EASTERN EDISON COMPANY
1994 Annual Report on Form 10-K
Table of Contents
PART I
Page
Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . (i)
Glossary of Defined Terms. . . . . . . . . . . . . . . . . . . . . (iv)
Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Construction Program. . . . . . . . . . . . . . . . . . . . . 3
Fuel for Generation . . . . . . . . . . . . . . . . . . . . . 4
Nuclear Power Issues. . . . . . . . . . . . . . . . . . . . . 6
General . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Decommissioning . . . . . . . . . . . . . . . . . . . . . . 7
Yankee Atomic . . . . . . . . . . . . . . . . . . . . . . . 7
Seabrook Unit 2 . . . . . . . . . . . . . . . . . . . . . . 8
Public Utility Regulation . . . . . . . . . . . . . . . . . . 8
Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FERC Proceedings. . . . . . . . . . . . . . . . . . . . . . 10
Massachusetts Proceedings . . . . . . . . . . . . . . . . . 10
Environmental Regulation . . . . . . . . . . . . . . . . . . 11
General . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Electric and Magnetic Fields. . . . . . . . . . . . . . . . 13
Water Regulation. . . . . . . . . . . . . . . . . . . . . . 13
Air Regulation. . . . . . . . . . . . . . . . . . . . . . . 14
Environmental Regulation of Nuclear Power . . . . . . . . . . 15
Energy Policy . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . 17
Power Supply. . . . . . . . . . . . . . . . . . . . . . . . . 17
Generating Units in Service . . . . . . . . . . . . . . . . . 18
Other Property. . . . . . . . . . . . . . . . . . . . . . . . 19
(i)
PART I (continued)
Page
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . 19
Rate Proceedings. . . . . . . . . . . . . . . . . . . . . . . 19
Environmental Proceedings . . . . . . . . . . . . . . . . . . 19
Other Proceedings . . . . . . . . . . . . . . . . . . . . . . 20
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY-HOLDERS. . . . . . . . . . . . . . . . . . . 21
PART II
Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . 21
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA. . . . . . . . . . . 22
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND REVIEW OF OPERATIONS. . . . . 23
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Comparison of Financial Results . . . . . . . . . . . . . . . 23
Rate Activity . . . . . . . . . . . . . . . . . . . . . . . . 26
Financial Condition and Liquidity . . . . . . . . . . . . . . 26
Environmental Matters . . . . . . . . . . . . . . . . . . . . 27
Change in Accounting Standards. . . . . . . . . . . . . . . . 28
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA. . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES. . . . . . . . . . . . . . 29
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT. . . . . . . . . . . . . . . . . . . . . . 30
Item 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . 32
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . 35
(ii)
PART III (continued)
Page
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . 37
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . 37
(a)(1) Financial Statements. . . . . . . . . . . . . . . . . 37
(a)(2) Financial Statement Schedules . . . . . . . . . . . . 37
(a)(3) Exhibits. . . . . . . . . . . . . . . . . . . . . . . 37
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Consolidated Financial Statements and Notes. . . . . . . . . . . . 48
Report of Independent Accountants. . . . . . . . . . . . . . . . . 68
(iii)
GLOSSARY OF DEFINED TERMS
The following is a glossary of frequently used abbreviations or
acronyms found throughout this report:
The EUA System Companies
Blackstone Blackstone Valley Electric Company
Company Eastern Edison Company
Eastern Edison Eastern Edison Company
EUA Eastern Utilities Associates
EUA Cogenex EUA Cogenex Corporation
EUA Energy EUA Energy Investment Corporation
EUA Ocean State EUA Ocean State Corporation
EUA Power EUA Power Corporation (now Great Bay Power
Corporation)
EUA Service EUA Service Corporation
Montaup Montaup Electric Company
Newport Newport Electric Corporation
Registrant Eastern Edison Company
Retail Subsidiaries Blackstone, Eastern Edison
and Newport
Non-Affiliated_Companies
Aquidneck Aquidneck Power Limited Partnership
Maine Yankee Maine Yankee Atomic Power Company
OSP Ocean State Power Project Units 1 and 2
Yankee Atomic Yankee Atomic Electric Company
NHEC New Hampshire Electric Cooperative, Inc.
Regulators/Regulations
1935 Act Public Utility Holding Company Act of 1935
CERCLA Federal Comprehensive Environmental
Response, Compensation and Liability
Act of 1980 as amended by the Superfund
Amendments and Reauthorization Act of
1986
Chapter 21E Massachusetts Oil and Hazardous Material
Release Prevention and Response Act of
1986
Clean Air Act Amendments Clean Air Act Amendments of 1990
DEP Massachusetts Department of Environmental
Management
DOE United States Department of Energy
Energy Policy Act Energy Policy Act of 1992
EPA Federal Environmental Protection Agency
FASB Financial Accounting Standards Board
FAS87 Employers Accounting for Pensions
FAS96 Statement No. 96 "Accounting for Income
Taxes"
(iv)
GLOSSARY OF DEFINED TERMS (Cont'd)
Regulators/Regulations (continued)
FAS106 Statement No. 106 "Accounting for
Post-Retirement Benefits"
FAS107 Statement No. 107 "Disclosures about
Fair Value of Financial Instruments"
FAS109 Statement No. 109 "Accounting for Income
Taxes"
FAS112 Statement No. 112 "Accounting for Post-
Employment Benefits"
FERC Federal Energy Regulatory Commission
IRS Internal Revenue Service
MCP Massachusetts Contingency Plan
MDPU Massachusetts Department of Public
Utilities
NESCAUM Northeast States for Coordinated Air Use
Management
NHPUC New Hampshire Public Utilities Commission
NRC Nuclear Regulatory Commission
NWPA Nuclear Waste Policy Act
OPA-90 Oil Pollution Act of 1990
PURPA Public Utility Regulatory Policies Act
of 1978
RACT Reasonably Available Control Technology
RCRA Resource Conservation and Recovery Act of
1976
RIDEM Rhode Island Department of Environmental
Management
RIPUC Rhode Island Public Utilities Commission
SEC Securities and Exchange Commission
SPCC Spill Prevention Control and
Countermeasures
TSCA Toxic Substances Control Act
USCG United States Coast Guard
Other
AFUDC Allowance for Funds Used During
Construction
BTU British Thermal Unit
C&LM Conservation and Load Management
EITF Emerging Issues Task Force
EMF Electric and Magnetic Fields
EWG Exempt Wholesale Generator
FMBs First Mortgage and Collateral Trust Bonds
IPP Independent Power Producer
kWh Kilowatthour
Millstone Unit 3 Millstone Nuclear Power Project
Generating Unit No. 3
(v)
MOU Memorandum of Understanding
MW Megawatt
NEPOOL New England Power Pool
PCAC Purchase Capacity Adjustment Clause
PCB Polychlorinated Biphenyls
PRP Potentially Responsible Parties
QF Qualifying cogeneration and small power
production facilities pursuant to PURPA
Seabrook Project Seabrook Nuclear Power Project
Seabrook Unit 1 Seabrook Nuclear Power Project
generating Unit No. 1
Seabrook Unit 2 Seabrook Nuclear Power Project
generating Unit No. 2
VEBA Voluntary Employee Benefits Association
Yankee Rowe Yankee Nuclear Power Station
(vi)
PART I
Item 1. BUSINESS
General
The Registrant, Eastern Edison Company, a retail electric utility company,
is a corporation organized under the laws of the Commonwealth of Massachu
setts. Eastern Edison is a wholly owned subsidiary of EUA, 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. EUA owns directly all of the shares of common stock of three operating
retail electric utility companies: Eastern Edison, Blackstone, and Newport.
Blackstone operates in northern Rhode Island, Eastern Edison operates in
southeastern Massachusetts, and Newport 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 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
Cogenex, EUA Energy, EUA Ocean State and EUA Service. EUA Service provides
various accounting, financial, engineering, planning, data processing and other
services to all EUA System companies. EUA Cogenex is an energy service and
cogeneration company. EUA Energy was organized to invest 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.) The holding company
system of EUA, the Retail Subsidiaries, Montaup, EUA Service, EUA Cogenex, EUA
Energy and EUA Ocean State is referred to as the EUA System. For the three
years 1992 through 1994, electric operations accounted for 100% of Eastern
Edison's total operating revenues.
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 390 square miles and has an estimated population of
approximately 447,000. At December 31, 1994, Eastern Edison served
approximately 178,000 retail customers.
Montaup supplies the EUA System, including Eastern Edison, with nearly
100% of their electric requirements. About 48% of the net generating capacity
of the EUA System comes from a combination of the following sources: (i) wholly
owned EUA System generating plants, primarily Montaup's 152 MW Somerset
facility located in Somerset, Massachusetts; (ii) Montaup's net entitlement of
207 MW from the 584 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
52% of the net generating capacity of the EUA System comes from units in which
Montaup has long-term or short-term power contracts for shares ranging from
0.81% to 41.67% 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. On January 25, 1994, Somerset's Unit
No. 5 was placed in deactivated reserve, resulting in the reduction of
approximately 69 MW of Montaup's total net generating capacity. Newport became
an all-requirements customer of Montaup with the implementation of reduced
wholesale rates by Montaup on May 21, 1994. Montaup has assumed all of
Newport's purchased power contracts and is leasing all of Newport's generation
and a share of Newport's transmission facilities. (See Item 2. PROPERTIES --
Power Supply for further details of the EUA System's sources of power supply.)
Eastern Edison 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.
Eastern Edison'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.
Eastern Edison is not dependent on a single customer or a few customers
for its electric sales.
There is no competition from other electric utilities within the retail
territories served by Eastern Edison at this time. It is possible that in the
future retail competition could be imposed by legislative or regulatory action
at the federal or state level.
At the wholesale level, Montaup faces new sources of competition primarily
as a result of PURPA, the Energy Policy Act and other policies being
implemented by the MDPU and RIPUC relating to the solicitation of competitive
proposals for new generation sources. Non-utility wholesale generators,
generally known as independent power producers or IPPs, are subject to FERC
regulation under the Federal Power Act as well as various other federal, state,
and local regulators. However, 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 QFs. PURPA allows QFs to sell
power generated by the QF to local utilities at specified rates based on each
utilities' avoided cost. In order to further promote competition in energy
supply, the Energy Policy Act established another class of non-utility
generators called exempt wholesale generators, generally referred to as EWGs,
which are exempt from the 1935 Act and increased FERC's power to order
transmission access, resulting in FERC's Regional Transmission Group Policy.
As a complement to the federal initiatives, the MDPU and RIPUC have implemented
regulations which require utilities to integrate least-cost planning with
competitive proposals to meet requirements for new generation. Both states
have also approved 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
Companies. Montaup will face increased competition in the wholesale generating
market, primarily based on price, from QFs, EWGs and in the future could be
affected by such competition supplying generation to its customers.
Across the country, there has been an increasing focus on competitive
issues. Regulators, in Massachusetts and Rhode Island are currently examining,
among other things, issues related to potential electric industry restructuring
including retail wheeling (the transmission of power from one utility for sale
by that system to retail customers of a different system). The MDPU is also
requiring electric utilities to begin the transition to incentive regulation.
The timing and impact of these examinations on the financial condition of the
utility industry in general and Eastern Edison's operations in particular is
uncertain at this time. Eastern Edison will continue to monitor and
participate in all regulatory investigations into the many issues surrounding
this move to a competitive marketplace.
As a regulated industry, utilities 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. The effects of
competition or change in regulation could ultimately cause Eastern Edison to no
longer follow these accounting rules. In such an event, any regulatory assets
and liabilities would have to be fully expensed at that time. Eastern does not
expect this situation to occur in the near future.
All of the transmission facilities within the EUA System are inter
connected with the NEPOOL transmission grid. Montaup and Eastern Edison are
members of NEPOOL, which is open to all investor-owned, municipal and
cooperative electric utilities and other entities that are engaged in the
electric utility business in New England that are connected to the New England
power grid. NEPOOL provides for coordinated planning of future facilities as
well as operation of nearly 100% of existing generating capacity in New England
and of related transmission facilities essentially as if they were one system.
The NEPOOL agreement imposes obligations concerning generating capacity reserve
and the right to use major transmission lines, and provides for central
dispatch of the generating capacity of NEPOOL's members with the objective of
achieving economical use of the region's facilities. Pursuant to the NEPOOL
agreement, interchange sales to NEPOOL are made at a price approximately equal
to the fuel cost for generation without contribution to the support of fixed
charges. The capacity responsibilities of Montaup and Eastern Edison under the
NEPOOL agreement are based on an allocated share of a New England capacity
requirement which is determined for each period on the basis of certain
regional reliability criteria. Because of their participation in NEPOOL,
Montaup's and Eastern Edison's operating revenues and costs are affected to
some extent by the operations of other members. A comprehensive review of the
NEPOOL Agreement was initiated in 1994 to look at its current structure to
determine what may be done as the electric Utility environment becomes
increasingly competitive.
