of this
Agreement is necessary for the Board of Trustees of EUA to act in a manner
consistent with its fiduciary duties to Shareholders under applicable law by
reason of an unsolicited Alternative Proposal meeting the requirements of
clauses (A) and (B) of Section 7.08 having been made; provided that
(A) The Board of Trustees of EUA shall determine based
on advice of outside counsel with respect to the Board of Trustees'
fiduciary duties that notwithstanding a binding commitment to
consummate an agreement of the nature of this Agreement enter ed
into in the proper exercise of its applicable fiduciary duties, and
notwithstanding all concessions which may be offered by NEES in
negotiation entered into pursuant to clause (B) below, it is
necessary pursuant to such fiduciary duties that the trustees
reconsider such commitment as a result of such Alternative
Proposal, and
(B) prior to any such termination, EUA shall, and shall
cause its respective financial and legal advisors to, negotiate
with NEES to make such adjustments in the terms and conditions of
this Agreement as would enable EUA to proceed with the Merge r or
other transactions contemplated hereby on such adjusted terms;
and provided further that EUA's ability to terminate this Agreement pursuant to
this Section 9.01(e) is conditioned upon the concurrent payment by EUA to NEES
of any amounts owed by it pursuant to Section 9.03(a);
(f) By EUA, by written notice to NEES, if (i) there shall have
been any material breach of any representation or warranty, or any material
breach of any covenant or agreement, of NEES hereunder (other than a breach
described in clause (ii)), and such breach shall not have been remedied within
twenty (20) days after receipt by NEES of notice in writing from EUA,
specifying the nature of such breach and requesting that it be remedied; or
(ii) NEES shall fail to deliver or cause to be delivered the amount of cash to
the Paying Agent required pursuant to Section 2.02(a) at a time when all
conditions to NEES's obligation to close have been satisfied or otherwise
waived in writing by NEES.
(g) By NEES, by written notice to EUA, if (i) there shall have
been any material breach of any representation or warranty, or any material
breach of any covenant or agreement, of EUA hereunder, and such breach shall
not have been remedied within twenty (20) days after receipt by EUA of notice
in writing from NEES, specifying the nature of such breach and requesting that
it be remedied; or (ii) the Board of Trustees of EUA (A) shall withdraw or
modify in any manner adverse to NEES its approval of the Merger and other
transactions contemplated hereby or its recommendation to its shareholders
regarding the approval of this Agreement, the Merger and other transactions
contemplated hereby, (B) shall approve or recommend or take no position with
respect to an Alternative Proposal or (C) shall resolve to take any of the
actions specified in clause (A) or (B).
9.02 Effect of Termination. If this Agreement is validly terminated by
either EUA or NEES pursuant to Section 9.01, this Agreement shall forthwith
become null and void and there shall be no liability or obligation on the part
of either EUA or NEES (or any of their respective Representatives or
affiliates), except that the provisions of this Section 9.02, Sections 7.10,
7.11 and 7.13, Section 9.03 and Sections 10.09 and 10.10 shall continue to
apply following any such termination.
9.03 Termination Fees. (a) In the event that (i) this Agreement is
terminated by EUA pursuant to Section 9.01(e) or (ii) any person or group shall
have made an Alternative Proposal that has not been withdrawn and this
Agreement is terminated by (A) NEES pursuant to Section 9.01(c) or Section
9.01(g) or (B) by EUA pursuant to Section 9.01(b) and, in the case of this
clause (ii) only, a definitive agreement with respect to such Alternative
Proposal is executed within two years after such termination, then EUA shall
pay to NEES, by wire transfer of same day funds, either on the date
contemplated in Section 9.01(e) if applicable, or otherwise, within five (5)
business days after such termination, a termination fee of $20 million, plus an
amount equal to all documented out-of-pocket expenses and fees incurred by NEES
arising out of, or in connection with or related to, the Merger and other
transactions contemplated hereby, not in excess of $5 million in the
aggregate.
(b) In the event that this Agreement is terminated by either NEES
or EUA pursuant to Section 9.01(b) and at the time of such termination (i) the
conditions to the Closing set forth in Section 8.01(d) shall not have been
fulfilled, (ii) if the date o f termination is any date other than a date which
is on or after the Extended Termination Date, all conditions contained in
Article VIII other than Sections 8.01(d) or 8.03(c) shall have been fulfilled
or are capable of being fulfilled as of such date, and (iii) the merger
contemplated by the National Grid Merger Agreement has not yet been
consummated, then NEES shall pay to EUA, by wire transfer of same day funds,
within five (5) business days after such termination, a termination fee of $10
million, plus an amount equal to all documented out-of-pocket expenses and fees
incurred by EUA arising out of, or in connection with or related to, the Merger
and other transactions contemplated hereby, not in excess of $5 million in the
aggregate.
(c) Nature of Fees. The parties agree that the agreements
contained in this Section 9.03 are an integral part of the Merger and the other
transactions contemplated hereby and constitute liquidated damages and not a
penalty. The parties further agree that if any party is or becomes obligated
to pay a termination fee pursuant to Sections 9.03(a) or (b), the right to
receive such termination fee shall be the sole remedy of the other party with
respect to the facts and circumstances giving rise to such payment obligation.
If this Agreement is terminated by a party as a result of a willful breach of a
representation, warranty, covenant or agreement by the other party, including a
termination pursuant to Section 9.01(f)(ii), the non-breaching party may pursue
any remedies available to it at law or in equity and shall be entitled to
recover any additional amounts thereunder. Notwithstanding anything to the
contrary contained in this Section 9.03, if one party fails to promptly pay t
o the other any fee or expense due under this Section 9.03, in addition to any
amounts paid or payable pursuant to such Section, the defaulting party shall
pay the costs and expenses (including legal fees and expenses) in connection
with any action, including the filing of any lawsuit or other legal action,
taken to collect payment, together with interest on the amount of any unpaid
fee at the publicly announced prime rate of Citibank, N.A. from the date such
fee was required to be paid.
9.04 Amendment. This Agreement may be amended, supplemented or modified
by action taken by or on behalf of the Board of Directors of NEES or the Board
of Trustees of EUA at any time prior to the Effective Time, whether prior to or
after EUA Shareholders' Approval shall have been obtained, but after such
adoption and approval only to the extent permitted by applicable law. No such
amendment, supplement or modification shall be effective unless set forth in a
written instrument duly executed and delivered by or on behalf of each party
hereto.
9.05 Waiver. At any time prior to the Effective Time, NEES or EUA, by
action taken by or on behalf of its Board of Directors or Board of Trustees,
respectively, may to the extent permitted by applicable law (i) extend the time
for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties of the other parties hereto contained herein or in any document
delivered pursuant hereto or (iii) waive compliance with any of the covenants,
agreements or conditions of the other parties hereto contained herein. No such
extension or waiver shall be effective unless set forth in a written instrument
duly executed by or on behalf of the party ex tending the time of performance
or waiving any such inaccuracy or non-compliance. No waiver by any party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion.
ARTICLE X
GENERAL PROVISIONS
10.01 Non-Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall not survive the Merger but shall terminate at the Effective
Time, except for the agreements contained in Article I and Article II, in
Sections 7.05, 7.06, 7.08, 7.09 and 7.10, this Article X which shall survive
the Effective Time.
10.02 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or sent by overnight courier
(providing proof of delivery) to the parties at the following addresses or
facsimile numbers:
If to NEES or LLC, to:
New England Electric System
25 Research Drive
Westborough, MA 01582
Attn: Richard P. Sergel
President and Chief Executive Officer
Telephone: (508) 389-2764
Facsimile: (508) 366-5498
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attn: Sheldon S. Adler, Esq.
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
If to EUA, to:
Eastern Utilities Associates
One Liberty Square
Boston, MA 02109
Attn: Donald G. Pardus
Chairman and Chief Executive Officer
Telephone: (617) 357-9590
Facsimile: (617) 357-7320
with a copy to:
Winthrop, Stimson, Putnam & Roberts
1 Battery Park Plaza
New York, NY 10004
Attn: David P. Falck
Telephone: (212) 858-1000
Facsimile: (212) 858-1500
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number
as provided in this Section, be deemed given when sent, provided that the
facsimile is promptly confirmed by telephone confirmation thereof, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section, be deemed given one business day after delivery (in each case
regardless of whether such notice, request or other communication is received
by any other person to whom a copy of such notice, request or other
communication is to be delivered pursuant to this Section). Any party from
time to time may change its address, facsimile number or other information for
the purpose of notices to that party by giving notice specifying such change to
the other parties hereto.
10.3 Entire Agreement; Incorporation of Exhibits. (a) This Agreement
supersedes all prior discussions and agreements, both written and oral, among
the parties hereto with respect to the subject matter hereof, other than the
Confidentiality Agreement, which shall survive the execution and delivery of
this Agreement in accordance with its terms, and contains, together with the
Confidentiality Agreement, the sole and entire agreement among the parties
hereto with respect to the subject matter hereof.
(b) The EUA Disclosure Letter, the NEES Disclosure Letter and
any Exhibit attached to this Agreement and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
10.04 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and except as provided in Article
II and Sections 7.04, 7.05(d)(ii) and 7.09 (which is intended to be for the
benefit of the persons entitled to therein, and may be enforced by any of such
persons), it is not the intention of the parties to confer third-party
beneficiary right s upon any other person.
10.05 No Assignment; Binding Effect. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned, in whole or in part,
by operation of law or otherwise, by any party hereto without the prior written
consent of the other parties hereto and any attempt to do so will be void,
except that LLC may assign any or all of its rights, interests and obligations
hereunder to another direct or indirect wholly owned Subsidiary of NEES,
provided that any such Subsidiary agrees in writing to be bound by all of the
terms, conditions and provisions contained herein and provided further that
such assignment (i) does not require a greater vote for EUA's Shareholder
Approval, (ii) does not require a subsequent vote following EUA's Shareholders
Meeting, or (iii) is not reasonably likely to materially delay or prevent EUA,
LLC and NEES, as appropriate, from obtaining EUA Required Statutory Approvals,
EUA Required Consents, EUA Shareholders ' Approval, the NEES Required
Shareholders' Approvals, or the NEES Required Consents. Subject to the
preceding sentence, this Agreement is binding upon, inures to the benefit of
and is enforceable by the parties hereto and their respective successors and
assigns.
10.06 Headings. The headings used in this Agreement have been inserted
for convenience of reference only and do not define, modify or limit the
provisions hereof.
10.07 Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future law or
order, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, and (iii) the remaining provisions of this Agreement
will remain in full force and effect and will not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom.
10.08 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts.
10.09 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specified terms or was
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of
competent jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
10.10 Certain Definitions. As used in this Agreement:
(a) except as provided in Section 4.14, the term "affiliate,"
as applied to any person, shall mean any other person directly or indirectly
controlling, controlled by, or under common control with, that person; for
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control with"), as
applied to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
person, whether through the ownership of voting securities, by contract or
otherwise;
(b) a person will be deemed to "beneficially" own securities if
such person would be the beneficial owner of such securities under Rule 13d-3
under the Exchange Act, including securities which such person has the right to
acquire (whether such right is exercisable immediately or only after the
passage of time);
(c) the term "business day" means a day other than Saturday,
Sunday or any day on which banks located in the Massachusetts are authorized or
obligated to close;
(d) the term "knowledge" or any similar formulation of
"knowledge" shall mean, with respect to any party hereto, the actual knowledge
after due inquiry of the executive officers of NEES and its Subsidiaries or EUA
and its Subsidiaries, respectively, set forth in Section 10.11(d) of the NEES
Disclosure Letter or Section 10.11(d) of the EUA Disclosure Letter; provided
that as used in Section 4.13 the term "knowledge" shall also include the
knowledge of the environmental, health and safety personnel of EUA;
(e) the term "person" shall include individuals, corporations,
partnerships, trusts, limited liability companies, other entities and groups
(which term shall include a "group" as such term is defined in Section 13(d)(3)
of the Exchange Act);
(f) the "Representatives" of any entity shall have the same
meaning as set forth in the Confidentiality Agreement;
(g) the term "Subsidiary" means any corporation or other
entity, whether incorporated or unincorporated, in which such party directly or
indirectly owns at least a majority of the voting power represented by the
outstanding capital stock or other voting securities or interests having voting
power under ordinary circumstances to elect a majority of the directors or
similar members of the governing body, or otherwise to direct the management
and policies, or such corporation or entity.
10.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument and will become effective
when one or more counterparts have been signed by each party and delivered to
the other parties.
10.12 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
signed by its officer thereunto duly authorized as of the date first above
written.
NEW ENGLAND ELECTRIC SYSTEM
By:/s/Richard P. Sergel
Name: Richard P. Sergel
Title: President and CEO
The name "New England Electric System" means the trustee or trustees for the
time being (as trustee or trustees but not personally) under an Agreement and
Declaration of Trust dated January 2, 1926, as amended, which is hereby
referred to, and a copy of which, as amended, has been filed with the Secretary
of the Commonwealth of Massachusetts. Any agreement, obligation, or liability
made, entered into, or incurred by or on behalf of New England Electric System
binds only its trust estate, and no shareholder, director, trustee, officer, or
agent thereof assumes or shall be held to any liability therefor.
EASTERN UTILITIES ASSOCIATES
By:/s/ Donald G. Pardus
Name: Donald G. Pardus
Title: Chairman
The name "Eastern Utilities Associates" is the designation of the Trustees of
EUA for the time being in their collective capacity but not personally, under a
Declaration of Trust dated April 2, 1928, as amended, a copy of which amended
Declaration of Trust has been filed in the office of the Secretary of The
Commonwealth of Massachusetts and elsewhere as required by law; and all persons
dealing with EUA must look solely to the trust property for the enforcement of
any claim against EUA, as neither the Trustees nor the officers or shareholders
of EUA assume any personal liability for obligations entered into on behalf of
EUA.
RESEARCH DRIVE LLC
By: /s/John G. Cochrane
Name: John G. Cochrane
Title: Manager
Wholesale Standard Offer
Service Agreement
between
Blackstone Valley Electric Company
Eastern Edison Company
Newport Electric Corporation
and
TransCanada Power Marketing Ltd.
April 7, 1998
TABLE OF CONTENTS
Page
ARTICLE 1. Definitions 2
ARTICLE 2. Term 3
ARTICLE 3. Supplier Responsibilities 3
ARTICLE 4. Estimation of Hourly Loads and Reporting to the ISO 4
ARTICLE 5. Price 5
ARTICLE 6. Billing and Payments 6
ARTICLE 7. Events of Default, Liability. Relationship of the Companies 6
ARTICLE 8. Termination/Reimbursement 8
ARTICLE 9. Force Majeure 8
ARTICLE 10. Assignment 9
ARTICLE 11. Successors and Assigns 10
ARTICLE 12. Resolution of Disputes 10
ARTICLE 13. Interpretation 11
ARTICLE 14. Severability of Provisions 11
ARTICLE 15. Accounts and Records 11
ARTICLE 16. Limitations on Liability and Indemnification 12
ARTICLE 17. Regulation 12
ARTICLE 18. Notices 12
ARTICLE 19. Miscellaneous 13
Appendix A Schedule of Supplier's Share of Offer Service and Standard Offer
Wholesale Price
WHOLESALE STANDARD OFFER SERVICE AGREEMENT
This Wholesale Standard Offer Service Agreement ("Agreement"), is made and
entered into this seventh day of April, 1998 between Eastern Edison Company,
("Eastern") a Massachusetts Corporation; Blackstone Valley Electric Company
("Blackstone"), a Rhode Island Corporation; and Newport Electric Corporation
("Newport"), a Rhode Island Corporation (referred to collectively as the
"Companies"), on the one hand, and TransCanada Power Marketing, Ltd., a
Delaware Corporation, ("Supplier"), on the other h and.
WHEREAS, the Supplier will purchase certain electric resources from Montaup
Electric Corn any, under an asset purchase agreement, (the "Asset Purchase
Agreement") dated April 7, 1998; and as condition of such purchase and sale
Supplier is required to assume a share of the Companies' Standard Offer Service
under this Agreement; and
WHEREAS, the Companies are required to provide firm all- requirements service
to any retail customer that is eligible for and is taking Standard Offer
Service in accordance with the Settlement Agreements; and
WHEREAS, this Agreement provides for the transfer, from the Companies to
Supplier, of the responsibility for providing firm all-requirements electric
service including capacity, energy, reserves, losses and other related services
necessary to serve a specified share of the Companies' aggregate load of retail
customers taking Standard Offer Service; and
WHEREAS, by entering into this Agreement, Supplier agrees to provide and the
Companies agree to receive and pay for electricity provided in accordance with
the terms and conditions of this Agreement and the applicable Appendices.
subject to any actions by any governmental bodies having regulatory
jurisdiction over services rendered hereunder.
NOW, THEREFORE, in consideration of the mutual promises. covenants, and
agreements contained herein, Supplier and Companies agree to the terms and
conditions as set forth below:
ARTICLE 1. Definitions:
Whenever used in this Agreement. the following terms shall have the following
meanings:
"Affiliate" shall mean any other entity (other than an individual) that,
directly or indirectly, through one or more intermediaries. controls, or is
controlled by, or is under common control with, such entity. For purposes of
the foregoing the definition of "control" means the direct or indirect
ownership of more than seventy percent of the outstanding capital stock or
other equity interest having ordinary voting power.
"Agreement" shall mean this Agreement, including its Appendices as amended from
time to time.
"Commencement Date of Service" shall mean the Effective Date as defined in the
Asset Purchase Agreement.
"Contract Year" shall mean any calendar year, or in the case of 1998 part of a
calendar year, after the Commencement Date of Service in which Supplier is
scheduled to provide electricity to the Companies for Standard Offer Service.
"Companies' System" shall mean the electrical distribution systems of
Blackstone, Newport, Eastern, and/or the electrical transmission system of
Montaup Electric Company, as applicable.
"Delivered Energy" shall mean the kilowatt-hours delivered to the meters of
those retail customers taking Standard Offer Service.
"Delivery Point" shall be any location on the NEPOOL PTF system or Companies'
System.
"D.T.E." shall mean the Massachusetts Department of Telecommunications and
Energy.
"ISO" shall mean ISO New England, Inc., the independent system operator
established in accordance with the Restated NEPOOL Agreement, or its successor.
"NEPOOL" shall mean the New England Power Pool or its successor.
"Party" or "Parties" shall mean the Supplier and the Companies and their
respective successors and assigns.
"PPA Transfer Agreement" shall mean the PPA Transfer Agreement as defined in
the Asset Purchase Agreement.
"Price" shall mean the annual amount per kilowatt-hour to be paid for Delivered
Energy set forth in Article 5 with no variation for time-of-use, seasonality,
or any other factor except as specified in Article 5. The Companies or their
Standard Offer customers shall not be obligated under this Agreement for any
payments for Delivered Energy in addition to the payments made
pursuant to Article 5.
"PTF" shall mean the facilities categorized as Pool Transmission Facilities as
defined in the Restated NEPOOL Agreement.
"P.U.C." shall mean the Rhode Island Public Utilities Commission.
"Restated NEPOOL Agreement" shall mean the New England Power Pool Agreement
dated December 31, 1996, as amended from time to time, as it is in force at the
time the action in question is taken.
"Settlement Agreements" shall mean the agreement or agreements that have been
approved by the MDTE in Docket No. 96-24, the RIPUC in Docket No. 2514 and by
the FERC in Docket Nos. ER97-2800-000 and ER97-3127-000 together with all
conditions, terms a nd modifications imposed by those agencies as of the date
of this Agreement.
"Standard Offer Service" shall mean firm all-requirements electric service
(minute by minute, hour by hour, day by day) including, but not limited to:
energy, installed capability, operable capability, reserves, and associated
losses necessary to fulfill all NEPOOL and ISO obligations as they may change
from time to time associated with providing firm all requirements power to the
Companies' retail customers taking Standard Offer Service in accordance with
and as defined in the Settlement Agreements. Supplier is responsible for
changes in customer demand for any reason, including, but not limited to,
seasonal factors, daily load fluctuations, increased or decreased usage, demand
side management activities, extremes in weather, and other similar events.
"Standard Offer Wholesale Price" shall mean the stipulated stream of prices, in
cents per kilowatt-hour, that will be paid to suppliers of Standard Offer
Service for Delivered Energy, as shown in Appendix A.
"Terms and Conditions for Suppliers" shall mean the Blackstone Valley Electric
Company and Newport Electric Corporation Terms and Conditions for Electric
Power Suppliers dated May 29, 1997 as approved by the P.U.C., or the Eastern
Edison Company Terms and Conditions for Competitive Suppliers as approved by
the D.T.E., as applicable. These Terms and Conditions may be revised.
amended, supplemented. or supplanted in whole or in part from time to time by
the P.U.C. or D.T.E. or as other-wise provided by law.
ARTICLE 2. Term:
The term of this Agreement shall begin on the Commencement Date of Service and
end at 12:00 midnight on December 1. 2009, unless terminated sooner in
accordance with Article 7 or 8.
ARTICLE 3. Supplier Responsibilities
Supplier shall be a member, in good standing, of NEPOOL or its successor entity
and maintain an own-load dispatch or settlement account established in
accordance with the rules and criteria established by the ISO throughout the
term of this agreement . In addition, Supplier must satisfy registration and
certification requirements, as the case may be. as a Non-Regulated Power
Producer in Massachusetts and Rhode Island.
Supplier is responsible for providing firm all-requirements service necessary
to serve its share, as shown in Appendix A attached hereto, of the Companies
aggregate load attributed to those customers taking Standard Offer Service.
As a provider of Standard Offer Service, Supplier is solely responsible for
satisfying all requirements and paying, all costs incurred or to be incurred to
provide those services including, without limitation, all costs or other
requirements to furnish installed capability, operable capability, energy,
operating reserves, automatic generation control and reactive power support,
receipt of, and payment for, tie benefits, line losses and other ancillary
services associated with the provision of it s share of Standard Offer Service.
Supplier is also solely responsible for meeting any other requirements and
paying any other cost now or hereafter imposed by the ISO from time to time
which are attributable to the provision of Standard Offer Service, as they may
arise. If the ISO or any successor entity or the NEPOOL Administrator
allocates any NEPOOL expenses or uplift costs to the Standard Offer Service
provided by the Supplier (on a load or peak load basis or otherwise), the
expenses or costs so allocated will be borne by the Supplier alone without
recourse to the Companies.
Supplier shall be responsible for all transmission and distribution losses
associated with the delivery of electricity supplied under this Agreement from
the sources of its supply to the meters of those customers taking Standard
Offer Service.
The Companies, in their regulated charges, will bill Standard Offer Service
customers for NEPOOL Regional Network Transmission Service ("RNS"), any Local
Area Network Transmission Service ("LNS") which is the transmission, if any,
between the NEPOOL PTF and the Companies' distribution system, and for the
Companies' distribution costs. Supplier is responsible for any transmission
wheeling costs to the Delivery Point and any distribution wheeling costs
associated with supply sources not included in Companies' approved distribution
rates. If the NEPOOL control area experiences congestion, Supplier will be
responsible for any congestion costs incurred in delivering power across the
PTF system to the Companies. Supplier shall be responsible for all
transmission and distribution costs associated with the use of transmission
systems outside of NEPOOL and any local point-to-point transmission charges and
distribution charges incurred to deliver the power to the NEPOOL PTF.
In the event that either the D.T.E. or the P.U.C. issue orders requiring the
Companies to implement uniform disclosure requirements that pertain to the
reporting of information regarding, power plant emissions, fuel types, or labor
information for the sources of electricity used to supply Standard Offer
Service, the Supplier will provide such information in a timely manner in an
appropriate form to enable the Companies to comply with such requirements.
ARTICLE 4. Estimation of Hourly Loads and Reporting to the ISO:
To meet their NEPOOL obligations, the Companies shall report to the ISO
Supplier's share of hourly Standard Offer Service load, including distribution
and non-PTF losses. In making such reports, the Companies will estimate
Supplier's share of Standard Offer Service load based on the methods and
procedures approved in Terms and Conditions for Suppliers on file with the
P.U.C. and D.T.E., as amended from time to time, as applicable.
As required by NEPOOL. the Companies will make all reasonable efforts to report
to the ISO Supplier's hourly share of Standard Offer Service load by 12:00 noon
of the second following business day.
As described in the Terms and Conditions for Suppliers, at the end of each
month, the Companies shall aggregate Supplier's hourly Standard Offer Service
loads for the month as reported to the ISO. The Supplier's aggregate share of
Standard Offer Service, not including losses will be deemed to be the quantity
of Delivered Energy that Supplier provided for that month and is the unadjusted
kWh amount to be used for Billing and Payment as described in Article 6.
The Companies will periodically reconcile the Delivered Energy to actual meter
readings of those customers taking Standard Offer Service, as described in the
Terms and Conditions for Suppliers. The Companies will apply any resulting
billing adjustment (debit or credit) to Supplier's account no later than the
last day of the third month following the billing month.
ARTICLE 5. Price:
For each kilowatt-hour of Delivered Energy that Supplier provides in each
month, as determined in accordance with Article 4 and the Terms and Conditions
for Suppliers, the Companies shall pay Supplier the applicable Price for the
month in cents per kilowatt-hour calculated as follows:
Price = Standard Offer Wholesale Price
+ Fuel Adjustment Factor
Where: Standard Offer Wholesale Price in cents per kilowatt hour is as
defined in Article 1 and shown in Appendix A, and
Fuel Adjustment Factor is a cents per kilowatt-hour adder based on the
incremental revenues collected, if any, attributed to the operation of the
retail Rate Fuel Adjustment mechanism in the Companies' Standard Offer Service
tariffs. The incremental revenues attributed to the retail Fuel Adjustment
will be fully allocated to Suppliers in proportion to the Standard Offer
Service energy provided by each Supplier for the applicable billing month
through the Fuel Adjustment Factor. The retail Fuel Adjustment. and the
resulting Fuel Adjustment Factor to be paid to Supplier, will be made subject
to regulatory approval and only to the extent that the Companies are allowed to
collect such revenues, from their retail customers taking Standard Offer
Service.
With the exception of any sales or gross receipts taxes which are required by
law to be paid by Standard Offer Service customers, the Price for Delivered
Energy as set forth herein includes all local, state and federal taxes, fees
and assessments applicable as of the date here which may be assessed or
imposed in the future by any governmental authority with jurisdiction governing
the sale of electricity covered by this Agreement.
ARTICLE 6. Billing and Payments:
Until reconciled with actual metered data pursuant to the Terms and Conditions
of suppliers, computations by the Companies of the charges for the purposes of
billings hereunder shall be based on estimates of Supplier's Delivered Energy
in accordance with Article 4 and the Price as determined in accordance with
Article 5. The Companies shall calculate the amount payable to Supplier for a
given month on or before the twentieth (20th) day of the following month. The
calculation shall be provided t o Supplier and shall show the total amount due
and payable for the previous month. Each bill shall be subject to adjustment
for any errors in arithmetic computation, estimating, reconciliation pursuant
to the Terms and Conditions of Suppliers or otherwise only to the extent
allowed by the terms of this Article 6.
On or before the last day of each month, Companies shall pay Supplier any
amounts due and payable for the Delivered Energy provided by Supplier in the
previous month ("Due Date"). Any amount remaining unpaid after the Due Date
shall bear interest at the Prime Rate then in effect at the main office of
BankBoston, or such other lending institution as agreed to by Companies and
Supplier, from the Due Date to the date of payment by Companies.
If Supplier disputes the amount of any bill or payment, Supplier shall itemize
the basis for its dispute in a written notice to Companies within fifteen days
after the Due Date. Billing and payment disputes shall be handled in
accordance with the provisions of Article 12 of this Agreement. Upon final
resolution of the dispute, payment of any amount due to a Party under the terms
of the resolution shall be made within thirty (30) days of the date thereof,
together interest from and after the original Due Date at the rate specified
in this Article.
The Companies may make retroactive adjustments to any billing for a period of
up to one year from the date of the original billing in order to reflect
differences in charges resulting from receipt of more accurate data. Supplier
may dispute such adjustment in writing within thirty (30) days of receipt of
the proposed adjustment.
ARTICLE 7. Events of Default, Liability, Relationship of the Companies:
(1) Unless excused by a Force Majeure as described in Article 9, each of
the following events shall be deemed to be an Event of Default hereunder:
(a) Failure of Supplier, in a material respect, to comply with, observe, or
perform any covenant. warranty or obligation under this Agreement, and such
failure is not cured or rectified within thirty (30) days after notice thereof
from the Companies.
(b) Failure of the Companies, in a material respect, to comply with,
observe, or perform any covenant. warranty or obligation under this Agreement,
and such failure is not cured or rectified within thirty (30) days after notice
thereof from the Supplier.
(2) Upon the occurrence of an Event of Default by the Companies, the
Companies shall be liable to the Supplier for any direct damages resulting from
the Event of Default. In addition, the Supplier may pursue any remedies or
other damages provide d for under law, and may unconditionally terminate this
Agreement by giving at least sixty (60) days advance written notice to the
Companies, such termination to be effective as of the date specified in such
notice. Notwithstanding any other provision of this Agreement to the
contrary, the rights and obligations of the Companies herein are several and
not joint. Each of the Companies share of such rights and obligations shall be
determined by the portion that its monthly Standard Offer Service requirements
represented as a percentage of the Companies' total Standard Offer Service
requirements.
(3) Upon the occurrence of an Event of Default by the Supplier, the
Supplier shall be liable to the Companies for all costs reasonably incurred by
the Companies resulting from Supplier's failure to deliver its share of the
Standard Offer Service. Such amount shall be calculated as the positive
difference, if any, obtained by subtracting the per unit Price established in
Article 5, from the per unit Replacement Price. The positive difference shall
be applied to each kilowatthour that Supplier fails to deliver.
"Replacement Price" shall mean the price at which the Companies acting in a
commercially reasonable manner purchase substitute Standard Offer Service not
delivered by Supplier, plus any additional transmission and NEPOOL charges,
incurred by the Companies. The parties hereby stipulate that purchases at the
applicable NEPOOL spot market prices will be deemed commercially reasonable.
The Parties expressly agree that the amounts set forth in this Article 7
subparagraph do not constitute liquidated damages. In addition to the amounts
established in this Article 7 subparagraph above, the Supplier shall be liable
to the Companies for any additional direct damages resulting from an Event of
Default, including, but not limited to, reasonable additional administrative
and legal expenses incurred as a result of Supplier's failure to deliver, and
the Companies may pursue any remedies or other damages provided for under law
and may unconditionally terminate this Agreement by giving at least sixty (60)
days advance written notice to the Supplier, such termination to be effective
as of the date specified in such notice.
(4) As a condition of this Agreement. the Supplier shall deliver to the
Companies, prior to the Commencement Date of Service, financial surety
reasonably acceptable to the Companies to secure Supplier's performance under
this Agreement. The Companies accept the Guarantee attached to the Asset
Purchase Agreement as reasonable financial surety.
ARTICLE 8. Termination/Reimbursement:
(1) In addition to the termination rights for an Event of Default provided
in Article 7, the Companies may terminate this Agreement, if:
a. Supplier's share of Standard Offer Service load is less than one (1)
megawatt for two consecutive months;
b. The Companies are prevented by any government agency of competent
jurisdiction from recovering from customers taking Standard Offer
Service the cost of electricity provided by Supplier; or
c. Any governmental or regulatory agency with jurisdiction over the
Companies orders, implements, requires, or causes what the Companies
determine, in their sole discretion, to be a material modification or
amendment of Standard Offer Service.
(2) In the event of a material default by Montaup under the PPA Transfer
Agreement between Supplier and Montaup, Supplier may unconditionally terminate
the Agreement by giving at least sixty (60) days written notice to the
Companies, such termination to be effective as of the date specified in such
notice. In the event that the default by Montaup under the PPA Transfer
Agreement is cured prior to the effective date of notice of termination, such
termination will be cancelled and the Agreement will remain in full force and
effect.
(3) In the event that the Standard Offer Service or the Terms and Conditions
for Suppliers are terminated, amended or replaced by any governmental or
regulatory agency having jurisdiction over the provision of Standard Offer
Service in a manner which materially increases Supplier's costs or obligations
to provide Standard Offer Service, the Companies shall promptly reimburse
Supplier for any such costs or increased obligations or otherwise provide
relief reasonably acceptable to supplier to or indemnify the Supplier from such
changes. In such event the Companies and Supplier shall meet to determine the
amount to be reimbursed to Supplier. In the event that the Parties are not
able to agree on the materially of the increased costs or obligations or the
amount to be reimbursed, the Parties shall attempt to resolve the matter in
accordance with Article 12 and failing resolution in accordance with Article
12, either Party may terminate this Agreement on sixty (60) days written notice
to the other Party, such termination to be effective as of the date specified
in such notice.
ARTICLE 9. Force Majeure:
As used in this Agreement, "Force Majeure" means any cause beyond the
reasonable control of, and without the fault or negligence of, the Party
claiming Force Majeure. A Force Majeure shall include, without limitation.
sabotage, strikes, riots or civil disturbance, acts of God, acts of a public
enemy, drought, earthquake, flood, explosion, fire, lightning, landslide, or
any similar cataclysmic occurrence, or appropriation or diversion of
electricity by sale or order of any governmental authority having jurisdiction
thereof, but only if and to the extent that the event adversely affects the
availability of the transmission or distribution facilities of NEPOOL and/or
its participants, the Companies or an affiliate of the Companies. and such
affected facilities are necessary to deliver Standard Offer Service electricity
to the Standard Offer Service customers.
An event that affects the availability or cost of operating- any transmission
or distribution facilities outside the NEPOOL control area, affects the
availability or cost of operating a generating facility, or any event that
merely causes an economic hardship to either Party shall not be deemed a Force
Majeure.
If either Party is rendered wholly or partly unable to perform its obligations
under this Agreement because of Force Majeure as defined above, that Party
shall be excused from whatever performance is affected by the Force Majeure, to
the extent so affected, provided that:
(a) The non-performing Party promptly, but in no case longer than five (5)
working days after the occurrence of the Force Majeure, gives the other
Party written notice describing the particulars of the occurrence;
(b) The suspension of performance shall be of no greater scope and of no
longer duration than is reasonably required by the Force Majeure;
(c) The non-performing Party uses reasonable efforts to remedy its
inability to perform and expeditiously takes reasonable action to
correct or cure the event or condition; and
(d) The non-performing Party exercises all reasonable efforts to mitigate
or limit damages to the other Party. With respect to the Supplier,
this shall mean that Supplier must purchase, at its own expense,
electricity from the NEPOOL market to meet its obligations under this
Agreement, to the extent such electricity is available.
ARTICLE 10. Assignment:
Unless mutually agreed to by the Parties, no assignment, pledge, or transfer of
this Agreement shall be made by either Party without the prior written consent
of the other Party, which shall not be unreasonably withheld, except no prior
written consent shall be required for (i) the assignment, pledge or other
transfer to another company or Affiliate in the same holding company system as
the assignor, pledgor or transferor, provided, the assignee, pledgee or
transferee expressly assumes and demonstrates, to the reasonable satisfaction
of the non-assigning Party, that it can meet the obligations of the assignor,
pledgor or transferor under this Agreement, or (ii) the transfer, incident to a
merger or consolidation with. or transfer of all (or substantially all) of the
assets of the transferor, to another person or business entity, provided, such
transferee expressly assumes and demonstrates, to the reasonable satisfaction
of the non-assigning party, that it can meet all the obligations o f the
assignor. pledgor or transferor under this Agreement.
ARTICLE 11. Successors and Assigns:
This Agreement shall be binding upon and shall inure to the benefit of the
Parties and their successors and assignees.
ARTICLE 12. Resolution of Disputes:
Subject to Section 3 of Article 7, all disputes between the Companies and
Supplier resulting from or arising out of performance under this Agreement
shall be referred to a senior representative of the Companies with authority to
settle, designated by the Companies, and a senior representative of Supplier
with authority to settle, designated by Supplier, for resolution on an
informal, face-to-face basis as promptly as practicable. The Parties agree
that such informal discussion shall be conducted in good faith. The
discussions between such representatives shall be considered "settlement talks"
under Rule 403 of the Federal Rules of Evidence or analogous Massachusetts
rules or practices and such discussions shall have no evidentiary value -
provided, however, that either Party may introduce evidence of matters
discussed in such settlement talks, if the facts and documents reflecting such
matters are discovered or otherwise come into a Party's possession independent
of such settlement talks. In the event the designated senior representatives
are unable to resolve the dispute within thirty (3O) days, or such other period
as the Companies and the Supplier may jointly agree upon, such dispute may be
submitted to arbitration and resolved in accordance with the arbitration
procedure set forth herein if the Companies and Supplier jointly agree to
submit it to arbitration. Nothing in this Article 12 shall prevent the
Companies from issuing, pursuant to Sections 1 (a) and (3) of Article 7,
notice of failure to comply with, observe or perform this Agreement.
The arbitration shall be conducted before a single neutral arbitrator or
arbitrator panel appointed by the Parties. If the Parties agree upon a single
arbitrator within ten (1O) days of the referral of the dispute to arbitration,
that arbitrator shall serve, otherwise the Companies and Supplier shall each
choose one arbitrator, who shall serve on a three-member arbitration panel.
The two arbitrators so chosen shall within twenty (20) days select a third
arbitrator to act as chairman of the arbitration panel. If the two
arbitrators are unable to select a third arbitrator, each arbitrator shall
select three candidates. A list of the six candidates, along with their
resumes, shall provided in alphabetical order, with no indication of the
arbitrator who selected such candidate or the Party who selected the arbitrator
who selected such candidate, to the American Arbitration Association ("AAA"),
who will select one candidate. If that candidate is unable or unwilling to
serve, AAA shall select another candidate. This process will be repeated until
a third arbitrator is selected or the list of candidates is exhausted. If the
list of candidates is exhausted, the arbitrators shall submit a new list of
candidates and the process set forth above shall be repeated a second time.
In all cases, the arbitrator(s) shall be knowledgeable in electric utility
matters, including electricity transmission and bulk power issues. and shall
not have any current or past substantial business or financial relationships
with any Party to the arbitration or any affiliate of such Party.
Except as otherwise provided herein, the arbitrator(s), shall generally conduct
the arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. There shall be no formal discovery conducted
in connection with the arbitration, except as specifically authorized by a
vote of the panel. The Parties shall exchange witness lists and copies of any
exhibits that they intend to utilize in their direct presentations at any
hearing before the arbitrator(s) at l east ten (1O) days prior to such hearing,
along with any other information or documents specifically requested by the
arbitrator(s) prior to the hearing. Unless otherwise agreed, the arbitrator(s)
shall render a decision within ninety (90) days of h is, her, or their
appointment and shall notify the Parties in writing of such decision and the
reasons therefor, and shall make an award apportioning the payment Of the costs
and expenses of arbitration, including panel costs, among the Parties,
provided, however, that each Party shall bear the costs and expenses of its own
attorneys, expert witnesses and consultants. The arbitrator(s) shall be
authorized only to interpret and apply the provisions of this Agreement and
shall have no power to am end or modify this Agreement in any manner. The
decision of the arbitrator(s) shall be final and binding upon the Parties, and
judgment on the award may be entered in any court having jurisdiction. The
decision of the arbitrator(s) may be appealed solely on the grounds that the
conduct of the arbitrator(s), or the decision itself, violated the standards
required under the Federal Arbitration Act (9 U.S.C.A. I et. al.) and/or The
Uniform Arbitration Act, as adopted in Massachusetts (M.G.L. c. 25 1, I et
seq.).
ARTICLE 13. Interpretation:
The interpretation and performance of this Agreement shall be in accordance
with and shall be controlled by the laws of the Commonwealth of Massachusetts,
without regard to Massachusetts conflict of law principles.
ARTICLE 14. Severability of Provisions:
Subject to the provisions of Article 13, a holding by any court having,
jurisdiction that any provision of this Agreement is invalid or unenforceable
shall not result in invalidation or unenforceability of the entire Agreement
but all remaining terms shall remain in full force and effect.
ARTICLE 15. Accounts and Records:
The Companies and Supplier shall keep complete and accurate records of their
operations hereunder and shall maintain such data for a period of at least two
(2) years after final billing. The Companies and Supplier shall have the
right, during normal business hours, to examine and inspect all such records
insofar as may be necessary for the purpose of ascertaining the reasonableness
and accuracy of all relevant data, estimates or statement of charges associated
with service hereunder.
ARTICLE 16. Limitations on Liability and Indemnification:
Each Party agrees to indemnify, defend, and hold the other Party (including,
the other Party's affiliated companies, trustees, directors, board members,
officers, employees, and agents) harmless from and against any and all damages,
costs, claims, liabilities, actions or proceedings arising, from or claimed to
have arisen from the wrongful acts or omissions of the indemnifying, Party's
employees or agents, unless caused by an act of negligence or willful
misconduct by the indemnified Party (including the Party's affiliated
companies, trustees, directors, board members, officers, employees or agents).
The Parties hereby waive. and release the other Party as well as the other
Party's affiliated companies, trustees, directors, officers, employees, and
agents from any liability, claim, or action arising from damage to its property
due to the performance of this Agreement.
ARTICLE 17. Regulation:
(a) This Agreement and all rights, obligations, and performances of the
Parties hereunder, are subject to all applicable state and federal laws, and to
all duly promulgated orders and other duly authorized actions of governmental
authority having jurisdiction, 'provided, however, that this Agreement shall
not be subject to change through unilateral application under Sections 205 and
206 of the Federal Power Act.
(b) This Agreement must comply with all NEPOOL Criteria, Rules, and
Standards ("Rules"). If, during the term of this Agreement, the Restated
NEPOOL Agreement is terminated or amended in a manner that would eliminate or
materially alter a Rule affecting a right or obligation of a Party hereunder,
or if such a Rule is eliminated or materially altered by NEPOOL or the ISO, the
Parties agree to negotiate in good faith in an attempt to amend this Agreement
to incorporate such changes as they deem necessary to reflect the elimination
or alteration of such Rule. The intent of the Parties is that any such
amendment reflect, as closely as possible, the intent and substance of the Rule
being replaced as was in effect prior to such termination or amendment of the
Restated NEPOOL Agreement or elimination or alteration of the Rule. If the
Parties are unable to reach agreement on such an amendment, the Parties agree
to submit the matter to arbitration under the terms of Article 12, and to seek
a resolution of the matter consistent with the above stated intent.
ARTICLE 18. Notices:
Any notice, demand, or request permitted or required under this Agreement shall
be delivered in person or mailed by certified mail, postage prepaid, return
receipt requested, or otherwise confirmed receipt, to a Party at the applicable
address set forth below:
To Companies:
Director, Power Supply
EUA Service Corporation
P. 0. Box 543
750 West Center Street
West Bridgewater, MA 02379
To Supplier:
TransCanada Power Marketing Ltd.
3400, 237 - 4th Avenue S.W.
Calgary, Alberta T2P 5A4
Such addresses may be changed from time to time by written notice by either
Party to the other Party.
ARTICLE 19. Miscellaneous:
(a) Each Party shall prepare, execute and deliver to the other Party any
documents reasonably required to implement any provision hereof.
(b) Each Party represents to the other that this Agreement and such Party's
performance thereof are within the corporate powers of such Party and
have been duly authorized by proper corporate action on the part of
such Party.
(c) Any number of counterparts to this Agreement may be executed and each
shall have the same force and effect as the original.
(d) This Agreement shall constitute the entire understanding between the
Parties and shall supersede all prior correspondence and understandings
pertaining to the subject matter of this Agreement.
(e) Failure of either Party to enforce any provision of this Agreement or
to require performance by the other Party of any of the provisions
hereof, shall not be construed as a waiver of such provisions or affect
the validity of this Agreement, any part hereof, or the right of
either Party to thereafter enforce each and every provision.
(f) Article and Section headings used throughout this Agreement are for the
convenience of the Parties only and are not to be construed as part of
this Agreement.
(g) Nothing in this Agreement shall be construed as creating any
relationship between the Parties other than that of independent
contractor for the sale and purchase of electricity.
(h) Notwithstanding any other provision of this Agreement to the contrary,
the rights and obligations of the Companies herein are several and not
joint. Each of the Companies share of such rights and obligations
shall be determined by the portion of its monthly Standard Offer
Service energy requirements represented as a percentage of the
Companies' total Standard Offer Service requirement.
IN WITNESS WHEREOF, Supplier and the Companies have caused this Agreement to be
signed by their respective duly authorized representatives as of the date first
above written.
Supplier: TransCanada Power Marketing Ltd.
By: /s/ Russ Girling
On Behalf of the Companies:
Blackstone: BLACKSTONE VALLEY ELECTRIC CO
By: /s/ Michael J. Hirsh
Eastern: EASTERN EDISON COMPANY
By: /s/ Michael J. Hirsh
Newport: NEWPORT ELECTRIC CORPORATION
By: /s/ Michael J. Hirsh
APPENDIX A
SCHEDULE OF SUPPLIERS SHARE of STANDARD OFFER SERVICE
AND
STANDARD OFFER WHOLESALE PRICE
TABLE I
Calendar Supplier's Share Standard
Year of Standard Offer
Offer Service Wholesale
In Percent Price
1999 14.4550% 3.5 cents/kWh
2000 14.4550% 3.8 cents/kWh
2001 14.4550% 3.8 cents/kWh
2002 14.4550% 4.2 cents/kWh
2003 14.4550% 4.7 cents/kWh
2004 14.4550% 5.1 cents/kWh
*2005 14.4550% 5.5 cents/kWh
2006 14.4550% 5.9 cents/kWh
2007 14.4550% 6.3 cents/kWh
2008 14.4550% 6.7 cents/kWh
2009 14.4550% 7.1 cents/kWh
*Standard Offer Service for Eastern Edison terminates at 12:00 midnight on
December 31, 2004.
WHOLESALE STANDARD OFFER SERVICE AGREEMENT
Wholesale Standard Offer
Service Agreement
between
Blackstone Valley Electric Company
Eastern Edison Company
Newport Electric Corporation
and
NRG Energy Power Marketing Inc.
WHOLESALE STANDARD OFFER SERVICE AGREEMENT
This Wholesale Standard Offer Service Agreement ("Agreement"), is made
and entered into this 13th day of October, 1998, between Eastern Edison
Company, ("Eastern") a Massachusetts Corporation; Blackstone Valley Electric
Company ("Blackstone") , a Rhode Island Corporation; and Newport Electric
Corporation ("Newport"), a Rhode Island Corporation (referred to individually
as the "Company" or collectively as the "Companies"), on the one hand, and NRG
Energy Power Marketing Inc. ("Supplier"), on the other hand.
WHEREAS, the Supplier will purchase certain electric resources from
Montaup Electric Company, under an asset purchase agreement, (the "Asset
Purchase Agreement") dated as of October 13, 1998; and as condition of such
purchase and sale Supplier is required to assume a share of the Companies'
Standard Offer Service under this Agreement; and
WHEREAS, the Companies are required to provide firm all- requirements
service to any retail customer that is eligible for and is taking Standard
Offer Service in accordance with the Settlement Agreements; and
WHEREAS, this Agreement provides for the transfer, from the Companies
to Supplier, of the responsibility for providing firm all-requirements electric
service including capacity, energy, reserves, losses and other related services
necessary to serve a specified share of the Companies' aggregate load of retail
customers taking Standard Offer Service; and
WHEREAS, by entering into this Agreement, Supplier agrees to provide
and the Companies agree to receive and pay for electricity provided in
accordance with the terms and conditions of this Agreement and the applicable
Appendices, subject to any actions by any governmental bodies having
regulatory jurisdiction over services rendered hereunder.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
agreements contained herein, Supplier and Companies agree to the terms and
conditions as set forth below:
ARTICLE 1. Definitions
Whenever used in this Agreement, the following terms shall have the
following meanings. In addition, except as otherwise expressly provided, where
terms used in this Agreement are defined in the Restated NEPOOL Agreement and
not otherwise de fined herein, such terms shall have the meanings given them in
the Restated NEPOOL Agreement.
"Affiliate" shall mean any other entity (other than an individual)
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, such entity. For purposes of
the foregoing the definition of "control" means the direct or indirect
ownership of more than seventy percent of the outstanding capital stock or
other equity interest having ordinary voting power.
"Agreement" shall mean this Agreement, including its Appendices as
amended from time to time.
"Commencement Date of Service" shall mean the later of the Closing Date
as defined in the Asset Purchase Agreement or the date on which required
regulatory approvals have been obtained.
"Contract Year" shall mean any calendar year, or in the case of 1998
part of a calendar year, after the Commencement Date of Service in which
Supplier is scheduled to provide electricity to the Companies for Standard
Offer Service.
"Companies' System" shall mean the electrical distribution systems of
Blackstone, Newport, Eastern, and/or the electrical transmission system of
Montaup Electric Company, as applicable.
"Delivered Energy" shall mean the kilowatthours delivered to the meters
of those retail customers taking Standard Offer Service.
"Delivery Point" shall be any location on the NEPOOL PTF system or
Companies' System.
"D.T.E." shall mean the Massachusetts Department of Telecommunications
and Energy or its successor state regulatory agency.
"Good Utility Practice" - Any of the applicable practices, methods and
acts (i) required by NEPOOL, the Northeast Power Coordinating Council, the
North American Electric Reliability Council, the ISO or the successor of any of
them; (ii) required by the policies and standards of the D.T.E. relating to
emergency operations; or (iii) otherwise engaged in or approved by a
significant portion of the electric utility industry during the relevant time
period; which in each case in the exercise of reasonable judgment in light of
the facts known or that should have been known at the time a decision was made,
could have been expected to accomplish the desired result in a manner
consistent with law, regulation, safety, environmental protection , economy,
and expedition. Good utility practice is intended to be acceptable practices,
methods or acts generally accepted in the region, and is not intended to be
limited to the optimum practices, methods or acts to the exclusion of all
others.
"ISO" shall mean ISO New England, Inc., the independent system operator
established in accordance with the Restated NEPOOL Agreement, or its successor.
"NEPOOL" shall mean the New England Power Pool or its successor.
"Party" or "Parties" shall mean the Supplier and the Companies and
their respective successors and assigns.
"Price" shall mean the annual amount per kilowatthour to be paid for
Delivered Energy set forth in Article 5 with no variation for time-of-use,
seasonality, or any other factor except as specified in Article 5. The
Companies or their Standard Offer customers shall not be obligated under this
Agreement for any payments for Delivered Energy in addition to the payments
made pursuant to Article 5.
"PTF" shall mean the facilities categorized as Pool Transmission
Facilities as defined in the Restated NEPOOL Agreement.
"P.U.C." shall mean the Rhode Island Public Utilities Commission or its
successor state regulatory agency.
"Restated NEPOOL Agreement" shall mean the New England Power Pool
Agreement dated December 31, 1996, as amended from time to time, as it is in
force at the time the action in question is taken.
"Settlement Agreements" shall mean any agreement or agreements that
have been approved by the D.T.E. in Docket No. 96-24, P.U.C. in Docket No.
2514, and the Federal Energy Regulatory Commission in Docket Nos. ER97-2800-
000 and ER97-3127-000, together with all conditions, terms and modifications
imposed by those agencies.
"Standard Offer Service" shall mean firm all-requirements electric
service (minute by minute, hour by hour, day by day) including, but not limited
to: energy, installed capability, operable capability, reserves, and associated
losses necessary to fulfill all NEPOOL and ISO obligations as they may change
from time to time associated with providing firm all requirements power to the
Companies' retail customers taking Standard Offer Service in accordance with
the Settlement Agreements.
"Standard Offer Wholesale Price" shall mean the stipulated stream of
prices, in cents per kilowatthour, that will be paid to suppliers of Standard
Offer Service for Delivered Energy, as shown in Appendix A.
"Terms and Conditions for Suppliers" shall mean the Blackstone Valley
Electric Company and Newport Electric Corporation Terms and Conditions for
Electric Power Suppliers dated May 29, 1997 as approved by the P.U.C., or the
Eastern Edison Comp any Terms and Conditions for Competitive Suppliers as
approved by the D.T.E., as applicable. These Terms and Conditions may be
revised, amended, supplemented, or supplanted in whole or in part from time to
time by the P.U.C. or D.T.E. or as otherwise provided by law.
ARTICLE 2. Term
The term of this Agreement shall begin on the Commencement Date of
Service and end at 12:00 midnight on December 31, 2009, unless terminated
sooner in accordance with Article 8 or 9.
ARTICLE 3. Supplier Responsibilities
Supplier shall, prior to the Commencement Date of Service, (i) be a
member, in good standing, of NEPOOL or its successor entity and maintain an
own-load dispatch or settlement account established in accordance with the
rules and criteria established by the ISO throughout the term of this
agreement, or (ii) have an agreement in place, for the full term of this
Agreement, with a NEPOOL member whereby the NEPOOL member agrees to include the
load to be served by Supplier under this Agreement in its own-load dispatch or
settlement account. In addition, Supplier must satisfy registration and
certification requirements, as the case may be, as a Non-Regulated Power
Producer in Massachusetts and Rhode Island.
Supplier is responsible for providing firm all-requirements service
necessary to serve its share, as shown in Appendix A attached hereto, of the
Companies aggregate load attributed to those customers taking Standard Offer
Service, including changes in Standard Offer Service customer demand for any
reason, including, but not limited to, seasonal factors, daily load
fluctuations, increased or decreased usage, demand side management activities,
extremes in weather, and other similar events.
As a provider of Standard Offer Service, Supplier is solely responsible
for satisfying all requirements and paying all costs incurred or to be incurred
to provide those generation-related services including, without limitation, all
costs or other requirements to furnish installed capability, operable
capability, energy, operating reserves, line losses, automatic generation
control, and other generation-related ancillary services associated with the
provision of its share of Standard Offer Service. Supplier is also solely
responsible for meeting any other requirements and paying any other cost now or
hereafter imposed by the ISO from time to time which are attributable to the
provision of Standard Offer Service, as they may arise. If the ISO or any
successor entity or NEPOOL allocates any expenses or uplift costs to the
Standard Offer Service provided by the Supplier (on a load or peak load basis
or otherwise), the expenses or costs so allocated will be borne by the Supplier
alone without recourse to the Companies.
Supplier shall be responsible for all transmission and distribution
losses associated with the delivery of electricity supplied under this
Agreement from the sources of its supply to the meters of those customers
taking Standard Offer Service ; provided, however, the Companies shall operate
their respective distribution systems in accordance with Good Utility Practice.
Supplier is responsible for any transmission wheeling costs to the
Delivery Point and any distribution wheeling costs associated with supply
sources not included in Companies' approved distribution rates. If the NEPOOL
control area experience s congestion, Supplier will be responsible for any
congestion costs incurred in delivering power to the Delivery Point(s). In the
event that NEPOOL adopts a transmission congestion management approach
assigning priority rights or other benefits to transmission customers serving
native load in the congested area, then, if so requested by Supplier, the
Companies shall assign to the Supplier at no cost the proportional share of
such priority rights or other benefits associated with Seller's proportional
share of Standard Offer Service under this Agreement at such time. Supplier
shall be responsible for all transmission and distribution costs associated
with the use of transmission systems outside of NEPOOL and any local point-to-
point transmission charges and distribution charges incurred to deliver the
power to the NEPOOL PTF or the Companies' systems.
In the event that either the D.T.E. or the P.U.C. issue orders
requiring the Companies to implement uniform disclosure requirements that
pertain to the reporting of information regarding power plant emissions, fuel
types, or labor information for the sources of electricity used to supply
Standard Offer Service, the Supplier will provide, subject to any
confidentiality obligations to which it is bound, such information in a timely
manner in an appropriate form to enable the Companies to comply with such
requirements.
ARTICLE 4. Estimation of Hourly Loads and Reporting to the ISO
To meet their NEPOOL obligations, the Companies shall report to the ISO
Supplier's share of hourly Standard Offer Service load, including distribution
and non-PTF losses. As required by NEPOOL, the Companies will make all
reasonable efforts t o report to the ISO Supplier's hourly share of Standard
Offer Service load by 12:00 noon of the second following business day. In
making such reports, the Companies will estimate Supplier's share of Standard
Offer Service load based on the methods a nd procedures approved in Terms and
Conditions for Suppliers on file with the P.U.C. and D.T.E., as amended from
time to time.
As described in the Terms and Conditions for Suppliers, to determine
Supplier's share of Delivered Energy, at the end of each month, the Companies
shall aggregate Supplier's hourly Standard Offer Service loads as reported to
the ISO for each hour of the month. The Supplier's aggregate share of Standard
Offer Service, excluding losses, will be deemed to be the quantity of Delivered
Energy that Supplier provided for that month and is the unadjusted kWh amount
to be used for Billing and Payment as described in Article 6.
The Companies will periodically reconcile the Delivered Energy to
actual meter readings of those customers taking Standard Offer Service, as
described in the Terms and Conditions for Suppliers. The Companies will apply
any resulting billing adjustment (debit or credit) to Supplier's account no
later than the last day of the third month following the billing month.
ARTICLE 5. Price
For each kilowatt-hour of Delivered Energy that Supplier provides in
each month, as determined in accordance with Article 4 and the Terms and
Conditions for Suppliers, the Companies shall pay Supplier the applicable Price
for the month in cents per kilowatt-hour calculated as follows:
Price = Standard Offer Wholesale Price
+ Fuel Adjustment Factor
Where: Standard Offer Wholesale Price in cents per kilowatt hour is as defined
in Article 1 and shown in Appendix A, and
Fuel Adjustment Factor is a cents per kilowatt-hour adder based
on the incremental revenues collected, if any, attributed to the operation of
the Retail Standard Offer Fuel Index ("Fuel Index") mechanism in the Companies'
Standard Offer Service tariffs. The revenues attributed to the Fuel Index will
be fully allocated to Suppliers in proportion to the Standard Offer Service
energy provided by each Supplier for the applicable billing month through the
Fuel Adjustment Factor. The Fuel Index, and the resulting Fuel Adjustment
Factor to be paid to Supplier, will be made subject to regulatory approval and
only to the extent that the Companies are allowed to collect such revenues from
their retail customers taking Standard Offer Service.
With the exception of any sales or gross receipt taxes which are
required by law to be paid by Standard Offer Service customers, the Price for
Delivered Energy as set forth herein includes all local, state, and federal
taxes, fees and levies applicable as of the date hereof. For any new taxes,
fees and levies, assessed with respect to the services provided by Supplier
after the Commencement Date of Service, the Companies will fully support and
pursue in good faith the recovery of any such new tax, fee and levy imposed on
Supplier from the Companies' Standard Offer Service customers. To the extent
such new taxes, fees and levies are allowed to be recoverable by the Companies
from their Standard Offer Service customers, the Companies shall reimburse
Supplier for such generation related taxes, fees and levies paid by Supplier.
ARTICLE 6. Billing and Payments
Until reconciled with actual metered data pursuant to the Terms and
Conditions of Suppliers, computations by the Companies of the charges for the
purposes of billings hereunder shall be based on estimates of Supplier's
Delivered Energy in accordance with Article 4 and the Price as determined in
accordance with Article 5. The Companies shall calculate the amount payable to
Supplier for a given month on or before the twentieth (20th) day of the
following month. The calculation shall be provided to Supplier and shall show
the total amount due and payable for the previous month. Each bill shall be
subject to adjustment for any errors in arithmetic computation, estimating,
reconciliation pursuant to the Terms and Conditions of Suppliers or otherwise
only to the extent allowed by the terms of this Article 6.
On or before the last day of each month, Companies shall pay Supplier
any amounts due and payable for the Delivered Energy provided by Supplier in
the previous month ("Due Date"). Any amount remaining unpaid after the Due Date
shall bear interest at the Prime Rate then in effect at the main office of
BankBoston, or such other lending institution as agreed to by Companies and
Supplier, from the Due Date to the date of payment by Companies.
If Supplier disputes the amount of any bill or payment, Supplier shall
itemize the basis for its dispute in a written notice to Companies within
fifteen days after the Due Date. Billing and payment disputes shall be handled
in accordance wit h the provisions of Article 13 of this Agreement. Upon final
resolution of the dispute, payment of any amount due to a Party under the terms
of the resolution shall be made within thirty (30) days of the date thereof,
together with interest from and after the original Due Date at the rate
specified in this Article.
The Companies may make retroactive adjustments to any billing for a
period of up to one year from the date of the original billing in order to
reflect differences in charges resulting from receipt of more accurate data.
Supplier may dispute such adjustment in writing within thirty (30) days of
receipt of the proposed adjustment.
Commencing in 2001, Supplier will pay to each of the Companies a rebate
(the "SO Rebate") for the prior Contract Year equal to the product of (i) the
Base SO Rebate for such Company set forth in Appendix B to this Agreement,
multiplied by (ii) a fraction, the numerator of which will be equal to such
Company's actual Delivered Energy for the Contact Year for which the SO Rebate
is being calculated, and the denominator of which will be equal to the Base
Delivered Energy for such Company set forth in Appendix B. The SO Rebate
payable to each Company for a Contract Year will be calculated on April 1 of
the following Contract Year and setoff in equal amounts against the amounts
payable by such Company for Delivered Energy over the next three billing
periods; provided that if the SO Rebate is not fully recovered by the
applicable Company during such billing periods, any remaining SO Rebate shall
be paid by Supplier within 30 days of the applicable Company's written demand
therefor.
ARTICLE 7. Security Provisions
As a condition of this Agreement and upon execution hereof, the
Supplier shall deliver to the Companies a financial surety to secure Supplier's
performance under this Agreement under one of the following forms, as Supplier
may from time to time determine:
(1) Except as otherwise provided in this Article, Supplier shall at
all times during the term of this Agreement (i) maintain an investment grade
rating on its senior debt securities, as determined by Standard & Poor's
Corporation, Moody's Investors Service, Inc. or another nationally recognized
rating service reasonably acceptable to the Companies and (ii) maintain total
assets of at least $500,000,000 times the percentage of the Companies'
Standard Offer Service which is initially satisfied by the Wholesale Standard
Offer Service under this Agreement (the foregoing items (i) and (ii) being
herein referred to as the "Creditworthiness Criteria"). If on the
Commencement Date of Service or at any time during the term of this Agreement
the Supplier shall fail to meet the Creditworthiness Criteria, then the
Supplier shall promptly deliver to the Companies an unconditional and
irrevocable guaranty of its obligations under this Agreement in form and
substance acceptable to the Companies and issued by an entity meeting the
Creditworthiness Criteria (a "Guaranty"). The amount of any such Guaranty
shall be the difference between the value of Supplier's total assets and its
requirements pursuant to part (ii) of the Creditworthiness Criteria;
provided, however, that if Supplier meets or exceeds its obligations pursuant
to part (ii) of the Creditworthiness Criteria no Guaranty will be required of
it. Supplier or the issuer of the Guaranty, as applicable, shall certify to
the Companies no less frequently than the end of every calendar quarter that
it meets the Creditworthiness Criteria (which certification shall include such
calculations and evidence as the Companies shall reasonably request from time
to time), and shall deliver financial statements to the Companies certified by
a firm of certified public accountants of national standing at least annually
within sixty (60) days following the end of the Supplier's or the guarantor's
fiscal year.
(2) In lieu of meeting the Creditworthiness Criteria or delivering
the Guaranty as required in Article 7(1), Supplier shall have the right to
deliver to the Companies an irrevocable standby letter of credit issued by a
commercial bank reasonably acceptable to the Companies. The amount of such
letter of credit shall be calculated annually based on the following formula:
SD(n) = SF x STDL(n-1) x { (PSTD(n) x TD(n))+(PSTD(n+1) x TD(n+1))+
(PSTD(n+2) x TD(n+2))+.........+
(PSTD(2009) x TD(2009)) }
Where:
SD(n) is the Security Deposit in Contract Year (n)
SF is the Security Fee equal to $10.00/MWh
STDL(n-1) is the aggregate load of those customers taking Standard
Offer Service in the previous Contract Year (n-1), expressed
in MWh. In Contract Year 1997, STDL shall be 4,500,000 MWh.
PSTD(n) is the percentage share of Standard Offer Service load that
the Supplier has committed to provide in Contract Year (n)
as shown in Appendix A.
TD(n) is the Transition Discount in Contract Year (n), calculated
as follows:
TD(n) = 1.00
TD(n+1) = (7-1)/7 = 0.857
TD(n+2) = (7-2)/7 = 0.714
TD(n+3) = (7-3)/7 = 0.571
TD(n+4) = (7-4)/7 = 0.429
TD(n+5) = (7-5)/7 = 0.286
TD(n+6) = (7-6)/7 = 0.143
TD(n+7) = 0
TD(n+8) = 0
TD(n+9) = 0
TD(n+10) = 0
TD(n+11) = 0
The letter of credit shall be available to be drawn upon by the
Companies in the event that an event of default occurs with respect to the
Supplier hereunder and shall otherwise be in form and substance reasonably
acceptable to the Companies (the "Initial Letter of Credit"). The draw down
on the Initial Letter of Credit shall be limited to the amount the Companies
are entitled to pursuant to Article 8(3) hereof. The bank issuing such Initial
Letter of Credit on behalf of a Supplier must maintain a long term debt rating
of "A" or better from Standard and Poor's Rating Service or Moody's Investment
Service.
The Initial Letter of Credit, if not issued for the full term of the
Supplier's Standard Offer Service obligation, shall be renewed on an annual
basis or replaced and superseded by a like kind of surety at least thirty (30)
days prior to the expiration of such prior surety on a continuing basis to the
termination of this Agreement or until Supplier's share of Standard Offer
Service load is zero. The amount of such financial surety may be amended on an
annual basis to reflect the security amount calculated pursuant to this Article
7 for the remaining term of this Agreement, provided that, if such Initial
Letter of Credit is drawn down upon by the Companies, Supplier shall have no
duty to renew or replace it with a letter of credit having a face amount
greater than that remaining on the drawn down Initial Letter of Credit.
ARTICLE 8. Events of Default, Liability, Relationship of the Companies
(1) Unless excused by a Force Majeure as described in Article 10,
each of the following events shall be deemed to be an Event of
Default hereunder:
(a) Failure of the Company to pay when due any undisputed payment
due to Supplier and such failure shall continue for five (5) days following the
receipt of written notice from the Supplier specifying the overdue amount.
(b) Failure of Supplier, in a material respect, to comply with,
observe, or perform any covenant, warranty or obligation under this Agreement,
and such failure is not cured or rectified within forty-five (45) days after
receipt of written notice thereof from the Companies.
(c) Failure of the Companies, in a material respect, to comply
with, observe, or perform any covenant, warranty or obligation under this
Agreement, other than as described in (a) above, and such failure is not cured
or rectified within forty-five (45) days after receipt of written notice
thereof from the Supplier.
(d) Failure of Supplier to maintain any of the security
requirements outlined in Article 7, and such failure is not cured or rectified
within ten (10) days after notice thereof from the Companies.
(e) And with respect to the Supplier, any Company and/or the
Companies, a custodian, receiver, liquidator or trustee for such Party is
appointed or takes possession and such appointment or possession remains
uncontested or in effect for m ore than sixty days; or the Party makes an
assignment for the benefit of creditors or admits in writing its inability to
pay its debts as they mature; or the Party is adjudicated as bankrupt or
insolvent; or an order for relief is entered under the Federal Bankruptcy Code
against the Party; or any material property of the Party is sequestered by
court order and the order remains in effect for more than sixty days; or a
petition is filed against the Party under any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law of any jurisdictions, whether now or subsequently in effect, and is not
stayed or dismissed within sixty days after filing; or the Party files a
petition in voluntary bankruptcy or seeking relief under any provision of
any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or subsequently
in effect; or the Party consents to the filing of any petition against it under
any such law; or the Party consents to the appointment or taking possession by
a custodian, receiver, trustee or liquidator of the Party or any material
portion of its property.
(2) Upon the occurrence of an Event of Default by the Companies,
the Companies shall be liable to the Supplier for any direct damages resulting
from the Event of Default, including, but not limited to, reasonable additional
administrative and legal expenses incurred as a result of Companies failure to
perform. Supplier shall take all commercially reasonable measures to mitigate
such direct damages. In addition, the Supplier may unconditionally terminate
this Agreement by giving written notice to the Companies, such termination to
be effective as of the date specified in such notice. Notwithstanding any
other provision of this Agreement to the contrary, the rights and obligations
of the Companies, herein are several and not joint. Each of the Company's
share of such rights and obligations shall be determined by the portion of its
monthly Standard Offer Service requirements represented as a percentage of the
Companies' total Standard Offer Service requirements during the period of time
in which the right, obligation or liability in questions arose, accrued and/or
matured, and in the event of difficulty or a dispute in determining the
appropriate period of time, during the entire duration of the Agreement.
(3) Upon the occurrence of an Event of Default by the Supplier, the
Supplier shall be liable to the Companies for all costs reasonably incurred by
the Companies resulting from Supplier's failure to deliver its share of the
Standard Offer Service. Such amount shall include the positive difference, if
any, obtained by subtracting the per unit Price established in Article 5, from
the per unit Replacement Price. The positive difference shall be applied to
each kilowatthour that Supplier fails to deliver.
"Replacement Price" shall mean the price at which the Companies acting
in a commercially reasonable manner purchase substitute Standard Offer Service
not delivered by Supplier, plus any additional transmission and NEPOOL charges,
incurred by the Companies. The Parties hereby stipulate that purchases at the
applicable NEPOOL spot market prices will be deemed commercially reasonable.
The Parties expressly agree that the amounts set forth in this Article
8(3) do not constitute liquidated damages. In addition to the amounts
established in this Article 8(3) above, the Supplier shall be liable to the
Companies for any additional direct damages resulting from an Event of Default
associated with reasonable additional administrative and legal expenses
incurred as a result of Supplier's failure to perform, and the Companies may
unconditionally terminate this Agreement by giving at least sixty (60) days
advance written notice to the Supplier, such termination to be effective as of
the date specified in such notice. The Parties expressly agree that the
Companies may exercise their rights under the financial surety provide d under
Article 7 to collect any and all amounts owed and due from the Supplier
resulting under this Article 8.
Nothing in this Article 8 shall be construed to limit the right of any
party to seek any remedies for a breach specified in this Agreement by the
other Party or Parties of its or their obligations hereunder, whether or not
such breach results in a termination of this Agreement under this Article 8
and whether or not such breach is cured per Articles 8(1)(a) or 8(1)(b), or
during any period during which the non-breaching Party elects not to exercise
its right to terminate this Agreement. In particular, each Party shall have
the right to seek a specific performance of any of the obligations of any
other Party hereunder.
ARTICLE 9. Termination
In addition to the termination rights for an Event of Default provided
in Article 8, the Companies may terminate this Agreement if Supplier's share of
Standard Offer Service load is less than one (1) megawatt for two consecutive
months.
ARTICLE 10. Force Majeure
As used in this Agreement, "Force Majeure" means any cause beyond the
reasonable control of, and without the fault or negligence of, the Party
claiming Force Majeure. A Force Majeure shall include, without limitation,
sabotage, strikes, riot s or civil disturbance, acts of God, acts of a public
enemy, drought, earthquake, flood, explosion, fire, lightning, landslide, or
any similar cataclysmic occurrence, or appropriation or diversion of
electricity by sale or order of any governmental authority having jurisdiction
thereof, but only if and to the extent that the event adversely affects the
availability of the transmission or distribution facilities of NEPOOL and/or
its participants, the Companies or an affiliate of the Companies, an d such
affected facilities are necessary to deliver Standard Offer Service electricity
to the Standard Offer Service customers.
An event that affects the availability or cost of operating any
transmission or distribution facilities outside the NEPOOL control area,
affects the availability or cost of operating a generating facility, or any
event that merely causes an economic hardship to either Party shall not be
deemed a Force Majeure.
If either Party is rendered wholly or partly unable to perform its
obligations under this Agreement because of Force Majeure as defined above,
that Party shall be excused from whatever performance is affected by the Force
Majeure, to the extent so affected, provided that:
(a) The nonperforming Party promptly, but in no case longer than
five (5) working days after the occurrence of the Force Majeure, gives the
other Party written notice describing the particulars of the occurrence;
(b) The suspension of performance shall be of no greater scope and
of no longer duration than is reasonably required by the Force Majeure;
(c) The nonperforming Party uses reasonable efforts to remedy its
inability to perform and expeditiously takes reasonable action to correct or
cure the event or condition; and
(d) The nonperforming Party exercises all reasonable efforts to
mitigate or limit damages to the other Party. With respect to the Supplier,
this shall mean that Supplier must purchase, at its own expense, electricity
from the NEPOOL market to meet its obligations under this Agreement, to the
extent such electricity is available and deliverable.
ARTICLE 11. Assignment
Unless mutually agreed to by the Parties, no assignment, pledge, or
transfer of this Agreement shall be made by either Party without the prior
written consent of the other Party, which shall not be unreasonably withheld,
except no prior written consent shall be required for (i) the assignment,
pledge or other transfer to another company or Affiliate in the same holding
company system as the assignor, pledgor or transferor, provided, the assignee,
pledgee or transferee expressly assumes a nd demonstrates, to the reasonable
satisfaction of the non-assigning Party, that it can meet the obligations of
the assignor, pledgor or transferor under this Agreement, or (ii) the transfer,
incident to a merger or consolidation with, or transfer of all (or
substantially all) of the assets of the transferor, to another person or
business entity, provided, such transferee expressly assumes, and demonstrates
to the reasonable satisfaction of the non-assigning party that it can meet,
all the obligations of the assignor, pledgor or transferor under this
Agreement.
ARTICLE 12. Successors and Assigns
This Agreement shall be binding upon and shall inure to the benefit of
the Parties and their successors and assignees.
ARTICLE 13. Resolution of Disputes
Subject to Article 8(3), all disputes between the Companies and
Supplier resulting from or arising out of performance under this Agreement
shall be referred to a senior representative of the Companies with authority to
settle, designated by t he Companies, and a senior representative of Supplier
with authority to settle, designated by Supplier, for resolution on an
informal, face-to-face basis as promptly as practicable. The Parties agree
that such informal discussion shall be conducted in good faith. The
discussions between such representatives shall be considered "settlement talks"
under Rule 403 of the Federal Rules of Evidence or analogous Massachusetts
rules or practices and such discussions shall have no evidentiary value
provided, however, that either Party may introduce evidence of matters
discussed
in such settlement talks, if the facts and documents reflecting such matters
are discovered or otherwise come into a Party's possession independent of such
settlement talks . In the event the designated senior representatives are
unable to resolve the dispute within thirty (30) days, or such other period as
the Companies and the Supplier may jointly agree upon, such dispute may be
submitted to arbitration and resolved in accordance with the arbitration
procedure set forth herein if the Companies and Supplier jointly agree to
submit it to arbitration. For any dispute or claim arising out of or relating
to any charges incurred under this Agreement having a value less than or
equivalent to $100,000, such arbitration shall be mandatory. Nothing in this
Article 13 shall prevent the Companies from issuing, pursuant to Sections 1(a)
and (3) of Article 8, notice of failure to comply with, observe or perform this
Agreement.
The arbitration shall be conducted before a single neutral arbitrator
or arbitrator panel appointed by the Parties. If the Parties agree upon a
single arbitrator within ten (10) days of the referral of the dispute to
arbitration, that arbitrator shall serve, otherwise the Companies and Supplier
shall each choose one arbitrator, who shall serve on a three-member arbitration
panel. The two arbitrators so chosen shall within twenty (20) days select a
third arbitrator to act as chairman of the arbitration panel. If the two
arbitrators are unable to select a third arbitrator, each arbitrator shall
select three candidates. A list of the six candidates, along with their
resumes, shall be provided in alphabetical order, with no indication of the
arbitrator who selected such candidate or the Party who selected the arbitrator
who selected such candidate, to the American Arbitration Association ("AAA"),
who will select one candidate. If that candidate is unable or unwilling to
serve, AAA shall select another candidate. This process will be repeated
until a third arbitrator is selected or the list of candidates is exhausted.
If the list of candidates is exhausted, the arbitrators shall submit a new list
of candidates and the process set forth above shall be repeated a second time.
In all cases, the arbitrator(s) shall be knowledgeable in electric utility
matters, including electricity transmission and bulk power issues, and shall
not have any current or past substantial business or financial relationships
with any Party to the arbitration or any affiliate of such Party.