As of December 31, 1994, Eastern Edison and Montaup had 444 regular
employees. Relations with employees are considered to be satisfactory. Labor
bargaining unit contracts covering approximately 167 employees of Eastern
Edison in the Fall River area and of Montaup expire in June 1995 and March
1996, respectively.
On March 15, 1995, EUA announced a corporate reorganization which, among
other things, will consolidate management of Eastern Edison, Blackstone and
Newport. As part of the reorganization, a voluntary retirement incentive,
effective June 1, 1995, was offered to approximately twenty-two employees of
Eastern Edison and Montaup. At this time management is unable to predict how
many employees will accept the offer.
Construction_Program
Cash construction expenditures for the year ended December 31, 1994 were
approximately $23.6 million.
Cash construction expenditures of Eastern Edison and Montaup for 1995,
1996 and 1997 as set forth below, are estimated to total $80.6 million.
<TABLE>
CONSTRUCTION_PROGRAM
(Dollars in Thousands)
<CAPTION>
______1995______ ______1996______ ______1997______ _______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 $ $18,313 $ $13,913 $ $13,715 $ $45,941 $ 45,941
Transmission 157 989 131 2,295 141 2,477 429 5,761 6,190
Distribution 10,344 7,999 8,616 26,959 26,959
General _______ _______ ____160 ____571 ____173 ____616 ____333 __1,187 ___1,520
Total $10,501 $19,302 $ 8,290 $16,779 $ 8,930 $16,808 $27,721 $52,889 $ 80,610
======= ======= ======= ======= ======= ======= ======= ======= ========
</TABLE>
Fuel_for_Generation
For 1994, Montaup's sources of energy, by fuel type, were as follows: 34%
nuclear, 20% oil, 28% gas, 12% coal, and 6% other. During 1994, Montaup had an
average inventory of 61,773 tons of coal for its steam generating unit at the
Somerset Station, the equivalent of 75 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 $48.52 per ton in 1994 which is
equivalent to oil at $11.85 per barrel. This was slightly more expensive than
1993 because 1994 included short-term commitments of lower sulfur coal for
Massachusetts Clean Air Act compliance testing. Montaup also maintained an
average inventory of Nos. 2 and 6 oil of 4,537 barrels and 58,663 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 $24.35
per barrel and $15.03 per barrel in 1994, respectively. Montaup also
maintained an average inventory of jet oil of 3,880 barrels at an average cost
per barrel of $25.15 during 1994 for its two peaking units at the Somerset
Station.
Montaup has a one year purchase order effective through December, 1995
with a coal producer. Barge and rail agreements for coal transportation are
also in place through 1995. The 1994 year-end coal inventory of approximately
84,500 tons is all 0.6% to 0.7% sulfur coal which is compliant with
Massachusetts Clean Air Act requirements.
Canal Electric Company (Canal), on behalf of itself, Montaup and others
has contracts with a supplier for up to 100% of the fuel-oil requirements of
Canal Unit Nos. 1 and 2 for the period ending April 30, 1995. The current
contracts permit up to 20% of fuel oil purchases in the spot market. It is
currently planned that Canal will reach an agreement with a supplier for the
following three-month period. These three months will be used to examine the
practicality of further delaying a long-term oil contract. For 1994, the cost
of oil per barrel at Canal averaged $13.25.
Canal and Montaup have entered into agreements with Algonquin Gas
Transmission Company (Algonquin) for Algonquin to provide gas transmission
facilities and services to the Canal facilities. The agreements are subject to
(i) Algonquin obtaining the appropriate permits and authorization to construct
and operate the transmission facilities and (ii) Canal and Montaup receiving
the necessary permits and authorizations to construct natural gas fired
electric generation equipment and the facilities to receive natural gas. It is
anticipated that Canal Unit No. 2 will have the ability to burn either No. 6
oil, natural gas, or a blend of both fuels beginning the second quarter of
1996. The timing of Canal Unit No. 2's ability to burn natural gas will
determine the necessary terms of a long-term oil contract.
Montaup's costs of fossil and nuclear fuels for the years 1992 through
1994, together with the weighted average cost of all fuels, are set forth
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
___________Mills*_per_kWh__________
1994 1993 1992
Nuclear . . . . . . . . . 6.1 7.5 7.7
Gas . . . . . . . . . 14.1 15.1 13.0
Coal . . . . . . . . . 20.9 24.1 21.2
Oil . . . . . . . . . 27.1 25.5 26.0
All fuels . . . . . . . . . 14.5 15.5 14.8
*One Mill is 1/10 of one cent
</TABLE>
The rate schedules of Eastern Edison and Montaup are designed to pass on
to customers the increases and decreases in fuel costs and the cost of
purchased power, subject to review and approval by appropriate regulatory
authorities (see Rates below).
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 prescribed fees for the disposal of such wastes and 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 anticipates that a permanent disposal site for spent fuel will
be ready to accept fuel for storage or disposal by the year 2010. Montaup owns
a 4.01% interest in Millstone Unit 3 and a 2.9% interest in Seabrook Unit 1.
Northeast Utilities, the operator of the units, indicates that Millstone Unit 3
has sufficient on-site storage facilities to accommodate its spent fuel for the
projected life of the unit. Expenditures for additional rack storage
facilities are projected to be made by 1999. At the Seabrook Project, there is
on-site storage capacity which, with rack additions, should be sufficient to at
least the year 2010.
The Energy Policy Act 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 since 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.
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
(see Yankee Atomic below).
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 cancelled following
substantial construction delays and cost overruns as the result of licensing
problems, unanticipated construction defects 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, NRC regulations require that it be completely decontaminated of any
residual radioactivity. The cost of such decommissioning, depending on the
circumstances, could substantially exceed the owners' investment at the time of
cancellation.
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 (see Yankee Atomic
below).
The Price-Anderson Act provides, among other things, that the liability
for damages resulting from a nuclear incident would not exceed an amount which
at present is about $8.7 billion. Under the Price-Anderson Act, prior to
operation of a nuclear reactor, the licensee 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
an individual licensee's liability for an incident exceed $200 million, the
difference between such liability and the overall maximum liability, currently
about $8.7 billion, will be made up by the retrospective rating program. Under
such a program, each owner of an operating nuclear facility may be assessed a
retrospective premium of up to a limit of $79.3 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.
Joint owners of nuclear projects are also 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. On February 28, 1991,
EUA Power (now known as Great Bay Power Corporation), a 12.13% owner of the
Seabrook Project in which Montaup has a 2.9% ownership interest, filed for
protection under Chapter 11 of the federal Bankruptcy Code. It conducted its
business as a Debtor-in-Possession until November 23, 1994, at which time its
Plan of Reorganization became effective and Great Bay Power emerged from
Chapter 11.
Decommissioning:
Each of the three operating nuclear generating companies 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, these companies re-estimate the cost of decommissioning and apply 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 Yankee Atomic below).
Montaup is recovering through rates its share of estimated decommissioning
costs for Millstone Unit 3 and Seabrook Unit 1. Montaup's share of the current
estimate of total costs to decommission Millstone Unit 3 is $18.0 million in
1994 dollars, and Seabrook Unit 1 is $11.5 million in 1994 dollars. These
figures are based on studies performed for the lead owner of the units. 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.
Yankee Atomic:
On February 26, 1992, Yankee Atomic announced that it would permanently
cease power operation of Yankee Rowe and began preparing for an orderly
decommissioning of the facility. Montaup has a 4.5% equity ownership in Yankee
Atomic with a book value of approximately $1.2 million at December 31, 1994.
Under the terms of its purchased power contract with the facility, Montaup must
pay its proportionate share of unrecovered costs and expenses incurred after
the plant is retired. In December 1992, Yankee Atomic received FERC
authorization to recover essentially all unrecovered assets and all costs
incurred after the February 26, 1992 shutdown decision until the plant is
decommissioned. Montaup's share of all unrecovered assets and the total
estimated costs to decommission the unit aggregated $18.4 million at December
31, 1994.
Maine Yankee:
The Maine Yankee unit, like other pressurized water reactors, has been
experiencing degradation of its steam generator tubes, principally in the form
of circumferential cracking, which, until early 1995, was believed to be
limited to a relatively small number of steam generator tubes. In the past the
detection of defects has resulted in the plugging of those tubes to prevent
their subsequent use. During the refueling-and-maintenance shutdown that
commenced in early February of 1995 Maine Yankee has detected increased
degradation of the Plant's steam generator tubes, in excess of the number
expected, and is currently evaluating several courses of action to address
the matter. The detection of a significantly larger number of degraded tubes
is likely to adversely affect the operation of the Plant and may result in
substantial cost to Maine Yankee. Maine Yankee cannot now predict what course
of action it will choose, or to what extent the operation of the Plant will be
affected. Montaup has a 3.59% stock ownership interest in Maine Yankee.
Seabrook Unit 2:
Montaup also has 2.9% ownership interest in Seabrook Unit 2. On November
6, 1986, the joint owners of the Seabrook Project, recognizing that Seabrook
Unit 2 had been cancelled in 1984, voted to dispose of Seabrook Unit 2. Plans
regarding disposition of Seabrook Unit 2 are now under consideration, but have
not been finalized and approved. Montaup is unable, therefore, to estimate the
costs for which it would be responsible in connection with the disposition of
Seabrook Unit 2. Monthly charges are required to be paid by Montaup with
respect to Seabrook Unit 2 in order to preserve and protect its components and
various warranties. Montaup recovered its investment in Seabrook Unit 2 under
a FERC approved rate case settlement. As of December 31, 1994, Montaup had
fully recovered its investment in Seabrook Unit 2.
Public Utility Regulation
Eastern Edison and Montaup are subject to regulation by the MDPU 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. Montaup, by reason of its ownership of fractional interests in
certain facilities located in other states, is subject to limited regulation in
those states.
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.
Eastern Edison 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.
The MDPU and RIPUC have approved a Memorandum of Understanding (MOU) with
Eastern Edison, Blackstone, Newport and Montaup. The MOU establishes a
framework for a coordinated, regional review of the resource planning and
procurement process of those companies. It is based on the assumption that
resource planning and procurement by a regional electric company may be
implemented more effectively under a coordinated, consensual review process
involving the EUA Retail companies and the state public utility commissions to
which the EUA retail companies are subject. Pursuant to the terms of the MOU,
at least every two years Montaup and Eastern Edison will file with the MDPU and
Blackstone will file the RIPUC an integrated resource plan concurrently. The
MOU outlines a mechanism and a timetable by which the reviews by the two
commissions will be coordinated and any inconsistencies among the decisions by
the state commissions will be resolved.
In conjunction with its approval of the MOU, the MDPU granted Eastern
Edison and Montaup an exemption from the MDPU's Integrated Resource Management
regulations, but required them to plan, solicit and procure additional
resources according to newly promulgated regional Integrated Regional Planning
procedures consistent with the MOU.
Implementation of the MOU is not expected to have a material affect on the
Company.
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 NRC.
See also Energy Policy.
Rates
Rates charged by Montaup (which sells power only for resale) are subject
to the jurisdiction of FERC. The rates for services rendered by Eastern Edison
are subject to approval by and are on file with the MDPU. For the twelve
months ended December 31, 1994, 82.6% of Eastern Edison's consolidated revenues
were subject to the jurisdiction of FERC and 17.4% to the MDPU.
Recent general rate (decreases) increases for Montaup and Eastern Edison
are as follows (thousands of dollars):
<TABLE>
<CAPTION>
Applied for Implemented(F1) Effective(F2)
Return on
Annual($) Annual($) Annual($) Common
Revenue Date Revenue Date Revenue Date Equity %
<S> <C> <C> <C> <C> <C> <C> <C>
Federal
- Montaup
M-14 (10,133) 3/21/94 (10,133) 5/21/94 Decision Pending (F3)
Massachusetts
- Eastern Edison
MDPU 92-148 14,927(F4) 6/15/92 8,100 1/12/93 11.50(F5)
___________________
<FN>
<F1> Montaup's rate changes were implemented on a subject to refund basis.
<F2> Per final FERC order or settlement agreement.
<F3> Settlement agreement with all parties with an annual reduction of
$13,992,000 awaits FERC certification.
<F4> Reduced from $16,401,000 as originally filed.
<F5> Rate used for AFUDC calculation purposes. Settlement contains no
specific finding on allowed common equity return. Rates approved for
consumption of electricity on or after January 1, 1993.
</FN>
</TABLE>
FERC Proceedings:
On December 17, 1992, FERC issued a Statement of Policy regarding the
recovery through rates of the cost of post-employment benefits other than
pensions (PBOP), as a result of FAS106 issued to address accounting procedures
for these costs. The Commission's policy recognizes allowances for prudently
incurred costs of such benefits of company employees when determined on an
accrual basis that are consistent with the accounting principles set forth in
FAS106. Furthermore, companies must agree to make cash deposits to an
irrevocable external trust fund equal to the annual test period allowance for
the cost of such benefits and they must maximize the use of income tax
deductions for contributions to the trust fund. If tax deductions are not
available for some portion of currently funded amounts, deferred income tax
accounting must be followed for the tax effects of such transactions.
Within three years of their adoption of FAS106, FERC regulated companies
must also file a general rate change and seek inclusion of these costs in their
rates. Companies may defer the jurisdictional portion of the difference
between the costs determined pursuant to accounting principles previously
followed and FAS106 accruals from the time they adopt FAS106 until they file
the general rate case described above. Montaup deferred its incremental FAS106
expenses of approximately $400,000 and $1.4 million for 1994 and 1993,
respectively.
On May 21, 1994 Montaup filed a rate application with the FERC to reduce
annual revenues by $10.1 million. This request is intended to match more
closely Montaup's revenues with its decreasing cost of doing business resulting
from, among other things, a reduced rate base, lower capital costs and
successful cost control efforts. The application also included a request for
recovery of all of Montaup's FAS106 expenses as provided in FERC's generic
order of December 1992, including a five-year amortization of previously
deferred FAS106 costs. Also incorporated in this filing was a request to make
Newport an all requirements customer of Montaup. Settlement agreements with
all intervenors with an annual base rate reduction of approximately $14 million
annually, (inclusive of the filed $10.1 million reduction) effective as of
August 1994, await certification by the Commission.
Massachusetts Proceedings:
In December 1994 the Massachusetts Department of Public Utilities approved
a request made by Eastern Edison to recover through a reconciling adjustment
factor a portion of "lost base revenues." Lost base revenue represents amounts
the company would have collected if it had not offered demand-side management
and conservation and load management programs to its customers.
On December 31, 1992, the MDPU issued its order in response to a $14.9
million (reduced from $16.4 million, as originally filed) rate increase request
of Eastern Edison. The $8.1 million rate relief granted represented 49% of
Eastern Edison's original rate request filed on June 15, 1992 based on a 1991
test year. The new rates filed in compliance with the order became effective
for sales subsequent to January 1, 1993.
In authorizing the increase, the MDPU accepted a settlement proposal
offered jointly by Eastern Edison and the Massachusetts Attorney General, the
sole intervenor. The settlement stipulated the total revenue requirement which
included an amortization of Hurricane Bob costs over a five-year period without
a return on the unamortized amount. The settlement also reflects the recovery
of the full tax deductible amount of post-retirement benefits other than
pensions (FAS106 expenses), without any phasing-in of the increase over the
current ("pay-as-you-go") level. All FAS106 amounts recovered were placed in
trusts permitted by the IRS which will maximize tax deductibility and provide
tax-free benefits to retirees. The depreciation rate and the common equity
component of AFUDC were also specified. The composite rate for the
depreciation calculation was set at 4.13%, up slightly from the 4.07%
previously authorized. Solely for the purpose of calculating AFUDC, the common
equity return component was set at 11.5%.
The MDPU has put all companies on notice that it expects them..."to
consider mergers or acquisitions in order to further optimize least-cost
planning efforts and better fulfill their obligations to serve." Thereafter,
the MDPU instituted an investigation, which is now underway, for the purpose of
establishing, among other things, guidelines and standards for acquisitions and
mergers of utilities and evaluating proposals regarding the recovery of costs
associated with such activities. It is not possible to predict what effects,
if any, the MDPU proceeding will have on the Eastern Edison.
On September 20, 1994, the MDPU issued a notice of inquiry and order
seeking comments on incentive regulation. The inquiry was to focus on
incentive regulation, sometimes referred to as performanced-based regulation,
to replace in whole or in part its existing cost-of-service/rate-of-return
regulatory framework. Comments were filed by Eastern Edison and other
interested persons. On February 24, 1995, the MDPU issued an order relating to
implementation of incentive regulation. In the order, the MDPU strongly
encouraged all jurisdictional electric utilities to devise and propose
incentive plans. The objective of incentive regulation is to "provide
market-place benefits to consumers through (1) more efficient utility
operations, (2) stronger utility incentives for better cost control, and (3)
enhanced opportunities for lower rates." While no timetable is specified, the
MDPU stated the largest utilities should commence the incentive plan design
process as soon as possible. It is not possible to predict what effect, if any
the MDPU's order will have on the EUA System.
On February 10, 1995, the MDPU issued a notice of inquiry and order
seeking comments on electric industry restructuring. After initial and
second-round comments are received, the MDPU will determine whether to hold
further discussions or hearings, or issue an order on the results of its
investigation. It is not possible to predict what effect, if any, the MDPU
proceeding will have on Eastern Edison.
Environmental_Regulation
General:
Eastern Edison 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 an environmental audit program designed to ensure compliance
with environmental laws and regulations and to identify and reduce liability
was instituted for Montaup and the Retail Subsidiaries.
Federal, Massachusetts and Rhode Island legislation requires consideration
of reports evaluating environmental impact as a prerequisite to the granting of
various permits and licenses with a view of limiting such impact. Federal,
Massachusetts and Rhode Island air quality regulations also require that plans
(including procedures for operation and maintenance) for construction or
modification of fossil fuel generating facilities receive prior approval from
the DEP 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 filed by the utility concerned and
approved by the Massachusetts Energy Facilities Siting Board.
Montaup, its affiliates and non-affiliates with which it has power supply
arrangements 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.
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.
Other activities of Eastern Edison and Montaup 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 will have on Eastern Edison and
Montaup.
The EPA has issued regulations relating to the generation, transportation,
storage and disposal of certain wastes under the RCRA. In Massachusetts, the
requirements are implemented and enforced by the DEP.
There is an extensive body of federal and state statutes governing
environmental matters, including CERCLA, as amended by the Superfund Amendments
and Reauthorization Act of 1986, and, at the state level, Chapter 21E, 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. Under CERCLA and Chapter 21E, joint and
several liability for cleanup costs may be imposed on, 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 Montaup and
Eastern Edison, certain materials are generated that may be classified as
hazardous under CERCLA and Chapter 21E. As a rule, Montaup and Eastern Edison
employ licensed contractors to dispose of such materials (see Item 3, LEGAL
PROCEEDINGS -- Environmental Proceedings.
The EPA, pursuant to TSCA, regulates the use, storage, and disposal of
PCBs and other dielectric fluids. Because Eastern Edison and Montaup had owned
and used some electrical transformers containing PCBs, they are subject to EPA
regulation under TSCA. These transformers have been either declassified or
disposed of in accordance with TSCA requirements.
Electric and Magnetic Fields:
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 of the others have indicated no direct
association. The 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 EMF, are continuing.
Some states have enacted regulations to limit the strength of EMF at the
edge of transmission line rights-of way. Rhode Island 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. There is a bill pending in the
Massachusetts legislature that would authorize the MDPU to examine the
potential health effects of EMF. Management cannot predict the impact, if any,
which legislation or other developments concerning EMF may have on Eastern
Edison or Montaup.
Water Regulation:
The objective of the Federal Water Pollution Control Act is to restore and
maintain the chemical, physical, and biological integrity of the nation's
navigable waters. The elimination of pollutant discharges (including heat)
into navigable waters is one goal aimed at achieving this objective. Another
step mandated by Federal Water Pollution Control Act was the creation of a
rigorous permit program. All water discharge permits for plants in
Massachusetts, including those for the Somerset and Canal plants, are issued
jointly by the EPA and DEP. These same agencies also regulate certain
industrial storm water discharges.
Under the Federal Water Pollution Control Act, the Massachusetts Wetland
Protection Act, and the Rhode Island Wetland Act, standards have been
established to control the dredging and filling of wetlands. The EPA, the Army
Corps of Engineers, RIDEM, CRMC and the DEP are pursuing a non-degradation (no
loss) policy for wetlands.
Under the Massachusetts Water Management Act, the DEP is responsible for
promulgating regulations relating to water usage and conservation.
Most of the generating units from which Montaup obtains power operate
under permits which limit their effluent discharges into water and which
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. The permit for the Somerset Plant was renewed on September 30, 1994
and expires on September 30, 1998.
The Oil Pollution Act of 1990 (OPA-90) was passed after several major oil
spills occurred in waters of the United States. The primary intent of this
legislation is to mandate strong contingency plans to prevent releases of oil
and to require that sufficient resources are in place and ready to respond to
any release. EPA, the United States Coast Guard, RIDEM, and DEP have a number
of other rules in place, such as EPA's Spill Prevention, Countermeasures and
Control Plan regulations, which are designed to minimize the release of oil and
other substances to navigable waters and the environment.
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, oxides of nitrogen and particulate matter.
Montaup's Somerset Station currently is permitted to burn coal which results in
sulfur dioxide emissions not in excess of 2.42 pounds per million BTU heat
release potential (approximately 1.5% sulfur content coal). The Canal Station
Unit 2 is permitted to burn fuel oil which results in sulfur dioxide emissions
not in excess of 2.42 pounds per million BTU heat release potential
(approximately 2.2% sulfur content fuel oil) when operating at 450 MW or above
and 1% sulfur content fuel oil when operating at less than 450 MW.
The EPA has established clean air standards for certain pollutants,
including standards limiting emissions from coal-fired and oil-fired
generators. Congress passed amendments to the new Clean Air Act in 1990 which
created additional regulatory programs and generally updated and strengthened
air pollution control laws. These amendments will expand the regulatory role
of the EPA regarding emissions from electric generating facilities. Title IV
of the Clean Air Act Amendments addresses acid deposition abatement and
establishes a 2-phase utility power plant pollution control program to reduce
emissions of sulfur dioxide and oxides of nitrogen. The first phase begins in
1995 and affects approximately 261 large units in 21 eastern and midwestern
states. Phase II, which begins in the year 2000, tightens the emission limits
imposed 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 by the end of 1999. The control
program establishes a national cap of 8.90 million tons per year for sulfur
dioxide emissions. Beginning in the year 2000, EPA will issue 8.90 million
sulfur dioxide allowances to utilities annually. The sulfur allowance program
will not affect Montaup's Somerset Station until January 1, 2000.
Massachusetts DEP regulations establish a statewide cap on sulfur dioxide
emissions and require Montaup's facilities to meet an average emission rate of
1.2 pounds of sulfur dioxide per million BTU of fuel input by the end of 1994.
Under federal standards, Montaup would not be required to meet this sulfur
dioxide emission level until the year 2000 as a result of Title IV of the Clean
Air Act. However, Massachusetts DEP regulations require compliance five years
earlier. As required by state regulations, Montaup submitted and received
approval of a plan detailing how it would meet the 1995 sulfur dioxide
standard. Montaup is achieving compliance by substituting lower sulfur content
fuels. Tests at Montaup's Somerset Station indicated that Unit #6 would be
able to utilize lower sulfur content coal than had been burned to meet the 1995
air standards with only a minimal capital investment. Montaup determined that
it would not be economical to repair Unit #5 of the Somerset Station and has
placed it in deactivated reserve (see Item 2. PROPERTIES).
Other provisions of the Clean Air Act Amendments will likely impact
Montaup by 1995. Title I of the Act sets a strategy for states to move toward
attaining national air quality standards, with the emphasis on meeting the
ozone standard. Ozone relates directly to the nation's smog problem. Oxides
of nitrogen are one of the precursors of ozone formation. Title I requires
additional controls on industrial sources of Oxides of nitrogen including
utility power plants. The Act creates the Northeast Ozone Transport Region,
covering the area from Virginia to Maine, including Massachusetts and Rhode
Island. Areas within the transport region will become subject to enhanced
controls on oxides of nitrogen emissions.
In April 1992, NESCAUM, an environmental advisory group for eight
Northeast states including Massachusetts and Rhode Island issued
recommendations for oxides of nitrogen controls for existing utility boilers
required to meet the ozone non-attainment requirements of the Clean Air Act
Amendments. The NESCAUM recommendations are more restrictive than EPA's
requirements. The DEP has amended its regulations to require that Reasonably
Available Control Technology (RACT) be implemented at all stationary sources
potentially emitting 50 tons per year or more of oxides of nitrogen. Rhode
Island has also issued similar regulations requiring that RACT be implemented
at all stationary sources potentially emitting 50 tons or more per year of
nitrogen oxide. Montaup has initiated compliance through, among other things,
selective, noncatalytic reduction processes.
Title V of the Clean Air Act Amendments provide EPA with broad new
permitting authority, with the goal of having states begin to issue federally
enforceable operating permits by 1995 which will outline limits and conditions
necessary to comply with all applicable air requirements. The Clean Air Act's
permitting program will be phased in over a couple of years. Although
individual sources will be required to pay fees to the various states which
will administer the program, the impact of these requirements is not expected
to have a material financial impact on Eastern Edison or Montaup.
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.