Except as otherwise provided herein, the arbitrator(s), shall generally
conduct the arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. There shall be no formal discovery
conducted in connection with the arbitration, except as specifically
authorized by a vote of the panel. The Parties shall exchange witness lists
and copies of any exhibits that they intend to utilize in their direct
presentations at any hearing before the arbitrator (s) at least ten (10) days
prior to such hearing, along with any other information or documents
specifically requested by the arbitrator(s) prior to the hearing. Unless
otherwise agreed, the arbitrator(s) shall render a decision within ninety (90)
days of his, her, or their appointment and shall notify the Parties in writing
of such decision and the reasons therefor, and shall make an award apportioning
the payment of the costs and expenses of arbitration, including panel costs,
among the Parties, provided, however, that each Party shall bear the costs and
expenses of its own attorneys, expert witnesses and consultants. The
arbitrator(s) shall be authorized only to interpret and apply the provisions of
this Agreement and shall have no power to amend or modify this Agreement in
any manner. The decision of the arbitrator(s) shall be final and binding upon
the Parties, and judgment on the award may be entered in any court having
jurisdiction. The decision of the arbitrator(s) may be appealed solely on the
grounds that the conduct of the arbitrator(s), or the decision itself, violated
the standards required under the Federal Arbitration Act (9 U.S.C.A. Sect. 1
et. al.) and/or The Uniform Arbitration Act, as adopted in Massachusetts
(M.G.L. c. 251, Sect. 1 et seq.).
ARTICLE 14. Interpretation
The interpretation and performance of this Agreement shall be in
accordance with and shall be controlled by the laws of the Commonwealth of
Massachusetts, without regard to Massachusetts conflict of law principles.
ARTICLE 15. Severability of Provisions
Subject to the provisions of Article 13, a holding by any court having
jurisdiction that any provision of this Agreement is invalid or unenforceable
shall not result in invalidation or unenforceability of the entire Agreement
but all remaining terms shall remain in full force and effect.
ARTICLE 16. Accounts and Records
The Companies and Supplier shall keep complete and accurate records of
their operations hereunder and shall maintain such data for a period of at
least two (2) years after final billing. The Companies and Supplier shall have
the right, during normal business hours, to examine and inspect all such
records insofar as may be necessary for the purpose of ascertaining the
reasonableness and accuracy of all relevant data, estimates or statement of
charges associated with service hereunder.
ARTICLE 17. Limitations on Liability and Indemnification
Each Party agrees to indemnify, defend, and hold the other Party
(including the other Party's affiliated companies, trustees, directors, board
members, officers, employees, and
agents) harmless from and against any and all damages, costs, claims,
liabilities, actions or proceedings arising from or claimed to have arisen from
the wrongful acts or omissions of the indemnifying Party's employees or agents,
unless caused by an act of negligence or willful misconduct by the indemnified
Party (including the Party's affiliated companies, trustees, directors, board
members, officers, employees or agents).
The Parties hereby waive and release the other Party as well as the
other Party's affiliated companies, trustees, directors, officers, employees,
and agents from any liability, claim, or action arising from damage to its
property due to the performance of this Agreement.
To the fullest extent permissible by law, neither the Companies nor
Seller, nor their respective officers, directors, agents, employees, parent or
Affiliates, successors or assigns, or their respective officers, directors,
agents or employees , successors or assigns, shall be liable to the other party
or its parent, subsidiaries, Affiliates, officers, directors, agents,
employees, successors or assigns, for claims, suits, actions or causes of
action for incidental, indirect, special, punitive, multiple or consequential
damages (including attorneys' fees or litigation costs) connected with or
resulting from performance or non-performance of the Agreement, or any actions
undertaken in connection with or related to this Agreement, including without
limitation any such damages which are based upon causes of action for breach of
contract, tort (including negligence and misrepresentation), breach of
warranty, strict liability, Massachusetts General Laws Chapter 93A, statute,
operation of law, or any other theory of recovery. The provisions of this
Section 17 shall apply regardless of fault and shall survive termination,
cancellation, suspension, completion or expiration of this Agreement.
ARTICLE 18. Regulation
(1) This Agreement and all rights, obligations, and performances of
the Parties hereunder, are subject to all applicable state and federal laws,
and to all duly promulgated orders and other duly authorized actions of
governmental authority having jurisdiction, provided, however, that this
Agreement shall not be subject to change through unilateral application under
Sections 205 and 206 of the Federal Power Act.
(2) This Agreement is intended to comply with all NEPOOL Criteria,
Rules, and Standards ("Rules"). If, during the term of this Agreement, the
Restated NEPOOL Agreement is terminated or amended in a manner that would
eliminate or alter a Rule affecting a right or obligation of a Party hereunder,
or if such a Rule is eliminated or altered by NEPOOL or the ISO, in a manner
which materially affects the costs and obligations to provide Standard Offer
Service, the Companies and Supplier s hall meet to determine appropriate
compensation to the affected Party. In the event that the Parties are not able
to agree on the materiality of the cost or obligations or the amount to be
reimbursed, Parties shall attempt to resolve the matter in accordance with
Article 13.
(3) In the event that the Standard Offer Service or the Terms and
Conditions for Suppliers are terminated, amended or replaced by any
governmental or regulatory agency having jurisdiction over the provision of
Standard Offer Service in a manner which materially increases Supplier's costs
or obligations to provide Standard Offer Service or the Companies are prevented
from recovering from customers taking Standard Offer Service the cost of
electricity provided by Supplier, the Companies and Supplier shall meet to
determine appropriate compensation to the negatively impacted Party. In the
event that the Parties are not able to agree on the materiality of the
increased cost or obligations or the amount to be reimbursed, Parties shall
attempt to resolve the matter in accordance with Article 13.
ARTICLE 19. Notices
Any notice, demand, or request permitted or required under this
Agreement shall be delivered in person or mailed by certified mail, postage
prepaid, return receipt requested, or otherwise confirmed receipt, to a Party
at the applicable address set forth below:
To Companies:
Kevin A. Kirby
Vice President - Power Supply
EUA Service Corporation
P. O. Box 543
750 West Center Street
West Bridgewater, MA 02379
To Supplier:
NRG Power Marketing Inc.
1221 Nicollet Mall
Minneapolis, MN 55403-2445
Attention: Craig Mataczynski, President
Facsimile: 612-373-5430
With a copy to:
James Bender, Vice President
Facsimile: 612-373-5392
Such addresses may be changed from time to time by written notice by
either Party to the other Party.
ARTICLE 20. Miscellaneous:
(1) Each Party shall prepare, execute and deliver to the other
Party any documents reasonably required to implement any
provision hereof.
(2) Each Party represents to the other that this Agreement and such
Party's performance thereof are within the corporate powers of
such Party and have been duly authorized by proper corporate
action on the part of such Party.
(3) Any number of counterparts to this Agreement may be executed
and each shall have the same force and effect as the original.
(4) This Agreement shall constitute the entire understanding
between the Parties and shall supersede all prior
correspondence and understandings pertaining to the subject
matter of this Agreement.
(5) Failure of either Party to enforce any provision of this
Agreement or to require performance by the other Party of any
of the provisions hereof, shall not be construed as a waiver of
such provisions or affect the validity of this Agreement, any
part hereof, or the right of either Party to thereafter enforce
each and every provision.
(6) Article and Section headings used throughout this Agreement are
for the convenience of the Parties only and are not to be
construed as part of this Agreement.
(7) Nothing in this Agreement shall be construed as creating any
relationship between the Parties other than that of independent
contractor for the sale and purchase of electricity at
wholesale.
(8) Notwithstanding any other provision of this Agreement to the
contrary, the rights and obligations of the Companies herein
are several and not joint. Each of the Companies share of such
rights and obligations shall be determined by the portion of
its monthly Standard Offer Service energy requirements
represented as a percentage of the Companies' total Standard
Offer Service requirement.
[Remainder of this page intentionally left blank]
IN WITNESS WHEREOF, Supplier and the Companies have caused this
Agreement to be signed by their respective duly authorized representatives as
of the date first above written.
Supplier: NRG ENERGY POWER MARKETING INC.
By: /s/ Craig Mataczynski
Name: Craig Mataczynski
Title: President
On Behalf of the Companies:
Blackstone: BLACKSTONE VALLEY ELECTRIC COMPANY
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
Eastern: EASTERN EDISON COMPANY
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
Newport: NEWPORT ELECTRIC CORPORATION
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
APPENDIX A
SCHEDULE OF SUPPLIER'S SHARE of STANDARD OFFER SERVICE
AND
STANDARD OFFER WHOLESALE PRICE
TABLE 1
Calendar Supplier's Share Standard
Year of Standard Offer
Offer Service Wholesale
In Percent Price
1998 29.5980% 3.2 cents/kWh
1999 29.5980% 3.5 cents/kWh
2000 29.5980% 3.8 cents/kWh
2001 29.5980% 3.8 cents/kWh
2002 29.5980% 4.2 cents/kWh
2003 29.5980% 4.7 cents/kWh
2004 29.5980% 5.1 cents/kWh
*2005 29.5980% 5.5 cents/kWh
2006 29.5980% 5.9 cents/kWh
2007 29.5980% 6.3 cents/kWh
2008 29.5980% 6.7 cents/kWh
2009 29.5980% 7.1 cents/kWh
* Standard Offer Service for Eastern Edison terminates at 12:00 midnight on
February 28, 2005.
APPENDIX B
SO REBATE
Company
Base Delivered Energy
Base SO Rebate
Eastern Edison Company
2,619,300 MWh
$895,875
Blackstone Valley Electric Company
1,222,100 MWh
$417,993
Newport Electric Company
544,200 MWh
$186,132
TABLE OF CONTENTS
ARTICLE 1. Definitions 2
ARTICLE 2. Term 4
ARTICLE 3. Supplier Responsibilities 4
ARTICLE 4. Estimation of Hourly Loads and Reporting to the ISO 5
ARTICLE 5. Price 6
ARTICLE 6. Billing and Payments 7
ARTICLE 7. Security Provisions 8
ARTICLE 8. Events of Default, Liability, Relationship of the Companies 10
ARTICLE 9. Termination 12
ARTICLE 10. Force Majeure 12
ARTICLE 11. Assignment 13
ARTICLE 12. Successors and Assigns 13
ARTICLE 13. Resolution of Disputes 13
ARTICLE 14. Interpretation 15
ARTICLE 15. Severability of Provisions 15
ARTICLE 16. Accounts and Records 15
ARTICLE 17. Limitations on Liability and Indemnification 15
ARTICLE 18. Regulation 16
ARTICLE 19. Notices 16
ARTICLE 20. Miscellaneous: 17
APPENDIX A SCHEDULE OF SUPPLIER'S SHARE of STANDARD OFFER SERVICE
AND STANDARD OFFER WHOLESALE PRICE
APPENDIX B SO REBATE
REDACTED VERSION
Wholesale Standard Offer
Service Agreement
between
Blackstone Valley Electric Company
Eastern Edison Company
Newport Electric Corporation
and
Constellation Power Source, Inc.
December 21, 1998
TABLE OF CONTENTS
Page
ARTICLE 1. Definitions 2
ARTICLE 2. Term; Required Approvals; Other Conditions 4
ARTICLE 3. Supplier Responsibilities 4
ARTICLE 4. Companies' Responsibilities 6
ARTICLE 5. Price 6
ARTICLE 6. Billing and Payments 7
ARTICLE 7. 8
ARTICLE 8. Events of Default, Liability, Relationship of the Companies
10
ARTICLE 9. Termination 13
ARTICLE 10. Force Majeure 13
ARTICLE 11. Assignment 14
ARTICLE 12. Successors and Assigns 14
ARTICLE 13. Resolution of Disputes 14
ARTICLE 14. Interpretation 16
ARTICLE 15. Severability of Provisions 16
ARTICLE 16. Accounts and Records 16
ARTICLE 17. Limitations on Liability and Indemnification 16
ARTICLE 18. Regulation 17
ARTICLE 19. Notices 17
ARTICLE 20. Miscellaneous 18
Appendix A
Appendix B
WHOLESALE STANDARD OFFER SERVICE AGREEMENT
This Wholesale Standard Offer Service Agreement ("Agreement"), is made and
entered into this 21st day of December, 1998, between Eastern Edison Company,
("Eastern") a Massachusetts Corporation; Blackstone Valley Electric Company
("Blackstone"), a Rh ode Island Corporation; and Newport Electric Corporation
("Newport"), a Rhode Island Corporation (referred to individually as the
"Company" or collectively as the "Companies"), on the one hand, and
Constellation Power Source, Inc., a Delaware corporation ("Supplier"), on the
other hand.
WHEREAS, the Supplier has entered into a Power Purchase and Sale Agreement
dated December 21, 1998 with Montaup Electric Company ("Montaup") (the
"Purchase Agreement"); and as a condition of such Purchase Agreement Supplier
is required to assume a share of the Companies' Standard Offer Service under
this Agreement; and
WHEREAS, the Companies are required to provide firm all-requirements service
to any retail customer that is eligible for and is taking Standard Offer
Service in accordance with the Settlement Agreements; and
WHEREAS, this Agreement provides for the transfer, from the Companies to
Supplier of the responsibility for providing firm all-requirements electric
service including capacity, energy, reserves, losses and other related services
necessary to serve a specified share of the Companies' aggregate load of retail
customers taking Standard Offer Service; and
WHEREAS, by entering into this Agreement, Supplier agrees to provide and the
Companies agree to receive and pay for electricity provided in accordance with
the terms and conditions of this Agreement and the applicable Appendices,
subject to any actions by any governmental bodies having regulatory
jurisdiction over services rendered hereunder.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
agreements contained herein, Supplier and Companies agree to the terms and
conditions as set forth below:
ARTICLE 1. Definitions
Whenever used in this Agreement, the following terms shall have the following
meanings. In addition, except as otherwise expressly provided, where terms
used in this Agreement are defined in the Restated NEPOOL Agreement and not
otherwise defined he rein, such terms shall have the meanings given them in the
Restated NEPOOL Agreement.
"Affiliate" shall mean any other entity (other than an individual)
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, such entity. For purposes of
the foregoing the definition of "control" means the direct or indirect
ownership of more than seventy percent of the outstanding capital stock or
other equity interest having ordinary voting power.
"Agreement" shall mean this Agreement, including its Appendices as amended from
time to time.
"Commencement Date of Service" shall mean the "Effective Date" as defined in
the Purchase Agreement.
"Contract Year" shall mean any calendar year, or in the case of 1999 part of a
calendar year, after the Commencement Date of Service in which Supplier is
scheduled to provide electricity to the Companies for Standard Offer Service.
"Companies' System" shall mean the electrical distribution systems of
Blackstone, Newport, Eastern, and/or the electrical transmission system of
Montaup, as applicable.
"Delivered Energy" shall mean the kilowatt-hours delivered to the meters of
those retail customers taking Standard Offer Service.
"Delivery Point" shall be any location on the NEPOOL PTF system or Companies'
System, as elected by Supplier.
"D.T.E." shall mean the Massachusetts Department of Telecommunications and
Energy or its successor state regulatory agency.
"Good Utility Practice" - Any of the applicable practices, methods and acts (i)
required by NEPOOL, the Northeast Power Coordinating Council, the North
American Electric Reliability Council, the ISO or the successor of any of them;
(ii) required by the policies and standards of the D.T.E. relating to
emergency operations; or (iii) otherwise engaged in or approved by a
significant portion of the electric utility industry during the relevant time
period; which in each case in the exercise of reasonable judgment in light of
the facts known or that should have been known at the time a decision was made,
could have been expected to accomplish the desired result in a manner
consistent with law, regulation, safety, environmental protection, economy,
and expedition. Good utility practice is intended to be acceptable practices,
methods or acts generally accepted in the region, and is not intended to be
limited to the optimum practices, methods or acts to the exclusion of all
others.
"ISO" shall mean ISO New England, Inc., the independent system operator
established in accordance with the Restated NEPOOL Agreement, or its successor.
"NEPOOL" shall mean the New England Power Pool or its successor.
"Party" or "Parties" shall mean the Supplier and the Companies and their
respective successors and assigns.
"Price" shall mean the annual amount per kilowatt-hour to be paid for Delivered
Energy set forth in Article 5 with no variation for time-of-use, seasonality,
or any other factor except as specified in Article 5. The Companies or their
Standard Offer customers shall not be obligated under this Agreement for any
payments for Delivered Energy in addition to the payments made pursuant to
Article 5.
"PTF" shall mean the facilities categorized as Pool Transmission Facilities as
defined in the Restated NEPOOL Agreement.
"P.U.C." shall mean the Rhode Island Public Utilities Commission or its
successor state regulatory agency.
"Restated NEPOOL Agreement" shall mean the New England Power Pool Agreement
dated December 31, 1996, as amended from time to time, as it is in force at the
time the action in question is taken.
"Settlement Agreements" shall mean any agreement or agreements that have been
approved by the D.T.E. in Docket No. 96-24, P.U.C. in Docket No. 2514, and the
Federal Energy Regulatory Commission in Docket Nos. ER97-2800-000 and ER97-
3127-000, together with all conditions, terms and modifications imposed by
those agencies.
"Standard Offer Service" shall mean firm all-requirements electric service
(minute by minute, hour by hour, day by day) including, but not limited to, the
following products: energy, installed capability, operable capability,
reserves, and associated losses necessary to fulfill all NEPOOL and ISO
obligations as they may change from time to time associated with providing firm
all requirements power to the Companies' retail customers taking Standard Offer
Service in accordance with the Settlement Agreements. Such Standard Offer
Service shall include changes in customer demand for any reason, including, but
not limited to, seasonal factors, daily load fluctuations, increased or
decreased usage, demand side management activities, extremes in weather, and
other similar events.
"Standard Offer Wholesale Price" shall mean the stipulated stream of prices, in
cents per kilowatt-hour, that will be paid to Supplier for Delivered Energy, as
shown in Appendix A.
"Terms and Conditions for Suppliers" shall mean the Blackstone Valley Electric
Company and Newport Electric Corporation Terms and Conditions for Electric
Power Suppliers dated May 29, 1997 as approved by the P.U.C., or the Eastern
Edison Company Term s and Conditions for Competitive Suppliers as approved by
the D.T.E., as applicable. These Terms and Conditions may be revised, amended,
supplemented, or supplanted in whole or in part from time to time by the P.U.C.
or D.T.E. or as otherwise provided by law.
ARTICLE 2. Term; Required Approvals; Other Conditions
a) This Agreement shall be effective immediately upon execution by the Parties
and shall continue in effect until 12:00 midnight on December 31, 2009, unless
terminated sooner in accordance with Article 8 or 9. Delivery of Standard
Offer Service under this Agreement shall commence on the Commencement Date of
Service.
b) The Parties' obligations under this Agreement are subject to the receipt of
all federal, state or local government consents or approvals required for
consummation of the transactions contemplated hereby, including, without
limitation, a finding by the D.T.E. that Eastern's actions in regard to this
Agreement are in accordance with G.L. c. 164, 94A and 1B(b) and that this
Agreement may become effective, all such consents and approvals to be final
and no longer subject to rehearing, reconsideration or appeal. The Companies
shall pursue and acquire, prior to the Commencement Date of Service, and
maintain, all such regulatory consents and approvals. The Companies will be
responsible for and pay for all fees associated with obtaining such consents
and approvals, if any.
c) Supplier shall make any filings required of it, if any, with FERC in
accordance with the provisions of all applicable laws, rules and regulations.
Supplier will be responsible for and pay for all fees associated with such
required filings, if any .
ARTICLE 3. Supplier Responsibilities
Supplier shall, prior to the Commencement Date of Service, (i) be a member, in
good standing, of NEPOOL or its successor entity and maintain an own-load
dispatch or settlement account established in accordance with the rules and
criteria established by the ISO throughout the term of this agreement, or (ii)
have an agreement in place, for the full term of this Agreement, with a NEPOOL
member whereby the NEPOOL member agrees to include the load to be served by
Supplier under this Agreement in its own-load dispatch or settlement account.
Supplier shall sell and deliver to the Delivery Point and the Companies shall
receive and purchase that portion of the Companies' aggregate load attributed
to those customers taking Standard Offer Service determined in accordance with
Appendix A attached hereto.
As a provider of Standard Offer Service, Supplier is solely responsible for
satisfying all requirements and paying all costs incurred or to be incurred to
provide those generation-related services including, without limitation, all
costs or other requirements to furnish installed capability, operable
capability, energy, operating reserves, line losses, automatic generation
control, and other generation-related ancillary services associated with the
provision of its share of Standard Offer Service. Supplier is also solely
responsible for meeting any other requirements and paying any other cost now or
hereafter imposed by the ISO from time to time which are attributable to the
provision of Supplier's share of Standard Offer Service, as they m ay arise. If
the ISO or any successor entity or NEPOOL allocates any expenses or uplift
costs to the Standard Offer Service provided by the Supplier (on a load or peak
load basis or otherwise), the expenses or costs so allocated will be borne by
the Supplier alone without recourse to the Companies.
Supplier shall be responsible for all transmission and distribution losses
associated with the delivery of electricity supplied under this Agreement from
the sources of its supply to the meters of those customers taking Standard
Offer Service as determined based on the NEPOOL regional transmission tariff
and the Companies' estimation of distribution and non-PTF losses. The
Companies shall operate their respective distribution systems in accordance
with Good Utility Practice. The Companies shall arrange for and bill their
respective customers for NEPOOL regional network transmission service,
Montaup's local network service for transmission over non-PTF facilities and
the Companies' respective distribution service.
Supplier is responsible for any transmission wheeling costs and any
distribution wheeling costs, if any, associated with the delivery by Supplier
of Standard Offer Service to the NEPOOL PTF. If the NEPOOL control area
experiences congestion, Supplier will be responsible for any congestion costs
incurred in delivering power to the Delivery Point(s). In the event that
NEPOOL adopts a transmission congestion management approach assigning priority
rights or other benefits to transmission customers serving native load in the
congested area, then, if so requested by Supplier, the Companies shall assign
to the Supplier at no cost the proportional share of such priority rights or
other benefits associated with Seller's proportional share of Standard Offer
Service under this Agreement at such time. Supplier shall be responsible for
all transmission and distribution costs associated with the use of transmission
systems outside of NEPOOL and any local point-to-point transmission charges and
distribution charges incurred to deliver the power to the Delivery Point.
In the event that either the D.T.E. or the P.U.C. issue orders requiring the
Companies to implement uniform disclosure requirements that pertain to the
reporting of information regarding power plant emissions, fuel types, or labor
information for the sources of electricity used to supply Standard Offer
Service, the Supplier will provide, subject to any confidentiality obligations
to which it is bound, such information in a timely manner in an appropriate
form to enable the Companies to comply with such requirements.
ARTICLE 4. Companies' Responsibilities
To meet their NEPOOL obligations, the Companies shall report to the ISO
Supplier's share of hourly Standard Offer Service load, including distribution
and non-PTF losses. As required by NEPOOL, the Companies will make all
reasonable efforts to report to the ISO Supplier's hourly share of Standard
Offer Service load by 12:00 noon of the second following business day. In
making such reports, the Companies will estimate Supplier's share of Standard
Offer Service load based on the methods and procedures approved in Terms and
Conditions for Suppliers on file with the P.U.C. and D.T.E., as amended from
time to time.
As described in the Terms and Conditions for Suppliers, to determine Supplier's
share of Delivered Energy, at the end of each month, the Companies shall
aggregate Supplier's hourly Standard Offer Service loads as reported to the ISO
for each hour of the month. The Supplier's aggregate share of Standard Offer
Service, excluding losses, will be deemed to be the quantity of Delivered
Energy that Supplier provided for that month and is the unadjusted kWh amount
to be used for Billing and Payment as described in Article 6.
The Companies will periodically reconcile the Delivered Energy to actual meter
readings of those customers taking Standard Offer Service, as described in the
Terms and Conditions for Suppliers. The Companies will apply any resulting
billing adjustment (debit or credit) to Supplier's account no later than the
last day of the third month following the billing month.
ARTICLE 5. Price
For each kilowatt-hour of Delivered Energy that Supplier provides in each
month, as determined in accordance with Article 4 and the Terms and Conditions
for Suppliers, the Companies shall pay Supplier the applicable Price for the
month in cents per kilowatt-hour calculated as follows:
Price = Standard Offer Wholesale Price
+ Fuel Adjustment Factor
Where: Standard Offer Wholesale Price in cents per kilowatt hour is as defined
in Article 1 and shown in Appendix A, and
Fuel Adjustment Factor is a cents per kilowatt-hour adder based on the
incremental revenues collected, if any, attributed to the operation of the
Retail Standard Offer Fuel Index ("Fuel Index") mechanism in the Companies'
Standard Offer Service tariffs. The revenues attributed to the Fuel Index will
be fully allocated to suppliers in proportion to the Standard Offer Service
energy provided by each supplier for the applicable billing month through the
Fuel Adjustment Factor. The Fuel Index, and t he resulting Fuel Adjustment
Factor to be paid to Supplier, will be made subject to regulatory approval and
only to the extent that the Companies are allowed to collect such revenues from
their retail customers taking Standard Offer Service.
With the exception of any sales or gross receipt taxes which are required by
law to be paid by Standard Offer Service customers, the Price for Delivered
Energy as set forth herein includes all local, state, and federal taxes, fees
and levies applicable as of the date hereof. For any new taxes, fees and
levies, assessed with respect to the services provided by Supplier after the
Commencement Date of Service, the Companies will fully support and pursue in
good faith the recovery of any such new t ax, fee and levy imposed on Supplier
from the Companies' Standard Offer Service customers. To the extent such new
taxes, fees and levies are allowed to be recoverable by the Companies from
their Standard Offer Service customers, the Companies shall reimburse Supplier
for such generation related taxes, fees and levies paid by Supplier.
All Standard Offer Service delivered by Supplier to the Companies hereunder
shall be sales for resale, with the Companies reselling such Standard Offer
Service. On or before the Commencement Date of Service the Companies shall
obtain and provide Supplier with any resale certificates reasonably requested
by Supplier to evidence that the deliveries hereunder are sales for resale.
ARTICLE 6. Billing and Payments
Until reconciled with actual metered data pursuant to the Terms and Conditions
of Suppliers, computations by the Companies of the charges for the purposes of
billings hereunder shall be based on estimates of Supplier's Delivered Energy
in accordance with Article 4 and the Price as determined in accordance with
Article 5. The Companies shall calculate the amount payable to Supplier for a
given month on or before the twentieth (20th) day of the following month. The
calculation shall be provided to Supplier and shall show the total amount due
and payable for the previous month. Each bill shall be subject to adjustment
for any errors in arithmetic computation, estimating, reconciliation pursuant
to the Terms and Conditions of Suppliers or otherwise only to the extent
allowed by the terms of this Article 6.
On or before the last day of each month, Companies shall pay Supplier any
amounts due and payable for the Delivered Energy provided by Supplier in the
previous month ("Due Date"). Any amount remaining unpaid after the Due Date
shall bear interest at a rate equal to the lesser of (a) the per annum rate of
interest equal to the prime lending rate then in effect at the main office of
BankBoston or such other lending institution as agreed to by Companies and
Supplier and (b) the maximum rate permitted by applicable law, from the Due
Date to the date of payment by Companies.
If Supplier disputes the amount of any bill or payment, Supplier shall itemize
the basis for its dispute in a written notice to Companies within thirty (30)
days after the Due Date. Billing and payment disputes shall be handled in
accordance with the provisions of Article 13 of this Agreement. Upon final
resolution of the dispute, payment of any amount due to a Party under the terms
of the resolution shall be made within thirty (30) days of the date thereof,
together with interest from and after the original Due Date at the rate
specified in this Article.
The Companies may make retroactive adjustments to any billing for a period of
up to one year from the date of the original billing in order to reflect
differences in charges resulting from receipt of more accurate data. Supplier
may dispute such adjustment in writing within thirty (30) days of receipt of
the proposed adjustment.
ARTICLE 7. XX
ARTICLE 8. Events of Default, Liability, Relationship of the Companies
1) Unless excused by a Force Majeure as described in Article 10, each of the
following events shall be deemed to be an Event of Default hereunder:
a) Failure of any Company to pay when due any undisputed payment due to
Supplier and such failure shall continue for following the
receipt of written notice from the Supplier specifying the overdue amount.
b) Failure of Supplier, in a material respect, to comply with, observe, or
perform any covenant, representation or warranty or obligation under this
Agreement, and such failure is not cured or rectified within
after receipt of written notice thereof from the Companies.
c) Failure of any Company, in a material respect, to comply with, observe, or
perform any covenant, representation or warranty or obligation under this
Agreement, other than as described in (a) above, and such failure is not
cured or rectified within after receipt of written notice thereof from the
Supplier.
d) Failure of Supplier to maintain any of the security requirements outlined in
Article 7, and such failure is not cured or rectified within
after notice thereof from the Companies.
e) With respect to Supplier, any Company and/or the Companies, a custodian,
receiver, liquidator or trustee for such Party is appointed or takes
possession and such appointment or possession remains uncontested or in
effect for more than ; or the Party makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts as
they mature; or the Party is adjudicated as bankrupt or insolvent; or an
order for relief is entered under the Federal Bankruptcy Code against the
Party; or any material property of the Party is sequestered by court order
and the order remains in effect for more than ; or a petition is
filed against the Party under any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law of any
jurisdictions, whether now or subsequently in effect, and is not stayed or
dismissed within after filing; or the Party files a petition in voluntary
bankruptcy or seeking relief under any provision of any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law of any jurisdiction, whether now or subsequently in
effect; or the Party consents to the filing of any petition against it
under any such law; or the Party consents to the appointment or taking
possession by a custodian, receiver, trustee or liquidator of the Party or
any material portion of its property.
2) Upon the occurrence of an Event of Default by any of the Companies, such
Company shall be liable to the Supplier for any direct damages resulting
from the Event of Default. Such amount shall include the positive
difference, if any, obtained by subtracting the per unit Sales Price from
the per unit Price established in Article 5. The positive difference shall
be applied to each kilowatthour that Companies fail to receive.
"Sales Price" shall mean the price at which the Supplier acting in a
commercially reasonable manner resells each component of Standard Offer Service
not received by the Companies, minus any additional transmission and NEPOOL
charges incurred by the Supplier as a result of the Companies' default. The
Parties hereby stipulate that sales at the applicable NEPOOL spot market prices
will be deemed commercially reasonable.
The Parties expressly agree that the amounts set forth in this Article 8(2) do
not constitute the Supplier's sole remedy. In addition to the amounts
established in this Article 8(2) above, the Companies shall be liable to the
Supplier for any additional direct damages resulting from an Event of Default
associated with reasonable additional administrative and legal expenses
incurred as a result of any Company's failure to perform. Supplier shall take
all commercially reasonable measures to mitigate such direct damages. In
addition, the Supplier may unconditionally terminate this Agreement by giving
written notice to the Companies, such termination to be effective as of the
date specified in such notice. Notwithstanding any other provision of this
Agreement to the contrary, the rights and obligations of the Companies, herein
are several and not joint. Each Company's share of such rights and obligations
shall be determined by the portion of its monthly Standard Offer Service
requirements represented as a percentage of the Companies' total Standard Offer
Service requirements during the period of time in which the right,
obligation or liability in questions arose, accrued and/or matured, and in the
event of difficulty or a dispute in determining the appropriate period of time,
during the entire duration of the Agreement.
3) Upon the occurrence of an Event of Default by the Supplier, the Supplier
shall be liable to the Companies for any direct damages resulting from the
Event of Default. Such amount shall include the positive difference, if any,
obtained by subtracting the per unit Price established in Article 5, from
the per unit Replacement Price. The positive difference shall be applied to
each kilowatthour that Supplier fails to deliver.
"Replacement Price" shall mean the price at which the Companies acting in a
commercially reasonable manner purchase substitute Standard Offer Service not
delivered by Supplier, plus any additional transmission and NEPOOL charges
incurred by the Companies as a result of Supplier's default. The Parties
hereby stipulate that purchases at the applicable NEPOOL spot market prices
will be deemed commercially reasonable.
The Parties expressly agree that the amounts set forth in this Article
8(3) do not constitute the Companies' sole remedy. In addition to the amounts
established in this Article 8(3) above, the Supplier shall be liable to the
Companies for an y additional direct damages resulting from an Event of Default
associated with reasonable additional administrative and legal expenses
incurred as a result of Supplier's failure to perform. The Companies shall take
all commercially reasonable measure s to mitigate such direct damages. In
addition, the Companies may unconditionally terminate this Agreement by giving
written notice to the Supplier, such termination to be effective as of the date
specified in such notice. The Parties expressly agree that the Companies may
exercise their rights under the financial surety provided under Article 7 to
collect any and all amounts owed and due from the Supplier resulting under this
Article 8.
4) Nothing in this Article 8 shall be construed to limit the right of any Party
to seek any remedies for a breach specified in this Agreement by the other
Party or Parties of its or their obligations hereunder, whether or not such
breach results in a termination of this Agreement under this Article 8 and
whether or not such breach is cured after the times set forth for such cure
in Article 8(1), or during any period during which the non-breaching Party
elects not to exercise its right to terminate this Agreement.
ARTICLE 9. Termination
In addition to the termination rights for an Event of Default provided in
Article 8, the Companies may terminate this Agreement if Supplier's share of
Standard Offer Service load is less than one (1) megawatt for two consecutive
months.
ARTICLE 10. Force Majeure
As used in this Agreement, "Force Majeure" means any cause beyond the
reasonable control of, and without the fault or negligence of, the Party
claiming Force Majeure. A Force Majeure shall include, without limitation,
sabotage, strikes, riots or civil disturbance, acts of God, acts of a public
enemy, drought, earthquake, flood, explosion, fire, lightning, landslide, or
any similar cataclysmic occurrence, or appropriation or diversion of
electricity by sale or order of any governmental authority having jurisdiction
thereof, but only if and to the extent that the event adversely affects the
availability of the transmission or distribution facilities of NEPOOL and/or
its participants, the Companies or an affiliate of the Companies, and such
affected facilities are necessary to deliver Standard Offer Service electricity
to the Standard Offer Service customers.
An event that affects the availability or cost of operating any transmission or
distribution facilities outside the NEPOOL control area, affects the
availability or cost of operating a generating facility, or any event that
merely causes an economic hardship to either Party shall not be deemed a Force
Majeure.
If either Party is rendered wholly or partly unable to perform its obligations
under this Agreement because of Force Majeure as defined above, that Party
shall be excused from whatever performance is affected by the Force Majeure, to
the extent so affected, provided that:
a) The non-performing Party promptly, but in no case longer than five (5)
working days after the occurrence of the Force Majeure, gives the other
Party written notice describing the particulars of the occurrence;
b) The suspension of performance shall be of no greater scope and of no longer
duration than is reasonably required by the Force Majeure;
c) The non-performing Party uses reasonable efforts to remedy its inability to
perform and expeditiously takes reasonable action to correct or cure the
event or condition; and
d) The non-performing Party exercises all reasonable efforts to mitigate or
limit damages to the other Party. With respect to the Supplier, this shall
mean that Supplier must purchase, at its own expense, electricity from the
NEPOOL market to meet its obligations under this Agreement, to the extent
such electricity is available and deliverable.
ARTICLE 11. Assignment
Unless mutually agreed to by the Parties, no assignment, pledge, or transfer of
this Agreement shall be made by any Party without the prior written consent of
the other Party, which shall not be unreasonably withheld, provided, however,
that no prior written consent shall be required for (i) the assignment, pledge
or other transfer to another company or Affiliate in the same holding company
system as the assignor, pledgor or transferor, provided, the assignee, pledgee
or transferee expressly assumes and demonstrates, to the reasonable
satisfaction of the non-assigning Party, that it can meet the obligations of
the assignor, pledgor or transferor under this Agreement, or (ii) the
transfer, incident to a merger or consolidation with, or transfer of all (or
substantially all) of the assets of the transferor, to another person or
business entity, provided, such transferee expressly assumes, and demonstrates
to the reasonable satisfaction of the non-assigning party that it can meet,
all t he obligations of the assignor, pledgor or transferor under this
Agreement and provided, however, that either Party may, without the consent of
the other Party (and without relieving itself from liability hereunder),
transfer, sell, pledge, encumber or assign such Party's rights to the
accounts, revenues or proceeds hereof in connection with any financing or
other financial arrangements.
ARTICLE 12. Successors and Assigns
This Agreement shall be binding upon and shall inure to the benefit of the
Parties and their successors and assignees.
ARTICLE 13. Resolution of Disputes
Subject to Article 8(3), all disputes between the Companies and
Supplier resulting from or arising out of performance under this Agreement
shall be referred to a senior representative of the Companies with authority to
settle, designated by t he Companies, and a senior representative of Supplier
with authority to settle, designated by Supplier, for resolution on an
informal, face-to-face basis as promptly as practicable. The Parties agree
that such informal discussion shall be conducted in good faith. The
discussions between such representatives shall be considered "settlement talks"
under Rule 403 of the Federal Rules of Evidence or analogous Massachusetts
rules or practices and such discussions shall have no evidentiary value
provided, however, that either Party may introduce evidence of matters
discussed in such settlement talks, if the facts and documents reflecting such
matters are discovered or otherwise come into a Party's possession independent
of such settlement talks. In the event the designated senior representatives
are unable to resolve the dispute within thirty (30) days, or such other period
as the Companies and the Supplier may jointly agree upon, such dispute may be
submitted to arbitration and resolved in accordance with the arbitration
procedure set forth herein if the Companies and Supplier jointly agree to
submit it to arbitration. For any dispute or claim arising out of or relating
to any charges incurred under this Agreement having a value less than or
equivalent to $100,000, such arbitration shall be mandatory. Nothing in this
Article 13 shall prevent the Companies from issuing, pursuant to Sections 1(a)
and (3) of Article 8, notice of failure to comply with, observe or perform this
Agreement.
The arbitration shall be conducted before a single neutral arbitrator or
arbitrator panel appointed by the Parties. If the Parties agree upon a single
arbitrator within ten (10) days of the referral of the dispute to arbitration,
that arbitrator shall serve, otherwise the Companies and Supplier shall each
choose one arbitrator, who shall serve on a three-member arbitration panel. The
two arbitrators so chosen shall within twenty (20) days select a third
arbitrator to act as chairman of the arbitration panel. If the two arbitrators
are unable to select a third arbitrator, each arbitrator shall select three
candidates. A list of the six candidates, along with their resumes, shall be
provided in alphabetical order, with no indication of the arbitrator who
selected such candidate or the Party who selected the arbitrator who selected
such candidate, to the American Arbitration Association ("AAA"), who will
select one candidate. If that candidate is unable or unwilling to serve, AAA
shall select another candidate. This process will be repeated until a third
arbitrator is selected or the list of candidates is exhausted. If the list of
candidates is exhausted, the arbitrators shall submit a new list of candidates
and the process set forth above shall be repeated a second time. In all cases,
the arbitrator(s) shall be knowledgeable in electric utility matters, including
electricity transmission and bulk power issues, and shall not have any current
or past substantial business or financial relationships with any Party to the
arbitration or any affiliate of such Party.
Except as otherwise provided herein, the arbitrator(s), shall generally conduct
the arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. There shall be no formal discovery conducted
in connection with the arbitration, except as specifically authorized by a
vote of the panel. The Parties shall exchange witness lists and copies of any
exhibits that they intend to utilize in their direct presentations at any
hearing before the arbitrator(s) at l east ten (10) days prior to such hearing,
along with any other information or documents specifically requested by the
arbitrator(s) prior to the hearing. Unless otherwise agreed, the arbitrator(s)
shall render a decision within ninety (90) days of h is, her, or their
appointment and shall notify the Parties in writing of such decision and the
reasons therefor, and shall make an award apportioning the payment of the costs
and expenses of arbitration, including panel costs, among the Parties,
provided, however, that each Party shall bear the costs and expenses of its own
attorneys, expert witnesses and consultants. The arbitrator(s) shall be
authorized only to interpret and apply the provisions of this Agreement and
shall have no power to am end or modify this Agreement in any manner. The
decision of the arbitrator(s) shall be final and binding upon the Parties, and
judgment on the award may be entered in any court having jurisdiction. The
decision of the arbitrator(s) may be appealed solely on the grounds that the
conduct of the arbitrator(s), or the decision itself, violated the standards
required under the Federal Arbitration Act (9 U.S.C.A. Sect. 1 et. al.) and/or
The Uniform Arbitration Act, as adopted in Massachusetts (M.G.L . c. 251, Sect.
1 et seq.).
ARTICLE 14. Interpretation
The interpretation and performance of this Agreement shall be in accordance
with and shall be controlled by the laws of the Commonwealth of Massachusetts,
without regard to Massachusetts conflict of law principles.
ARTICLE 15. Severability of Provisions
Subject to the provisions of Article 13, a holding by any court having
jurisdiction that any provision of this Agreement is invalid or unenforceable
shall not result in invalidation or unenforceability of the entire Agreement
but all remaining terms shall remain in full force and effect.
ARTICLE 16. Accounts and Records
The Companies and Supplier shall keep complete and accurate records of their
operations hereunder and shall maintain such data for a period of at least two
(2) years after final billing. The Companies and Supplier shall have the
right, during normal business hours, to examine and inspect all such records
insofar as may be necessary for the purpose of ascertaining the reasonableness
and accuracy of all relevant data, estimates or statement of charges
associated with service hereunder.
ARTICLE 17. Limitations on Liability and Indemnification
Each Party agrees to indemnify, defend, and hold the other Party (including the
other Party's Affiliates, trustees, directors, board members, officers,
employees, and agents) harmless from and against any and all damages, costs,
claims, liabilities, actions or proceedings arising from or claimed to have
arisen from the wrongful acts or omissions of the indemnifying Party's
employees or agents, unless caused by an act of negligence or willful
misconduct by the indemnified Party (including the Party's Affiliates,
trustees, directors, board members, officers, employees or agents).
The Parties hereby waive and release the other Parties as well as each of the
other Party's Affiliates, trustees, directors, officers, employees, and agents
from any liability, claim, or action arising from damage to its property due to
the performance of this Agreement.
To the fullest extent permissible by law, neither the Companies nor Seller, nor
their respective officers, directors, agents, employees, parent or Affiliates,
successors or assigns, or their respective officers, directors, agents or
employees, successors or assigns, shall be liable to the other party or its
parent, subsidiaries, Affiliates, officers, directors, agents, employees,
successors or assigns, for claims, suits, actions or causes of action for
incidental, indirect, special, punitive, multiple or consequential damages
(including attorneys' fees or litigation costs) connected with or resulting
from performance or non-performance of the Agreement, or any actions undertaken
in connection with or related to this Agreement, including without limitation
any such damages which are based upon causes of action for breach of contract,
tort (including negligence and misrepresentation), breach of warranty, strict
liability, Massachusetts General Laws Chapter 93A, statute, operation of law,
or any other theory of recovery. The provisions of this Section 17 shall apply
regardless of fault and shall survive termination, cancellation, suspension,
completion or expiration of this Agreement.
ARTICLE 18. Regulation
1) This Agreement and all rights, obligations, and performances of the Parties
hereunder, are subject to all applicable state and federal laws, and to all
duly promulgated orders and other duly authorized actions of governmental
authority having jurisdiction, provided, however, that this Agreement shall
not be subject to change through unilateral application under Sections 205 and
206 of the Federal Power Act.
2) This Agreement is intended to comply with all NEPOOL Criteria, Rules, and
Standards ("Rules"). If, during the term of this Agreement, the Restated
NEPOOL Agreement is terminated or amended in a manner that would eliminate or
alter a Rule affecting a right or obligation of a Party hereunder, or if such
a Rule is eliminated or altered by NEPOOL or the ISO, in a manner which
materially affects the costs and obligations to provide Standard Offer Service,
the Companies and Supplier shall meet to determine appropriate compensation to
the affected Party. In the event that the Parties are not able to agree on the
materiality of the cost or obligations or the amount to be reimbursed, Parties
shall attempt to resolve the matter in accordance wit h Article 13.
3) In the event that the Standard Offer Service or the Terms and Conditions for
Suppliers are terminated, amended or replaced by any governmental or regulatory
agency having jurisdiction over the provision of Standard Offer Service in a
manner which materially increases Supplier's costs or obligations to provide
Standard Offer Service or the Companies are prevented from recovering from
customers taking Standard Offer Service the cost of electricity provided by
Supplier, the Companies and Supplier shall meet to determine appropriate
compensation to the negatively impacted Party. In the event that the Parties
are not able to agree on the materiality of the increased cost or obligations
or the amount to be reimbursed, Parties shall attempt to resolve the matter in
accordance with Article 13.
ARTICLE 19. Notices
Any notice, demand, or request permitted or required under this Agreement shall
be delivered in person or mailed by certified mail, postage prepaid, return
receipt requested, or otherwise confirmed receipt, to a Party at the applicable
address set forth below:
To Companies:
Robert P. Clarke
Director - Power Supply
EUA Service Corporation
P. O. Box 543
750 West Center Street
West Bridgewater, MA 02379
To Supplier:
Constellation Power Source, Inc.
David M. Perlman, Esq.
111 Market Place, Suite 500
Baltimore, Maryland 21202
FAX No.: (410) 468-3540
Phone No.: (410) 468-3490
Such addresses may be changed from time to time by written notice by either
Party to the other Party.
ARTICLE 20. Miscellaneous
1) Each Party shall prepare, execute and deliver to the other Party any
documents reasonably required to implement any provision hereof.
2) Each Party represents to the others as follows:
(i) It is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and is duly qualified to do
business in all jurisdictions where such qualification is required.
(ii) It has full power and authority to enter this Agreement and perform its
obligations hereunder. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary corporate action
and do not and will not contravene its organizational documents or
conflict with, result in a breach of, or entitle any party (with due
notice or lapse of time or both) to terminate, accelerate or declare a
default under, any agreement or instrument to which it is a party or by
which it is bound. The execution, delivery and performance by it of
this Agreement will not result in any violation by it of any law, rule
or regulation applicable to it. It is not a party to, nor subject to
or bound by, any judgment, injunction o r decree of any court or other
governmental entity which may restrict or interfere with the
performance of this Agreement by it. This Agreement is its valid and
binding obligation, enforceable against it in accordance with its
terms, except as (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
the remedy of specific performance and injunctive relief may be subject
to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(iii) Except for the finding by the D.T.E. that Eastern's actions in regard
to this Agreement are in accordance with G.L. c. 164, 94A and 1B(b)
and that this Agreement may become effective, no consent, waiver,
order, approval, authorization or order of, or registration,
qualification or filing with, any court or other governmental agency or
authority is required for the execution, delivery and performance by
such Party of this Agreement and the consummation by such Party of the
transactions contemplated hereby. No consent or waiver of any party to
any contract to which such Party is a party or by which it is bound is
required for the execution, delivery and performance by such Party of
this Agreement.
(iv) There is no action, suit, grievance, arbitration or proceeding pending
or, to the knowledge of such Party, threatened against or affecting
such Party at law or in equity, before any federal, state, municipal or
other governmental court, department, commission, board, arbitrator,
bureau, agency or instrumentality which prohibits its ability to
execute and deliver this Agreement or which prohibits or materially
impairs its ability to consummate any of the transactions contemplated
hereby. Such Party has not received written notice of any such pending
or threatened investigation, inquiry or review by any governmental
entity.
3) Any number of counterparts to this Agreement may be executed and each shall
have the same force and effect as the original.
4) This Agreement shall constitute the entire understanding between the Parties
and shall supersede all prior correspondence and understandings pertaining
to the subject matter of this Agreement.
5) Failure of either Party to enforce any provision of this Agreement or to
require performance by the other Party of any of the provisions hereof,
shall not be construed as a waiver of such provisions or affect the validity
of this Agreement, any pa rt hereof, or the right of either Party to
thereafter enforce each and every provision.
6) Article and Section headings used throughout this Agreement are for the
convenience of the Parties only and are not to be construed as part of this
Agreement.
7) Nothing in this Agreement shall be construed as creating any relationship
between the Parties other than that of independent contractor for the sale
and purchase of electricity at wholesale.
8) Notwithstanding any other provision of this Agreement to the contrary, the
rights and obligations of the Companies herein are several and not joint.
Each of the Companies' share of such rights and obligations shall be
determined by the portion of its monthly Standard Offer Service energy
requirements represented as a percentage of the Companies' total Standard
Offer Service requirement.
9) Each of the Parties each agree not to disclose to any Person and to keep
confidential, and to cause and instruct its Affiliates, officers, directors,
employees, members and representatives not to disclose to any Person and to
keep confidential, any and all of the following information: (i) the terms
and provisions of this Agreement; (ii) any financial, pricing or supply
quantity relating to the Standard Offer Service to be supplied by Supplier
hereunder; (iii) any information that is clearly marked "Confidential;" and
(iv) any oral communication that is subsequently reduced to writing and
marked "Confidential." Notwithstanding the foregoing, any such information
may be disclosed (A) to the extent required by applicable laws and
regulations or by any subpoena or similar legal process of any court or
agency of federal, state or local government so long as the receiving Party
gives the disclosing Party written notice as soon as practicable prior to
such disclosure; (B) to lenders, advisors and accountants of such Parties;
(C) to the extent the non-disclosing Party shall have consented in writing
prior to any such disclosure; and (D) to the extent any confidential
information is available from public non-confidential sources or ha s been
independently developed by the receiving Party prior to its receipt from the
disclosing Party. This Section 20(9) shall supersede any prior
confidentiality agreement among the Parties. Information of a confidential
nature which (i) has become public other than as a result of a breach of
this Section 20(9); or (ii) was received by the disclosing Party from
another source who in turn disclosed the information without violating legal
restrictions shall not be subject to this Section 20(9). The Parties shall
consult with each other prior to issuing any public announcement, statement
or other disclosure with respect to this Agreement or the transactions
contemplated hereby and shall not issue any such public announcement,
statement or other disclosure without the prior written consent of the
other Party, which consent shall not be unreasonably withheld.
Notwithstanding any provision to the contrary herein, the Companies may
provide copies or information regarding this Agreement to any regulatory
agency requesting and/or requiring such information; provided, that any such
disclosure includes a request for confidential treatment of the Agreement
and/or the redaction of terms considered commercially sensitive by the
Supplier from the copies of the Agreement which are placed in the public
record or otherwise made available to third parties.
IN WITNESS WHEREOF, Supplier and the Companies have caused this Agreement to be
signed by their respective duly authorized representatives as of the date first
above written.
Supplier: CONSTELLATION POWER SOURCE, INC.
By: /s/ John R. Collins
Name: John R. Collins
Title: Vice President & Treasurer
On Behalf of the Companies:
Blackstone: BLACKSTONE VALLEY ELECTRIC COMPANY
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
Eastern: EASTERN EDISON COMPANY
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
Newport: NEWPORT ELECTRIC CORPORATION
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
APPENDIX A
SCHEDULE OF SUPPLIER'S SHARE of STANDARD OFFER SERVICE
AND STANDARD OFFER WHOLESALE PRICE
APPENDIX B
REDACTED VERSION
Wholesale Standard Offer
Service Agreement
between
Blackstone Valley Electric Company
Eastern Edison Company
Newport Electric Corporation
and
Constellation Power Source, Inc.
December 21, 1998
TABLE OF CONTENTS
Page
ARTICLE 1. Definitions 2
ARTICLE 2. Term; Required Approvals; Other Conditions 4
ARTICLE 3. Supplier Responsibilities 5
ARTICLE 4. Companies' Responsibilities 6
ARTICLE 5. Price 6
ARTICLE 6. Billing and Payments 7
ARTICLE 7. 8
ARTICLE 8. Events of Default, Liability, Relationship of the Companies 10
ARTICLE 9. Termination 13
ARTICLE 10. Force Majeure 13
ARTICLE 11. Assignment 14
ARTICLE 12. Successors and Assigns 14
ARTICLE 13. Resolution of Disputes 14
ARTICLE 14. Interpretation 16
ARTICLE 15. Severability of Provisions 16
ARTICLE 16. Accounts and Records 16
ARTICLE 17. Limitations on Liability and Indemnification 16
ARTICLE 18. Regulation 17
ARTICLE 19. Notices 17
ARTICLE 20. Miscellaneous 18
Appendix A
Appendix B
WHOLESALE STANDARD OFFER SERVICE AGREEMENT
This Wholesale Standard Offer Service Agreement ("Agreement"), is made and
entered into this 21st day of December, 1998, between Eastern Edison Company,
("Eastern") a Massachusetts Corporation; Blackstone Valley Electric Company
("Blackstone"), a Rh ode Island Corporation; and Newport Electric Corporation
("Newport"), a Rhode Island Corporation (referred to individually as the
"Company" or collectively as the "Companies"), on the one hand, and
Constellation Power Source, Inc., a Delaware corporation ("Supplier"), on the
other hand.
WHEREAS, the Companies are required to provide firm all-requirements service to
any retail customer that is eligible for and is taking Standard Offer Service
in accordance with the Settlement Agreements; and
WHEREAS, this Agreement provides for the transfer, from the Companies to
Supplier of the responsibility for providing firm all-requirements electric
service including capacity, energy, reserves, losses and other related services
necessary to serve a specified share of the Companies' aggregate load of retail
customers taking Standard Offer Service; and
WHEREAS, by entering into this Agreement, Supplier agrees to provide and the
Companies agree to receive and pay for electricity provided in accordance with
the terms and conditions of this Agreement and the applicable Appendices,
subject to any actions by any governmental bodies having regulatory
jurisdiction over services rendered hereunder.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
agreements contained herein, Supplier and Companies agree to the terms and
conditions as set forth below:
ARTICLE 1. Definitions
Whenever used in this Agreement, the following terms shall have the following
meanings. In addition, except as otherwise expressly provided, where terms
used in this Agreement are defined in the Restated NEPOOL Agreement and not
otherwise defined he rein, such terms shall have the meanings given them in the
Restated NEPOOL Agreement.
"Affiliate" shall mean any other entity (other than an individual)
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, such entity. For purposes of
the foregoing the definition of "control" means the direct or indirect
ownership of more than seventy percent of the outstanding capital stock or
other equity interest having ordinary voting power.
"Agreement" shall mean this Agreement, including its Appendices as amended from
time to time.
"Commencement Date of Service" shall mean 12:00 am on the date after the
required regulatory approvals and consents have been obtained in accordance
with Section 2(b) and the condition set forth in Section 2(d) has been
satisfied.
"Contract Year" shall mean any calendar year, or in the case of 1999 part of a
calendar year, after the Commencement Date of Service in which Supplier is
scheduled to provide electricity to the Companies for Standard Offer Service.
"Companies' System" shall mean the electrical distribution systems of
Blackstone, Newport, Eastern, and/or the electrical transmission system of
Montaup, as applicable.
"Delivered Energy" shall mean the kilowatt-hours delivered to the meters of
those retail customers taking Standard Offer Service.
"Delivery Point" shall be any location on the NEPOOL PTF system or Companies'
System, as elected by Supplier.
"D.T.E." shall mean the Massachusetts Department of Telecommunications and
Energy or its successor state regulatory agency.
"Good Utility Practice" - Any of the applicable practices, methods and acts (i)
required by NEPOOL, the Northeast Power Coordinating Council, the North
American Electric Reliability Council, the ISO or the successor of any of them;
(ii) required by t he policies and standards of the D.T.E. relating to
emergency operations; or (iii) otherwise engaged in or approved by a
significant portion of the electric utility industry during the relevant time
period; which in each case in the exercise of reasonable judgment in light of
the facts known or that should have been known at the time a decision was made,
could have been expected to accomplish the desired result in a manner
consistent with law, regulation, safety, environmental protection, economy,
and expedition. Good utility practice is intended to be acceptable practices,
methods or acts generally accepted in the region, and is not intended to be
limited to the optimum practices, methods or acts to the exclusion of all
others.
"ISO" shall mean ISO New England, Inc., the independent system operator
established in accordance with the Restated NEPOOL Agreement, or its successor.
"NEPOOL" shall mean the New England Power Pool or its successor.
"Party" or "Parties" shall mean the Supplier and the Companies and their
respective successors and assigns.
"Price" shall mean the annual amount per kilowatt-hour to be paid for Delivered
Energy set forth in Article 5 with no variation for time-of-use, seasonality,
or any other factor except as specified in Article 5. The Companies or their
Standard Offer customers shall not be obligated under this Agreement for any
payments for Delivered Energy in addition to the payments made pursuant to
Article 5.
"PTF" shall mean the facilities categorized as Pool Transmission Facilities as
defined in the Restated NEPOOL Agreement.
"P.U.C." shall mean the Rhode Island Public Utilities Commission or its
successor state regulatory agency.
"Restated NEPOOL Agreement" shall mean the New England Power Pool Agreement
dated December 31, 1996, as amended from time to time, as it is in force at the
time the action in question is taken.
"Settlement Agreements" shall mean any agreement or agreements that have been
approved by the D.T.E. in Docket No. 96-24, P.U.C. in Docket No. 2514, and the
Federal Energy Regulatory Commission in Docket Nos. ER97-2800-000 and ER97-
3127-000, together with all conditions, terms and modifications imposed by
those agencies.
"Standard Offer Service" shall mean firm all-requirements electric service
(minute by minute, hour by hour, day by day) including, but not limited to, the
following products: energy, installed capability, operable capability,
reserves, and associated losses necessary to fulfill all NEPOOL and ISO
obligations as they may change from time to time associated with providing firm
all requirements power to the Companies' retail customers taking Standard Offer
Service in accordance with the Settlement Agreements. Such Standard Offer
Service shall include changes in customer demand for any reason, including, but
not limited to, seasonal factors, daily load fluctuations, increased or
decreased usage, demand side management activities, extremes in weather, and
other similar events.
"Standard Offer Wholesale Price" shall mean the stipulated stream of prices, in
cents per kilowatt-hour, that will be paid to Supplier for Delivered Energy, as
shown in Appendix A.
"Terms and Conditions for Suppliers" shall mean the Blackstone Valley Electric
Company and Newport Electric Corporation Terms and Conditions for Electric
Power Suppliers dated May 29, 1997 as approved by the P.U.C., or the Eastern
Edison Company Term s and Conditions for Competitive Suppliers as approved by
the D.T.E., as applicable. These Terms and Conditions may be revised, amended,
supplemented, or supplanted in whole or in part from time to time by the P.U.C.
or D.T.E. or as otherwise provided by law.
ARTICLE 2. Term; Required Approvals; Other Conditions
a) This Agreement shall be effective immediately upon execution by the Parties
and shall continue in effect until 12:00 midnight on December 31, 2009, unless
terminated sooner in accordance with Article 8 or 9. Delivery of Standard
Offer Service under this Agreement shall commence on the Commencement Date of
Service.
b) The Parties' obligations under this Agreement are subject to the receipt of
all federal, state or local government consents or approvals required for
consummation of the transactions contemplated hereby, including, without
limitation, a finding by the D.T.E. that Eastern's actions in regard to this
Agreement are in accordance with G.L. c. 164, 94A and 1B(b) and that this
Agreement may become effective, all such consents and approvals to be final and
no longer subject to rehearing, reconsideration or appeal. The Companies
shall pursue and acquire, prior to the Commencement Date of Service, and
maintain, all such regulatory consents and approvals. The Companies will be
responsible for and pay for all fees associated with obtaining such consents
and approvals, if any.
c) Supplier shall make any filings required of it, if any, with FERC in
accordance with the provisions of all applicable laws, rules and regulations.
Supplier will be responsible for and pay for all fees associated with such
required filings, if any .
d) In addition to the conditions set forth in Section 2(b), Supplier's
obligations under this Agreement shall be conditional upon receipt by Supplier
of an opinion from McDermott, Will & Emery, counsel for the Companies, dated as
of the Commencement Date of Service and satisfactory in form and substance to
Supplier and its counsel, to the effect that, among other things, each of the
Companies have duly authorized, executed and delivered this Agreement, this
Agreement is a valid, binding and enforceable obligation of each of the
Companies and no consent or approval of any governmental authority is necessary
for the consummation by any of the Companies of the transactions contemplated
by this Agreement.
e) In addition to the conditions set forth in Section 2(b), Companies'
obligations under this Agreement shall be conditional upon receipt by Companies
of an opinion from Hunton & Williams, counsel for the Supplier, dated as of the
Commencement Date o f Service and satisfactory in form and substance to
Companies and its counsel, to the effect that, among other things, Supplier has
duly authorized, executed and delivered this Agreement, this Agreement is a
valid, binding and enforceable obligation of the Supplier and no consent or
approval of any governmental authority is necessary for the consummation by
Supplier of the transactions contemplated by this Agreement.
ARTICLE 3. Supplier Responsibilities
Supplier shall, prior to the Commencement Date of Service, (i) be a member, in
good standing, of NEPOOL or its successor entity and maintain an own-load
dispatch or settlement account established in accordance with the rules and
criteria established by the ISO throughout the term of this agreement, or (ii)
have an agreement in place, for the full term of this Agreement, with a NEPOOL
member whereby the NEPOOL member agrees to include the load to be served by
Supplier under this Agreement in its own-load dispatch or settlement account.
Supplier shall sell and deliver to the Delivery Point and the Companies shall
receive and purchase that portion of the Companies' aggregate load attributed
to those customers taking Standard Offer Service determined in accordance with
Appendix A attached hereto.
As a provider of Standard Offer Service, Supplier is solely responsible for
satisfying all requirements and paying all costs incurred or to be incurred to
provide those generation-related services including, without limitation, all
costs or other requirements to furnish installed capability, operable
capability, energy, operating reserves, line losses, automatic generation
control, and other generation-related ancillary services associated with the
provision of its share of Standard Offer Service. Supplier is also solely
responsible for meeting any other requirements and paying any other cost now or
hereafter imposed by the ISO from time to time which are attributable to the
provision of Supplier's share of Standard Offer Service, as they m ay arise. If
the ISO or any successor entity or NEPOOL allocates any expenses or uplift
costs to the Standard Offer Service provided by the Supplier (on a load or peak
load basis or otherwise), the expenses or costs so allocated will be borne by
the Supplier alone without recourse to the Companies.
Supplier shall be responsible for all transmission and distribution losses
associated with the delivery of electricity supplied under this Agreement from
the sources of its supply to the meters of those customers taking Standard
Offer Service as determined based on the NEPOOL regional transmission tariff
and the Companies' estimation of distribution and non-PTF losses. The
Companies shall operate their respective distribution systems in accordance
with Good Utility Practice. The Companies shall arrange for and bill their
respective customers for NEPOOL regional network transmission service,
Montaup's local network service for transmission over non-PTF facilities and
the Companies' respective distribution service.
Supplier is responsible for any transmission wheeling costs and any
distribution wheeling costs, if any, associated with the delivery by Supplier
of Standard Offer Service to the NEPOOL PTF. If the NEPOOL control area
experiences congestion, Supplier will be responsible for any congestion costs
incurred in delivering power to the Delivery Point(s). In the event that
NEPOOL adopts a transmission congestion management approach assigning priority
rights or other benefits to transmission customers serving native load in the
congested area, then, if so requested by Supplier, the Companies shall assign
to the Supplier at no cost the proportional share of such priority rights or
other benefits associated with Seller's proportional share of Standard Offer
Service under this Agreement at such time. Supplier shall be responsible for
all transmission and distribution costs associated with the use of transmission
systems outside of NEPOOL and any local point-to-point transmission charges and
distribution charges incurred to deliver the power to the Delivery Point.
In the event that either the D.T.E. or the P.U.C. issue orders requiring the
Companies to implement uniform disclosure requirements that pertain to the
reporting of information regarding power plant emissions, fuel types, or labor
information for the sources of electricity used to supply Standard Offer
Service, the Supplier will provide, subject to any confidentiality obligations
to which it is bound, such information in a timely manner in an appropriate
form to enable the Companies to comply with such requirements.
ARTICLE 4. Companies' Responsibilities
To meet their NEPOOL obligations, the Companies shall report to the ISO
Supplier's share of hourly Standard Offer Service load, including distribution
and non-PTF losses. As required by NEPOOL, the Companies will make all
reasonable efforts to report to the ISO Supplier's hourly share of Standard
Offer Service load by 12:00 noon of the second following business day. In
making such reports, the Companies will estimate Supplier's share of Standard
Offer Service load based on the methods and procedures approved in Terms and
Conditions for Suppliers on file with the P.U.C. and D.T.E., as amended from
time to time.
As described in the Terms and Conditions for Suppliers, to determine Supplier's
share of Delivered Energy, at the end of each month, the Companies shall
aggregate Supplier's hourly Standard Offer Service loads as reported to the ISO
for each hour of the month. The Supplier's aggregate share of Standard Offer
Service, excluding losses, will be deemed to be the quantity of Delivered
Energy that Supplier provided for that month and is the unadjusted kWh amount
to be used for Billing and Payment as described in Article 6.
The Companies will periodically reconcile the Delivered Energy to actual meter
readings of those customers taking Standard Offer Service, as described in the
Terms and Conditions for Suppliers. The Companies will apply any resulting
billing adjustment (debit or credit) to Supplier's account no later than the
last day of the third month following the billing month.
ARTICLE 5. Price
For each kilowatt-hour of Delivered Energy that Supplier provides in each
month, as determined in accordance with Article 4 and the Terms and Conditions
for Suppliers, the Companies shall pay Supplier the applicable Price for the
month in cents per kilowatt-hour calculated as follows:
Price = Standard Offer Wholesale Price
+ Fuel Adjustment Factor
Where: Standard Offer Wholesale Price in cents per kilowatt hour is as defined
in Article 1 and shown in Appendix A, and
Fuel Adjustment Factor is a cents per kilowatt-hour adder based on the
incremental revenues collected, if any, attributed to the operation of the
Retail Standard Offer Fuel Index ("Fuel Index") mechanism in the Companies'
Standard Offer Service tariffs. The revenues attributed to the Fuel Index will
be fully allocated to suppliers in proportion to the Standard Offer Service
energy provided by each supplier for the applicable billing month through the
Fuel Adjustment Factor. The Fuel Index, and t he resulting Fuel Adjustment
Factor to be paid to Supplier, will be made subject to regulatory approval and
only to the extent that the Companies are allowed to collect such revenues from
their retail customers taking Standard Offer Service.
With the exception of any sales or gross receipt taxes which are required by
law to be paid by Standard Offer Service customers, the Price for Delivered
Energy as set forth herein includes all local, state, and federal taxes, fees
and levies applicable as of the date hereof. For any new taxes, fees and
levies, assessed with respect to the services provided by Supplier after the
Commencement Date of Service, the Companies will fully support and pursue in
good faith the recovery of any such new t ax, fee and levy imposed on Supplier
from the Companies' Standard Offer Service customers. To the extent such new
taxes, fees and levies are allowed to be recoverable by the Companies from
their Standard Offer Service customers, the Companies shall reimburse Supplier
for such generation related taxes, fees and levies paid by Supplier.
All Standard Offer Service delivered by Supplier to the Companies hereunder
shall be sales for resale, with the Companies reselling such Standard Offer
Service. On or before the Commencement Date of Service the Companies shall
obtain and provide Supplier with any resale certificates reasonably requested
by Supplier to evidence that the deliveries hereunder are sales for resale.
ARTICLE 6. Billing and Payments
Until reconciled with actual metered data pursuant to the Terms and Conditions
of Suppliers, computations by the Companies of the charges for the purposes of
billings hereunder shall be based on estimates of Supplier's Delivered Energy
in accordance with Article 4 and the Price as determined in accordance with
Article 5. The Companies shall calculate the amount payable to Supplier for a
given month on or before the twentieth (20th) day of the following month. The
calculation shall be provided to Supplier and shall show the total amount due
and payable for the previous month. Each bill shall be subject to adjustment
for any errors in arithmetic computation, estimating, reconciliation pursuant
to the Terms and Conditions of Suppliers or otherwise only to the extent
allowed by the terms of this Article 6.
On or before the last day of each month, Companies shall pay Supplier any
amounts due and payable for the Delivered Energy provided by Supplier in the
previous month ("Due Date"). Any amount remaining unpaid after the Due Date
shall bear interest at a rate equal to the lesser of (a) the per annum rate of
interest equal to the prime lending rate then in effect at the main office of
BankBoston or such other lending institution as agreed to by Companies and
Supplier and (b) the maximum rate permitted by applicable law, from the Due
Date to the date of payment by Companies.
If Supplier disputes the amount of any bill or payment, Supplier shall itemize
the basis for its dispute in a written notice to Companies within thirty (30)
days after the Due Date. Billing and payment disputes shall be handled in
accordance with the provisions of Article 13 of this Agreement. Upon final
resolution of the dispute, payment of any amount due to a Party under the terms
of the resolution shall be made within thirty (30) days of the date thereof,
together with interest from and after the original Due Date at the rate
specified in this Article.
The Companies may make retroactive adjustments to any billing for a period of
up to one year from the date of the original billing in order to reflect
differences in charges resulting from receipt of more accurate data. Supplier
may dispute such adjustment in writing within thirty (30) days of receipt of
the proposed adjustment.
ARTICLE 7. xx
ARTICLE 8. Events of Default, Liability, Relationship of the Companies
1) Unless excused by a Force Majeure as described in Article 10, each of the
following events shall be deemed to be an Event of Default hereunder:
a) Failure of any Company to pay when due any undisputed payment due to
Supplier and such failure shall continue for following the
receipt of written notice from the Supplier specifying the overdue amount.
b) Failure of Supplier, in a material respect, to comply with, observe, or
perform any covenant, representation or warranty or obligation under this
Agreement, and such failure is not cured or rectified within
after receipt of written notice thereof from the Companies.
c) Failure of any Company, in a material respect, to comply with, observe, or
perform any covenant, representation or warranty or obligation under this
Agreement, other than as described in (a) above, and such failure is not cured
or rectified within after receipt of written notice thereof from
the Supplier.
d) Failure of Supplier to maintain any of the security requirements outlined in
Article 7, and such failure is not cured or rectified within
after notice thereof from the Companies.
e) With respect to Supplier, any Company and/or the Companies, a custodian,
receiver, liquidator or trustee for such Party is appointed or takes possession
and such appointment or possession remains uncontested or in effect for more
than ; or the Party makes an assignment for the benefit of creditors
or admits in writing its inability to pay its debts as they mature; or the
Party is adjudicated as bankrupt or insolvent; or an order for relief is
entered under the Federal Bankruptcy Code against the Party; or any material
property of the Party is sequestered by court order and the order remains in
effect for more than ; or a petition is filed against the Party
under any bankruptcy, insolvency, reorganization, arrangement
, readjustment of debt, dissolution or liquidation law of any jurisdictions,
whether now or subsequently in effect, and is not stayed or dismissed within
after filing; or the Party files a petition in voluntary bankruptcy or seeking
relief under any provision of any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or subsequently in effect; or the Party consents to
the filing of any petition against it under any such law; or the Party
consents to the appointment or taking possession by a custodian, receiver,
trustee or liquidator of the Party or any material portion of its property.
2) Upon the occurrence of an Event of Default by any of the Companies, such
Company shall be liable to the Supplier for any direct damages resulting from
the Event of Default. Such amount shall include the positive difference, if
any, obtained by subtracting the per unit Sales Price from the per unit Price
established in Article 5. The positive difference shall be applied to each
kilowatthour that Companies fail to receive.
"Sales Price" shall mean the price at which the Supplier acting in a
commercially reasonable manner resells each component of Standard Offer Service
not received by the Companies, minus any additional transmission and NEPOOL
charges incurred by the Supplier as a result of the Companies' default. The
Parties hereby stipulate that sales at the applicable NEPOOL spot market prices
will be deemed commercially reasonable.
The Parties expressly agree that the amounts set forth in this Article 8(2) do
not constitute the Supplier's sole remedy. In addition to the amounts
established in this Article 8(2) above, the Companies shall be liable to the
Supplier for any additional direct damages resulting from an Event of Default
associated with reasonable additional administrative and legal expenses
incurred as a result of any Company's failure to perform. Supplier shall take
all commercially reasonable measures to mitigate such direct damages. In
addition, the Supplier may unconditionally terminate this Agreement by giving
written notice to the Companies, such termination to be effective as of the
date specified in such notice. Notwithstanding any other provision of this
Agreement to the contrary, the rights and obligations of the Companies, herein
are several and not joint. Each Company's share of such rights and obligations
shall be determined by the portion of its monthly Standard Offer Service
requirements represented as a percentage of the Companies' total Standard
Offer Service requirements during the period of time in which the right,
obligation or liability in questions arose, accrued and/or matured, and in the
event of difficulty or a dispute in determining the appropriate period of time,
during the entire duration of the Agreement.
3) Upon the occurrence of an Event of Default by the Supplier, the Supplier
shall be liable to the Companies for any direct damages resulting from the
Event of Default. Such amount shall include the positive difference, if any,
obtained by subtracting the per unit Price established in Article 5, from the
per unit Replacement Price. The positive difference shall be applied to each
kilowatthour that Supplier fails to deliver.
"Replacement Price" shall mean the price at which the Companies acting in a
commercially reasonable manner purchase substitute Standard Offer Service not
delivered by Supplier, plus any additional transmission and NEPOOL charges
incurred by the Companies as a result of Supplier's default. The Parties
hereby stipulate that purchases at the applicable NEPOOL spot market prices
will be deemed commercially reasonable.
The Parties expressly agree that the amounts set forth in this Article 8(3) do
not constitute the Companies' sole remedy. In addition to the amounts
established in this Article 8(3) above, the Supplier shall be liable to the
Companies for an y additional direct damages resulting from an Event of Default
associated with reasonable additional administrative and legal expenses
incurred as a result of Supplier's failure to perform. The Companies shall take
all commercially reasonable measure s to mitigate such direct damages. In
addition, the Companies may unconditionally terminate this Agreement by giving
written notice to the Supplier, such termination to be effective as of the date
specified in such notice. The Parties expressly agree that the Companies may
exercise their rights under the financial surety provided under Article 7 to
collect any and all amounts owed and due from the Supplier resulting under this
Article 8.
(4) Nothing in this Article 8 shall be construed to limit the right of any
Party to seek any remedies for a breach specified in this Agreement by the
other Party or Parties of its or their obligations hereunder, whether or not
such breach results in a termination of this Agreement under this Article 8 and
whether or not such breach is cured after the times set forth for such cure in
Article 8(1), or during any period during which the non-breaching Party elects
not to exercise its right to terminate this Agreement.
ARTICLE 9. Termination
In addition to the termination rights for an Event of Default provided in
Article 8, the Companies may terminate this Agreement if Supplier's share of
Standard Offer Service load is less than one (1) megawatt for two consecutive
months.
ARTICLE 10. Force Majeure
As used in this Agreement, "Force Majeure" means any cause beyond the
reasonable control of, and without the fault or negligence of, the Party
claiming Force Majeure. A Force Majeure shall include, without limitation,
sabotage, strikes, riots or civil disturbance, acts of God, acts of a public
enemy, drought, earthquake, flood, explosion, fire, lightning, landslide, or
any similar cataclysmic occurrence, or appropriation or diversion of
electricity by sale or order of any governmental authority having jurisdiction
thereof, but only if and to the extent that the event adversely affects the
availability of the transmission or distribution facilities of NEPOOL and/or
its participants, the Companies or an affiliate of the Companies, and such
affected facilities are necessary to deliver Standard Offer Service electricity
to the Standard Offer Service customers.
An event that affects the availability or cost of operating any transmission or
distribution facilities outside the NEPOOL control area, affects the
availability or cost of operating a generating facility, or any event that
merely causes an economic hardship to either Party shall not be deemed a Force
Majeure.
If either Party is rendered wholly or partly unable to perform its obligations
under this Agreement because of Force Majeure as defined above, that Party
shall be excused from whatever performance is affected by the Force Majeure, to
the extent so affected, provided that:
a) The non-performing Party promptly, but in no case longer than five (5)
working days after the occurrence of the Force Majeure, gives the other Party
written notice describing the particulars of the occurrence;
b) The suspension of performance shall be of no greater scope and of no longer
duration than is reasonably required by the Force Majeure;
c) The non-performing Party uses reasonable efforts to remedy its inability to
perform and expeditiously takes reasonable action to correct or cure the event
or condition; and
d) The non-performing Party exercises all reasonable efforts to mitigate or
limit damages to the other Party. With respect to the Supplier, this shall
mean that Supplier must purchase, at its own expense, electricity from the
NEPOOL market to meet its obligations under this Agreement, to the extent such
electricity is available and deliverable.