In some environmental areas the NRC and the EPA have overlapping
jurisdiction. Thus, NRC regulations are subject to all conditions imposed by
the EPA and a variety of federal environmental statutes, including obtaining
permits for the discharge of pollutants (including heat) into the nation's
navigable waters. In addition, the EPA has established standards, and is in
the process of reviewing existing standards, for certain toxic air pollutants,
including radionuclides, under the Clean Air Act Amendments which apply to
NRC-licensed facilities. The effective date for the new radionuclide standards
has been stayed as to nuclear generating units. The EPA has also promulgated
environmental radiation protection standards for nuclear power plants. These
standards regulate the doses of radiation received by the general public.
The NWPA provides for development by the federal government of facilities
for the disposal or permanent storage of civilian nuclear waste. For further
details about NWPA see Item 1. BUSINESS -- Fuel for Generation. The NRC has
also promulgated regulations regarding the disposal of nuclear waste materials
designed to protect the public from radiological dangers.
Environmental regulation of nuclear facilities in which Montaup has an
interest or from which they purchase power may result in significant increases
in capital and operating costs, in delays or cancellation of construction of
planned improvements, or in modification or termination of existing facilities.
Energy Policy
The Energy Policy Act deals with many aspects of national energy policy
and includes important changes for electric utilities and registered holding
companies. Eastern Edison and its generating subsidiary, Montaup, as
subsidiaries of EUA, a public utility holding company, cannot predict the
impact that the Energy Act and the rules and regulations which will be
promulgated by various regulatory agencies pursuant to the Energy Act will have
on Eastern Edison. Certain provisions of the Energy Act will increase
competition in the generation of electricity, while other provisions will open
up new investment opportunities for registered holding companies. Certain
provisions of the Energy Act are intended to encourage conservation of
electricity while other provisions may create additional demand for
electricity.
The Energy Act encourages investments in certain types of energy
conversion and energy efficient equipment and requires the federal government
to undertake major new conservation projects. On the other hand, by
encouraging the development of electric motor vehicles, the Energy Act may
create additional demand for electricity.
One of the more significant provisions of the Energy Act creates a new
class of generation companies exempt from the 1935 Act, which sell exclusively
at wholesale, called exempt wholesale generators or EWGs. The Energy Act also
grants FERC new authority to mandate transmission access for QFs, EWGs and
traditional utilities. The Energy Act reduces the restrictions on certain
types of investments by registered holding companies including investments in
EWGs, investments in foreign utilities which do not operate in the United
States and investments in certain types of QFs which were previously limited to
the holding company's service territories or areas closely interconnected with
those service territories. Pursuant to certain provisions of the Energy Act,
the SEC has promulgated regulations to minimize the risks of investments in
EWGs by registered holding companies and their utility subsidiaries.
Regulations regarding investments in foreign utilities are also required under
the Energy Act but have not yet been promulgated by the SEC.
The Energy Act prevents an EWG directly or indirectly owned by a
registered holding company from entering into a power contract with a utility
affiliate of the holding company without the approval of each state commission
having jurisdiction over the rates of the utility affiliate.
It is also not possible to predict the timing or content of future energy
policy legislation and the significance of such legislation to Eastern Edison.
Various issues not addressed by the 1992 Energy Act, including regional
planning and transmission arrangements, could be addressed in future
legislation.
Item 2. PROPERTIES
Power_Supply
Montaup supplies the EUA System with nearly 100% of its electric
requirements. Newport became an all-requirements customer of Montaup on May
21, 1994, the implementation date of Montaup's wholesale rate reduction. At
the same time, Montaup assumed all of Newport's power contracts and began
leasing all of Newport's generation and a portion of Newport's transmission
facilities. In 1994 the EUA System's wholly owned generating units referred to
in the following table below consisted of Montaup's jet-fueled peaking units
(Somerset Jet 1 and Jet 2) and Somerset Unit 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 (Jepson in Jamestown and Eldred in
Portsmouth) which supply the EUA System with 8 MW and 8.25 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
generating unit.
In January 1994 Montaup determined that it would not be economically
feasible to bring its 42-year old, coal-fired, Somerset Station Unit 5
generating unit into compliance with the Clean Air Act Amendments of 1990
(Clean Air Act). The unit was placed in cold storage and its net investment,
$5.4 million, was transferred to electric plant held for future use pending
final determination by Montaup of its usefulness. Under terms of the
settlement agreement entered into by Montaup and the intervenors in Montaup's
1994 rate decrease application and filed with FERC, Montaup continues to earn a
return on the net investment of the unit. Current forecasts indicate that a
combination of company owned generation, current long-term purchased power
contracts, expected short-term power opportunities, and Montaup's C&LM programs
should meet EUA System requirements through the year 1999.
In 1994, Montaup recovered through rates approximately $14.2 million for
its C&LM programs. C&LM is designed to (i) decrease existing energy demand and
(ii) offset future load growth through conservation incentives, thereby
minimizing future need for large capital investment in generating facilities.
The all time peak EUA System demand was approximately 921 MW experienced
on July 21, 1994.
<TABLE>
EUA SYSTEM CAPABILITY
GENERATING UNITS IN SERVICE AS OF DECEMBER 31, 1994
<CAPTION>
GROSS WINTER GROSS NET
IN SYSTEM CLAIMED SYSTEM UNIT SYSTEM
SERVICE SHARE CAPAB 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. 100.00 105.50 105.50 0.00 105.50
1970 SOMERSET J1 JET OIL MONTAUP ELECTRIC CO. 100.00 23.50 23.50 0.00 23.50
1971 SOMERSET J2 JET OIL MONTAUP ELECTRIC CO. 100.00 23.00 23.00 0.00 23.00
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 8.25 8.25 0.00 8.25
SUBTOTAL: 169.49 0.00 169.49
JOINT OWNERSHIP:
1976 CANAL 2 NO. 6 OIL CANAL ELECTRIC COMPANY 50.00 584.00 292.00 85.00 207.00
1978 WYMAN 4 (YAR 4) NO. 6 OIL CENTRAL MAINE POWER CO. 2.63 <F1> 619.25 16.28 0.00 16.28
1986 MILLSTONE 3 NUCLEAR NORTHEAST UTILITIES 4.01 1145.70 45.93 0.00 45.93
1990 SEABROOK NUCLEAR NORTH ATLANTIC ENERGY CORP 2.90 1150.00 33.35 0.00 33.35
SUBTOTAL: 387.56 85.00 302.56
EQUITY OWNERSHIP:
1968 CONN. YANKEE NUCLEAR CONN. YANKEE ATOMIC POWER 4.50 583.20 26.24 0.00 26.24
1972 MAINE YANKEE NUCLEAR MAINE YANKEE ATOMIC POWER 3.59 880.00 31.61 0.00 31.61
1972 VERMONT YANKEE NUCLEAR VT. YANKEE NUCLEAR POWER 2.25 521.83 11.74 0.00 11.74
SUBTOTAL: 69.60 0.00 69.60
PURCHASED POWER:
1968 CANAL1 NO. 6 OIL CANAL ELECTRIC COMPANY 25.00 <F2> 560.00 140.00 0.00 140.00
1972 PILGRIM 1 NUCLEAR BOSTON EDISON COMPANY 11.00 <F2> 668.97 73.59 0.00 73.59
1977 POTTER 2 GAS/OIL BRAINTREE ELEC. LIGHT DEPT 41.67 <F2> 96.00 40.00 0.00 40.00
1975 CLEARY 9 GAS/OIL TAUNTON MUNIC. LIGHTING 13.64 <F2> 110.00 15.00 0.00 15.00
1982 STONY BROOK 2A NO.2 OIL MASS. MUNIC. WHOLESALE CO. 32.35 <F3> 85.00 27.50 0.00 27.50
1986 STONY BROOK 2B NO.2 OIL MASS. MUNIC. WHOLESALE CO. 32.35 <F3> 85.00 27.50 0.00 27.50
1984 MCNEIL WOOD VERMONT ELECTRIC POWER 15.24 <F4> 53.00 8.08 0.00 8.08
1978 WYMAN 4 NO. 6 OIL CENTRAL MAINE POWER 0.81 <F3><F4> 619.25 5.00 0.00 5.00
1972 SALEM HBR 4 NO. 6 OIL NEW ENGLAND POWER 1.16 <F3><F4> 430.00 5.00 0.00 5.00
1974 BRAYTON 4 NO. 6 OIL NEW ENGLAND POWER 1.13 <F3><F4> 441.00 5.00 0.00 5.00
1990 OSP 1 GAS OCEAN STATE POWER 28.00 <F5> 287.00 80.36 0.00 80.36
1991 OSP 2 GAS OCEAN STATE POWER 28.00 <F5> 287.00 80.36 0.00 80.36
1991 NEA GAS NORTHEAST ENERGY ASSOC. 8.62 334.38 28.83 0.00 28.83
SUBTOTAL: 536.21 0.00 536.21
1991 HYDRO QUEBEC I&II HYDRO HQ / NEPOOL 4.06 <F6> 1215.00 49.31 0.00 49.31
SUBTOTAL: 49.31 0.00 49.31
TOTAL GROSS SYSTEM CAPABILITY (MW) --------------------------1,217.17
LESS: UNIT CONTRACT SALES (MW) ------------------------------85.00
TOTAL NET SYSTEM CAPABILITY (MW) --------------------------------1,127.17
<FN>
<F1> REPRESENTS MONTAUP JOINT OWNERSHIP SHARE OF 1.9618% AND NEWPORT JOINT OWNERSHIP OF .6666%.
<F2> "LIFE OF UNIT" PURCHASE CONTRACT.
<F3> CONTRACT EXPIRES 10/31/95.
<F4> PURCHASED POWER CONTRACTS OF NEWPORT ASSUMED BY MONTAUP AS OF MAY 21, 1994.
<F5> FOR EACH UNIT, MONTAUP IS A POWER PURCHASER WITH 22% ENTITLEMENT AND NEWPORT IS A POWER
PURCHASER WITH 6% ENTITLEMENT. MONTAUP ASSUMED NEWPORT'S ENTITLEMENT AS OF MAY 21, 1994
(EUA OCEAN STATE HOLDS A 29.9% EQUITY INTEREST IN OCEAN STATE POWER PARTNERSHIP.)
<F6> ENTITLEMENT % IS WEIGHTED AVERAGE OF PHASE I & II SHARES (40% PHASE I (4.01987%); 60% PHASE II (4.0842%)).
</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 -- Yankee Atomic.)
Other_Property
Eastern Edison and Montaup own approximately 3,100 miles of transmission
and distribution lines and approximately 52 substations located in the cities
and towns served.
In addition to the above, Eastern Edison and Montaup also own several
buildings which house distribution, maintenance or general office personnel.
See Note F of Notes to Consolidated Financial Statements regarding encum
brances.
Item 3. LEGAL PROCEEDINGS
Rate_Proceedings
See descriptions of proceedings under Item 1, BUSINESS -- Rates.
Environmental_Proceedings
1. Montaup and EUA Service received a Notice of Responsibility on July
27, 1987 from the DEP for suspected hazardous material at a site owned by
Montaup on Hortonville Road in Swansea, Massachusetts. EUA Service has
contracted for and received an environmental site assessment for the property,
identifying the previous property owner as the party likely responsible for the
deposit of suspected hazardous waste materials on the site. This assessment
has been submitted to the DEP, identifying the previous property owner. Under
MCP regulations, Montaup must take the initiative to complete investigative and
remedial actions by August 1997.
2. During March-April 1990, Eastern Edison conducted a limited
environmental investigation (Phase I study) of a portion of its Dupont
Substation in Brockton, Massachusetts. During the investigation, Eastern
Edison notified the DEP that it had encountered oils and PCBs. On May 3, 1990,
the DEP notified Eastern Edison of its liability for releases of oil and/or
hazardous materials at the site, and requested a copy of the Phase I study.
Following its review of the Phase I study on January 23, 1991, the DEP issued a
Notice of Responsibility to Eastern Edison requiring a Phase II - Comprehensive
Site Investigation. A scope of work for the Phase II study was submitted on
April 12, 1991. Eastern Edison will proceed once the DEP approves the scope of
the work. The DEP has classified this site under the new MCP. Eastern Edison
is proceeding with a Phase II study and a site ranking may be required by July
1995.
Eastern Edison and Montaup are unable 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 these 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 liability, if any, will be assumed by,
or can be enforced against, the insurance carrier in these matters. Under
CERCLA, each responsible party can be held "jointly and severally" liable for
clean-up costs. Eastern Edison and Montaup could thus be held fully liable for
environmental damages for which they were only partially responsible. However,
Eastern Edison and Montaup might then be entitled to recover costs from other
PRPs.
As of December 31, 1994, Eastern Edison and Montaup have incurred costs of
approximately $125,000 in connection with the foregoing environmental matters
and estimate that additional expenditures may be incurred through 1996 up to
$800,000.