ARTICLE 11. Assignment
Unless mutually agreed to by the Parties, no assignment, pledge, or transfer of
this Agreement shall be made by any Party without the prior written consent of
the other Party, which shall not be unreasonably withheld, provided, however,
that no prior written consent shall be required for (i) the assignment, pledge
or other transfer to another company or Affiliate in the same holding company
system as the assignor, pledgor or transferor, provided, the assignee, pledgee
or transferee expressly assumes and demonstrates, to the reasonable
satisfaction of the non-assigning Party, that it can meet the obligations of
the assignor, pledgor or transferor under this Agreement, or (ii) the
transfer, incident to a merger or consolidation with, or transfer of all (or
substantially all) of the assets of the transferor, to another person or
business entity, provided, such transferee expressly assumes, and demonstrates
to the reasonable satisfaction of the non-assigning party that it can meet,
all t he obligations of the assignor, pledgor or transferor under this
Agreement and provided, however, that either Party may, without the consent of
the other Party (and without relieving itself from liability hereunder),
transfer, sell, pledge, encumber or assign such Party's rights to the
accounts, revenues or proceeds hereof in connection with any financing or
other financial arrangements.
ARTICLE 12. Successors and Assigns
This Agreement shall be binding upon and shall inure to the benefit of the
Parties and their successors and assignees.
ARTICLE 13. Resolution of Disputes
Subject to Article 8(3), all disputes between the Companies and Supplier
resulting from or arising out of performance under this Agreement shall be
referred to a senior representative of the Companies with authority to settle,
designated by t he Companies, and a senior representative of Supplier with
authority to settle, designated by Supplier, for resolution on an informal,
face-to-face basis as promptly as practicable. The Parties agree that such
informal discussion shall be conducted in good faith. The discussions between
such representatives shall be considered "settlement talks" under Rule 403 of
the Federal Rules of Evidence or analogous Massachusetts rules or practices and
such discussions shall have no evidentiary value provided, however, that
either Party may introduce evidence of matters discussed in such settlement
talks, if the facts and documents reflecting such matters are discovered or
otherwise come into a Party's possession independent of such settlement talks .
In the event the designated senior representatives are unable to resolve the
dispute within thirty (30) days, or such other period as the Companies and the
Supplier may jointly agree upon, such dispute may be submitted to arbitration
and resolved in accordance with the arbitration procedure set forth herein if
the Companies and Supplier jointly agree to submit it to arbitration. For any
dispute or claim arising out of or relating to any charges incurred under this
Agreement having a value less than or equivalent to $100,000, such arbitration
shall be mandatory. Nothing in this Article 13 shall prevent the Companies
from issuing, pursuant to Sections 1(a) and (3) of Article 8, notice of failure
to comply with, observe or perform this Agreement.
The arbitration shall be conducted before a single neutral arbitrator or
arbitrator panel appointed by the Parties. If the Parties agree upon a single
arbitrator within ten (10) days of the referral of the dispute to arbitration,
that arbitrator shall serve, otherwise the Companies and Supplier shall each
choose one arbitrator, who shall serve on a three-member arbitration panel. The
two arbitrators so chosen shall within twenty (20) days select a third
arbitrator to act as chairman of the arbitration panel. If the two arbitrators
are unable to select a third arbitrator, each arbitrator shall select three
candidates. A list of the six candidates, along with their resumes, shall be
provided in alphabetical order, with no indication of the arbitrator who
selected such candidate or the Party who selected the arbitrator who selected
such candidate, to the American Arbitration Association ("AAA"), who will
select one candidate. If that candidate is unable or unwilling to serve, AAA
shall select another candidate. This process will be repeated until a third
arbitrator is selected or the list of candidates is exhausted. If the list of
candidates is exhausted, the arbitrators shall submit a new list of candidates
and the process set forth above shall be repeated a second time. In all cases,
the arbitrator(s) shall be knowledgeable in electric utility matters, including
electricity transmission and bulk power issues, and shall not have any current
or past substantial business or financial relationships with any Party to the
arbitration or any affiliate of such Party.
Except as otherwise provided herein, the arbitrator(s), shall generally conduct
the arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. There shall be no formal discovery conducted
in connection with the arbitration, except as specifically authorized by a
vote of the panel. The Parties shall exchange witness lists and copies of any
exhibits that they intend to utilize in their direct presentations at any
hearing before the arbitrator(s) at l east ten (10) days prior to such hearing,
along with any other information or documents specifically requested by the
arbitrator(s) prior to the hearing. Unless otherwise agreed, the arbitrator(s)
shall render a decision within ninety (90) days of h is, her, or their
appointment and shall notify the Parties in writing of such decision and the
reasons therefor, and shall make an award apportioning the payment of the costs
and expenses of arbitration, including panel costs, among the Parties,
provided, however, that each Party shall bear the costs and expenses of its own
attorneys, expert witnesses and consultants. The arbitrator(s) shall be
authorized only to interpret and apply the provisions of this Agreement and
shall have no power to am end or modify this Agreement in any manner. The
decision of the arbitrator(s) shall be final and binding upon the Parties, and
judgment on the award may be entered in any court having jurisdiction. The
decision of the arbitrator(s) may be appealed solely on the grounds that the
conduct of the arbitrator(s), or the decision itself, violated the standards
required under the Federal Arbitration Act (9 U.S.C.A. Sect. 1 et. al.) and/or
The Uniform Arbitration Act, as adopted in Massachusetts (M.G.L . c. 251, Sect.
1 et seq.).
ARTICLE 14. Interpretation
The interpretation and performance of this Agreement shall be in accordance
with and shall be controlled by the laws of the Commonwealth of Massachusetts,
without regard to Massachusetts conflict of law principles.
ARTICLE 15. Severability of Provisions
Subject to the provisions of Article 13, a holding by any court having
jurisdiction that any provision of this Agreement is invalid or unenforceable
shall not result in invalidation or unenforceability of the entire Agreement
but all remaining terms shall remain in full force and effect.
ARTICLE 16. Accounts and Records
The Companies and Supplier shall keep complete and accurate records of their
operations hereunder and shall maintain such data for a period of at least two
(2) years after final billing. The Companies and Supplier shall have the
right, during normal business hours, to examine and inspect all such records
insofar as may be necessary for the purpose of ascertaining the reasonableness
and accuracy of all relevant data, estimates or statement of charges
associated with service hereunder.
ARTICLE 17. Limitations on Liability and Indemnification
Each Party agrees to indemnify, defend, and hold the other Party (including the
other Party's Affiliates, trustees, directors, board members, officers,
employees, and agents) harmless from and against any and all damages, costs,
claims, liabilities, actions or proceedings arising from or claimed to have
arisen from the wrongful acts or omissions of the indemnifying Party's
employees or agents, unless caused by an act of negligence or willful
misconduct by the indemnified Party (including the Party's Affiliates,
trustees, directors, board members, officers, employees or agents).
The Parties hereby waive and release the other Parties as well as each of the
other Party's Affiliates, trustees, directors, officers, employees, and agents
from any liability, claim, or action arising from damage to its property due to
the performance of this Agreement.
To the fullest extent permissible by law, neither the Companies nor Seller, nor
their respective officers, directors, agents, employees, parent or Affiliates,
successors or assigns, or their respective officers, directors, agents or
employees, successors or assigns, shall be liable to the other party or its
parent, subsidiaries, Affiliates, officers, directors, agents, employees,
successors or assigns, for claims, suits, actions or causes of action for
incidental, indirect, special, punitive, multiple or consequential damages
(including attorneys' fees or litigation costs) connected with or resulting
from performance or non-performance of the Agreement, or any actions undertaken
in connection with or related to this Agreement, including without limitation
any such damages which are based upon causes of action for breach of contract,
tort (including negligence and misrepresentation), breach of warranty, strict
liability, Massachusetts General Laws Chapter 93A, statute, operation of law,
or any other theory of recovery. The provisions of this Section 17 shall apply
regardless of fault and shall survive termination, cancellation, suspension,
completion or expiration of this Agreement.
ARTICLE 18. Regulation
1) This Agreement and all rights, obligations, and performances of the Parties
hereunder, are subject to all applicable state and federal laws, and to all
duly promulgated orders and other duly authorized actions of governmental
authority having jurisdiction, provided, however, that this Agreement shall
not be subject to change through unilateral application under Sections 205 and
206 of the Federal Power Act.
2) This Agreement is intended to comply with all NEPOOL Criteria, Rules, and
Standards ("Rules"). If, during the term of this Agreement, the Restated
NEPOOL Agreement is terminated or amended in a manner that would eliminate or
alter a Rule affecting a right or obligation of a Party hereunder, or if such
a Rule is eliminated or altered by NEPOOL or the ISO, in a manner which
materially affects the costs and obligations to provide Standard Offer Service,
the Companies and Supplier shall meet to determine appropriate compensation to
the affected Party. In the event that the Parties are not able to agree on the
materiality of the cost or obligations or the amount to be reimbursed, Parties
shall attempt to resolve the matter in accordance wit h Article 13.
3) In the event that the Standard Offer Service or the Terms and Conditions for
Suppliers are terminated, amended or replaced by any governmental or regulatory
agency having jurisdiction over the provision of Standard Offer Service in a
manner which materially increases Supplier's costs or obligations to provide
Standard Offer Service or the Companies are prevented from recovering from
customers taking Standard Offer Service the cost of electricity provided by
Supplier, the Companies and Supplier shall meet to determine appropriate
compensation to the negatively impacted Party. In the event that the Parties
are not able to agree on the materiality of the increased cost or obligations
or the amount to be reimbursed, Parties shall attempt to resolve the matter in
accordance with Article 13.
ARTICLE 19. Notices
Any notice, demand, or request permitted or required under this Agreement shall
be delivered in person or mailed by certified mail, postage prepaid, return
receipt requested, or otherwise confirmed receipt, to a Party at the applicable
address set forth below:
To Companies:
Robert P. Clarke
Director - Power Supply
EUA Service Corporation
P. O. Box 543
750 West Center Street
West Bridgewater, MA 02379
To Supplier:
Constellation Power Source, Inc.
David M. Perlman, Esq.
111 Market Place, Suite 500
Baltimore, Maryland 21202
FAX No.: (410) 468-3540
Phone No.: (410) 468-3490
Such addresses may be changed from time to time by written notice by either
Party to the other Party.
ARTICLE 20. Miscellaneous:
1) Each Party shall prepare, execute and deliver to the other Party any
documents reasonably required to implement any provision hereof.
2) Each Party represents to the others as follows:
(i) It is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and is duly qualified to do business
in all jurisdictions where such qualification is required.
(ii) It has full power and authority to enter this Agreement and perform its
obligations hereunder. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary corporate action and do
not and will not contravene its organizational documents or conflict with,
result in a breach of, or entitle any party (with due notice or lapse of time
or both) to terminate, accelerate or declare a default under, any agreement or
instrument to which it is a party or by which it is bound. The execution,
delivery and performance by it of this Agreement will not result in any
violation by it of any law, rule or regulation applicable to it. It is not a
party to, nor subject to or bound by, any judgment, injunction o r decree of
any court or other governmental entity which may restrict or interfere with the
performance of this Agreement by it. This Agreement is its valid and binding
obligation, enforceable against it in accordance with its terms, except as (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) the remedy of specific performance and
injunctive relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
(iii) Except for the finding by the D.T.E. that Eastern's actions in regard
to this Agreement are in accordance with G.L. c. 164, 94A and 1B(b) and
that this Agreement may become effective, no consent, waiver, order, approval,
authorization or order of, or registration, qualification or filing with, any
court or other governmental agency or authority is required for the execution,
delivery and performance by such Party of this Agreement and the consummation
by such Party of the transaction s contemplated hereby. No consent or waiver
of any party to any contract to which such Party is a party or by which it is
bound is required for the execution, delivery and performance by such Party of
this Agreement.
(iv) There is no action, suit, grievance, arbitration or proceeding pending
or, to the knowledge of such Party, threatened against or affecting such Party
at law or in equity, before any federal, state, municipal or other governmental
court, department, commission, board, arbitrator, bureau, agency or
instrumentality which prohibits its ability to execute and deliver this
Agreement or which prohibits or materially impairs its ability to consummate
any of the transactions contemplated hereby. Such Party has not received
written notice of any such pending or threatened investigation, inquiry or
review by any governmental entity.
3) Any number of counterparts to this Agreement may be executed and each shall
have the same force and effect as the original.
4) This Agreement shall constitute the entire understanding between the Parties
and shall supersede all prior correspondence and understandings pertaining to
the subject matter of this Agreement.
5) Failure of either Party to enforce any provision of this Agreement or to
require performance by the other Party of any of the provisions hereof, shall
not be construed as a waiver of such provisions or affect the validity of this
Agreement, any pa rt hereof, or the right of either Party to thereafter enforce
each and every provision.
6) Article and Section headings used throughout this Agreement are for the
convenience of the Parties only and are not to be construed as part of this
Agreement.
7) Nothing in this Agreement shall be construed as creating any relationship
between the Parties other than that of independent contractor for the sale and
purchase of electricity at wholesale.
8) Notwithstanding any other provision of this Agreement to the contrary, the
rights and obligations of the Companies herein are several and not joint. Each
of the Companies' share of such rights and obligations shall be determined by
the portion of its monthly Standard Offer Service energy requirements
represented as a percentage of the Companies' total Standard Offer Service
requirement.
9) Each of the Parties each agree not to disclose to any Person and to keep
confidential, and to cause and instruct its Affiliates, officers, directors,
employees, members and representatives not to disclose to any Person and to
keep confidential, an y and all of the following information: (i) the terms and
provisions of this Agreement; (ii) any financial, pricing or supply quantity
relating to the Standard Offer Service to be supplied by Supplier hereunder;
(iii) any information that is clearly marked "Confidential;" and (iv) any oral
communication that is subsequently reduced to writing and marked
"Confidential." Notwithstanding the foregoing, any such information may be
disclosed (A) to the extent required by applicable laws and regulations or by
any subpoena or similar legal process of any court or agency of federal, state
or local government so long as the receiving Party gives the disclosing Party
written notice as soon as practicable prior to such disclosure; (B) to lenders,
advisors and accountants of such Parties; (C) to the extent the non-disclosing
Party shall have consented in writing prior to any such disclosure; and (D) to
the extent any confidential information is available from public non-
confidential sources or ha s been independently developed by the receiving
Party prior to its receipt from the disclosing Party. This Section 20(9) shall
supersede any prior confidentiality agreement among the Parties. Information
of a confidential nature which (i) has become public other than as a result of
a breach of this Section 20(9); or (ii) was received by the disclosing Party
from another source who in turn disclosed the information without violating
legal restrictions shall not be subject to this Section 20(9). The Parties
shall consult with each other prior to issuing any public announcement,
statement or other disclosure with respect to this Agreement or the
transactions contemplated hereby and shall not issue any such public
announcement, statement or other disclosure without the prior written consent
of the other Party, which consent shall not be unreasonably withheld.
Notwithstanding any provision to the contrary herein, the Companies may provide
copies or information regarding this Agreement to any regulatory agency
requesting and/or requiring such information; provided, that any such
disclosure includes a request for confidential treatment of the Agreement
and/or the redaction of terms considered commercially sensitive by the Supplier
fro m the copies of the Agreement which are placed in the public record or
otherwise made available to third parties.
IN WITNESS WHEREOF, Supplier and the Companies have caused this Agreement to be
signed by their respective duly authorized representatives as of the date first
above written.
Supplier: CONSTELLATION POWER SOURCE, INC.
By: /s/ John R. Collins
Name: John R. Collins
Title: Vice President & Treasurer
On Behalf of the Companies:
Blackstone: BLACKSTONE VALLEY ELECTRIC COMPANY
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
Eastern: EASTERN EDISON COMPANY
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
Newport: NEWPORT ELECTRIC CORPORATION
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
APPENDIX A
SCHEDULE OF SUPPLIER'S SHARE of STANDARD OFFER SERVICE
AND
STANDARD OFFER WHOLESALE PRICE
APPENDIX B
AMENDED AND RESTATED POWER SALES CONTRACT
THIS AMENDED AND RESTATED POWER SALES CONTRACT (the "Contract") is made
and entered into this 18th day of December 1998 (the "Contract Date"), by and
between SOUTHERN ENERGY CANAL, L.L.C., a Delaware limited liability company
("Seller") and MONTAUP ELECTRIC COMPANY, a Massachusetts corporation
("Purchaser"). Seller and Purchaser are referred to herein individually as a
"Party" and collectively as the "Parties."
RECITALS:
A. Seller is a party to that certain Asset Sale Agreement dated May 15,
1998 (the "Asset Sale Agreement") between Seller (as successor by assignment to
Southern Energy New England, L.L.C.) and Canal Electric Company ("CEC")
providing for the sale of Canal Unit 1 from CEC to Seller.
B. Purchaser is a party to that certain Power Contract between Purchaser
and CEC dated December 1, 1965 (the "Original Contract") for the sale of 25% of
the capacity and energy from Canal Unit I to Purchaser, and CEC is a party to
Power Contract s dated December 1, 1965 with each of Boston Edison Company,
Commonwealth Electric Company and Cambridge Electric Light Company and New
England Power Company (the "Other Purchasers' Original Contracts"), each of
which is substantially identical to the Original Contract and provides for the
sale of 25% of the capacity and energy to each of the other purchasers.
C. In connection with the closing of the Asset Sale Agreement, CEC has
assigned the Original Contract and the Other Purchasers' Original Contracts to
Seller effective as of the closing, and the Parties hereto desire to enter into
this Contract t o amend, restate, supersede and replace the Original Contract,
effective on the closing of the Asset Sale Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the Parties hereto mutually covenant and
agree as follows:
1 . Definitions
"Affiliate" means any other entity (other than an individual) that, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such entity. For purposes of the foregoing,
"control" means the direct or indirect ownership of more than seventy percent
of the outstanding capital stock or other equity interest having ordinary
voting power.
"Asset Sale Agreement" has the meaning set forth in Recital A.
"Base Amount" has the meaning set forth in Section 5(a).
"Bid Procedures" means the bid procedures agreed to by Seller and the Contract
Purchasers Committee from time to time for bidding Canal Unit I to the ISO
consistent with the then effective Operational Characteristics.
"Business Day" means any day other than a Saturday, Sunday or a Holiday that is
observed on a weekday. If any performance date referenced in this Contract is
not a Business Day, such performance date shall be the next succeeding Business
Day.
"Canal Unit I" means Unit I at the Canal Station in Sandwich, Massachusetts.
"CEC" means Canal Electric Company, formerly known as Plymouth County Electric
Company.
"Commonwealth/Cambridge" means collectively, Commonwealth Electric Company and
Cambridge Electric Company. Commonwealth/Cambridge shall be deemed to be one
Contract Purchaser.
"Contract Costs" means the costs Purchaser incurs under and in connection with
this Contract.
"Clean Air Act" means the federal environmental statute enacted at 42 U.S.C.A.
7401 et seq. to regulate and control air pollution.
"Contract" means this Amended and Restated Power Sales Contract between Seller
and Purchaser.
"Contract Date" means the date of this Contract.
"Contract Parties" means Seller and the Contract Purchasers.
"Contract Purchasers" means Purchaser and the Other Purchasers.
"Contract Purchasers Committee" means the standing committee of representatives
of the Contract Purchasers and Seller established pursuant to Section 3 of this
Contract.
"Contract Year" means a calendar year during the term of this Contract;
provided, however, the first Contract Year shall begin on the Effective Date
and end on December 31, 1999, and the last Contract Year shall end on the
expiration of the term of t his Contract.
"Creditworthiness Criteria" means an entity which has a credit rating of at
least "BBB-," from the Standard & Poor's Rating Group (a division of McGraw
Hill), or its successor ("S&P") or an equivalent rating from Moody's Investor
Services, Inc. or it s successor ("Moody's"). The Creditworthiness Criteria
may be satisfied by the delivery of collateral security for the obligations of
a Party hereunder in the form of (i) a guarantee in form and substance
reasonably satisfactory to the other Party from an entity that meets the
Creditworthiness Criteria, or (ii) a direct-pay, irrevocable, standby letter of
credit from a major U.S. commercial bank having a credit rating of at least "A"
from S&P or "A-2" from Moody 7 s; each in an amount, form and substance
reasonably approved by the other Party.
"CTC" or "Contract Termination Charges" shall have the meaning set forth in
that certain settlement filed by Purchaser with FERC in Docket Nos. ER97-2800
et al, which settlement FERC approved with conditions on December 19, 1997.
"Defaulting Party" shall have the meaning set forth in Section 27(a).
"Delivery Point" means the point where capacity, energy and ancillary services
generated by Canal Unit I are delivered to the NEPOOL PTF.
"Demand Charge" shall have the meaning set forth in Section 5.
"Edison" means Boston Edison Company.
"Effective Date" has the meaning set forth in Section 2(a).
"Energy" shall have the meaning assigned to such term by the Restated NEPOOL
Agreement.
"Energy Charge" shall have the meaning set forth in Section 6.
"Emissions Allowances" means NOx Emission Allowances and SO2, Allowances.
"Emissions Charge" shall have the meaning set forth in Section 7.
"Existing NOx Allowances" shall have the meaning set forth in Section 7.
"Event of Default" shall have the meaning set forth in Section 27(a).
"Fuel means number six (No. 6) fuel oil.
"Fuel Procurement Policy" means the policy established by Seller and approved
by the Contract Purchasers Committee to procure Fuel for Canal Unit 1.
"FERC" means Federal Energy Regulatory Commission.
"Good Utility Practice" means any of the practices, methods or acts engaged in
or approved by a significant portion of the electric utility industry during
the relevant time period, or any of the practices, methods and acts that in the
exercise of reasonable judgment in light of the facts known at the time a
decision was made, could have been expected to accomplish the desired result at
reasonable cost consistent with reliability, safety and expedition and giving
due regard for the compliance with applicable law and the requirements of
governmental agencies having jurisdiction and the rules, regulations and
procedures of NEPOOL and the ISO. Good Utility Practice is not intended to be
limited to the optimum practice, method or act to the exclusion of all others,
but rather to be a spectrum of acceptable practices,, methods or acts.
"Hearing" shall have the meaning set forth in Section 23(b).
"Holiday" means New Year's Day, President's Day, Patriot's Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day, the
day following Thanksgiving Day, and Christmas Day.
"Installed Capacity" shall have the meaning assigned to such term by the
Restated NEPOOL Agreement.
"Interest Rate" means, for any date, two (2) percent over the per annum rate of
interest equal to the prime lending rate as may from time to time be published
in The Wall Street Journal under "Money Rates"; provided, however, that the
Interest Rate s hall never exceed the maximum lawful rate permitted by
applicable law.
"ISO" means ISO New England, Inc., the independent system operator for the New
England region, and its successors and assigns.
"Market Implementation Date" means the effective date of the implementation of
the bid-based market for energy in NEPOOL.
"Mediation Notice" shall have the meaning set forth in Section 23(a).
"NEPCO" means New England Power Company.
"NEPOOL" means the New England Power Pool, and its successors and assigns.
"NEPOOL Defined Products" means any electrical generation-related products
established by NEPOOL which may be produced by Canal Unit 1, including without
limitation, Installed Capacity, Operable Capacity, Energy, Ten Minute Spinning
Reserve, Ten Minute Nonspinning Reserve, Thirty Minute Operating Reserve and
Automatic Generation Control, as such terms are defined by the Restated NEPOOL
Agreement.
"NEPOOL PTF" means the NEPOOL Pool Transmission Facilities, as defined by the
Restated NEPOOL Agreement.
"New Contract Purchasers" means Purchaser and the Other Purchasers which enter
into an Other Purchasers' New Contract, from time to time.
"Non-Defaulting Party" shall have the meaning set forth in Section 27(a)(iii).
"NOx Emission Allowance" means an authorization under Massachusetts air quality
regulations to emit one ton of nitrogen oxides during the period May 1 through
September 30 of any given year.
"NOx Season" means the months of May through September of each year.
"Operational Characteristics" means the operating characteristics of Canal Unit
I as set forth in the NEPOOL NX-12(a) report or any similar report delivered by
Seller to the Contract Purchasers seasonally, as revised from time to by Seller
to reflect changes in the actual physical operating characteristics of Canal
Unit I or as agreed to by the Contract Purchasers Committee in accordance with
Section 3(b)(ii).
"Original Contract" has the meaning set forth in Recital B.
"Other Purchasers" means Commonwealth/Cambridge, Edison and NEPCO and their
respective successors and permitted assigns.
"Other Purchasers' New Contracts" means any agreement between Seller and any of
the Other Purchasers which terminates, amends or replaces such Other
Purchaser's Original Contract.
"Other Purchasers' Original Contracts" has the meaning set forth in Recital B.
"Party" and collectively the "Parties" refers to Seller and/or Purchaser.
"Purchaser" means Montaup Electric Company and its successors and permitted
assigns.
"Restated NEPOOL Agreement" means the NEPOOL Agreement dated December 31, 1996,
as amended from time to time.
"RFP" means a request for proposal as defined in Section 25(b) hereof.
"SCR" means selective catalytic reduction equipment and process installed on
Canal Unit 1.
"SCR Amount" shall have the meaning set forth in Section 5(b).
"SCR Operation Date" means the date the SCR becomes operational for Canal Unit
1.
"Seller" means Southern Energy Canal, L.L.C, and its successors and assigns.
"Senior Officers Committee" means a committee of senior officers of each
Contract Party established in accordance with Section 23(a).
"SO2 Allowance" means an authorization under the Clean Air Act to emit one ton
of sulfur dioxide on an annual basis.
2. Effective Date; Assignment and Amendment
(a) This Contract shall become effective upon the closing of the Asset Sale
Agreement (the "Effective Date"). If the Effective Date does not occur on or
before December 31, 1998, Purchaser shall have the right to terminate this
Agreement and resume service under the Original Contract if Purchaser gives
Seller written notice of such termination by January 5, 1999.
(b) Purchaser hereby consents to the assignment of the Original Contract by
CEC to Seller, and the Parties hereby amend and restate in its entirety the
Original Contract. Such assignment, amendment and restatement shall be
effective on the Effective Date. Purchaser acknowledges and agrees that it is
not aware of any claims against CEC under the Original Contract and Seller
shall have no liability for any claims or demands of Purchaser under the
Original Contract or this Contract arising with respect to acts or omissions
prior to the Effective Date.
(c) If FERC has not issued a final non-appealable order acceptable to
Purchaser, in its sole discretion, approving Purchaser's recovery of Contract
Costs as just and reasonable pursuant to the provisions of Purchaser's CTC by
the Reopener Date, t hen within five (5) Business Days after the Reopener Date,
Purchaser may deliver written notice to Seller requiring the Parties to amend
the terms of this Contract so that the charges to Purchaser will be computed in
accordance with the terms of the Original Contract. As used herein the
Reopener Date" shall be July 3 1, 1999, however, if FERC has issued an order
that is acceptable to Purchaser but is not final and non-appealable by such
date, the Reopener Date shall be automatically extended for sixty (60) days.
Such amendment of this Contract shall also require that the Parties will make
payments to each other as necessary to true-up any charges from the Effective
Date of this Contract until the effective date of any such amendment as
compared to charges under the Original Contract for such period. Purchaser
shall diligently seek to obtain an order from FERC approving the recovery of
Contract Costs as just and reasonable pursuant to the provisions of Purchaser's
CTC.
(d) Notwithstanding Sections 5 and 6 below, if the Effective Date occurs
before January 1, 1999, CEC shall bill Purchaser in accordance with the
Original Contract for service provided between the Effective Date and January
1, 1999, and Seller will recover from CEC such portion of the charges as are,
attributable to service between the Effective Date and January 1, 1999. Seller
will use reasonable efforts to have CEC perform all accountings required under
the Original Contract after January 1, 1999.
3. Contract Purchasers Committee
(a) For the mutual advantage of the Contract Parties, a Contract Purchasers
Committee shall be established consisting of one (1) representative from each
of the Contract Purchasers and one (1) representative from Seller. The New
Contract Purchasers shall each have the right to vote and any Other Purchasers
shall have the rig ht to attend meetings but shall only have the right to vote
on matters which require each such Other Purchaser's consent under such Other
Purchaser's Original Contract. The Purchaser and Seller shall each appoint to
the Contract Purchasers Committee officers or representatives that have the
authority to act on behalf of their respective Parties to the extent required
under the terms of this Contract. The Contract Purchasers Committee shall meet
at least once every six months during the ten-n at such times as may be
announced by Seller. Each member of the Contract Purchasers Committee shall
have the right to call a meeting on at least ten (10) Business Days prior
notice to the other members of the Contract Purchasers Committee.
(b) The approval of the Contract Purchasers Committee, which approval shall
not be unreasonably withheld, is required for the following:
(i) a change in the Bid Procedures shall require the unanimous approval of
the Contract Purchasers Committee; provided, however, any change which has or
may have a material adverse effect on Canal Unit I shall require the written
approval of Seller, which shall not be unreasonably withheld;
(ii) Seller's change in the Operational Characteristics shall require the
unanimous approval of the Contract Purchasers Committee, except any change
required, in Seller's reasonable judgment, to adhere to Good Utility Practice;
(iii) Seller's scheduling of any planned outage for routine maintenance and
overhauls if such planned outage is scheduled during a time other than the
spring or fall shall require the approval of a majority of the Contract
Purchasers Committee; Seller shall consult with the Contract Purchasers
Committee regarding all planned outages including the planned outage to install
the SCR for Canal Unit 1. Seller shall keep the Contract Purchasers Committee
informed of the outage schedule for the SCR, and changes thereto which in
Seller's reasonable judgment are necessary or prudent to install the SCR shall
not require approval of the Contract Purchasers Committee;
(iv) any change to the Fuel Procurement Policy shall require the unanimous
approval of the Contract Purchasers Committee;
(v) the acquisition and disposition of NOx Emission Allowances and SO,
Allowances for Canal Unit I shall require the approval of a majority of the
Contract Purchasers Committee (to the extent acquisitions are approved, Seller
may acquire Emission Allowances from Contract Purchasers in accordance with
Section 7(g)); provided, however, Seller shall not be liable for the failure of
the Contract Purchasers Committee to approve the acquisition of NOx Emission
Allowances and/or SO, Allowances sufficient for the operation of Canal Unit 1;
(vi) the appointment of an agent by Seller pursuant to Sections 8 and 9
which is not an Affiliate of Seller shall require the approval of a majority of
the Contract Purchasers Committee;
(vii) instituting a material capital addition or other action for which
approval of the Contract Purchasers Committee is required pursuant to Section
9 shall require the approval of a majority of the Contract Purchasers
Committee.
(c) Seller's representative shall have the night to attend all Contract
Purchasers Committee meetings but shall not have the power to vote except in
the case of a deadlock on a matter which Seller determines should be resolved
to comply with Good Utility Practice. In the event an Affiliate of Seller
becomes a Contract Purchaser (as a result of an assignment of an Other
Purchaser's Original or New Contract), Seller's right to vote in the preceding
sentence shall terminate, but Seller's Affiliate shall have the power to vote
on all matters except the approval of any fuel or other contract between
Seller and an Affiliate of Seller which requires the consent of the Contract
Purchasers Committee. In such instance the unanimous vote of the other
members of the Contract Purchasers Committee shall be required to approve such
matters.
(d) In the event of a deadlock in the Contract Purchasers Committee which
is not resolved by Seller in accordance with Section 3(c), any Party
may give notice to the other Party instituting the dispute resolution
provisions of Section 23 hereof.
(e) Seller and Purchaser acknowledge that they have reached agreement as to
the initial Bid Procedures for the period prior to the Market Implementation
Date and for the period from and after the Market Implementation Date. Any
change to the Bid Procedures shall be made in accordance with Section 3(b)(i)
except Seller shall have the right to make any change that in Seller's
reasonable judgment is necessary to comply with NEPOOL or ISO rules and
procedures or any change in the Operational Characteristics.
4. Sale, Purchase and Power Price
(a) Commencing on the Effective Date and during the term of this Contract,
Seller shall make available and provide to Purchaser and Purchaser shall be
entitled to twenty-five percent (25%) of the capacity and associated energy,
along with any other generation- related products produced by Canal Unit 1
including, without limitation, operable capacity, operating reserves and
automatic generation control. Purchaser acknowledges that it has no right to
any output of Canal Unit I following the termination of this Contract unless
otherwise agreed to in writing by Seller.
(b) With respect to each month commencing on the Effective Date, Purchaser
shall pay Seller the amounts provided in this Contract.
5. Demand Charge
The Demand Charge for each respective month during the term of this Contract
shall be the Base Amount for such month plus the SCR Amount for such month. If
the Effective Date occurs on a date other than the first day of a month, the
Demand Charge for such month shall be appropriately pro-rated.
(a) Base Amount. The Base Amount for each month during the term of this
Contract shall be as follows:
Year
1999 - $734,895.00 each month
2000 - $691,042.00 each month
2001 - $748,271.00 each month
2002 - $758,121.00 for each month from January through September, and
$236,499.00 for October.
(b) SCR Amount. The SCR Amount for each month during the term of this
Contract beginning with January 2000 shall be:
Year
2000 - $72,500.00 each month
2001 - $71,042.00 each month
2002 - $89,767.00 each month from January through September, and $29,594.00 for
October.
Notwithstanding the foregoing, if the SCR Operation Date has not occurred on or
prior to the beginning of the NOx Season in 2000 or any year thereafter, the
SCR Amount for such year shall be reduced as follows:
(i) For each month during the NOx Season prior to the SCR Operation Date,
the aggregate amount of the SCR Amount for such year shall be reduced by one-
fifth (1/5th).
(ii) If the SCR Operation Date occurs during a month in the NOx Season, the
SCR Amount shall be prorated for such month.
(iii) If the SCR Operation Date has not occurred on or prior to May 1, 2000,
any amounts of the SCR Amount which have been paid by Purchaser prior to the
SCR Operation Date shall be used by Seller as an advance to pay for Purchaser's
share of any N Ox Allowances needed for the operation of Canal Unit 1 in
accordance with Section 7(b) hereof, and any residual advance shall then be
used as an offset against any further SCR Amount payable by Purchaser
hereunder.
Seller shall notify the Contract Purchasers Committee of the occurrence of the
SCR Operation Date. Except as otherwise provided above, Seller shall have no
liability to Purchaser for any delay in the SCR Operation Date.
6. Energy Charge
The Energy Charge shall be 25% of all Fuel and Fuel handling costs incurred by
Seller for Canal Unit I in accordance with the following:
(a) Fuel shall be purchased by Seller from any Fuel supplier, including any
Affiliate of Seller, in accordance with the Fuel Procurement Policy in effect
from time to time. The Parties acknowledge and agree that they have reached
agreement as to the initial Fuel Procurement Policy. Any changes to the Fuel
Procurement Policy shall be made in accordance with Section 3(b)(iv).
(b) The delivered cost of Fuel shall be charged to the Contract Purchasers
monthly at Seller's cost based upon the sum of the daily deliveries to the
Canal Unit 1 day tank.
7. Emissions Allowances
(a) Seller shall allocate to Canal Unit I fifty percent (50%) of the NOx
Emission Allowances allocated to the Canal Station (Canal Unit 1 and Canal Unit
2) by governmental agencies (the "Existing NOx Allowances").
(b) To the extent the Existing NOx Allowances are insufficient for the
operation of Canal Unit I prior to the SCR Operation Date, Purchaser shall pay,
as the "Emissions Charge," 25% of the cost of all NOx Emission Allowances
acquired by Seller for Canal Unit I to comply with emission requirements
applicable to Canal Unit 1. Seller shall charge Purchaser for twenty five
percent (25%) of the cost of any NOx Emission Allowances, in excess of the
Existing NOx Allowances, purchased by Seller from CEC at the closing of the
Asset Sale Agreement. The amounts for the purchased NOx Emission Allowances
shall be charged to the Contract Purchasers as the NOx Emission Allowances are
used, and the purchased NOx Emission Allowances shall be deemed to be used
prior to the Existing NOx Allowances. Seller may charge the Contract
Purchasers interest on the purchase price of unexpensed NOx Allowances at the
Interest Rate minus 2% per annum.
(c) Seller is planning to install an SCR for Canal Unit I to become
operational on or before May 1, 2000 which will be designed to achieve a
reduction in NOx emissions for Canal Unit 1. Seller's cost of installing the
SCR is included in the SCR A mount in the Demand Charges for 2000 and
thereafter, and Purchaser shall not otherwise be responsible for any capital or
operations and maintenance costs associated with the SCR.
(d) Purchaser shall pay Seller for 25% of the cost of SO2 Allowances which
are required for the operation of Canal Unit 1 in excess of the SO, Allowances
allocated to Canal Unit I prior to the Effective Date.
(e) If Seller projects that Seller will have excess Emission Allowances for
any year during the term of this Contract, Seller shall so notify the Contract
Purchasers Committee and Seller shall liquidate such Emission Allowances or
retain such Emission Allowances for use in following years in accordance with
the direction of the Contract Purchasers Committee. Seller shall distribute to
Purchaser 25% of the proceeds of such a liquidation.
(f) If Seller is planning to purchase additional NOx Allowances in
accordance with the terms of this Agreement, Purchaser shall have the night to
provide NOx Allowances to Seller, and in such event Purchaser shall receive a
credit for the amount of NOx Allowances provided to Seller. Such credit shall
be used to offset the charges Purchaser is obligated to pay for the NOx
Allowances acquired by Seller for Canal Unit I or other charges pursuant to
this Contract.
(g) Seller shall pay or bear the cost of any fine or penalty arising from
Seller's failure to observe and comply with Good Utility Practices in the
operation of Canal Unit 1, where such failure results in insufficient Emissions
Allowances for Canal Unit 1. Seller shall under no circumstances be obligated
to operate Canal Unit I in a manner that would result in noncompliance with any
emissions related requirement.
8. Scheduling Protocol Prior to the Market Implementation Date
During the term of the Contract up to the Market Implementation Date:
(a) Seller shall provide information regarding Canal Unit 1 to the ISO in
accordance with the Bid Procedures to enable the ISO to dispatch Canal Unit 1.
(b) Seller shall be responsible for coordinating the submission of all
necessary information on behalf of Contract Purchasers and for communicating
the outcome of the dispatch to Contract Purchasers.
(c) Purchaser shall be entitled to 25% of the capacity and associated
energy along with any other generation-related products produced by Canal Unit
1, including without limitation, operable capacity, operating reserves, and
automatic generation control.
(d) Seller and Purchaser shall take all action necessary in accordance with
NEPOOL procedures to ensure that Purchaser shall receive appropriate credit for
its 25% of the generation related products produced by Canal Unit 1, including
without limitation, energy, installed capacity, operable capacity, operating
reserves, and automatic generation control resulting from the ISO dispatch of
Canal Unit 1.
(e) Seller may appoint an agent to perform its obligations under this
Section 8. The appointment of any agent which is not an Affiliate of Seller
shall require the consent of a majority of the Contract Purchasers Committee,
which consent may not be unreasonably withheld.
9. Scheduling Protocol After Market Implementation Date During the term of the
Contract from and after the Market Implementation Date:
(a) Purchaser shall receive its 25% share of Installed Capacity and
Operable Capacity and shall be responsible for bidding such Installed Capacity
and Operable Capacity to the ISO. Purchaser shall be entitled to all payments
from ISO for such share of Installed Capacity and Operable Capacity.
(b) Seller on behalf of all Contract Purchasers shall submit bids to the
ISO for all NEPOOL Defined Products, other than Installed Capacity and Operable
Capacity, in accordance with the Bid Procedures and the Operational
Characteristics of Canal Unit I in order to enable the ISO to dispatch Canal
Unit I in accordance with NEPOOL procedures.
(c) Seller and Purchaser shall take all action necessary in accordance with
NEPOOL procedures to ensure that Purchaser shall receive credit with the ISO
for Purchaser's 25% of all NEPOOL Defined Products resulting from Canal Unit 1.
(d) Seller shall be responsible for coordinating the submission of the
bids, in compliance with the Bidding Procedures, to ISO on behalf of Contract
Purchasers and Seller shall communicate the outcome of the dispatch to Contract
Purchasers. The Purchaser and Seller shall cooperate to provide information to
each other to comply with ISO rules and procedures.
(e) Seller may appoint an agent to perform its obligations under this
Section 9. The appointment of any agent which is not an Affiliate of Seller
shall require the consent of a majority of the Contract Purchasers Committee,
which consent may not be unreasonably withheld.
10. Accountings and Payment
(a) Seller will deliver to Purchaser an invoice within ten (I 0) Business
Days after the end of the month, or at such later date as is practicable, for
all amounts payable by Purchaser with respect to the previous month. Such
bills will be rendered in such detail as Purchaser may reasonably request. All
bills are due and payable on the last Business Day of the month when rendered,
but no earlier than seven (7) Business Days after receipt of the invoice.
Each monthly billing may include expenses or charges for the amounts payable
hereunder, estimated on a periodic basis. Adjustments of items included in
prior billings shall be made in current billings. Adjustments shall accrue
interest at the Interest Rate. Adjustments of such items may be made at any
time within one year after the invoice as the result of-.
(1) Occurrences which change amounts owed or paid to third parties by
Seller or owed or paid to Seller by third parties.
(2) Errors or omissions in computing the billing as required by this
Contract.
Purchaser shall pay Seller by wire transfer to an account specified by Seller
from time to time.
(b) Within 120 days after the end of each Contract Year, Seller shall
render to Purchaser an accounting of such Contract Year's fuel usage and other
amounts billed as a pass through to Purchaser, and any adjustment of the total
amount billed for the period of said accounting shall be made in accordance
with said yearly accounting.
No Party shall have the night to challenge said yearly accounting or
adjustment, to invoke dispute resolution under Section 23 of the same, or to
bring any court or administrative action of any kind questioning the propriety
of said accounting, with respect to any adjustment under paragraph (a)(2) of
this Section (namely, any error or omission in computing the billing as
required by this Contract), after a period of one year from the date said
accounting is rendered.
For purposes of this one year limitation provision, any adjustments made under
paragraph (a)(1) of this Section (namely, adjustments occasioned by occurrences
changing amounts owed to or by third parties), shall be deemed to have been
made, whether or not actually made, in the year in which said adjustments are
finally determined as between Seller and third parties.
(c) Seller's books and records which directly pertain to the charges
rendered to Purchaser shall be open to reasonable inspection and audit by
Purchaser.
(d) Overdue payments shall accrue interest at the Interest Rate from, and
including, the due date to, but excluding, the date of payment.
11. Delivery
The electricity generated for the Purchaser by Canal Unit I shall be delivered
to Purchaser in the form of three (3) phase, sixty (60) cycle, alternating
current at the Delivery Point. Purchaser will make its own arrangements for
the transmission of power beyond the Delivery Point.
12. Term
Unless earlier terminated pursuant to Section 2, 17 or 27, this Contract shall
expire on October 10, 2002.
13. Purchaser's Right to Replacement Contract
Purchaser shall have the option to enter into a new contract for the purchase
of 25% of the capacity, energy, ancillary services and other NEPOOL Products
from Canal Unit I for the five (5) year period commencing with the expiration
of this Contract by delivering written notice to Seller on or before December
31, 1999 of its irrevocable election to enter into such contract. The terms
of such replacement contract shall be as set forth on Schedule 1 attached
hereto. If such option is exercised, the Parties shall negotiate in good
faith to finalize and execute the replacement contract promptly after December
31, 1999.
14. Force Majeure
Seller shall use all due diligence in accordance with Section 18 to deliver to
Purchaser regularly and without interruption the electricity to which it is
entitled under this Contract, but Seller shall be excused from delivering
electricity hereunder if and to the extent that it shall be prevented from
doing so by action of any court or any public authority or by reason of delays
in construction, or total or partial shutdown of Canal Unit I by reason of
breakdown, scheduled or unscheduled repair s or maintenance, strike, labor
troubles, civil disorders, flood, fire or any cause beyond the reasonable
control of Seller. Seller will use due diligence to resume normal delivery of
electricity in accordance with Good Utility Practice.
15. Insurance
Seller agrees to keep insured at all times Canal Unit I and all appurtenant
facilities against all property risks on which insurance is available at
commercially reasonable terms and conditions from reputable insurance
companies including but without limitation thereto:
(a) fire, explosion, wind, flood, earthquake, falling aircraft, vandalism,
malicious mischief, not and civil commotion.
(b) full breakdown of turbines, explosion, collapse or rupture of boilers
and pressure vessels.
All the foregoing insurance shall be carried in an amount at least equal to the
reproduction cost new of the insured property less depreciation or, at Seller's
option, a limit equal to two times the probable maximum loss for the facility
as determined by an independent expert. Seller also agrees to carry basic
public liability insurance with limits of at least $100,000/$1,000,000, basic
property damage insurance with limits of at least $500,000 and a comprehensive
excess combined personal injury and property damage policy with limits of at
least $15,000,000.
16. No Right of Setoff
Except as expressly provided in Section 5(b), neither Party shall be entitled
to set off, deduct or withhold against the payments required to be made by it
under this Contract any amounts which may from time to time be owed to it by
the other Party. However, the foregoing shall not affect in any other way the
rights and remedies which a Party may have with respect to any such amounts.
17. Cancellation of Contract
(a) If Seller is unable to make energy deliveries to Purchaser because
either (1) Canal Unit I is damaged to the extent of being completely or
substantially completely destroyed, whether or not by reason of causes noted in
Section 14 hereof, (2) Canal Unit I is taken by exercise of the right of
eminent domain or a similar right or power; or (3) (A) Canal Unit I cannot be
used because a necessary license or other necessary public authorization cannot
be obtained or is revoked despite Seller's reasonable efforts in accordance
with Good Utility Practice to maintain such license or public authorization, or
because the use of such license or such authorization is made subject to
specified conditions which are not met, and (B) the situation cannot be
rectified to an extent which will permit Seller to make deliveries to Purchaser
from Canal Unit 1, then and in each such case, either Party may cancel this
Contract upon at least ten (10) Business Days prior notice to the other Party.
(b) In all other circumstances no cancellation of the Contract or
discontinuance of payments shall be permitted.
18. Operation and Maintenance
Seller will operate and maintain Canal Unit I in accordance with Good Utility
Practice, all applicable law and in' Contract Purchasers' best interest
consistent with Good Utility Practice. Outages for inspection, maintenance and
necessary capital replacements will be scheduled in accordance with Good
Utility Practice and insofar as practicable shall be mutually agreed upon by a
majority of the Contract Purchasers Committee to the extent the capital
replacements affect the Contract Parties' rights and obligations under this
Contract. In the event of an unscheduled outage due to the failure or
impairment of any equipment or other cause, Seller will use its reasonable
efforts in accordance with Good Utility Practice to restore Canal Unit I t o
service as soon as reasonably practical. Seller agrees to use due diligence to
maintain at Canal Unit I fuel inventory for the operation of Canal Unit 1 in
accordance with Good Utility Practice.
19. Change in Law
In the event of a change in law, regulation or other legal requirement after
the date of this Contract which materially increases Seller's costs of
providing service to Purchaser, Seller shall confer with the Contract
Purchasers Committee to discuss the most economical manner to address such
change in costs in an effort to minimize the increase in costs. Seller shall
obtain the approval of a majority of the Contract Purchaser's Committee as to
the prudent course of action if such action require s any additional cost,
including without limitation any material capital addition. Seller shall
adjust the Demand Charge and/or the Energy Charge in a reasonable manner to
allow Seller to recover from Purchaser 25% of the increased costs resulting
from such change in law, regulation or other legal requirements and incurred in
accordance with the actions approved by a majority of the Contract Purchasers
Committee. Twenty-five percent (25%) of the reasonable costs of any such
material capital addition shall be passed through to Purchaser at a reasonable
rate of return, amortized over the normal useful life of the capital addition.
The Contract Purchasers Committee shall not unreasonably withhold its consent
to action proposed by Seller to respond to such change in law, regulation or
other legal requirement, and in no event shall Seller be prevented from
complying with such change. In the event of a change in law, regulation or
other legal requirement after the date of this Contract which materially
decreases Seller's costs of providing service to Purchaser, Seller shall adjust
the Demand Charge and/or the Energy Charge in a reasonable manner to pass
through to Purchaser 25% of the benefits of any cost reduction resulting from
such change.
20. Taxes
Purchaser shall pay any and all sales taxes, gross receipts taxes, excise
taxes, franchise fees or any other fees or charges, including, without
limitation, any BTU tax or carbon tax, imposed by any federal, state or local
government or any regulatory agency over the provision of service hereunder or
Canal Unit 1 (including without limitation any tax imposed on NEPOOL Defined
Products produced by Canal Unit I or any tax imposed on interconnection
services) with the exception of income taxes or property taxes. Seller
represents and warrants that as of the date hereof it is not aware of any such
taxes, fees or charges which are imposed by any governmental authority and
which would be payable by Purchaser in accordance with this Section 20.
21. Interpretation
The interpretation and performance of this Contract shall be in accordance with
and controlled by the law of the Commonwealth of Massachusetts.
22. Regulation
This Contract, and all rights, obligations and performance of the Parties
hereunder, are subject to all present and future applicable federal, state and
local laws and to all present and future duly issued and promulgated orders,
regulations, requirements and other duly authorized action of any governmental
authority having jurisdiction in the premises.
23. Dispute Resolution
(a) In case of any dispute between the Parties and after notice of such dispute
has been delivered from one Party to the other Party, such dispute shall be
referred to the Contract Purchasers Committee for resolution. If the Contract
Purchasers Committee fails to resolve the dispute in a manner satisfactory to
each Party within 30 days after notice of said dispute is received by a Party,
either Party may submit the matter to a Senior Officers Committee composed of
the Presidents or other senior officers of each Party. Each Contract Party
shall designate a senior officer to serve on the Senior Officers Committee for
the purpose of resolving the dispute. If the Senior Officers Committee fails
to resolve the dispute within 15 days following the submission of the dispute
to said committee, either Party may give the other Party notice (a "Mediation
Notice") that the dispute shall be referred to mediation in accordance with
Section 23(b). If the dispute between the Parties involves one o r more of the
Other Purchasers, each of the Other Purchasers shall have the rights of the
Parties under this Section 23(a).
(b) If either Party delivers a Mediation Notice to the other Party, the
Parties shall participate in a non-binding dispute resolution procedure whereby
each Party presents its case at a hearing (the "Hearing") before a neutral
mediator approved by each Party. If the Parties fall to agree upon the
mediator within seven (7) days after the date of the Mediation Notice, either
Party may direct the American Arbitration Association to select the mediator.
Each Party may be represented at the Hearing by lawyers. If the mediation
proceedings do not result in a resolution of the dispute, such mediation
proceedings shall be without prejudice to the legal position of either Party.
The Parties shall each bear their respective costs incurred in connection with
this procedure, except that the fees and expenses of the neutral mediator and
the costs of the facility for the Hearing shall be allocated in the amount of
fifty percent (50%) to each Party. If the dispute is not resolved pursuant to
Section 23(a) or within twenty one (21) days after the date of the Mediation
Notice, either Party may pursue any and all remedies and legal proceedings as
are available. If the dispute between the Parties involves one or more of the
Other Purchasers, each of the Other Purchasers shall have the rights of the
Parties under this Section 23(b), and the fees and expenses of the neutral
mediator and the costs of the facility for the Hearing shall be allocated
equally among the Parties and the Other Purchasers involved in the dispute.
(c) Nothing in this Section 23 shall limit the rights of either Party to
seek in any court of competent jurisdiction such interim relief as may be
needed to maintain the status quo, to prevent irreversible harm, or otherwise
protect the subject matter of the mediation until the matter shall have been
finally resolved; provided, however, any such interim relief ordered by a court
shall not determine or prejudge the substantive issues to be decided by such
mediation.
(d) Notwithstanding anything to the contrary in this Section 23 or any
other provision in this Contract, if Purchaser disputes an amount invoiced
pursuant to Section 10 of this Contract, Purchaser shall pay the invoiced
amount in full prior to invoking this Section 23, subject to later return with
interest accrued in the interim at the Interest Rate.
24. Communications and Addresses
Except as the Parties may otherwise agree, any notice, request, bill or other
communication from one Party to the other, relating to this Contract or the
rights, obligations or performance of the Parties hereunder, shall be in
writing and shall be effective upon delivery to the other Party. Any notice,
request, demand, or statement, which may be given to or made upon a Party
hereto by the other Party hereto under any of the provisions of this Contract,
shall be in writing unless it is specifically provided otherwise herein, and
shall be treated as duly delivered either ( 1) when the same is delivered in
person or by reliable courier service or (2) three (3) days after being
deposited in the United States mail, by certified mail, postage prepaid, and
properly addressed to the Party to be served at the addresses listed below the
signature of such Party, or such other address as a Party may notify the other
in accordance with this Section 24.
25. Amendments
(a) Any amendments to this Contract shall be in writing. If the terms of
any of the Other Purchasers' New Contracts, as amended from time to time, are
different from the terms of this Contract, Seller shall give Purchaser the
right to amend this Contract to the same or substantially similar terms to
such Other Purchaser's New Contract. Purchaser shall notify Purchaser in
writing within 15 days after Seller enters into any Other Purchaser's New
Contract or any amendment thereto which contains different terms than the
terms herein. Purchaser shall have 15 days after receipt of such notice to
enter into an amendment of this Contract to contain such different terms.
(b) Prior to Seller or its Affiliate accepting an assignment of any Other
Purchaser's New Contract or Original Contract, Seller shall first issue a
request for proposals (an "RFP") to Purchaser regarding the terms (other than
price) under which Seller or its Affiliate is willing to accept such an
assignment. The RFP shall allow Purchaser to submit an offer for the
assignment of this Contract to Seller or its Affiliate, and such offer shall
not be deemed to be nonconforming simply because this Contract contains
different terms than an Other Purchaser's Original Contract or New Contract.
If Purchaser submits a conforming offer, Seller or its Affiliate shall not
accept an assignment from an Other Purchaser for a price that is less favorable
to Seller than the offer submitted by Purchaser. Seller and its Affiliate
shall not be under an obligation to accept any offer in response to the RFP,
and if Seller or its Affiliate changes the terms under which it intends to
accept an assignment of an Other Purchaser's Original Contract or New Contract,
Seller shall reissue the RFP.
(c) Seller's obligation under Section 25(b) shall terminate upon
Purchaser's assignment of this Contract to a third party.
26. Assignment
(a) Neither Party may assign this Contract without the written consent of
the other Party except in accordance with this Section 26.
(b) Upon not less than fifteen (15) days prior written notice to
Purchaser, Seller may assign this Contract to any party which acquires Canal
Unit I and which meets the Creditworthiness Criteria, provided, however,
Purchaser shall not unreasonably withhold its consent if a proposed assignee is
a direct or indirect subsidiary of an entity which meets the Creditworthiness
Criteria. Seller may assign this Contract as security to its lenders and their
agents.
(c) Upon not less than fifteen (1 5) days prior written notice, Purchaser
may assign this Contract to any party which meets the Creditworthiness Criteria
provided, however, Seller shall not unreasonably withhold its consent if a
proposed assignee is a direct or indirect subsidiary of an entity which meets
the Creditworthiness Criteria. Purchaser may assign this Contract as security
to its lenders and their agents.
(d) Any other assignment of this Contract shall not operate to relieve the
assigning Party of its obligations under this Contract without the written
consent of the other Party. Each Party agrees to execute such consents as are
reasonably requested by the other Party for an assignment to its lenders.
27. Default: Remedies; Limitation of Liability
(a) As used herein, "Event of Default" shall mean, in relation to a Party
(the "Defaulting Party"):
(i) Purchaser as the Defaulting, Party fails to make any payment that is
required hereunder to be made to Seller when due, and such failure continues
for five (5) Business Days after written notice from Seller;
(ii) Seller as the Defaulting Party breaches Section 4(a) by making
deliveries of Purchaser's portion of NEPOOL Products from Canal Unit 1 to third
parties;
(iii) the Defaulting Party fails to perform any of its material obligations
hereunder, other than as provided in subsection (i) or (ii), and such failure
is not excused by force majeure and continues for sixty (60) days after the
Defaulting Party receives written notice from the other Party (the "Non
Defaulting Party") of such failure; provided, however, with respect to a
failure to cure any such obligation, if a period in excess of sixty (60) days
is required to cure such failure, the Defaulting Party shall have such
additional amount of time, not to exceed one hundred eighty (I 80) days, as may
be necessary to cure such failure provided that the Defaulting Party uses
reasonable diligence to remedy such failure in accordance with Good Utility
Practice; or
(iv) the Defaulting Party makes an assignment or general arrangement for the
benefit of creditors, files a petition in, or otherwise commences any
proceedings in, bankruptcy or under similar law, or otherwise becomes bankrupt
(however evidenced).
(b) In the event Seller falls to deliver energy from Canal Unit I as a
result of Seller's breach of its obligations under Section 18 which is not
excused by Section 14, during any cure period provided in Section 27(a)(Iii)
Purchaser shall be entitled to all remedies available under Section (c) except
termination of this Contract. Purchaser shall give Seller prompt written
notice whenever Purchaser believes that the provisions of this Section 27(b)
are applicable.
(c) Upon an Event of Default, the Non-Defaulting Party may resort to all
remedies available at law or in equity, subject to the limitations set forth in
Section 27(d). If it is necessary for any Party to institute legal proceedings
or retain an attorney in attempting to collect a delinquent bill. the other
Party shall pay any and all expenses and costs of collection, including
reasonable attorneys' fees, incurred by such collecting Party.
(d) Except as otherwise explicitly stated herein, in no event shall either
Party be liable for punitive, exemplary, special, consequential or incidental
damages arising from any breach or default under this Contract, or from any act
or omission under or in connection with this Contract. Seller's rights to
payment of the Demand Charge, Energy Charge and other amounts payable hereunder
shall not be deemed to be consequential damages. Purchaser's rights to payment
for its incremental costs of Energy and other NEPOOL Defined Products as
damages in the event of a breach of this Contract shall not be deemed to be
consequential damages.
28. Indemnity
Each Party expressly agrees to indemnify, hold harmless and defend the other
Party against all claims, liability, costs or expense for loss, damage or
injury to persons or property in any manner directly or indirectly connected
with or arising out of, the generation, transmission or distribution of
electric energy on its own side of the Delivery Point.
29. Prior Agreements Superseded
Unless otherwise specifically provided, upon the Effective Date this Contract
supersedes any and all prior agreements and contracts by and between the
Parties relative to Canal Unit 1, including without limitation the Original
Contract.
This Contract has been made within the Commonwealth of Massachusetts and shall
bind and inure to the benefit of the Parties hereto and their respective
successors and permitted assigns.
IN WITNESS WHEREOF, the Parties have caused this Amended and Restated Power
Sales Contract to be executed by their officers duly authorized thereunto and
have duly caused their corporate or company seals to be affixed hereto.
SOUTHERN' ENERGY CANAL, L.L.C.
By: /s/ Henry Coolidge
Henry Coolidge, President
Address:
c/o Southern Energy Resources, Inc.
900 Ashwood Parkway, Suite 500
Atlanta, GA 30338
Attention: Alan Harrelson
Vice President North American Assets
MONTAUP ELECTRIC COMPANY
By: /s/ Kevin A. Kirby
Kevin A. Kirby, Vice President
Address:
Montaup Electric Company
c/o EUA Service Corporation
75 West Center Street
West Bridgewater, MA 02379
SCHEDULE 1
TERMS OF REPLACEMENT CONTRACT
Same terms as the Power Contract, except:
Demand Charge shall be 25% of the following:
October 11, 2002 through December 31, 2002 $ 9,370,000.00
January 1, 2003 through December 31, 2003 $42,260,000.00
January 1, 2004 through December 31, 2004 $46,460,000.00
January 1, 2005 through December 31, 2005 $52,520,000.00
January 1, 2006 through December 31, 2006 $53,810,000.00
January 1, 2007 through October 10, 2007 $55,130,000.00
Any increases to the Demand Charge in the existing contract as a result of
change of law shall be added to the above charges.
Any increases in property taxes following 2005 will be passed through to
Contract Purchasers.
Voting among the Contract Purchasers Committee will be weighted based on
percentage of entitlement from Canal Unit 1. For example, if two Contract
Purchasers elect to enter into the Replacement Contract and Seller's Affiliate
contracts for the remaining 50%, Seller's Affiliate would have 50% of the votes
on the Contract Purchasers Committee.
Each Party shall negotiate in good faith to make other reasonable modifications
to terms of the Contract as may be requested by either Party.
THIRD AMENDMENT TO PILGRIM POWER SALE AGREEMENT
BETWEEN BOSTON EDISON COMPANY AND
MONTAUP ELECTRIC COMPANY
Boston Edison Company ("Boston Edison") and Montaup Electric Company
("Montaup") (Boston Edison and Montaup referred to hereafter as "Party" or
"Parties" as the context requires) hereby enter into this Agreement dated this
18th day of November, 1998.
RECITALS
WHEREAS, Boston Edison owns a nuclear power plant in Plymouth, Massachusetts
called Pilgrim Unit 1; WHEREAS, Boston Edison and Montaup are parties to an
agreement dated August 1, 1972, as subsequently amended by agreements dated
December 7, 1984 and December 21, 1989 providing for the sale of power by
Boston Edison from Pilgrim Unit 1 to Montaup (" Power Sale Agreement");
WHEREAS, Boston Edison currently contemplates the sale of Pilgrim Unit 1
without assigning the aforesaid Power Sale Agreement to the buyer pursuant to
the terms and conditions of a certain purchase and sale agreement (the
"Purchase and Sale Agreement ") dated November 18, 1998 by and between Boston
Edison and Entergy Nuclear Generation Company ("Entergy" or "Buyer");
WHEREAS, Boston Edison and Montaup contemplate that in connection with such
sale a substitute power purchase agreement between Montaup and Buyer will be
necessary; NOW, THEREFORE, Boston Edison and Montaup hereby amend the Power
Sale Agreement as follows:
1. Allocation of Proceeds of Sale. On the Effective Date, as defined in
Paragraph 10 below, Boston Edison shall credit eleven percent (11%) of the net
sale proceeds for Pilgrim Unit 1 to Montaup. For purposes of this Amendment,
"net sale proceeds" means the Pilgrim Unit 1 purchase price as set forth in the
Purchase and Sale Agreement ("Purchase Price") less the costs of sale and
adjustments to the Purchase Price as approved by the Massachusetts Department
of Telecommunications and Energy ("MD TE"), in any order concerning in any
respect the sale of, or the purchase of power from, Pilgrim Unit 1, ("Approval
Order"), including but not limited to (a) out-of-pocket costs associated with
the sale of Pilgrim Unit 1, provided that for purposes o f this Amendment such
out-of-pocket costs shall not include Boston Edison internal labor or
attorneys' fees incurred in connection with (i) the preparation of this
Amendment, or (ii) seeking and obtaining any necessary regulatory approvals
required relative to this Amendment and the Purchase and Sale Agreement with
the sole exception of such regulatory approvals required to be obtained from
the Nuclear Regulatory Commission ("NRC"), (b) severance and employee
transition costs, and (c) payments by Boston Edison to the Buyer relating to
the remittance of Pilgrim Unit 1 fixed operating costs; provided that Montaup
may, at its option, elect to make any payments related to Pilgrim Unit 1 fixed
operating costs pursuant to Paragraph 8 hereof, rat her than as part of the
calculation of net sale proceeds. A description and estimate of such costs to
be netted from the gross sale price is attached as Appendix A hereto. The
Parties agree that the adjustments described in this Paragraph 1 shall reflect
payments made by Montaup to Boston Edison pursuant to the Power Sale Agreement
with respect to the items described in this Paragraph 1 prior to the Effective
Date. To the extent any cost under this Paragraph is calculated on the
Effective Date on the basis of an estimate, such estimate shall be trued-up
within sixty (60) days and shall be charged or credited, as the case may be,
through the provisions of Paragraph 8 hereof.
2. Decommissioning Costs. On the Effective Date, Montaup shall pay eleven
percent (11%) of the amount determined in accordance with Appendix B hereto to
Boston Edison for deposit into the "Decommissioning Trust" and the "Provisional
Trust" as provided under Section 5.21 of the Purchase and Sale Agreement (or at
Montaup's option, directly to said trusts); provided, however, the foregoing
amount shall be reduced by payments made by Montaup for Decommissioning
Expenses (as that term is defined in Section C-6.2.5 of the Power Sale
Agreement) and associated earnings from the inception of the Power Sale
Agreement to the Effective Date. To the extent any cost under this Paragraph
is paid on the Effective Date on the basis of an estimate, such estimate shall
be trued-up within sixty (60) days and shall be charged or credited, as the
case may be, through the provisions of Paragraph 8 hereof.
3. Balance of Net Unit Investment. Montaup shall pay Boston Edison eleven
percent (11%) of the net unit investment determined as of the Effective Date.
For purposes of this Amendment, the "net unit investment" equals gross unit
investment on Boston Edison's books for Montaup as of the Effective Date less
the depreciation as of the Effective Date as adjusted on Boston Edison's
invoices to Montaup and as determined in accordance with Federal Energy
Regulatory Commission (FERC) regulations and Generally Accepted Accounting
Principles. In addition, Montaup shall pay an eleven percent (11%) share of
post retirement benefits, under-recovered pension costs, and National Energy
Policy Act costs, all as determined as of the Effective Date and a s approved
by the MDTE, in an Approval Order and less a contract adjustment of $3.5
million. An estimate of costs payable under this Paragraph is attached as
Appendix C hereto. The Parties agree that the amount paid by Montaup pursuant
to this Paragraph 3 shall reflect payments made by Montaup to Boston Edison
pursuant to the Power Sale Agreement with respect to the items described in
this Paragraph 3 prior to the Effective Date. To the extent any cost under
this Paragraph is paid on the Effective Date on the basis of an estimate, such
estimate shall be trued-up within sixty (60) days and shall be charged or
credited, as the case may be, through the provisions of Paragraph 8 hereof.
4. Charges Incurred Prior To the Effective Date. Boston Edison has prepared a
statement, attached as Appendix D hereto, of estimated charges to be billed to
Montaup pursuant to the Power Sale Agreement through the Effective Date.
5. Obligation to Purchase Pilgrim Output After Sale. Coincident with the
execution of this Amendment, Montaup shall execute a Power Purchase Agreement
(the "PPA") with Entergy. Subject to the terms and conditions set forth
therein and the conditions precedent provided below, the PPA shall be
effective on the Effective Date. A copy of the PPA is attached hereto as
Appendix E.
6. Billing and Accounting. The Parties' respective rights and obligations
associated with billing, payment, accounting and refunds for charges incurred
by Montaup pursuant to the Power Sale Agreement prior to the Effective Date
shall be determined in accordance with Section C-8 of the Power Sale Agreement.
Boston Edison agrees to issue a final accounting of all amounts so due under
the Power Sale Agreement within sixty (60) days of the Effective Date.
7. Termination of Remaining Rights and Obligations Under Power Sale Agreement.
To the extent that continuation or survival of the rights and obligations of
Boston Edison and Montaup under the Power Sale Agreement are not expressly
provided for in this Amendment, they are hereby extinguished.
8. Residual Liabilities and Claims. Boston Edison may incur liability to
government entities or to private parties arising from its ownership or
operation of Pilgrim Unit 1 prior to the Effective Date, including, but not
limited to payments pursuant to M.G.L. c. 59, 38H(c). To the extent that any
such liability is imposed on Boston Edison and Boston Edison is not entitled to
indemnification, compensation or other reimbursement from the Buyer, or an
insurer or any other party, Montaup shall remain responsible for eleven percent
(11%) of all such liability. Provided, however, to the extent any claim
described in this Paragraph 8 is brought against Montaup, Boston Edison shall
indemnify, hold harmless and defend Montaup with respect to such claim, and
Montaup's liability with respect thereto shall be limited to the
eleven percent (11%) share of the amount paid by Boston Edison with respect to
such claim as described in this Paragraph. To the extent Boston Edison
receives refunds, credits, reimbursement or other compensation from government
entities or private parties associated with its ownership or operation of
Pilgrim Unit 1 prior to the Effective Date or under the terms of the Purchase
and Sale Agreement, Boston Edison shall remit to Montaup eleven percent (11%)
of any and all such amounts, net of eleven percent (11%) of the costs of
obtaining any such recoveries. A description of the matters under this
Paragraph for which Montaup would have either a residual liability obligation
or an entitlement to refunds, credits, reimbursement or other compensation, and
an estimate of costs and recoveries associated therewith is attached as
Appendix F hereto.
9. No Double Recovery. Montaup shall not ultimately be obligated to pay any
amount under this Amendment which Boston Edison has previously collected from
Montaup, or has recovered from any other person.
10. Conditions precedent; "Effective Date." This Amendment shall not become
effective until all of the following shall have occurred:
(a) FERC issues a final and non-appealable order acceptable to Montaup, in its
sole discretion, expressly approving its recovery of "Costs," as defined
immediately hereafter, as just and reasonable pursuant to the provisions of
Montaup's right to "Contract Termination Charges" ("CTC") as charges are
defined in that certain settlement filed with FERC in Docket Nos. ER97-2800 et
al., which settlement FERC approved with conditions on December 19, 1997.
"Costs" for purposes of this subparagraph shall mean (a) the costs Montaup
incurs under and in connection with the PPA and (b) the net costs Montaup
incurs to dispose of its rights and obligations with respect to the Power Sale
Agreement as provided under this Amendment;
(b) FERC issues a final and non-appealable order approving this Amendment
without modification or conditions or 15 days from the date FERC issues a final
and non-appealable order approving this Amendment with modifications and
conditions acceptable to Boston Edison and Montaup, in each Party's sole
discretion; provided, that notification of the unacceptability of such order
shall be given to the other Party within 15 days from the date such order
issues;
(c) the closing of the sale of Pilgrim Unit 1 to Entergy;
(d) the determination by Montaup, in its sole discretion, that the actual
costs which would be incurred by Montaup as described in this Amendment would
not significantly exceed the amounts estimated by Boston Edison as stated on
the several Appendices hereto;
(e) FERC issues a final and non-appealable order approving the PPA without
modification or conditions or 15 days from the date FERC issues a final and
non-appealable order approving the PPA with modifications and conditions
acceptable to Montaup and Entergy, in each Party's sole discretion; provided
that notification of the unacceptability of such order shall be given to the
other Party within 15 days from the date such order issues;
(f) financing for payments to Boston Edison under this Amendment has been (i)
arranged on terms acceptable to Montaup, in its sole discretion, at a rate no
greater than eight percent (8%) and (ii) approved in an order issued by the
MDTE acceptable to Montaup, in its sole discretion; provided, however, it is
understood and agreed that Montaup shall be under no obligation to seek such
financing prior to the time at which Montaup or its retail affiliates, in their
sole discretion, receive an acceptable final and non-appealable financing order
from the MDTE and the Rhode Island Public Utilities Commission ("RIPUC") for
the fixed component of Montaup's CTC; and
(g) receipt of an order by the NRC that the minimum amount required by NRC
regulations for the decommissioning of Pilgrim Unit 1 does not require funding
in excess of the amounts shown on Schedule 5.21 of the Purchase and Sale
Agreement, which is contained in Appendix B attached hereto. The first day
following the date on which all of the conditions described in (a), (b), (c),
(d), (e), (f) and (g) of this paragraph are satisfied (or waived by the
Parties) shall be considered the "Effective Date" of this Amendment; provided,
however, that in the event each and every condition is not satisfied (or waived
by the Parties) on or before June 30, 2000, this Amendment shall be deemed null
and void.
11. Support for Regulatory Approval. The Parties shall diligently provide
reasonable support and assistance and take all reasonable actions necessary to
expedite and to effect issuance of such regulatory authorizations and the
occurrence of other such conditions precedent as may be required under this
Amendment.
12. Other Agreements. If Boston Edison enters into any agreement, amendment
to an agreement, or makes an offer to or other commitment with any other
wholesale electricity purchaser of Pilgrim Unit 1 (excepting any municipal
electric company), Boston Edison shall promptly provide Montaup with a copy
of the form of such agreement or amendment, or a document detailing the terms
of such offer or other commitment. If upon review of the same Montaup, in its
sole discretion, believes that such other agreement, amendment, offer or
commitment contains terms more favorable to such other purchaser than the terms
of this Amendment, then Boston Edison agrees to offer such terms to Montaup.
Montaup may accept such terms in lieu of the terms of this Amendment, and this
Amendment shall be considered null and void.
13. Assignment. The rights and obligations of the Parties under Section D-3.1
of the Power Sale Agreement shall continue in full force and effect. In
addition, Montaup shall have the right to assign the Power Sale Agreement,
including any and all of the rights and obligations enumerated in this
Amendment to an affiliated entity; provided that such entity has the financial
capacity necessary to satisfy any and all obligations so assigned.
14. Notice. Except as otherwise provided herein, any notice, invoice or other
communication which is required or permitted by this Amendment shall be in
writing and delivered by personal service, telecopy, or mailed certified or
registered first class mail, postage prepaid, properly addressed as follows:
a) In the case of Montaup to:
Montaup Electric Company
c/o EUA Service Corp.
W. Bridgewater, Massachusetts. 02379 U.S.A.
Attention: Manager, Power Resource Administration
Telecopy No: 508-583-2356
(b) In the case of Boston Edison to:
Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
Attention: Director of Financial and Regulatory Planning
Telecopy No: 617-424-2605
Another address or addressee may be specified in a notice duly given as
provided. Each notice, invoice or other communication which shall be mailed,
delivered or transmitted in the manner described above shall be deemed
sufficiently given and received for all purposes at such time as it is
delivered to the address (with return receipt, the delivered receipt, the
affidavit of the messenger or with respect to a telecopy, the answer back,
being deemed conclusive evidence of such delivery) or at such time as delivery
is refused by the addressees upon presentation.
15. Reservation of Rights. Montaup reserves all rights and defenses that
exist pursuant to the Power Sale Agreement and prior settlements between the
Parties with respect to any amounts paid by Montaup pursuant to this Amendment,
including but not limited to such costs that are incurred by reason of Boston
Edison's negligence, willful misconduct, or violation of any law or regulation.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement by their
duly authorized representatives as of the date first above written.
BOSTON EDISON COMPANY
By /s/ Douglas S. Horan
Name: Douglas S. Horan
Title: Senior Vice President and General Counsel
MONTAUP ELECTRIC COMPANY
By /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
POWER PURCHASE AGREEMENT
BETWEEN
ENTERGY NUCLEAR GENERATION COMPANY
AND
MONTAUP ELECTRIC COMPANY
FOR PILGRIM NUCLEAR POWER STATION
TABLE OF CONTENTS
ARTICLE 1. Definitions 1
ARTICLE 2. Purchase and Sale of Installed Capability,
Operable Capability and Energy 3
ARTICLE 3. Term, Termination 4
ARTICLE 4. Purchase Rate for Installed Capability,
Operable Capability and Energy 4
ARTICLE 5. Dispatch 5
ARTICLE 6. Billing, Meter Reading 5
ARTICLE 7. Limitation of Liability; Indemnification;
Insurance; Relationship of Parties 7
ARTICLE 8. Miscellaneous Provisions 7
ARTICLE 9. Assignment 8
ARTICLE 10. Force Majeure 9
ARTICLE 11. Default 9
ARTICLE 12. Governing Law, Dispute Resolution 10
ARTICLE 13. Waiver 10
ARTICLE 14. Corporate Authorization 11
ARTICLE 15. Notice 11
POWER PURCHASE AGREEMENT
BETWEEN
ENTERGY NUCLEAR GENERATION COMPANY
AND
MONTAUP ELECTRIC COMPANY
AGREEMENT entered into this 18th day of November 1998 by and between
Entergy Nuclear Generation Company , a Delaware corporation (hereafter referred
to as "Seller"), and Montaup Electric Company, a Massachusetts corporation
having its principal place of business at W. Bridgewater, Massachusetts 02379,
(hereafter referred to as "Company").