As a general matter Eastern Edison and Montaup will seek to recover costs
relating to environmental proceedings in their rates. Montaup is currently
recovering certain of the incurred costs in its rates. Estimated amounts after
1996 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 Eastern Edison and Montaup do not believe that the ultimate impact of
the environmental costs will be material to their financial position and thus,
no loss provision is required at this time.
Other_Proceedings
In December 1992, Montaup commenced a declaratory judgment action in which
it sought to have the Massachusetts Superior Court determine its rights under
the Power Purchase Agreement between it and Aquidneck Power Limited Partnership
(Aquidneck). Montaup sought a declaration that the Power Purchase Agreement
was binding on the parties according to its terms. Aquidneck asserted that
Montaup had either an express or implied obligation to negotiate new terms and
conditions to the Power Purchase Agreement.
In January 1994, a counterclaim by Aquidneck claimed certain breaches of
the Power Purchase Agreement, including an alleged failure on the part of
Montaup to renegotiate the terms and conditions of the Power Purchase
Agreement. Also in January 1994, Aquidneck sought to join EUA and EUA Service
as parties to the suit.
The Court has scheduled a hearing in April 1995 on Montaup's motion for
default judgement based on Aquidneck's failure to meet its discovery
obligations. In addition, Montaup intends to file a motion for summary
judgment.
Montaup, EUA and EUA Service intend to defend the counterclaim vigorously
and believe that Aquidneck's claims have no basis in law.
On June 30, 1987, the MDPU commenced a proceeding for the purpose of inves
tigating Eastern Edison's power planning process after rejecting a proposed
Purchased Capacity Adjustment Clause. One of the purposes of this proceeding
is to investigate the prudency of Eastern Edison's all requirements contract
with Montaup. No procedural dates have been set nor has any other activity
occurred in this docket. Eastern Edison cannot predict the outcome of this
matter at this time.
On January 8, 1992, the Massachusetts Municipal Wholesale Electric
Cooperative and its member municipalities, all of which are members of NEPOOL,
filed a suit in Massachusetts Superior Court against the investor-owned
utilities that are also members of NEPOOL. The suit alleges damages by
NEPOOL's establishment of minimum size requirements for generating units
designated as pool-planned generating units. The suit names as defendants
members of NEPOOL, including Blackstone, Eastern Edison, Montaup and Newport
(NEPOOL members of the EUA System). The FERC initiated an action when the EUA
subsidiaries and other participants filed an amendment to the NEPOOL Agreement
with the FERC that concerns many of the issues raised in the Massachusetts
litigation. The plaintiffs in the Massachusetts litigation, and one other
participant have objected to the amendment, and have sought to prevent or delay
its effectiveness. Extended settlement discussions have resulted in a
settlement signed by substantially all of the parties and intervenors in both
actions. The settlement, if fully implemented, will result in (i) a withdrawal
of the amendment to the NEPOOL Agreement, (ii) a termination of the FERC
proceeding, and (iii) after the FERC action is terminated and no longer subject
to appeal, the withdrawal by the settling plaintiffs of their Superior Court
complaint. The necessary papers were filed to withdraw the NEPOOL amendment
and terminate the FERC proceeding. That withdrawal and termination was
contested by three intervenors in the FERC proceeding. On February 10, 1995,
FERC issued an order accepting a notice of cancellation of the NEPOOL
amendment, effective September 12, 1994. If the settlement agreement is fully
implemented, the Superior Court action will be required to be dismissed as to
all but one non-settling plaintiff. Management cannot predict the ultimate
outcome of this proceeding at this time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
PART_II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of Eastern Edison's common stock is owned beneficially and of record
by EUA.
The dividends paid on Eastern Edison's common stock during the past two
years are as follows:
<TABLE>
<CAPTION>
Dividends Paid Dividends Paid
1994 ___Per_Share__ 1993 ___Per_Share__
<S> <C> <C> <C> <C>
First Quarter $2.22 First Quarter $1.91
Second Quarter 2.46 Second Quarter 1.93
Third Quarter 2.49 Third Quarter 1.96
Fourth Quarter 2.77 Fourth Quarter 2.77
</TABLE>
No dividends 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.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
________For_the_Years_ended_December_31,________
1994 1993 1992 1991 1990
(In Thousands)
_______________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Operating Revenues <F1> $418,424 $417,021 $420,188 $414,609 $375,573
Consolidated Net Earnings 31,395 28,145 29,231 23,763 24,083
Total Assets 756,045 742,273 776,510 785,365 770,640
Capitalization:
Long-Term Debt - Net 229,224 264,134 269,995 304,991 319,986
Redeemable Preferred Stock Net 25,257 24,824 28,171 29,558 34,012
Non-Redeemable Preferred
Stock 8,949 8,949 8,949
Common Equity _225,064 223,005 220,257 _211,126 _203,879
Total Capitalization $479,545 $511,963 $527,372 $554,624 $566,826
======== ======= ======== ======== ========
Short-Term Debt $______0 $______0 $______0 $______0 $______0
<FN>
(F1) Certain amounts in 1990 have been reclassified to conform with current
presentations.
</FN>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND REVIEW
OF OPERATIONS
Overview
Consolidated Net Earnings for 1994 were $31.4 million, a $3.3 million
increase over the prior year. Growth of 1.8% in primary kilowatthour (kWh)
sales and lower long-term debt interest and preferred dividend requirements in
1994 as compared to 1993 were the major factors contributing to this increase.
Early kWh sales gains in the year were offset somewhat by mild weather
primarily in the fourth quarter.
Consolidated Net Earnings for 1993 were $28.1 million as compared to $29.2
million for 1992, a decrease of $1.1 million. The positive impacts of: (i)
growth in kWh sales, (ii) a rate increase granted Eastern Edison effective in
mid-January 1993, (iii) interest savings from Eastern Edison's refinancings
and, (iv) a decrease in direct controllable operation and maintenance expenses
did not entirely offset the negative impact of increases in indirect operations
and maintenance expenses on Consolidated Net Earnings. Retail sales increased
by 2.2% as sales to residential and industrial customers grew by 3.3% and 5.8%,
respectively, indicating some recovery in the region's economy.
Comparison of Financial Results
Operating Revenues
1994 vs 1993
Operating Revenues for 1994 increased by approximately $1.4 million.
Contributing to this modest increase were the recoveries of increased fuel
expense of approximately $2.9 million and higher primary kWh sales of 1.8%
resulting in approximately $2.7 million of growth in base revenues. Offsetting
these positive impacts somewhat was a decrease in revenues of approximately
$3.2 million resulting from the net impact of Montaup's 1994 rate decrease.
Montaup implemented a rate reduction of $10.1 million in May and reached
settlements with the intervenors in that proceeding for an annual reduction of
approximately $14.0 million (inclusive of the $10.1 million) effective August
1994. These settlements await FERC certification. As part of this rate
reduction application, Newport Electric Corporation (Newport) became an all
requirements customer of Montaup, mitigating the negative impact this rate
reduction had on operating revenues. Previously Montaup supplied only 53% of
Newport's total energy requirements.
1993 vs 1992
Operating Revenues for 1993 decreased $3.2 million as compared to 1992.
Revenues attributable to the recovery of fuel expense declined $11.2 million
primarily as a result of outages of company-owned units and reduced fuel costs.
Also, other operating revenues, primarily of Montaup, decreased $0.9 million.
Offsetting these decreases somewhat were: (i) increased base revenues
aggregating approximately $5.0 million related to Eastern Edison's rate
increase in January 1993; (ii) increased recoveries of purchased power expense
and Conservation and Load Management (C&LM) expenses aggregating approximately
$3.9 million and, (iii) increased kWh sales (see Expenses below).
Expenses
1994 vs.1993
The Company's most significant expense items continue to be fuel and
purchased power expenses which together comprised about 57.6% of total
operating expenses for 1994.
Fuel expense for 1994 increased $2.4 million from 1993. As a result of
Newport becoming an all-requirements customer of Montaup, Montaup assumed all
of Newport's purchased power contracts. Consequently, approximately $2.1
million of this year's increase in fuel expense relates to the assumed Newport
contracts. A 4.8% decrease in the average cost of fuel in 1994 essentially
offset the Company's 6.6% increase in total energy requirements.
Purchased Power expense increased from 1993 by $1.6 million or 1.3%. This
increase was primarily due the impact of Montaup's assumption of Newport's
purchased power contracts aggregating approximately $9.8 million. Offsetting
this increase somewhat were expired purchased power contracts totalling
approximately 41 MW and lower billings by Montaup suppliers aggregating
approximately $8.6 million.
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
and include such expense items as Montaup's joint ownership interests in
generating facilities such as Seabrook Unit 1 and Millstone Unit 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 FAS106.
Total Other Operating and Maintenance expenses decreased by approximately
$1.7 million or 1.7% in 1994 due primarily to decreases in indirect expenses
including approximately $2.3 million in maintenance expense of Montaup's
jointly owned units and an additional $2.3 million reduction related to
allocated charges from EUA Service Corporation recorded as other operating and
maintenance expenses by the company. Partially offsetting these reductions
were increases of $2.4 million in conservation and load management expenses and
$0.4 million of increased transmission and distribution expenses.
Depreciation and Amortization expense decreased by $0.9 million or 3.4% in
1994. The decrease was due primarily to Montaup's Seabrook Unit II loss
amortization which was completed in 1993.
Other Income & (Deductions) - Net increased $1.2 million or over 100% in
1994. The increase is due primarily to the recognition of approximately $0.9
million of capitalized costs on nuclear fuel contract buy-out costs that had
previously been deferred.
Interest Expense on long-term debt decreased by $4.1 million or 18.1% for
1994 as compared to 1993 primarily due to Eastern Edison's 1993 refinancing of
$195 million of long-term debt at lower rates.
Other Interest expense increased $1.7 million or 58.1% in 1994 compared to
1993. The increase was a result of the recognition of approximately $1.0
million in interest related to Internal Revenue Service audits and the
allocation methodology adopted in mid 1993 by EUA Service Corporation. Under
this new methodology, EUA Service Corporation interest expenses are being
allocated to other interest expense. They had previously been recorded as
other operating expenses.
Preferred Dividend Requirements decreased $1.0 million or 32.7% in 1994
due to a full-year impact of Eastern Edison's 1993 Preferred Stock financing
activity.
1993 vs. 1992
Fuel and Purchased Power-Demand comprised 57% of Total Operating expenses
in 1993. Fuel expense decreased approximately $11.5 million or 11.9%, from
1992, due largely to a decrease in total generation resulting from outages
experienced by company-owned units. Canal Unit 2, which is 50% owned by
Montaup, began a scheduled outage on February 13, 1993, and returned to service
on April 5, 1993 while Somerset Unit No. 6, a wholly owned unit of Montaup, was
out of service for most of 1993 due to unanticipated waterwall restoration.
Offsetting these impacts on fuel expense somewhat was a 3.7% decrease of
Montaup's average cost of fuel for the period.
Purchased Power expense decreased $1.8 million or 1.4% as compared to
1992. The decrease was caused primarily by a $3.8 million decrease in C&LM
expense recorded as purchase power. Offsetting these decreases somewhat was
the increased costs of $1.6 million billed by Montaup's suppliers.
Total Other Operation and Maintenance expense increased $8.8 million or
12.2% in 1993 when compared to the same period of 1992. The increase reflects
the increases in indirect expenses including (i) an increase of $3.9 million in
maintenance expenses of jointly owned units of Montaup; (ii) an increase of
$4.1 million in C&LM expenses; (iii) an increase of $2.2 million due to
expenses relating to the Company's adoption of FAS106; and, (iv) an increase of
$0.4 million related to a pension accrual. The above increases were partially
offset by a reduction in direct controllable expenses resulting from the
Company's strict attention to cost control.
AFUDC represents a non-cash element of income and was only 2.4% of 1993
Consolidated Net Earnings. Total AFUDC in 1993 decreased $273,000 from 1992
due primarily to lower AFUDC rates used in 1993.
Other Income & (Deductions) - Net decreased $5.9 million or over 100% in
1993. The decrease is due primarily to the 1992 reversal of certain previously
established reserves relating to matters in litigation, the favorable
resolution of which was reached in 1992.
Interest Expense on long-term debt decreased by $4.9 million or 17.9% for
1993 as compared to 1992. This decrease was due primarily to Eastern Edison's
1993 refinancing of $195 million of long-term debt at lower interest rates and
the redemptions of $30 million of 9-1/4% First Mortgage and Collateral Trust
Bonds (FMBs) in May 1992 and $15 million of 8-1/2% FMBs in June 1992. The
redemptions were made primarily with cash proceeds from the early redemption of
Montaup securities, which were owned by Eastern Edison. Eastern Edison also
refinanced $35 million of 10% FMBs with $35 million of 7.78% Medium Term Notes
in July 1992.