WHEREAS, Seller wishes to purchase from Boston Edison Company ("Boston
Edison") the specific generating facility known as Pilgrim Nuclear Power
Station (the "Facility"), pursuant to the terms of a certain Purchase and Sale
Agreement dated November 18, 1998 by and between Boston Edison and Seller (the
"Purchase and Sale Agreement"); and
WHEREAS, Company contemplates that in connection with such purchase by Seller
it will be necessary to terminate Company's rights and obligations under a
certain power sale agreement with Boston Edison initially entered into on
August 1, 1972, which provides for the sale of power from the Facility by
Boston Edison to Company (the "Power Sale Agreement"); and
WHEREAS, Company and Boston Edison have agreed to amend the Power Sale
Agreement in order to effectuate such termination pursuant to the terms of the
Third Amendment to the Power Sale Agreement dated November 18, 1998 by and
between Company a nd Boston Edison ("Third Amendment"); and
WHEREAS, as a condition to, and upon such termination and the closing
of, the sale of the Facility to Seller, Seller wishes to sell to Company and
Company wishes to purchase from Seller Installed Capability, Operable
Capability and Energy fro m the Facility;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, Seller and Company hereby agree as follows:
ARTICLE 1. Definitions
When used with initial capitalizations, whether in the singular or in
the plural, the following terms shall have the meanings set forth below.
(a) Agreement: This document, including its appendices, as amended
from time to time.
(b) Capability Audit: The procedure used pursuant to the NEPOOL
Agreement to determine the Summer Net Capability and the Winter
Net Capability of the Facility as currently set forth in the
NEPOOL Standards.
(c) Company's Entitlement: The percentage specified below of the
Installed Capability, Operable Capability and Energy of the
Facility for the applicable calendar years.
1999 11.00000%
2000 11.00000%
2001 11.00000%
2002 8.80000%
2003 5.50000%
2004 5.50000%
(d) Energy: The actual hourly electricity production of the
Facility adjusted for station service use and transformer
losses.
(e) Delivery Point: The point where capacity and energy generated
by the Facility is delivered to the Pool Transmission
Facilities, as defined by the NEPOOL Agreement.
(f) Facility: The Pilgrim Nuclear Power Station, a 670 MW nuclear
generating facility located in Plymouth, Massachusetts.
(g) FERC: The Federal Energy Regulatory Commission.
(h) Installed Capability: The Winter Net Capability during the
Winter Period and the Summer Net Capability during the Summer
Period.
(i) ISO-NE: The Independent System Operator of New England
provided for in the NEPOOL Agreement, or its successor.
(j) MDTE: The Massachusetts Department of Telecommunications and
Energy.
(k) NEPOOL: The New England Power Pool, established by the NEPOOL
Agreement, or its successor.
(l) NEPOOL Agreement: The agreement, dated September 1, 1971, as
amended from time to time, governing the operation of NEPOOL,
as in full force and effect.
(m) NEPOOL Standards: All Criteria, Rules and Standards (CRS),
NEPOOL Automated Billing System Procedures (NABS), Operating
Procedures (OP), and Market Rules (MR) issued or adopted by
NEPOOL, ISO-NE and its satellite agencies, or their successors,
as amended from time to time and all successor regulations,
rules and standards.
(n) Operable Capability: The portion of Installed Capability of
the Facility which is operating or available to respond within
an appropriate period (as defined by NEPOOL) to the ISO-NE call
to meet the Energy requirements of the NEPOOL operating area.
(o) Party: Seller or Company and its respective successors or
assigns.
(p) Prime Rate: That rate as announced by BankBoston (or its
successor) as its prime rate in effect on the first day of the
month.
(q) Prudent Utility Practice: Any practices, methods and acts
engaged in or approved by a significant portion of the electric
utility industry during the relevant time period, or any of the
practices, methods and acts which, in the exercise of
reasonable judgment in light of facts known at the time the
decision was made, could have been expected to accomplish the
desired result at a reasonable cost consistent with good
business practices, reliability, safety and expedition and
giving due regard for the requirements of governmental agencies
having jurisdiction. Prudent Utility Practice is not intended
to be limited to the optimum practice, method, or act to the
exclusion of all others, but rather to be acceptable practices,
methods, or acts generally accepted in the electric utility
industry.
(r) Summer Net Capability (Capability): The Maximum Claimed
Capability, as defined in NEPOOL CRS - 4 , of the Facility
during the Summer Period, expressed in kilowatts, and as
determined by Capability Audit, exclusive of the capacity
required for Facility use.
(s) Summer Period: Summer Period shall have the meaning set forth
in the NEPOOL Agreement.
(t) Winter Net Capability (Capability): The Maximum Claimed
Capability, as defined in NEPOOL CRS - 4 , of the Facility
during the Winter Period, expressed in kilowatts, and as
determined by Capability Audit, exclusive of the capacity
required for Facility use.
(u) Winter Period: Winter Period shall have the meaning set forth
in the NEPOOL Agreement.
ARTICLE 2. Purchase and Sale of Installed Capability, Operable Capability
and Energy
(a) Seller agrees to sell and to deliver and Company agrees to
purchase and to accept delivery of the Company's Entitlement at
the Delivery Point, for Company's own use and/or sale to others
for the term of this Agreement.
(b) Seller shall use Prudent Utility Practices in all aspects of
the management and operation of the Facility. Seller shall use
commercially reasonable efforts to maintain the Facility's
Installed Capability at the level demonstrated by the most
recent Capability Audit at the time of the Purchase and Sale
Agreement and use its commercially reasonable efforts to make
Energy and Operable Capability available to Company on an
ongoing basis. Notwithstanding the foregoing, Seller may
permanently retire the Facility upon 30 days written notice to
the Company, at which time this Agreement will terminate.
(c) Periodically after the execution of this Agreement, Seller
shall undergo Capability Audits pursuant to NEPOOL Standards to
demonstrate and audit the Summer Net Capability and/or the
Winter Net Capability of the Facility. The Capability Audit
shall be performed pursuant to NEPOOL Standards or standards
mutually agreed to by the Parties if NEPOOL ceases to establish
such standards. Seller agrees to provide to Company the
results of the demonstrations and audits (NX-17s and supporting
material).
(d) Seller shall schedule maintenance activities in accordance with
NEPOOL Standards. As soon as practically possible, Seller
shall provide advance notice of planned maintenance activities
and unplanned outages by telephone or telecopy to Company's
designated agent.
ARTICLE 3. Term, Termination
The obligations of the Parties under this Agreement shall
commence on the Effective Date as defined in the Third Amendment and, subject
to the termination provisions set forth in this Agreement, shall continue
through December 31, 2004. In addition, applicable provisions of this
Agreement shall remain in effect after termination hereof, including Article 7
and provisions necessary to provide for final billings, billing adjustments,
and payments.
ARTICLE 4. Purchase Rate for Installed Capability, Operable Capability and
Energy
(a) Company shall pay Seller monthly (on a $/Mwh basis) for
Installed Capability, Operable Capability and Energy, according
to the following formula:
TMAt = Pt x Ut
where:
TMAt = Total monthly amount due in month (t)
Pt = The Purchase price expressed in $/Mwh
= 35.00 $/Mwh for all the months in the year 1999
= 38.00 $/Mwh for all the months in the year 2000
= 35.19 $/Mwh for all the months in the year 2001
= 38.89 $/Mwh for all the months in the year 2002
= 43.52 $/Mwh for all the months in the year 2003
= 47.22 $/Mwh for all the months in the year 2004
Ut = The Energy portion of the Company's Entitlement delivered to
Company in month (t) expressed in megawatthours.
ARTICLE 5. Dispatch
(a) Seller shall make the Facility available for dispatch by ISO-
NE.
(b) Seller shall comply with all NEPOOL Standards applicable to
Seller.
(c) Seller shall submit all forms to ISO-NE with a copy to Company.
(d) Seller's and Company's designated agent shall mutually agree to
any revision to the existing ISO-NE NX-12B Forms to be
submitted to ISO-NE in accordance with the provisions of the
NEPOOL Agreement and NEPOOL Standards.
(e) Whenever Company's system or the systems with which it is
directly interconnected experience an emergency, as designated
by the affected utility, or whenever it is necessary to aid in
the restoration of service on Company's system or on the
systems with which it is directly or indirectly interconnected,
or, whenever requested by ISO-NE, Seller or its designee shall
curtail or interrupt the delivery of all or a portion of the
production of electricity at the Facility provided such
curtailment or interruption shall continue only for as long as
reasonably necessary to deal with the emergency.
(f) Whenever Seller's Facility experiences an emergency, Seller or
its designee shall have the right to curtail or interrupt all
or a portion of Seller's obligation hereunder, provided such
curtailment or interruption shall continue only for so long as
reasonably necessary to deal with the emergency, and provided
Seller promptly notifies Company of the occurrence of such an
emergency.
ARTICLE 6. Billing, Meter Reading
(a) Seller shall deliver Company's Entitlement to the Delivery
Point. Seller is responsible for maintaining metering and
telemetering equipment at the Facility. The metering equipment
shall be capable of registering and recording instantaneous,
and time-differentiated electric energy and other related data
from the Facility, and shall comply with the requirements of
NEPOOL's Standards as may be issued or revised from time to
time. The telemetering shall be capable of transmitting such
data to location(s) specified by Company.
(b) Each day, Seller shall be required to provide Company with
hourly integrated megawatt hour readings for each hour of the
previous day. Seller shall record hourly meter readings and
log sheets and, upon Company's request, provide copies of daily
meter recordings and log sheets by electronic means with hard
copy back-up. All metering equipment installed shall be
routinely tested in accordance with Prudent Utility Practice.
Any meter tested and found to register within one-half o f one
percent (0.5%) of the recognized comparative standard shall be
considered correct and accurate. If at any time, any metering
equipment is found to be defective or inaccurate, Seller shall
cause such metering equipment to be made accurate or re placed
at Seller's expense. Notwithstanding subarticle (e) below, in
such event, a billing adjustment shall be made by Seller
correcting all measurements made by the defective meter for
either: (i) the actual period during which inaccurate
measurements were made, if such period is determinable to the
mutual satisfaction of the Company and Seller; or (ii) if such
period is not determinable, for a period equal to one-half the
time elapsed since the prior test, but in no event greater than
six months.
(c) Seller shall submit, by telecopy or other agreeable same day
delivery mechanism, an invoice for all applicable Article 4
charges to Company as soon as practicable after the end of each
calendar month that shall include the time and date of the
meter readings. This invoice shall include such reasonable
detail to enable the Company to determine the basis for the
charges of such month. Seller and Company agree to provide
additional information reasonably requested by the other Party
as necessary for billing purposes or data verification.
Invoices may be rendered on an estimated basis. Each invoice
shall be subject to adjustment for any errors in arithmetic,
computing, estimating or otherwise. Seller and Company shall
include any such invoicing adjustments as promptly as
practicable.
(d) All payments shown to be due on such invoice, except amounts in
dispute, shall be due and payable as shown on the invoice.
Company shall pay by wire transfer per instructions on the
invoice on or before ten (10) days after receipt of the
invoice.
(e) Any undisputed amounts unpaid after the Due Date shall bear
interest at a rate equal to the Prime Rate then in effect on
the Due Date, compounded on a monthly basis. Company may
dispute all or any part of any invoice by written notification
to Seller within 30 days of receipt of such invoice. All
amounts paid by the Company which are subsequently determined
to have been improperly invoiced by Seller under this Agreement
shall be subject to refund with interest at a rate equal t o
the Prime Rate then in effect on the Due Date, compounded on a
monthly basis.
(f) Seller shall keep complete and accurate records and meter
readings of its operations and shall maintain such data for a
period of at least one (1) year after invoice for the final
billing is rendered. Company shall have the right, upon five
(5) business days prior notice, during normal business hours,
to examine and inspect all such records and meter readings in
so far as may be necessary for the purpose of ascertaining the
reasonableness and accuracy of all relevant data, estimates or
statements of charges submitted to it hereunder but shall not
impair or interfere with the operation of the Facility owned by
Seller.
ARTICLE 7. Limitation of Liability; Indemnification; Insurance;
Relationship of Parties
(a) Notwithstanding subarticle (b) hereof or any other provision
of this Agreement to the contrary, neither Company nor Seller
nor their respective officers, directors, agents, employees,
parent, subsidiaries or affiliates or their officers,
directors, agents or employees shall be liable or responsible
to the other Party or its parent, subsidiaries, affiliates,
officers, directors, agents, employees, successors or assigns,
or their respective insurers, for incidental, indirect,
exemplary, punitive or consequential damages, connected with or
resulting from performance or non-performance of this
Agreement, or anything done in connection therewith including,
without limitation, claims in the nature of lost revenues,
income or profits (other than payments expressly required and
properly due under this Agreement), and increased expense of,
reduction in or loss of power generation production or
equipment used therefor, irrespective of whether such claims
are based upon breach of warranty, tort (including negligence,
whether of Seller, Company or others), strict liability,
contract, operation of law or otherwise, but excluding acts of
gross negligence or willful misconduct.
(b) Each Party (the "Indemnifying Party") shall defend, indemnify
and save the other Party (the "Indemnified Party"), its
officers, directors, agents, employees and affiliates and their
respective officers, directors, agents and employees harmless
from and against any and all claims, liabilities, demands,
judgments, losses, costs, expenses (including reasonable
attorneys' fees), suits, or damages arising by reason of bodily
injury, death or damage to third party property sustained by
any person or entity (whether or not a party to this Agreement)
caused by or attributable to a breach of this Agreement by the
Indemnifying Party or an action of gross negligence or willful
misconduct of the Indemnifying Party or an officer, direct or,
agent or employee of Indemnifying Party.
(c) Seller shall maintain insurance coverage at its sole expense.
(d) The rights, obligations and protections afforded by subarticles
(a) and (b) above shall survive the termination, expiration or
cancellation of this Agreement, and shall apply to the full
extent permitted by law.
(e) Nothing in this Agreement shall be construed as creating any
relationship between the Parties other than that of independent
contractors for the sale and purchase of Installed Capability,
Operable Capability and Energy generated at the Facility. The
Parties do not intend to create any rights, or grant any
remedies to, any third party beneficiary of this Agreement.
ARTICLE 8. Miscellaneous Provisions
(a) The Parties hereto agree that time shall be of the essence of
this Agreement.
(b) This Agreement may not be modified or amended except in writing
signed by or on behalf of both Parties by their duly authorized
officers, and if applicable, after obtaining any required
regulatory approvals.
(c) It shall be the responsibility of Seller to take all necessary
actions to satisfy any regulatory requirements which may be
imposed on Seller by any statute, rule or regulation concerning
the sale of Installed Capability, Operable Capability and
Energy. Company shall cooperate with Seller and provide
information or such other assistance, without cost to Company,
as may be reasonably necessary for Seller to satisfy regulatory
requirements relating specifically and only to the sale of
Installed Capability, Operable Capability and Energy from the
Facility. Seller shall cooperate with Company and provide
information or such other assistance, without cost to Seller,
as may be reasonably necessary for Company to satisfy
regulatory requirements relating specifically and only to the
purchase of Installed Capability, Operable Capability and
Energy from the Facility.
(d) Notwithstanding subarticle (c) above, Seller agrees to provide,
at no cost to Company, all necessary forms, data, and other
information reasonably requested of Company by ISO-NE, NEPOOL,
or any governmental or regulatory agency or authority having
jurisdiction.
ARTICLE 9. Assignment
(a) Neither Party shall have the right to assign this Agreement or
its rights or obligations hereunder without the express written
consent of the other Party. Such consent shall not be
unreasonably withheld. No assignment shall be effective until
any and all necessary regulatory approvals of the assignment
have been obtained.
(b) Notwithstanding the provisions in Section 9(a) above:
(i) Seller may assign this Agreement to any affiliate to
whom the Facility is transferred, without the Company's
prior consent; provided that Seller shall not be
released from liability hereunder without the Company's
prior written consent.
(ii) Seller may collaterally assign its rights in this
Agreement to its lenders.
(iii) The Company has the right to assign or transfer all of
its rights and obligations under this Agreement,
without the consent of Seller, provided that Company
shall first provide Seller with thirty (30) days prior
written notice of the proposed assignment or transfer
and documentary evidence of the assignee's or
transferee's financial capacity to satisfy any and all
obligations so assigned; and provided further that such
documentary evidence may be that such assignee or
transferee has a current agency report indicating an
investment grade rating from any two of the following:
Standard & Poor's, Moody's, Duff & Phelps, or Fitch.
Any assignment or transfer by the Company shall include
an explicit requirement that the assignee or transferee
agrees to undertake each and every obligation that the
Company has under this Agreement. The Seller
understands and acknowledges that the Company intends
to assign or transfer all of its rights and obligations
under this Agreement.
ARTICLE 10. Force Majeure
(a) If either Party is rendered wholly or partly unable to perform
its obligations under this Agreement because of a Force Majeure
event, that Party shall be excused from whatever performance is
affected by the Force Majeure event to the extent so affected,
provided that the non-performing Party shall: (i) provide
prompt notice to the other Party of the occurrence of the Force
Majeure event giving an estimation of its expected duration and
the probable impact on the performance of it s obligations
hereunder and submitting good and satisfactory evidence of the
existence of the Force Majeure event; (ii) exercise all
reasonable efforts to continue to perform its obligations
hereunder; (iii) expeditiously take action to correct or cure
the Force Majeure event and submit good and satisfactory
evidence that it is making all reasonable efforts to correct or
cure the Force Majeure event; (iv) exercise all reasonable
efforts to mitigate or limit damages to the other Party to the
extent such action shall not adversely effect its own
interests; and (v) provide prompt notice to the other Party of
the cessation of the Force Majeure event; provided further that
any obligations of either Party which arose before the
occurrence of the Force Majeure event causing non-performance
shall not be excused as a result of the occurrence of a Force
Majeure event.
(b) "Force Majeure" means the failure or imminent threat of failure
of facilities or equipment, flood, freeze, earthquake, storm,
fire, lighting, other acts of God, epidemic, war, acts of a
public enemy, riot, civil disturbance or disobedience, strike,
lockout, work stoppages, other industrial disturbance or
dispute, sabotage, restraint by court order or other public
authority, and action or non-action by, or failure or inability
to obtain the necessary authorizations or approvals from, any
governmental agency or authority, which by the exercise of due
diligence such Party could not reasonably have been expected to
avoid and by exercise of due diligence its effect can not be
overcome. Nothing contained herein shall be construed so as to
require the Parties to settle any strike, lockout, work
stoppage or any industrial disturbance or dispute in which it
may be involved, or to seek review of or take an appeal from
any administrative or judicial action. In no event shall the
lack of funds or an inability to obtain funds or any action by
any governmental authority that disallows, prevents or limits
the recovery through rates of all or any portion of the charges
imposed by this Agreement be a Force Majeure event.
ARTICLE 11. Default
(a) "Event of Default" shall mean in relation to a Party (the
"Defaulting Party"):
(i) the Defaulting Party fails to perform any of its
material obligations hereunder, and such failure is not
excused by Force Majeure and continues for thirty (30)
days after the Defaulting Party receives written notice
from the Non-Defaulting Party of such failure;
provided, however, if a period in excess of thirty (30)
days is required to cure such failure, the Defaulting
Party shall have an additional amount of time, not to
exceed 180 days, as may be necessary to cure such
failure, provided t hat the Defaulting Party uses
reasonable diligence to remedy such failure and
provided further that, the foregoing "cure" provisions
shall not apply to: y) failure by Company to make
payments to Seller pursuant to Article 6, or z) failure
by Seller to make available and deliver Company's
Entitlement; or
(ii) the Defaulting Party makes an assignment or general
arrangement for the benefit of creditors, files a
petition, or otherwise commences any proceeding, in
bankruptcy or under similar law, otherwise becomes
bankrupt (however evidenced) or is unable to pay its
debts as they fall due.
(b) Upon an Event of Default, the Non-Defaulting Party may resort
to all remedies available at law or in equity, including,
without limitation: (i) the termination of service; (ii)
specific enforcement of the provisions of this Agreement ;
and/or (iii) the recovery of damages except to the extent such
damages are waived or limited pursuant to this Agreement.
ARTICLE 12. Governing Law, Dispute Resolution
(a) The interpretation and performance of this Agreement shall be
in accordance with, and controlled by the law of, the
Commonwealth of Massachusetts, notwithstanding its conflicts of
law's principles.
(b) If any dispute, disagreement, claim or controversy exists
between Seller and Company arising out of or relating to this
Agreement, such disputed matter shall be submitted to a
committee comprised of one designated agent of each Party.
Such committee shall be instructed to attempt to resolve the
matter within twenty (20) days thereafter. If Company's and
Seller's designees do not agree upon a decision within thirty
(30) days after the submission of the matter to them, either
Party may institute formal legal proceedings.
ARTICLE 13. Waiver
The failure of either Party to require compliance with any provision of
this Agreement shall not affect that Party's right to later enforce the same.
It is agreed that the waiver by either Party of performance of any of the terms
of this Agreement, or of any breach thereof, shall not be held or deemed to be
a waiver by that Party of any subsequent failure to perform the same, or any
other term or condition of this Agreement, or of any breach thereof.
ARTICLE 14. Corporate Authorization
Prior to or simultaneous with the Effective Date of this Agreement, the
Parties shall provide sufficient evidence to each other that each has the legal
power and authority to perform this Agreement, that their respective officers
executing this Agreement have been duly authorized to do so and that this
Agreement, upon execution and delivery, shall be legally binding and
enforceable.
ARTICLE 15. Notice
Except as otherwise provided herein, any notice, invoice or other
communication which is required or permitted by this Agreement shall be in
writing and delivered by personal service, telecopy, or mailed certified or
registered first class mail, postage prepaid, properly addressed as follows:
a) In the case of Company to:
Montaup Electric Company
c/o EUA Service Corp.
W. Bridgewater, Massachusetts 02379 U.S.A.
Attention: Robert P. Clarke
Telecopy No: 508-583-2356
b) In the case of Seller to:
Carolyn C. Shanks, CPA
Vice President, Finance and Administration
Entergy Nuclear Generation Company
P.O. Box 31995
Jackson, MS 39286-1995
Street Address:
1340 Echelon Parkway
Jackson, MS 39213
Telecopy No: 601-368-5323
Another address or addressee may be specified in a notice duly given as
provided. Each notice, invoice or other communication which shall be mailed,
delivered or transmitted in the manner described above shall be deemed
sufficiently given an d received for all purposes at such time as it is
delivered to the addressee (with return receipt, the delivered receipt, the
affidavit of the messenger or with respect to a telecopy, the answer back,
being deemed conclusive evidence of such delivery ) or at such time as delivery
is refused by the addressee upon presentation.
IN WITNESS WHEREOF the Parties have executed this Agreement as of the date
first written above.
ENTERGY NUCLEAR GENERATION COMPANY
By: /s/ Donald C. Hintz
Name: Donald C. Hintz
Title: President and Chief Executive Officer
MONTAUP ELECTRIC COMPANY
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
REDACTED VERSION
POWER PURCHASE AND SALE AGREEMENT
BETWEEN
MONTAUP ELECTRIC COMPANY
AND
CONSTELLATION POWER SOURCE, INC.
December 21, 1998
TABLE OF CONTENTS
Page
ARTICLE 1. Definitions 1
ARTICLE 2. Effective Date; Term and Conditions Precedent 6
ARTICLE 3. Delivery of Power; Hydro Quebec Transmission Use Rights;
Designation of Purchaser as Agent; Assignment of Commitments
11
ARTICLE 4. Payments 16
ARTICLE 5. Covenants of the Parties 19
ARTICLE 6. Force Majeure 23
ARTICLE 7. Events of Default; Remedies 24
ARTICLE 8. Representations and Warranties 26
ARTICLE 9. Indemnification 29
ARTICLE 10. Dispute Resolution 31
ARTICLE 11. Miscellaneous 32
SCHEDULE 1 Commitments
SCHEDULE 1-A Agreements Related to Hydro-Quebec Interconnection
SCHEDULE 2 Seller Payments
SCHEDULE 3 Seller Required Regulatory Approvals
SCHEDULE 4 Purchaser Required Regulatory Approvals
SCHEDULE 5 Exceptions to Seller's Title to the Commitments
SCHEDULE 6 Defaults Under the Commitments
SCHEDULE 7 Legal Proceedings
SCHEDULE 8 Form of Guaranty
POWER PURCHASE AND SALE AGREEMENT
This POWER PURCHASE AND SALE AGREEMENT ("Agreement") is dated as of
December 21, 1998 and is made by and between MONTAUP ELECTRIC COMPANY, a
Massachusetts corporation ("Seller"), and CONSTELLATION POWER SOURCE, INC. a
Delaware corporation ("Purchaser") (each individually a "Party", or
collectively the "Parties").
RECITALS
WHEREAS, Seller is engaged in a complete divestiture of its generation
assets and purchase power entitlements in accordance with the terms of
comprehensive restructuring settlement agreements between Seller, its retail
affiliates and regulatory and other parties in Massachusetts and Rhode Island
which were approved by the FERC in Docket Nos. ER97-2800-000, et al.; and
WHEREAS, Seller desires to sell, and Purchaser desires to purchase, the
economic benefits and performance obligations, subject to Seller's continuing
obligations to make certain payments, associated with the power purchase
agreements and transmission support agreements hereinafter described between
Seller and third party power suppliers.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions.
(a) As used in this Agreement, the following terms have the meanings
specified in this Section 1.1(a).
"Administration Services" means those services provided by
Seller: (i) to maintain the interconnection and meter the electricity produced
and delivered under the BHI PPA (for which Seller is entitled to collect and
retain the costs therefor from BHI), (ii) to determine and invoice the
appropriate charges to be paid by Seller and Purchaser, (iii) to collect the
aforementioned charges to be paid by Purchaser and (iv) to provide such
operational data with respect to the Commitments that is reasonably available
to Seller (to the extent permissible under that Commitment) and as Purchaser
may request from time to time.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.
"Ancillary Agreements" means the Wholesale Standard Offer
Service Agreement, the Seller Guaranty and the Subtransmission Service
Agreement, if Purchaser elects, on or prior to the Effective Date in its sole
discretion, to enter into such agreement.
"Business Day" shall mean any day other than Saturday, Sunday
and any day which is a legal holiday or a day on which banking institutions in
Boston, Massachusetts are authorized by law or other governmental action to
close.
"Commitment" means the contracts described in Schedule 1
attached hereto and made a part hereof, together with any modifications,
amendments or supplements thereto.
"Eastern" means Eastern Edison Company, a Massachusetts
corporation.
"Encumbrances" means any mortgages, pledges, liens, security
interests, assignment, conditional and installment sale agreements, activity
and use limitations, conservation easements, easements, deed restrictions,
encumbrances and charges of any kind.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Federal Power Act" means the Federal Power Act of 1935, as
amended.
"FERC" means the Federal Energy Regulatory Commission.
"Good Utility Practice" means any of the applicable practices,
methods and acts engaged in or approved by a significant portion of the
electric utility industry during the relevant time period; which in each case
in the exercise of reasonable judgment in light of the facts known or that
should have been known at the time a decision was made, could have been
expected to accomplish the desired result in a manner consistent with law,
regulation, safety, environmental protection, economy, and expedition. Good
Utility Practice is intended to be acceptable practices, methods or acts as
generally accepted in the region, and is not intended to be limited to the
optimum practices, methods or acts to the exclusion of all others.
"Holding Company Act" means the Public Utility Holding Company
Act of 1935, as amended.
"Interest Rate" means, for any date, the lesser of (a) the per
annum rate of interest equal to the prime lending rate then in effect at the
main office of BankBoston, or such other lending institution as agreed to by
Seller and Purchaser and (b) the maximum rate permitted by applicable law.
"Material Adverse Effect" means any change in or effect on
Seller, Purchaser, Commitments or Power Sellers after the date of this
Agreement that is materially adverse to any of the transactions contemplated
hereby, other than (i) any change or effect resulting from changes in the
international, national, regional or local wholesale or retail markets for
electric power; (ii) any change or effect resulting from changes in the
international, national, regional or local markets for any fuel used at any of
the facilities providing Power under the Commitments; (iii) any change or
effect resulting from changes in the North American, national, regional or
local electric transmission systems; and (iv) any materially adverse change in
or effect on or in connection with the Commitments which is cured (including by
the payment of money) by Seller promptly in accordance with the terms of the
Commitment before the Effective Date.
"MDTE" means the Massachusetts Department of
Telecommunications and Energy.
"Moody's" means Moody's Investors Service, Inc., and any
successor thereto.
"NEPOOL" means the New England Power Pool, and any successor
thereto,
"Net Worth" means total assets (exclusive of intangible assets)
less total liabilities as reflected on a balance sheet prepared in accordance
with generally accepted accounting principles consistently applied.
"Person" means any individual, a partnership, a limited
liability company, a joint venture, a corporation, a trust, an unincorporated
organization and a governmental entity or any department or agency thereof.
"Power Seller" or "Power Sellers" means the party or parties
with which Seller has contracted for the purchase of Power or the provision of
transmission facilities or services under each of the Commitments.
"Purchaser" means Constellation Power Source, Inc., a Delaware
corporation and its successors and permitted assigns.
"Purchaser Representatives" means Purchaser's accountants,
counsel, environmental consultants, financial advisors and other authorized
representatives.
"Replacement Price" means the price at which Purchaser, acting
in a commercially reasonable manner, purchases substitute Power for the Power
not delivered by Seller, plus any additional transmission charges incurred by
Purchaser to the Delivery Point; or, absent any such purchase, the market price
for such quantity at such Delivery Point during the applicable delivery period
as determined by Purchaser in a commercially reasonable manner; provided, that
the "market price" for NEPOOL products other than capacity and energy shall be
determined by reference to the applicable price for such products as determined
by the NEPOOL independent system operator.
"Retail Companies" means, as applicable, each, any or all of
Blackstone Valley Electric Company, Eastern Edison Company and Newport Electric
Corporation.
"RIPUC" means the Rhode Island Public Utilities Commission.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc., and any successor thereto.
"Sales Price" means the price at which Seller, acting in a
commercially reasonable manner, resells the Power not received by Purchaser,
reduced by additional transmission charges, if any, incurred by Seller to
effect such resale.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means Montaup Electric Company, a Massachusetts
corporation and its successors and permitted assigns.
"Standard Offer Service" means the electric service, if any,
required to be provided by one or more of the Retail Companies to its retail
customers who do not elect to purchase electricity from an alternative supplier
in the market.
"Subsidiary" when used in reference to any other Person means
any entity of which outstanding securities having ordinary voting power to
elect a majority of the Board of Directors or other Persons performing similar
functions of such entity are owned directly or indirectly by such other Person.
"Subtransmission Service Agreement" means the Subtransmission
Service Agreement between Seller and Purchaser pursuant to which Seller agrees
to sell and Purchaser agrees to purchase certain subtransmission service to
facilitate deliveries of Power under the BHI PPA.
"Taxes" means all taxes, charges, fees, levies, penalties or
other assessments imposed by any United States federal, state or local or
foreign taxing authority, including, but not limited to, income, excise,
property, sales, transfer, franchise, payroll, withholding, social security or
other taxes, including any interest, penalties or additions attributable
thereto.
"Transition Costs" means the Contract Termination Charges
calculated and collected in accordance with the settlement agreements between
Seller and the Retail Companies, approved by FERC in Docket Nos. ER97-2800-000,
ER97-3127-000 and ER97-2338-000.
"Wholesale Standard Offer Service Agreement" means the
Wholesale Standard Offer Service Agreement between the Retail Companies and
Purchaser of even date herewith pursuant to which Purchaser has agreed to
deliver and sell and the Retail Companies have agreed to receive and purchase
of the Retail Companies' Standard Offer Service load obligations.
(b) Each of the following terms has the meaning specified in the
Section or Schedule set forth opposite such term:
Term Section/Schedule
AAA 10.1
BHI Schedule 1
BHI PPA Schedule 1
Canal PPA Schedule 1
Commitment List Schedule 1
Delivery Point 3.1(a)
Direct Claim 9.2(c)
Due Date 4.4(a)
Effective Date 2.1(a)
Event of Default 7.1
Final Order 2.1(a)(ii)
Firm Energy Contract Schedule 1
Force Majeure 6.2
GSP 11.11
Indemnifiable Loss 9.1(a)
Indemnifying Party 9.1(d)
Indemnitee 9.1(c)
Initial Purchaser Credit Support 5.8(a)
McNeil PPA Schedule 1
Northeast PPA Schedule 1
Northeast Security 2.1(b)(vii)
Non-Performing Party 3.5(a)
Other Party 3.5(a)
Power 3.1(a)
Purchaser Payment 4.1(a)
Purchaser Required Regulatory Approvals Schedule 4
Resale Proceeds 4.4(a)
Seller Additional Security 5.9(c)
Seller Guarantor 5.9(a)
Seller Guaranty 5.9(a)
Seller Required Regulatory Approvals Schedule 3
Seller Payment 4.1
Term 2.2(a)
Third Party Claim 9.2(a)
Trigger Payment 4.3(a)
Trigger Payment Date 4.3(a)
Trigger Event 4.3(b)
ARTICLE 2
EFFECTIVE DATE; TERM AND CONDITIONS PRECEDENT
2.1 Effective Date; Conditions Precedent.
(a) The obligations of Seller and Purchaser hereunder are subject
to satisfaction of the following conditions precedent and this Agreement shall
become effective, unless the Parties otherwise agree, at midnight on the last
day of the month in which all such conditions have been satisfied if the
conditions are satisfied on or before the 5th Business Day prior to the last
day of such month or if not, then midnight on the last day of the next
succeeding month after the month in which such conditions have been satisfied,
as the case may be; such date is hereinafter referred to as the "Effective
Date":
(i) No preliminary or permanent injunction or other order
or decree by any federal or state court which prevents the consummation of
transactions contemplated hereby shall have been issued and remain in effect
(each Party agreeing to use its reasonable efforts to have any such injunction,
order or decree lifted) and no statute, rule or regulation shall have been
enacted by any state or federal government or governmental agency in the United
States which prohibits the consummation of the transactions contemplated
hereby;
(ii) All federal, state and local government consents and
approvals required for the consummation of the transactions contemplated
hereby, including, without limitation, Seller Required Regulatory Approvals and
Purchaser Required Regulatory Approvals, shall have been obtained or become
Final Orders (a "Final Order" means a final order after all opportunities for
rehearing and appeal are exhausted). If such approvals are conditional in any
material respect or materially modify , directly or indirectly, the obligations
of a Party hereto, such approvals must be acceptable to each Party, in its
reasonable discretion; and
(iii) All consents and approvals for the consummation of
transactions contemplated hereby required under the terms of any note, bond,
mortgage, indenture, contract or other agreement to which Seller or Purchaser,
or any of their Subsidiaries or Affiliates, are a party shall have been
obtained.
(b) The obligation of Purchaser to effect the transactions
contemplated by this Agreement shall be subject to the
fulfillment of the following additional conditions:
(i) There shall not have occurred and be continuing a
Material Adverse Effect;
(ii) Seller shall have performed and complied with in all
material respects the covenants and agreements contained in this Agreement
which are required to be performed and complied with by Seller on or prior to
the Effective Date, and the representations and warranties of Seller set forth
in this Agreement shall be true and correct in all material respects as of the
date of this Agreement and as of the Effective Date as though made at and as of
the Effective Date;
(iii) There shall be no Encumbrances on any or all of
Seller's rights under the Commitments;
(iv) Purchaser shall have received certificates from
authorized officers of Seller, dated the Effective Date, to the effect that, to
the best of such officers' knowledge, the conditions set forth in Sections
2.1(b)(i), (ii) and (ii i) have been satisfied;
(v) ;
(vi) Seller shall have taken all actions necessary,
including the completion and delivery of all agreements and documents required
by NEPOOL, any other power pool, independent system operator, electric
reliability council or govern mental or regulatory authority as reasonably
requested by Purchaser to enable Purchaser to receive credit for the Power sold
and delivered to Purchaser hereunder and to enable Purchaser to transact with
respect to such Power for its own account;
(vii) ;
(viii) Seller and Eastern shall have and obtained a finding by
the MDTE that Eastern's actions in regard to the Wholesale Standard Offer
Service Agreement are in accordance with G.L. c. 164, 94A and 1B(b) and that
the Wholesale Standard Offer Service Agreement may become effective, such
finding to be final and no longer subject to rehearing, reconsideration or
appeal; and
(ix) Purchaser shall have received an opinion from
McDermott, Will & Emery, counsel for Seller, dated the Effective Date and
satisfactory in form and substance to Purchaser and its counsel, substantially
as follows:
(A) Each of Seller, the Retail Companies and the
Seller Guarantor is a corporation organized, existing and in good standing
under the laws of its state of incorporation and has the corporate power and
authority to execute, deliver and perform this Agreement and the Ancillary
Agreements and to consummate the transactions contemplated hereby and thereby;
and the execution and delivery of this Agreement and such Ancillary Agreements
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all requisite corporate action taken on the part of
Seller, the Retail Companies and the Seller Guarantor, as applicable;
(B) This Agreement and the Ancillary Agreements
have been executed and delivered by Seller, the Retail Companies and the Seller
Guarantor, as applicable and (assuming that Seller Required Regulatory
Approvals and Purchaser Required Regulatory Approvals are obtained) are valid
and binding obligations of Seller, the Retail Companies and the
Seller Guarantor, as applicable enforceable against Seller, the Retail
Companies and the Seller Guarantor in accordance with their terms, except (1)
that such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights, and (2) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to certain
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought;
(C) The execution, delivery and performance of this
Agreement and the Ancillary Agreements by Seller, the Retail Companies and the
Seller Guarantor will not (1) constitute a violation of the Certificates of
Incorporation or Bylaws (or similar governing documents), as in effect on the
Effective Date, of Seller, the Retail Companies and the Seller Guarantor, as
applicable (2) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, agreement or other instrument
or obligation to which Seller, the Retail Companies and the Seller Guarantor,
as applicable is a party or by which Seller, t he Retail Companies and the
Seller Guarantor, as applicable may be bound, including, without limitation,
the Commitments except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or consents have
been obtained; or (3) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Seller, the Retail Companies and the Seller
Guarantor or any of their respective assets;
(D) No declaration, filing or registration with, or
notice to, or authorization, consent or approval of any governmental authority
is necessary for the consummation by Seller, the Retail Companies and the
Seller Guarantor of the transactions contemplated by this Agreement and the
Ancillary Agreements, other than (1) Seller Required Regulatory Approvals, all
of such Seller Required Regulatory Approvals which are applicable to the
transactions contemplated hereby and thereby having been obtained and being in
full force and effect with such terms and conditions as shall have been imposed
by any applicable governmental authority, and (2) such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not
obtained or made, would not, in the aggregate have a Material Adverse Effect.
As to any matter contained in such opinion which involves the
laws of any jurisdiction other than the federal laws of the United States or
the laws of Massachusetts, such counsel may rely upon opinions of counsel
admitted in such other jurisdictions and reasonably acceptable to Purchaser.
Any opinions relied upon by such counsel as aforesaid shall be delivered
together with the opinion of such counsel. Such opinion may expressly rely as
to matters of fact upon certificates furnished by Seller, the Retail Companies
and the Seller Guarantor and appropriate officers and directors of Seller, the
Retail Companies and the Seller Guarantor and by public officials.
(c) The obligation of Seller to effect the transactions
contemplated by this Agreement shall be subject to the fulfillment of the
following additional conditions:
(i) Purchaser shall have performed in all material respects
covenants and agreements contained in this Agreement required to be performed
on or prior to the Effective Date;
(ii) The representations and warranties of Purchaser set
forth in this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Effective Date as though made at
and as of the Effective Date;
(iii) Seller shall have received a certificate from an
authorized officer of Purchaser, dated the Effective Date, to the effect that,
to the best of such officer's knowledge, the conditions set forth in Sections
2.1(c)(i) and (ii)) have been satisfied;
(iv) FERC approval of the Stipulations and Agreements filed
in FERC Docket No. ER97-3127-000 by and between the Office of the Attorney
General of Massachusetts, the Massachusetts Division of Energy Resources,
Eastern Edison Company and Seller, dated October 29, 1997; Docket No. ER97-
2800-000 by and between the RIPUC, the Rhode Island Division of Public
Utilities and Carriers, Blackstone Valley Electric Company, Seller and Newport
Electric Corporation; Docket No. ER97-3127-000 and ER97-2800-000 between
Seller and the Pascoag Fire District of Rhode Island; Docket No. ER97-3127-00
and ER97-2800-000 between Seller and the Gas and Electric Department of the
Town of Middleborough; and Docket No. ER97-2338-000 between Seller and the
Taunton Municipal Lighting Plant, Pascoag Fire District of Rhode Island and the
Gas and Electric Department of the Town of Middleborough shall continue to be
in full force and effect;
(v) All Seller Required Regulatory Approvals and all other
consents and approvals required of Seller to consummate the transactions
contemplated by this Agreement shall have been obtained and in full force and
effect;
(vi) ; and
(vii) Seller shall have received an opinion from Hunton &
Williams, counsel for Purchaser, dated the Effective Date and satisfactory in
form and substance to Seller and their counsel, substantially to the effect
that:
(A) Purchaser is a corporation organized, existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements a nd to consummate the transactions contemplated hereby;
and the execution and delivery of this Agreement and such Ancillary Agreements
and the consummation of the transactions contemplated hereby have been duly
authorized by all requisite corporate action taken on the part of Purchaser;
(B) This Agreement and the Ancillary Agreements
have been executed and delivered by Purchaser and (assuming that Seller
Required Regulatory Approvals and Purchaser Required Regulatory Approvals are
obtained) are valid and binding obligations of Purchaser, enforceable against
Purchaser in accordance with their terms, except (1) that such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights and (2)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought;
(C) The execution, delivery and performance of this
Agreement and the Ancillary Agreements by Purchaser will not constitute a
violation of the Certificate of Incorporation or Bylaws (or similar governing
documents), as in effect on the Effective Date, of Purchaser;
(D) No declaration, filing or registration with, or
notice to, or authorization, consent or approval of any governmental authority
is necessary for the consummation by Purchaser of the transactions contemplated
by this Agreement and the Ancillary Agreements other than (1) Purchaser
Required Regulatory Approvals, all of such Purchaser Required Regulatory
Approvals which are applicable to the transactions contemplated hereby and
thereby having been obtained and being in full force and effect with such terms
and conditions as shall have been imposed by any applicable governmental
authority and (2) such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not obtained or made , would
not, in the aggregate have a Material Adverse Effect.
As to any matter contained in such opinion which involves the
laws of any jurisdiction other than the federal laws of the United States and
the laws of Delaware, such counsel may rely upon opinions of counsel admitted
to practices in such other jurisdictions. Any opinions relied upon by such
counsel as aforesaid shall be delivered together with the opinion of such
counsel. Such opinion may expressly rely as to matters of facts upon
certificates furnished by appropriate officers and directors of Purchaser and
its Subsidiaries and by public officials.
(d) .
(e) Each of the Parties shall cooperate in good faith and shall use
reasonable efforts to cause the foregoing conditions precedent to be satisfied
as soon as reasonably possible. If, notwithstanding the reasonable efforts by
both Parties, the conditions precedent set forth in this Section 2.1 have not
been satisfied or waived by the Party entitled to the benefit thereof and the
Effective Date has not occurred, in each case, on or before the second
anniversary of the date hereof, or the Parties mutually agree prior to such
date that it will not be possible to satisfy a condition precedent, then either
Party may terminate this Agreement, without additional cost or liability
resulting from such termination, upon thirty (30) days prior written notice to
the other Party.
2.2 Term.
(a) The "Term" of this Agreement shall be the period from and
including the date hereof and shall continue in effect, unless sooner
terminated in accordance with its terms, until every obligation of either Party
to pay the other Party an amount hereunder, including, without limitation,
payments pursuant to Article 4, has been satisfied in full in accordance with
the terms of this Agreement.
(b) At the expiration of the Term, the Parties shall no longer be
bound by the terms and provisions hereof, except (i) to the extent necessary to
enforce the rights and the obligations of the Parties arising under this
Agreement before such expiration or termination and (ii) the obligations of the
Parties hereunder with respect to confidentiality, indemnification and audit
rights shall survive the expiration or termination of this Agreement and shall
continue for a period of two (2) calendar years following such termination.
ARTICLE 3
DELIVERY OF POWER; HYDRO QUEBEC TRANSMISSION USE RIGHTS; DESIGNATION OF
PURCHASER AS AGENT; ASSIGNMENT OF COMMITMENTS
3.1 Delivery of Power.
(a) Commencing as of the Effective Date, each month Seller agrees
to sell and deliver and Purchaser agrees to purchase and receive all capacity,
energy, any other NEPOOL products and services and any other benefits it
receives under each Commitment (collectively, "Power") simultaneously with
Seller's receipt thereof from each Power Seller. All Power shall be delivered
to Purchaser at the point at which the Power Seller makes delivery to Seller as
established under such Commitment (each, a "Delivery Point"). Purchaser shall
be responsible for making all arrangements necessary for the further
transmission of such Power.
(b) With respect to each Commitment, and until such time as there
is an early termination, replacement or restructuring of the Commitment or a
direct amendment and assignment of the Commitment to Purchaser pursuant to
Section 3.4, Seller shall perform the Administration Services and from time to
time during the Term of this Agreement take all actions necessary, including,
without limitation, the completion and delivery of all agreements and documents
required by NEPOOL, any other power pool, independent system operator, electric
reliability council or governmental or regulatory authority as reasonably
requested by Purchaser to enable Purchaser to receive credit for the Power sold
and delivered to Purchaser hereunder and to enable Purchaser to transact with
respect to such Power for its own account.
3.2 Hydro Quebec Firm Energy Contract; Transmission Use Rights.
(a) Commencing as of the Effective Date, and terminating upon
termination of the Firm Energy Contract pursuant to Article 21 of said
Contract, Seller shall sell and deliver and Purchaser shall purchase and
receive all Power that Seller receives under the Firm Energy Contract in
accordance with Section 3.1 of this Agreement. Purchaser shall be responsible
for scheduling its energy receipts under the Firm Energy Contract directly with
NEPOOL and, if billed directly by NEPOOL for energy delivered under the Firm
Energy Contract, shall be responsible for making payments therefor directly to
NEPOOL. Failure of Purchaser to make such payments shall constitute an Event
of Default under this Agreement.
(b) Seller shall invoice Purchaser for and Purchaser shall pay
Seller on a monthly basis, Seller's associated share of transmission facility
support payments under those agreements set forth on Schedule 1-A associated
with the delivery of Power by Seller to Purchaser that Seller receives under
the Firm Energy Contract, as such amounts are increased by any costs incurred
by Seller (including, without limitation, general and administrative costs
incurred by Seller in administering Seller's open access transmission tariff as
the Parties shall agree) or as decreased by any revenues received by Seller,
both associated with the sale of transfer capability under Section 3.2(c).
(c) Purchaser agrees that, to the extent it elects not to use a
portion of the transfer capability available to it pursuant to Section 3.2(a),
Purchaser shall so notify Seller in writing, and Seller shall make such
transfer capability available under Seller's open access transmission tariff on
file with the FERC. Seller shall credit Purchaser with the revenues Seller
receives from the sale of transmission service associated with such transfer
capability as provided in Section 3.2(b). Purchaser agrees to provide Seller
with all information available to Purchaser that Seller reasonably requests for
the purpose of calculating the charges to each customer that uses a portion of
such transfer capability.
(d)
3.3 Designation of Purchaser as Agent.
(a) As of the Effective Date, Seller hereby irrevocably and
unconditionally appoints Purchaser as its representative and agent for all
purposes under each Commitment. Purchaser is authorized to take all actions
that Seller may lawfully take under such Commitment without further approval by
Seller and in Purchaser's sole discretion including, without limitation, the
following: with respect to all matters arising under the Commitments
(including, without limitation, directing and scheduling the availability,
dispatch, quantity or timing of the Power under each Commitment) deal directly
with the Power Sellers, NEPOOL, the independent system operator (as designated
under the Restated NEPOOL Agreement, as amended from time to time), other
transporters of electric energy, federal, state and local governmental or
judicial authorities, and any other persons; act on Seller's behalf in the
prosecution or defense, as the case may be, of any rights or liabilities
arising under the Commitments; monitor the Power Seller's performance under the
Commitments; review and audit all bills and related documentation rendered by
the Power Sellers; and on Seller's behalf enter into amendments to the
Commitments of any nature; provided, however, that Seller's prior written
consent shall be required for (i) actions that increase the price charged for
or the quantity of power to be purchased by Seller under a Commitment, (ii)
Commitment term extensions, and (iii) any other matter which Seller reasonably
believes will increase Seller's financial obligations under a Commitment, and
(iv) any other matter which Seller reasonably believes will materially
adversely affect Seller's indemnification rights under a Commitment, which
consent shall not be unreasonably withheld. Seller agrees to participate at
Purchaser's request and under Purchaser's reasonable direction in any
governmental or judicial proceeding with respect to the Commitments, including
but not limited to bringing an action to enforce the Commitments. Seller
agrees to cooperate with and assist Purchaser in the exercise of its rights
under this Section 3.3(a) as Purchaser shall reasonably request from time to
time, so long as Purchaser reimburses Seller for the reasonable costs and
expenses it incurs in providing such cooperation and assistance (other than
with respect to the Administration Services). Seller hereby agrees to provide
to Purchaser reasonable access to (including, at the expense of Purchaser,
copies of) all information which Seller now has or hereafter acquires with
respect to each Commitment (to the extent permissible under that Commitment).
(b) In assuming responsibility for taking all actions which Seller
may otherwise lawfully take under the Commitments pursuant to Section 3.3(a),
Purchaser shall act as Seller's agent with respect to each Commitment
commencing on the Effective Date and ending (i) with respect to each Commitment
that is assigned to Purchaser pursuant to Section 3.4, at the time that such
assignment is effective; and (ii) with respect to each Commitment that is not
assigned to Purchaser, upon the expiration or termination of such Commitment.
Seller shall give such notice to each Power Seller and take such other steps as
may be required or appropriate under applicable law to establish the authority
of Purchaser as agent and to permit Purchaser to take action under each
Commitment consistent with this Agreement. Seller agrees that (i) prior to the
appointment of Purchaser as agent for a Commitment, all communications between
Seller and the Power Seller related to that Commitment shall be with
Purchaser's prior written consent and participation unless such consent or
participation is expressly waived by Purchaser; and (ii) subsequent to the
appointment of Purchaser as Seller's agent for a Commitment, Seller shall
communicate with the Power Seller on matters related to that Commitment only as
expressly requested by Purchaser, except in each case for such communications
as are necessary for Seller to perform the Administration Services so long as
Seller notifies Purchaser of the occurrence and the content of such
communications at such time, or as soon as practicable thereafter.
(c) Seller shall not agree to any amendment to or waiver of rights,
or convey to any other person any rights, under a Commitment without
Purchaser's prior written consent, which consent shall not be unreasonably
withheld, shall not take any actions inconsistent with the provisions of this
Article 3 or take any action or fail to take any action that would result in a
material breach of Seller's obligations under the Commitments. Seller shall
not, except at the express request of Purchaser, (i) take any actions that
increase the costs to be incurred or affect the quantity of Power to be
purchased under any Commitment or (ii) exercise any options that may exist
under a Commitment, including any extension of the term of a Commitment or
(iii) take any actions inconsistent with the provisions of Sections 3.3(a) and
(b), except as shall be necessary to perform its obligations under the
Commitments for the period prior to the Effective Date and except with respect
to the Firm Energy Contract, to the extent that any actions taken or omitted to
be taken thereunder or in connection therewith are prudent and are not within
the sole control of Seller.
(d) Seller shall request the Power Sellers to direct all
communications regarding operations of the facilities under the Commitments,
dispatch, scheduling and other matters relevant to the respective Commitments
and provided to Seller, directly to Purchaser. To the extent that Seller
receives any such information or any notices or documents relating to the
Commitments, Seller shall promptly forward such information, notices or
documents to Purchaser.
(e) Upon the request of Purchaser, Seller shall enforce the
provisions of any Commitment and/or its rights thereunder, or otherwise support
Purchaser in any dispute between Purchaser and the Power Sellers; provided,
however, that Seller s hall be compensated for its reasonable costs associated
with such efforts.
3.4 Termination or Assignment of Commitments by Purchaser.
Purchaser is hereby authorized and shall be entitled, as Seller's
representative and in Seller's name, to negotiate directly with the Power
Sellers the early termination, replacement or restructuring of the Commitments
or a direct amendment and assignment of the Commitments to Purchaser so that
Seller will be released of all further liabilities and obligations under each
Commitment and Purchaser will be directly in contract with the Power Seller.
Seller shall work cooperatively and use all reasonable efforts to assist
Purchaser in such negotiations. If Purchaser and a Power Seller have agreed to
a termination, replacement or amendment and assignment of a Commitment, then
Seller shall be deemed to have accepted all of the terms agreed to b y
Purchaser and Power Seller and shall take all actions and execute and deliver
all agreements, documents, instruments and certificates as necessary to
consummate such termination, replacement, restructuring or amendment and
assignment; provided, how ever, that in the case of an amendment and assignment
of a Commitment to Purchaser, the terms of such amendment and assignment must
continue to afford to Seller the protections for its or its Affiliates'
transmission system embodied in the Commitment . Any amendment and assignment
shall include all modifications necessary to reflect the substitution of
Purchaser for Seller as the purchasing party under such Commitment (including
modifications to Commitment price indices, where appropriate) and t o properly
describe interconnection, delivery point and transmission system references in
such Commitment. Except as provided in Section 4.3, Seller and Purchaser agree
that any such termination or assignment of a Commitment shall not entitle
Seller or Purchaser to an adjustment of the Seller Payment obligations.
3.5 Failure to Deliver or Receive Power; Remedies.
(a) If either Party fails to deliver or receive ("Non-Performing
Party"), as the case may be, Power in accordance with the terms and conditions
of this Agreement, the other Party ("Other Party") shall, as promptly as
practicable, give not ice of such failure to the Non-Performing Party.
(b) The Other Party shall be entitled to receive from the Non-
Performing Party an amount calculated as follows, unless excused by Force
Majeure or the Other Party's failure to perform:
(i) if at any time Seller fails to deliver all or part of
the Power delivered to it by the Power Sellers under the Commitments in
accordance with the terms and conditions of this Agreement, Seller shall pay
Purchaser, on the date payment would otherwise be due to Seller pursuant to
Section 4.4, an amount for each unit of such deficient quantity equal to the
positive difference, if any, obtained by subtracting the per unit price
applicable to such quantity under the related Commitment from the per unit
Replacement Price, plus any reasonable administrative expenses and reasonable
attorneys' fees incurred as a result of Seller's failure to deliver; and
(ii) if Purchaser fails to take delivery of all or part of
the Power delivered to it in accordance with the terms and conditions of this
Agreement, Purchaser shall pay Seller, on the date payment would otherwise be
due, an amount f or each unit of such deficient quantity equal to the positive
difference, if any, obtained by subtracting the per unit Sales Price from the
per unit price applicable to such quantity under the related Commitment, plus
any reasonable administrative expenses and reasonable attorneys' fees incurred
as a result of Purchaser's failure to take delivery.
3.6 Duty to Mitigate Damages.
Each Party agrees that it has a duty to mitigate damages and covenants
that it will use commercially reasonable efforts to minimize any damages it may
incur as a result of the other Party's performance or non-performance of this
Agreement.
3.7 Exclusive Remedy.
The damages provided in Section 3.5 shall be the sole and exclusive
remedy of each Party for any failure of the other Party to deliver or receive,
as applicable, Power in the quantities or at the times required by this
Agreement.
ARTICLE 4
PAYMENTS
4.1 Payments.
(a) Commencing as of the month following the Effective Date of this
Agreement, Purchaser agrees to pay to Seller each month all amounts due and
payable in accordance with the applicable provisions of the Commitments from
Seller to the Power Seller for the preceding month associated with Power
delivered or made available to Purchaser by Seller from each Commitment in the
preceding month (each such payment obligation referred to herein as the
"Purchaser Payment"). Seller expressly acknowledges and agrees that unless and
until a Commitment is terminated or assigned to Purchaser pursuant to Section
3.4, Seller shall remain liable for and timely pay to the applicable Power
Sellers all amounts due thereunder.
(b) Commencing as of the month following the Effective Date of this
Agreement and continuing for each succeeding month set forth on Schedule 2,
Seller shall pay Purchaser each month the amounts set forth on Schedule 2 in
respect of each Commitment applicable to the preceding month (each such amount
referred to herein as the "Seller Payment"). Subject to Section 4.3, Seller
shall remain obligated to pay each of the Seller Payments through and including
the last month of the last year listed on Schedule 2, notwithstanding the
termination, expiration, replacement, amendment, assignment or any other change
to a Commitment during the Term hereof (or any failure of the Power Seller
under any Commitment to deliver Power or otherwise honor its obligations to
Seller thereunder). Amounts set forth in Section 2.1(d), if any, shall be set-
off against the Seller Payments due in the first ten (10) months after the
occurrence of the Effective Date in ten equal installments.
(c) Except as otherwise provided in Section 4.3, the Purchaser
Payment with respect to each Commitment and the Seller Payment with respect to
that Commitment owing by each Party for any month shall be offset so that only
the net amount shall be p aid by the Party having the greater payment
obligation for such Commitment for such month.
(d) In the event that the amount of the Seller Payment with respect
to any Commitment shall in any month exceed the Purchaser Payment with respect
to such Commitment under this Section 4.1, Seller shall pay the amount of such
exceedance to Purchaser on the date such Purchaser Payment would otherwise be
due under Section 4.4.
4.2 Purchaser Right to Amounts Owed by Power Sellers.
(a) Upon the Effective Date, Seller shall irrevocably and
unconditionally assign and thereafter hold for the benefit of and/or credit to
Purchaser against payments due from it to Seller under Section 4.1 hereof or,
at the election of Purchaser, pay to Purchaser, any and all amounts which are
then or thereafter received by Seller from the Power Sellers under the
Commitments, including, without limitation, any aggregate differential balances
under any Commitment, any energy bank balances and the benefit of and proceeds
from any security deposits, letters of credit or other similar instruments or
accounts established for the benefit of Seller by the Power Seller, but
excluding any credits or refunds received by Seller after the Effective Date
which relate to billing errors or reconciliations of pre-Effective Date bills,
any amounts paid by the Power Sellers to Seller with respect to disputes that
are attributable to a period prior to the Effective Date, and any amounts paid
by the Power Sellers to Seller with respect to indemnification rights under a
Commitment.
(b) .
4.3 Acceleration of Payments Upon Termination or Assignment of Commitment.
(a) To the extent that a Trigger Event occurs with respect to a
Commitment, Seller shall, either (i) continue to make the remaining payments
due from Seller to Purchaser in respect of such Commitment pursuant to Section
4.1 or (ii) upon the mutual agreement of the Parties make a full or partial
lump-sum payment (the "Trigger Payment") to Purchaser. If Purchaser and Seller
agree to a Trigger Payment, such amount shall be paid by Seller to Purchaser
concurrently with the Trigger Event , or as soon thereafter as is practicable
(but not later than sixty (60) days after the Trigger Event occurred; the date
on which the payment occurs being referred to as the "Trigger Payment Date".
(b) A "Trigger Event" shall mean: (i) an amendment and assignment
of a Commitment to Purchaser; or (ii) a termination or expiration of a
Commitment, whether by its terms or as a result of negotiations; provided,
however, that if at the time any one of the events specified in (i) or (ii)
above shall occur, an Event of Default on the part of Purchaser shall have
occurred and be continuing, no Trigger Event shall be deemed to have arisen
from any such event unless and until such Event of Default shall have been
cured.
(c) The amount of any Trigger Payment shall, except as otherwise
mutually agreed by Purchaser and Seller, be the discounted amount as of the
Trigger Payment Date (using as the annual discount rate 11.115%) of Seller's
remaining payment obligations with respect to the affected Commitment(s)
pursuant to Schedule 2 as of the Trigger Payment Date.
(d) Upon the making of any such Trigger Payment the amounts
thereafter payable in accordance with Schedule 2 shall be reduced by the
reduction arising under this Section 4.3 from such Trigger Payment.
4.4 Billing and Payment.
(a) Seller shall timely pay all amounts due to the Power Sellers
under the Commitments each month during the Term hereof, which includes the
amount Seller receives from Purchaser in connection with such Commitment.
Within three (3) Business Days after Seller's receipt of an invoice from a
Power Seller pursuant to a Commitment associated with Power delivered or made
available to Purchaser by Seller under such Commitment in the preceding month
(or after Seller's delivery of a statement to the Power Seller under a
Commitment, if Seller prepares or causes the monthly billing statement to be
prepared under a Commitment), Seller shall deliver such invoice or statement to
Purchaser. On or before the date which is (i) one (1) Business Day prior to
the due date set forth on such invoice or (ii) if Seller fails to timely
deliver an invoice as provided herein, then ten (10) Business Days after
Purchaser's receipt of such invoice or statement (either of such dates, the
"Due Date"), Purchaser shall remit payment of the positive difference, if any,
of (A) the amount set forth in such invoice or statement to Seller minus (B)
the Seller Payment applicable to the Commitment to which such invoice or
statement relates for such month minus (C) amounts received by Seller from
sales of Power to third parties in accordance with Section 3.5(b)(ii) (such net
amounts received by Seller referred to herein as "Resale Proceeds"), such
Resale Proceeds to be paid by Seller to the Power Seller s in partial
satisfaction of Seller's obligations to the Power Sellers. All payments
required under this Agreement shall be paid in cash by federal or other wire
transfer of immediately available funds to an account designated by the Party
to receive such payment.
(b) Each invoice or statement shall incorporate all information
reasonably necessary to determine the payments due thereunder, including actual
and estimated billing information with respect to the Commitments and true-ups
and adjustments from prior months.
(c) Each invoice or statement shall be subject to adjustment for a
period of twelve (12) months from the date of its issuance for any changes in
estimates or any errors in arithmetic, computation or otherwise.
4.5 Taxes.
Purchaser shall be responsible for any Taxes, costs, losses or charges imposed
on or associated with the Power.
4.6 Overdue Payments.
Overdue payments shall accrue interest at the Interest Rate from, and
including, the Due Date to, but excluding, the date of payment.
4.7 Billing Disputes.
If either Party, in good faith, disputes an invoice, the disputing
Party shall pay the entire amount of the invoice no later than the Due Date and
immediately notify the other Party of the basis for the dispute. If any amount
paid under dispute is ultimately determined to be due to the disputing Party,
it shall be credited within one (1) day of such determination along with
interest accrued at the Interest Rate until the date paid. Inadvertent
overpayments shall be returned by the receiving Party upon request or deducted
by the receiving Party from subsequent payments, with interest accrued at the
Interest Rate until the date paid or deducted.
ARTICLE 5
COVENANTS OF THE PARTIES
5.1 Conduct of Business of the Company.
Seller and Purchaser shall conduct their businesses with respect to the
Commitments according to their ordinary and usual course of business consistent
with Good Utility Practice.
5.2 Maintenance of Existence.
Seller agrees that during the Term of this Agreement, it will maintain
its corporate existence and its good standing in all of the states in which it
transacts business, will not dissolve and will not consolidate with or merge
into another Person unless the Person with which it merges or into which it
consolidates assumes in writing all of the obligations of Seller hereunder, and
satisfies the Seller Credit Support obligations pursuant to Section 5.9.
5.3 Access to Information.
(a) Seller will, during ordinary business hours and upon reasonable
notice (i) give Purchaser and Purchaser Representatives reasonable access to
all books and records of Seller relating to the Commitments; (ii) permit
Purchaser to make such reasonable inspections thereof as Purchaser may
reasonably request; and (iii) furnish Purchaser, at Purchaser's expense, with
such financial and operating data and other information in Seller's possession
with respect to the Commitments as Purchaser may from time to time reasonably
request; provided, however, (A) Seller shall not be required to take any action
which would constitute a waiver of the attorney-client privilege and (B) Seller
need not supply Purchaser with any information which Seller is under a legal
obligation not to supply.
(b) All information furnished to or obtained by Purchaser and
Purchaser Representatives pursuant to this Section 5.3 shall be subject to the
confidentiality provisions of Section 5.5.
5.4 Further Assurances.
Subject to the terms and conditions of this Agreement, each of the
Parties hereto will use reasonable efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby.
5.5 Confidentiality.
(a) Seller and Purchaser each agree not to disclose to any Person
and to keep confidential, and to cause and instruct its Affiliates, officers,
directors, employees, members and representatives not to disclose to any Person
and to keep confidential, any and all of the following information: (i) the
terms and provisions of this Agreement and the Ancillary Agreements; (ii) any
financial, pricing or supply quantity relating to the Power to be supplied by
Seller hereunder; (iii) any information that is clearly marked "Confidential;"
(iv) any oral communication that is subsequently reduced to writing and marked
"Confidential;" and (v) any information that is required to be kept
confidential by the terms of a Commitment. Notwithstanding the foregoing, any
such information may be disclosed (A) to the extent required by applicable laws
and regulations or by any subpoena or similar legal process of any court or
agency of federal, state or local government so long as the receiving P arty
gives the disclosing Party written notice as soon as practicable prior to such
disclosure; (B) to lenders, advisors and accountants of such Parties; (C) to
the extent the non-disclosing Party shall have consented in writing prior to
any such disclosure; (D) to the extent any confidential information is
available from public non-confidential sources or has been independently
developed by the receiving Party prior to its receipt from the disclosing
Party; and (E) by Purchaser to prospective buyers of the Power purchased by
Purchaser under this Agreement. This Section 5.5 shall supersede any prior
confidentiality agreement between Purchaser and Seller. Notwithstanding any
provision to the contrary herein, Seller may provide copies or in formation
regarding this Agreement to any regulatory agency requesting and/or requiring
such information; provided, that any such disclosure includes a request for
confidential treatment of the Agreement and/or the redaction of terms
considered commercially sensitive by the Purchaser from the copies of the
Agreement which are placed in the public record or otherwise made available to
third parties.
(b) Information of a confidential nature which (i) has become
public other than as a result of a breach of this Section 5.5; or (ii) was
received by the disclosing Party from another source who in turn disclosed the
information without violating legal restrictions shall not be subject to this
Section 5.5.
(c) The Parties shall consult with each other prior to issuing any
public announcement, statement or other disclosure with respect to this
Agreement or the transactions contemplated hereby and shall not issue any such
public announcement, statement or other disclosure without the prior written
consent of the other Party, which consent shall not be unreasonably withheld.
5.6 Consents and Approvals.
Seller and Purchaser shall cooperate with each other and (i) promptly
prepare and file all necessary documentation, (ii) effect all necessary
applications, notices, petitions and filings and execute all agreements and
documents, and (iii) use all commercially reasonable efforts to obtain all
necessary consents, approvals and authorizations of all other parties, in the
case of each of the foregoing clauses (i), (ii) and (iii), necessary or
advisable to consummate the transactions contemplated by this Agreement
(including, without limitation, Seller Required Regulatory Approvals and
Purchaser Required Regulatory Approvals) or required by the terms of any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument to which Seller or Purchaser is
a party or by which any of them is bound. Seller shall have the right to
review and approve in advance all characterizations of the information relating
to the Commitments, and each of Seller and Purchaser shall have the right to
review in advance all characterizations of the information relating to the
transactions contemplated by this Agreement which appear in any filing made in
connection with the transactions contemplated hereby.
5.7 Fees and Commissions.
Seller and Purchaser each represent and warrant to the other that,
except for Reed Consulting Group, which is acting for and at the expense of
Seller, no broker, finder or other Person is entitled to any brokerage fees,
commissions or finder' s fees in connection with the transaction contemplated
hereby by reason of any action taken by the party making such representation.
Seller and Purchaser will pay to the other or otherwise discharge, and will
indemnify and hold the other harmless from and against, any and all claims or
liabilities for all brokerage fees, commissions and finder's fees (other than
as described above) incurred by reason of any action taken by such Party.
5.8 XX.
5.9 XX
5.10 Parties Bound by Terms.
The rates, terms and conditions for service specified in this Agreement
shall remain in effect for the entire Term hereof, and shall not be subject to
change through any unilateral application by either Party to the FERC or the
applicable governmental entity acting under the Federal Power Act (or pursuant
to any other provision of law) or to any other governmental agency or
authority. Each Party hereby irrevocably waives the right to seek any change
or to support any application or complaint or other legislative, judicial or
regulatory action made seeking a change in such rates or a change in such terms
and conditions, absent the mutual agreement of the Parties.
ARTICLE 6
FORCE MAJEURE
6.1 Performance Excused.
If either Party is rendered unable by an event of Force Majeure to
carry out, in whole or part, its obligations hereunder, then, during the
pendency of such Force Majeure but for no longer period, the Party affected by
the event (other than t he obligation to make payments then due or becoming due
with respect to performance which occurred prior to the event) shall be
relieved of its obligations insofar as they are affected by Force Majeure but
for no longer period. The Party affected by an event of Force Majeure shall
provide the other Party with written notice setting forth the full details
thereof as soon as practicable after the occurrence of such event and shall
take all reasonable measures to mitigate or minimize the effects o f such event
of Force Majeure; provided, however, that this provision shall not require
Seller to deliver, or Purchaser to receive, Power at points other than the
Delivery Point.
6.2 Definition. For purposes of Seller's obligation to deliver, and
Purchaser's obligation to receive, Power received by Seller from the Power
Sellers, the term "Force Majeure" with respect to such Power deliveries under a
Commitment shall solely have the meaning given in such Commitment.
ARTICLE 7
EVENTS OF DEFAULT; REMEDIES
7.1 Events of Default.
Any one or more of the following shall constitute an "Event of Default"
hereunder:
(a) failure of either Party to pay when due any amount due
hereunder, including without limitation, amounts due under the Firm Energy
Contract as described in Section 3.2(a) and such failure is not remedied within
after writ ten notice of such failure is given by the other Party;
(b) failure of either Party, in a material respect, to comply with,
observe or perform any covenant or obligation under this Agreement (other than
the events that are otherwise specifically covered in this Article 7 as a
separate Event of Default) and such failure is not cured within ten (10) days
after receipt of written notice thereof from the other party;
(c) any representation or warranty made by either Party herein shall
be false or misleading in any material respect;
(d) a custodian, receiver, liquidator or trustee of either Party or
of any of the property of either, is appointed or takes possession and such
appointment or possession remains uncontested or in effect for more than ; or
either Party makes an assignment for the benefit of its creditors or admits in
writing its inability to pay its debts as they mature; or either Party is
adjudicated bankrupt or insolvent; or an order for relief is entered under the
Federal Bankruptcy Code against such Party; or any of the material property of
either Party is sequestered by court order and the order remains in effect for
more than ; or a petition is filed against either Party under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or subsequently
in effect, and is not stayed or dismissed within after filing;
(e) either Party files a petition in voluntary bankruptcy or
seeking relief under any provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction, whether now or subsequently in effect; or consents to the
filing of any petition against it under any such law; or consents to the
appointment of or taking possession by a custodian, receiver, trustee or
liquidator of the property of either Party;
(f) an "Event of Default" (as defined in the Wholesale Standard
Offer Service Agreement) on the part of "Supplier" (as defined in the Wholesale
Standard Offer Service Agreement) or on the part of any of the "Companies" (as
defined in the Wholesale Standard Offer Service Agreement), as the case may be,
has occurred and is continuing under the Wholesale Standard Offer Service
Agreement (such "Event of Default" on the part of "Supplier" shall constitute
an Event of Default on the part o f Purchaser hereunder and such "Event of
Default" on the part of one or more of the "Companies" shall constitute an
Event of Default on the part of Seller hereunder); or
(g) the failure of a Party to provide alternate credit support in
accordance with the terms of Section 5.8 or 5.9, as the case may be, within ten
(10) Business Days after receipt of a written notice with respect thereto,
after the occurrence of any of the events described in Sections 7.1(d) or
7.1(e) with respect to such Party's credit support provider.
7.2 Remedies Upon Default.
The Parties shall have the following remedies available to them with
respect to the occurrence of an Event of Default with respect to the other
Party hereunder:
Upon the occurrence of an Event of Default by either Party hereunder,
the non-defaulting Party shall have the right (i) to collect all amounts then
or thereafter due in accordance with existing invoices to it from the
defaulting Party hereunder, and (ii) upon two (2) days prior written notice,
immediately and at any time thereafter, to liquidate and terminate this
Agreement by closing out this Agreement at its market value at such time (so
that a settlement payment in an amount equal to the difference, if any, between
such then prevailing market value and the value specified in such agreement
shall be due to Purchaser if such market value is greater than such contract
value and with such settlement payment being due to Seller if the opposite is
the case) and by setting off all market damages so determined and payable by
each of the Parties to the other, whereupon all such amounts shall be
aggregated or netted to a single liquidated amount, payable within one Business
Day by the Party owing the greater such amount to the other. In addition, if
Purchaser is the defaulting Party, then Seller shall have the right during the
continuation of such default and prior to any termination of this Agreement to
cease making the Commitments available to Purchaser hereunder and to instead
sell such Commitments to third parties for the account of Seller.
7.3 Limitation of Remedies, Liability and Damages.
The Parties confirm that the express remedies and measures of damages
provided in this Agreement satisfy the essential purposes hereof. For breach
of any provision for which and express remedy or measure of damages is
provided, such express remedy or measure of damages shall be the sole and
exclusive remedy, the obligor's liability shall be limited as set forth in such
provision and all other remedies or damages at law or in equity are waived. If
no remedy or measure of damages is expressly herein provided, the obligor's
liability shall be limited to direct actual damages only, such direct actual
damages shall be the sole and exclusive remedy and all other remedies or
damages at law or in equity are waived. Unless expressly herein provided,
neither Party shall be liable for any consequential, incidental, punitive,
exemplary or indirect damages, lost profits or other business interruption
damages, by statute, in tort or contract, under any indemnity provision or
otherwise. It is the intent of the Parties that the limitations herein imposed
on remedies and the measure of damages be without regard to the cause or causes
related thereto, including, without limitation, the negligence of any Party,
whether such negligence be sole, joint or concurrent, or active or passive. To
the extent any damages required to be paid hereunder are liquidated, the
Parties acknowledge that the damages are difficult or impossible to determine,
otherwise obtaining an adequate remedy is in convenient and the liquidated
damages constitute a reasonable approximation of the harm or loss.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties of Seller. Seller represents and
warrants to Purchaser as follows:
(a) Organization; Qualification. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Massachusetts and has all requisite corporate power and authority to own,
lease, and operate it s properties and to carry on its business as is now being
conducted. Seller is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the property
owned, leased or operated by it or t he nature of the business conducted by it
makes such qualification necessary, except in each case in those jurisdictions
where the failure to be so duly qualified or licensed and in good standing
would not have a Material Adverse Effect.
(b) Authority Relative to this Agreement. Seller has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of Seller and
no other corporate proceedings on the part of Seller are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Seller, and
assuming that this Agreement constitutes a valid and binding agreement of
Purchaser, subject to the receipt of Seller Required Regulatory Approvals and
Purchaser Required Regulatory Approvals, constitutes a valid and binding
agreement of Seller, enforceable against Seller in accordance with its terms,
except that such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally or general principles of equity.
(c) Consents and Approvals; No Violation.
(i) Other than obtaining Seller Required Regulatory
Approvals and Purchaser Required Regulatory Approvals, neither the execution
and delivery of this Agreement by Seller nor the performance by Seller of its
obligations under this Agreement will (A) conflict with or result in any breach
of any provision of the Certificate of Incorporation or Bylaws (or other
similar governing documents) of Seller; (B) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, except where the failure to obtain such consent,
approval, authorization or permit, or to make such filing or notification,
would not have a Material Adverse Effect; (C) result in a default (or give rise
to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which Seller is a party
or by which Seller or any of the Commitments may be bound, including, without
limitation, the Commitments except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or consents have
been obtained or which, in the aggregate, would not have a Material Adverse
Effect; or (D) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Seller, or any of its assets, which violation would
have a Material Adverse Effect
(ii) Except for such notices or approvals set forth on
Schedule 3 (the "Seller Required Regulatory Approvals"), no declaration, filing
or registration with, or notice to, or authorization, consent or approval of
any governmental or regulatory body or authority is necessary for the
consummation by Seller of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not obtained or made, will not, in the aggregate, have a
Material Adverse Effect.
(d) Title and Related Matters. Except as set forth in Schedule 5,
Seller has good and valid title to the Power, free and clear of all
Encumbrances.
(e) The Commitments.