Other Interest Expense increased $1.6 million or over 100% in 1993 as
compared to 1992. The increase is primarily due to an increase in Eastern
Edison's amortization of debt expense of approximately $0.7 million and the
allocation of $0.4 million of EUA Service interest expense in 1993, previously
included in operating expense.
The Preferred Dividend requirement of the the Company decreased by
approximately $0.7 million or 19.6% in 1993. The decrease is a result of
Eastern Edison's redemption of all of its outstanding 4.64%, 8.32%, 9.00% and
9.80% series of Preferred Stock aggregating $41.6 million and subsequent
insurance of $30 million of 6 5/8% series of Preferred Stock.
Rate Activity
On May 21, 1994 Montaup filed a rate application with the FERC to reduce
annual revenues by $10.1 million. This request is intended to match more
closely Montaup's revenues with its decreasing cost of doing business resulting
from, among other things, a reduced rate base, lower capital costs and
successful cost control efforts. The application also included a request for
recovery of all of Montaup's FAS106 expenses as provided in FERC's generic
order of December 1992, including a five-year amortization of previously
deferred FAS106 costs. Also incorporated in this filing was a request to make
Newport an all requirements customer of Montaup. Settlement agreements with
all intervenors with an annual base rate reduction of approximately $14 million
annually, (inclusive of the filed $10.1 million reduction) effective as of
August 1994, await certification by the Commission.
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 1994, 1993 and 1992, Eastern Edison's and
Montaup's combined cash construction expenditures were $23.6 million, $23.0
million and $15.2 million, respectively. Internally generated funds provide
approximately 167% of Eastern Edison's and Montaup's combined cash construction
requirements in 1994.
Cash construction expenditures are expected to be approximately $29.8
million, $25.1 million and $25.7 million in 1995, 1996 and 1997, respectively
and will 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. EUA System companies including,
Eastern Edison and Montaup, maintain short-term lines of credit with various
banks aggregating approximately $150 million. These credit lines are available
to other affiliated companies under joint credit line arrangements. At
December 31, 1994, unused short-term lines of credit amounted to approximately
$118 million. At December 31, 1994, neither Eastern Edison nor Montaup had any
outstanding short-term debt.
In addition to construction expenditures, projected requirements for
maturing long-term debt securities through 1999 are: $35 million in 1995, $7
million in 1996 and $60 million 1998. The Company has no sinking fund
requirements until the year 2003.
Environmental Matters
The EPA, as well as state and local authorities, have jurisdiction over
releases of pollutants into the environment. They have broad authority to set
rules and regulations, including the required installation of pollution control
devices and remedial actions. The EPA has updated its clean air standards
regulating the emissions from utility power plants into the air to take effect
in 1995. Tests at Montaup's Somerset Station indicated that Unit No. 6 would
be able to utilize lower sulfur coal than had been burned to meet the 1995 air
standards with only a minimal capital investment. Montaup determined that it
would not be economical to repair Unit No. 5 of Somerset Station and has placed
it in deactivated reserve. (see Item 2. PROPERTIES).
In April 1992, the NESCAUM, an environmental advisory group for eight
Northeast states including Massachusetts and Rhode Island issued recommenda
tions for oxides of nitrogen 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.
Massachusetts has issued new regulations to implement oxides of nitrogen
reduction requirements. The DEP has amended its regulations to require that
Reasonable Availably Control Technology (RACT) be implemented at all stationary
sources potentially emitting 50 tons or more per year of oxides of nitrogen.
Rhode Island has issued similar regulations also requiring that RACT be
implemented at all stationary sources potentially emitting 50 tons or more per
year of oxides of nitrogen. Montaup has initiated compliance through, among
other things, selective, noncatalytic processes.
Because of the nature of the 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 the EPA as well as
state and local authorities. Eastern Edison and Montaup generally provide 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 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 Eastern Edison and Montaup to notify liability insurers and to initiate
claims however, Eastern Edison and Montaup are unable to predict whether
liability, if any, will be assumed by, or can be enforced against, the
insurance carrier in these matters. Management is unable to predict the
outcome of any of these environmental matters or to estimate the ultimate costs
which may result. As of December 31, 1994, Eastern Edison and Montaup have
incurred costs of approximately $125,000 in connection with such environmental
matters. It is estimated that additional costs of up to $800,000 may be
incurred through 1996. Montaup 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, Eastern
Edison and Montaup do not believe that the ultimate impact of environmental
costs will be material to their financial position and thus, no loss provision
is required at this time. (see Item 3. LEGAL PROCEEDINGS -- Environmental
Proceedings).
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 of the others have indicated no direct
association. The 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.
Some states have enacted regulations to limit the strength of EMF at the
edge of transmission line rights-of-way. Rhode Island has enacted a statute
which authorizes and directs the Rhode Island Energy Facilities Siting Board to
establish rules and/or regulations governing construction of high voltage
transmission lines of 69 KV or more. Various bills are pending in the
Massachusetts legislature that would require certain disclosures about the
potential health effects of EMF. Management cannot predict the impact which
legislation or other developments concerning EMF may have on Eastern Edison or
Montaup.
Change in Accounting Standards
In November 1992, FASB issued Statement No. 112, "Employers' Accounting
for Postemployment Benefits" for fiscal years beginning after December 15,
1993. The estimated impact of this standard is immaterial to Eastern Edison's
results of operation and therefore no liability was recorded.
Other
Montaup is recovering through rates its share of estimated decommissioning
costs for Millstone Unit 3 and Seabrook Unit 1. Montaup's share of the current
estimate of total costs to decommission Millstone Unit 3 is $18.0 million in
1994 dollars, and Seabrook Unit 1 is $11.5 million in 1994 dollars. These
figures are based on studies performed by the lead owner of the units. In
addition, Montaup 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 recovered through rates.
In December 1992, Montaup commenced a declaratory judgment action in which
it sought to have the Massachusetts Superior Court determine its rights under
the Power Purchase Agreement between it and Aquidneck Power Limited Partnership
(Aquidneck). Montaup sought a declaration that the Power Purchase Agreement
was binding on the parties according to its terms. Aquidneck asserted that
Montaup had either an express or implied obligation to negotiate new terms and
conditions to the Power Purchase Agreement.
In January 1994, a counterclaim by Aquidneck claimed certain breaches of
the Power Purchase Agreement, including an alleged failure on the part of
Montaup to renegotiate the terms and conditions of the Power Purchase
Agreement. Also in January 1994, Aquidneck sought to join EUA and EUA Service
as parties to the suit.
The Court has scheduled a hearing in April 1995 on Montaup's motion for
default judgement based on Aquidneck's failure to meet its discovery
obligations. In addition, Montaup intends to file a motion for summary
judgment.
Montaup, EUA and EUA Service intend to defend the counterclaim vigorously
and believe that Aquidneck's claims have no basis in law.
On January 8, 1992, the Massachusetts Municipal Wholesale Electric
Cooperative and its member municipalities, all of which are members of NEPOOL,
filed a suit in Massachusetts Superior Court against the investor-owned
utilities that are also members of NEPOOL. The suit alleges damages by
NEPOOL's establishment of minimum size requirements for generating units
designated as pool-planned generating units. The suit names as defendants
members of NEPOOL, including Blackstone, Eastern Edison, Montaup and Newport
(NEPOOL members of the EUA System). The FERC initiated an action when the EUA
subsidiaries and other participants filed an amendment to the NEPOOL Agreement
with the FERC that concerns many of the issues raised in the Massachusetts
litigation. The plaintiffs in the Massachusetts litigation, and one other
participant have objected to the amendment, and have sought to prevent or delay
its effectiveness. Extended settlement discussions have resulted in a
settlement signed by substantially all of the parties and intervenors in both
actions. The settlement, if fully implemented, will result in (i) a withdrawal
of the amendment to the NEPOOL Agreement, (ii) a termination of the FERC
proceeding, and (iii) after the FERC action is terminated and no longer subject
to appeal, the withdrawal by the settling plaintiffs of their Superior Court
complaint. The necessary papers were filed to withdraw the NEPOOL amendment
and terminate the FERC proceeding. That withdrawal and termination was
contested by three intervenors in the FERC proceeding. On February 10, 1995,
FERC issued an order accepting a notice of cancellation of the NEPOOL
amendment, effective September 12, 1994. If the settlement agreement is fully
implemented, the Superior Court action will be required to be dismissed as to
all but one non-settling plaintiff. Management cannot predict the ultimate
outcome of this proceeding at this time.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
report under Item 14(a)(1).
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
(a), (b), (c), (d) and (e) The names, ages and positions of all of the
directors and executive officers of Eastern Edison as of March 17, 1995 are
listed below with their business experience during the past five years. 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 Eastern Edison. Messrs. Pardus and Stevens are Trustees of EUA.
Name, Age Business Experience
and_Position During_Past_5_Years
Elizabeth J. Alden, 41 President, Alden Products Company. Director since
Director June 1993.
Richard M. Burns, 57 Vice President, Assistant Treasurer and Assistant
Vice President (1) Clerk since April 1986; Comptroller of EUA since
1976, Assistant Secretary of EUA since 1978 and
Assistant Treasurer of EUA since April 1986;
responsible primarily for the accounting affairs
of the EUA System.
John D. Carney, 50 President and Director since January 1990;
Director and responsible for the day-to-day activities of the
President (2) Company
Robert W. Giggey, 59 Chairman and CEO of Mellinium Medical Inc., since
Director June 1994 Chairman and CEO of Innovative Medical
Inc., since January 1994; Assistant to President
of Deknatel, Inc., previously a Division of Pfizer
Hospital Products Group, Inc. since November 1993
CEO and Chairman of Deknatel, Inc., prior to
October 1993; Director since January 1991.
Barbara A. Hassan, 45 Vice President since January 1990; responsible
Vice President for the operation and maintenance of the
transmission and distribution facilities of
the Company.
Arthur A. Hatch, 64 Executive Vice President and Director since January
Director and Executive 1990; Executive Vice President of EUA since
Vice President (3) January 1990; responsible for power supply,
purchasing management, engineering and operations
of the transmission and distribution facilities of
the EUA System.
Clifford J. Hebert, Jr., 47 Treasurer since April 1986; Treasurer of EUA
Treasurer(4) since April 1986; responsible for financial and
treasury activities of the EUA System.
Robert W. Lavoie, 57 Vice President since March 1987; responsible for
Vice President credit, meter reading and consumer services
activities of the company.
William F. O'Connor, 55 Clerk since 1974; Secretary of EUA since 1971;
Clerk (5) responsible primarily for the corporate affairs
of the EUA System.
Donald G. Pardus, 54 Chairman of the Board since July 1989; Chairman
Director and of EUA since July 1990; President of
Chairman of the Board (6) EUA from December 1985 to June 1990; Chief
Executive Officer of EUA since April 1989;
responsible for the overall management of the
EUA System; Director since 1979.
Robert G. Powderly, 47 Executive Vice President since March 1992;
Director and Executive President of Newport from March 1990 to April
Vice President (7) 1992; prior to that time he was a Vice
President of EUA Service for more than five
years; responsible for the corporate
communications, information systems and rate
activities of the EUA System; Director since
March 1992.
Donald H. Ramsbottom, 65 Executive Director, University of Massachusetts
Director Dartmouth Foundation since April 1991; Vice
President of The First National Bank of Boston
from 1987 to January 1991; Director since
January 1982.
John R. Stevens, 54 Vice Chairman of the Board since July 1989;
Director and Vice President of EUA since July 1990; Chief
Chairman of the Board (8) Operating Officer of EUA since January 1990;
responsible for retail operations and new
ventures of the EUA System; Director since July
1987.
_________________
(1) Comptroller, Assistant Treasurer and Assistant Secretary of EUA; Vice
President, Comptroller, Assistant Treasurer, Assistant Clerk/Secretary and
Director of EUA Service; Vice President, Assistant Treasurer and Assistant
Secretary of Blackstone; Vice President, Assistant Treasurer, Assistant
Clerk and Director of Montaup and EUA Energy; Comptroller, Assistant
Treasurer and Director of EUA Cogenex; Assistant Treasurer of EUA Ocean
State; Vice President and Assistant Treasurer of Newport; Director and
Assistant Treasurer of EUA Transcapacity, Inc.; Vice President and
Comptroller of NEM and EUA Cogenex-Canada.
(2) Vice President and Director of EUA Service and Montaup.
(3) Executive Vice President of EUA; Executive Vice President and Director of
Blackstone, EUA Cogenex, EUA Energy, EUA Ocean State, EUA Service,
Montaup, Newport and EUA Transcapacity, Inc.
(4) Treasurer of EUA, EUA Service, Blackstone, Montaup, EUA Energy, EUA Ocean
State, Newport, NEM and EUA Transcapacity; Treasurer and Assistant
Clerk/Secretary of EUA Cogenex and EUA Cogenex Canada.