(i) Each of the Commitments (A) constitutes a valid, binding
and enforceable obligation of Seller and to the best knowledge of Seller
constitutes a valid and binding and enforceable obligation of the other parties
thereto and (B) is in full force and effect.
(ii) Except as set forth in Schedule 6, there is not, under
any of the Commitments, any default or event which, with notice or lapse of
time or both, would constitute a default on the part of Seller and to the best
knowledge of Seller on the part of the other parties thereto. The Commitments
have not been amended, supplemented or modified except as described in Schedule
1 and the Commitments (as described in Schedule 1) contain the entire
understanding of Seller and the other parties thereto with respect to the
transactions contemplated thereby.
(f) Legal Proceedings, etc. Except as set forth in Schedule 7,
there are no claims, actions, proceedings or investigations pending or, to
Seller's knowledge, threatened against or relating to Seller before any court,
governmental or regulatory authority or body acting in an adjudicative capacity
relating to the transactions contemplated hereby or that could otherwise have a
Material Adverse Effect on the transactions contemplated hereby.
(g) Regulation as a Utility. Seller is an "electric company" under
Massachusetts law and subject to regulation by the MDTE and is also subject to
regulation by FERC and the SEC. Seller is subject to the jurisdiction for
certain limited purposes of the New Hampshire Public Utility Commission, the
Maine Public Utilities Commission and the Connecticut Department of Public
Utility Control.
(h) Disclosure. No representation or warranty by Seller in this
Agreement, and no document (including, without limitation, the Commitments)
furnished or to be furnished to Purchaser pursuant to this Agreement or in
connection herewith or with the transactions contemplated hereby, contains or
will contain any untrue or misleading statement or omits or will omit any
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which ma de, not misleading. All facts of
material importance to the business, operations, prospects, condition
(financial or otherwise), commitments or liabilities of Seller relevant to the
transactions contemplated hereby have been truthfully and completely disclosed
to Purchaser in this Agreement.
8.2 Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller as follows:
(a) Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own, lease and operate
its properties and t o carry on its business as is now being conducted.
Purchaser is duly qualified or licensed to do business as a foreign corporation
and is in good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary, except in each case in those jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
have a Material Adverse Effect. Purchaser has heretofore delivered to Seller
complete and correct copies of its Certificate of Incorporation and Bylaws (or
other similar governing documents), as currently in effect.
(b) Authority Relative to this Agreement. Purchaser has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of Purchaser
and no other corporate proceedings on the part of Purchaser are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Purchaser,
and assuming that this Agreement constitutes a valid and binding agreement of
Seller, subject to the receipt of Purchaser Required Regulatory Approvals and
Seller Required Regulatory Approvals, constitutes a valid and binding agreement
of Purchaser, enforceable against Purchaser in accordance with its terms,
except that such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally or general principles of equity.
(c) Consents and Approvals; No Violation.
(i) Except as set forth in Schedule 4, and other than
obtaining Purchaser Required Regulatory Approvals and Seller Required
Regulatory Approvals, neither the execution and delivery of this Agreement by
Purchaser nor the performance by Purchaser of its obligations under this
Agreement will (A) conflict with or result in any breach of any provision of
the Certificate of Incorporation or Bylaws (or other similar governing
documents) of Purchaser, (B) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, except where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification, would not have
a Material Adverse Effect, (C) result in a default (or give rise to any right
of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, agreement,
lease or other instrument or obligation to which Purchaser or any of its
Subsidiaries is a party or by which any of their respective assets may be
bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents h ave been obtained, or
(D) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Purchaser, or any of its assets.
(ii) Except as set forth in Schedule 4 (the filings and
approvals referred to in Schedule 4 are collectively referred to as the
"Purchaser Required Regulatory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of any
governmental or regulatory body or authority is necessary for the consummation
by Purchaser of the transactions contemplated hereby.
(d) Regulation as a Utility. Purchaser is a power marketer
authorized by the FERC to engage in the wholesale sale and brokering of
electric energy and capacity at market-based rates pursuant to FERC Order 79
FERC 61,167, dated May 15, 1 997.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification.
(a) Seller will indemnify, defend and hold harmless Purchaser from
and against any and all claims, demands or suits (by any Person), losses,
liabilities, damages, obligations, payments, costs and expenses (including,
without limitation, t he costs and expenses of any and all actions, suits,
proceedings, assessments, judgments, settlements and compromises relating
thereto and reasonable attorneys' fees and reasonable disbursements in
connection therewith) to the extent the foregoing are not covered by insurance
(each, an "Indemnifiable Loss"), asserted against or suffered by Purchaser
relating to, resulting from or arising out of (i) any breach or alleged breach
by Seller of any covenant or agreement of Seller contained in this Agreement or
the Commitments (ii) any claim of a Power Seller or any third party to the
extent arising from the acts or omissions of Seller or any of its agents or
employees or (iii) any material breach by Seller of any representation or
warranty set forth in Section 8.1 hereof.
(b) Purchaser will indemnify, defend and hold harmless Seller from
and against any and all Indemnifiable Losses asserted against or suffered by
Seller relating to, resulting from or arising out of (i) any breach by
Purchaser of any covenant or agreement of Purchaser contained in this
Agreement, (ii) any claim of a Power Seller or any third party to the extent
arising from the acts or omissions of Purchaser or any of its agents or
employees or (iii) any material breach by Purchaser of any representation or
warranty set forth in Section 8.2 hereof.
(c) Any Person entitled to receive indemnification under this
Agreement (an "Indemnitee") having a claim under these indemnification
provisions shall make a good faith effort to recover all losses, damages, costs
and expenses from insurer s of such Indemnitee under applicable insurance
policies, if any exist, so as to reduce the amount of any Indemnifiable Loss
hereunder. The amount of any Indemnifiable Loss shall be reduced (i) to the
extent that Indemnitee receives any insurance proceeds with respect to an
Indemnifiable Loss and (ii) to take into account any net Tax benefit recognized
by the Indemnitee arising from the recognition of the Indemnifiable Loss and
any payment actually received with respect to an Indemnifiable Loss .
(d) The expiration, termination or extinguishment of any covenant or
agreement shall not affect the parties' obligations under this Section 9.1 if
the Indemnitee provided the Person required to provide indemnification under
this Agreement (the "Indemnifying Party") with proper notice of the claim or
event for which indemnification is sought prior to such expiration, termination
or extinguishment.
(e) Purchaser and Seller each agree that notwithstanding any
provisions in this Agreement to the contrary, all parties to this Agreement
retain their remedies at law or in equity with respect to willful or
intentional breaches of this Agreement.
9.2 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any claim
or of the commencement of any claim, action, or proceeding made or brought by
any Person who is not a party to this Agreement or any Affiliate of a party to
this Agreement (a "Third Party Claim") with respect to which indemnification is
to be sought from an Indemnifying Party, the Indemnitee will give such
Indemnifying Party reasonably prompt written notice thereof, but in any event
not later than ten (10) calendar days after the Indemnitee's receipt of notice
of such Third Party Claim. Such notice shall describe the nature of the Third
Party Claim in reasonable detail and will indicate the estimated amount, if
practicable, of the Indemnifiable Loss that has be en or may be sustained by
the Indemnitee. The Indemnifying Party will have the right to participate in
or, by giving written notice to the Indemnitee, to elect to assume the defense
of any Third Party Claim at such Indemnifying Party's own expense a nd by such
Indemnifying Party's own counsel, and the Indemnitee will cooperate in good
faith in such defense at the Indemnifying Party's expense.
(b) If within ten (10) calendar days after an Indemnitee provides
written notice to the Indemnifying Party of any Third Party Claim the
Indemnitee receives written notice from the Indemnifying Party that such
Indemnifying Party has elected to assume the defense of such Third Party Claim
as provided in the last sentence of Section 9.2(a), the Indemnifying Party will
not be liable for any legal expenses subsequently incurred by the Indemnitee in
connection with the defense thereof; provided, however, that if the
Indemnifying Party fails to take reasonable steps necessary to defend
diligently such Third Party Claim within twenty (20) calendar days after
receiving notice from the Indemnitee that the Indemnitee believes the
Indemnifying Party has failed to take such steps, the Indemnitee may assume its
own defense, and the Indemnifying Party will be liable for all reasonable
expenses thereof. Without the prior written consent of the Indemnitee, the
Indemnifying Party will not enter into any settlement of any Third Party Claim
which would lead to liability or create any financial or other obligation on
the part of the Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder. If a firm offer is made to settle a Third Party
Claim without leading to liability or the creation of a financial or other
obligation on the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder and the Indemnifying Party desires to
accept and agree to such offer, the Indemnifying Party will give written notice
to the Indemnitee to that effect. If the Indemnitee fails to consent to such
firm offer within ten (10) calendar days after its receipt of such notice, the
Indemnitee may continue to contest or defend such Third Party Claim and, in
such event, the maximum liability of the Indemnifying Party as to such Third
Party Claim will be the amount of such settlement offer, plus reasonable costs
and expenses paid or incurred by the Indemnitee up to the date of such notice.
(c) Any claim by an Indemnitee on account of an Indemnifiable Loss
which does not result from a Third Party Claim (a "Direct Claim") will be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable, but in any event not later than ten (10)
calendar days after the Indemnitee becomes aware of such Direct Claim, and the
Indemnifying Party will have a period of thirty (30) calendar days within which
to respond to such Direct Claim. If the Indemnifying Party does not respond
within such thirty (30) calendar day period, the Indemnifying Party will be
deemed to have accepted such claim. If the Indemnifying Party rejects such
claim, the Indemnitee will be free to seek enforcement of its rights to
indemnification under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any time subsequent
to the making of an indemnity payment in respect thereof, is reduced by
recovery, settlement or otherwise under or pursuant to any insurance coverage,
or pursuant to any claim, recovery, settlement or payment by or against any
other entity, the amount of such reduction, less any costs, expenses or
premiums incurred in connection therewith (together with interest thereon from
the date of payment thereof at the prime r ate then in effect of the Bank of
Boston, N.A.), will promptly be repaid by the Indemnitee to the Indemnifying
Party. Upon making any indemnity payment, the Indemnifying Party will, to the
extent of such indemnity payment, be subrogated to all right s of the
Indemnitee against any third party in respect of the Indemnifiable Loss to
which the indemnity payment relates; provided, however, that (i) the
Indemnifying Party will then be in compliance with its obligations under this
Agreement in respect of such Indemnifiable Loss and (ii) until the Indemnitee
recovers full payment of its Indemnifiable Loss, any and all claims of the
Indemnifying Party against any such third party on account of said indemnity
payment is hereby made expressly subordinated and subjected in right of payment
to the Indemnitee's rights against such third party. Without limiting the
generality or effect of any other provision hereof, each such Indemnitee and
Indemnifying Party will duly execute upon request all instruments reasonably
necessary to evidence and perfect the above-described subrogation and
subordination rights. Nothing in this Section 9.2(d) shall be construed to
require any party hereto to obtain or maintain any insurance coverage.
(e) A failure to give timely notice as provided in this Section 9.2
will not affect the rights or obligations of any party hereunder except if, and
only to the extent that, as a result of such failure, the Party which was
entitled to receive such notice was actually prejudiced as a result of such
failure.
ARTICLE 10
DISPUTE RESOLUTION
10.1 Arbitration Proceedings.
Any dispute or need of interpretation arising out of this Agreement
pertaining to the calculation of a termination payment pursuant to Article 7 or
a payment required pursuant to Article 4 may be submitted upon request of
either Party to binding arbitration by one arbitrator who has not previously
been employed by either Party, and does not have a direct or indirect interest
in either Party or the subject matter of the arbitration. Such arbitrator
shall either be as mutually agreed by t he Parties within thirty (30) days
after written notice from either Party requesting arbitration, or failing
agreement, shall be selected under the expedited rules of the American
Arbitration Association (the "AAA"). Such arbitration shall be held i n
alternating locations of the home offices of the Parties, commencing with
Purchaser's home office, or in any other mutually agreed upon location. The
rules of the AAA shall apply to the extent not inconsistent with the rules
herein specified. Either Party may initiate arbitration by written notice to
the other Party and the arbitration shall be conducted according to the
following: (a) not later than seven (7) days prior to the hearing date set by
the arbitrator each Party shall submit a brief with a single proposal for
settlement, (b) the hearing shall be conducted on a confidential basis without
continuance or adjournment, (c) the arbitrator shall be limited to selecting
only one of the two proposals submitted by the Parties, (d) each Party shall
divide equally the cost of the arbitrator and the hearing and each Party shall
be responsible for its own expenses and those of its counsel and
representatives and (e) evidence concerning the financial position or
organizational make-up of the Parties, any offer made or the details of any
negotiation prior to arbitration and the cost to the Parties of their
representatives and counsel shall not be permissible. Each Party agrees that
it will not bring a lawsuit concerning any dispute covered by this arbitration
provision. Any monetary award of the arbitrator may be enforced by the Party
in whose favor such monetary award is made in any court of competent
jurisdiction.
ARTICLE 11
MISCELLANEOUS
11.1 Entire Agreement.
This Agreement, together with all Schedules hereto and the Ancillary
Agreements constitute the entire agreement between the Parties and supersede
all previous offers, negotiations, discussions, communications and
correspondence with respect t o the transactions contemplated hereby.
11.2 Amendment.
This Agreement may be amended only by a written agreement signed by the
Parties.
11.3 Assignment.
Unless mutually agreed to by the Parties, no assignment, pledge, or
transfer of this Agreement shall be made by any Party without the prior written
consent of the other Party, which shall not be unreasonably withheld, provided,
however, that no prior written consent shall be required for (i) the
assignment, pledge or other transfer to another company or Affiliate in the
same holding company system as the assignor, pledgor or transferor, or (ii) the
transfer, incident to a merger or consolidation with, or transfer of all (or
substantially all) of the assets of the transferor, to another Person or
business entity; provided, however, that such assignee, pledgee, transferee or
acquirer of such assets or the Person with which it merges or into which it
consolidates assumes in writing all of the obligations of such Party hereunder,
and satisfies the Seller Credit Support obligations pursuant to Section 5.9 or
the Purchaser Credit Support obligations pursuant to Section 5.8, as the case
may be; and provided, further, that either Party may, without the consent of
the other Party (and without relieving itself from liability hereunder),
transfer, sell, pledge, encumber or assign such Party's rights to the accounts,
revenues or proceeds hereof in connection with any financing or other financial
arrangements.
11.4 Governing Law.
The interpretation and performance of this Agreement shall be according
to and controlled by the laws of The Commonwealth of Massachusetts (regardless
of the laws that might otherwise govern under applicable Massachusetts
principles of conflicts of laws).
11.5 Counterparts.
This Agreement may be executed in two or more counterparts and each
such counterpart shall constitute one and the same instrument.
11.6 Waiver.
No waiver by a Party of any default by the other Party shall be
construed as a waiver of any other default. Any waiver shall be effective only
for the particular event for which it is issued and shall not be deemed a
waiver with respect to any subsequent performance, default or matter.
11.7 Notices.
All notices, requests, statements or payments shall be made as
specified below. Notices required to be in writing shall be delivered by
letter, facsimile or other documentary form. Notice by facsimile or hand
delivery shall be deemed to have been received by the close of the Business Day
on which it was transmitted or hand delivered (unless transmitted or hand
delivered after close in which case it shall be deemed received at the close of
the next Business Day). Notice by overnight mail or courier shall be deemed to
have been received two Business Days after it was sent. A Party may change its
addresses by providing notice of same in accordance herewith:
to Purchaser:
NOTICES & CORRESPONDENCE:
Constellation Power Source, Inc.
David M. Perlman, Esq.
111 Market Place, Suite 500
Baltimore, Maryland 21202
FAX No.: (410) 468-3540
Phone No.: (410) 468-3490
PAYMENTS:
Federal Wire Transfer
First National Bank of Maryland
ABA Routing #052000113
Account: Constellation Power Source, Inc.
Account #: 191-9007-8
INVOICES:
Attn.: Stuart Rubenstein
FAX No.: (410) 468-3540
Phone No.: (410) 468-3430
CREDIT AND COLLECTIONS:
John R. Collins
FAX No. (410) 468-3540
Phone No.: (410) 468-3410
SCHEDULING:
Attn: Stuart Rubenstein
FAX No.: (410) 468-3540
Phone No.: (410) 468-3430
To Seller:
NOTICES & CORRESPONDENCE:
Montaup Electric Company
Manager, Power Supply Administration
750 West Center Street
West Bridgewater, MA 02379
Fax: 508/559-6125
Phone: 508/559-2000 x3809
INVOICES:
Richard Davis, Accounting Supervisor
c/o EUA Service Corporation
750 West Center Street
West Bridgewater, MA 02379
Fax: 508/559-6125
Phone: 508/559-2000 x3554
PAYMENTS:
Federal Wire Transfer
Fleet Bank
ABA #011-000-206
Montaup Electric Company regular account
Account #028-610-808-5 00101
Contact:
Richard Davis, Accounting Supervisor
Fax: 508/427-6493
Phone: 508/559-2000 x3554
11.8 No Third Party Beneficiaries.
This Agreement shall not impart any rights enforceable by any third
party (other than a permitted successor or assignee bound to this Agreement).
11.9 Severability.
Any provision declared or rendered unlawful by any applicable court of
law or regulatory agency or deemed unlawful because of a statutory change will
not otherwise affect the remaining lawful obligations that arise under this
Agreement.
11.10 Construction.
The term "including" when used in this Agreement shall be by way of
example only and shall not be considered in any way to be in limitation. The
headings used herein are for convenience and reference purposes only.
11.11 Advisor.
Goldman Sachs Power LLC ("GSP") is the exclusive advisor to Purchaser
and not a principal of Purchaser. From time to time, Purchaser may designate
one or more employees of GSP as Purchaser's agent for purposes of performing
its obligations under this Agreement. Purchaser shall be solely responsible
for any and all obligations and liabilities associated with this Agreement.
Neither GSP, Goldman, Sachs & Co. nor J. Aron & Company, nor any of their
affiliates, has any responsibility for, or liability with respect to the
obligations of Purchaser under this Agreement or otherwise.
11.12 Audit.
Each Party has the right, at its sole expense and during normal working
hours, to examine the records of the other Party to the extent reasonably
necessary to verify the accuracy of any statement, charge or computation made
pursuant to this Agreement. If requested, a Party shall provide to the other
Party statements evidencing the quantities of Power delivered at the Delivery
Point. If any such examination reveals any inaccuracy in any statement, the
necessary adjustments in such statement and the payments thereof will be made
promptly and shall bear interest calculated at the Interest Rate from the date
the overpayment or underpayment was made until paid; provided, however, that no
adjustment for any statement or payment will be made unless objection to the
accuracy thereof was made prior to the lapse of twelve (12) months from the
rendition thereof.
IN WITNESS WHEREOF, the parties have caused their duly
authorized representatives to execute this Agreement on their behalf as of the
date first above written.
MONTAUP ELECTRIC COMPANY
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
CONSTELLATION POWER SOURCE, INC.
By: /s/ John R. Collins
Name: John R. Collins
Title: Vice President & Treasurer
SCHEDULE 1
to
POWER PURCHASE AND
SALE AGREEMENT
COMMITMENTS
1. Amended and Restated Power Sales Contract, dated December 18, 1998,
between Montaup Electric Company and Southern Energy Canal, L.L.C.
(the "Canal PPA").
2. Power Purchase Agreement, dated October 17, 1986, between Northeast
Energy Associates and Montaup Electric Company, as amended on June
28, 1989 and supplemented by Letter Agreement dated May 11, 1992.
(the "Northeast PPA").
3. Purchase Power Agreement, dated January 3, 1989, between Blackstone
Hydro, Inc. ("BHI") and Montaup Electric Company, as assignee of
Blackstone Valley Electric Company (the "BHI PPA").
4. Power Supply Agreement, dated December 19, 1984, by and between
City of Burlington Electric Department and Montaup Electric
Company, as assignee of Newport Electric Corp., as amended by
Letter Agreement on July 15, 1986 and on December 29 , 1989 (the
"McNeil PPA").
5. The Firm Energy Contract among Hydro-Quebec and the New England
Utilities (as defined therein) dated October 14, 1985 (the "Firm
Energy Contract").
A Commitment shall be automatically deleted from the above Commitment
list without further action by the parties: (i) on the effective date of any
amendment and assignment of the Commitment pursuant to Section 3.4 of the
Agreement, (ii) upon the expiration of such Commitment pursuant to its terms,
or (iii) upon the termination of such Commitment pursuant to the written
agreement of the parties thereto with the written consent of Purchaser.
SCHEDULE 1-A
to
POWER PURCHASE AND
SALE AGREEMENT
AGREEMENTS RELATED TO
HYDRO-QUEBEC INTERCONNECTION
1. Agreement with Respect to Use of the Quebec Interconnection, dated December
1, 1981, as amended and restated as of September 1, 1985, and as further
amended and restated as of November 19, 1997, and as further amended as of
April 8, 1998 ("Use Agreement").
2. Phase I Vermont Transmission Line Support Agreement, dated December 1,
1981, as amended on June 1, 1982, November 1, 1982, and January 1, 1986.
3. Phase I Terminal Facility Support Agreement, dated December 1, 1981, as
amended June 1, 1982, November 1, 1982, and January 1, 1986.
4. Phase I New Hampshire Transmission Facilities Support Agreement, dated
December 1, 1981.
5. Phase II Boston Edison AC Facilities Support Agreement, dated June 1, 1985,
as amended May 1, 1986, February 1, 1987, June 1, 1987, September 1, 1987,
and August 1, 1988.
6. Phase II New England Power AC Facilities Support Agreement, dated June 1,
1985, as amended May 1, 1986, February 1, 1987, June 1, 1987, September 1,
1987, and August 1, 1988.
7. Phase II Massachusetts Transmission Facilities Support Agreement, dated
June 1, 1985, as amended May 1, 1986, February 1, 1987, June 1, 1987,
September 1, 1987, October 1, 1987, August 1, 1988, and January 1, 1989.
8. Phase II New Hampshire Transmission Facilities Support Agreement, dated
June 1, 1985, as amended May 1, 1986, February 1, 1987, June 1, 1987,
September 1, 1987, October 1, 1987, August 1, 1988, January 1, 1989, and
January 1, 1990.
SCHEDULE 2
to
POWER PURCHASE AND
SALE AGREEMENT
SELLER PAYMENTS
Monthly amounts
SCHEDULE 3
to
POWER PURCHASE AND
SALE AGREEMENT
SELLER REQUIRED REGULATORY APPROVALS
(i) Any required approvals under the Federal Power Act;
(ii) (A) notice by Seller to, and an order by, the MDTE approving the Seller
Guaranty;
(B) a finding by the MDTE that Eastern's actions in regard to the
Wholesale Standard Offer Service Agreement are in accordance with G.L.
c. 164, 94A and 1(B)(b) and that the Wholesale Standard Offer Service
Agreement may become effective; and
(iii) the approval of the Seller Guaranty by the SEC pursuant to the Holding
Company Act.
SCHEDULE 4
to
POWER PURCHASE AND
SALE AGREEMENT
PURCHASER REQUIRED REGULATORY APPROVALS
The Purchaser requires no regulatory approvals prior to the Effective
Date. However, from time to time during the Term of this Agreement, Purchaser
must file quarterly transaction reports with the FERC reporting the execution
of this Agreement and detailing purchases hereunder that occurred in the prior
quarter.
SCHEDULE 5
to
POWER PURCHASE AND
SALE AGREEMENT
EXCEPTIONS TO SELLER'S TITLE TO THE COMMITMENTS
Nothing to Disclose
SCHEDULE 6
to
POWER PURCHASE AND
SALE AGREEMENT
DEFAULTS UNDER THE COMMITMENTS
Nothing to Disclose
SCHEDULE 7
to
POWER PURCHASE AND
SALE AGREEMENT
LEGAL PROCEEDINGS
Nothing to Disclose
SCHEDULE 8
to
POWER PURCHASE AND
SALE AGREEMENT
PPA TRANSFER AGREEMENT
This PPA TRANSFER AGREEMENT ("Agreement") is dated as of April 7, 1998 and is
made by and between MONTAUP ELECTRIC COMPANY, a Massachusetts corporation
("Seller"), and TRANSCANADA POWER MARKETING LTD., a Delaware corporation
("Asset Purchaser"). This Agreement set forth the terms and conditions under
which Seller transfers to Asset Purchaser the economic benefits and performance
obligations, subject to Seller's continuing obligations to make certain
payments, associated with the power purchase agreements herein after described
("the Power Purchase Agreement") between seller and third party power supplier
("the Power Seller"), to Asset Purchaser pursuant to the Asset Purchase
Agreement dated as of April 7, 1998 ("the APA"), by and between Seller and
Asset Purchaser.
1. The following Power Purchase Agreement (as amended or supplemented, a
"Commitment") is attached as an exhibit hereto and is incorporated into this
Agreement by reference.
Date Power Supplier
5/14/86 Ocean State Power (Montaup)
9/28/88 Ocean State Power II (Montaup)
5/14/86 Ocean State Power (Montaup
7/12/88 Ocean State Power II (Montaup)
A Commitment shall be automatically deleted from the above Commitment list (the
"Commitment List"} without further action by the parties: (i) on the effective
date of any amendment and assignment of the Commitment pursuant to Section 7,
below, (ii) upon the expiration of such Commitment pursuant to its terms, or
(iii) upon the termination of such Commitment pursuant to the written agreement
of the parties thereto.
2. This Agreement shall become effective on the Effective Date (as defined
in Section 12) and shall remain in effect until Asset Purchaser has made
payment to Seller of amounts owed pursuant to Section 4, below, for the last
month in which a Commitment is listed on the Commitment List, and Seller has
made payment to Asset Purchaser of amounts owned pursuant to Section 8 below,
for the last month in which such a payment is due.
3. Commencing as of the Effective Date, each month Seller agrees to
provide to Asset Purchaser all capacity, energy and any other benefits it
receives under each Conunitment as of the first day of the month. All electric
energy shall be deliver ed to Asset Purchaser at the point at which the Power
Seller makes delivery to Seller as established under such Commitment. Asset
Purchase shall be responsible for making all arrangements necessary for the
further transmission of such energy.
4. (a) Commencing as of the month following the Effective Date, Asset
Purchaser agrees to Pay to Seller each month all amounts properly due from
Seller to the Power Seller for the preceding month associated with capacity,
energy and any other benefits made available to it by Seller from each
Commitment on the preceding month's Commitment List, less the amount of
Seller's payment obligation specified in Section 8 below. In turn, each month,
Seller shall timely pay the Power Seller an amount equal to all amounts
properly due to the Power Seller for the preceding month under each Commitment.
For purposes of the first monthly payment due from Asset Purchaser to Seller
under this Agreement in connection with each Commitment, energy payments shall
be based on meter readings taken on the first day for which Asset Purchaser has
a payment obligation under this Agreement and capacity payments shall be based
on the ratio of the number of days in the month for which Asset Purchaser has a
payment obligation under this Agreement to the total number of days in the
month. Asset Purchaser shall make such payment sufficiently in advance of the
time that such payment is due by Seller to the Power Seller as to allow Seller
to make timely payment under such Commitment, which includes the amount Seller
receives from Asset Purchaser in connection with such Commitment and the amount
of Seller's payment obligation specified in Section 8 below.
(b) Upon the -Effective Date, Seller shall irrevocably and unconditionally
assign and thereafter hold for the benefit of and/or credit to Asset Purchaser
against payments due from it to Seller under Section 4(a) hereof or, at the
termination of t his Agreement pay to Asset Purchaser, any and all amounts
which are then or thereafter received by Seller from the Power Sellers under
the Commitments, including, without limitation, any aggregate differential
balances under any Commitment and the benefit of and proceeds from any security
deposits, letters of credit or other similar instruments or accounts
established for the benefit of Seller by the Power Seller, but excluding any
credits or refunds received by Seller after the Effective Date which relate to
billing errors or reconciliations of pre-Effective Date bills, and any amounts
paid by the Power Sellers to Seller with respect to disputes arising before the
Effective Date that are attributable to a period prior to the Effective Date .
5. (a) Effective as of the Effective Date, Seller hereby irrevocably
and unconditionally appoints Asset Purchaser as its agent for all purposes
under each Commitment. Asset Purchaser is authorized to take all actions that
Seller may lawfully take under such Commitment without further approval by
Seller, except that Seller's prior written consent shall be required for (i)
actions that materially increase the costs to be incurred or the quantity of
power to be purchased by Seller under such Commitment (such as the approval of
facility expansions or fuel supply arrangements) and (ii) Commitment option
exercises, term extensions or amendments. Seller shall not unreasonably
withold such consent.
(b) Seller shall not agree to any amendment to or waiver of rights under a
Commitment without Asset Purchaser's consent, which Asset Purchaser may grant
or withhold in its sole discretion, and will not take any actions inconsistent
with the provisions of this Section 5.
6. Each party shall be entitled to indemnification under this Agreement to
the extent and in the manner set forth in Article 9 of the APA which is
hereby incorporated herein by reference.
7. (a) Seller and Asset Purchaser agree to work cooperatively and use
all reasonable efforts to amend each Commitment and assign the amended
Commitment to Asset Purchaser so that Seller will be released of all further
liabilities and obligations under each Commitment and Asset Purchaser will be
directly in contract with the Power Seller (a "Novation"). Any such amendment
shall include all modifications necessary to reflect the substitution of Asset
Purchaser for Seller as the purchasing party under such Commitment (including
modifications to Commitment price indices, where appropriate) and to properly
describe interconnection, delivery point and transmission system references in
such Commitment. It is intended by the parties that such Commitment amendment
and assignment preserve the economic benefit of a Commitment to the Asset
Purchaser while continuing to afford to Seller the protections for its or its
Affiliates transmission system embodied in the Commitment, provided that
nothing in this Agreement is intended to limit the ability of Asset Purchaser
to direct the dispatch, availability, quantity of timing of capacity or
electrical output of a facility that is the subject of a Commitment in
accordance with the terms of such Commitment. Seller and Asset Purchaser
agree to execute all agreements and documents reasonably requested by the other
in connection with a Novation. The provisions of Section 8(d) shall apply in
respect of a Novation.
(b) Notwithstanding the provisions of 7(a) the Seller and Asset Purchaser
agree that, as a condition of any Novation, the Asset Purchaser will require
Seller to provide, either (i) payment of a lump sum pursuant to the provisions
of Section 8(d) which reduces the Seller's continuing obligation to zero ($0);
or, if Seller and Buyer do not mutually agree to payment of a lump sum, (ii) a
security interest to the Asset Purchaser in a portion of the Seller's Contract
Termination Charge revenues a nd related service agreements with Eastern Edison
Company, Blackstone Valley Electric Company and Newport Electric Corporation
which is equal to the continuing obligation of the Seller under 8(b) and is
acceptable to the Asset Purchaser acting reasonably.
8. (a) In the month during which this Agreement is executed, Seller shall
pay the Power Seller an aggregate amount equal to the amount as set out in
Schedule "A" attached hereto (the "Monthly Support Payment"), multiplied by a
fraction, the numerator of which is the total number of days in the month in
which this Agreement is executed, less the number of days in such month up to
and including the date of the execution of this Agreement, and the denominator
of which is the total number of days in the month in which this Agreement is
executed, and such amount shall be deducted by Asset Purchaser from the amount
due Seller under Section 4 above for such month.
(b) Commencing as of the month following the Effective Date of this Agreement
and continuing for each succeeding month through and including January 2008,
Seller shall pay to the Power Seller each month an aggregate amount equal to
the Monthly Support Payment, and such amount shall be deducted by Asset
Purchaser from the amount due Seller under Section 4 above.
(c) In the event that the amount of the Monthly Support Payment set forth is
Section 8(b) (as adjusted to reflect any increase pursuant to this Section
8(c)) shall in any month exceed the amount due Seller from Asset Purchaser
under Section 4, Seller shall increase the amount of its Monthly Support
Payment in the next month (in addition to its obligation set forth in Section
8(b)) by the amount of such excess and Asset Purchaser shall also be allowed to
deduct such excess from the amount due Seller under Section 4 for such month.
(d) To the extent that a Novation is executed with respect to a Commitment
pursuant to Section 7 and Asset Purchaser and Seller agree to a lump-sum
payment, Seller and Asset Purchaser agree to amend this Agreement to
equitability provide for a lump-sum payment to either Asset Purchaser or the
Power Seller to reduce the amount of Seller's retained obligation set forth in
Section 8(b). Such lump-sum payment and such reduction in the amount of
Seller's retained obligation shall be in amounts to b e negotiated in good
faith by Asset Purchaser and Seller. It is the intention of the parties that
the lump-sum payment shall be based on the net present value of the amounts set
out in Schedule "A" calculated using a discount rate acceptable to Asset
Purchaser and Seller acting reasonably and which is reasonable given the
remaining term of the amounts payable by the Seller to the Asset Purchaser as
set out in Schedule "A", prevailing interest rates for similar financings done
at the time of payment of the lump sum and the creditworthiness of Seller at
the time of payment of the lump sum.
9. This Agreement and all rights, obligations, and performances of the
parties hereunder, are subject to all applicable Federal and state laws, and to
all promulgated orders and other duly authorized action of governmental
authority having jurisdiction.
10. This Agreement, the APA and any other agreement entered into by the
parties pursuant to the APA constitute the entire agreement between the
parties, and supersede all previous offers, negotiations, discussions,
communications and correspondence. This Agreement may be amended only a
written agreement signed by the parties. Except as otherwise set forth in
Section 5 hereof, this Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any
party hereto, including by operation of law without the prior written consent
of the other party, nor is this Agreement intended to confer upon any other
person except the parties hereto any rights or remedies hereunder.
Notwithstanding the foregoing,
(i) the Asset Purchaser may assign all of its rights and obligations
hereunder to any wholly owned subsidiary (direct or indirect) of TransCanada
Pipelines Limited ("TransCanada") and upon Seller's receipt of notice from
Asset Purchaser of any such assignment, the Asset Purchaser will be released
from all liabilities and obligations hereunder, accrued and unaccrued, such
assignee will be deemed to have assumed, ratified, agreed to be bound by and
perform all such liabilities and obligations, and all references herein to
Asset Purchaser shall thereafter by deemed references to such assignee, in each
case without the necessity for further act or evidence by the parties hereto or
such assignee; provided, however, that no such assignment an d assumption shall
release the Asset Purchaser from its liabilities and obligations hereunder
unless the assignee shall have acquired all or substantially all of the Asset
Purchaser's assets; provided, further, however, that no such assignment and
assumption shall relieve or in any way discharge TransCanada from the
performance of its duties and obligations under the Guaranty dated as of the
date of this Agreement executed by TransCanada; and (ii) the Asset Purchaser or
its permitted assignee ma y assign, transfer, pledge or otherwise dispose of
its rights and interests hereunder to a trustee or lending institutions) for
the purpose of financing or refinancing the Commitment including upon or
pursuant to the exercise of remedies under a financing or refinancing, or by
way of assignments, transfers, conveyances or dispositions in lieu thereof,
provided, however, the no such assignment or disposition shall relieve or in
any way discharge the Asset Purchaser or such assignee from the performance of
its duties and obligations under this Agreement. Seller agrees to execute and
deliver such documents as may be reasonably necessary to accomplish any such
assignment, transfer, conveyances, pledge or disposition of rights hereunder so
long as Sellers rights under this Agreement are not thereby otherwise altered,
amended, diminished or otherwise impaired. The interpretation and performance
of this Agreement shall be according to and controlled by the laws of The
Commonwealth of Massachusetts (regardless of the laws that might otherwise
govern under applicable Massachusetts principles of conflicts of laws). This
Agreement may be executed in one or more counterparts and each such counterpart
shall constitute one and the same instrument.
11. All payments required under this Agreement shall be paid in cash by
federal or other wire transfer of immediately available funds to an account
designated by the party to receive such such payment.
12. This Agreement shall be of no force and effect until the Effective Date.
If the APA shall have been terminated before the occurrence of the Closing Date
(as defined in the APA), this Agreement shall, without any action of the
parties hereto, terminate as of the time of the termination of the APA. As
used in this Agreement, "Effective Date" shall mean the Effective Date (as
defined in the APA).
13. In the event that TransCanada Power Marketing, Ltd. or successor is in
default of the Wholesale Standard Offer Agreement between TransCanada Power
Marketing, Ltd. and Eastern Edison Company, Blackstone Valley Electric Company
and Newport Electric Corporation and, having been given notice has failed to
cure such default within the time specified in the Wholesale Standard Offer
Agreement, Seller's obligation to make support payments under Section 8(a) will
be suspended until such default i s fully cured.
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement on their behalf as of the date first
above written.
MONTAUP ELECTRIC COMPANY
By: /s/ Kevin A. Kirby
Name: Kevin A. Kirby
Title: Vice President
TRANSCANADA POWER MARKETING LTD.
By: /s/ Alex Pourbaix
Name: Alex Pourbaix
Title: Vice President
By: /s/ Russ Girling
Name: Russ Girling
Title: Senior Vice President
"Cover with Caption:
"How has EUA
delivered value
in the world of
deregulation?"
Eastern Utilities
1998 Annual Report
About Eastern Utilities Associates
Eastern Utilities Associates (NYSE Symbol: EUA) is a public utility holding
company whose subsidiaries are known collectively as the EUA System. EUA is
organized into three distinct business units covering electric utility
operations, non-utility energy-related subsidiaries and a corporate unit.
Core Electric Business - The System's Core Electric Business is made up of
EUA's retail and wholesale electric utility operations. The retail business
provides electric distribution service to more than 305,000 customers in 597
square miles of south eastern Massachusetts and northern and coastal Rhode
Island through three distribution subsidiaries as follows:
Blackstone Valley Electric Company: The northern Rhode Island cities of
Pawtucket and Woonsocket and five neighboring communities.
Eastern Edison Company: Non-contiguous service territories covering the
southeastern Massachusetts cities of Brockton and Fall River plus 20
surrounding towns.
Newport Electric Corporation: Newport, Jamestown, Middletown and Portsmouth,
Rhode Island.
The wholesale business, Montaup Electric Company, has provided electric
generation and high voltage transmission service at wholesale to the
distribution subsidiaries and to two non-affiliated utilities for resale.
During 1998, with the exception of approximately 58 mw, Montaup entered into
agreements to divest all of its generating capacity. Montaup will continue to
provide high voltage transmission service.
Energy-Related Business - This business unit includes the following non-utility
energy-related subsidiaries.
EUA Cogenex Corporation, one of the nation's premier energy management
companies with contracts nationwide and in Canada, is our most active energy-
related company.
EUA Ocean State owns a 29.9% partnership interest in the Ocean State Power
generating station in northern Rhode Island, one of the first and most
successful non-utility generating plants in the country.
EUA Energy Investment Corporation is our vehicle for investing in niche-type
energy-related companies, including:
* EUA BIOTEN, EUA's investment in a general partnership which is
developing biomass-fueled generating units.
* EUA TransCapacity, EUA's investment in a limited partnership which has
developed and now markets services and
computer software enabling natural gas industry clients to connect, communicate
and coordinate with their trading partners via electronic data interchange.
* Separation Technologies Inc., in which we own a 20% equity interest,
markets and installs its own proprietary equipment for separating unburned
carbon from coal fly-ash, enabling the customer to sell the fly-ash to
secondary markets and reburn the carbon.
Corporate - The corporate business unit is made up of the System's parent
company "Eastern Utilities Associates" and EUA Service Corporation, which
provides professional and technical services to all EUA System companies.
Blackstone
Valley Electric
86,000 customers
Central Falls
Cumberland
Lincoln
North Smithfield
Pawtucket
Woonsocket
Burrillville
Newport electric
33,000 customers
Jamestown
Middletown
Newport
Portsmouth
Eastern Edison/Brockton
127,000 customers
Abington
Avon
Bridgewater
Brockton
Cohasset
East Bridgewater
Easton
Halifax
Hanson
Hanover
Norwell
Pembroke
Rockland
Scituate
Stoughton
West Bridgewater
Whitman
Eastern Edison/Fall River
59,000 customers
Dighton
Fall River
Somerset
Swansea
Westport
<TABLE>
HIGHLIGHTS
<CAPTION>
FINANCIAL DATA ($ in thousands) 1998 1997 1996
<S> <C> <C> <C>
Operating Revenues $538,801 $568,513 $527,068
Consolidated Net Earnings <F1> 34,710 37,960 30,614
Return on Average Common Equity 9.3% 10.2% 8.2%
Common Shareholder Equity-
% of Capitalization (Year-End) 52.0% 50.4% 45.8%
Total Assets 1,302,638 1,270,752 1,257,029
Cash Construction Expenditures 51,201 76,118 62,730
COMMON SHARE DATA
Consolidated Basic and Diluted
Earnings per Share <F1> $1.70 $1.86 $ 1.50
Dividends Paid per Share $1.66 $1.66 $1.645
Annual Dividend Rate $1.66 $1.66 $1.66
Total Common Shares Outstanding 20,435,997 20,435,997 20,435,997
Average Common Shares Traded Daily 80,230 88,613 91,843
Book Value per Share (Year-End) $18.29 $18.27 $18.19
Market Price - High 28 1/4 26 5/8 24 1/4
- Low 23 11/16 16 3/8 14 3/4
- Year-End 28 1/4 26 1/4 17 3/8
OPERATING DATA
Total Primary Sales (mWh) 4,541,000 4,467,000 4,405,000
System Requirements (mWh) 4,788,000 <F3> 4,765,000 4,699,000
System Peak Demand (mw) 940 <F4> 933 854
System Reserve Margin (At Peak) 10.8% 11.5% 34.4%
System Load Factor 58.1% 58.3% 62.6%
Customers (Year-End) 05,018 302,059 299,471
Employees (Year-End)
- Core Electric <F2> 399 434 468
- Energy Related 187 197 213
- Corporate <F2> 551 549 564
Total 1,137 1,180 1,245
<FN>
<F1> See Management's Discussion and Analysis of Financial Condition and
Results of Operations for details of one-time impacts to earnings.
<F2> Reflects employee shift resulting from corporate reorganization
completed in 1996.
<F3> Effective January 1998, Middleboro and Pascoag are no longer contract
demand customers of Montaup. Energy sales to these customers are now
included with unit contracts.
<F4> Includes retail load provided by alternate suppliers.
</FN>
</TABLE>
TO OUR FELLOW SHAREHOLDERS
The year 1998 will certainly go down as one of the most eventful in the 70-year
history of Eastern Utilities Associates. It was the year your association. . .
- - Successfully navigated deregulation and the start of competition in
Rhode Island and Massachusetts - the two states where we have utility
operations - ahead of most of the nation
- - Reduced the electric rates paid by our customers in both states
- - Implemented performance-based rates in a fundamental change from the
century-old basis of cost of service rate-making
- - Negotiated agreements to divest all our non-nuclear electric generation
and our share in the Seabrook, New Hampshire nuclear power plant, so we could
concentrate on becoming one of the best 'wires only' transmission and
distribution providers in the region
- - Continued our efforts to maximize the value of your EUA investment and
provided you a 1998 total return of 15%; and
- - Continued our Year 2000 preparations for our underlying task of keeping
the lights on into the new millennium
Then on February 1, 1999, we announced an agreement to merge Eastern Utilities
Associates into the New England Electric System (NEES), joining another strong
organization whose service territory borders ours and whose operations in many
ways mirror our own.
The $31 per share cash offer agreed to in our merger with NEES is a premium of
23% over our market price at the start of December, prior to the beginning of
merger activities involving neighboring electric utilities in New England. It
is the highest price for EUA shares in nearly a decade! In last year's letter,
we stated that "our overriding mission during this period of transition remains
clear - maximize shareholder value!" We believe that our recent actions have
done just that.
The EUA/NEES merger will create the largest electric transmission and
distribution company in Massachusetts and Rhode Island, providing electric
service to 1.6 million customers in 228 individual communities. NEES, in turn,
is in the process of completing a merger agreement that will make it a wholly-
owned subsidiary of The National Grid Group Plc of the United Kingdom, the
largest privately owned electric transmission company in the world.
Massachusetts and Rhode Island, the states where our utilities provide service
to more than 300,000 customers, remain at the forefront of the highly complex
transition from the era of regulated utilities to the age of competition. Your
EUA team has successfully dealt with the years of uncertainty leading to this
point. We have consistently broken new ground in how utilities and their new
electric generation suppliers will meet customer needs. Among the many changes
is the transition from the traditional method of setting cost-based electric
rates to a new performance-based method that requires us to meet certain
standards for reliability, safety and customer satisfaction. We understand
performance-based rates. For the second consecutive year, we earned bonuses
for outperforming all but one of our performance-based standards.
The divestiture of our electric generation assets went well. By year's end, we
had completed the sale of the 50% share owned by our Montaup Electric
subsidiary in Unit 2 of the Canal Generating Station in Sandwich,
Massachusetts, and of two diesel-powered generating units owned by our Newport
Electric subsidiary. In addition, we reached agreements to sell Montaup's
Somerset, Massachusetts, coal-fired generating station and its shares in
several other New England generating units as well as a small hydroelectric
station owned by our Blackstone Valley Electric subsidiary in Pawtucket, Rhode
Island. In total, the divestiture of our non-nuclear generating assets will
bring in close to twice our book value of those assets. In the first trans-
action involving divestiture of nuclear generating assets, we agreed to sell
our 2.9% share in the Seabrook, New Hampshire, power plant. We have also
agreed to divest or restructure all our power purchase contracts. As mandated
by deregulation legislation in Rhode Island and Massachusetts, divestiture
proceeds will be used to mitigate the transition costs being paid by customers
to enable us to recover our stranded cost investments. The only generation
assets remaining in our utility portfolio are small ownership interests,
totaling about 58 megawatts, in the Millstone 3 and Vermont Yankee nuclear
generating units.
These extraordinary accomplishments by a dedicated group of employees certainly
enhanced the value of EUA as a transmission and distribution company.
EUA Ocean State continued its outstanding financial performance generating 20
cents per share in earnings and enhancing the valuation of EUA. EUA Cogenex
continued to improve its financial performance in 1998. Cogenex continues to
operate as one of the premier energy services company in the U.S. Our small
stake in Separation Technologies is performing as expected and is already
providing us with a return on an expanding business. Our TransCapacity and
BIOTEN partnerships continued to lag our expectations and are in the process of
being restructured.
As for our pending merger with NEES, we believe we've found a partner as good
as we are. The EUA/NEES merger will bring together two of New England's lowest
cost electric utilities to achieve even greater cost savings for customers.
The merger will strengthen our ability to make the appropriate investments in
automation and training, increasing our abilities to ensure continued
reliability, maintaining our already high level of customer satisfaction and
improving the efficiency of our service delivery.
We expect to complete the merger with NEES by early 2000, following approval by
EUA shareholders and state and federal regulators. Until that time, we will
continue to operate EUA with the same focus as we have in the past - to be the
best electric transmission and distribution company in the region, providing
low cost, reliable service to our customers, while enhancing value to our
shareholders.
The merger agreement demonstrates recognition of EUA's excellent management
team. While we (Donald G. Pardus and John R. Stevens) have opted not to join
NEES, but to step aside and retire, we did so only after knowing that EUA
Executive Vice President Robert G. Powderly will become President of New
England Electric Power Service Corporation, and Executive Vice President John
Carney will become Senior Vice President of NEES's retail operations.
In that this may well be the last annual report to the shareholders of Eastern
Utilities, we would like to thank you, our shareholders, for the opportunity to
serve you. We would also like to express our deep gratitude to an outstanding
Board of Trustees who have provided immeasurable guidance over the years and
particularly the last couple of years as we transitioned into the new
competitive environment. It has been a privilege for us to work with the
Board.
It is our employee family that has made EUA successful and it was the employee
family that made EUA an attractive merger partner for NEES. Deep down, most of
us would prefer that nothing would change. But, we are realists and as
realists we know that the NEES merger is in the best interests of all our
constituents, our shareholders, our employees and our customers. We want to
thank our employees and we know they will carry on their dedication to
excellence with our new partner.
This annual report continues with Bob Powderly, John Carney and other members
of the management team explaining our extraordinary accomplishments of the past
year in the single most significant series of changes in our history.
"Picture with Caption: "Our overriding mission during this period of transition
has always remained clear - maximize shareholder value! We believe our recent
actions have done just that.""
"Picture with Caption: "Our extraordinary accomplishments by a dedicated group
of employees certainly enhanced the value of EUA as a transmission and
distribution company.""
Donald G. Pardus
Chairman and Chief Executive Officer
March 11, 1999
John R. Stevens
President and Chief Operating Officer
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
Years Ended December 31,
(In thousands except Common Share Data) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenues $538,801 $568,513 $527,068 $563,363 $564,278
Operating Income <F1> 61,639 58,807 55,841 71,728 73,795
Consolidated Net Earnings <F1> 34,710 37,960 30,614 32,626 47,370
BALANCE SHEET DATA:
Plant in Service 1,000,243 1,079,361 1,067,056 1,037,662 1,020,859
Construction Work in Progress 5,151 5,538 3,839 7,570 8,389
Gross Utility Plant 1,005,394 1,084,899 1,070,895 1,045,232 1,029,248
Accumulated Depreciation and
Amortization 353,780 376,722 350,816 324,146 304,034
Net Utility Plant 651,614 708,177 720,079 721,086 725,214
Total Assets 1,302,638 1,270,752 1,257,029 1,206,130 1,234,049
CAPITALIZATION:
Long-Term Debt - Net 310,346 332,802 406,337 434,871 455,412
Redeemable Preferred Stock - Net 27,995 27,612 27,035 26,255 25,390
Non-Redeemable Preferred Stock - Net 6,900 6,900 6,900 6,900 6,900
Common Equity 373,674 373,467 371,813 375,229 365,443
Total Capitalization 718,915 740,781 812,085 843,255 853,145
Short-Term Debt 63,574 61,484 51,848 39,540 31,678
COMMON SHARE DATA:
Consolidated Basic and Diluted Earnings
per Average Common Share <F1> $1.70 $1.86 $1.50 $ 1.61 $2.41
Average Number of Shares Outstanding 20,435,997 20,435,997 20,436,217 20,238,961 19,671,970
Return on Average Common Equity 9.3% 10.2% 8.2% 8.8% 13.6%
Market Price - High 28 1/4 26 5/8 24 1/4 25 27 3/8
- Low 23 11/16 16 3/8 14 3/4 21 1/2 21 3/8
- Year-End 28 1/4 26 1/4 17 3/8 23 5/8 22
Dividends Paid per Share $1.66 $1.66 $1.645 $1.585 $1.515
<FN>
<F1> See Management's Discussion and Analysis of Financial Condition and Results
of Operations for details of one-time impacts to earnings.
</FN>
</TABLE>
Management's Discussion and Analysis of Financial Condition and Review of
Operations
Proposed Merger Agreement - On February 1, 1999, EUA and New England Electric
System (NEES) announced a merger agreement under which NEES will acquire all
outstanding shares of EUA for $31 per share in cash. The merger agreement,
which is subject to the approval of EUA shareholders and various regulatory
agencies, values the equity of EUA at approximately $634 million, which
represents a 23% premium above the price of EUA shares on December 4, 1998, the
last trading day before other regional merger announcements affected EUA's
share price. EUA shareholders will continue to receive dividends at the
current level, as declared by the Board of Trustees, until closing of the
merger, expected by early 2000.
1998 Operations Overview - Consolidated net earnings for 1998 were $34.7
million, or $1.70 per share, on revenues of $538.8 million, an 8.6% decrease
from 1997 earnings of $38.0 million on revenues of $568.5 million. 1998
results include the impacts of the 1998 EUA Cogenex Settlement and tax audit
adjustments. 1997 results include the one-time earnings impact of a joint
venture termination in 1997. These items are discussed below and listed in the
following table.
<TABLE>
Net Earnings and Earnings Per Share by business unit for 1998 and 1997 were as
follows:
<CAPTION>
1998 1997
<S> <C> <C> <C> <C>
Net Earnings (Loss) Earnings (Loss) Net Earnings Earnings
(000's) Per Share (000's) Per Share
Core Electric Business $35,160 $1.72 $36,025 $1.77
Energy Related Business (792) (0.04) 49 0.00
Corporate 541 0.03 406 0.02
From Operations 34,909 1.71 36,480 1.79
One-Time Impacts:
Cogenex Settlement (2,062) (0.10)
Tax Audit Adjustments 1,863 0.09
Joint Venture Termination 1,480 0.07
Consolidated $34,710 $1.70 $37,960 $1.86
</TABLE>
Major impacts on earnings by business unit are described in the following
paragraphs.
Cogenex Settlement - EUA Cogenex recorded an after-tax charge of $2.1 million
to earnings related to an arbitration panel's decision in a matter involving
the 1995 sale of a portfolio of cogeneration units by EUA Cogenex to
Ridgewood/Mass Power Partners, et al (Ridgewood). Ridgewood claimed that
financial and other warranties in the purchase and sale agreement had been
breached. EUA Cogenex entered counterclaims seeking recovery of costs of
certain services performed for Ridgewood. The arbitration panel found for the
buyer on some of the warranty claims, and awarded damages of approximately $2.6
million plus interest. EUA Cogenex was awarded approximately $400,000 plus
interest on its counterclaim. EUA Cogenex paid the arbitration panel's net
award less interest and recorded this charge to earnings during the fourth
quarter of 1998. EUA Cogenex continues to contest the panel's findings with
respect to the interest and legal fees.
Tax Audit adjustments - In January 1997, the Internal Revenue Service (IRS)
issued a report in connection with its examination of the consolidated federal
income tax returns of EUA for 1992 and 1993. This report included an
adjustment to disallow EUA's inclusion of its investment in EUA Power's
Preferred Stock as a deduction in determining Excess Loss Account (ELA) taxable
income in 1992 relating to EUA Power's Common and Preferred Stock that was
redeemed in 1993. EUA filed an administrative appeal contesting the IRS
position. In January 1999, EUA reached an understanding with the IRS Appeals
Office concerning settlement of this matter. Reductions in EUA's tax reserves,
to reflect this and other items, resulted in a net $1.9 million addition to
fourth quarter 1998 earnings.
Termination of power marketing joint venture - In the third quarter of 1997,
EUA announced the termination of a power marketing joint venture with an
affiliate of Duke Energy Corporation, the establishment of contingency reserves
related to certain of its energy-related business activities and other
expenses. Collectively, these actions resulted in a net after-tax gain of $1.5
million in third quarter 1997 earnings.
"Picture with Caption: "What has EUA done this year to position itself for
success in the restructured energy market? Several 1998 accomplishments
readied us for the future. First, we divested our generation assets, realizing
nearly twice the book value for our non-nuclear assets. In addition, we
reduced rates and prepared ourselves to reduce them even further, instituted an
electronic bill payment system for our customers and aggressively moved to
resolve the Y2K issue. These and other initiatives have helped position us as
one of the lowest cost, highest performing energy companies in the region.
Clearly, we are ready to take on the challenges offered by the deregulated
energy market.""
<TABLE>
Revenues - Total Operating Revenues by business unit for 1998, 1997 and 1996
were as follows:
<CAPTION>
($ in millions) 1998 1997 1996
<S> <C> <C> <C>
Core Electric $480.1 $506.7 $470.7
Energy Related 58.7 61.8 56.4
Corporate - - -
Total $538.8 $568.5 $527.1
</TABLE>
Core Electric Business: Core Electric Revenues decreased by $26.6 million in
1998 due to the following: Generation related revenues decreased by $24.6
million as a result of rate reductions to all of EUA's retail customers,
pursuant to electric industry restructuring legislation and settlement
agreements effective January 1, 1998, and March 1, 1998, in Rhode Island and
Massachusetts, respectively. Of this decrease, $21.5 million relates to
decreased fuel and purchased power expenses in 1998. The remaining change in
generation related revenues was due to the net impacts of rate reductions and
accrued revenues as prescribed in the previously mentioned settlement
agreements. Distribution revenues decreased by $4.2 million in 1998 due to the
net impacts of restructured rates, a 1.7% increase in primary kilowatthour
(kWh) sales and a $2.2 million increase in conservation and load management
(C&LM) recoveries.
Core Electric Revenues increased by $36 million in 1997 due to recoveries of
increased fuel, purchased power and C&LM expenses aggregating $22.9 million and
increased retail distribution revenues of $13.8 million resulting from
increased kWh sales and rate increases effective January 1, 1997 for Blackstone
and Newport.
Energy Related Business: Energy Related Revenues decreased by $3.1 million in
1998 due primarily to decreased EUA Cogenex project sales of $8.1 million
offset by increased paid-from-savings revenues and installation and fabrication
revenues totalling $5.6 million.
Energy Related Revenues increased by $5.5 million in 1997 as result of
increased EUA Cogenex project sales of $9.1 million offset by decreased paid-
from-savings and installation and fabrication revenues totaling $4.1 million.
In addition, EUA TransCapacity revenue increased by $500,000 in 1997.
Core Electric Business kWh Sales - Primary kWh sales of electricity by EUA's
Core Electric Business unit increased approximately 1.7% in 1998 compared to
1997. This change was led by increases of 2.9% and 2.2% in the industrial and
commercial classes, respectively. Total energy sales increased 9.5% in 1998,
due mainly to increased sales to the New England Power Pool (NEPOOL) and
increased short-term unit contract energy sales. These NEPOOL interchange and
short-term unit contract sales essentially recover fuel costs and have little
or no earnings impacts. Primary kWh sales of electricity increased 1.4% in 1997
compared to the prior year. This change was led by increases of 2.4% in the
residential and industrial customer classes. Total energy sales including
NEPOOL interchange and short-term unit contract sales increased 4.6% in 1997.
Percentage changes in kWh Sales by class of customer for the past two years
were as follows:
<TABLE>
Percent Increase (Decrease) from Prior Year
<CAPTION>
1998 1997
<S> <C> <C>
Residential 0.3 2.4
Commercial 2.2 (0.7)
Industrial 2.9 2.4
Other 4.9 7.4
Total Primary Sales 1.7 1.4
Other Electric Utilities* (100.0) (9.0)
Losses and Company Use 13.0 5.1
Total System Requirements 0.5 1.4
Unit Contracts* 71.5 33.7
Total Energy Sales 9.5 4.6
</TABLE>
* Effective January 1998, Middleboro and Pascoag are no longer contract demand
customers of Montaup. Energy sales to these customers are now included with
unit contracts.
Expenses - Fuel and Purchased Power: The EUA System's most significant expense
items continue to be fuel and purchased power expenses of our Core Electric
Business which together comprised about 44% of total operating expenses in
1998.
"Picture with Caption: "What steps have you taken to ensure reliable service
after deregulation? Historically, EUA has maintained one of the highest levels
of electric service reliability in the region. Service reliability has been
enhanced through a series of strategic capital improvements throughout our
transmission and distribution system. Innovative vegetation management
techniques, which include partnering with the communities we serve have been
implemented to improve year-round continuity of service, regardless of weather.
We recognize that high quality customer service coupled with the highest level
of reliability is our formula for success. These efforts will help us continue
to keep our customer favorability ratings above the national average.""
Fuel expense of the Core Electric Business decreased by approximately $10.9
million or 9.9% in 1998. Increased nuclear generation and a 17.1% decrease in
the cost of fossil fuels resulted in an 18.7% decrease in the average cost of
fuel compared to 1997. Somewhat offsetting the decrease in the average price
of fuel was a 9.5% increase in total energy generated and purchased in 1998
compared to 1997. Fuel expense increased by approximately $18.6 million or
20.1% in 1997, due primarily to a 4.6 % increase in total energy generated and
purchased and outages of nuclear units in 1997 which contributed to a greater
dependence on higher cost fossil fuels for energy requirements, resulting in an
increase in average fuel costs of 16.3%.
Purchased Power demand expense decreased approximately $10.5 million or 8.8% in
1998 compared to 1997. This decrease was primarily due to decreased billings
from the Maine Yankee, Connecticut Yankee and Pilgrim Nuclear units aggregating
approximately $8.5 million, and from Ocean State Power (OSP) of approximately
$1.9 million. Purchased Power demand expense increased approximately $700,000
or less than 1% in 1997.
Other Operation and Maintenance (O&M): O&M expenses for 1998 decreased by
$16.8 million or 8.7% compared to 1997. Total O&M expenses are comprised of
three components: Direct Controllable, Indirect and Energy Related.
<TABLE>
O&M expenses by component for 1998, 1997 and 1996 were as follows:
<CAPTION>
($ in millions) 1998 1997 1996
<S> <C> <C> <C>
Direct Controllable $ 87.7 $ 89.1 $ 87.5
Indirect 40.5 51.1 36.7
Energy Related 47.9 52.7 55.7
Total O&M $176.1 $192.9 $179.9
</TABLE>
Direct Controllable expenses of our Core Electric and Corporate Business units
represent 49.8% of total 1998 O&M expenses and include expense items such as
salaries, fringe benefits, insurance and maintenance. In 1998, direct expenses
decreased approximately $1.4 million compared to 1997. This change is
primarily the result of increased expenses in 1997 related to an April 1997
storm which struck Eastern Edison's service territory.
Indirect expenses include items over which we have limited short-term control.
Indirects include such expense items as O&M expenses related to Montaup
Electric Company's (Montaup) joint ownership interests in generating facilities
such as Seabrook I and Millstone 3 (see Note H of Notes to Consolidated
Financial Statements for other jointly-owned units), power contracts where
transmission rental fees are fixed and C&LM expenses that are fully recovered
in revenues.
Indirect expenses decreased by approximately $10.6 million in 1998. Jointly
owned units expenses decreased approximately $9.4 million in 1998, due largely
to the return to service of Millstone 3 in July of 1998 and decreased expenses
of Canal Unit 2 and Seabrook I. In addition, charges from other utilities
decreased approximately $1.9 million and Other Post-Retirement Benefits and
Pension expenses decreased approximately $1.4 million collectively in 1998.
These decreases were offset by increased C&LM expense of approximately $2.2
million. Indirect expenses increased by approximately $14.4 million in 1997.
This change was primarily due to increased jointly owned unit expenses of
approximately $9.0 million, of which approximately $5.0 million was related to
the Millstone 3 outage and the remainder was due to increased expenses related
to the scheduled maintenance outages at the Canal and Seabrook I units. Also
impacting the 1997 change were increased C&LM expenses of approximately $3.3
million, approximately $1.2 million of transmission expenses related to new
transmission tariffs implemented by FERC in 1997 to accommodate utility
industry restructuring, and increased pension related expenses of approximately
$700,000.
The Energy Related component relates to O&M expenses of our Energy Related
Business unit where changes are tied to changes in business activity. EUA
Cogenex continues to be the most active of our Energy Related businesses and
incurred 82% of the total O&M expenses of this business unit in 1998. Expenses
of the Energy Related Business Unit decreased by approximately $5.2 million in
1998. Expenses of EUA Cogenex decreased approximately $10.3 million in 1998,
due primarily to decreased expenses of Cogenex West, Cogenex Canada, Citizens
and the Cogenex Partnerships of $9.9 million in aggregate, largely the result
of decreased operating activity in 1998. In addition, EUA Cogenex expenses
reflect the impact of the sale of RENOVA operations to EUA Energy Investment in
May 1998 and ongoing cost control efforts at the Cogenex division which were
offset by increased operating expenses at EUA Day in connection with its
development of Day Matrix, a division which provides energy metering and
control systems. EUA Energy Investment expenses increased by $4.9 million in
1998 due primarily to the impact of the RENOVA sale. Energy Related expenses
decreased by approximately $3.0 million in 1997. This decrease was due
primarily to decreased employee levels and other ongoing cost control efforts
of the EUA Cogenex Division of approximately $2.2 million, decreased expenses
of RENOVA of approximately $1.6 million, resulting from decreased operating
activity, offset by increased expenses of Cogenex-West of approximately
$300,000 as a result of increased marketing activity.
Voluntary Retirement Incentives: In June 1997, an early retirement offer was
accepted by a group of nine employees who were eligible for but not offered a
Voluntary Retirement Incentive offer completed in 1995. The pre-tax cost of
the 1997 offer, recorded in that year's second quarter, was approximately $1.4
million.
Depreciation and Amortization: Depreciation and Amortization expense increased
by approximately $4.1 million or 8.8% in 1998 as compared to 1997. This
increase is due largely to increased depreciation at EUA Cogenex directly
related to an increase in number of projects placed in service, and
amortization of certain regulatory assets at the Core Electric Business
pursuant to restructuring settlement agreements. Depreciation and Amortization
expense increased by approximately $1.5 million in 1997, due primarily to
higher depreciable plant balances at our Core Electric companies and a $500,000
increase in EUA Cogenex depreciation.
Income Taxes: EUA files a consolidated federal income tax return for the EUA
System. The composite federal and state effective income tax rate for 1998 was
34.5% versus 35.8% in 1997. The effects of accelerated reversal of timing
differences pursuant to restructuring settlement agreements were offset in 1998
by the previously discussed tax audit adjustments and the reversal of
unamortized investment tax credits related to Canal 2 at the time of its sale,
which occurred on December 30, 1998.
Other Income (Deductions) - Net: Other Income and (Deductions) - Net decreased
by approximately $6.0 million, or 55.0% in 1998 as compared to 1997. This
decrease is due largely to the absence of the impacts of the 1997 power
marketing joint venture termination and the 1997 favorable resolution of a
Massachusetts corporate income tax dispute. Also contributing to the 1998
decrease were non-operating expenses of $2.5 million related to Montaup's
divestiture efforts and approximately $800,000 of expenses related to
opposition of a 1998 Massachusetts referendum to repeal deregulation
legislation. Other Income and (Deductions) - Net increased approximately $5.9
million in 1997. This was primarily due to the net positive impact of the
power marketing joint venture termination in 1997, increased interest income
related to the favorable resolution of a Massachusetts corporate income tax
dispute in 1997, and the impact of changes to the EUA Cogenex pension and post-
retirement welfare benefit plans offset by gains recorded in 1996 from the sale
of Seabrook II equipment jointly owned by Montaup.
Interest Charges: Net Interest charges decreased by approximately $2.0 million
or 5.0% in 1998 compared to 1997. Interest on long term debt decreased as a
result of normal cash sinking fund payments and the maturities of Eastern
Edison's $20 million, 5 7/8% First Mortgage Bonds in May 1998 and $40 million,
5 3/4% First Mortgage Bonds in July 1998. This decrease was partially offset by
interest expense on increased short term borrowings, which were used to finance
Eastern Edison's long-term debt maturities. Net interest charges for 1997 were
relatively unchanged from the 1996 level. Decreased long-term debt interest
expense in 1997 resulting from normal cash sinking fund payments was offset by
higher interest expense related to increased short-term debt and decreased
capitalized interest by EUA Cogenex.
FINANCIAL CONDITION AND LIQUIDITY - The EUA System's need for permanent capital
is primarily related to investments in facilities required to meet the needs of
its existing and future customers.
Core Electric Business: For 1998, 1997 and 1996, Core Electric Business cash
construction expenditures were $22.9 million, $21.9 million and $33.3 million,
respectively.
Internally generated funds available after the payment of dividends supplied
approximately 250%, 133%, and 118% of these cash construction requirements in
1998, 1997 and 1996, respectively. Various laws, regulations and contract
provisions limit the use of EUA's internally generated funds such that the
funds generated by one subsidiary are not generally available to fund the
operations of another subsidiary.
Cash construction expenditures of the Core Electric Business for 1999, 2000 and
2001 are estimated to be approximately $33.4 million, $32.5 million and $33.3
million, respectively, and are expected to be financed with internally
generated funds.
In addition to construction expenditures, projected requirements for scheduled
cash sinking fund payments and mandatory redemption of securities of the Core
Electric Business for 1999 through 2003 are $11.6 million, $2.3 million, $4.1
million, $38.4 million and $51.4 million, respectively, none of which relates
to Blackstone's or Newport's variable rate bonds.
Energy Related Business: Capital expenditures of our Energy Related Business
amounted to $26.8 million, $51.9 million and $28.1 million, in 1998, 1997 and
1996, respectively. Internally generated funds supplied 143%, 88%, and 72% of
cash capital requirements in 1998, 1997, and 1996, respectively. Estimated
capital expenditures of the Energy Related Business are $52.7 million, $55.9
million, and $61.3 million in 1999, 2000 and 2001, respectively. Internally
generated funds are expected to supply approximately 100% of 1999 estimated
capital requirements.
In addition to capital expenditures and energy related investments, projected
requirements for scheduled cash sinking fund payments and mandatory redemption
of securities of the Energy Related Business are $9.2 million in 1999, $59.2
million in 2000, $9.2 million in 2001, $6.0 million in 2002 and $6.0 million in
2003.
Corporate: Construction activity of the Corporate Business unit is minimal.
Projected requirements for scheduled cash sinking fund payments for the
corporate operations for each of the five years following 1998 are $1.1
million.
Short-Term Lines of Credit: In July 1997, several EUA System companies entered
into a three-year revolving credit agreement allowing for borrowings in
aggregate of up to $145 million from all sources of short-term credit. As of
December 31, 1998, various financial institutions have committed up to $75
million under the revolving credit facility. In addition to the $75 million
available under the revolving credit facility, EUA System companies maintain
short-term lines of credit with various banks totaling $90 million, for an
aggregate amount available of $165 million.
Year-End Short-Term Debt outstanding by business unit:
($ in thousands) 1998 1997
Core Electric Business $ 2,220 $ 7,075
Energy Related Business 19,354 44,609
Corporate 42,000 9,800
Total $63,574 $61,484
"Picture with Caption: "How has EUA delivered value to its shareholders during
this time of industry restructuring? Our continued commitment to cost control,
divesting our generation portfolio and successful management of the challenges
of electric utility restructuring are but a few of the reasons we have been
able to maintain a strong financial position in a time of significant change.
A strong financial position, coupled with an above average dividend yield, have
delivered increased shareholder value. In fact, EUA shares have returned 89
percent since January 1997, far outpacing the 46 percent returned by the
Standard & Poor's Electric Utility Index over the same two year period. Our
solid financial performance was a major attraction to New England Electric
System, helping us gain a fair price for your shares."
During 1998, Eastern Edison used available funds and short-term borrowings to
fund $60 million of long-term debt maturities. On December 30, 1998, Montaup
received $75.9 million of proceeds from the sale of its 50% ownership share of
the Canal 2 generating Station to Southern Energy. Those funds were used to
redeem $55 million of debenture bonds and pay a special dividend to Montaup's
parent company, Eastern Edison. Eastern Edison used these proceeds to repay
its outstanding short-term debt and make short-term investments of $25.6
million. EUA expects to repay the outstanding balances of short-term
indebtedness with internally generated funds.
Interest Rate Risk: EUA is exposed to interest rate risk primarily related to
Blackstone's and Newport's variable rate bonds. Refer to the Consolidated
Statements of Indebtedness for a listing of EUA's long-term fixed and variable
rate debt.
Energy Related Businesses - Net Earnings and Earnings Per Share contributions
of EUA's Energy Related Businesses for 1998 and 1997 were as follows:
<TABLE>
1998 1997
<CAPTION>
Net Earnings Earnings Net Earnings Earnings
(Loss) (Loss) (Loss) (Loss)
(000's) Per Share (000's) Per Share
<S> <C> <C> <C> <C>
EUA Cogenex $ 763 $ 0.04 $ 202 $ 0.01
EUA Ocean State 4,066 0.20 3,967 0.19
EUA Energy Investment (5,287) (0.26) (3,741) (0.18)
EUA Energy Services (228) (0.01) (354) (0.02)
EUA Telecommunications (106) (0.01) (25) (0.00)
From Operations (792) (0.04) 49 0.00
Cogenex Settlement (2,062) (0.10)
Total Energy Related Business $(2,854) $(0.14) $ 49 $ 0.00
</TABLE>
EUA Cogenex: EUA Cogenex provides energy efficiency products and energy
management services throughout North America. EUA Cogenex's net earnings
increased approximately $600,000 in 1998 due largely to the transfer of RENOVA
operations to EUA Energy Investment Corporation effective May 1, 1998 and to
decreased interest expense.
EUA Ocean State: EUA Ocean State owns 29.9% of each of the partnerships which
developed and operate Units I and II of OSP, twin 250-megawatt (mw) gas-fired
generating units in northern Rhode Island. Both units have provided a premium
return since their respective in-service dates of December 31, 1990, and
October 1, 1991. The slight increase in EUA Ocean State earnings contribution
was due primarily to increased availability bonuses in 1998.
EUA Energy Investment: EUA Energy Investment was organized to seek out
investments in energy related businesses. The change in EUA Energy Investment
earnings contribution was due to the sale of RENOVA operations to EUA Energy
Investment in 1998. Also impacting this change were increased losses at EUA
Transcapacity and EUA BIOTEN in 1998 compared to 1997. EUA BIOTEN is currently
in negotiations with a third party investor for the restructuring of BIOTEN
Partnership into a corporation. EUA BIOTEN intends to transfer its total
partnership investment of $13.5 million at December 31, 1998, into a non-voting
preferred equity ownership interest in a newly-formed corporation. Effective
March 1, 1999, EUA BIOTEN will no longer have any funding obligations to the
BIOTEN partnership or the restructured entity. EUA Energy Investment is
continuing in its efforts to negotiate strategic alliances or sales of its
other energy related investments, including EUA Transcapacity and RENOVA. EUA
can not predict the outcome of these negotiations.
EUA Energy Services: The change in earnings of EUA Energy Services is due to
reduced operating costs since the power marketing joint venture with an
affiliate of Duke Energy Corporation was terminated in 1997.
EUA Telecommunications: The slight change in earnings of EUA
Telecommunications is due to increased expenses since the company was
established in mid-1997.
Electric Utility Industry Restructuring - Legislation enacted in Rhode Island
in 1996 and Massachusetts in 1997 along with approved electric utility industry
restructuring settlement agreements in both states and at the federal level,
granted EUA's Rhode Island and Massachusetts electric customers with choice of
electricity supplier and rate reductions commencing January 1, 1998 and March
1, 1998, respectively. Until a customer chooses an alternative supplier, that
customer will receive standard offer service from the retail distribution
company. Blackstone and Newport are required to arrange for standard offer
service through December 31, 2009 and Eastern Edison must arrange for this
service through February 28, 2005. Under the approved settlement agreements,
Montaup had guaranteed standard offer supply at a fixed price schedule for the
duration of the standard offer periods and Blackstone, Newport and Eastern
Edison agreed to subject their standard offer requirements to a competitive
bidding process in which competitive suppliers would bid against the guaranteed
price. Through its successful divestiture process, combined with a competitive
bidding process conducted in late 1998, Montaup has assigned 100% of its
standard offer obligation to purchasers of its generating assets. The
guaranteed standard offer price will increase over time to encourage customers
to leave standard offer service and enter the competitive power supply market.
Provisions of the approved settlement agreements also allowed Montaup to
replace its all-requirements wholesale contracts with its affiliated retail
distribution companies with a contract termination charge (CTC) which permits
Montaup to recover, among other things, its above market investments and
commitments in generation assets. Montaup began billing the CTC coincident
with retail access and the distribution companies are recovering the CTC
through a non-bypassable transition charge to all of their distribution
customers.
As part of the approved settlement agreements, Montaup agreed to divest its
entire generation portfolio. The net proceeds of the sale, as defined in the
settlement agreements, will be used to mitigate Montaup's CTC to its retail
affiliates via a Residual Value Credit (RVC). The RVC will reduce the fixed
component of the CTC by an amount equal to the net proceeds, with a return,
over the period commencing on the date the RVC is implemented through December
31, 2009. Montaup has filed to implement the RVC effective April 1, 1999 and
is awaiting approval.
Generation Divestiture - Montaup now has agreements to sell all of its non-
nuclear power generation assets and its 2.9% ownership share of the Seabrook
Nuclear Station and has agreements to transfer all of its remaining purchased
power contracts with the exception of its purchase power commitment with the
Vermont Yankee Nuclear Station.
On January 5, 1999, EUA announced that Montaup had agreed to transfer its
remaining non-nuclear power purchase contracts, amounting to approximately 177
mw, to Constellation Power Source, Inc. In addition, Montaup has entered into
agreements to sell: its 160-mw Somerset, Massachusetts electric generating
station for approximately $55 million to NRG Energy, Inc.; its 2.6% (16 mw)
share of the W. F. Wyman Unit 4 in Yarmouth, Maine to the Florida based FPL
Group for approximately $2.4 million; and; its 2.9% share (34 mw) of the
Seabrook Station nuclear power plant to the Great Bay Power Corporation, a
subsidiary of BayCorp Holdings, Ltd. for $3.2 million. Montaup has also signed
agreements for the transfer of power purchase contracts for approximately 170
mw between Montaup and Ocean State Power and for the buyout of its 11% (73 mw)
power entitlement from the Pilgrim Nuclear Power Station in Plymouth,
Massachusetts. All of the sale and contract transfer agreements are subject to
federal and/or state regulatory approvals, including that of the Nuclear
Regulatory Commission with respect to the Seabrook sale. Closing of the non-
nuclear sale agreements are anticipated to take place in the first quarter of
1999. The Seabrook sale and Pilgrim buyout are expected to take place later in
1999.
Also, the sale of Montaup's 50% share (280 mw) of Unit 2 of the Canal
generating station in Sandwich, Massachusetts to Southern Energy for $75
million, which was announced in May 1998, was completed on December 30, 1998,
and the sale of two diesel-powered generating units (totaling approximately 16
mw) owned by Newport to Illinois-based Wabash Power Equipment Co. for $1.5
million closed on October 1, 1998.
Montaup's remaining generating capacity includes approximately 46 mw from its
4.0% joint ownership share of Millstone 3 nuclear unit and 12 mw from its 2.25%
equity ownership of the Vermont Yankee nuclear facility.
Environmental Matters - EUA's Core Electric Business subsidiaries and other
companies owning generating units from which power is obtained are subject,
like other electric utilities, to environmental and land use regulations at the
federal, state and local levels. The federal Environmental Protection Agency
(EPA), and certain state and local authorities, have jurisdiction over releases
of pollutants, contaminants and hazardous substances into the environment and
have broad authority to set rules and regulations in connection therewith, such
as the Clean Air Act Amendments of 1990, which could require installation of
pollution control devices and remedial actions. In 1994, EUA instituted an
environmental audit program to ensure compliance with environmental laws and
regulations and to identify and reduce liability with respect to those
requirements.
Because of the nature of the EUA System's business, various by-products and
substances are produced or handled which are classified as hazardous under the
rules and regulations promulgated by such authorities. The EUA System
typically provides for the disposal of such substances through licensed
contractors, but statutory provisions generally impose potential joint and
several responsibility on the generators of the wastes for clean-up costs.
Subsidiaries of EUA have been notified with respect to a number of sites where
they may be responsible for such costs, including sites where they may have
joint and several liability with other responsible parties. It is the policy
of the EUA System companies to notify liability insurers and to initiate
claims. However, EUA is unable to predict whether liability, if any, will be
assumed by, or can be enforced against, insurance carriers in these matters.
As of December 31, 1998, the EUA System had incurred costs of approximately
$7.7 million in connection with these sites. These amounts have been financed
primarily by internally generated cash. The EUA System is currently amortizing
substantially all of its incurred costs over a five-year period consistent with
prior regulatory recovery periods and is recovering certain of those costs in
rates.
EUA estimates that additional costs of up to $2.5 million may be incurred at
these sites through 1999 by its subsidiaries. Estimates beyond 1999 cannot be
made since site studies, which are the basis of these estimates, have not been
completed.
In addition to the previously discussed costs, Blackstone is currently
litigating responsibility for clean-up costs and related interest aggregating
$5.9 million. The clean-up costs were incurred by the Commonwealth of
Massachusetts at a site in which Blackstone has been named as a responsible
party. See Note J of "Notes to Consolidated Financial Statements" for further
discussion.
A number of scientific studies in the past several years have examined the
possibility of health effects from electric and magnetic fields (EMF) that are
found everywhere there is electricity. Research to date has not conclusively
established a direct causal relationship between EMF exposure and human health.
Additional studies, which are intended to provide a better understanding of the
subject, are continuing. Management cannot predict the ultimate outcome of the
EMF issue.
Nuclear Power Issues - Montaup has a 4.01% ownership interest in Millstone 3,
an 1,154 mw nuclear unit that is jointly owned by a number of New England
utilities, including subsidiaries of Northeast Utilities (Northeast).
Subsidiaries of Northeast are the lead participants in Millstone 3. On March
30, 1996, it was necessary to shut down the unit following an engineering
evaluation which determined that four safety-related valves would not be able
to perform their design function during certain postulated events.
"Picture with Caption: "How is your workforce evolving to meet the demands of
the deregulated market? Through education, training, incentives, and a variety
of analytical tools, our workforce is more innovative, responsive and cost
effective. Our employees are motivated to exceed customer expectations, as
evidenced by our surveys that show us at the top of the customer favorability
scale in the region. In addition, our call center statistics rank us among the
best in New England for speed and efficiency. Satisfying customers is the
ultimate goal of the new energy game, and our workforce plays to win.""
In October 1996, the NRC, which had raised numerous issues with respect to
Millstone 3 and certain of the other nuclear units in which Northeast and its
subsidiaries, either individually or collectively, have the largest ownership
shares, informed Northeast that it was establishing a Special Projects Office
to oversee inspection and licensing activities at Millstone. The Special
Projects Office was responsible for (1) licensing and inspection activities at
Northeast's Connecticut plants, (2) oversight of an Independent Corrective
Action Verification Program (ICAVP), (3) oversight of Northeast's corrective
actions related to safety issues involving employee concerns, and (4)
inspections necessary to implement NRC oversight of the plant's restart
activities. Also, the NRC directed Northeast to submit a plan for disposition
of safety issues raised by employees and retain an independent third-party to
oversee implementation of this plan.
On April 8, 1998, Northeast announced that Millstone 3 was ready for NRC
inspection, indicating that virtually all of the restart-required physical work
had been completed. On June 29, 1998, the NRC authorized Northeast to begin
restart activities of Millstone 3. The authorization was given after the NRC
staff verified that several final technical and programmatic issues were
resolved. Millstone 3 was restarted during the first week of July, and
returned to full power operation on July 14, 1998. The NRC will continue to
closely monitor Millstone 3's performance.
In August 1997, nine non-operating owners, including Montaup, who together own
approximately 19.5% of Millstone 3, filed a demand for arbitration against
Connecticut Light and Power (CL&P) and Western Massachusetts Electric Company
(WMECO) as well as lawsuits against Northeast and its Trustees. CL&P and
WMECO, owners of approximately 65% of Millstone 3, are Northeast subsidiaries
that agreed to be responsible for the proper operation of the unit.
The non-operating owners of Millstone 3 claim that Northeast and its
subsidiaries failed to comply with NRC regulations, failed to operate the
facility in accordance with good utility operating practice and attempted to
conceal their activities from the non-operating owners and the NRC. The
arbitration and lawsuits seek to recover costs associated with replacement
power and operation and maintenance (O&M) costs resulting from the shutdown of
Millstone 3. The non-operating owners conservatively estimate that their
losses exceed $200 million. Montaup's share of this estimate is approximately
$8.0 million. In December 1997, Northeast filed a motion to dismiss the non-
operating owners' claims, or alternatively to stay the pending arbitration
until after the resolution of the arbitration case. These requests were denied
in July 1998.
Montaup paid its share of Millstone 3's O&M expenses during the prolonged
outage on a reservation of right basis. The fact that Montaup paid these
expenses is not an admission of financial responsibility for expenses incurred
during the outage.
EUA cannot predict the ultimate outcome of legal proceedings brought against
CL&P, WMECO and Northeast or the impact they may have on Montaup and the EUA
system.
Montaup has a 4.5% equity ownership in Connecticut Yankee, a nuclear generating
facility in the process of decommissioning. Montaup's share of the total
estimated costs for the permanent shutdown, decommissioning, and recovery of
the investment in Connecticut Yankee is approximately $23.8 million and is
included with Other Liabilities on the Consolidated Balance Sheet as of
December 31, 1998. Also, due to anticipated recoverability, a regulatory asset
has been recorded for the same amount and is included with Other Assets.
On August 31, 1998, a FERC law judge rejected Connecticut Yankee's plan to
decommission the plant. The judge claimed that estimates of clean-up costs
were flawed and certain restoration costs were not supported. The judge also
said Connecticut Yankee could not pass on spent fuel storage costs to rate-
payers. The judge recommended that Connecticut Yankee withdraw its
decommissioning plan and submit a new plan which addresses the issues cited by
him. FERC will review the judge's recommendations and issue a decision on this
case in the coming months. If FERC concurs with the judge's recommendation,
this may result in a write down of certain Connecticut Yankee plant
investments. Montaup cannot predict the ultimate outcome of FERC's review .
On August 6, 1997, as the result of an economic evaluation, the Maine Yankee
Board of Directors voted to permanently close that nuclear plant. Montaup has
a 4.0% equity ownership in Maine Yankee. Montaup's share of the total
estimated costs for the permanent shutdown, decommissioning, and recovery of
the remaining investment in Maine Yankee is approximately $31.0 million and is
included with Other Liabilities on the Consolidated Balance Sheet as of
December 31, 1998. Also, due to recoverability, a regulatory asset has been
recorded for the same amount and is included with Other Assets.
On November 6, 1997, Maine Yankee submitted an estimate of its costs, including
recovery of unamortized plant investment (including fuel), to FERC reflecting
the fact that the plant was no longer operating and had entered the
decommissioning phase. On January 14, 1998, the FERC accepted the new rates,
subject to refund, and amounts of Maine Yankee's collections for
decommissioning. FERC also granted intervention requests and ordered a public
hearing on the prudency of Maine Yankee's decision to shut down the plant and
on the reasonableness of the proposed rate amendments. On January 19, 1999,
Maine Yankee and the active intervening parties, including the Secondary
Purchasers, filed an Offer of Settlement with FERC which was supported by FERC
trial staff on February 8, 1999. Upon commission approval, this agreement will
constitute full settlement of issues raised in this proceeding.
Also, as a result of the August 1997 shutdown, Montaup and the other equity
owners were notified by the Secondary Purchasers that they would no longer make
payments for purchased power to Maine Yankee. The Secondary Purchase Contracts
are between the equity owners as a group and 30 municipalities throughout New
England. Presently, the equity owners are making payments to Maine Yankee to
cover the payments that would be made by the municipals. Prior to shutdown,
the municipals had been assigned 0.41% of Montaup's 4.0% share and Montaup had
retained a 3.59% share.
On November 28, 1997, the Secondary Purchasers sent a Notice of Initiation of
Arbitration to the equity owners of Maine Yankee. On December 15, 1997, the
equity owners as a group filed at FERC a Complaint and Petition for
Investigation, Contract Modification, and Declaratory Order. On April 7, 1998,
a Maine judge denied the Secondary Purchasers' motion to compel arbitration and
indicated the jurisdictional question should be first decided by FERC. On
April 15, 1998, the Secondary Purchasers notified FERC of the judge's decision
and asked for expedited action on the pending complaint against them for non-
payment. A separately negotiated Settlement Agreement filed with FERC on
February 5, 1999, upon approval, would resolve issues raised by the Secondary
Purchasers by limiting the amount they will pay for decommissioning and
settling other points of contention.
Management does not believe that these settlements, if approved, will have a
material effect on EUA's future operating results or financial position.
On August 4, 1998, the Maine Yankee Board of Directors selected Stone & Webster
Engineering Corporation to execute a $250 million contract for the
decommissioning and decontamination of Maine Yankee. The decommissioning plan
includes an option for Stone & Webster to repower the Maine Yankee site with a
gas-fired plant.
Recent actions by the NRC, some of which are cited above, indicate that the NRC
has become more critical and active in its oversight of nuclear power plants.
EUA is unable to predict at this time what, if any, ramifications these NRC
actions will have on any of the other nuclear power plants in which Montaup has
an ownership interest or power contract.
Montaup is recovering through rates its share of estimated decommissioning
costs for the Millstone 3 and Seabrook I nuclear generating units. Montaup's
share of the currently allowed estimated total costs to decommission Millstone
3 is approximately $22.4 million in 1998 dollars and Seabrook I is
approximately $14.4 million in 1998 dollars. These figures are based on
studies performed for the lead owners of the units. Montaup also pays into
decommissioning reserves, pursuant to contractual arrangements, at other
nuclear generating facilities in which it has an equity ownership interest or
life-of-unit entitlement. Such expenses are currently recovered through rates.
In early 1998, Yankee Atomic, Maine Yankee and Connecticut Yankee,
individually, as well as a number of other utilities, filed suit in federal
appeals court seeking a court order to require the Department of Energy (DOE)
to immediately establish a program for the disposal of spent nuclear fuel.
Under the Nuclear Waste Policy Act of 1992, the DOE was to provide for the
disposal of radioactive wastes and spent nuclear fuel starting in 1998 and has
collected funds from owners of nuclear facilities to do so. On February 19,
1998, Maine Yankee also filed a petition in the U.S. Court of Appeals seeking
to compel the Department of Energy to remove and dispose of the spent fuel at
the Maine Yankee site. Under their Standard Contract, the DOE had a deadline
for beginning the removal process at all nuclear plants on January 31, 1998,
which was not met. On May 5, 1998, the Court of Appeals denied several motions
brought in the proceeding, including several motions for injunctive relief
brought by the utility petitioners. In particular, the Court denied the
requests to require the DOE to immediately establish a program for the disposal
of spent nuclear fuel.
Also, Yankee Atomic, Connecticut Yankee, and Maine Yankee filed lawsuits
against the DOE in the U.S. Court of Federal Claims seeking damages of $70
million, $90 million and $128 million, respectively, as a result of the DOE's
refusal to accept the spent nuclear fuel.
In late October and early November 1998, the U.S. Court of Federal Claims
issued rulings with respect to Yankee Atomic, Maine Yankee, and Connecticut
Yankee finding that the DOE was financially responsible for failing to accept
spent nuclear fuel. These rulings clear the way for Yankee Atomic, Connecticut
Yankee and Maine Yankee to pursue at trial their individual damage claims.
Management cannot predict at this time the ultimate outcome of these actions.
The Year 2000 Issue - EUA's Year 2000 Program (the Program) is proceeding on
schedule. The Program is addressing the potential impact on computer systems
and embedded systems and components resulting from a common software program
code convention that utilizes two digits instead of four to represent a year.
If not addressed, the year 2000 may be systemically recognized as the year
1900, which could cause system or equipment failures or malfunctions, and
ultimately result in disruptions to Company operations.
EUA's State of Readiness: To address potential Year 2000 issues, EUA has
divided the focus of its Year 2000 Program into three major categories of
business activity: the generation and delivery of electricity to customers, the
acquisition of goods and services (including purchased power), and ongoing
general and administrative activities relating to the corporate infrastructure
and support functions, which includes among other things, billings and
collections.
EUA has adopted a four phase approach in addressing information technology (IT)
issues. As of January 31, 1999, each phase was at the following percentage of
completion: analysis - 100%; remediation - 79%; unit testing - 78%; and
integrated testing - 11%. EUA is on schedule to achieve Year 2000 readiness
for 100% of mission critical projects by June 30, 1999. For non-IT projects,
approximately 90% are either Year 2000 ready or not affected by the Year 2000.
The remaining items are in the process of being remediated and tested and are
scheduled to be Year 2000 ready by June 30, 1999.
EUA has an ongoing process to identify and assess the Year 2000 readiness of
third parties with which it has a material relationship. Where necessary,
contingency plans will be developed. This process is on schedule to be
completed by June 30, 1999.
"Picture with Caption: "What should customers expect in the deregulated energy
world? Our job is to focus on the primary customer concerns - service
reliability and customer satisfaction. Customers should expect nothing less
than the same commitment to value and world-class customer service they have
received in the past. We'll be there to fix the poles and wires after a serious
storm, help homes and businesses save energy through our conservation programs
and we will continue to offer bill payment assistance to those who need help at
times. The environment we operate in may have changed, but our basic mission of
customer satisfaction remains the same.""
Costs to Address EUA's Year 2000 Issues: Through December 31, 1998, EUA has
incurred costs of approximately $3.0 million to address Year 2000 issues,
including approximately $1.5 million of non-incremental labor, $1.2 million of
capital expenditures and $300,000 of consulting and other costs. EUA estimates
it will incur additional costs approximating $7.0 million during the period
January 1, 1999 through March 31, 2000, to complete its resolution of Year 2000
issues including approximately $5. 5 million of non-incremental labor,
$500,000 of capital expenditures and $1.0 million of consulting and other
costs. Because 70% of the total estimated costs associated with the Year 2000
issue relate to non-incremental internal labor, management continues to believe
that the Year 2000 will not present a material incremental impact to future
operating results or financial condition.
Risks of EUA's Year 2000 Issues: EUA's first priority continues to be the
minimization of any potential disruptions to electric service as a result of
the Year 2000. The provision of electric service depends in large part on the
viability of the New England power grid which is managed by ISO/NEPOOL. EUA is
actively participating on ISO/NEPOOL's Year 2000 operating and oversight
committees. EUA's assessment of its own transmission and distribution
equipment and facilities indicated that the risk of failure of this equipment
does not appear to be significant. However, due to the interconnectivity of
the New England power grid, and the reliance on many other entities also
connected to the grid, it is not possible to conclude with certainty that there
will be no significant interruptions in service.
In addition, dependable voice and data telecommunications are critical to EUA's
ongoing operations. EUA's internal telecommunication systems are either Year
2000 ready now, or on schedule to become Year 2000 ready by June 30, 1999. EUA
also relies heavily on external telecommunication systems, i.e., the local and
regional telephone systems, and has identified these providers as critical
vendors. EUA has made direct contact with representatives of the telephone
companies on which EUA depends, each of which anticipates being Year 2000 ready
and devoid of major system failures.
No other significant reasonably likely failure scenarios stemming solely from
Year 2000 related problems have been identified thus far. Accordingly, EUA
does not currently believe that any Year 2000 related risks in and of
themselves constitute reasonably likely worst case scenarios. Rather, EUA's
most reasonably likely Year 2000 related worst case scenario would be the
occurrence of isolated year 2000 failures such as described above in
conjunction with a severe winter storm. However, EUA believes that such year
2000 failures would not likely affect whether the storm event would have a
material impact on EUA's business or financial condition.
Year 2000 Contingency Plans: Contingency planning teams consisting of managers
and employees experienced in system reliability, disaster recovery and risk
have been established and are responsible for developing contingency plans.
The overall strategy will be to identify Year 2000 risks, both internal and
external to EUA, that could have a material impact on EUA's operations or
financial well being. Preliminary plans are expected by the end of the first
quarter of 1999. Final plans are scheduled to be in place and ready to
implement, if necessary, by June 30, 1999.
Summary: The amount of effort and resources necessary to address Year 2000
issues and make EUA Year 2000 ready is significant. There are dedicated teams
in place to ensure EUA's transition into the next century occurs with minimal
disruption. EUA's Year 2000 program is on schedule and in accordance with
timetables and progress points published by the North American Electric
Reliability Council. In addition, EUA is utilizing outside technical
consultants and other experts to help ensure EUA's Year 2000 program remains on
schedule and effective. Management believes EUA's Year 2000 project is well
managed and has the appropriate resources and plans in place to ensure the
Company is positioned for a successful transition to the Year 2000.
The foregoing constitutes a Year 2000 Statement and Readiness Disclosure
subject to the protections afforded it as such by the federal Year 2000
Information and Readiness Disclosure Act of 1998.
New Accounting Standards - In March 1998, The Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position 98-1, Accounting For the Costs of Computer
Software Developed or Obtained for Internal Use (SOP 98-1), effective in 1999.
SOP 98-1 provides specific guidance on whether to capitalize or expense costs
within its scope. The Company does not expect SOP 98-1 to have a material
impact on its financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." EUA is required to adopt the SOP for 1999. SOP 98-5 defines
start-up activities as one-time activities an entity undertakes when it opens a
new facility, introduces a new product line or service, conducts business in a
new territory or with a new class of customer or beneficiary, initiates a new
process in an existing facility or commences some new operation. The statement
covers the accounting for organization costs and decrees that any such costs
should be expensed as incurred in the same manner as the other start-up costs.
The statement requires entities to expense previously capitalized costs in the
year of adopting SOP 98-5. Although EUA can not currently quantify the impact
of adoption as of January 1, 1999, Management estimates the application of SOP
98-5 will not have a material impact on the financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective in 2000. This statement requires the recognition of all derivative
instruments as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. The Company
is currently evaluating the impact SFAS 133 will have on its financial position
or results of operations.
Other - A pending class action, filed on March 2, 1998, in the Massachusetts
Supreme Judicial Court naming all Massachusetts electric distribution
companies, including Eastern Edison, and certain Massachusetts state agencies
as defendants, seeks to invalidate certain sections of the Electric Utility
Restructuring Act of 1997. The Act directs the Massachusetts Department of
Telecommunications and Energy to impose mandatory charges on all electricity
sold to customers, except those served by a municipal lighting plant, to fund
energy efficiency activities and to promote renewable energy projects. In
addition to declaratory judgment, plaintiffs seek remittance of monies paid to
each distribution company by customers along with any interest earned. The
outcome of this class action is unknown at this time however, Eastern Edison is
vigorously defending the lawsuit.
EUA occasionally makes forward-looking projections of expected future
performance or statements of our plans and objectives. These forward-looking
statements may be contained in filings with the SEC, press releases and oral
statements. This report contains information about the Company's future
business prospects including, without limitation, statements about the
potential impact of Year 2000 issues on the Company's financial condition or
results. These statements are considered "forward-looking" within the meaning
of the Private Securities Litigation Reform Act. These statements are based on
the Company's current plans and expectations and involve risks and
uncertainties that could cause actual future activities and results of oper-
ations to be materially different from those set forth in the forward-looking
statements. The Company expressly undertakes no duty to update any forward-
looking statement.
"Management's Discussion and Analysis of Financial Condition and Review of
Operations" provides a summary of information regarding the Company's financial
condition and results of operation and should be read in conjunction with the
"Consolidated Financial Statements" and "Notes to Consolidated Financial
Statements" to arrive at a more complete understanding of such matters.
Financial Table of Contents
Consolidated Statements of Income 26
Consolidated Statements of Cash Flows 27
Consolidated Balance Sheets 28
Consolidated Statements of Retained Earnings 29
Consolidated Statements of Equity Capital and Preferred Stock 29
Consolidated Statements of Indebtedness 30
Notes to Consolidated Financial Statements 31
Report of Independent Accountants 40
Report of Management 40
Quarterly Financial and Common Share Information 41
Consolidated Operating and Financial Statistics 42
Shareholder Information 44
Trustees and Officers. Inside Back Cover
<TABLE>
Consolidated Statements of Income
($ in thousands except Common Shares and per Share Amounts)
<CAPTION>
Years Ended December 31, 1998 1997 1996
<S> <C> <C> <C>
OPERATING REVENUES $538,801 $568,513 $527,068
OPERATING EXPENSES:
Fuel 99,781 110,724 92,166
Purchased Power-Demand 108,936 119,485 118,830
Other Operations 155,943 162,464 154,831
Voluntary Retirement Incentives 1,416
Maintenance 20,143 30,432 25,047
Depreciation and Amortization 51,079 46,941 45,478
Taxes - Other Than Income 23,323 24,021 23,933
Income Taxes 17,957 14,223 10,942
Total Operating Expenses 477,162 509,706 471,227
Operating Income 61,639 58,807 55,841
Equity in Earnings of Jointly
Owned Companies 9,524 9,466 10,698
Allowance for Other Funds Used
During Construction 173 162 452
Loss on Disposal of Cogeneration
Operations (3,172)
Income Tax Impact of Loss on
Disposal of Cogeneration Operations 1,110
Other Income - Net 4,940 10,986 5,054
Income Before Interest Charges 74,214 79,421 72,045
INTEREST CHARGES:
Interest on Long-Term Debt 28,288 32,198 34,035
Amortization of Debt Expense
and Premium - Net 1,813 2,548 2,620
Other Interest Expense 7,745 5,245 4,199
Allowance for Borrowed Funds Used
During Construction (Credit) (647) (835) (1,735)
Net Interest Charges 37,199 39,156 39,119
Net Income 37,015 40,265 32,926
Preferred Dividends of Subsidiaries 2,305 2,305 2,312
Consolidated Net Earnings $34,710 $37,960 $30,614
Average Common Shares Outstanding 20,435,997 20,435,997 20,436,217
Consolidated Basic and Diluted
Earnings per Share $1.70 $1.86 $1.50
Dividends Paid per Share $1.66 $1.66 $1.645
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
Years Ended December 31,
($ in thousands) 1998 1997 1996
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $37,015 $40,265 $32,926
Adjustments to Reconcile Net Income
to Net Cash Provided from
Operating Activities:
Depreciation and Amortization 56,308 51,615 50,690
Amortization of Nuclear Fuel 1,265 1,067 1,676
Deferred Taxes (17,854) (6,317) 11,610
Non-cash Expenses/(Gains) on
Sales of Investments in
Energy Savings Projects 10,002 15,993 8,262
Investment Tax Credit, Net (3,081) (1,201) (1,207)
Allowance for Other Funds Used
During Construction (173) (162) (452)
Collections and Sales of Project
Notes and Leases Receivable 17,261 19,148 7,776
Other - Net (1,514) (5,726) 6,373
Changes in Operating Assets and Liabilities:
Accounts Receivable (2,621) (2,494) (5,777)
Materials and Supplies (2,232) 2,929 2,385
Accounts Payable (6,018) 1,225 (1,958)
Taxes Accrued 11,145 59 (1,539)
Other - Net (2,563) (664) 4,930
Net Cash Provided from
Operating Activities 96,940 115,737 115,695
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (51,201) (76,118) (62,730)
Proceeds from Divestiture of
Generation Assets 76,873
Collections on Notes and Lease
Receivables of EUA Cogenex 11,558 10,076 3,665
Other Investments (2,071) 312 (3,889)
Net Cash Provided from
(Used in) Investing Activities 35,159 (65,730) (62,954)
CASH FLOW FROM FINANCING ACTIVITIES
Redemptions:
Long-Term Debt (73,122) (28,617) (20,617)
Preferred Stock - (90)
Premium on Reacquisition and
Financing Expenses - (15)
EUA Common Share Dividends Paid (33,924) (33,924) (33,618)
Subsidiary Preferred Dividends Paid (2,305) (2,305) (2,314)
Net Increase in Short-Term Debt 2,090 9,636 12,308
Net Cash (Used in)
Financing Activities (107,261) (55,210) (44,346)
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS: 24,838 (5,203) 8,395
Cash and Temporary Cash Investments at
Beginning of Year 7,252 12,455 4,060
Cash and Temporary Cash Investments at
End of Year $32,090 $7,252 $12,455
Cash Paid during the year for:
Interest (Net of Amounts
Capitalized) $37,087 $40,172 $40,658
Income Taxes $25,976 $28,921 $11,530
Conversion of Investments in Energy
Savings Projects to Notes and
Leases Receivable $4,529 $5,404 $7,779
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
Years Ended December 31, ($ in thousands) 1998 1997
<S> <C> <C>
ASSETS
Utility Plant and Other Investments:
Utility Plant in Service $1,000,243 $1,079,361
Less Accumulated Provisions for
Depreciation and Amortization 353,780 376,722
Net Utility Plant in Service 646,463 702,639
Construction Work in Progress 5,151 5,538
Net Utility Plant 651,614 708,177
Non-utility Property - Net 55,274 71,516
Investments in Jointly Owned Companies 69,485 69,749
Other 55,320 62,834
Total Utility Plant and Other
Investments 831,693 912,276
Current Assets:
Cash and Temporary Cash Investments 32,090 7,252
Accounts Receivable:
Customers, Net 55,286 64,214
Accrued Unbilled Revenues 10,655 14,103
Other 29,326 14,329
Notes Receivable 27,078 27,693
Materials and Supplies (at average cost):
Fuel 6,024 4,304
Plant Materials and Operating Supplies 7,410 6,897
Other Current Assets 8,448 7,177
Total Current Assets 176,317 145,969
Other Assets 294,628 212,507
Total Assets $1,302,638 $1,270,752
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Equity $373,674 $373,467
Non-Redeemable Preferred Stock of
Subsidiaries - Net 6,900 6,900
Redeemable Preferred Stock of
Subsidiaries - Net 27,995 27,612
Long-Term Debt - Net 310,346 332,802
Total Capitalization 718,915 740,781
Current Liabilities:
Short-Term Debt 63,574 61,484
Long-Term Debt Due Within One Year 21,911 72,518
Accounts Payable 29,018 35,036
Taxes Accrued 14,208 3,063
Interest Accrued 6,997 8,624
Other Current Liabilities 34,908 33,327
Total Current Liabilities 170,616 214,052
Other Liabilities 271,078 152,526
Accumulated Deferred Taxes 142,029 163,393
Commitments and Contingencies (Note J)
Total Liabilities and Capitalization $1,302,638 $1,270,752
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Retained Earnings
<CAPTION>
Years Ended December 31, ($ in thousands) 1998 1997 1996
<S> <C> <C> <C>
Retained Earnings - Beginning of Year $56,062 $52,404 $56,228
Consolidated Net Earnings 34,710 37,960 30,614
Total 90,772 90,364 86,842
Dividends Paid - EUA Common Shares 33,924 33,924 33,618
Other 382 378 820
Retained Earnings - Accumulated since
June 1991 Accounting Reorganization $56,466 $56,062 $52,404
</TABLE>
<TABLE>
Consolidated Statements of Equity Capital & Preferred Stock
<CAPTION>
Years Ended December 31, ($ in thousands) 1998 1997
<S> <C> <C>
EASTERN UTILITIES ASSOCIATES:
Common Shares:
$5 par value 36,000,000 shares authorized,
20,435,997 shares outstanding in 1998 and 1997 $102,180 $102,180
Other Paid-In Capital 218,959 219,156
Common Share Expense (3,931) (3,931)
Retained Earnings - Accumulated since June 1991
Accounting Reorganization 56,466 56,062
Total Common Equity 373,674 373,467
CUMULATIVE PREFERRED STOCK OF SUBSIDIARIES:
Non-Redeemable Preferred:
Blackstone Valley Electric Company:
4.25% $100 par value 35,000 shares <F1> 3,500 3,500
5.60% $100 par value 25,000 shares <F1> 2,500 2,500
Premium 129 129
Newport Electric Corporation:
3.75% $100 par value 7,689 shares <F1> 769 769
Premium 2 2
Total Non-Redeemable Preferred Stock 6,900 6,900
Redeemable Preferred:
Eastern Edison Company:
65/8% $100 par value 300,000 shares <F2> 30,000 30,000
Expense, Net of Premium (335) (335)
Preferred Stock Redemption Costs (1,670) (2,053)
Total Redeemable Preferred Stock 27,995 27,612
Total Preferred Stock of Subsidiaries $34,895 $34,512
<FN>
<F1> Authorized and Outstanding.
<F2> Authorized 400,000 shares. 300,000 shares outstanding at December 31, 1998.
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Indebtedness
<CAPTION>
Years Ended December 31, ($ in thousands) 1998 1997
<S> <C> <C>
EUA Service Corporation:
10.2% Secured Notes due 2008 $6,200 $7,900
EUA Cogenex Corporation:
7.0% Unsecured Notes due 2000 50,000 50,000
9.6% Unsecured Notes due 2001 9,600 12,800
10.56% Unsecured Notes due 2005 24,500 28,000
EUA Ocean State Corporation:
9.59% Unsecured Notes due 2011 26,114 28,590
Blackstone Valley Electric Company:
First Mortgage Bonds:
9 1/2% due 2004 (Series B) 9,000 10,500
10.35% due 2010 (Series C) 18,000 18,000
Variable Rate Demand Bonds due 2014 <F1> 6,500 6,500
Eastern Edison Company
First Mortgage and Collateral Trust Bonds:
5 7/8% due 1998 - 20,000
5 3/4% due 1998 - 40,000
7.78 % Secured Medium Term Notes due 2002 35,000 35,000
6 7/8% due 2003 40,000 40,000
6.35% due 2003 8,000 8,000
8.0% due 2023 40,000 40,000
Pollution Control Revenue Bonds:
5 7/8% due 2008 40,000 40,000
Newport Electric Corporation:
First Mortgage Bonds:
9.0% due 1999 1,386 1,386
9.8% due 1999 8,000 8,000
8.95% due 2001 1,950 2,600
Small Business Administration Loan:
6.5% due 2005 533 628
Variable Rate Revenue Refunding
Bonds due 2011 <F1> 7,925 7,925
Unamortized (Discount) - Net (451) (509)
332,257 405,320
Less Portion Due Within One Year 21,911 72,518
Total Long-Term Debt - Net $310,346 $332,802
<FN>
<F1> Weighted average interest rate was 3.6% for 1998 and 3.7% for 1997.
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996
(A) Nature of Operations and Summary of Significant Accounting Policies:
General: Eastern Utilities Associates (EUA) is a public utility holding
company headquartered in Boston, Massachusetts. Its subsidiaries are
principally engaged in the generation, transmission, distribution and sale of
electricity; energy related services such as energy management; and promoting
the conservation and efficient use of energy. See "Generation Divestiture"
below for a discussion of EUA's planned divestiture of generating capacity.
Estimates: 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Consolidation: The consolidated financial statements include the
accounts of EUA and all subsidiaries. All material intercompany transactions
between the consolidated subsidiaries have been eliminated.
System of Accounts: The accounts of EUA and its consolidated subsidiaries are
maintained in accordance with the uniform system of accounts prescribed by the
regulatory bodies having jurisdiction.
Jointly Owned Companies: Montaup Electric Company (Montaup) follows the equity
method of accounting for its stock ownership investments in jointly owned
companies including four regional nuclear generating companies. Montaup's
investments in these nuclear generating companies range from 2.5% to 4.5%.
Three of the four facilities, Yankee Atomic, Connecticut Yankee and Maine
Yankee, have been permanently shut down and are in the process of
decommissioning. Montaup's share of total estimated costs for the permanent
shutdown, decommissioning and recovery of the investment in Yankee Atomic,
Connecticut Yankee and Maine Yankee is $3.7 million, $23.8 million and $31.0
million, respectively. These amounts are included with Other Liabilities on
the Consolidated Balance Sheet as of December 31, 1998. Also, due to
anticipated recoverability, a regulatory asset has been recorded for the same
amount and is included with Other Assets. Montaup is entitled to electricity
produced from the remaining facility, Vermont Yankee, based on its ownership
interest and is billed for its entitlement pursuant to a contractual agreement
which is approved by the Federal Energy Regulatory Commission (FERC).
Montaup also has a stock ownership investment of 3.27% in each of two companies
which own and operate certain transmission facilities between the Hydro Quebec
electric system and New England.
EUA Ocean State Corporation (EUA Ocean State) follows the equity method of
accounting for its 29.9% partnership interest in the Ocean State Power Project
(OSP). Also, EUA Energy Investment follows the equity method of accounting for
its partnership interest in BIOTEN, G.P. and for its 20% stock ownership in
Separation Technologies, Inc. EUA is attempting to restructure its partnership
interest in the BIOTEN, G.P. to a preferred equity position. These ownership
interests and Montaup's stock ownership investments are included in
"Investments in Jointly Owned Companies" on the Consolidated Balance Sheet.
Plant and Depreciation: Utility plant is stated at original cost. The cost of
additions to utility plant includes contracted work, direct labor and material,
allocable overhead, allowance for funds used during construction and indirect
charges for engineering and supervision. For financial statement purposes,
depreciation is computed on the straight-line method based on estimated useful
lives of the various classes of property. On a consolidated basis, provisions
for depreciation on utility plant were equivalent to a composite rate of
approximately 3.5% in 1998, 3.6% in 1997, 3.7% in 1996 based on the average
depreciable property balances at the beginning and end of each year. Beginning
in 1998, coincident with billing a contract termination charge (CTC) to its
retail affiliates, Montaup commenced recovery of its net investment in
generation related assets through the CTC over a twelve-year period. The
difference between the annual recovery and annual depreciation expense pursu-
ant to Generally Accepted Accounting Principles is being deferred. Non-utility
property and equipment of EUA Cogenex Corporation (EUA Cogenex) is stated at
original cost. For financial statement purposes, depreciation on office
furniture and equipment, computer equipment and real property is computed on
the straight-line method based on estimated useful lives ranging from five to
forty years. Project equipment is depreciated over the term of the applicable
contracts or based on the estimated useful lives, whichever is shorter, ranging
from five to fifteen years.
Allowance for Funds Used During Construction (AFUDC) and Capitalized Interest:
AFUDC represents the estimated cost of borrowed and equity funds used to
finance the EUA System's construction program. In accordance with regulatory
accounting, AFUDC is capitalized as a cost of utility plant in the same manner
as certain general and administrative costs. AFUDC is not an item of current
cash income but is recovered over the service life of utility plant in the form
of increased revenues collected as a result of higher depreciation expense.
The combined rate used in calculating AFUDC was 8.0% in 1998 and 1997, and 9.0%
in 1996. The caption "Allowance for Borrowed Funds Used During Construction"
also includes interest capitalized for non-regulated entities in accordance
with FASB Statement No. 34.
Operating Revenues: Utility revenues are based on billing rates authorized by
applicable federal and state regulatory commissions. Eastern Edison Company
(Eastern Edison), Blackstone Valley Electric Company (Blackstone) and Newport
Electric Corporation (Newport) (collectively, the Retail Subsidiaries) accrue
the estimated amount of unbilled revenues at the end of each month to match
costs and revenues more closely. Montaup recognizes revenues when billed. In
1998, Montaup and the Retail Subsidiaries also began recording revenues in an
amount management believes to be recoverable pursuant to provisions of approved
settlement agreements and enabling state legislation.
EUA Cogenex's revenues are recognized based on financial arrangements
established by each individual contract. Under paid-from-savings contracts,
revenues are recognized as energy savings are realized by customers. Revenue
from the sale of energy savings projects and sales-type leases are recognized
when the sales are complete. Interest on the financing portion of the
contracts is recognized as earned at rates established at the outset of the
financing arrangement. All construction and installation costs are recognized
as contract expenses when the contract revenues are recorded. In circumstances
in which material uncertainties exist as to contract profitability, cost
recovery accounting is followed and revenues received under such contracts are
first accounted for as recovery of costs to the extent incurred.
Federal Income Taxes: EUA and its subsidiaries generally reflect in income the
estimated amount of taxes currently payable, and provide for deferred taxes on
certain items subject to temporary timing differences to the extent permitted
by the various regulatory agencies. EUA's rate-regulated subsidiaries
amortize previously deferred investment tax credits (ITC) over the productive
lives of the related assets. Beginning in 1998, Montaup is amortizing
previously deferred ITC related to generation investments recoverable through
the CTC over a twelve-year period. Unamortized ITC related to the Canal 2
generating unit was reversed at the time of the Canal 2 sale, December 30,
1998.
Cash and Temporary Cash Investments: EUA considers all highly liquid
investments and temporary cash investments with a maturity of three months or
less when acquired to be cash equivalents.
Other Assets: The components of Other Assets at December 31, 1998 and 1997 are
detailed as follows:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997
<S> <C> <C>
Regulatory Assets:
Unamortized losses on reacquired debt $10,979 $12,299
Unrecovered plant and
decommissioning costs 66,934 68,345
Deferred FAS 109 costs (Note B) 50,167 57,732
Deferred FAS 106 costs 9,167 3,310
Mendon Road judgment (Note J) 6,154 6,154
Unrecovered CTC assets 33,161
Accrued CTC assets 32,198
Other regulatory assets 21,947 15,524
Total regulatory assets 230,707 163,364
Other deferred charges and assets:
Split dollar life insurance premiums 24,803 15,502
Unamortized debt expenses 3,381 3,954
Goodwill 6,436 6,642
Other 29,301 23,045
Total Other Assets $294,628 $212,507
</TABLE>
Regulatory assets represent deferred costs for which future revenues are
expected in accordance with regulatory practices. These costs are expensed
when the corresponding revenues are received in order to appropriately match
revenues and expenses.
Regulatory Accounting: Core Electric companies are subject to certain
accounting rules that are not applicable to other industries. These accounting
rules allow regulated companies, in appropriate circumstances, to establish
regulatory assets and liabilities which defer the current financial impact of
certain costs that are expected to be recovered in future rates. In light of
approved restructuring settlement agreements and restructuring legislation in
both Massachusetts and Rhode Island, EUA has determined that Montaup no longer
will apply the provisions of Financial Accounting Standards Board's (FASB)
Statement of Financial Accounting Standards No. 71 (FAS71), "Accounting for the
Effects of Certain Types of Regulation" for the generation portion of its
business. Due to the recoverability of regulatory assets granted in the
approved restructuring plans, EUA believes that the discontinuation of FAS71
for the generation portion of Montaup's business will not have a material
impact on EUA's results of operation or financial condition. EUA believes its
transmission and retail distribution businesses continue to meet the criteria
for continued application of FAS71.
Generation Divestiture: Terms of approved electric utility restructuring
settlement agreements provide that EUA exit the electric generation business.
Through separately negotiated agreements, EUA has agreements to divest all of
its generation assets and power purchase contracts, with the exception of its
4.0% (46 mw) ownership interest in the Millstone 3 nuclear station and its 12
mw entitlement from Vermont Yankee. All of the agreements are subject to
approval of various state and federal regulatory agencies.
EUA has agreed to sell generating assets totaling 509 mw to various parties for
$133.2 million in aggregate. The net proceeds from the sales, as defined in
the settlement agreements, will be recorded as a regulatory liability at the
time of sale and will be returned to customers via a Residual Value Credit
(RVC) through the year 2009.
EUA has also agreed to make contribution payments to two parties in exchange
for their assumption of all future obligations under six purchased power
contracts. These fixed monthly payments ranging from $850,000 to $2.6 million,
will be made from the effective date through 2009. EUA may be required to
record a liability for these fixed contributions, but in such an event would
record a regulatory asset for a like amount due to recoverability. In
addition, EUA has agreed to a buyout of its obligations under the Pilgrim
Nuclear purchased power contract in conjunction with the sale of the unit by
Boston Edison Co. (BEC) to Entergy Nuclear Generating Co. (Entergy). This
agreement provides for a buyout payment by EUA to BEC of $115.8 million ,
assuming a June 30, 1999 closing, along with a short-term, fixed-price
purchased power agreement with Entergy for declining shares of the unit's
output beginning with 11% in 1999 and ending with 5.5% in 2004. Entergy will
assume all future operating and decommissioning obligations.
EUA will continue to attempt to sell and/or transfer its minority interests in
Millstone 3 and Vermont Yankee. Until such time as these units are divested,
EUA will share 80% of the operating costs and revenues associated with the
units with customers and 20% with shareholders.
(B) Income Taxes:
EUA adopted FASB Statement No. 109, "Accounting for Income Taxes" (FAS109),
which requires recognition of deferred income taxes for temporary differences
that are reported in different years for financial reporting and tax purposes
using the liability method. Under the liability method, deferred tax
liabilities or assets are computed using the tax rates that will be in effect
when temporary differences reverse. Generally, for regulated companies, the
change in tax rates may not be immediately recognized in operating results
because of ratemaking treatment and provisions in the Tax Reform Act of 1986.
Total deferred tax assets and liabilities for 1998 and 1997 include the
following:
<TABLE>
Deferred Tax Deferred Tax
Assets Liabilities
<CAPTION>
($ in thousands) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Plant Related Plant Related
Differences $22,776 $18,947 Differences $185,590 $191,274
Deregulation 23,301 Refinancing
Costs 1,325 1,406
NOL Deregulation 12,993
Carryforward 1,973 2,294 Employee
Benefit
Employee Accruals 4,481 3,670
Benefit
Accruals 5,294 4,975
Acquisitions 3,334 3,650
Other 14,075 14,157 Other 8,393 11,066
Total $70,753 $44,023 Total $212,782 $207,416
</TABLE>
As of December 31, 1998 and 1997, EUA has recorded on its Consolidated Balance
Sheet a regulatory liability to ratepayers of approximately $15.5 million and
$18.8 million respectively. These amounts primarily represent excess deferred
income taxes resulting from the reduction in the federal income tax rate and
also include deferred taxes provided on investment tax credits. Also at
December 31, 1998 and 1997, a regulatory asset of approximately $50.2 million
and $57.7 million, respectively, has been recorded, representing the cumulative
amount of federal income taxes on temporary depreciation differences which were
previously flowed through to ratepayers.
<TABLE>
Components of income tax expense for the year 1998, 1997, and 1996 are as
follows:
<CAPTION>
($ in thousands) 1998 1997 1996
<S> <C> <C> <C>
Federal:
Current $30,755 $17,249 $ (231)
Deferred (14,054) (4,901) 9,838
Investment Tax Credit, Net (3,000) (1,120) (1,125)
13,701 11,228 8,482
State:
Current 5,217 3,623 2,823
Deferred (961) (628) (363)
4,256 2,995 2,460
Charged to Operations 17,957 14,223 10,942
Charged to Other Income:
Current 4,416 9,142 4,798
Deferred (2,839) (789) 2,135
Investment Tax Credit, Net (81) (81) (82)
1,496 8,272 6,851
Total Income Tax Expense $19,453 $22,495 $17,793
</TABLE>
Total income tax expense was different from the amounts computed by applying
federal income tax statutory rates to book income subject to tax for the
following reasons:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997 1996
<S> <C> <C> <C>
Federal Income Tax Computed
at Statutory Rates $19,764 $21,966 $17,751
(Decrease) Increase in Tax from:
Equity Component of AFUDC (60) (57) (189)
Depreciation Differences 1,320 (12) 2
Amortization of ITC (3,081) (1,201) (1,207)
State Taxes, Net of Federal
Income Tax Benefit 2,803 2,092 1,952
Other (1,293) (293) (516)
Total Income Tax Expense $19,453 $22,495 $17,793
</TABLE>
(C) Capital Stock:
The Agreement and Plan of Merger dated February 1, 1999 by and among New
England Electric System (NEES) and EUA, which is subject to EUA shareholder and
various regulatory agencies' approval, provides for NEES to purchase all of the
outstanding EUA shares for $31 per share in cash. The transaction is expected
to be completed by early 2000.
There was no change in the number of common shares outstanding during 1998 and
1997.
As permitted, the Company accounts for its stock-based compensation, as
discussed below, using the method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB25) and as
permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FAS123).
The Company established a Restricted Stock Plan in 1989. Under the Restricted
Stock Plan, executives and certain key employees may be granted restricted
common shares of the Company. In 1998, 1997 and 1995, approximately 74,000
shares, 95,000 shares and 61,000 shares, respectively, of restricted common
shares, valued at approximately $1.8 million, $2.4 million and $1.4 million,
respectively, were granted. The issued shares are restricted for a period
ranging from two to five years and all shares are subject to forfeiture if
specified employment services are not met. There are no exercise prices
related to these share grants. During the applicable restriction period, the
recipient has all the voting, dividend, and other rights of a record holder
except that the shares are nontransferable. The annual compensation expense
related to these grant awards was approximately $1.6 million in 1998 and was
immaterial for 1997 and 1996. There are no material differences in the Company
recording its annual compensation expense under APB25 from the requirements
under FAS123. All of the restricted shares will become immediately vested upon
the completion of EUA's plan of merger with NEES.
The preferred stock provisions of the Retail Subsidiaries place certain
restrictions upon the payment of dividends on common stock by each company. At
December 31, 1998 and 1997, each company was in excess of the minimum
requirements which would make these restrictions effective.
In the event of involuntary liquidation, the holders of non-redeemable
preferred stock of the Retail Subsidiaries are entitled to $100 per share plus
accrued dividends. In the event of voluntary liquidation, or if redeemed
at the option of these companies, each share of the non-redeemable preferred
stock is entitled to accrued dividends plus the following:
Company Issue Amount
Blackstone: 4.25% issue $104.40
5.60% issue 103.82
Newport: 3.75% issue 103.50
(D) Redeemable Preferred Stock:
Eastern Edison's 6 5/8% Preferred Stock issue is entitled to an annual
mandatory sinking fund sufficient to redeem 15,000 shares commencing September
1, 2003. The redemption price is $100 per share plus accrued dividends. All
outstanding shares of the 6 5/8% issue are subject to mandatory redemption on
September 1, 2008, at a price of $100 per share plus accrued dividends. In the
event of liquidation, the holders of Eastern Edison's 6 5/8% Preferred Stock
are entitled to $100 per share plus accrued dividends.
(E) Long-Term Debt:
The various mortgage bond issues of Blackstone, Eastern Edison, and Newport are
collateralized by substantially all of their utility plant.
In addition, Eastern Edison's bonds are collateralized by securities of
Montaup, which are wholly-owned by Eastern Edison. On December 30, 1998,
Montaup redeemed $55 million of debenture bonds and paid a $19 million special
dividend to Eastern Edison with proceeds received from the sale of its 50%
ownership share of the Canal 2 generating station. The principal amount of
Montaup securities wholly-owned by Eastern Edison at December 31, 1998 was
approximately $181 million.
Blackstone's Variable Rate Demand Bonds are collateralized by an irrevocable
Letter of Credit which expires on January 21, 2000. The letter of credit
permits an extension of one year upon mutual agreement of the bank and
Blackstone.
Newport's Variable Rate Electric Energy Facilities Revenue Refunding Bonds are
collateralized by an irrevocable Letter of Credit which expires on January 6,
2000, and permits an extension of one year upon mutual agreement of the bank
and Newport. EUA Service Corporation's (EUA Service) 10.2% Secured Notes due
2008 are collateralized by certain real estate and property of the company.
In July, Eastern Edison used short-term borrowings to redeem $20 million of
5 7/8% and $40 million of 5 3/4%, First Mortgage and Collateral Trust Bonds at
maturity. On December 30, 1998, Eastern repaid outstanding short-term
borrowings with proceeds received from the redemption of Montaup securities.
The EUA System's aggregate amount of current cash sinking fund requirements and
maturities of long-term debt, (excluding amounts that may be satisfied by
available property additions) for each of the five years following 1998 are:
$21.9 million in 19 99, $62.5 million in 2000, $14.3 million in 2001, $46
million in 2002, and $60 million in 2003.
(F) Fair Value Of Financial Instruments:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate:
Cash and Temporary Cash Investments: The carrying amount approximates fair
value because of the short-term maturity of these instruments.
Long Term Notes Receivable and Net Investment in Sales-Type Leases: The fair
value of these assets are based on market rates of similar securities.
Preferred Stock and Long-Term Debt of Subsidiaries: The fair value of the
System redeemable preferred stock and long-term debt were based on quoted
market prices for such securities at December 31, 1998 and 1997.
The estimated fair values of the System's financial instruments at December 31,
1998 and 1997, were as follows:
<TABLE>
Carrying Amount Fair Value
<CAPTION>
($ in thousands) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Cash and Temporary
Cash Investments $32,090 $7,252 $32,090 $7,252
Long-Term Notes Receivable
and Net Investment
in Sales-Type Leases 40,934 46,192 42,052 47,200
Redeemable Preferred Stock 30,000 30,000 32,625 31,613
Long-Term Debt 332,708 405,829 350,392 429,035
</TABLE>
(G) Lines Of Credit:
In July 1997, several EUA System companies entered into a three-year revolving
credit agreement allowing for borrowings in aggregate of up to $145 million
from all sources of short-term credit. As of December 31, 1998, various
financial institutions have committed up to $75 million under the revolving
credit facility. In addition to the $75 million available under the revolving
credit facility, EUA System companies maintain short-term lines of credit with
various banks totaling $90 million for an aggregate amount available of $165
million. At December 31, 1998, the EUA System had unused short-term lines of
credit of approximately $101.4 million. During 1998, the weighted average
interest rate for short-term borrowings was 5.8%.
(H) Jointly Owned Facilities:
At December 31, 1998, in addition to the stock ownership interests discussed in
Note A, Nature of Operations and Summary of Significant Accounting Policies -
Jointly Owned Companies, Montaup and Newport had direct ownership interests in
the following electric generating facilities:
<TABLE>
<CAPTION>
Accumulated Net
Utility Provision for Utility Construction
Percent Plant in Depreciation Plant in Work in
($ in thousands) Owned Service & Amortization Service Progress
<S> <C> <C> <C> <C> <C>
Montaup:
Wyman Unit 4 1.96% $4,041 $2,388 $1,653 $
Seabrook Unit I 2.90% 194,169 47,277 146,892 480
Millstone Unit 3 4.01% 178,598 65,705 112,893 347
Newport:
Wyman Unit 4 0.67% 1,312 805 507
</TABLE>
The foregoing amounts represent Montaup's and Newport's interest in each
facility, including nuclear fuel where appropriate, and are included on the
like-captioned lines on the Consolidated Balance Sheet. At December 31, 1998,
Montaup's total net investment in nuclear fuel of the Seabrook and Millstone
Units amounted to $2.5 million and $1.9 million, respectively.
Montaup's and Newport's shares of related operating and maintenance expenses
with respect to units reflected in the preceding table are included in the
corresponding operating expenses.
EUA has entered into agreements to sell its joint ownership shares in Wyman
Unit 4 and Seabrook Unit I. Closing of the Wyman sale is expected in the first
quarter of 1999 and the Seabrook sale is expected to close later in 1999. Both
agreements are subject to approval of various regulatory agencies.
(I) Financial Information By Business Segments:
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information (SFAS 131), requires disclosure of
certain financial and descriptive information by operating segments. The Core
Electric Business includes results of the electric utility operations of
Blackstone, Eastern Edison, Newport and Montaup.
Energy Related Business includes results of our diversified energy-
related subsidiaries, EUA Cogenex, EUA Ocean State, EUA Energy Investment
Corporation (EUA Energy), EUA Energy services and EUA Telecommunications.
Corporate results include the operations of EUA Service and EUA Parent. EUA
does not have any intersegment revenues. Financial data for the business
segments are as follows:
<TABLE>
<CAPTION>
Pre-Tax Depreciation Cash Equity in Net Net
Operating Operating Income and Construction Subsidiary Interest Interest
($ in thousands) Revenues Income Taxes Amortization Expenditures Earnings Charges Income
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1998
Core Electric $480,080 $84,586 $22,685 $38,804 $22,888 $1,390 $23,593 $528
Energy Related 58,721 (2,945) (1,387) 12,267 26,801 8,134 12,219 7,210
Corporate (2,045) (1,845) 8 1,512 1,387 63
Total $538,801 $79,596 $19,453 $51,079 $51,201 $9,524 $37,199 $7,801
Year Ended
December 31, 1997
Core Electric $506,696 $78,795 $20,303 $36,069 $21,870 $1,599 $24,668 $1,678
Energy Related 61,817 (3,785) 547 10,858 51,941 7,867 13,295 8,854
Corporate (1,980) 1,645 14 2,307 1,193 16
Total $568,513 $73,030 $22,495 $46,941 $76,118 $9,466 $39,156 $10,548
Year Ended
December 31, 1996
Core Electric $470,719 $80,042 $21,039 $35,178 $33,337 $1,587 $24,290 $ 394
Energy Related 56,349 (11,536) (3,888) 10,290 28,121 9,111 13,494 7,212
Corporate (1,723) 642 10 1,272 1,335 156
Total $ 527,068 $66,783 $17,793 $45,478 $62,730 $10,698 $39,119 $7,762
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31, ($ in thousands) 1998 1997
<S> <C> <C>
Total Plant and Other Investments
Core Electric $648,281 $703,132
Energy Related 164,439 187,752
Corporate 18,973 21,392
Total Plant and Other Investments 831,693 912,276
Other Assets
Core Electric 370,360 257,888
Energy Related 67,780 73,109
Corporate 32,805 27,479
Total Other Assets 470,945 358,476
Total Assets $1,302,638 $1,270,752
</TABLE>
(J) Commitments And Contingencies:
Plan of Merger Agreement: On February 1, 1999, EUA and New England Electric
System (NEES) entered into an Agreement and Plan of Merger under which NEES
will acquire all outstanding shares of EUA for $31 per share in cash. Under
certain terms of the merger agreement, if the merger agreement is terminated by
EUA, EUA would pay NEES a termination fee of $20 million plus up to $5 million
for documented out-of-pocket expenses.
Nuclear Fuel Disposal and Nuclear Plant Decommissioning Costs: The owners (or
lead participants) of the nuclear units in which Montaup has an interest have
made, or expect to make, various arrangements for the acquisition of uranium
concentrate, the conversion, enrichment, fabrication and utilization of nuclear
fuel and the disposition of that fuel after use. The owners (or lead
participants) of United States nuclear units have entered into contracts with
the Department of Energy (DOE) for disposal of spent nuclear fuel in accordance
with the Nuclear Waste Policy Act of 1982 (NWPA). The NWPA requires (subject
to various contingencies) that the federal government design, license,
construct and operate a permanent repository for high level radioactive wastes
and spent nuclear fuel and establish a prescribed fee for the disposal of such
wastes and nuclear fuel. The NWPA specifies that the DOE provide for the
disposal of such waste and spent nuclear fuel starting in 1998. Objections on
environmental and other grounds have been asserted against proposals for
storage as well as disposal of spent nuclear fuel. The DOE now estimates that
a permanent disposal site for spent fuel will not be ready to accept fuel for
storage or disposal until as late as the year 2010. In early 1998, a number of
utilities filed suit in federal appeals court seeking, among other things, an
order requiring the DOE to immediately establish a program for the disposal of
spent nuclear fuel. Montaup owns a 4.01% interest in Millstone 3 and a 2.9%
interest in Seabrook I. Northeast Utilities, the operator of the units,
indicates that Millstone 3 has sufficient on-site storage facilities which,
with rack additions, can accommodate its spent fuel for the projected life of
the unit. At the Seabrook Project, there is on-site storage capacity which,
with rack additions, will be sufficient to at least the year 2011.
The Energy Policy Act of 1992 requires that a fund be created for the
decommissioning and decontamination of the DOE uranium enrichment facilities.
The fund will be financed in part by special assessments on nuclear power
plants in which Montaup has an interest. These assessments are calculated
based on the utilities' prior use of the government facilities and have been
levied by the DOE, starting in September 1993, and will continue over 15 years.
This cost is passed on to the joint owners or power buyers as an additional
fuel charge on a monthly basis and is currently being recovered by Montaup
through rates.
Montaup has a 4.5% equity ownership in Connecticut Yankee, a nuclear generating
facility which is in the process of decommissioning. Montaup's share of the
total estimated costs for the permanent shutdown, decommissioning, and recovery
of the investment in Connecticut Yankee is approximately $23.8 million. On
August 31, 1998, a FERC law judge rejected Connecticut Yankee's filed plan to
decommission the plant. The judge claimed that estimates of clean-up costs
were flawed and certain restoration costs were not supported. The judge also
said Connecticut Yankee could not pass on spent fuel storage costs to rate-
payers. The judge recommended that Connecticut Yankee withdraw its
decommissioning plan and submit a new plan which addresses the issues cited by
him. FERC will review the judge's recommendations and issue a decision on this
case in the coming months. If FERC concurs with the judge's recommendation,
this may result in a write down of certain of Connecticut Yankee plant
invest ments. Montaup cannot predict the ultimate outcome of FERC's review.
In August 1997, as the result of an economic evaluation, the Maine Yankee Board
of Directors voted to permanently close that nuclear plant. Montaup has a 4.0%
equity ownership in Maine Yankee. Montaup's share of the total estimated costs
for the permanent shutdown, decommissioning, and recovery of the remaining
investment in Maine Yankee is approximately $31.0 million. In January 1998,
FERC accepted Maine Yankee's rate filing, subject to refund, for the recovery
of its costs during the decommissioning period. On January 19, 1999, Maine
Yankee and the active intervening parties filed an Offer of Settlement with
FERC which was supported by FERC trial staff. Upon commission approval, this
agreement will constitute full settlement of issues raised in this proceeding.
Also, Montaup is recovering through rates its share of estimated
decommissioning costs for Millstone 3 and Seabrook I. Montaup's share of the
current estimate of total costs to decommission Millstone 3 is $22.4 million in
1998 dollars, and Seabrook I is $14.4 million in 1998 dollars. These figures
are based on studies performed for the lead owners of the units. Montaup also
pays into decommissioning reserves pursuant to contractual arrangements with
other nuclear generating facilities in which it has an equity ownership
interest or life of the unit entitlement. Such expenses are currently
recoverable through rates.
Pensions: EUA maintains a noncontributory defined benefit pension plan
covering most of the employees of the EUA System (Retirement Plan). Retirement
Plan benefits are based on years of service and average compensation over the
four years prior to retirement. It is the EUA System's policy to fund the
Retirement Plan on a current basis in amounts determined to meet the funding
standards established by the Employee Retirement Income Security Act of 1974.
Total pension (income) expense for the Retirement Plan, including an amount
related to the 1997 voluntary retirement incentive offer, for 1998, 1997 and
1996 included the following components:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997 1996
<S> <C> <C> <C>
Service cost $2,929 $2,816 $3,126
Interest cost 10,390 10,116 9,765
Expected return on assets (15,033) (13,761) (12,817)
Net amortization:
Prior service cost 671 667 700
Net actuarial (gain) (395) (183)
Transition obligation (asset) (274) (274) (274)
Net periodic pension
(income) expense (1,712) (619) 500
Subsidiary Curtailment (131)
Total periodic pension
(income) expense $(1,712) $(750) $500
Assumptions used to determine pension costs:
Discount Rate 7.25% 7.50% 7.25%
Compensation Increase Rate 4.25% 4.25% 4.25%
Long-Term Return on Assets 9.50% 9.50% 9.50%
</TABLE>
The following tables set forth the actuarial present value of projected benefit
obligations, fair value of assets and funded status at December 31, 1998 and
1997:
<TABLE>
Reconciliation of Projected Benefit Obligation
<CAPTION>
($ in thousands) 1998 1997
<S> <C> <C>
Beginning of Year Benefit Obligation $144,915 $136,286
Service Cost 2,929 2,816
Interest Cost 10,390 10,116
Actuarial loss 9,256 4,519
Disbursements (8,032) (8,403)
Settlements or curtailments (419)
End of year benefit obligation $159,458 $144,915
Reconciliation of Fair Value of Assets
($ in thousands) 1998 1997
Beginning of Year Fair Value of Assets $182,795 $161,300
Actual return on plan assets 38,074 29,898
Disbursements (8,032) (8,403)
End of Year Fair Value of Assets $212,837 $182,795
Reconciliation of Funded Status
($ in thousands) 1998 1997
Projected benefit obligation (PBO) $(159,458) $(144,915)
Fair value of plan assets (FVA) 212,837 182,795
PBO less than FVA (funded status) 53,379 37,880
Unrecognized prior service cost 4,153 4,768
Unrecognized net transition obligation (asset) (662) (936)
Unrecognized net actuarial (gain) (54,845) (41,399)
Net amount recognized $2,025 $313
</TABLE>
The discount rate used to determine pension obligations, effective January 1,
1999 was changed from 7.25% to 6.75% and was used to calculate the plan's
funded status at December 31, 1998.
The voluntary retirement incentive also resulted in $1.3 million of non-
qualified pension benefits which were expensed in 1997. At December 31, 1998,
approximately $2.7 million was included in other liabilities for these unfunded
benefits.
EUA also maintains non-qualified supplemental retirement plans for certain
officers and trustees of the EUA System (Supplemental Plans). Benefits
provided under the Supplemental Plans are based primarily on compensation at
retirement date. EUA maintains life insurance on certain participants of the
Supplemental Plans, and policy cash values and death benefits may be available
to offset EUA's obligations under the Supplemental Plans. As of December 31,
1998, approximately $6.5 million was included in accrued expenses and other
liabilities for these plans. Expenses related to the Supplemental Plans were
$1.1 million in 1998, $1.9 million in 1997, and $1.5 million in 1996.
EUA also provides a defined contribution 401(k) savings plan for substantially
all employees. EUA's matching percentage of employees' voluntary contributions
to the plan, amounted to $1.5 million in 1998 and 1997, and $1.3 million in
1996.
Post-Retirement Benefits: Retired employees are entitled to participate in
health care and life insurance benefit plans. Health care benefits are subject
to deductibles and other limitations. Health care and life insurance benefits
are partially funded by EUA System companies for all qualified employees.
The total cost of post-retirement benefits other than pensions, including an
amount related to the 1997 voluntary retirement incentive offer, for 1998, 1997
and 1996 includes the following components:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997 1996
<S> <C> <C> <C>
Service cost $967 $949 $1,123
Interest cost 4,526 4,434 4,449
Expected return on assets (1,849) (1,254) (847)
Net amortization:
Net actuarial (gain) (780) (842) (617)
Transition obligation 3,289 3,289 3,313
Net periodic postretirement
benefit cost 6,153 6,576 7,421
Subsidiary Curtailment (548)
Voluntary Retirement Incentive 172
Total periodic postretirement
Benefit cost $6,153 $6,200 $7,421
Assumptions used to determine post-retirement costs
Discount rate 7.25% 7.50% 7.25%
Health care cost trend rate
- near-term 6.00% 7.00% 9.00%
- long-term 5.00% 5.00% 5.00%
Compensation increase rate 4.25% 4.25% 4.25%
Long-term return on assets
- union 8.50% 8.75% 8.50%
- non-union 7.50% 7.75% 7.50%
</TABLE>
The following tables forth the actuarial present value of accumulated
postretirement benefit obligation, fair value of assets and funded status
at December 31, 1998.
Reconciliation of Accumulated Post-retirement Benefit Obligation
($ in thousands) 1998 1997
Beginning of Year Benefit Obligation $ 64,826 $ 62,122
Service Cost 967 949
Interest Cost 4,526 4,434
Participant Contributions 151 211
Actuarial Loss 2,644 242
Disbursements (3,486) (2,791)
Settlements or Curtailments (341)
End of Year Benefit Obligation $ 69,628 $ 64,826
Reconciliation of Fair Value Assets
($ in thousands) 1998 1997
Beginning of Year Fair Value of Assets $ 23,729 $ 17,743
Actual return on plan assets 3,007 1,433
Company contributions 6,794 7,133
Participant contributions 151 211
Disbursements (3,486) (2,791)
End of Year Fair Value of Assets $ 30,195 $ 23,729
Reconciliation of Funded Status
($ in thousands) 1998 1997
Accumulated post-retirement benefit
obligation (APBO) $(69,628) $(64,826)
Fair value of plan assets (FVA) 30,195 23,729
APBO (in excess of) FVA (Funded Status) (39,433) (41,097)
Unrecognized net transition
obligation (asset) 46,046 49,335
Unrecognized net actuarial (gain) (13,967) (16,233)
Net amount recognized $(7,354) $(7,995)
Effect of 1% Change in Assumed Health Care Cost Trend Rate
One Percentage Point
($ in thousands) Increase Decrease
Effect on 1998 service and interest cost
components of net-periodic costs $814 $(649)
Effect on 1998 accumulated post-retirement
benefit obligation $8,578 $(6,996)
The discount rate used to determine post-retirement benefit obligations
effective January 1, 1999 was changed from 7.25% to 6.75% and was used to
calculate the funded status of post-retirement benefits at December 31, 1998.
Long-Term Purchased Power Contracts: The EUA System is committed under long-
term purchased power contracts, expiring on various dates through September
2021, to pay demand charges whether or not energy is received. Under terms in
effect at December 31, 1998, the aggregate annual minimum commitments for such
contracts are approximately $111 million in 1999, $109 million in 2000, $111
million in 2001, $108 million in 2002, $101 million in 2003 and will aggregate
approximately $927 million for the ensuing years. In addition, the EUA System
is required to pay additional amounts depending on the actual amount of energy
received under contracts in effect. The demand costs associated with these
contracts are reflected as Purchased Power-Demand on the Consolidated Statement
of Income. Such costs are currently recoverable through rates. Pending
regulatory approval, certain power contract transfers related to the
divestiture of EUA's generating assets will become effective in 1999. Upon
completion of the power contract transfers, the demand charges will be reduced
to $54 million in 1999, $43 million in 2000, $40 million in 2001, $42 million
in 2002, $26 million in 2003, and $162 million in the ensuing years.
Environmental Matters: There is an extensive body of federal and state
statutes governing environmental matters, which permit, among other things,
federal and state authorities to initiate legal action providing for liability,
compensation, cleanup, and emergency response to the release or threatened
release of hazardous substances into the environment and for the cleanup of
inactive hazardous waste disposal sites which constitute substantial hazards.
Because of the nature of the EUA System's business, various by-products and
substances are produced or handled which are classified as hazardous under the
rules and regulations promulgated by the United States Environmental Protection
Agency (EPA) as well as state and local authorities. The EUA System generally
provides for the disposal of such substances through licensed contractors, but
these statutory provisions generally impose potential joint and several
responsibility on the generators of the wastes for cleanup costs. Subsidi-
aries of EUA have been notified with respect to a number of sites where they
may be responsible for such costs, including sites where they may have joint
and several liability with other responsible parties. It is the policy of the
EUA System companies to notify liability insurers and to initiate claims. EUA
is unable to predict whether liability, if any, will be assumed by, or can be
enforced against, the insurance carriers in these matters.
On December 13, 1994, the United States District Court for the District of
Massachusetts (District Court) issued a judgment against Blackstone, finding
Blackstone liable to the Commonwealth of Massachusetts (Commonwealth) for the
full amount of response costs incurred by the Commonwealth in the cleanup of a
by-product of manufactured gas at a site at Mendon Road in Attleboro,
Massachusetts. The judgment also found Blackstone liable for interest and
litigation expenses calculated to the date of judgment. The total liability is
approximately $5.9 million, including approximately $3.6 million in interest
which had accumulated since 1985. Due to the uncertainty of the ultimate
outcome of this proceeding and anticipated recoverability, Blackstone recorded
the $5.9 million District Court judgment as a deferred charge. This amount is
included with Other Assets on the Consolidated Balance Sheet at December 31,
1998 and 1997.
Blackstone filed a Notice of Appeal of the District Court Judgment and filed
its brief with the United States Court of Appeals for the First Circuit (First
Circuit) on February 24, 1995. On October 6, 1995, the First Circuit vacated
the District Court's judgment and ordered the District Court to refer the
matter to the EPA to determine whether the chemical substance, ferric
ferrocyanide (FFC), contained within the by-product is a hazardous substance.
On January 20, 1995, Blackstone entered into an escrow agreement with the
Commonwealth whereby Blackstone deposited $5.9 million with an escrow agent who
transferred the funds into an interest bearing money market account. The
distribution of the proceeds of the escrow account will be determined upon the
final resolution of the judgment. No additional interest expense will accrue
on the judgment amount.
On January 28, 1994, Blackstone filed a complaint in the District Court,
seeking, among other relief, contribution and reimbursement from Stone &
Webster Inc., of New York City and several of its affiliated companies (Stone &
Webster), and Valley Gas Company of Cumberland, Rhode Island (Valley) for any
damages incurred by Blackstone regarding the Mendon Road site. On November 7,
1994, the Court denied motions to dismiss the complaint which were filed by
Stone & Webster and Valley. This proceeding was stayed in December 1995
pending final EPA determination as to whether FFC is a hazardous substance.
In addition, Blackstone has notified certain liability insurers and has filed
claims with respect to the Mendon Road site, as well as other sites. Blackstone
reached settlement with one carrier for reimbursement of legal costs related to
the Mendon Road case. In January 1996, Blackstone received the proceeds of the
settlement.
As of December 31, 1998, the EUA System had incurred costs of approximately
$7.7 million (excluding the $5.9 million Mendon Road judgment) in connection
with the investigation and clean-up of these sites, substantially all of which
relate to Blackstone. These amounts have been financed primarily by internally
generated cash. Blackstone is currently amortizing all of its incurred costs
over a five-year period consistent with prior regulatory recovery periods and
is recovering certain of those costs in rates.
EUA estimates that additional costs of up to $2.5 million (excluding the $5.9
million Mendon Road judgment) may be incurred at these sites through 1999,
substantially all of which relates to sites at which Blackstone is a
potentially responsible party. Estimates beyond 1999 cannot be made since site
studies, which are the basis of these estimates, have not been completed. As a
result of the recoverability of cleanup costs in rates and the uncertainty
regarding both its estimated liability, as well as its potential contributions
from insurance carriers and other responsible parties, EUA does not believe
that the ultimate impact of the environmental costs will be material to the
financial position of the EUA System or to any individual subsidiary and thus
no loss provision is required at this time.
The Clean Air Act Amendments created new regulatory programs and generally
updated and strengthened air pollution control laws. These amendments expanded
the regulatory role of the EPA regarding emissions from electric generating
facilities and a host of other sources. EUA System generating facilities were
first affected in 1995, when EPA regulations took effect for facilities owned
by the EUA System. Montaup's coal-fired Somerset Unit 6 is utilizing lower
sulfur content coal to meet the 1995 air standards. EUA does not anticipate
the impact from the Amendments to be material to the financial position of the
EUA System.
In July 1997, the EPA issued a new and more stringent rule covering ozone
particulate matter which is to be followed by promulgation of more stringent
ozone and particulate matter standards. The effect that such standards will
have on the EUA System cannot be determined by management at this time.
Eastern Edison, Montaup, the Massachusetts Attorney General and Division of
Energy Resources entered into a settlement regarding electric utility industry
restructuring in Massachusetts. The settlement includes a plan for emissions
reductions related to Montaup's Somerset Station Units 5 and 6. The basis for
SO2 and NOx emission reductions in the proposed settlement is an allowance cap
calculation. Montaup may meet its allowance caps by any combination of control
technologies, fuel switching, operational changes, and/or the use of purchased
or surplus allowances. The settlement was approved by FERC on December 19,
1997.
In April 1992, the Northeast States for Coordinated Air Use Management
(NESCAUM), an environmental advisory group for eight northeast states including
Massachusetts and Rhode Island, issued recommendations for NOx controls for
existing utility boilers required to meet the ozone non-attainment requirements
of the Clean Air Act. The NESCAUM recommendations are more restrictive than
the Clean Air Act requirements. The Massachusetts Department of Environmental
Management has amended its regulations to require that Reasonably Available
Control Technology (RACT) be implemented at all stationary sources potentially
emitting 50 tons or more per year of NOx. Similar regulations have been issued
in Rhode Island. Montaup has initiated compliance, through, among other
things, selective noncatalytic reduction processes.
See Note A regarding EUA's planned divestiture of generation assets.
A number of scientific studies in the past several years have examined the
possibility of health effects from EMF that are found wherever there is
electricity. While some of the studies have indicated some association between
exposure to EMF and health effects, many others have indicated no direct
association. Some states have enacted regulations to limit the strength of
magnetic fields at the edge of transmission line rights-of-way. Rhode Island
has enacted a statute which authorizes and directs the Energy Facility Siting
Board to establish rules and regulations governing construction of high voltage
transmission lines of 69 kv or more. Management cannot predict the ultimate
outcome of the EMF issue.
Guarantee of Financial Obligations: EUA has guaranteed or entered into equity
maintenance agreements in connection with certain obligations of its
subsidiaries. EUA has guaranteed the repayment of EUA Cogenex's $24.5 million,
10.56% unsecured long-term notes due 2005 and EUA Ocean State's $26.1 million,
9.59% unsecured long-term notes due 2011. In addition, EUA has entered into
equity maintenance agreements in connection with the issuance of EUA Service's
10.2% Secured Notes and EUA Cogenex's 9.6% Unsecured Notes. Under the December
1992 settlement agreement with EUA Power, EUA reaffirmed its guarantee of up to
$10 million of EUA Power's share of the decommissioning costs of Seabrook I and
any costs of cancellation of Seabrook I or Seabrook II. EUA guaranteed this
obligation in 1990 in order to secure the release to EUA Power of a $10 million
fund established by EUA Power at the time EUA Power acquired its Seabrook
interest. EUA has not provided a reserve for this guarantee because management
believes it unlikely that EUA will ever be required to honor the guarantee.
Montaup is a 3.27% equity participant in two companies which own and operate
transmission facilities interconnecting New England and the Hydro Quebec system
in Canada. Montaup has guaranteed approximately $4.1 million of the
outstanding debt of these two companies. In addition, Montaup and Newport have
minimum rental commitments which total approximately $11.2 million and $1.4
million, respectively, under a noncancelable transmission facilities support
agreement for years subsequent to 1998.