(5) Secretary of EUA; Vice President, Secretary, Clerk and Director of EUA
Service; Clerk and Director of EUA Cogenex, EUA Energy and Montaup;
Secretary/Clerk of Blackstone, EUA Ocean State, EUA Cogenex, EUA
Cogenex-Canada, Newport and NEM.
(6) Chairman, Trustee, and Chief Executive Officer of EUA; Chairman and
Director of Blackstone, EUA Cogenex, EUA Energy, EUA Ocean State, EUA
Power, EUA Service, EUA Transcapacity, Montaup, NEM and Newport; Chairman
of EUA Cogenex-Canada.
(7) Executive Vice President of EUA; Executive Vice President and Director of
Blackstone, EUA Cogenex, EUA Energy, EUA Ocean State, EUA Transcapacity,
EUA Service, Montaup and Newport.
(8) President, Trustee and Chief Operating Officer of EUA; Vice Chairman and
Director of Blackstone, EUA Cogenex, NEM and Newport; President and
Director of EUA Energy, EUA Ocean State, EUA Service, EUA Transcapacity,
and Montaup; Vice President of EUA Cogenex-Canada.
(f) Except as described below, there have been no events under any
bankruptcy act, no criminal proceedings and no judgements or injunctions
material to the evaluation of the ability and integrity of any director or
executive officer during the past five years.
On February 28, 1991, EUA Power (now Great Bay Power Corporation), filed a
voluntary petition with the federal Bankruptcy Court for protection under
Chapter 11 of the federal Bankruptcy Code. EUA Power, a wholly owned
subsidiary of EUA prior to February 5, 1993, the date it redeemed all of its
equity securities held by EUA, was organized solely for the purpose of
acquiring an interest in the Seabrook Project and selling in the wholesale
market its share of electricity generated by the project.
Messrs. Burns, Hatch, Hebert, O'Connor, Pardus and Stevens, who have been
officers or directors of EUA Power within the last two years, resigned their
positions effective December 30, 1992, with the exception of Mr. Stevens who
resigned as the Sole Officer and Director of Great Bay Power Corporation on
November 22, 1994.
Item 11. EXECUTIVE COMPENSATION
Information is set out below as to cash compensation paid by Eastern
Edison during the year 1994 to each executive officer of Eastern Edison whose
aggregate cash compensation for the year exceeded $100,000.
</TABLE>
<TABLE>
<CAPTION>
Long-Term All
Compensation Other
Name and Annual Compensation Restricted Compen-
Principal Fiscal Incentive Stock sation
Position Year Salary __Bonus__ Other<F1> Awards<F2> <F3>
<S> <C> <C> <C> <C> <C> <C>
John Carney 1994 $140,025 $34,207 $4,229 $ - $ 3,500
President 1993 134,025 38,867 6,618 - 3,015
1992 126,025 24,003 3,443 60,616 2,520
Barbara A. Hassan 1994 $111,025 $20,484 - - $ 2,775
Vice President 1993 101,025 23,343 - - 2,272
1992 91,025 11,557 - - 1,668
Robert W. Lavoie 1994 $105,392 $18,645 - $ - $ 2,634
Vice President 1993 100,758 21,352 - - 2,269
1992 94,925 12,179 - - 1,898
___________________
<FN>
<F1> Represents amounts reimbursed for the tax liability accruing as a result
of the personal use of a company-owned automobile.
<F2> Aggregate amount and value (including the value reflected in the table
under "Restricted Stock Awards") of shares held under EUA's Restricted
Stock Plan to the officers listed above is as follows: Mr. Carney 2,975
shares, $60,616. Dividends are paid on these shares.
<F3> Contributions made under the Employees' Savings Plan.
</FN>
</TABLE>
The Employees' Retirement Plan of Eastern Utilities Associates and its
subsidiary companies (Plan) is a tax-qualified defined benefit plan available
to employees who have completed one year of service and have attained the age
of twenty-one. The officers named in the compensation table above participate
in the Plan. Directors of Eastern Edison who are not also employees of the EUA
System are not covered by the Plan. The benefits of participants become fully
vested after five years of service. Annual lifetime benefits are determined
under formulas applicable to all employees regardless of position and the
amounts depend on length of credited service and salaries prior to retirement.
Benefits are equal to one and six tenths percent of salaries (averaged over the
four years preceding retirement) for each year of credited service up to
thirty-five, reduced for each year by one and two tenths percent of the
participant's estimated age sixty-five Social Security benefit, plus
seventy-five hundredths percent of salaries for each year of credited service
in excess of thirty-five years up to the Plan maximum of forty years.
Any contributions to provide benefits under the Plan are made by the EUA
System in amounts determined by the Plan's actuaries to meet the funding stand
ards established by the Employee Retirement Income Security Act of 1974. These
contributions are actuarially determined and cannot appropriately be allocated
to individual participants. The annual benefits shown in the table below are
straight life annuity amounts, without reduction for primary Social Security
benefits as described above. Federal law limits the annual benefits payable
from qualified pension plans in the form of a life annuity, after reduction for
Social Security benefits, to $118,800 plus adjustments for increases in the
cost of living. The number of years of service credited at present under the
Plan to Mr. Carney, Ms. Hassan and Mr. Lavoie is twenty-eight, thirty-three and
twenty-four, respectively.
<TABLE>
<CAPTION>
Average Annual _____________________Years_of_Service______________________
____Salary____ ___15___ ___20___ ___25___ ___30___ ___35___ ___40___
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 12,000 $ 16,000 $ 20,000 $ 24,000 $ 28,000 $ 29,875
100,000 24,000 32,000 40,000 48,000 56,000 59,750
150,000 36,000 48,000 60,000 72,000 84,000 89,625
200,000 48,000 64,000 80,000 96,000 112,000 119,500
250,000 60,000 80,000 100,000 120,000 140,000 149,375
</TABLE>
Mr. Carney is a participant in a non-qualified supplemental retirement
plan for certain officers of the EUA System. The plan provides for the annual
payment of supplemental retirement benefits equal to 25% of the officer's base
salary when he retires, for a period of fifteen (15) years following the date
of retirement. In addition, in the event of the death of the participant prior
to retirement an amount equal to 200% of the officer's base salary at that time
will be paid to his beneficiary. Eastern Edison, through its affiliate, EUA
Service, maintains life insurance on the participants to fund, in whole or in
part, its future liabilities under the plan, and that corporation is the owner
and beneficiary of such life insurance. Any amounts not covered by insurance
will be paid out of other funds available to Eastern Edison. In the event of a
change in control of the Company, a trust fund will be established by the
Company to ensure the performance of its payment obligations under the
supplemental retirement plan.
The EUA System maintains a non-qualified, unfunded Retirement and Savings
Restoration Plan (The Restoration Plan). The purpose of the Restoration Plan
is to restore benefits under the qualified Plans' formulas which can not be
paid from, or into, the qualified plan trusts due to federal limitations on
either earnings, contributions or benefits. Payments or contributions which
exceed the applicable federal limitations are made outside the qualified plans
in the same manner and under the same conditions as are applicable to benefits
payable from, or contributions payable to, the qualified plans. In the event
of a change of control of the Association, a trust fund will be established by
the Association to ensure the performance of its payment obligations under the
Restoration Plan.
Severance agreements with certain officers of the EUA System provide that
an officer's stipulated compensation, benefits, position, responsibilities and
other conditions of employment will not be reduced during the term of the
agreement, which is thirty-six months commencing upon the date on which a
Change in Control, as defined in the agreements, of the Company. If within
thirty-six months after a Change in Control the officer's employment is
terminated for any reason other than Cause, as defined in the agreements, the
Company will, subject to certain limitations to comply with provisions of the
Internal Revenue Code, pay the officer within five business days a lump-sum
cash amount equal to three times the present value of such officer's annualized
total compensation, continue or vest certain fringe benefits and common share
grants, and reimburse legal fees and expenses incurred as a result of the
termination or to enforce the provisions of the severance agreement. If the
officer leaves the employ of the Company following a reduction in his position,
compensation, responsibilities, authority or other benefits existing prior to
the Change in Control, or suffers a relocation of regular employment of more
than fifty miles, such departure will be deemed to be a termination for reasons
other than Cause.
Each non-management director of Eastern Edison receives, as a standard
arrangement, compensation in the amount of $600 for each directors' meeting
attended and additional compensation for all services as a director in the
amount of $4,000 annually.
Compensation Committee Interlocks and Insider Participation:
John D. Carney, President and a Director of the Registrant, participated
in deliberations concerning the compensation of officers other than himself.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners.
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 2,891,357* 100%
$25 par value, Associates
of Eastern One Liberty Square
Edison Boston, Massachusetts
_______________
*All shares, which are the only voting securities of Eastern Edison, are
registered in the name of the beneficial owner.
(b) Security ownership of management as of January 6, 1995.
Amount (number of
Name shares) and Nature of Percent of
Title_of_Class Beneficial_Owner Beneficial_Ownership_(1) Class
Common Shares, John D. Carney 1,137 Less than
$5 par value, 837 (3) one percent
of Eastern 2,975 (4) for each
Utilities Arthur A. Hatch 1,237 individual
Associates 261 (2)
2,139 (3)
4,083 (4)
Donald G. Pardus 1,515
7,671 (2)
4,065 (3)
10,307 (4)
Robert G. Powderly 664
142 (2)
1,241 (3)
3,919 (4)
John R. Stevens 3,938 (2)
1,336 (3)
8,098 (4)
Directors and Executive
Officers as a Group 67,551 (5)
_____________________
(1) Unless otherwise indicated, beneficial ownership is based on sole
investment and voting power.
(2) Jointly owned with spouse.
(3) Shares held under the ESP as to which the individual indicated has voting
power.
(4) Shares held under the Grant Plan as to which each has voting power.
(5) Represents less than four-tenths of one percent of the outstanding common
shares of EUA at January 6, 1995. Included are 17,413 shares held for
officers under EUA's ESP, 12,021 shares jointly owned with the officers'
spouses, and 32,536 shares held under EUA's Restricted Stock Plan.
________________
The directors and executive officers of Eastern Edison did not own any of
Eastern Edison's 6-5/8% Preferred Stock at January 6, 1995.
(c) Eastern Edison knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
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 following financial statements and supplementary data are filed
herewith as required by Item 8.
Consolidated Statements of Income for the three years in the period ended
December 31, 1994.
Consolidated Statements of Retained Earnings for the three years in the
period ended December 31, 1994.
Consolidated Statements of Cash Flows for the three years in the period
ended December 31, 1994.
Consolidated Balance Sheets at December 31, 1994 and 1993.
Consolidated Statements of Capitalization at December 31, 1994 and 1993.
Notes to Consolidated Financial Statements at December 31, 1994, 1993, and
1992.
Report of Independent Accountants, dated March 2, 1995.
(a)(2) Financial Statement Schedules
Schedules have been omitted since the required information is not present
or not sufficiently material to require submission of the schedule, or
because the information required is included in the financial statements
or the notes thereto.
(a)(3) Exhibits (*denotes filed herewith)
Articles of Incorporation and By-Laws:
3-1.08 - Restated and Amended Articles of Organization of Eastern
Edison (filed as Exhibit B-1 to Form U5S of EUA for 1993).
3-2.08 - By-Laws of Eastern Edison, as amended (Exhibit 3-2, Form 10-K for
1980, File No. 0-8480).
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).
4-2.08 - First Supplemental Indenture dated as of February 1, 1953 of
Eastern Edison (Exhibit A, File No. 70-3015).
4-3.08 - Second Supplemental Indenture dated as of May 1, 1954 of Eastern
Edison (Exhibit A-3, File No. 70-3371).
4-4.08 - Third Supplemental Indenture dated as of June 1, 1955 of Eastern
Edison (Exhibit C to Certificate of Notification, File No. 70-
3371).
4-5.08 - Fourth Supplemental Indenture dated as of September 1, 1957 of
Eastern Edison (Exhibit D to Certificate of Notification, File
No. 70-3619).
4-6.08 - Fifth Supplemental Indenture dated as of April 1, 1959 of Eastern
Edison (Exhibit D to Certificate of Notification, File No. 70-
3798).
4-7.08 - Sixth Supplemental Indenture dated as of October 1, 1963 of
Eastern Edison (Exhibit F to Certificate of Notification, File
No. 70-4164).
4-8.08 - Seventh Supplemental Indenture dated as of June 1, 1969 of
Eastern Edison (Exhibit D to Certificate of Notification, File
No. 70-4748).
4-9.08 - Eighth Supplemental Indenture dated as of July 1, 1972 of Eastern
Edison (Exhibit C to Certificate of Notification, File No. 70-
5195).
4-10.08 - Ninth Supplemental Indenture dated as of September 1, 1973 of
Eastern Edison (Exhibit F to Certificate of Notification, File
No. 70-5379).