Other: Since early 1997, fourteen plaintiffs brought suits against numerous
defendants, including EUA, for injuries and illness allegedly caused by
exposure to asbestos over approximately a thirty-year period, at premises,
including some owned by EUA companies. The total damages claimed in all of
these complaints was $34 million in compensatory and punitive damages, plus
exemplary damages and interest and costs. Each complaint names between fifteen
and twenty-eight defendants, including EUA. These complaints have been
referred to the applicable insurance companies. Counsel has been retained by
the insurers and is actively defending all cases. Four cases have been
dismissed as against the EUA Companies. EUA cannot predict the ultimate
outcome of this matter at this time.
A pending class action, filed on March 2, 1998, in the Massachusetts Supreme
Judicial Court naming all Massachusetts electric distribution companies,
including Eastern Edison, and certain Massachusetts state agencies as
defendants, seeks to invalidate certain sections of the Electric Utility
Restructuring Act of 1997. The Act directs the Massachusetts Department of
Telecommunications and Energy to impose mandatory charges on all electricity
sold to customers, except those served by a municipal lighting plant, to fund
energy efficiency activities and to promote renewable energy projects. In
addition to declaratory judgment, plaintiffs seek remittance of monies paid to
each distribution company by customers along with any interest earned. The
outcome of this class action is unknown at this time however, Eastern Edison is
vigorously defending the lawsuit.
Report of Independent Accountants
To the Trustees and Shareholders of Eastern Utilities Associates
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of equity capital and preferred stock and indebtedness
present fairly, in all material respects, the financial position of Eastern
Utilities Associates (the Company) and its subsidiaries at December 31, 1998
and 1997, and their consolidated statements of income, retained earnings and
cash flows present fairly their results of operations and cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 5, 1999
Report of Management
The management of Eastern Utilities Associates is responsible for the
consolidated financial statements and related information included in this
annual report. The financial statements are prepared in accordance with
generally accepted accounting principles and include amounts based on the best
estimates and judgments of management, giving appropriate consideration to
materiality. Financial information included elsewhere in this annual report is
consistent with the financial statements.
The EUA System maintains an accounting system and related internal controls
which are designed to provide reasonable assurances as to the reliability of
financial records and the protection of assets. The System's staff of internal
auditors conducts reviews to maintain the effectiveness of internal control
procedures.
PricewaterhouseCoopers LLP an independent accounting firm, is engaged by EUA to
audit and express an opinion on our financial statements. Their audit includes
a review of internal controls to the extent required by generally accepted
auditing standards for such audit.
The Audit Committee of the Board of Trustees, which consists solely
of outside Trustees, meets with management, internal auditors
and PricewaterhouseCoopers LLP to discuss auditing, internal controls and
financial reporting matters. The internal auditors and PricewaterhouseCoopers
LLP have free access to the Audit Committee without management present.
Quarterly Financial and Common Share Information (unaudited)
($ in thousands except per Share and Share Price Amounts)
<TABLE>
<CAPTION>
Basic and
Diluted Earnings Dividends Common Share
Consolidated per Average Paid per Market Price
Operating Operating Net Net Common Common
Revenues Income Income Earnings Share Share High Low
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE QUARTERS
ENDED 1998:
December 31 $133,416 $15,153 $9,085 $8,509 $0.42 $0.415 28 1/4 24 5/8
September 30 136,033 15,461 9,788 9,212 0.45 0.415 26 15/16 24 5/16
June 30 130,046 12,531 6,449 5,872 0.29 0.415 27 3/8 24 7/16
March 31 139,306 18,492 11,693 11,117 0.54 0.415 27 11/16 23 11/16
FOR THE QUARTERS
ENDED 1997:
December 31 $145,878 $15,378 $11,158 $10,582 $0.52 $0.415 26 5/8 20 1/8
September 30 142,026 15,896 11,542 10,966 0.54 0.415 19 15/16 18 7/16
June 30 138,856 11,327 6,510 5,933 0.29 0.415 18 1/2 16 3/8
March 31 141,753 16,206 11,055 10,479 0.51 0.415 19 5/8 17 1/4
</TABLE>
<TABLE>
Consolidated Operating and Financial Statistics (unaudited)
<CAPTION>
Years Ended December 31, 1998 1997 1996 1995 1994 1993 1988
<S> <C> <C> <C> <C> <C> <C> <C>
ENERGY GENERATED
AND PURCHASED (millions of kWh):
Generated
- by Somerset Station 778 845 719 679 658 319 1,190
- by Nuclear Units 702 570 977 752 1,008 1,033 472
- by Jointly-Owned Units 1,895 1,350 848 1,410 1,615 1,809 1,836
- by Life of the Unit Contracts 784 805 526 236 648 602 884
- by Newport 1
Interchange with NEPOOL 250 372 381 573 295 360 23
Purchased Power - Unit Power 1,565 1,514 1,765 1,463 1,526 1,396 495
Total Generated and Purchased 5,974 5,456 5,216 5,113 5,750 5,520 4,900
OPERATING REVENUES
($ in thousands):
Residential $194,646 $203,315 $192,569 $193,233 $190,662 $189,470 $127,883
Commercial 160,587 168,680 164,096 169,841 169,241 179,145 119,362
Industrial 79,042 82,587 80,417 83,061 81,500 81,445 69,516
Other 17,112 25,574 14,281 17,482 17,282 21,790 10,290
Total Primary Sales Revenues 451,387 480,156 451,363 463,617 458,685 471,850 327,051
Other Electric Utilities<F1> 6,035 5,411 5,447 4,900 5,098 23,660
Unit Contracts<F1> 28,693 20,505 13,945 14,800 26,213 22,617 19,518
Non-Electric 58,721 61,817 56,349 79,499 74,480 66,912 3,909
Total Operating Revenues $538,801 $568,513 $527,068 $563,363 $ 564,278 $566,477 $374,138
ENERGY SALES (millions of kWh):
Residential 1,788 1,783 1,740 1,697 1,678 1,624 1,412
Commercial 1,689 1,653 1,665 1,674 1,671 1,704 1,424
Industrial 915 889 868 867 850 816 869
Other 149 142 132 128 137 147 28
Total Primary Sales 4,541 4,467 4,405 4,366 4,336 4,291 3,733
Other Electric Utilities<F1> 79 86 75 74 61 377
Losses and Company Use 247 219 208 227 233 247 220
Total System Requirements 4,788 4,765 4,699 4,668 4,643 4,599 4,330
Unit Contracts<F1> 1,186 691 517 445 1,107 921 570
Total Energy Sales 5,974 5,456 5,216 5,113 5,750 5,520 4,900
NUMBER OF CUSTOMERS:
Residential 274,740 272,608 270,319 268,203 263,054 259,654 224,933
Commercial 28,390 27,599 27,331 27,401 29,004 30,805 26,611
Industrial 1,847 1,810 1,779 1,685 1,603 1,294 1,229
Other Electric Utilities 7 8 8 8 12 12 5
Other 34 34 34 34 34 34 29
Total Customers 305,018 302,059 299,471 297,331 293,707 291,799 252,807
Average Annual Revenue
per Residential Customer ($) 708 746 712 720 725 730 569
Average Annual Use per Residential
Customer (kWh) 6,509 6,540 6,437 6,327 6,379 6,254 6,277
AVERAGE REVENUE
PER KWH (cents):
Residential 10.89 11.40 11.06 11.39 11.36 11.67 9.06
Commercial 9.51 10.20 9.86 10.15 10.13 10.51 8.38
Industrial 8.64 9.29 9.26 9.58 9.59 9.98 8.00
<FN>
<F1> Effective January 1998, Middleboro and Pascoag are no longer contract
demand customers of Montaup. Energy sales to these customers are now
included with unit contracts.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996 1995 1994 1993 1988
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITALIZATION ($ in thousands):
Bonds - Net $203,676 $215,252 $277,313 $279,374 $288,449 $300,389 $294,500
Other Long-Term Debt - Net 106,670 117,550 129,024 155,497 166,963 196,427 260,064
Total Long-Term Debt - Net 310,346 332,802 406,337 434,871 455,412 496,816 554,564
Preferred Stock - Net 34,895 34,512 33,935 33,155 32,290 31,953 49,693
Common Equity 373,674 373,467 371,813 375,229 365,443 333,165 301,759
Total Capitalization $718,915 $740,781 $812,085 $843,255 $853,145 $861,934 $906,016
CAPITALIZATION RATIOS (%):
Long-Term Debt 43 45 50 52 53 57 61
Preferred Stock 5 5 4 4 4 4 6
Common Equity 52 50 46 44 43 39 33
COMMON SHARE DATA:
Basic and Diluted Earnings
per Average Common Share ($) 1.70 1.86 1.50 1.61 2.41 2.44 2.85
Dividends per Share ($) 1.66 1.66 1.645 1.585 1.515 1.42 2.375
Payout (%) 97.7 89.2 109.7 98.4 62.9 58.2 83.3
Average Common
Shares Outstanding 20,435,997 20,435,997 20,436,217 20,238,961 19,671,970 18,391,147 13,167,915
Total Common Shares
Outstanding 20,435,997 20,435,997 20,435,997 20,436,764 19,936,980 19,032,598 13,371,252
Book Value per Share ($) 18.29 18.27 18.19 18.36 18.33 17.50 22.57
Percent Earned On Average
Common Equity 9.3 10.2 8.2 8.8 13.6 15.0 12.8
Market Price ($):
High 28 1/4 26 5/8 24 1/4 25 27 3/8 29 7/8 33 1/8
Low 23 11/16 16 3/8 14 3/4 21 1/2 21 3/8 23 7/8 21 1/8
Year End 28 1/4 26 1/4 17 3/8 23 5/8 22 28 31 1/8
Miscellaneous ($ in thousands):
Total Construction Expenditures ($) 51,374 76,280 63,182 78,461 50,870 76,770 151,198
Cash Construction Expenditures ($) 51,201 76,118 62,730 77,923 50,519 76,391 65,307
Internally Generated Funds ($) 128,030 85,637 77,545 90,883 79,274 79,691 38,894
Internally Generated Funds as
a % of Cash Construction (%) 250.1 112.5 123.6 116.6 156.9 104.3 59.6
Installed Capability - mw 1,077<F1> 1,075<F2> 1,208 1,191 1,212 1,256<F3> 1,090
Less: Unit Contract Sales - mw 35 35 60 35 85 85 98
System Capability - mw 1,042 1,040 1,148 1,156 1,127 1,171 992
System Peak Demand - mw 940<F4> 933 854 931 921 854 813
Reserve Margin (%) 10.8<F1> 11.5 34.4 24.2 22.4 37.1 22.0
System Load Factor (%) 58.1<F4> 58.3 62.6 57.2 57.5 61.5 60.8
Sources of Energy (%):
Nuclear 22.9 17.0 29.0 28.2 33.8 34.0 18.2
Coal 16.4 17.9 14.7 14.7 11.7 5.4 27.0
Oil 26.3 31.2 19.8 25.5 20.0 28.3 54.8
Gas 28.8 28.2 30.8 26.5 28.4 26.0
Other 5.6 5.7 5.7 5.1 6.1 6.3
Cost of Fuel (Mills per kWh):
Nuclear 5.0 5.7 5.0 6.3 6.1 7.5 8.2
Coal 18.9 18.6 19.6 20.3 20.9 24.1 20.5
Oil 22.3 31.0 37.7 30.2 27.1 25.5 22.6
Gas 15.6 16.4 14.4 14.3 14.1 15.1
All Fuels Combined 15.7 19.2 16.7 16.7 14.5 15.5 19.4
<FN>
<F1> Includes 283 mw from the Canal 2 Generating Station, which was sold on December 30, 1998.
<F2> Due to the extended outage of the Milestone 3 Nuclear Unit, our 46 mw ownership share was not included in installed capability.
<F3> Excludes the 69 mw Somerset Station Unit #5 which was placed in deactivated reserve on January 25, 1994.
<F4> Includes retail load provided by alternative suppliers.
</FN>
</TABLE>
Shareholder Information
Shares of Eastern Utilities Associates are listed on the New York and Pacific
Stock Exchanges, under the ticker symbol EUA. As of February 1, 1999, there
were 10,227 common shareholders of record.
Form 10-K
A copy of EUA's 1998 Annual Report on Form 10K filed with the Securities and
Exchange Commission is available to shareholders without charge by writing to
us.
Annual Meeting
The 1999 Annual Meeting of Shareholders will be held on Monday, May 17, 1999,
at 9:30 a.m.,
in the Board Room, 33rd Floor
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts
Registrar, Transfer Agent and Dividend Disbursing Agent for Common and
Preferred Shares
Investor Relations
BankBoston, N.A.
c/o EquiServe
P.O. Box 8040
Boston, MA 02266-8040
1-800-736-3001 (Toll-Free)
Lost or Stolen Stock Certificates
If your stock certificate is lost, destroyed or stolen, you should notify
the transfer agent immediately so a "stop transfer" order can be placed on the
missing certificate. The transfer agent then will send you the required
documents to obtain a replacement certificate.
Dividends
Schedule of anticipated record and payment dates for 1999 dividends on EUA
Common Shares:
Record Payment
February 1 February 16
April 30 May 15
August 2 August 16
November 1 November 15
Direct Deposit Plan
EUA Shareholders have the option of having their EUA dividends deposited
directly into their bank accounts. If you wish to participate, contact EUA
investor relations at 1-800-736-3001 (Toll-Free).
Replacement of Dividend Checks
If you do not receive your dividend check within ten business days after the
dividend payment date, or if your check is lost, destroyed or stolen, you
should notify the disbursing agent in writing for a replacement.
Dividend Reinvestment and Common Share Purchase Plan
A Dividend Reinvestment and Common Share Purchase Plan is available to all
registered shareholders and EUA System company employees. It is a simple and
convenient method of purchasing additional shares of EUA common stock.
Participants also may make cash payments to purchase additional shares. You
may obtain complete details by writing to Clifford J. Hebert, Jr., Vice
President - Finance & Treasurer at the address shown below under "Financial
Community Inquiries."
Duplicate Mailings
Duplicate mailings are costly. Shareholders may be receiving duplicate copies
of annual and quarterly reports due to multiple stock accounts in the same
household. To eliminate additional mailings of these reports, please write to
us and enclose label(s) or label information from the duplicate reports.
Dividend checks and proxy material will continue to be sent for each account on
record.
EUA is required by law to create a separate account for each name when stock is
held in similar but different names (e.g., John A. Smith, J. A. Smith, John A.
and Mary K. Smith, etc.). Please contact the Company for instructions if you
wish to consolidate multiple accounts.
Financial Community Inquiries
Institutional investors and securities analysts should direct inquiries to:
Clifford J. Hebert, Jr., Vice President - Finance & Treasurer
EUA Service Corporation
Post Office Box 2333
Boston, MA 02107
(617) 357-9590
The name Eastern Utilities Associates is the designation of the Trustees for
the time being under a Declaration of Trust dated April 2, 1928, as amended.
All persons dealing with Eastern Utilities Associates must look solely to the
trust property for the enforcement of any claims against Eastern Utilities
Associates, as neither the Trustees, Officers nor Shareholders assume any
personal liability for obligations entered into on behalf of Eastern Utilities
Associates.
Internet Address
Visit EUA's Home Page on the World Wide Web at:
http://www.eua.com
Trustees
Russell A. Boss (F, P)
President and Chief Executive Officer
A. T. Cross Company
Lincoln, Rhode Island
Paul J. Choquette, Jr. (C, F)
Chairman and Chief Executive Officer
Gilbane Building Company
Providence, Rhode Island
Peter S. Damon (A, C)
Vice Chairman, Financial Services
Bank of Newport
Newport, Rhode Island
Peter B. Freeman (F, P)
Corporate Director and Trustee
Providence, Rhode Island
Larry A. Liebenow (A, C)
President and Chief Executive Officer
Quaker Fabric Corporation
Fall River, Massachusetts
Jacek Makowski (F, P)
Chairman, Poseidon Resources Corporation
Stamford, Connecticut
Wesley W. Marple, Jr. (A, C)
Professor of Business Administration
Northeastern University
Boston, Massachusetts
Donald G. Pardus
Chairman of the Board of Trustees and
Chief Executive Officer of the Association
Margaret M. Stapleton (A, P)
Vice President
John Hancock Mutual Life Insurance Company
Boston, Massachusetts
John R. Stevens
President and Chief Operating Officer of the Association
W. Nicholas Thorndike (A, F)
Corporate Director and Trustee
Brookline, Massachusetts
A Indicates member of Audit Committee
C Indicates member of Compensation and Nominating Committee
F Indicates member of Finance Committee
P Indicates member of Pension Trust Committee
EUA System Officers
Donald G. Pardus
Chairman of the Board of Trustees and
Chief Executive Officer
John R. Stevens
President and Chief Operating Officer
John D. Carney
Executive Vice President
Robert G. Powderly
Executive Vice President
Clifford J. Hebert, Jr.
Treasurer and Secretary
Donald T. Sena
Assistant Treasurer
Company Profile
Blackstone Valley Electric Company (Blackstone or the Company) is a retail
electric utility company. Blackstone supplies retail electric service to
approximately 86,000 customers in the cities of Central Falls, Pawtucket and
Woonsocket, and four surrounding towns in northern Rhode Island. Blackstone is
a wholly owned subsidiary of Eastern Utilities Associates (EUA). EUA owns
directly all of the shares of common stock of Blackstone, Eastern Edison
Company (Eastern Edison) and Newport Electric Corporation (Newport). These EUA
subsidiaries are collectively referred to as the Retail Subsidiaries. Eastern
Edison and Newport are retail electric utility companies operating in
southeastern Massachusetts and south coastal Rhode Island, respectively.
Eastern Edison owns all of the permanent securities of Montaup Electric Company
(Montaup), a generation and transmission company, which supplies electricity to
Blackstone, to Eastern Edison, to Newport and to two unaffiliated utilities for
resale. EUA also owns directly all of the shares of common stock of EUA
Service Corporation (EUA Service), EUA Cogenex Corporation (EUA Cogenex), EUA
Energy Investment Corporation (EUA Energy), EUA Ocean State Corporation (EUA
Ocean State), EUA Energy Services, Inc. (EUA Energy Services) and EUA
Telecommunications Corporation (EUA Telecommunications). EUA Service provides
various accounting, financial, engineering, planning, data processing and other
services to all EUA System companies. EUA Cogenex is an energy services
company. EUA Energy was organized to invest in energy related projects. EUA
Ocean State owns a 29.9% interest in Ocean State Power's two gas-fired
generating units in northern Rhode Island Island. EUA Energy Services markets
energy and energy related services. EUA Telecommunications provides
telecommunications and information services. The holding company system of
EUA, the Retail Subsidiaries, Montaup, EUA Service, EUA Cogenex, EUA Energy,
EUA Ocean State, EUA Energy Services, and EUA Telecommunications is referred to
as the EUA System. The Core Electric Business consists of the Retail
Subsidiaries and Montaup. (See Electric Utility Industry Restructuring for a
discussion of changes taking place in the utility industry in the territories
serviced by EUA's Core Electric Business.)
Form 10-K
A copy of EUA's, Eastern Edison's and Blackstone's Co-Registrant 1998
Annual Report on Form 10-K, which is filed with the Securities and Exchange
Commission, is available without charge by contacting us at:
EUA Service Corporation
Post Office Box 2333
Boston, MA 02107
(617) 357-9590
Internet Address
Visit EUA's Home Page on the worldwide web at: http://www.eua.com.
MARKET FOR BLACKSTONE'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
All of Blackstone's common stock is owned beneficially and of record by
EUA.
The dividends paid on common stock during the past two years are as
follows:
Dividends Paid Dividends Paid
1998 Per Share 1997 Per Share
First Quarter $1.90 First Quarter $4.75
Second Quarter 1.90 Second Quarter 4.75
Third Quarter 1.90 Third Quarter 4.75
Fourth Quarter -0- Fourth Quarter 4.75
No dividend may be paid on the common stock unless full dividends on the
outstanding preferred stock for all past and the current quarterly dividend
periods have been paid or declared and set apart for payment. Blackstone's
First Mortgage Indenture and Deed of Trust securing its First Mortgage Bonds
contains provisions which restrict the payment by Blackstone of cash dividends
on its common stock. See Notes C and D of Notes to Financial Statements and
Management's Discussion and Analysis of Financial Condition and Review of
Operations under Financial Condition and Liquidity.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
For the Years Ended December 31,
(In Thousands) 1998 1997 1996 1995 1994
____________________________________________________________________________________
Operating Revenues $130,202 $140,258 $136,911 $140,861 $140,611
Net Earnings 4,616 5,357 3,776 4,009 3,438
Total Assets 134,145 130,833 132,313 129,835 121,413
Capitalization:
Long-Term Debt-Net 32,000 33,500 35,000 36,500 38,000
Non-Redeemable Preferred
Stock (including premium) 6,130 6,130 6,130 6,130 6,130
Common Equity 41,658 38,092 36,232 37,045 37,180
Total Capitalization $ 79,788 $ 77,722 $ 77,362 $ 79,675 $ 81,310
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND REVIEW OF
OPERATIONS
Overview
Net Earnings for 1998 decreased approximately $700,000 to $4.6 million as
compared to 1997. Kilowatthour sales (kWh) of electricity were relatively
unchanged in 1998 as compared to 1997. KWh sales increases in the second and
third quarters of 1998 of 3.6% and 3.2%, respectively, were offset by sales
decreases in the first and fourth quarters of 1998 of 1.7% and 4.5%,
respectively, largely due to milder weather as compared to 1997.
Net Earnings for 1997 increased approximately $1.6 million to $5.4 million
compared to 1996. Net Earnings for 1997 include a one-time charge of
approximately $260,000, on an after-tax basis, related to the costs of a
voluntary retirement incentive offer (VRI) recorded in 1997, discussed below.
Kilowatthour (kWh) sales of electricity for 1997 increased by 2.6% as compared
to 1996, led by increased sales to residential and commercial customers of 4.8%
and 2.6%, respectively.
Proposed Merger Agreement
On February 1, 1999, EUA and New England Electric System (NEES) announced
a merger agreement under which NEES will acquire all outstanding shares of EUA
for $31 per share in cash. The merger agreement, which is subject to the
approval of EUA shareholders and various regulatory agencies, values the equity
of EUA at approximately $634 million, which represents a 23% premium above the
price of EUA shares on December 4, 1998, the last trading day before other
regional merger announcements affected EUA's share price. The merger is
expected to occur by early 2000.
Comparison of Financial Results
Operating Revenues
Operating Revenues decreased by approximately $10.1 million or 7.2% in
1998 as compared to 1997. This change was due primarily to recoveries of
decreased purchased power expenses (see below) resulting from rate reductions
pursuant to electric industry restructuring legislation and approved
settlements agreements. Offsetting this decrease somewhat was a 1.3% base rate
increase pursuant to the Rhode Island Utility Restructuring Act of 1996 (URA)
effective January 1, 1998.
Operating Revenues increased by approximately $3.3 million or 2.4% in 1997
as compared to 1996. This change was primarily due to recoveries of increased
conservation and load management (C&LM) expenses of approximately $800,000
(discussed below), and an approximate 1.9% base rate increase effective January
1, 1997 pursuant to the URA offset by recoveries of lower purchased power
expense (see discussions below).
1997 Voluntary Retirement Incentive
In June 1997, an early retirement offer was accepted by a group of
employees who were eligible for, but not offered, a VRI offer completed in
1995. The pre-tax cost of the 1997 offer, recorded in that year's second
quarter was approximately $400,000 (approximately $260,000 after-tax).
Expenses
Purchased Power expense, recovered through Blackstone's purchased power
adjustment clause, represented 66% of total 1998 operating expense. Purchased
Power expense decreased approximately $9.8 million or 10.8% in 1998 as compared
to 1997. The Company's purchased power expense now reflects the contract
termination charge and standard offer billings from Montaup effective January
1,
1998, pursuant to electric industry restructuring legislation and settlement
agreements. Purchased Power expense decreased approximately $700,000 or less
than 1% in 1997 as compared to 1996.
Other Operation and Maintenance expenses are comprised of two components,
Direct Controllable and Indirect. Direct Controllable expenses include expense
items such as salaries, fringe benefits, insurance, maintenance, etc. Indirect
expenses include items over which the Company has limited short-term control
including expenses related to accounting standards such as Statement of
Financial Accounting Standard No. 106, "Employers' Accounting for Post-
Retirement Benefits Other Than Pensions" (FAS106).
Other Operation and Maintenance (O&M) expenses, including affiliated
company transactions, increased approximately $1.2 million or 5.2% in 1998 as
compared to 1997. This increase was primarily due to increased C&LM expenses
of approximately $400,000 consistent with provisions of electric utility
industry restructuring legislation in Rhode Island, and increased customer
accounts expense of approximately $500,000. Other O&M expenses for 1997,
including affiliated company transactions, increased approximately $800,000
or 3.4% as compared to 1996. This change was primarily due to increased C&LM
expenses in 1997.
Taxes Other than Income decreased approximately $700,000 or 8.9% in 1998
as compared to 1997 due to lower Rhode Island Gross Receipts taxes as a result
of decreased revenues in 1998 and the absence of Rhode Island Gross Receipts
Tax rate billed to industrial customers of Blackstone since July of 1997.
Taxes Other than Income decreased by approximately $200,000 or 2.0% in 1997 as
compared to 1996. This decrease was due primarily to the 1% decrease in the
Rhode Island Gross Receipts Tax rate billed to industrial customers in 1997.
Blackstone's effective income tax rate for 1998 was approximately 39.7%
compared to 38.1% in 1997. Provisions of restructuring settlement agreements
which require acceleration of the catch-up of deferred tax deficiencies created
under prior regulatory practices were responsible for this change.
Other (Deductions) Income - Net decreased approximately $300,000 in 1998
as compared to 1997. The decrease is primarily due to the absence of interest
income allocated to Blackstone by the EUA Service Corporation in 1997 related
to the favorable resolution of a Massachusetts corporate income tax dispute.
Other Income and (Deductions) - Net increased approximately $200,000 in 1997
compared to 1996, primarily due to increased interest income allocated to
Blackstone by EUA Service Corporation in the first quarter of 1997 (discussed
above).
Net Interest charges decreased approximately $300,000 or 7.7% in 1998 as
compared to 1997, primarily due to lower interest on long-term debt due to
reductions in long-term debt balances resulting from normal required sinking
fund payments and decreased intercompany interest expense. Net Interest
charges for 1997 increased by approximately $300,000 or 8.5% as compared to
1996. This increase was primarily due to increased short-term borrowings and
increased intercompany interest expense offset by lower interest on long-term
debt due to reductions in long-term debt balances resulting from required
sinking fund payments.
Financial Condition and Liquidity
The Company is required to make capital expenditures in order to meet the
needs of its existing and future customers. For 1998, 1997 and 1996, the
Company's cash construction expenditures were approximately $6.0 million, $3.8
million, and $4.2 million, respectively. Internally generated funds provided
approximately 210%, 164%, and 104% of cash construction requirements in 1998,
1997 and 1996, respectively.
Cash Construction expenditures are expected to be $8.7 million in 1999,
$8.9 million in 2000, and $9.2 million in 2001, and are expected to be financed
with internally generated funds. Traditionally, construction requirements in
excess of internally generated funds are obtained through short-term borrowings
which are ultimately funded with permanent capital.
In July 1997, several EUA System companies, including Blackstone, entered
into a three-year revolving credit agreement allowing for borrowings in
aggregate of up to $145 million from all sources of short-term credit. As of
December 31, 1998, various financial institutions have committed up to $75
million under the revolving credit facility. In addition to the $75 million
available under the revolving credit facility, EUA System companies maintain
short-term lines of credit with various banks totaling $90 million for an
aggregate amount available of $165 million. At December 31, 1998, under the
revolving credit agreement, the EUA System had unused short-term lines of
credit of approximately $101.4 million. Blackstone had zero short-term
borrowings outstanding at December 31, 1998 and $1.4 million at December 31,
1997.
Blackstone's requirements for sinking fund payments and redemption of
securities for the five years following 1998 are $1.5 million in each of 1999
and 2000, and $3.3 million in each of 2001, 2002 and 2003, none of which
relate to the variable rate bonds. Blackstone is exposed to interest rate
risk primarily related to its variable rate bonds. Refer to the Statements of
Capitalization for a listing of Blackstone's long-term fixed and variable rate
debt.
Electric Utility Industry Restructuring
Rhode Island legislation along with approved electric utility industry
restructuring settlement agreements at both the state and federal levels,
granted Blackstone's customers with choice of electricity supplier and rate
reductions commencing January 1, 1998. Until a customer chooses an alternative
supplier, that customer will receive standard offer service. Blackstone is
required to arrange for standard offer service through December 31, 2009.
Under the approved settlement agreements, Montaup had guaranteed standard offer
supply at a fixed price schedule for the duration of the standard offer period
and Blackstone agreed to subject its standard offer requirements to a
competitive bidding process in which competitive suppliers would bid against
the guaranteed price. Through its successful divestiture process, combined
with a competitive bidding process conducted in late 1998, Montaup has assigned
100% of its standard offer obligation to purchasers of its generating assets.
The guaranteed standard offer price will increase over time to encourage
customers to leave standard offer service and enter the competitive power
supply market.
Provisions of the approved settlement agreements also allowed Montaup to
replace its all-requirements wholesale contract with Blackstone with a contract
termination charge (CTC) which permits Montaup to recover, among other things,
its above market investments and commitments in generation assets. Montaup
began billing the CTC to Blackstone coincident with retail access and
Blackstone is recovering the CTC through a non-bypassable transition charge to
all of its distribution customers.
As part of the approved settlement agreements, Montaup agreed to divest
its entire generation portfolio. The net proceeds of the sale, as defined in
the settlement agreements, will be used to mitigate Montaup's CTC to its retail
affiliates, including Blackstone, via a Residual Value Credit (RVC). The
RVC will reduce the fixed component of the CTC by an amount equal to the net
proceeds, with a return, over the period commencing on the date the RVC is
implemented through December 31, 2009. On February 12, 1999, Montaup filed to
implement the RVC effective April 1, 1999 and is awaiting approval. See
"Generation Divestiture" below.
Generation Divestiture
Montaup now has agreements to sell all of its non-nuclear power
generation assets and its 2.9% ownership share of the Seabrook Nuclear Station
and has agreements to transfer all of its remaining purchased power contracts
with the exception of its purchase power commitment with the Vermont Yankee
Nuclear Station.
On January 5, 1999, EUA announced that Montaup had agreed to transfer its
remaining non-nuclear power purchase contracts, amounting to approximately 177
mw, to Constellation Power Source, Inc. Montaup previously entered into
agreements to sell: its 160-mw Somerset, Massachusetts electric generating
station for approximately $55 million to NRG Energy, Inc.; its 2.6% (16 mw)
share of the W. F. Wyman Unit 4 in Yarmouth, Maine to the Florida based FPL
Group for approximately $2.4 million; and its 2.9% share (34 mw) of the
Seabrook Station nuclear power plant to the Great Bay Power Corporation, a
subsidiary of BayCorp Holdings, Ltd. for $3.2 million. Montaup has also
signed agreements for the transfer of power purchase contracts for
approximately 170 mw between Montaup and Ocean State Power and for the buyout
of its 11% (73 mw) power entitlement from the Pilgrim Nuclear Power Station in
Plymouth, Massachusetts. All of the sale and contract transfer agreements are
subject to federal and state regulatory approvals, including that of the
Nuclear Regulatory Commission with respect to the Seabrook sale. Closing of
the non-nuclear sale agreements are anticipated to take place in the first
quarter of 1999. The Seabrook sale and Pilgrim buyout are expected to take
place later in 1999.
The sale of Montaup's 50% share (280 mw) of Unit 2 of the Canal Generating
Station in Sandwich, Massachusetts to Southern Energy for $75 million, which
was announced in May 1998, was completed on December 30, 1998, and the sale of
two diesel-powered generating units (totaling approximately 16 mw) owned by
Newport to Illinois-based Wabash Power Equipment Co. for $1.5 million closed on
October 1, 1998.
Montaup's remaining generating capacity includes approximately 46 mw from
its 4.0% joint ownership share of Millstone 3 nuclear unit and 12 mw from its
2.25% equity ownership of the Vermont Yankee nuclear facility.
Environmental Matters
Blackstone and other electric utilities owning generating units from which
power is obtained are subject to environmental and land use regulations at the
federal, state and local levels. The federal Environmental Protection Agency
(EPA), and certain state and local authorities, have jurisdiction over releases
of pollutants, contaminants and hazardous substances into the environment and
have broad authority to set rules and regulations in connection therewith, such
as the Clean Air Act Amendments of 1990, which could require installation of
pollution control devices and remedial actions. In 1994, EUA instituted an
environmental audit program designed for Montaup and the Retail Subsidiaries,
including Blackstone, to ensure compliance with environmental laws and
regulations and to identify and reduce liability with respect to those
requirements.
Because of the nature of Blackstone's business, various by-products and
substances are produced or handled which are classified as hazardous under the
rules and regulations promulgated by such authorities. Blackstone generally
provides for the disposal of such substances through licensed contractors, but
these statutory provisions may impose joint and several responsibility on the
generators of the wastes for cleanup costs. Blackstone has been notified with
respect to a number of sites where it may be responsible for such costs,
including sites where it may have joint and several liability with other
responsible parties. It is the policy of the EUA System companies to notify
liability insurers and to initiate claims. However, Blackstone is unable to
predict whether liability, if any, will be assumed by, or can be enforced
against, the insurance carriers in these matters.
As of December 31, 1998, Blackstone had incurred costs of approximately
$7.7 million in connection with these sites. These amounts have been financed
primarily by internally generated cash. Blackstone is currently recovering
certain of its incurred environmental costs in rates. As a result of the
recoverability in current rates of environmental costs, and the uncertainty
regarding both its estimated liability, as well as potential contributions from
insurance carriers, Blackstone does not believe that the ultimate impact of
environmental costs will be material to its financial position and thus, no
loss provision is required at this time.
Blackstone estimates that additional costs of up to $1.8 million may be
incurred at these sites through 1999. Estimates beyond 1999 cannot be made
since site studies, which are the basis of these estimates, have not been
completed.
In addition to the previously discussed costs, Blackstone is currently
litigating responsibility for clean-up costs and related interest aggregating
$5.9 million. The cleanup costs were incurred by the Commonwealth of
Massachusetts at a site in which Blackstone has been named as the responsible
party. (See Note H of "Notes to Financial Statements" for further discussion.)
A number of scientific studies in the past several years have examined the
possibility of health effects from electric and magnetic fields (EMF) that are
found wherever there is electricity. Research to date has not conclusively
established a direct causal relationship between EMF exposure and human health.
Additional studies, which are intended to provide a better understanding of the
subject, are continuing. Management cannot predict the ultimate outcome of the
EMF issue.
Year 2000 Issue
EUA is addressing the Year 2000 issue on an EUA System basis, which
includes Blackstone. EUA's Year 2000 Program (the Program) is proceeding on
schedule. The Program is addressing the potential impact on computer systems
and embedded systems and components resulting from a common software program
code convention that utilizes two digits instead of four to represent a year.
If not addressed, the year 2000 may be systemically recognized as the year
1900, which could cause system or equipment failures or malfunctions, and
ultimately result in disruptions to Company operations.
EUA's State of Readiness:
To address potential Year 2000 issues, EUA has divided the focus of its
Year 2000 Program into three major categories of business activity: the
generation and delivery of electricity to customers, the acquisition of goods
and services (including purchased power), and, ongoing general and
administrative activities relating to the corporate infrastructure and support
functions, which includes among other things, billings and collections.
EUA has adopted a four phase approach in addressing information technology
(IT) issues. As of January 31, 1999, each phase was at the following percentage
of completion: analysis - 100%; remediation - 79%; unit testing - 78%; and
integrated testing - 11%. EUA is on schedule to achieve Year 2000 readiness
for 100% of mission critical projects by June 30, 1999. For non-IT projects,
approximately 90% are either Year 2000 ready or not affected by the Year 2000.
The remaining items are in the process of being remediated and tested and are
scheduled to be Year 2000 ready by June 30, 1999.
EUA has an ongoing process to identify and assess the Year 2000 readiness
of third parties with which it has a material relationship. Where necessary,
contingency plans will be developed. This process is on schedule to be
completed by June 30, 1999.
Costs to Address EUA's Year 2000 Issues:
Through December 31, 1998, EUA has incurred costs of approximately $3.0
million to address Year 2000 issues, including approximately $1.5 million of
non-incremental labor, $1.2 million of capital expenditures and $300,000 of
consulting and other costs. EUA estimates it will incur additional costs
approximating $7.0 million during the period January 1, 1999 through March 31,
2000, to complete its resolution of Year 2000 issues including approximately
$5.5 million of non-incremental labor, $500,000 of capital expenditures and
$1.0 million of consulting and other costs. Because 70% of the total estimated
costs associated with the Year 2000 issue relate to non-incremental internal
labor, management continues to believe that the Year 2000 will not present a
material incremental impact to future operating results or financial condition.
Risks of EUA's Year 2000 Issues:
EUA's first priority continues to be the minimization of any potential
disruptions to electric service as a result of the Year 2000. The provision of
electric service depends in large part on the viability of the New England
power grid which is managed by ISO/NEPOOL. EUA is actively participating on
ISO/NEPOOL's Year 2000 operating and oversight committees. EUA's assessment
of its own transmission and distribution equipment and facilities indicated
that the risk of failure of this equipment does not appear to be significant.
However, due to the interconnectivity of the New England power grid, and the
reliance on many other entities also connected to the grid, it is not possible
to conclude with certainty that there will be no significant interruptions in
service.
In addition, dependable voice and data telecommunications are critical to
EUA's ongoing operations. EUA's internal telecommunication systems are either
Year 2000 ready now, or on schedule to become Year 2000 ready by June 30, 1999.
EUA also relies heavily on external telecommunication systems, i.e., the local
and regional telephone systems, and has identified these providers as critical
vendors. EUA has made direct contact with representatives of the telephone
companies on which EUA depends, each of which anticipates being Year 2000 ready
and devoid of major system failures.
No other significant reasonably likely failure scenarios stemming solely
from Year 2000 related problems have been identified thus far. Accordingly,
EUA does not currently believe that any Year 2000 related risks in and of
themselves constitute reasonably likely worst case scenarios. Rather, EUA's
most reasonably likely Year 2000 related worst case scenario would be the
occurrence of isolated Year 2000 failures such as described above in
conjunction with a severe winter storm. However, EUA believes that such Year
2000 failures would not likely affect whether the storm event would have a
material impact on EUA's business or financial condition.
Year 2000 Contingency Plans:
Contingency planning teams consisting of managers and employees
experienced in system reliability, disaster recovery and risk have been
established and are responsible for developing contingency plans. The overall
strategy will be to identify Year 2000 risks, both internal and external
to EUA, that could have a material impact on EUA's operations or financial well
being. Preliminary plans are expected by the end of the first quarter of 1999.
Final plans are scheduled to be in place and ready to implement, if necessary,
by June 30, 1999.
Summary:
The amount of effort and resources necessary to address Year 2000 issues
and make EUA Year 2000 ready is significant. There are dedicated teams in place
to ensure EUA's transition into the next century occurs with minimal
disruption. EUA's Year 2000 program is on schedule and in accordance with
timetables and progress points published by the North American Electric
Reliability Council. In addition, EUA is utilizing outside technical
consultants and other experts to help ensure EUA's Year 2000 program remains on
schedule and effective. Management believes EUA's Year 2000 project is well
managed and has the appropriate resources and plans in place to ensure the
Company is positioned for a successful transition to the Year 2000.
The foregoing constitutes a Year 2000 Statement and Readiness Disclosure
subject to the protections afforded by the federal Year 2000 Information and
Readiness Disclosure Act of 1998.
New Accounting Standards
In March 1998, The Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AICPA) issued Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use (SOP 98-1), effective in 1999. SOP 98-1 provides
specific guidance on whether to capitalize or expense costs within its scope.
The Company does not expect SOP 98-1 to have a material impact on its financial
position or result of operations.
In June 1998, the Financial Accounting Standards Board issued FAS133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective in 2000. This statement requires the recognition of all derivative
instruments as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. The Company
is currently evaluating the impact FAS133 will have on its financial position
or results of operations.
Other
Blackstone occasionally makes forward-looking projections of expected
future performance or statements of our plans and objectives. These forward-
looking statements may be contained in filings with the SEC, press releases and
oral statements. This report contains information about the Company's future
business prospects including, without limitation, statements about the
potential impact of Year 2000 issues on the Company's financial condition or
results. These statements are considered "forward-looking" within the meaning
of the Private Securities Litigation Reform Act. These statements are based on
the Company's current plans and expectations and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the forward-
looking statements. The Company expressly undertakes no duty to update any
forward-looking statement.
Management's Discussion and Analysis of Financial Condition and Review of
Operations provides a summary of information regarding the Company's financial
condition and results of operation and should be read in conjunction with the
"Financial Statements" and "Notes to Financial Statements" in arriving at a
more complete understanding of such matters.
Financial Table of Contents
Statements of Income. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Statements of Retained Earnings. . . . . . . . . . . . . . . . . . . . . 12
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . 13
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Statements of Capitalization . . . . . . . . . . . . . . . . . . . . . . 15
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . 17
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . 31
[This page left blank intentionally]
<TABLE>
Blackstone Valley Electric Company
Statements of Income
Years Ended December 31,
(In Thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Operating Revenues $ 130,202 $ 140,258 $ 136,911
Operating Expenses:
Purchased Power (princ. from an affiliate) 80,552 90,327 91,016
Other Operation and Maintenance 12,069 11,682 11,781
Affiliated Company Transactions 11,730 10,943 10,092
Voluntary Retirement Incentive 0 363 0
Depreciation 6,252 5,725 5,594
Taxes - Other than Income 7,594 8,340 8,506
Income and Deferred Taxes 3,245 3,326 2,156
Total Operating Expenses 121,442 130,706 129,145
Operating Income 8,760 9,552 7,766
Allowance for Other Funds Used During
Construction 50
Other (Deductions) Income - Net (71) 195 30
Income Before Interest Charges 8,689 9,747 7,846
Interest Charges:
Interest on Long-Term Debt 3,030 3,186 3,313
Other Interest Expense 869 996 524
Allowance for Borrowed Funds Used
During Construction (Credit) (115) (81) (56)
Net Interest Charges 3,784 4,101 3,781
Net Income 4,905 5,646 4,065
Preferred Dividend Requirements 289 289 289
Net Earnings Applicable to Common Stock $ 4,616 $ 5,357 $ 3,776
Statements of Retained Earnings
Years Ended December 31,
(In Thousands)
1998 1997 1996
Retained Earnings - Beginning of Year $ 10,981 $ 9,121 $ 9,934
Net Income 4,905 5,646 4,065
Total 15,886 14,767 13,999
Dividends Paid:
Preferred 289 289 289
Common 1,050 3,497 4,589
Retained Earnings - End of Year $ 14,547 $ 10,981 $ 9,121
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Blackstone Valley Electric Company
Statements of Cash Flows
Years Ended December 31,
(In Thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 4,905 $ 5,646 $ 4,065
Adjustments to Reconcile Net Income
to Net Cash Provided from Operating Activities:
Depreciation and Amortization 6,905 6,184 5,976
Deferred Taxes 2,258 (1,667) (561)
Investment Tax Credit, Net (178) (181) (182)
Allowance for Funds Used During Construction (50)
Other - Net (1,752) (1,768) (555)
Net Changes in Operating Assets and Liabilities:
Accounts Receivable (2,545) 238 2,389
Materials and Supplies (98) 113 66
Accounts Payable 5,034 (7,977) (383)
Accrued Taxes (572) 650 (362)
Other - Net (3,959) 6,762 740
Net Cash Provided from Operating Activities 9,998 8,000 11,143
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (5,989) (3,769) (4,196)
Net Cash (Used in) Investing Activities (5,989) (3,769) (4,196)
CASH FLOW FROM FINANCING ACTIVITIES:
Redemptions of Long-Term Debt (1,500) (1,500) (1,500)
Common Share Dividends Paid (1,050) (3,497) (4,589)
Preferred Dividends Paid (289) (289) (289)
Net (Decrease) Increase in Short-Term Debt (1,400) 665 (524)
Net Cash (Used in) Financing Activities (4,239) (4,621) (6,902)
Net (Decrease) Increase in Cash (230) (390) 45
Cash and Temporary Cash Investments at
Beginning of Year 408 798 753
Cash and Temporary Cash Investments at
End of Year $ 178 $ 408 $ 798
Cash paid during the year for:
Interest (Net of Amounts Capitalized) $ 3,243 $ 3,436 $ 3,390
Income Taxes $ 1,957 $ 4,906 $ 3,301
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Blackstone Valley Electric Company
Balance Sheets
December 31,
(In Thousands)
<CAPTION>
ASSETS
1998 1997
<S> <C> <C>
Utility Plant and Other Investments:
Utility Plant $ 146,185 $ 141,609
Less Accumulated Provision for Depreciation 60,534 55,851
Net Utility Plant 85,651 85,758
Non-Utility Property - Net 196 45
Total Utility Plant and Other Investments 85,847 85,803
Current Assets:
Cash and Temporary Cash Investments 178 408
Accounts Receivable:
Customers, Net 10,228 11,394
Accrued Unbilled Revenue 2,606 1,584
Others 4,664 1,631
Associated Companies 169 513
Plant Materials and Operating Supplies (at average cost) 857 759
Other Current Assets 429 395
Total Current Assets 19,131 16,684
Other Assets (Note A) 29,167 28,346
Total Assets $ 134,145 $ 130,833
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Equity $ 41,658 $ 38,092
Non-Redeemable Preferred Stock 6,130 6,130
Long-Term Debt 32,000 33,500
Total Capitalization 79,788 77,722
Current Liabilities:
Long-Term Debt Due Within One Year 1,500 1,500
Notes Payable 0 1,400
Accounts Payable:
Public 684 960
Associated Companies 13,642 8,332
Customer Deposits 926 1,049
Taxes Accrued 1,493 2,065
Dividends Accrued 72 72
Interest Accrued 779 842
Other Current Liabilities 4,278 8,017
Total Current Liabilities 23,374 24,237
Deferred Credits:
Unamortized Investment Credit 2,202 2,380
Mendon Road Contingency Reserve (Note H) 7,409 7,065
Other Deferred Credits 8,087 7,532
Total Deferred Credits 17,698 16,977
Accumulated Deferred Taxes 13,285 11,897
Commitments and Contingencies (Note H)
Total Liabilities and Capitalization $ 134,145 $ 130,833
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Blackstone Valley Electric Company
Statements of Capitalization
December 31,
(In Thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Common Stock, $50 par value, authorized 233,000
shares, issued and outstanding 184,062 shares $ 9,203 $ 9,203
Other Paid-in Capital 17,908 17,908
Retained Earnings 14,547 10,981
Total Common Equity 41,658 38,092
Non-Redeemable Cumulative Preferred Stock:
4.25%, $100 par value, 35,000 shares <F1> 3,500 3,500
5.60%, $100 par value, 25,000 shares <F2> 2,500 2,500
Premium 130 130
Total Non-Redeemable Cumulative Preferred Stock 6,130 6,130
Long-Term Debt:
First Mortgage Bonds:
9 1/2% due 2004 (Series B) 9,000 10,500
10.35% due 2010 (Series C) 18,000 18,000
Variable Rate Demand Bonds Due 2014 <F2> 6,500 6,500
33,500 35,000
Less Portion Due Within One Year 1,500 1,500
Total Long-Term Debt 32,000 33,500
Total Capitalization $ 79,788 $ 77,722
<FN>
<F1> Authorized, Issued and Outstanding.
<F2> Weighted average interest rate was 3.6% for 1998 and 3.7% for 1997.
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
BLACKSTONE VALLEY ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(A) Nature of Operations and Summary of Significant Accounting Policies:
General: Blackstone Valley Electric Company (Blackstone or the Company) is
principally engaged in the distribution and sale of electric energy.
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The accounting policies and practices of Blackstone are subject to
regulation by the Federal Energy Regulatory Commission (FERC) and the Rhode
Island Public Utilities Commission (RIPUC) with respect to its rates and
accounting. Blackstone conforms with generally accepted accounting principles,
as applied in the case of regulated public utilities, and conforms with the
accounting requirements and ratemaking practices of the RIPUC. A description
of the significant accounting policies follows.
Transactions with Affiliates: The Company is a wholly-owned subsidiary of EUA.
In addition to its investment in the Company, EUA has interests in other retail
and wholesale utility companies, a service corporation, and five other non-
utility companies.
Transactions between Blackstone and other affiliated companies include the
following: purchased power costs billed by Montaup of approximately $80,505,000
in 1998, $90,276,000 in 1997, and $90,970,000 in 1996; accounting, engineering
and other services rendered by EUA Service of approximately $13,254,000 in
1998, $12,608,000 in 1997, and $11,923,000 in 1996; and operating revenue from
the rental of transmission facilities to Montaup of approximately $2,369,000 in
1998, $3,124,000 in 1997, and $2,501,000 in 1996. Transactions with affiliated
companies are subject to review by applicable regulatory commissions.
Utility Plant and Depreciation: Utility plant is stated at original cost. The
cost of additions to utility plant includes contracted work, direct labor and
material, allocable overhead, allowance for funds used during construction and
indirect charges for engineering and supervision. For financial statement
purposes, depreciation is computed on the straight-line method based on
estimated useful lives of the various classes of property. Provisions for
depreciation were equivalent to a composite rate of approximately 4.2% in 1998
3.9%, in 1997 and 1996, based on the average depreciable property balances at
the beginning and end of each year.
(A) Nature of Operations and Summary of Significant Accounting Policies:
(continued)
Allowance for Funds Used During Construction (AFUDC): AFUDC represents the
estimated cost of borrowed and equity funds used to finance the Company's
construction program. In accordance with regulatory accounting, AFUDC is
capitalized, as a cost of utility plant, in the same manner as certain general
and administrative costs. AFUDC is not an item of current cash income, but is
recovered over the service life of utility plant in the form of increased
revenues collected as a result of higher depreciation expense. The rate used
in calculating AFUDC was 7.1% in 1998 and 1997, and 9.4% in 1996.
Operating Revenues: Revenues are based on billing rates authorized by the
RIPUC. The Company follows the policy of accruing the estimated amount of
unbilled base rate revenues for electricity provided at the end of each month
to match costs and revenues more closely. In 1998, the Company began recording
revenues in an amount management believes to be recoverable pursuant to
provisions of approved settlement agreements and state legislation. Through
1997, the Company accrued the difference between fuel and purchased power costs
incurred and fuel and purchased power costs billed to its customers.
Income Taxes: The general policy of Blackstone with respect to accounting for
federal and state income taxes is to reflect in income the estimated amount of
taxes currently payable, as determined from the EUA consolidated tax return on
an allocated basis, and to provide for deferred taxes on certain items subject
to temporary differences to the extent permitted by the regulatory commissions.
Blackstone has provided deferred income taxes on certain income and
expense items that are accounted for in different periods for financial
accounting purposes than for income tax purposes. Prior to 1987, AFUDC and
certain costs for pensions, employee benefits and payroll-related insurances
and payroll taxes applicable to construction activity, which were included in
utility plant, were deducted for income tax purposes. Deferred taxes on these
amounts and on certain differences created by the use of different depreciation
methods in the years prior to 1981 have not been provided. The tax benefits on
these items have been flowed through in accordance with approved rate orders of
the RIPUC.
As permitted by the regulatory commissions, it is the policy of the
Company to defer recognition of annual investment tax credits and to amortize
these credits over the productive lives of the related assets.
Cash and Temporary Cash Investments: Blackstone considers all highly liquid
investments and temporary cash investments with a maturity of three months or
less when acquired to be cash equivalents.
(A) Nature of Operations and Summary of Significant Accounting Policies:
(continued)
Other Assets: The components of Other Assets at December 31, 1998 and 1997 are
detailed as follows:
(In Thousands) 1998 1997
Regulatory Assets:
Unamortized losses on reacquired debt $364 $ 394
Deferred SFAS 109 costs (Note B) 6,595 7,211
Deferred SFAS 106 costs (Note H) 581 727
Mendon Road Judgment (Note H) 6,154 6,154
Other regulatory assets 1,575 1,551
Total regulatory assets 15,269 16,037
Other deferred charges and assets:
Unamortized debt expenses 536 587
Mendon Road Escrow (Note H) 7,408 7,065
Other 5,954 4,657
Total Other Assets $29,167 $28,346
Regulatory assets represent deferred costs for which future revenues are
expected in accordance with regulators. These costs are expensed when the
corresponding revenues are received in order to appropriately match revenues
and expenses.
Regulatory Accounting: Blackstone is subject to certain accounting rules that
are not applicable to other industries. These accounting rules allow regulated
companies, in appropriate circumstances, to establish regulatory assets and
liabilities, which defer the current financial impact of certain costs that
are expected to be recovered in future rates. Blackstone believes that its
operations continue to meet the criteria established in these accounting
standards.
(B) Income Taxes:
Components of income and deferred tax expense for the years 1998, 1997, and
1996 are as follows:
<TABLE>
<CAPTION>
_________________________________________________________________________________
(In Thousands) 1998 1997 1996
<S> <C> <C> <C>
Federal:
Current $1,173 $5,202 $2,901
Deferred 2,172 (1,580) (531)
Investment Tax Credit, Net (178) (181) (182)
3,167 3,441 2,188
State:
Current 2 3 2
Deferred 76 (118) (34)
78 (115) (32)
Charged to Operations 3,245 3,326 2,156
Charged to Other Income:
Current (22) 143 40
Total $3,223 $3,469 $2,196
Total income tax expense was different than the amounts computed by applying
federal income tax statutory rates to book income subject to tax for the following
reasons:
_________________________________________________________________________________
(In Thousands) 1998 1997 1996
Federal Income Tax Computed
at Statutory Rates $2,845 $3,190 $2,191
(Decreases) Increases in Tax from:
Equity Component of AFUDC (17)
Consolidated Tax Savings (32)
Depreciation Differences 226 256 283
Amortization of ITC (178) (181) (182)
State Taxes, Net of Federal
Income Tax Benefit 51 (74) (21)
Cost of Removal 284 285
Other (5) (7) (26)
Total Income Tax Expense $3,223 $3,469 $2,196
</TABLE>
(B) Income Taxes (continued)
Blackstone adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" (FAS109) which required recognition of deferred
income taxes for temporary differences that are reported in different years for
financial reporting and tax purposes using the liability method. Under the
liability method, deferred tax liabilities or assets are computed using the tax
rates that will be in effect when the temporary differences reverse.
Generally, for regulated companies, the change in tax rates may not be
immediately recognized in operating results because of rate making treatment
and provisions in the Tax Reform Act of 1986. Total deferred tax assets and
liabilities for 1998 and 1997 are comprised as follows:
<TABLE>
<CAPTION>
Deferred Tax Deferred Tax
Assets Liabilities
($000) ($000)
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1998 1997
Plant Related Plant Related Differences $14,017 $14,490
Differences $1,543 1,489 Deregulation 844
Employee Benefit Accruals 650 602 Refinancing Costs 127 138
Other 2,036 2,872 Employee Benefit Accruals 681 513
Other 1,845 1,719
Total $4,229 $4,963 Total $17,514 $16,860
</TABLE>
Blackstone has recorded on its Balance Sheets as of December 31, 1998 and
1997 a regulatory liability to ratepayers of approximately $3.6 million and
$3.4 million, respectively. This amount primarily represents excess deferred
income taxes resulting from the reduction in the federal income tax rate and
also includes deferred taxes provided on investment tax credits. Also at
December 31, 1998 and 1997, a regulatory asset of approximately $6.6 million
and $7.2 million, respectively, has been recorded, representing the cumulative
amount of federal income taxes on temporary depreciation differences which were
previously flowed through to ratepayers.
(C) Capital Stock:
There were no changes in the number of shares of common or preferred stock
during the years ended December 31, 1998, 1997, and 1996.
In the event of involuntary liquidation, the holders of non-redeemable
preferred stock of Blackstone are entitled to $100 per share plus accrued
dividends. In the event of voluntary liquidation, or if redeemed at the option
of the Company, each share of the non-redeemable preferred stock is entitled to
accrued dividends and to: 4.25% issue, $104.40; 5.60% issue, $103.82.
(C) Capital Stock (continued)
Under the terms and provisions of the First Mortgage Indenture and of the
issues of preferred stock of Blackstone, certain restrictions are placed upon
the payment of dividends on common stock by the Company. At the years ended
December 31, 1998 and 1997, the respective capitalization ratios were in excess
of the minimum which would make these restrictions effective.
(D) Retained Earnings:
Under the provisions of Blackstone's First Mortgage Indenture, retained
earnings in the amount of $9,551,081 were unrestricted as to the payment of
cash dividends on its common stock at December 31, 1998.
(E) Long-Term Debt:
Blackstone's First Mortgage Bonds are collateralized by substantially all
of its utility plant.
Blackstone's Variable Rate Demand Bonds are collateralized by an
irrevocable letter of credit which expires on January 21, 2000. The letter of
credit permits extensions on an annual basis upon mutual agreement of the bank
and Blackstone.
The aggregate amount of Blackstone's cash sinking fund requirements and
maturities for long-term debt for each of the five years following 1998 is $1.5
million in each of 1999 and 2000, and $3.3 million in each of 2001, 2002, and
2003.
(F) Lines of Credit:
In July 1997, several EUA System companies, including Blackstone, entered
into a three-year revolving credit agreement allowing for borrowings in
aggregate of up to $145 million from all sources of short-term credit. As of
December 31, 1998, various financial institutions have committed up to $75
million under the revolving credit facility. In addition to the $75 million
available under the revolving credit facility, EUA System companies maintain
short-term lines of credit with various banks totaling $90 million for an
aggregate amount available of $165 million. In accordance with the revolving
credit agreement, commitment fees are required to maintain certain lines of
credit. At December 31, 1998 under the revolving credit agreement, the EUA
System had short-term borrowings available of approximately $101.4 million.
Blackstone had zero short-term borrowings outstanding at December 31, 1998.
During 1998, Blackstone's weighted average interest rate for short-term
borrowings was 5.7%.
(G) Fair Value of Financial Instruments:
The following methods were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate.
Cash and Temporary Cash Investments: The carrying amount approximates fair
value because of the short-term maturity of those instruments.
Long-Term Debt: The fair value of the Company's long-term debt was based
on quoted market prices for such securities.
The estimated fair values of the Company's financial instruments at
December 31, 1998 and 1997 were as follows (In Thousands):
Carrying Amount Fair Value
1998 1997 1998 1997
Cash and Temporary Cash Investments $178 $408 $178 $408
Long-Term Debt $33,500 $35,000 $37,102 $36,363
(H) Commitments and Contingencies:
Pensions: Blackstone participates with other EUA System companies in a non-
contributory, defined benefit pension plan covering substantially all of their
employees (Retirement Plan). Retirement Plan benefits are based on years of
service and average compensation over the four years prior to retirement. It
is the EUA System's policy to fund the Retirement Plan on a current basis in
amounts determined to meet the funding standards established by the Employee
Retirement Income Security Act of 1974.
Total pension (income) expense for the Retirement Plan, including the
amount related to the 1997 voluntary retirement incentive offer, for 1998, 1997
and 1996 included the following components ($ In Thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
Service cost $639 $615 $616
Interest cost 2,457 2,361 2,264
Expected return on assets (3,820) (3,415) (3,122)
Net amortization:
Prior service cost 205 204 203
Net actuarial (gain) (93) (43) -
Transition obligation (77) (77) (77)
Total periodic pension (income) expense $(689) $(355) $(116)
</TABLE>
(H) Commitments and Contingencies (continued)
Assumptions used to determine pension cost:
Discount Rate 7.25% 7.50% 7.25%
Compensation Increase Rate 4.25% 4.25% 4.25%
Long-Term Return on Assets 9.50% 9.50% 9.50%
The discount rate used to determine pension obligations, effective January
1, 1999 was changed from 7.25% to 6.75%. The projected benefit obligation,
fair value of assets and funded status of the Retirement Plan cannot be
presented separately for Blackstone as it participates in the Retirement Plan
with other subsidiaries of EUA.
The voluntary retirement incentive also resulted in approximately $281,000
of non-qualified pension benefits which were expensed in 1997. At December 31,
1998, approximately $160,000 is included in other liabilities for these
unfunded benefits.
EUA also maintains non-qualified supplemental retirement plans for certain
officers of the EUA System (Supplemental Plans). Benefits provided under the
Supplemental Plans are based primarily on compensation at retirement date. EUA
maintains life insurance on the participants of the Supplemental Plans to fund
in whole, or in part, its future liabilities under the Supplemental Plans. For
the years ended December 31, 1998, 1997 and 1996, Blackstone's portion of
expenses related to the Supplemental Plans were approximately $220,000,
$322,000, and $284,000, respectively.
The Company also provides a defined contribution 401(k) savings plan for
substantially all employees. The Company's matching percentage of employees'
voluntary contributions to the plan, amounted to approximately $119,000 in
1998, $113,000 in 1997, and $111,000 in 1996.
Post-Retirement Benefits: Retired employees are entitled to participate in
health care and life insurance benefit plans. Health care benefits are subject
to deductibles and other limitations. Health care and life insurance benefits
are partially funded by Blackstone for all qualified employees.
(H) Commitments and Contingencies (continued)
The total cost of Post-Retirement Benefits other than Pensions, including
the Company's allocated share of EUA Service Corporation costs and the amount
related to the 1997 Voluntary Retirement Incentive offer, for 1998, 1997 and
1996 includes the following components ($ In Thousands):
1998 1997 1996
Service cost $209 $202 $216
Interest cost 1,074 1,050 1,060
Expected return on plan assets (350) (221) (133)
Net Amortization:
Net actuarial (gain) (185) (200) (147)
Transition obligation 839 836 835
Net periodic post-retirement benefit cost 1,587 1,667 1,831
Voluntary retirement incentive 40
Total periodic post-retirement benefit costs $1,587 $1,707 $1,831
Assumptions:
Discount rate 7.25% 7.50% 7.25%
Health care cost trend rate-near-term 6.00% 7.00% 9.00%
Health care cost trend rate-long-term 5.00% 5.00% 5.00%
Compensation increase rate 4.25% 4.25% 4.25%
Rate of return on plan assets 7.50% 7.75% 7.50%
Reconciliation of Accumulated Post-Retirement Benefit Obligation
(In Thousands) 1998 1997
Beginning of Year Benefit Obligation (January 1) $11,022 $11,002
Service Cost 86 86
Interest Cost 758 763
Participant Contributions 18 84
Actuarial Loss (Gain) 382 (351)
Disbursements (659) (562)
End of Year Benefit Obligation (December 31) $11,607 $11,022
Reconciliation of Fair Value Assets
(In Thousands) 1998 1997
Beginning of Year Fair Value of Assets (January 1) $2,408 $1,573
Actual return on plan assets 393 154
Company contributions 1,159 1,159
Participant contributions 18 84
Disbursements (659) (562)
End of Year Fair Value of Assets (December 31) $3,319 $ 2,408
(H) Commitments and Contingencies (continued)
Reconciliation of Funded Status
(In Thousands) 1998 1997
Accumulated post-retirement benefit
obligation (APBO) $(11,607) $(11,022)
Fair value of plan assets (FVA) 3,319 2,408
APBO (in excess of) less than FVA (Funded Status) (8,288) (8,614)
Unrecognized net transition obligation (asset) 9,951 10,662
Unrecognized net actuarial loss/(gain) (5,513) (5,816)
Net amount recognized $(3,850) $(3,768)
Effect of 1% Change in Assumed Health Care Cost Trend Rate
One-Percentage Point
(In Thousands) Increase (Decrease)
Effect on 1998 Service and $188 $(150)
Interest Cost Components of Net-Periodic cost 1,430 (1,166)
Effect on 1998 Accumulated Post-retirement
Benefit Obligation
The discount rate used to determine post-retirement benefit obligations,
was changed from 7.25% to 6.75% effective January 1, 1999, and was used to
calculate the funded status of Post-Retirement benefits at December 31, 1998.
Environmental Matters: The Comprehensive Environmental Response, Compensation
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, and certain similar state statutes authorize
various governmental authorities to seek court orders compelling responsible
parties to take cleanup action at disposal sites which have been determined by
such governmental authorities to present an imminent and substantial danger to
public health and welfare and to the environment because of an actual or
threatened release of hazardous substances. Due to the nature of
Blackstone's business, various by-products and substances are produced or
handled which are classified as hazardous under the rules and regulations
promulgated by the EPA as well as state and local authorities. Blackstone
generally provides for the disposal of such substances through licensed
contractors, but these statutory provisions generally impose potential joint
and several responsibility on the generators of the wastes for cleanup costs.
Blackstone has been notified with respect to a number of sites where it may be
responsible for such costs, including sites where it may have joint and several
liability with other responsible parties. It is the policy of Blackstone to
notify liability insurers and to initiate claims. However, it is not possible
at this time to predict whether liability, if any, will be assumed by, or can
be enforced against, the insurance carriers in these matters.
On December 13, 1994, the United States District Court for the District of
Massachusetts (District Court) issued a judgment against Blackstone, finding
Blackstone liable to the Commonwealth of Massachusetts (Commonwealth) for the
full amount of response costs incurred by the Commonwealth in the cleanup of a
by-product of manufactured gas at a site on Mendon Road in Attleboro,
Massachusetts. The judgment also found Blackstone liable for interest and
litigation expenses calculated to the date of judgment. The total liability is
approximately $5.9 million, including approximately $3.6 million in interest
which has accumulated since 1985. Due to the uncertainty of the ultimate
outcome of this proceeding and anticipated recoverability, Blackstone recorded
the $5.9 million District Court judgment as a deferred debit. This amount is
included with Other Assets on the Balance Sheet at December 31, 1998 and 1997.
On January 20, 1995, Blackstone entered into an escrow agreement with the
Commonwealth whereby Blackstone deposited $5.9 million with an escrow agent who
transferred the funds into an interest bearing money market account. The
distribution of the proceeds of the escrow account will be determined upon the
final resolution of the judgment. No additional interest expense will accrue
on the judgment amount.
Blackstone appealed the District Court's judgment which was vacated by the
First Circuit (Circuit Court) on October 6, 1995. The Circuit Court referred
the matter to the EPA to determine whether the chemical substance, ferric
ferrocyanide (FFC), contained within the by-product is a hazardous substance.
If it were not, then Blackstone may not have to reimburse the Commonwealth for
its clean up costs.
Given the present posture of the case, Blackstone may not be liable to
reimburse the Commonwealth for the Mendon Road cleanup costs if the EPA
determines that FFC is not a hazardous substance. On January 9, 1997,
Blackstone met with representatives of EPA and the Commonwealth to discuss the
procedure EPA would follow in resolving the FFC issue. In January 1997,
Blackstone submitted written comments which were followed by the Commonwealth's
written reply in March 1997. Both parties submitted additional memoranda to
EPA during remainder of the year. The EPA will now determine whether FFC is a
hazardous substance. Further court proceedings are likely.
On January 28, 1994, Blackstone filed a complaint in the Massachusetts
District Court seeking, among other relief, contribution and reimbursement from
Stone & Webster Inc. of New York City and several of its affiliated companies
(Stone & Webster), and Valley Gas Company of Cumberland, Rhode Island (Valley)
for any damages incurred by Blackstone regarding the Mendon Road site. On
November 7, 1994, the Court denied motions to dismiss the complaint filed by
Stone & Webster and Valley. This proceeding was stayed in December 1995
pending final EPA determination as to whether FFC is a hazardous substance.
In addition, Blackstone has notified certain liability insurers and has
filed claims with respect to the Mendon Road site, as well as other sites.
Blackstone reached settlement with one carrier for reimbursement of legal costs
related to the Mendon Road case. In January 1996, Blackstone received the
proceeds of the settlement.
As of December 31, 1998, Blackstone had incurred costs of approximately
$7.7 million (excluding the $5.9 million Mendon Road judgment) in connection
with the investigation and cleanup of these sites. These amounts have been
financed primarily by internally generated cash. Blackstone is currently
amortizing all of its incurred costs over a five-year period consistent with
prior regulatory recovery periods and is recovering certain of those costs in
rates. The Company estimates that additional costs of up to approximately $1.8
million (excluding the $5.9 million Mendon Road judgment) may be incurred at
these sites through 1999 by it and the other responsible parties. Estimated
amounts after 1999 are not now determinable since site studies, which are the
basis of these estimates, have not been completed.
As a result of the recoverability of cleanup costs in rates and the
uncertainty regarding both its estimated liability, as well as potential
contributions from insurance carriers and other responsible parties, Blackstone
does not believe that the ultimate impact of the environmental costs will be
material to its financial position and thus, no loss provision is required at
this time.
A number of scientific studies in the past several years have examined the
possibility of health effects from electric and magnetic fields (EMF) that are
found wherever there is electricity. While some of the studies have indicated
some association between exposure to EMF and health effects, many others have
indicated no direct association. Some states have enacted regulations to
limit the strength of EMF at the edge of transmission line rights-of-way. The
Rhode Island legislature has enacted a statute which authorizes and directs the
Rhode Island Energy Facility Siting Board to establish rules and regulations
governing construction of high voltage transmission lines of 69 kv or more. In
addition, an energy facility siting application, in Rhode Island must include,
when applicable, any current independent scientific research pertaining to EMF
exposure for review by the Board. Management cannot predict the impact, if
any, that legislation or other developments concerning EMF may have on
Blackstone.
Other: Since early 1997, fourteen plaintiffs brought suit against numerous
defendants, including EUA, for injuries and illness allegedly caused by
exposure to asbestos over approximately a thirty-year period, at various
premises, including some owned by EUA companies. The total damages claimed
in all of these complaints is $34 million in compensatory and punitive damages,
plus exemplary damages and interest and costs. Each complaint names between
fifteen and twenty-eight defendants, including EUA. These complaints have been
referred to the applicable insurance companies. Counsel has been retained by
the insurers and is actively defending all cases. Four cases have been
dismissed as against EUA companies. EUA cannot predict the ultimate outcome of
this matter at this time.
BLACKSTONE
Quarterly Financial Information (unaudited)
<TABLE>
<CAPTION>
Operating Operating Net Net
($ in Thousands) Revenues Income Income Earnings
<S> <C> <C> <C> <C>
For The Quarters
Ended 1998:
December 31 $33,049 $1,805 $ 940 $ 868
September 30 35,007 2,586 1,617 1,544
June 30 30,965 1,907 907 835
March 31 31,181 2,462 1,441 1,369
For The Quarters
Ended 1997:
December 31 $34,398 $2,770 $1,825 $1,753
September 30 37,179 2,196 1,113 1,040
June 30 34,150 2,074 1,011 939
March 31 34,531 2,512 1,697 1,625
</TABLE>
Basic and Diluted Earnings per Average Common Share, Dividends Paid per Common
Share and Common Share Market Price information is not meaningful as
Blackstone's Common Stock is wholly-owned by Eastern Utilities Associates.
Report of Independent Accountants
To the Directors and Shareholder of
Blackstone Valley Electric Company:
In our opinion, the accompanying balance sheets and statements of
capitalization present fairly, in all material respects, the financial
position of Blackstone Valley Electric (the "Company") at December 31, 1998 and
1997, and its statements of income, retained earnings and cash flows present
fairly its results of operations and cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidences supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 5, 1999
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Company Profile
Eastern Edison Company (Eastern Edison or the Company) is a retail
electric utility company. Eastern Edison supplies retail electric service to
approximately 185,000 customers in 22 cities and towns in southeastern
Massachusetts. The largest communities served are the cities of Brockton and
Fall River, Massachusetts. Eastern Edison is a wholly owned subsidiary of
Eastern Utilities Associates (EUA). EUA owns directly all of the shares of
common stock of Eastern Edison, Blackstone Valley Electric Company (Blackstone)
and Newport Electric Corporation (Newport). These EUA subsidiaries are
collectively referred to as the Retail Subsidiaries. Blackstone and Newport
are retail electric utility companies operating in northern Rhode Island and
south coastal Rhode Island, respectively. Eastern Edison owns all of the
permanent securities of Montaup Electric Company (Montaup), a generation and
transmission company, which supplies electricity to Eastern Edison, to
Blackstone, to Newport and to two unaffiliated utilities for resale. EUA also
owns directly all of the shares of common stock of EUA Service Corporation (EUA
Service), EUA Cogenex Corporation (EUA Cogenex), EUA Energy Investment
Corporation (EUA Energy), EUA Ocean State Corporation (EUA Ocean State), EUA
Energy Services Corporation (EUA Energy Services), and EUA Telecommunications
Corporation (EUA Telecommunications). EUA Service provides various accounting,
financial, engineering, planning, data processing and other services to all EUA
System companies. EUA Cogenex is an energy services company. EUA Energy was
organized to invest in energy related projects. EUA Ocean State owns a 29.9%
interest in Ocean State Power's two gas-fired generating units in northern
Rhode Island. EUA Energy Services owns an interest in a limited liability
company which markets energy and energy services. EUA Telecommunications
provides telecommunications and information services. The holding company
system of EUA, the Retail Subsidiaries, Montaup, EUA Service, EUA Cogenex, EUA
Energy, EUA Ocean State, EUA Energy Services, and EUA Telecommunications is
referred to as the EUA System. The Core Electric Business consists of the
Retail Subsidiaries and Montaup. (See Electric Utility Industry Restructuring
for a discussion of changes taking place in the utility industry in the
territories served by EUA's Core Electric Business.)
Form 10-K
A copy of EUA's, Eastern Edison's and Blackstone's Co-Registrant 1998
Annual Report on Form 10-K, which is filed with the Securities and Exchange
Commission, is available without charge by contacting us at:
EUA Service Corporation
Post Office Box 2333
Boston, MA 02107
(617) 357-9590
Internet Address
Visit EUA's Home Page on the worldwide web at: http://www.eua.com.
MARKET FOR EASTERN EDISON'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of Eastern Edison's common stock is owned beneficially and of record
by Eastern Utilities Associates (EUA).
The dividends paid on Eastern Edison's common stock during the past two
years are as follows:
<TABLE>
<CAPTION>
Dividends Paid Dividends Paid
1998 Per Share 1997 Per Share
<S> <C> <C> <C>
First Quarter $2.70 First Quarter $2.70
Second Quarter 2.70 Second Quarter 2.70
Third Quarter 1.45 Third Quarter 2.70
Fourth Quarter -0- Fourth Quarter 2.70
</TABLE>
No dividend may be paid on Eastern Edison's common stock unless full
dividends on Eastern Edison's outstanding Preferred Stock for all past and the
current quarterly dividend periods have been paid or declared and set apart for
payment, nor may any dividends be paid on Eastern Edison's common stock if
Eastern Edison is in default on any sinking fund obligation provided for its
Preferred Stock. See also Notes C, D and E of Notes to Consolidated Financial
Statements.
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
For the Years Ended December 31,
(In Thousands) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
___________________________________________________________________________________
Operating Revenues $408,230 $435,014 $404,808 $420,069 $418,424
Net Earnings 27,718 27,059 30,983 31,455 31,395
Total Assets 831,622 777,124 775,082 739,198 756,045
Capitalization:
Long-Term Debt-Net 162,550 162,491 222,402 222,313 229,224
Redeemable Preferred
Stock-Net 27,995 27,612 27,035 26,218 25,257
Common Equity 225,998 218,468 240,213 244,368 225,064
Total Capitalization $416,543 $408,571 $489,650 $492,899 $479,545
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND REVIEW OF
OPERATIONS
Overview
Consolidated Net Earnings were $27.7 million in 1998, an increase of
approximately $700,000 or 2.4% from 1997 Net Earnings. Decreased jointly owned
unit expenses due largely to the return to service of the Millstone 3 nuclear
generating plant in July 1998 and increased kilowatthour (kWh) sales were
offset by rate reductions pursuant to approved utility restructuring agreements
effective March 1, 1998. See Generation Divestiture below for a discussion of
Montaup's agreements to divest of its generation assets and power purchase
contracts.
Consolidated Net Earnings were approximately $27.1 million in 1997, a
decrease of $3.9 million or 12.7% as compared to 1996. The 1997 results
include the impacts of increased jointly owned units expenses, primarily
related to the extended Millstone 3 outage, and increased expenses due to a
June 1997 voluntary retirement incentive offer (VRI) discussed below.
Proposed Merger Agreement
On February 1, 1999, EUA and New England Electric System (NEES) announced
a merger agreement under which NEES will acquire all outstanding shares of EUA
for $31 per share in cash. The merger agreement, which is subject to the
approval of EUA shareholders and various regulatory agencies, values the equity
of EUA at approximately $634 million, which represents a 23% premium above the
price of EUA shares on December 4, 1998, the last trading day before other
regional merger announcements affected EUA's share price. Closing of the
merger is expected to occur by early 2000.
kWh Sales
KWh sales in 1998 increased by 2.5% as compared to 1997. This increase
was led by sales to industrial and commercial classes of 5.4% and 3.4%,
respectively. KWh sales in 1997 increased less than 1% compared to 1996.
Comparison of Financial Results
Operating Revenues
Operating Revenues of approximately $408.2 million decreased by $26.8
million in 1998 due to the following: Generation related revenues decreased by
$24.6 million as a result of restructured rates, which provided rate reductions
to all of EUA's retail customers, pursuant to electric industry restructuring
legislation and settlement agreements effective March 1, 1998. Of this
decrease, $21.5 million relates to decreased fuel and purchased power expenses
in 1998. The remaining change in generation related revenues was due to the
net impacts of rate reductions and accrued revenues as prescribed in the
previously mentioned settlement agreements. Distribution revenues decreased by
$3.6 million in 1998 due to the net impacts of restructured rates, a 2.5%
increase in kilowatthour sales and a $2.0 million increase in conservation and
load management (C&LM) recoveries.
Operating Revenues of approximately $435.0 million increased approximately
$30.2 million or 7.5% in 1997 as compared to 1996. This change was primarily
due to increased recoveries of purchased power, fuel and C&LM expenses
aggregating approximately $23.2 million. Also impacting revenues was increased
base rate recoveries and increased short-term contract demand sales.
1997 Voluntary Retirement Incentive
In June of 1997, an early retirement offer was accepted by a group of
employees who were eligible for, but not offered a VRI completed in 1995,
resulting in a charge of approximately $700,000 (approximately $500,000 after-
tax) to second quarter 1997 earnings.
Expenses
The Company's most significant expense items continue to be fuel and
purchased power expenses which together comprised about 58% of total operating
expenses for 1998.
Fuel expense decreased by approximately $10.9 million or 9.9% in 1998 as
compared to 1997. Increased nuclear generation and a 17.1% decrease in the
cost of fossil fuels resulted in an 18.7% decrease in the average cost of fuel
compared to 1997. Somewhat offsetting the decrease in the average price of
fuel was a 9.5% increase in total energy generated and purchased in 1998
compared to 1997. Fuel expense increased by approximately $18.6 million or
20.1% as compared to 1996. Outages of nuclear units in 1997 contributed to
a greater dependence on higher cost fossil fuels for energy requirements,
resulting in an increase in average fuel costs of 16.3% in 1997. Also
impacting fuel expense was an increase in total energy generated and
purchased of 4.6% in 1997.
Purchased Power demand expense decreased approximately $10.5 million or
8.8% in 1998 compared to 1997. This decrease was primarily due to decreased
billings from the Maine Yankee, Connecticut Yankee and Pilgrim Nuclear units
aggregating approximately $8.5 million, and from Ocean State Power (OSP) of
approximately $1.9 million. Purchased Power demand expense increased
approximately $600,000 or less than 1% in 1997.
Other Operation and Maintenance expenses (O&M) are comprised of two
components, Direct Controllable and Indirect. Direct Controllable expenses
include expense items such as salaries, fringe benefits, insurance,
maintenance, etc. Indirect expenses include items over which the Company has
limited short-term control and include such expense items as Montaup's joint
ownership interests in generating facilities such as Seabrook I and Millstone
3, power contracts where transmission rental fees are fixed, conservation and
load management expenses that are fully recovered in revenues and expenses
related to accounting standards such as Statement of Financial Accounting
Standard No. 106, "Employers' Accounting for Post Retirement Benefits Other
Than Pensions" (FAS106).
Other O&M expenses, including affiliated company transactions, decreased
by $13.1 million or 12.4% in 1998 as compared to 1997. Jointly-owned units
expenses decreased approximately $9.4 million in 1998, due largely to the
return to service of the Millstone 3 Nuclear unit in July 1998 and decreased
expenses of Canal Unit 2 and Seabrook I. Also, charges from other utilities
decreased approximately $1.9 million, Other Post-Retirement Benefits and
Pension expenses decreased approximately $300,000 collectively due to personnel
reductions in 1998, and storm related expenses decreased as a result of an
April 1997 storm which struck Eastern Edison's service territory. These 1998
decreases were offset by increased C&LM expense of approximately $2.0 million
consistent with provisions of electric utility industry restructuring
legislation in Massachusetts. Other O&M expenses, including affiliated company
transactions, increased approximately $14.1 million or 15.3% in 1997. This
change was primarily due to increased jointly owned unit expense of
approximately $9.0 million, of which $5.0 million was related to the Millstone
3 outage and the remainder was due to increased expenses related to the
scheduled maintenance outages at the Canal and Seabrook units. Also impacting
the change was increased C&LM expenses of approximately $1.8 million, increased
legal expenses of approximately $1.3 million and $1.2 million of transmission
expenses related to new transmission tariffs implemented by FERC in 1997 to
accommodate utility industry restructuring.
Depreciation and Amortization expense increased by approximately $2.1
million or 7.8% in 1998 versus 1997. This increase was due largely to
amortization of certain regulatory assets pursuant to restructuring settlement
agreements.
Eastern Edison's effective tax rate for 1998 was approximately 37.5%
compared to 34.4% for 1997. The effects of accelerated reversal of differences
pursuant to restructuring settlement agreements were offset somewhat by the
reversal of unamortized investment tax credits related to Canal 2 at the time
of its sale, which occurred on December 30, 1998.
Other Income and (Deductions) - Net decreased by approximately $800,000 in
1998 as compared to 1997. This decrease is due largely to the 1997 favorable
resolution of a Massachusetts corporate income tax dispute. Also contributing
to the 1998 decrease were non-operating expenses of $1.0 million related to
Montaup's divestiture efforts and approximately $800,000 of expenses related to
opposition of a 1998 Massachusetts referendum to repeal deregulation
legislation.
Net Interest charges decreased by approximately $700,000 or 4.0% in 1998
compared to 1997. Interest on long term debt decreased as a result of the
maturities of Eastern Edison's $20 million 5 7/8% First Mortgage Bonds in May
1998 and $40 million 5 3/4% First Mortgage Bonds in July 1998. This decrease
was partially offset by interest expense on increased short term borrowings,
which were used to finance Eastern Edison's long-term debt maturities.
Financial Condition and Liquidity
Eastern Edison's and Montaup's need for permanent capital is primarily
related to the construction of facilities required to meet the needs of
existing and future customers. For 1998, 1997 and 1996, Eastern Edison's and
Montaup's combined cash construction expenditures were $14.0 million, $15.7
million, and $26.0 million, respectively. Internally generated funds provided
approximately 791%, 123%, and 118% of these combined cash construction
requirements in 1998, 1997 and 1996, respectively.
Cash construction expenditures are expected to be approximately $21.3
million in 1999, $20.1 million in 2000, $20.6 million in 2001, and are expected
to be financed with internally generated funds.
In the utility industry, cash construction requirements not met with
internally generated funds are obtained through short-term borrowings which are
ultimately funded with permanent capital. In July 1997, several EUA System
companies, including Eastern Edison and Montaup, entered into a three-year
revolving credit agreement allowing for borrowings in aggregate of up to $145
million from all sources of short-term credit. As of December 31, 1998,
various financial institutions have committed up to $75 million under the
revolving credit facility. In addition to the $75 million available under the
revolving credit facility, EUA System companies maintain short-term lines of
credit with various banks totaling $90 million for an aggregate amount
available of $165 million. At December 31, 1998, under the revolving credit
agreement the EUA System had unused short-term lines of credit of approximately
$101.4 million. At December 31, 1998, Eastern Edison and Montaup had zero
outstanding short-term debt.
During 1998, Eastern Edison used available funds and short-term borrowings
to fund $60 million of long-term debt maturities. On December 30, 1998,
Montaup received $75.9 million of proceeds from the sale of its 50% ownership
share of the Canal 2 Generating Station to Southern Energy and redeemed $55
million of Montaup debenture bonds and paid a special dividend to its parent
company, Eastern Edison. Eastern Edison used these proceeds to repay its
outstanding short-term debt and make short-term investments of $25.6 million.
In January 1999, Eastern Edison used those investments to retire 551,956
shares of its outstanding, $25 par value, common shares at a price of $41.67
per share.
In addition to construction expenditures, projected requirements for
maturing long-term debt securities through 2003 are $35 million in 2002 and $48
million in 2003. The Company has no sinking fund requirements through 2002,
and $1.5 million in 2003. Eastern Edison is exposed to minimal
interest rate risk, given that all of its outstanding long-term debt is fixed-
rate. Refer to the Statements of Capitalization for a listing of Eastern
Edison's debt.
See Generation Divestiture below.
Electric Utility Industry Restructuring
Legislation enacted in Rhode Island in 1996 and Massachusetts in 1997
along with approved electric utility industry restructuring settlement
agreements in both states and at the federal level granted EUA's Rhode Island
and Massachusetts electric customers with choice of electricity supplier and
rate reductions commencing January 1, 1998 and March 1, 1998, respectively.
Until a customer chooses an alternative supplier, that customer will receive
standard offer service from the retail distribution company. Blackstone and
Newport are required to arrange for standard offer service through December
31, 2009 and Eastern Edison must arrange for this service through February 28,
2005. Under the approved settlement agreements, Montaup had guaranteed
standard offer supply at a fixed price schedule for the duration of the
standard offer periods and Blackstone, Newport and Eastern Edison agreed to
subject their standard offer requirements to a competitive bidding process in
which competitive suppliers would bid against the guaranteed price. Through
its successful divestiture process, combined with a competitive bidding process
conducted in late 1998, Montaup has assigned 100% of its standard offer
obligation to purchasers of its generating assets. The guaranteed standard
offer price will increase over time to encourage customers to leave standard
offer service and enter the competitive power supply market.
Provisions of the approved settlement agreements also allowed Montaup to
replace its all-requirements wholesale contracts with its affiliated retail
distribution companies with a contract termination charge (CTC) which permits
Montaup to recover, among other things, its above market investments and
commitments in generation assets. Montaup began billing the CTC coincident
with retail access and the distribution companies are recovering the CTC
through a non-bypassable transition charge to all of their distribution
customers.
As part of the approved settlement agreements, Montaup agreed to divest
its entire generation portfolio. The net proceeds of the sale, as defined in
the settlement agreements, will be used to mitigate Montaup's CTC to its retail
affiliates via a Residual Value Credit (RVC). The RVC will reduce the fixed
component of the CTC by an amount equal to the net proceeds, with a return,
over the period commencing on the date the RVC is implemented through December
31, 2009. On February 12, 1999, Montaup filed to implement the RVC effective
April 1, 1999 and is awaiting approval.
Generation Divestiture
Montaup now has agreements to sell all of its non-nuclear power generation
assets and its 2.9% ownership share of the Seabrook Nuclear Station and has
agreements to transfer all of its remaining purchased power contracts with the
exception of its purchase power commitment with the Vermont Yankee Nuclear
Station.
On January 5, 1999, EUA announced that Montaup had agreed to transfer its
remaining non-nuclear power purchase contracts (amounting to approximately 177
mw) to Constellation Power Source, Inc. In addition, Montaup has entered into
agreements to sell: its 160-mw Somerset, Massachusetts electric generating
station for approximately $55 million to NRG Energy, Inc.; its 2.6% (16 mw)
share of the W. F. Wyman Unit 4 in Yarmouth, Maine to the Florida based FPL
Group for approximately $2.4 million; and its 2.9 percent share (34 mw) of the
Seabrook Station nuclear power plant to the Great Bay Power Corporation, a
subsidiary of BayCorp Holdings, Ltd. for $3.2 million. Montaup has also signed
agreements for the transfer of power purchase contracts for approximately 170
mw between Montaup and Ocean State Power and for the buyout of its 11% (73 mw)
power entitlement from the Pilgrim Nuclear Power Station in Plymouth,
Massachusetts. All of the sale and contract transfer agreements are subject to
federal and/or state regulatory approvals, including that of the Nuclear
Regulatory Commission with respect to the Seabrook sale. Closing of the non-
nuclear sale agreements are anticipated to take place in the first quarter of
1999. The Seabrook sale and Pilgrim buyout are expected to take place later in
1999.
Also, the sale of EUA's 50 percent share (280 mw) of Unit 2 of the Canal
Generating Station in Sandwich, Massachusetts to Southern Energy for $75
million, which was announced in May 1998, was completed on December 30, 1998,
and the sale of two diesel-powered generating units (totaling approximately 16
mw) owned by Newport to Illinois-based Wabash Power Equipment Co. for $1.5
million closed on October 1, 1998.
Montaup's remaining generating capacity includes approximately 46 mw from
its 4.0% joint ownership share of Millstone 3 nuclear unit and 12 mw from its
2.25% equity ownership of the Vermont Yankee nuclear facility.
Environmental Matters
Eastern Edison, Montaup and other electric utilities owning generating
units from which power is obtained are subject to environmental and land use
regulations at the federal, state and local levels. The federal Environmental
Protection Agency (EPA), and certain state and local authorities, have
jurisdiction over releases of pollutants, contaminants and hazardous substances
into the environment and have broad authority to set rules and regulations in
connection therewith, such as the Clean Air Act Amendments of 1990, which could
require installation of pollution control devices and remedial actions. In
1994, EUA instituted an environmental audit program to ensure compliance with
environmental laws and regulations and to identify and reduce liability with
respect to those requirements.
Because of the nature of Eastern Edison's and Montaup's business, various
by-products and substances are produced or handled which are classified as
hazardous under the rules and regulations promulgated by such authorities.
Eastern Edison and Montaup typically provide for the disposal of such
substances through licensed contractors, but statutory provisions may impose
joint and several responsibility on the generators of the wastes for cleanup
costs. Montaup has been notified with respect to one site, where it may be
responsible for such costs, and Eastern Edison may be considered an innocent
downgradient landowner, pursuant to Massachusetts regulations, of another site
requiring cleanup. It is the policy of Eastern Edison and Montaup to notify
liability insurers and to initiate claims related to such costs. However,
Eastern Edison and Montaup are unable to predict whether liability, if any,
will be assumed by, or can be enforced against, insurance carriers in these
matters.
As of December 31, 1998, Eastern Edison and Montaup have incurred minimal
costs in connection with these sites. Eastern Edison and Montaup estimate
that additional costs of up to $700,000 may be incurred at these sites through
1999. Estimates beyond 1999 cannot be made since site studies, which are the
basis of these estimates, have not been completed. Eastern Edison and Montaup
does not believe that the ultimate impact of environmental costs will be
material to its financial position and thus, no loss provision is required at
this time.
A number of scientific studies in the past several years have examined the
possibility of health effects from electric and magnetic fields (EMF) that are
found wherever there is electricity. Research to date has not conclusively
established a direct causal relationship between EMF exposure and human health.
Additional studies, which are intended to provide a better understanding of the
subject, are continuing. Management cannot predict the ultimate outcome of the
EMF issue.
Nuclear Power Issues
Montaup has a 4.01% ownership interest in Millstone 3, a 1,154-mw nuclear
unit that is jointly owned by a number of New England utilities, including
subsidiaries of Northeast Utilities (Northeast). Subsidiaries of Northeast are
the lead participants in Millstone 3. On March 30, 1996, it was necessary to
shut down the unit following an engineering evaluation which determined that
four safety-related valves would not be able to perform their design function
during certain postulated events.
In October 1996, the NRC, which had raised numerous issues with respect to
Millstone 3 and certain of the other nuclear units in which Northeast and its
subsidiaries, who either individually or collectively have the largest
ownership shares, informed Northeast that it was establishing a Special
Projects Office to oversee inspection and licensing activities at Millstone.
The Special Projects Office was responsible for (1) licensing and inspection
activities at Northeast's Connecticut plants, (2) oversight of an Independent
Corrective Action Verification Program, (3) oversight of Northeast's corrective
actions related to safety issues involving employee concerns, and (4)
inspections necessary to implement NRC oversight of the plant's restart
activities. Also, the NRC directed Northeast to submit a plan for disposition
of safety issues raised by employees and retain an independent third-party to
oversee implementation of this plan.
On April 8, 1998, Northeast announced that Millstone 3 was ready for NRC
inspection indicating that virtually all of the restart-required physical work
had been completed. On June 29, 1998, the NRC authorized Northeast to begin
restart activities of Millstone 3. The authorization was given after the
NRC staff verified that several final technical and programmatic issues were
resolved. Millstone 3 was restarted during the first week of July, and on July
14, 1998, Millstone 3 returned to full power operations. The NRC will continue
to closely monitor Millstone 3's performance.
In August 1997, nine non-operating owners, including Montaup, who together
own approximately 19.5% of Millstone 3, filed a demand for arbitration against
Connecticut Light and Power (CL&P) and Western Massachusetts Electric Company
(WMECO) as well as lawsuits against Northeast and its Trustees. CL&P and
WMECO, owners of approximately 65% of Millstone 3, are Northeast subsidiaries
that agreed to be responsible for the proper operation of the unit.
The non-operating owners of Millstone 3 claim that Northeast and its
subsidiaries failed to comply with NRC regulations, failed to operate the
facility in accordance with good utility operating practice and attempted to
conceal their activities from the non-operating owners and the NRC. The
arbitration and lawsuits seek to recover costs associated with replacement
power and operation and maintenance (O&M) costs resulting from the shutdown of
Millstone 3. The non-operating owners conservatively estimate that their
losses exceed $200 million. Montaup's share of this estimate is approximately
$8.0 million. In December 1997, Northeast filed a motion to dismiss the non-
operating owners' claims, or alternatively to stay the pending arbitration
until after the resolution of the arbitration case. These requests were denied
in July 1998.
Montaup paid its share of Millstone 3's O&M expenses during the prolonged
outage on a reservation of right basis. The fact that Montaup paid these
expenses is not an admission of financial responsibility for expenses incurred
during the outage.
EUA cannot predict the ultimate outcome of legal proceedings brought
against CL&P, WMECO and Northeast or the impact they may have on Montaup and
the EUA system.
Montaup has a 4.5% equity ownership in Connecticut Yankee, a nuclear
generating facility in the process of decommissioning. Montaup's share of the
total estimated costs for the permanent shutdown, decommissioning, and recovery
of the investment in Connecticut Yankee is approximately $23.8 million and is
included with Other Liabilities on the Consolidated Balance Sheet as of
December 31, 1998. Also, due to anticipated recoverability, a regulatory asset
has been recorded for the same amount and is included with Other Assets.
On August 31, 1998, a FERC law judge rejected Connecticut Yankee's plan to
decommission the plant. The judge claimed that estimates of clean-up costs
were flawed and certain restoration costs were not supported. The judge also
said Connecticut Yankee could not pass on spent fuel storage costs to rate-
payers. The judge recommended that Connecticut Yankee withdraw its
decommissioning plan and submit a new plan which addresses the issues cited by
him. FERC will review the judge's recommendations and issue a decision on this
case in the coming months. If FERC concurs with the judge's recommendation,
this may result in a write down of certain of Connecticut Yankee plant
investments. Montaup cannot predict the ultimate outcome of FERC's review.
On August 6, 1997, as the result of an economic evaluation, the Maine
Yankee Board of Directors voted to permanently close that nuclear plant.
Montaup has a 4.0% equity ownership in Maine Yankee. Montaup's share of the
total estimated costs for the permanent shutdown, decommissioning, and recovery
of the remaining investment in Maine Yankee is approximately $31.0 million and
is included with Other Liabilities on the Consolidated Balance Sheet as of
December 31, 1998. Also, due to recoverability, a regulatory asset has been
recorded for the same amount and is included with Other Assets.
On November 6, 1997, Maine Yankee submitted an estimate of its costs,
including recovery of unamortized plant investment (including fuel), to FERC
reflecting the fact that the plant was no longer operating and had entered the
decommissioning phase. On January 14, 1998, FERC accepted the new rates,
subject to refund, and amounts of Maine Yankee's collections for
decommissioning. FERC also granted intervention requests and ordered a public
hearing on the prudency of Maine Yankee's decision to shut down the plant and
on the reasonableness of the proposed rate amendments. On January 19, 1999,
Maine Yankee and the active intervening parties, including the Secondary
Purchasers, filed an Offer of Settlement with FERC which was supported by FERC
trial staff on February 8, 1999. Upon commission approval, this agreement will
constitute full settlement of issues raised in this proceeding.
As a result of the August 1997 shutdown, Montaup and the other equity
owners had been notified by the Secondary Purchasers that they would no longer
make payments for purchased power to Maine Yankee. The Secondary Purchase
Contracts are between the equity owners as a group and 30 municipalities
throughout New England. At present, the equity owners are making payments to
Maine Yankee to cover the payments that would be made by the municipals. Prior
to shutdown, the municipals had been assigned 0.41% of Montaup's 4.0% share and
Montaup had retained a 3.59% share.
On November 28, 1997, the Secondary Purchasers sent a Notice of Initiation
of Arbitration to the equity owners of Maine Yankee. On December 15, 1997, the
equity owners as a group filed at FERC a Complaint and Petition for
Investigation, Contract Modification, and Declaratory Order. On April 7, 1998,
a Maine judge denied the Secondary Purchasers' motion to compel arbitration and
indicated the jurisdictional question should be first decided by FERC. On
April 15, 1998, the Secondary Purchasers notified FERC of the judge's decision
and asked for expedited action on the pending complaint against them for non-
payment. A separately negotiated Settlement Agreement filed with FERC on
February 5, 1999, upon approval, would resolve issues raised by the Secondary
Purchasers by limiting the amount they will pay for decommissioning and
settling other points of contention.
Management does not believe that these settlements, if approved, will have
a material effect on EUA's future operating results or financial position.
On August 4, 1998, the Maine Yankee Board of directors selected Stone &
Webster Engineering Corporation to execute a $250 million contract for the
decommissioning and decontamination of Maine Yankee. The decommissioning plan
includes an option for Stone & Webster to repower the Maine Yankee site with a
gas-fired plant.
Recent actions by the NRC, some of which are cited above, indicate that
the NRC has become more critical and active in its oversight of nuclear power
plants. EUA is unable to predict at this time what, if any, ramifications these
NRC actions will have on any of the other nuclear power plants in which Montaup
has an ownership interest or power contract.
Montaup is recovering through rates its share of estimated decommissioning
costs for the Millstone 3 and Seabrook I nuclear generating units. Montaup's
share of the currently allowed estimated total costs to decommission Millstone
3 is approximately $22.4 million in 1998 dollars and Seabrook I is
approximately $14.4 million in 1998 dollars. These figures are based on
studies performed for the lead owners of the units. Montaup also pays into
decommissioning reserves, pursuant to contractual arrangements, at other
nuclear generating facilities in which it has an equity ownership interest or
life-of-unit entitlement. Such expenses are currently recovered through rates.
In early 1998, Yankee Atomic, Maine Yankee and Connecticut Yankee,
individually, as well as a number of other utilities, filed suit in federal
appeals court seeking a court order to require the Department of Energy (DOE)
to immediately establish a program for the disposal of spent nuclear fuel.
Under the Nuclear Waste Policy Act of 1992, the DOE was to provide for the
disposal of radioactive wastes and spent nuclear fuel starting in 1998 and has
collected funds from owners of nuclear facilities to do so. On February 19,
1998, Maine Yankee also filed a petition in the U.S. Court of Appeals seeking
to compel the Department of Energy to remove and dispose of the spent fuel at
the Maine Yankee site. Under their Standard Contract, the DOE had a deadline
for beginning the removal process at all nuclear plants on January 31, 1998,
which was not met. On May 5, 1998, the Court of Appeals denied several motions
brought in the proceeding, including several motions for injunctive relief
brought by the utility petitioners. In particular, the Court denied the
requests to require the DOE to immediately establish a program for the disposal
of spent nuclear fuel.
Also, Yankee Atomic, Connecticut Yankee, and Maine Yankee filed lawsuits
against the DOE in the U.S. Court of Federal Claims seeking damages of $70
million, $90 million and $128 million, respectively, as a result of the DOE's
refusal to accept the spent nuclear fuel.
In late October and early November 1998, the U.S. Court of Federal Claims
issued rulings with respect to Yankee Atomic, Maine Yankee, and Connecticut
Yankee finding that the DOE was financially responsible for failing to accept
spent nuclear fuel. These rulings clear the way for Yankee Atomic, Connecticut
Yankee and Maine Yankee to pursue at trial their individual damage claims.
Management cannot predict at this time the ultimate outcome of these actions.
Year 2000 Issue
EUA is addressing the Year 2000 issue on an EUA System basis, which
includes Eastern Edison and Montaup. EUA's Year 2000 Program (the Program) is
proceeding on schedule. The Program is addressing the potential impact on
computer systems and embedded systems and components resulting from a common
software program code convention that utilizes two digits instead of four to
represent a year. If not addressed, the year 2000 may be systemically
recognized as the year 1900, which could cause system or equipment failures or
malfunctions, and ultimately result in disruptions to Company operations.
EUA's State of Readiness:
To address potential Year 2000 issues, EUA has divided the focus of its
Year 2000 Program into three major categories of business activity: the
generation and delivery of electricity to customers, the acquisition of goods
and services (including purchased power) and, ongoing general and
administrative activities relating to the corporate infrastructure and support
functions, which includes among other things, billings and collections.
EUA has adopted a four phase approach in addressing information technology
(IT) issues. As of January 31, 1999, each phase was at the following percentage
of completion: analysis - 100%; remediation - 79%; unit testing - 78%; and
integrated testing - 11%. EUA is on schedule to achieve Year 2000 readiness
for 100% of mission critical projects by June 30, 1999. For non-IT projects,
approximately 90% are either Year 2000 ready or not affected by the Year 2000.
The remaining items are in the process of being remediated and tested and are
scheduled to be Year 2000 ready by June 30, 1999.
EUA has an ongoing process to identify and assess the Year 2000 readiness
of third parties with which it has a material relationship. Where necessary,
contingency plans will be developed. This process is on schedule to be
completed by June 30, 1999.
Costs to Address EUA's Year 2000 Issues:
Through December 31, 1998, EUA has incurred costs of approximately $3.0
million to address Year 2000 issues, including approximately $1.5 million of
non-incremental labor, $1.2 million of capital expenditures and $300,000 of
consulting and other costs. EUA estimates it will incur additional costs
approximating $7.0 million during the period January 1, 1999 through March 31,
2000, to complete its resolution of Year 2000 issues including approximately
$5.5 million of non-incremental labor, $500,000 of capital expenditures and
$1.0 million of consulting and other costs. Because 70% of the total estimated
costs associated with the Year 2000 issue relate to non-incremental internal
labor, management continues to believe that the Year 2000 will not present a
material incremental impact to future operating results or financial condition.
Risks of EUA's Year 2000 Issues:
EUA's first priority continues to be the minimization of any potential
disruptions to electric service as a result of the Year 2000. The provision of
electric service depends in large part on the viability of the New England
power grid which is managed by ISO/NEPOOL. EUA is actively participating on
ISO/NEPOOL's Year 2000 operating and oversight committees. EUA's assessment of
its own transmission and distribution equipment and facilities indicated that
the risk of failure of this equipment does not appear to be significant.
However, due to the interconnectivity of the New England power grid, and the
reliance on many other entities also connected to the grid, it is not possible
to conclude with certainty that there will be no significant interruptions in
service.
In addition, dependable voice and data telecommunications are critical to
EUA's ongoing operations. EUA's internal telecommunication systems are either
Year 2000 ready now, or on schedule to become Year 2000 ready by June 30, 1999.
EUA also relies heavily on external telecommunication systems, i.e., the local
and regional telephone systems, and has identified these providers as critical
vendors. EUA has made direct contact with representatives of the telephone
companies on which EUA depends, each of which anticipates being Year 2000 ready
and devoid of major system failures.
No other significant reasonably likely failure scenarios stemming solely
from Year 2000 related problems have been identified thus far. Accordingly,
EUA does not currently believe that any Year 2000 related risks in and of
themselves constitute reasonably likely worst case scenarios. Rather, EUA's
most reasonably likely Year 2000 related worst case scenario would be the
occurrence of isolated Year 2000 failures such as described above in
conjunction with a severe winter storm. However, EUA believes that such Year
2000 failures would not likely affect whether the storm event would have a
material impact on EUA's business or financial condition.
Year 2000 Contingency Plans:
Contingency planning teams consisting of managers and employees
experienced in system reliability, disaster recovery and risk have been
established and are responsible for developing contingency plans. The overall
strategy will be to identify Year 2000 risks, both internal and external to
EUA, that could have a material impact on EUA's operations or financial well
being. Preliminary plans are expected by the end of the first quarter of 1999.
Final plans are scheduled to be in place and ready to implement, if necessary,
by June 30, 1999.
Summary:
The amount of effort and resources necessary to address Year 2000 issues
and make EUA Year 2000 ready is significant. There are dedicated teams in place
to ensure EUA's transition into the next century occurs with minimal
disruption. EUA's Year 2000 program is on schedule and in accordance with
timetables and progress points published by the North American Electric
Reliability Council. In addition, EUA is utilizing outside technical
consultants and other experts to help ensure EUA's Year 2000 program remains on
schedule and effective. Management believes EUA's Year 2000 project is well
managed and has the appropriate resources and plans in place to ensure the
Company is positioned for a successful transition to the Year 2000.
The foregoing constitutes a Year 2000 Statement and Readiness Disclosure
subject to the protections afforded by the federal Year 2000 Information and
Readiness Disclosure Act of 1998.
New Accounting Standards
In March 1998, The Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AICPA) issued Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use (SOP 98-1), effective in 1999. SOP 98-1 provides
specific guidance on whether to capitalize or expense costs within its scope.
The Company does not expect SOP 98-1 to have a material impact on its financial
position or result of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective in 2000. This statement requires the recognition of all derivative
instruments as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. The Company
is currently evaluating the impact SFAS 133 will have on its financial position
or results of operations.
Other
A pending class action, filed on March 2, 1998, in the Massachusetts
Supreme Judicial Court naming all Massachusetts electric distribution
companies, including Eastern Edison, and certain Massachusetts state agencies
as defendants, seeks to invalidate certain sections of the Electric Utility
Restructuring Act of 1997. The Act directs the Massachusetts Department of
Telecommunications and Energy to impose mandatory charges on all electricity
sold to customers, except those served by a municipal lighting plant, to fund
energy efficiency activities and to promote renewable energy projects. In
addition to declaratory judgment, plaintiffs seek remittance of monies paid to
each distribution company by customers along with any interest earned. The
outcome of this class action is unknown at this time, however, Eastern Edison
is vigorously defending the lawsuit.
The Company occasionally makes forward-looking projections of expected
future performance or statements of our plans and objectives. These forward-
looking statements may be contained in filings with the SEC, press releases and
oral statements. This report contains information about the Company's future
business prospects including, without limitation, statements about the
potential impact of Year 2000 issues on the Company's financial condition or
results. These statements are considered "forward-looking" within the meaning
of the Private Securities Litigation Reform Act. These statements are based
on the Company's current plans and expectations and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the forward-
looking statements. The Company expressly undertakes no duty to update any
forward-looking statement.
Management's Discussion and Analysis of Financial Condition and Review of
Operations provides a summary of information regarding the Company's financial
condition and results of operation and should be read in conjunction with the
"Consolidated Financial Statements" and "Notes to Consolidated Financial
Statements" in arriving at a more complete understanding of such matters.
Financial Table of Contents
Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . . . 16
Consolidated Statements of Retained Earnings . . . . . . . . . . . . . . . 16
Consolidated Statements of Cash Flow . . . . . . . . . . . . . . . . . . 17
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Statements of Capitalization . . . . . . . . . . . . . . . . 19
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 21
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . 38
[This page left blank intentionally]
<TABLE>
Eastern Edison Company and Subsidiary
Consolidated Statements of Income
Years Ended December 31,
(In Thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Operating Revenues:
From Affiliated Companies $ 114,248 $ 127,882 $ 127,981
Other 293,982 307,132 276,827
Total Operating Revenues 408,230 435,014 404,808
Operating Expenses:
Fuel 99,775 110,717 92,159
Purchased Power - Demand 108,889 119,434 118,843
Other Operation and Maintenance 64,806 78,232 66,311
Affiliated Company Transactions 28,397 28,119 25,908
Voluntary Retirement Incentive 0 737
Depreciation and Amortization 29,636 27,489 26,810
Taxes - Other than Income 10,780 10,844 10,705
- Income 19,834 14,247 16,058
Total Operating Expenses 362,117 389,819 356,794
Operating Income 46,113 45,195 48,014
Equity in Earn. of Jointly Owned Companies 1,390 1,599 1,587
Allowance for Other Funds Used During
Construction 173 162 365
Other (Deductions) Income - Net (130) 666 1,583
Income Before Interest Charges 47,546 47,622 51,549
Interest Charges:
Interest on Long-Term Debt 13,072 15,006 15,233
Other Interest Expense 5,029 3,792 3,653
Allowance for Borrowed Funds Used During
Construction (Credit) (261) (223) (308)
Net Interest Charges 17,840 18,575 18,578
Net Income 29,706 29,047 32,971
Preferred Dividend Requirements 1,988 1,988 1,988
Consolidated Net Earnings Applicable
to Common Stock $ 27,718 $ 27,059 $ 30,983
Consolidated Statements of Retained Earnings
Years Ended December 31,
(In Thousands)
1998 1997 1996
Retained Earnings - Beginning of Year $ 98,979 $ 120,724 $ 124,878
Net Income 29,706 29,047 32,971
Amortization of Preferred Stock Redemption (383) (577) (817)
Total 128,302 149,194 157,032
Dividends Paid:
Preferred 1,988 1,988 1,988
Common 19,805 48,227 34,320
Retained Earnings - End of Year $ 106,509 $ 98,979 $ 120,724
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Eastern Edison Company and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31,
(In Thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 29,706 $ 29,047 $ 32,971
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Act.:
Depreciation and Amortization 31,091 28,592 28,607
Amortization of Nuclear Fuel 1,265 1,067 1,676
Deferred Taxes (17,279) (4,872) 5,217
Investment Tax Credit, Net (2,817) (935) (939)
All. for Funds Used During Const. (173) (162) (365)
Other - Net 2,524 (4,215) (2,333)
Changes to Operating Assets and Liabilities:
Accounts Receivable (8,264) 10,038 (1,862)
Fuel, Materials and Supplies (1,982) 2,666 673
Accounts Payable 60 3,088 186
Accrued Taxes 15,036 (653) (241)
Other - Net 1,284 (2,282) 9,266
Net Cash Provided from Operating Activities 50,451 61,379 72,856
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (14,047) (15,662) (26,006)
Proceeds from Div. of Generation Assets 75,307
Decrease in Other Investments 248 219 148
Net Cash Provided
From (Used in) Investing Activities 61,508 (15,443) (25,858)
CASH FLOW FROM FINANCING ACTIVITIES:
Redemptions of Long-Term Debt (60,000) 0 (7,000)
Common Stock Dividends Paid (19,805) (48,227) (34,320)
Preferred Dividends Paid (1,988) (1,988) (1,988)
Net (Dec.) Inc. in Short Term Debt (4,675) 2,635 (2,118)
Net Cash (Used in) Financing Activities (86,468) (47,580) (45,426)
Net Increase (Decrease) in Cash
and Temporary Cash Investments 25,491 (1,644) 1,572
Cash and Temporary Cash Investments at
Beginning of Year 461 2,105 533
Cash and Temporary Cash Investments at
End of Year $ 25,952 $ 461 $ 2,105
Cash paid during the year for:
Interest (Net of Amts Capitalized) $ 16,188 $ 13,993 $ 15,241
Income Taxes $ 22,446 $ 21,291 $ 13,267
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Eastern Edison Company and Subsidiary
Consolidated Balance Sheets
December 31,
(In Thousands)
<CAPTION>
ASSETS
1998 1997
<S> <C> <C>
Utility Plant and Other Investments:
Utility Plant $ 744,593 $ 825,238
Less Accumulated Provision for Depreciation 252,301 279,711
Net Utility Plant 492,292 545,527
Non-Utility Property - Net 2,488 2,705
Investment in Jointly Owned Companies 12,881 13,524
Other Investments (at cost) 56 55
Total Utility Plant and Other Investments 507,717 561,811
Current Assets:
Cash and Temporary Cash Investments 25,952 461
Accounts Receivable:
Customers 25,175 27,801
Others 13,155 4,486
Accrued Unbilled Revenue 6,226 8,490
Associated Companies 18,628 14,143
Fuel (at average cost) 5,971 4,248
Plant Matls and Op. Supplies (at average cost) 3,994 3,734
Prepayments and Other Current Assets 4,754 3,688
Total Current Assets 103,855 67,051
Other Assets (Note A) 220,050 148,262
Total Assets $ 831,622 $ 777,124
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Equity $ 225,998 $ 218,468
Redeemable Preferred Stock - Net 29,665 29,665
Preferred Stock Redemption Cost (1,670) (2,053)
Long-term Debt - Net 162,550 162,491
Total Capitalization 416,543 408,571
Current Liabilities:
Long-term Debt Due Within One Year 0 60,000
Notes Payable 0 4,675
Accounts Payable:
Public 25,502 27,113
Associated Companies 8,987 7,317
Customer Deposits 1,408 1,258
Taxes Accrued 17,361 2,325
Interest Accrued 3,561 4,923
Other Current Liabilities 17,317 13,753
Total Current Liabilities 74,136 121,364
Other Liabilities 58,502 68,345
Deferred Credits:
Unamortized Investment Credit 13,150 15,967
Other Deferred Credits 149,648 23,402
Total Deferred Credits 162,798 39,369
Accumulated Deferred Taxes 119,643 139,475
Commitments and Contingencies (Note J)
Total Liabilities and Capitalization $ 831,622 $ 777,124
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Eastern Edison Company and Subsidiary
Consolidated Statements of Capitalization
December 31,
(In Thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Common Stock:
$25 par value, authorized, issued and outstanding
2,891,357 shares $ 72,284 $ 72,284
Other Paid-In Capital 47,249 47,249
Common Stock Expense (44) (44)
Retained Earnings 106,509 98,979
Total Common Equity 225,998 218,468
Redeemable Preferred Stock:
6 5/8%, $100 par value, 300,000 shares (1) 30,000 30,000
Expense, Net of Premium (335) (335)
Preferred Stock Redemption Cost (1,670) (2,053)
Total Redeemable Preferred Stock 27,995 27,612
Long-Term Debt:
First Mortgage and Collateral Trust Bonds:
5 7/8% due 1998 0 20,000
6 7/8% due 2003 40,000 40,000
8% due 2023 40,000 40,000
5 3/4% due 1998 0 40,000
6.35% due 2003 8,000 8,000
7.78% Secured Medium-Term Notes due 2002 35,000 35,000
Pollution Control Revenue Bond:
5 7/8% due 2008 40,000 40,000
Unamortized (Discount) - Net (450) (509)
162,550 222,491
Less Portion Due Within One Year 0 60,000
Total Long-Term Debt 162,550 162,491
Total Capitalization $ 416,543 $ 408,571
(1) Authorized, Issued and Outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
EASTERN EDISON COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, and 1996
(A) Nature of Operations and Summary of Significant Accounting Policies:
General: Eastern Edison Company (Eastern Edison or the Company) and its wholly
owned subsidiary, Montaup Electric Company (Montaup) are principally engaged in
the generation, transmission, distribution and sale of electric energy. See
Generation Divestiture below for a discussion of Montaup's divestiture of
generating capacity.
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The accounting policies and practices of Eastern Edison and of Montaup are
subject to regulation by the Federal Energy Regulatory Commission (FERC) and
the Massachusetts Department of Telecommunications and Energy (formerly
Massachusetts Department of Public Utilities) with respect to their rates and
accounting. Eastern Edison and Montaup conform with generally accepted
accounting principles, as applied in the case of regulated public utilities,
and conform with the accounting requirements and ratemaking practices of the
regulatory authority having jurisdiction.
Principles of Consolidation: The consolidated financial statements include the
accounts of Eastern Edison and its subsidiary, Montaup. All material
intercompany balances and transactions have been eliminated in consolidation.
Jointly Owned Companies: Montaup follows the equity method of accounting for
its stock ownership investments in jointly owned companies including four
regional nuclear generating companies. Montaup's investments in these nuclear
generating companies range from 2.5% to 4.5%. Three of the four facilities,
Yankee Atomic, Connecticut Yankee and Maine Yankee, have been permanently shut
down and are in the process of decommissioning. Montaup's share of total
estimated costs for the permanent shutdown, decommissioning and recovery of the
investment in Yankee Atomic, Connecticut Yankee and Maine Yankee is $3.7
million, $23.8 million and $31.0 million, respectively. These amounts are
included with Other Liabilities on the Consolidated Balance Sheet as of
December 31, 1998. Also, due to anticipated recoverability, a regulatory asset
has been recorded for the same amount and is included with Other Assets.
Montaup is entitled to electricity produced from the remaining facility,
Vermont Yankee, based on its ownership interest and is billed for its
entitlement pursuant to a contractual agreement which is approved by FERC.
(A) Nature of Operations and Summary of Significant Accounting Policies:
(continued)
Montaup also has a stock ownership investment of 3.27% in each of the two
companies which own and operate certain interconnection facilities used to
transmit hydroelectric power between the Hydro-Quebec Electric System and New
England.
Transactions with Affiliates: Eastern Edison is a wholly owned subsidiary of
Eastern Utilities Associates (EUA). In addition to its investment in Eastern
Edison, EUA has interests in two other retail companies, a service corporation,
and five other non-utility companies.
Transactions between Montaup and other affiliated companies include the
following: sales of electricity by Montaup to Blackstone Valley Electric
Company (Blackstone) and Newport Electric Corporation (Newport) aggregating
approximately $114,248,000 in 1998, $127,882,000 in 1997, and $127,536,000 in
1996; accounting, engineering and other services rendered by EUA Service
Corporation to Eastern Edison and Montaup of approximately $33,287,000,
$32,190,000 and $30,886,000, in 1998, 1997 and 1996, respectively; and
operating expense from the rental of transmission and generation facilities by
Blackstone and Newport to Montaup aggregating approximately $3,559,000 in 1998,
$4,197,000 in 1997, and $3,960,000 in 1996. Transactions with affiliated
companies are subject to review by applicable regulatory commissions.
Utility Plant and Depreciation: Utility plant is stated at original cost. The
cost of additions to utility plant includes contracted work, direct labor and
material, allocable overhead, allowance for funds used during construction and
indirect charges for engineering and supervision. For financial statement
purposes, depreciation is computed on the straight-line method based on
estimated useful lives of the various classes of property. Provisions for
depreciation, on a consolidated basis, were equivalent to a composite rate of
approximately 3.4% in 1998, and 3.2% in 1997 and 1996 based on the average
depreciable property balances at the beginning and end of each year. Beginning
in 1998, coincident with billing a contract termination charge (CTC) to its
retail affiliates, Montaup commenced recovery of its investment in generation
related assets through the CTC over a twelve-year period. The difference
between the annual recovery and annual depreciation expense pursuant to
Generally Accepted Account Principles is being deferred.
Allowance for Funds Used During Construction (AFUDC): AFUDC represents the
estimated cost of borrowed and equity funds used to finance Eastern Edison's
and Montaup's construction program. In accordance with regulatory accounting,
AFUDC is capitalized, as a cost of utility plant, in the same manner as certain
general and administrative costs. AFUDC is not an item of current cash income,
but is recovered over the service life of utility plant in the form of
increased revenues collected as a result of higher depreciation expense. The
combined rate used in calculating AFUDC was 8.3% in 1998, 8.2% in 1997, and
8.9% in 1996.
Operating Revenues: Revenues are based on billing rates authorized by
applicable federal and state regulatory commissions. Eastern Edison accrues
the estimated amount of unbilled revenues at the end of each month to match
costs and revenues more closely. Montaup recognizes revenues when billed. In
1998, Eastern Edison and Montaup also began recording revenues in an amount
management believes to be recoverable pursuant to provisions of approved
settlement agreements and the Massachusetts Electric Industry Restructuring
Act.
Income Taxes: The general policy of Eastern Edison and Montaup with respect to
accounting for federal and state income taxes is to reflect in income the
estimated amount of taxes currently payable, as determined from the EUA
consolidated tax return on an allocated basis, and to provide for deferred
taxes on certain items subject to temporary differences to the extent permitted
by the various regulatory commissions. As permitted by the regulatory
commissions, it is the policy of Eastern Edison and Montaup to defer
recognition of the annual investment tax credits and to amortize these credits
over the productive lives of the related assets. Beginning in 1998, Montaup
is amortizing previously deferred ITC related to generation investments
recoverable through the CTC over a twelve-year period. Unamortized ITC related
to the Canal 2 generating unit was reversed at the time of the Canal 2 sale,
December 30, 1998.
Cash and Temporary Cash Investments: Eastern Edison and Montaup consider all
highly liquid investments and temporary cash investments with a maturity of
three months or less, when acquired, to be cash equivalents.
Other Assets: The components of Other Assets at December 31, 1998 and 1997 are
detailed as follows:
(In Thousands) 1998 1997
Regulatory Assets:
Unamortized losses on reacquired debt $10,338 $11,588
Unrecovered plant and
decommissioning cost 66,934 68,345
Deferred SFAS 109 costs (Note B) 40,279 46,806
Deferred SFAS 106 costs (Note J) 7,900 1,726
Unrecovered CTC assets 33,161
Accrued CTC assets 32,198
Other regulatory assets 13,641 5,875
Total regulatory assets 204,451 134,340
Other deferred charges and assets:
Unamortized debt expenses 1,809 2,092
Other 13,790 11,830
Total Other Assets $220,050 $148,262
Regulatory assets represent deferred costs for which future revenues are
expected in accordance with regulatory precedent. These costs are expensed
when the corresponding revenues are received in order to appropriately match
revenues and expenses.
Regulatory Accounting: Eastern Edison and Montaup are subject to certain
accounting rules that are not applicable to other industries. These accounting
rules allow regulated companies, in appropriate circumstances, to establish
regulatory assets and liabilities which defer the current financial impact of
certain costs that are expected to be recovered in future rates. In light of
approved restructuring settlement agreements and restructuring legislation in
both Massachusetts and Rhode Island, the Company has determined that Montaup no
longer will apply the provisions of Financial Accounting Standards Board's
(FASB) Statement of Financial Accounting Standards No. 71 (FAS71), "Accounting
for the Effects of Certain Types of Regulation" to the generation portion of
its business. Due to the recoverability of regulatory assets granted in the
approved restructuring plans, the company believes that the discontinuation of
FAS71 for the generation portion of Montaup's business will not have a material
impact on the Company's results of operation or financial condition. The
Company believes its transmission and retail distribution businesses continue
to meet the criteria for continued application of FAS71.
Generation Divestiture: Terms of approved electric utility restructuring
settlement agreements provide that Montaup exit the electric generation
business. Through separately negotiated agreements, Montaup has agreements to
divest all of its generation assets and power purchase contracts, with the
exception of its 4.0% (46 mw) ownership interest in the Millstone 3 nuclear
station and its 12-mw entitlement from Vermont Yankee. All of the agreements
are subject to approval of various state and federal regulatory agencies.
Montaup has agreed to sell generating assets totaling 509 mw to various
parties for $133.2 million in aggregate. The net proceeds from the sales, as
defined in the settlement agreements, will be recorded as a regulatory
liability at the time of sale and will be returned to customers via a Residual
Value Credit (RVC) through the year 2009.
Montaup has also agreed to make contribution payments to two parties in
exchange for their assumption of all future obligations under six purchased
power contracts. These fixed monthly payments ranging from $850,000 to $2.6
million, will be made from the effective date through 2009. Montaup may be
required to record a liability for these fixed contributions, but in such an
event would record a regulatory asset for a like amount due to recoverability.
In addition, Montaup agreed to a buyout of its obligations under the Pilgrim
Nuclear purchased power contract in conjunction with the sale of the unit by
Boston Edison Co. (BEC) to Entergy Nuclear Generating Co. (Entergy). This
agreement provides for a buyout payment by EUA to BEC of $115.8 million,
assuming a June 30, 1999 closing, along with a short-term, fixed-price
purchased power agreement with Entergy for declining shares of the unit's
output beginning with 11% in 1999 and ending with 5.5% in 2004. Entergy will
assume all future operating and decommissioning obligations.
Montaup will continue to attempt to sell and/or transfer its minority
interests in Millstone 3 and Vermont Yankee. Until such time as these units
are divested, Montaup will share 80% of the operating costs and revenues
associated with the units with customers and 20% with shareholders.
(B) Income Taxes:
Components of income tax expense for the years 1998, 1997, and 1996 are
as follows:
<TABLE>
<CAPTION>
_________________________________________________________________________
(In Thousands) 1998 1997 1996
<S> <C> <C> <C>
Federal:
Current $32,348 $16,427 $9,111
Deferred (15,575) (4,031) 5,152
Investment Tax Credit, Net (1,301) (935) (939)
15,472 11,461 13,324
State:
Current 5,177 3,505 2,612
Deferred (815) (719) 122
4,362 2,786 2,734
Charged to Operations 19,834 14,247 16,058
Charged to Other Income:
Current 444 1,175 1,233
Deferred (921) (219) (67)
Investment Tax Credit, Net (1,516)
Total $17,841 $15,203 $17,224
Total income tax expense was different than the amounts computed by
applying federal income tax statutory rates to book income subject to tax for
the following reasons:
______________________________________________________________________________
(In Thousands) 1998 1997 1996
Federal Income Tax Computed
at Statutory Rates $16,642 $15,487 $17,568
(Decreases) Increases in Tax from:
Equity Component of AFUDC (60) (56) (128)
Consolidated Tax Savings (25) (156)
Depreciation Differences 1,050 (348) (452)
Amortization of ITC (2,818) (935) (939)
State Taxes, Net of Federal
Income Tax Benefit 2,833 1,919 1,897
Cost of Removal 326
Other (107) (864) (566)
Total Income Tax Expense $17,841 $15,203 $17,224
</TABLE>
(B) Income Taxes (continued)
Eastern Edison and Montaup adopted Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" (FAS109) which required
recognition of deferred income taxes for temporary differences that are
reported in different years for financial reporting and tax purposes using the
liability method. Under the liability method, deferred tax liabilities or
assets are computed using the tax rates that will be in effect when temporary
differences reverse. Generally, for regulated companies, the change in tax
rates may not be immediately recognized in operating results because of rate
making treatment and provisions in the Tax Reform Act of 1986. The total
deferred tax assets and liabilities at December 31, 1998 and 1997 are comprised
as follows (In Thousands):
Deferred Tax Deferred Tax
Assets Liabilities
1998 1997 1998 1997
Plant Related Plant Related
Differences $16,230 $11,997 Differences $150,011 $154,025
Deregulation 23,301 Deregulation 11,861
Employee Benefit Refinancing
Accruals 2,040 1,837 Costs 1,197 1,264
Other 4,999 5,974 Employee Benefit
Accruals 2,008 1,685
Other 1,136 2,309
Total $46,570 $19,808 Total $166,213 $159,283
As of December 31, 1998 and 1997, the Company had recorded on its
Consolidated Balance Sheet a regulatory liability to ratepayers of
approximately $11.5 million and $15.2 million, respectively. This amount
primarily represents excess deferred income taxes resulting from the reduction
in the federal income tax rate and also includes deferred taxes provided on
investment tax credits. Also at December 31, 1998 and 1997, a regulatory asset
of approximately $40.3 million and $46.8 million, respectively, has been
recorded, representing the cumulative amount of federal income taxes on
temporary depreciation differences which were previously flowed through to
ratepayers.
(C) Capital Stock:
There were no changes in the number of shares of common or preferred stock
during the years ended December 31, 1998, 1997 and 1996. In January 1999,
Eastern Edison retired 551,956 shares of its outstanding, $25 par value, common
shares at a price of $41.67 per share.
Under the terms and provisions of the issues of preferred stock of Eastern
Edison, certain restrictions are placed upon the payment of dividends on common
stock by Eastern Edison. At December 31, 1998, 1997 and 1996, the respective
capitalization ratios were in excess of the minimum requirements which would
make these restrictions effective.
(D) Redeemable Preferred Stock:
Eastern Edison's 6-5/8% Preferred Stock issue is entitled to an annual
mandatory sinking fund sufficient to redeem 15,000 shares commencing September
1, 2003. The redemption price is $100 per share plus accrued dividends. All
outstanding shares of the 6 5/8% issue will be subject to mandatory redemption
on September 1, 2008 at a price of $100 per share plus accrued dividends.
In the event of liquidation, the holders of Eastern Edison's 6 5/8%
Preferred Stock are entitled to $100 per share plus accrued dividends.
(E) Retained Earnings:
Under the provisions of Eastern Edison's Indenture securing the First
Mortgage and Collateral Trust Bonds, retained earnings in the amount of
$100,903,949 as of December 31, 1998 were unrestricted as to the payment of
cash dividends on its Common Stock.
(F) Long-Term Debt:
The various mortgage bond issues of Eastern Edison are collateralized by
substantially all of their utility plant. In addition, Eastern Edison's bonds
are collateralized by securities of Montaup, which are wholly-owned by Eastern
Edison. On December 30, 1998, Montaup redeemed $55 million of debenture bonds
and paid a special dividend to Eastern Edison of $19 million with proceeds
received from the sale of its 50% ownership share of the Canal 2 generating
station. The principal amount of Montaup securities wholly-owned by Eastern
Edison at December 31, 1998 was approximately $181 million.
In July, Eastern Edison used short-term borrowings to redeem $20 million
of 5 7/8% and $40 million of 5 3/4%, First Mortgage and Collateral Trust Bonds
at maturity. On December 30, 1998, Eastern repaid outstanding short-term
borrowings with proceeds received from the redemption of Montaup securities.
The Company's requirements for the maturities of long-term debt (excluding
amounts that may be satisfied by available property additions) for each of the
five years following 1998 are: none in 1999, 2000, and 2001, $35 million in
2002 and $48 million in 2003. The Company has no sinking fund requirements
through the year 2002 and $1.5 million in 2003.
(G) Lines of Credit:
In July 1997, several EUA System companies, including Eastern Edison,
entered into a three-year revolving credit agreement allowing for borrowings in
aggregate of up to $145 million from all sources of short-term credit. As of
December 31, 1998, various financial institutions have committed up to $75
million under the revolving credit facility. In addition to the $75 million
available under the revolving credit facility, EUA System companies maintain
short-term lines of credit with various banks totaling $90 million for an
aggregate amount available of $165 million. At December 31, 1998, under the
revolving credit agreement the EUA System had unused short-term lines of credit
of approximately $101.4 million. Eastern Edison had zero outstanding short-
term debt at December 31, 1998. In accordance with the revolving credit
agreement commitment fees are required to maintain certain lines of credit.
During 1998, the weighted average interest rate for short-term borrowings by
the Company was 5.9%.
(H) Jointly Owned Facilities:
At December 31, 1998, in addition to the stock ownership interests
discussed in Note A, Summary of Significant Accounting Policies - Jointly Owned
Companies, Montaup had direct ownership interests in the following electric
generating facilities:
<TABLE>
<CAPTION>
Accumulated
Provision For Net Construc-
Utility Depreciation Utility tion
Percent Plant in and Plant in Work in
($ In Thousands): Owned Service Amortization Service Progress
<S> <C> <C> <C> <C> <C>
Montaup:
Wyman Unit 4 1.96% $4,041 $2,388 $1,653
Seabrook Unit I 2.90% 194,169 47,277 146,892 $480
Millstone Unit 3 4.01% 178,598 65,705 112,893 347
Newport:
Wyman Unit 4 0.67% 1,312 805 507
</TABLE>
The foregoing amounts represent Montaup's interest in each facility,
including nuclear fuel where appropriate, and are included on the like-
captioned lines on the Consolidated Balance Sheet. At December 31, 1998,
Montaup's total net investment in nuclear fuel of the Seabrook and Millstone
units amounted to $2.5 million and $1.9 million, respectively. Montaup's
shares of related operating and maintenance expenses with respect to units
reflected in the table above are included in the corresponding operating
expenses on the Consolidated Statement of Income.
Montaup has entered into agreements to sell its joint ownership shares in
Wyman Unit 4 and Seabrook Unit I. Closing of the Wyman sale is expected in the
first quarter of 1999 and the Seabrook sale is expected to close later in 1999.
Both agreements are subject to approval of various regulatory agencies.
(I) Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate:
Cash and Temporary Cash Investments: The carrying amount approximates
fair value because of the short-term maturity of those instruments.
Redeemable Preferred Stock and Long-Term Debt: The fair value of the
Company's redeemable preferred stock and long-term debt is based on quoted
market prices for such securities.
The estimated fair values of the Company's financial instruments at
December 31, 1998 and 1997 were as follows (In Thousands):
Carrying Amount Fair Value
1998 1997 1998 1997
Cash and Temporary Cash Investments $25,952 $461 $25,952 $461
Redeemable Preferred Stock 30,000 30,000 32,625 31,613
Long-Term Debt 163,000 223,000 167,723 235,190
(J) Commitments and Contingencies:
Nuclear Fuel Disposal and Nuclear Decommissioning Costs: The owners (or lead
participants) of the nuclear units in which Montaup has an interest have made,
or expect to make, various arrangements for the acquisition of uranium
concentrate, the conversion, enrichment, fabrication and utilization of nuclear
fuel and the disposition of that fuel after use. The owners (or lead
participants) of United States nuclear units have entered into contracts with
the Department of Energy (DOE) for disposal of spent nuclear fuel in accordance
with the Nuclear Waste Policy Act of 1982 (NWPA). The NWPA requires (subject
to various contingencies) that the federal government design, license,
construct and operate a permanent repository for high level radioactive wastes
and spent nuclear fuel and establish a prescribed fee for the disposal of such
wastes and nuclear fuel. The NWPA specifies that the DOE provide for the
disposal of such waste and spent nuclear fuel starting in 1998. Objections on
environmental and other grounds have been asserted against proposals for
storage as well as disposal of spent nuclear fuel. The DOE now estimates that
a permanent disposal site for spent fuel will not be ready to accept fuel for
storage or disposal until as late as the year 2010. In early 1998, a number of
utilities filed suit in federal appeals court seeking, among other things, an
order requiring the DOE to immediately establish a program for the disposal of
spent nuclear fuel. On May 5, 1998, the Court of Appeals denied several
motions brought in the proceeding, including several motions for injunctive
relief brought by the utility petitioners. In particular, the Court denied
the requests to require the DOE to immediately establish a program for the
disposal of spent nuclear fuel. In late October and early November 1998, the
U.S. Court of Federal Claims issued rulings with respect to Yankee Atomic,
Maine Yankee, and Connecticut Yankee finding that the DOE was financially
responsible for failing to accept spent nuclear fuel. These rulings
clear the way for Yankee Atomic, Connecticut Yankee and Maine Yankee to pursue
at trial their individual damage claims. Montaup owns a 4.01% interest in
Millstone 3 and a 2.9% interest in Seabrook I. Northeast Utilities, the
operator of the units, indicates that Millstone 3 has sufficient on-site
storage facilities which, with rack additions, can accommodate its spent fuel
for the projected life of the unit. At the Seabrook Project, there is on-site
storage capacity which, with rack additions, will be sufficient to at least the
year 2011.
The Energy Policy Act of 1992 requires that a fund be created for the
decommissioning and decontamination of the DOE uranium enrichment facilities.
The fund will be financed in part by special assessments on nuclear power
plants in which Montaup has an interest. These assessments are calculated
based on the utilities' prior use of the government facilities and have been
levied by the DOE, starting in September 1993, and will continue over 15 years.
This cost is passed on to the joint owners or power buyers as an additional
fuel charge on a monthly basis and is currently being recovered by Montaup
through rates.
Montaup has a 4.5% equity ownership in Connecticut Yankee, a nuclear
generating facility which is in the process of decommissioning. Montaup's
share of the total estimated costs for the permanent shutdown, decommissioning,
and recovery of the investment in Connecticut Yankee is approximately $23.8
million. On August 31, 1998, a FERC law judge rejected Connecticut Yankee's
filed plan to decommission the plant. The judge claimed that estimates of
clean-up costs were flawed and certain restoration costs were not supported.
The judge also said Connecticut Yankee could not pass on spent fuel storage
costs to rate-payers. The judge recommended that Connecticut Yankee withdraw
its decommissioning plan and submit a new plan which addresses the issues cited
by him. FERC will review the judge's recommendations and issue a decision on
this case in the coming months. If FERC concurs with the judge's
recommendation, this may result in a write down of certain of Connecticut
Yankee plant investments. Montaup cannot predict the ultimate outcome of
FERC's review.
In August 1997, as the result of an economic evaluation, the Maine Yankee
Board of Directors voted to permanently close that nuclear plant. Montaup has
a 4.0% equity ownership in Maine Yankee. Montaup's share of the total
estimated costs for the permanent shutdown, decommissioning, and recovery of
the remaining investment in Maine Yankee is approximately $31.0 million. In
January 1998, FERC accepted Maine Yankee's rate filing, subject to refund, for
the recovery of its costs during the decommissioning period. On January 19,
1999, Maine Yankee and the active intervening parties filed an Offer of
Settlement with FERC which was supported by FERC trial staff. Upon commission
approval, this agreement will constitute full settlement of issues raised in
this proceeding.
Also, Montaup is recovering through rates its share of estimated
decommissioning costs for Millstone 3 and Seabrook I. Montaup's share of the
current estimate of total costs to decommission Millstone 3 is $22.4 million in
1998 dollars, and Seabrook I is $14.4 million in 1998 dollars. These figures
are based on studies performed for the lead owners of the units. Montaup also
pays into decommissioning reserves pursuant to contractual arrangements with
other nuclear generating facilities in which it has an equity ownership
interest or life of the unit entitlement. Such expenses are currently
recoverable through rates.
Pensions: Eastern Edison and Montaup participate with the other EUA System
companies in a non-contributory defined benefit pension plan covering
substantially all of their employees (Retirement Plan). Retirement Plan
benefits are based on years of service and average compensation over the
four years prior to retirement. It is the EUA System's policy to fund the
Retirement Plan on a current basis in amounts determined to meet the funding
standards established by the Employee Retirement Income Security Act of 1974.
Total pension (income) expense for the Retirement Plan, including the
amount related to the 1997 voluntary retirement incentive offer, for 1998, 1997
and 1996 includes the following components ($ In Thousands):
1998 1997 1996
Service cost $1,711 $1,635 $1,641
Interest cost 5,963 5,891 5,607
Expected return on assets (9,012) (8,181) (7,580)
Net amortization:
Prior Service cost 458 456 455
Net actuarial (gain) (227) (106) -
Transition obligation (asset) (272) (272) (272)
Total periodic pension (income) expense $(1,379) $(577) $(149)
Assumptions used to determine pension cost:
1998 1997 1996
Discount Rate 7.25% 7.50% 7.25%
Compensation Increase Rate 4.25% 4.25% 4.25%
Long-Term Return on Assets 9.50% 9.50% 9.50%
The discount rate used to determine pension obligations was changed from
7.25% to 6.75% effective January 1, 1999. The projected benefit obligation,
fair value of assets and funded status of the Retirement Plan cannot be
presented separately for Eastern Edison and Montaup as they participate in the
Retirement Plan with other subsidiaries of EUA.
The voluntary retirement incentive also resulted in non-qualified pension
benefits of approximately $752,000 in 1997. At December 31, 1998,
approximately $416,000 is included in other liabilities for these unfunded
benefits.
EUA also maintains non-qualified supplemental retirement plans for certain
officers and trustees of the EUA System (Supplemental Plans). Benefits
provided under the Supplemental Plans are based primarily on compensation at
retirement date. EUA maintains life insurance on the participants of the
Supplemental Plans and policy cash values and death benefits may be available
to offset EUA's obligations. For the years ended December 31, 1998, 1997 and
1996 Eastern Edison's and Montaup's expenses related to the Supplemental Plan
were approximately $511,000, $805,000, and $717,000, respectively.
The Company also provides a defined contribution 401(k) savings plan for
substantially all employees. The Company's matching percentage of employees'
voluntary contributions to the plan, amounted to approximately $343,000 in
1998, $321,000 in 1997, and $306,000 in 1996.
Post-Retirement Benefits: Retired employees are entitled to participate in
health care and life insurance benefit plans. Health care benefits are subject
to deductibles and other limitations. Health care and life insurance benefits
are partially funded by EUA System companies for all qualified employees.
The total cost of Post-Retirement Benefits other than Pensions, including
the Company's allocated share of EUA Service Corporation costs and the amount
related to the 1997 voluntary retirement incentive offer, for 1998, 1997 and
1996 includes the following components (In Thousands):
1998 1997 1996
Service cost $608 $587 $637
Interest cost 2,738 2,701 2,688
Expected return on plan assets (990) (669) (462)
Net amortization:
Net actuarial (gain) (472) (513) (373)
Transition obligation 1,958 1,952 1,954
Net periodic post-retirement benefit cost 3,842 4,058 4,444
Voluntary retirement incentive 102
Total post-retirement benefit costs $3,842 $4,160 $4,444
Assumptions:
Discount rate 7.25% 7.50% 7.25%
Health care cost trend rate - near-term 6.00% 7.00% 9.00%
- long-term 5.00% 5.00% 5.00%
Compensation increase rate 4.25% 4.25% 4.25%
Rate of return on plan assets - union 8.50% 8.50% 8.50%
- non-union 7.50% 7.50% 7.50%
Reconciliation of Accumulated Post-Retirement Benefit Obligation
(In Thousands) 1998 1997
Beginning of Year Benefit Obligation (January 1) $28,471 $27,623
Service Cost 292 292
Interest Cost 1,930 1,963
Participant Contributions 62 68
Actuarial Loss (Gain) 622 44
Disbursements (1,830) (1,519)
End of Year Benefit Obligation (December 31) $29,547 $28,471
Reconciliation of Fair Value Assets
(In Thousands) 1998 1997
Beginning of Year Fair Value of Assets (January 1) $6,991 $5,161
Actual return on plan assets 800 391
Company contributions 2,855 2,889
Participant contributions 62 68
Disbursements (1,830) (1,518)
End of Year Fair Value of Assets (December 31) $8,878 $ 6,991
Reconciliation of Funded Status
(In Thousands) 1998 1997
Accumulated post-retirement benefit obligation (APBO) $(29,547) $(28,471)
Fair value of plan assets (FVA) 8,878 6,991
APBO (in excess of) less than FVA (Funded Status) (20,669) (21,480)
Unrecognized net transition obligation (asset) 22,833 24,464
Unrecognized net actuarial loss/(gain) (8,210) (8,925)
Net amount recognized $(6,046) $(5,941)
Effect of 1% Change in Assumed Health Care Cost Trend Rate
One-Percentage Point
(In Thousands) Increase (Decrease)
Effect on 1998 Service and
Interest Cost Components of Net-Periodic cost 498 (397)
Effect on 1998 Accumulated Post-retirement 3,640 (2,969)
Benefit Obligation
The discount rate used to determine post-retirement benefit obligations
was changed from 7.25% to 6.75% effective January 1, 1999, and was used to
calculate the funded status of Post-Retirement Benefits at December 31, 1998.
Long-Term Purchased Power Contracts: The EUA System is committed under long-
term purchased power contracts, expiring on various dates through September
2021, to pay demand charges whether or not energy is received. Under terms in
effect at December 31, 1998, the aggregate annual minimum commitments for such
contracts are approximately $111 million in 1999, $109 million in 2000, $111
million in 2001, $108 million in 2002, $101 million in 2003 and will aggregate
approximately $927 million for the ensuing years. In addition, the EUA System
is required to pay additional amounts depending on the actual amount of energy
received under contracts in effect. The demand costs associated with these
contracts are reflected as Purchased Power-Demand on the Consolidated Statements
of Income. Such costs are currently recoverable through rates. Pending
regulatory approval, certain power contract transfers related to the
divestiture of EUA's generating assets will become effective in 1999. Upon
completion of the power contract transfers, the demand charges will be reduced
to $54 million in 1999, $43 million in 2000, $40 million in 2001, $42 million
in 2002, $26 million in 2003, and $162 million in the ensuing years.
Environmental Matters: There is an extensive body of federal and state statutes
governing environmental matters, which permit, among other things, federal and
state authorities to initiate legal action providing for liability,
compensation, cleanup, and emergency response to the release or threatened
release of hazardous substances into the environment and for the cleanup of
inactive hazardous waste disposal sites which constitute substantial hazards.
Because of the nature of the Eastern Edison business, various by-products and
substances are produced or handled which are classified as hazardous under the
rules and regulations promulgated by the United States Environmental Protection
Agency (EPA) as well as state and local authorities. The Company generally
provides for the disposal of such substances through licensed contractors, but
these statutory provisions generally impose potential joint and several
responsibility on the generators of the wastes for cleanup costs. Eastern
Edison and Montaup have been notified with respect to two sites, one of which
Eastern Edison may be considered an innocent downgradient landowner pursuant
to Massachusetts regulations, where they are allegedly responsible for such
costs. It is the policy of Eastern Edison and Montaup to notify liability
insurers and to initiate claims related to such costs. However, Eastern Edison
and Montaup are unable to predict whether liability, if any, will be assumed
by, or can be enforced against, insurance carriers in these matters.
As of December 31, 1998, Eastern Edison and Montaup have incurred
minimal costs in connection with these sites. Eastern Edison and
Montaup estimate that additional costs of up to $700,000 may be incurred at
these sites through 1999. Estimates beyond 1999 cannot be made since site
studies, which are the basis of these estimates, have not been completed.
Eastern Edison and Montaup does not believe that the ultimate impact of
environmental costs will be material to its financial position and thus, no
loss provision is required at this time.
As a general matter Eastern Edison and Montaup would seek to recover costs
relating to environmental proceedings in their rates. Montaup is currently
recovering certain of the incurred costs in its rates.
The Clean Air Act Amendments created new regulatory programs and generally
updated and strengthened air pollution control laws. These amendments expanded
the regulatory role of the EPA regarding emissions from electric generating
facilities and a host of other sources. EUA System generating facilities were
first affected in 1995, when EPA regulations took effect for facilities owned
by the EUA System. Montaup's coal-fired Somerset Unit 6 is utilizing lower
sulfur content coal to meet the 1995 air standards. EUA does not anticipate
the impact from the Amendments to be material to the financial position of the
EUA System.
In July, the EPA issued a new and more stringent rule covering ozone
particulate matter which is to be followed by promulgation of more stringent
ozone and particulate matter standards. The effect that such standards will
have on the EUA System cannot be determined by Management at this time.
Eastern Edison, Montaup, the Massachusetts Attorney General and Division
of Energy Resources entered into a settlement regarding electric utility
industry restructuring in Massachusetts. The settlement includes a plan for
emissions reductions related to Montaup's Somerset Station Units 5 and 6. The
basis for SO2 and NOx emission reductions in the proposed settlement is an
allowance cap calculation. Montaup may meet its allowance caps by any
combination of control technologies, fuel switching, operational changes,
and/or the use of purchased or surplus allowances. The settlement was approved
by FERC on December 19, 1997.
In April 1992, the Northeast States for Coordinated Air Use Management
(NESCAUM), an environmental advisory group for eight northeast states including
Massachusetts and Rhode Island, issued recommendations for NOx controls for
existing utility boilers required to meet the ozone non-attainment requirements
of the Clean Air Act. The NESCAUM recommendations are more restrictive than
the Clean Air Act requirements. The Massachusetts Department of Environmental
Management has amended its regulations to require that Reasonably Available
Control Technology (RACT) be implemented at all stationary sources potentially
emitting 50 tons or more per year of Nox. Similar regulations have been issued
in Rhode Island. Montaup has initiated compliance, through, among other
things, selective noncatalytic reduction processes.
See Note A regarding Montaup's divestiture of generation assets.
A number of scientific studies in the past several years have examined the
possibility of health effects from EMF that are found wherever there is
electricity. While some of the studies have indicated some association between
exposure to EMF and health effects, many others have indicated no direct
association. Some states have enacted regulations to limit the strength of
magnetic fields at the edge of transmission line rights-of-way. Rhode Island
has enacted a statute which authorizes and directs the Energy Facility Siting
Board to establish rules and regulations governing construction of high voltage
transmission lines of 69 kv or more. Management cannot predict the ultimate
outcome of the EMF issue.
Guarantee of Financial Obligations: Montaup is a 3.27% equity participant in
two companies which own and operate transmission facilities interconnecting New
England and the Hydro Quebec system in Canada. Montaup has guaranteed
approximately $4.1 million of the outstanding debt of these two companies. In
addition, Montaup has a minimum rental commitment which totals approximately
$11.2 million under a noncancellable transmission facilities support agreement
for years subsequent to 1998.
Other: Since early 1997, fourteen plaintiffs brought suits against numerous
defendants, including EUA, for injuries and illness allegedly caused by
exposure to asbestos over approximately a thirty-year period, at various
premises, including some owned by EUA companies. The total damages claimed in
all of these complaints is $34 million in compensatory and punitive damages,
plus exemplary damages and interest and costs. Each complaint names between
fifteen and twenty-eight defendants, including EUA. These complaints have been
referred to the applicable insurance companies. Counsel has been retained by
the insurers and is actively defending all cases. Four cases have been
dismissed as against EUA companies. EUA cannot predict the ultimate outcome of
this matter at this time.
A pending class action, filed on March 2, 1998, in the Massachusetts
Supreme Judicial Court naming all Massachusetts electric distribution
companies, including Eastern Edison, and certain Massachusetts state agencies
as defendants, seeks to invalidate certain sections of the Electric Utility
Restructuring Act of 1997. The Act directs the Massachusetts Department of
Telecommunications and Energy to impose mandatory charges on all electricity
sold to customers, except those served by a municipal lighting plant, to fund
energy efficiency activities and to promote renewable energy projects. In
addition to declaratory judgment, plaintiffs seek remittance of monies paid to
each distribution company by customers along with any interest earned. The
outcome of this class action is unknown at this time, however Eastern Edison is
vigorously defending the lawsuit.
<TABLE>
EASTERN EDISON COMPANY
Quarterly Financial Information (unaudited)
<CAPTION>
Consolidated
Operating Operating Net Net
($ in Thousands) Revenues Income Income Earnings
<S> <C> <C> <C> <C>
FOR THE QUARTERS
ENDED 1998:
December 31 $100,191 $11,462 $ 7,635 $7,138
September 30 101,769 10,918 6,678 6,181
June 30 97,342 9,371 5,303 4,806
March 31 108,928 14,362 10,090 9,593
FOR THE QUARTERS
ENDED 1997:
December 31 110,739 11,671 7,244 6,747
September 30 109,971 11,713 7,532 7,035
June 30 103,716 9,524 5,336 4,839
March 31 110,588 12,287 8,935 8,438
</TABLE>
Basic and Diluted Earnings Per average Common Share, Dividends Paid per Common
Share and Common Share Market Price information is not meaningful as Eastern
Edison's Common Stock is wholly-owned by Eastern Utilities Associates.
Report of Independent Accountants
To the Directors and Shareholder of
Eastern Edison Company and Subsidiary:
In our opinion, the accompanying consolidated balance sheets and
consolidated statements of capitalization present fairly, in all material
respects, the financial position of Eastern Edison Company (the "Company") and
its subsidiary at December 31, 1998 and 1997, and their consolidated statements
of income, retained earnings and cash flows present fairly their results of
operations and cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidences supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 5, 1999
[This page left blank intentionally]
[This page left blank intentionally]
To the Trustees and Shareholders of
Eastern Utilities Associates:
We consent to the incorporation by reference in the registration statements of
Eastern Utilities Associates on Forms S-4 and S-8 (File No. 33-50099 and 33-
49897, respectively) of our reports dated March 5, 1999, on our audits of the
consolidated financial statements and financial statement schedules of Eastern
Utilities Associates and subsidiaries as of December 31, 1998 and 1997, and
for the years ended December 31, 1998, 1997 and 1996, which reports are
incorporated by reference or included in this Annual Report on Form 10-K.
PricewaterhouseCoopers L.L.P.
Boston, Massachusetts
March 15, 1999
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