4-11.08 - Tenth Supplemental Indenture dated as of October 1, 1975 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-5719).
4-12.08 - Eleventh Supplemental Indenture dated as of January 1, 1979 of
Eastern Edison (Exhibit 5-24, Registration No. 2-65785).
4-13.08 - Twelfth Supplemental Indenture dated as of October 1, 1980 of
Eastern Edison (Exhibit F to Certificate of Notification, File
No. 70-6463).
4-14.08 - Thirteenth Supplemental Indenture dated as of July 1, 1981 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-6608).
4-15.08 - Fourteenth Supplemental Indenture dated as of June 1, 1982 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-6737).
4-16.08 - Fifteenth Supplemental Indenture dated as of August 1, 1983 of
Eastern Edison (Exhibit F to Certificate of Notification, File
No. 70-6851).
4-17.08 - Sixteenth Supplemental Indenture dated as of September 1, 1984 of
Eastern Edison (Exhibit 4-31, Form 10-K of EUA for 1984, File No.
1-5366).
4-18.08 - Seventeenth Supplemental Indenture dated as of July 1, 1986 of
Eastern Edison (Exhibit F to Certificate of Notification, File
No. 70-7254).
4-19.08 - Eighteenth Supplemental Indenture dated as of June 1, 1987 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-7373).
4-20.08 - Nineteenth Supplemental Indenture dated as of November 1, 1987 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-7373).
4-21.08 - Twentieth Supplemental Indenture dated as of May 1, 1988 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-7373).
4-22.08 - Twenty-first Supplemental Indenture dated as of September 1, 1988
of Eastern Edison (Exhibit F to Certificate of Notification, File
No. 20-7511).
4-23.08 - Twenty-second Supplemental Indenture dated as of December 1, 1990
of Eastern Edison (Exhibit 4-34, Form 10-K of Eastern Edison for
1990, File No. 0-8480).
4-24.08 - Twenty-third Supplemental Indenture dated as of July 1, 1992 of
Eastern Edison (Exhibit 4-24, Form 10-K of Eastern Edison for
1992, File No. 8480).
4-25.08 - Indenture dated as of December 1, 1990 of Eastern Edison with
Citibank, N.A., as Trustee (Exhibit 4-35, Form 10-K of Eastern
Edison for 1990, File No. 0-8480).
4-26.08 - Form of Eastern Edison Medium Term Note (Exhibit 4-36, Form 10-K
of Eastern Edison for 1990, File No. 0-8480).
4-27.08 - Twenty-Fourth Supplemental Indenture dated as of May 1, 1993
(filed as Exhibit C-33 to Form U5S of EUA for 1993).
4-28.08 - Twenty-Fifth Supplemental Indenture dated as of July 1, 1993
(filed as Exhibit C-34 to Form U5S of EUA for 1993).
4-29.08 - Twenty-Sixth Supplemental Indenture dated as of September 1, 1993
(filed as Exhibit C-35 to Form U5S of EUA for 1993).
- 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 14% Debenture Bonds due 2005 of Montaup (Exhibit 4-11,
Registration No. 2-55990).
4-4.05 - Form of 10% Debenture Bonds due 2008 of Montaup (Exhibit 5-3,
Registration No. 2-65785).
4-5.05 - Form of 16-1/2% Debenture Bonds due 2010 of Montaup (Exhibit 4-
11, Form 10-K of EUA for 1980, File No. 1-5366).
4-6.05 - 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).
4-7.05 - 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).
4-8.05 - Form of 9% Debenture Bonds due 2020 of Montaup (Exhibit 4-10,
Form 10-K of Eastern Edison for 1990, File No. 0-8480).
4-9.05 - 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).
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).
10-2.03 - Employees' Retirement Plan of Eastern Utilities Associates and
its Subsidiary Companies Plan as amended and restated, effective
January 1, 1985 as amended as of January 1, 1985, July 1, 1987,
January 1, 1989, December 30, 1990, July 1, 1991, September 2,
1991, March 1, 1992 and July 1, 1992 (Exhibit 10-2, Form 10-K of
EUA for 1985, File No. 1-5366; Exhibit 10-77, Form 10-K of EUA
for 1986, File No. 1-5366; Exhibit 10-118, Form 10-K of EUA for
1987, File No. 1-5366; Exhibit 10-95, Form 10-K of EUA for 1988,
File No. 1-5366; Exhibit 10-79, Form 10-K of Eastern Edison for
1990, File No. 0-8480; Exhibit 10-121, Form 10-K of EUA for 1991,
File No. 1-5366; Exhibit 10-122, Form 10-K of EUA for 1991, File
No. 1-5366; Exhibit 10-123, Form 10-K of EUA for 1991, File No.
1-5366; Exhibit 10-70, Form 10-K of EUA for 1992, File No. 1-
5366).
10-3.03 - Eastern Utilities Associates Employees' Savings Plan Trust
Agreement. (Exhibit 10-3 of Form 10-K of EUA for 1992,
File No. 1-5366).
10-4.03 - Eastern Utilities Associates Employees' Savings Plan as amended
and restated effective January 1, 1989. (Exhibit 10-4 of Form
10-K of EUA for 1992, File No. 1-5366).
10-5.03 - Form of Service Contract between EUA Service and each of the
other companies (including Eastern Edison and Montaup) in the EUA
System (Exhibit 13-1, Registration No. 2-55990).
10-6.03 - Form of EUA Restricted Stock Plan effective July 17, 1989
(Exhibit 10-13 of EUA Form 10-K for 1992, File No. 1-5366).
- Eastern Edison -
10-1.08 - Trust Indenture dated as of July 1, 1993 between Massachusetts
Industrial Finance Agency and Shawmut Bank, N.A. (Exhibit 10-
1.08, Eastern Edison 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 (Exhibit 10-2.08,
Eastern Edison 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 (Exhibit 10-3.08, Eastern Edison 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 (Exhibit 10-4.08,
Eastern Edison Form 10-K for 1993, File No. 0-8480).
- 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 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 and July 1, 1989 (Exhibit 10-6, Registration
No. 2-72655; Exhibit 10-73, Form 10-K of EUA for 1985, File No.
1-5366; Exhibits 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).
10-3.05 - Power Contract (composite copy) between Connecticut Yankee Atomic
Power Company and Montaup dated July 1, 1964 (Exhibit B-1, File
No. 70-4245).
10-4.05 - Capital Funds Agreement (composite copy) between Connecticut
Yankee Atomic Power Company and Montaup dated September 1, 1964
(Exhibit B-2, File No. 70-4245).
10-5.05 - 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).
10-6.05 - Contract for sale of power to Montaup by Canal Electric Company
dated December 1, 1965 (Exhibit 2D, File No. 0-688).
10-7.05 - 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).
10-8.05 - 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).
10-9.05 - 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).
10-10.05 - 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).
10-11.05 - 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).
10-12.05 - Stockholder Agreement (composite copy) among Maine Yankee
Sponsors, including Montaup, dated May 20, 1968 (Exhibit B-4,
File 70-4658).
10-13.05 - 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).
10-14.05 - Form of Agreement among Maine Yankee Atomic Power Company's
Sponsors dated as of May 20, 1969 (Exhibit B-5, File No. 70-
4658).
10-15.05 - 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 18, 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 and October 1,
1990, (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 3-35(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).
10-16.05 - 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).
10-17.05 - 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).
10-18.05 - 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).
10-19.05 - 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 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).
10-20.05 - 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).
10-21.05 - 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 - Agreement for Joint Ownership dated as of October 27, 1970
between Canal Electric Company and Montaup (Exhibit 13-71,
Registration No. 2-55990).
10-23.05 - Agreement for use of Common Facilities by Canal Units I and II
and for Allocation of Related Costs dated as of October 27, 1970
between Canal Electric Company and Montaup (Exhibit 13-72,
Registration No. 2-55990).
10-24.05 - Supplementary Power Contract dated as of March 1, 1978, and
Agreement amending said contract dated August 22, 1980 by and
between Connecticut Yankee Atomic Power Company and Montaup, as
amended October 15, 1982 (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).
10-25.05 - Eastern Utilities Associates Employees' Share Ownership Plan
Trust Agreement (Exhibit 5, Form 10-K of EUA for 1977, File No.
1-5366).
10-26.05 - 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).
10-27.05 - Guarantee Agreement dated as of November 5, 1981 between Bankers
Trust Company, as Trustee of the Vernon Energy Trust, and Montaup
relating to a nuclear fuel sales agreement and related
transactions entered into by Vermont Yankee Nuclear Power
Corporation (Exhibit 10-63, Form 10-K of EUA for 1981, File No.
1-5366).
10-28.05 - 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).
10-29.05 - 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).
10-30.05 - 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).
10-31.05 - 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).
10-32.05 - 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 and
December 21, 1990 (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).
10-33.05 - 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).
10-34.05 - Unit Sales Agreement between Montaup Electric Company and
Massachusetts Municipal Wholesale Electric Company for Purchase
of Capacity and Energy from Canal No. 2 dated as of November 1,
1986 (Exhibit 10-105, Form 10-K of EUA for 1986, File No. 1-
5366).
10-35.05 - 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).
10-36.05 - 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 by an amendment dated
July 21, 1989, and February 7, 1990 and a Supplemental Agreement
dated July 21, 1989 (Exhibit 10-104, Form 10-K of EUA for 1989,
File No. 1-5366; Exhibit No. 10-88, Form 10-K of Eastern Edison
for 1990, File No. 0-8480).
10-37.05 - 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).
10-38.05 - 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).
10-39.05 - 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).
10-40.05 - Memorandum of understanding by and between Canal Electric Company
and Montaup Electric Company dated September 23, 1993 (Exhibit
10-39.05, Eastern Edison 10-K for 1993, File No. 0-8480).
10-41.05 - Ancillary Agreement by and between Algonquin Gas Transmission
Company, Canal Electric Company and Montaup Electric Company
dated October 8, 1993. (Exhibit 10-40.05 of Eastern Edison 10-K
for 1993, File No. 0-8480).
Amendments to Exhibits Previously Filed:
None.
Subsidiaries of the Registrant:
23-1.08 - Montaup Electric Company, which is organized in Massachusetts, is
the only subsidiary of Eastern Edison Company and does business
under its indicated corporate name.
(b) Reports on Form 8-K.
None
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
March 20, 1995
By /s/ Richard M. Burns___ Vice President
Richard M. Burns (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 (Principal
Donald G. Pardus Executive Officer) and Director
/s/ John R. Stevens_____ Vice Chairman and Director
John R. Stevens (Principal Financial Officer)
/s/ Richard M. Burns____ Vice President
Richard M. Burns (Principal Accounting Officer)
/s/ John D. Carney______ President and Director
John D. Carney
/s/ Arthur D. Hatch_____ Executive Vice President and
Arthur A. Hatch Director
March 20, 1995
/s/ Robert G. Powderly__ Executive Vice President and
Robert G. Powderly Director
/s/ Robert W. Giggey____ Director
Robert W. Giggey
/s/ Donald H. Ramsbottom_ Director
Donald H. Ramsbottom
/s/ Elizabeth Alden_____ Director
Elizabeth Alden
EASTERN EDISON COMPANY AND SUBSIDIARY
Item 8 and Item 14(a)(1).
Consolidated Financial Statements and
Supplementary Data
Item 14(a)(2).
Financial Statement Schedules
<TABLE>
Eastern Edison Company and Subsidiary
Consolidated Statements of Income
Years Ended December 31,
(In Thousands)
<CAPTION>
1994 1993 1992
<S><C> <C> <C> <C>
Operating Revenues:
From Affiliated Companies $ 126,481 $ 121,934 $ 118,080
Other 291,943 295,087 302,108
Total Operating Revenues 418,424 417,021 420,188
Operating Expenses:
Fuel 87,522 85,066 96,589
Purchased Power - Demand 122,995 121,379 123,151
Other Operation and Maintenance 80,300 80,781 72,009
Affiliated Company Transactions 22,446 23,700 23,840
Depreciation and Amortization 25,546 26,450 25,991
Taxes - Other than Income 10,543 9,287 9,400
- Income 15,830 15,945 16,074
Total Operating Expenses 365,182 362,608 367,054
Operating Income 53,242 54,413 53,134
Equity in Earnings of Jointly Owned Companies 1,700 1,750 1,953
Allowance for Other Funds Used During
Construction 263 289 417
Other Income (Deductions) - Net 897 (289) 5,643
Income Before Interest Charges 56,102 56,163 61,147
Interest Charges:
Interest on Long-Term Debt 18,488 22,584 27,509
Other Interest Expense 4,525 2,863 1,261
Allowance for Borrowed Funds Used During
Construction (Credit) (294) (385) (530)
Net Interest Charges 22,719 25,062 28,240
Net Income 33,383 31,101 32,907
Preferred Dividend Requirements 1,988 2,956 3,676
Consolidated Net Earnings $ 31,395 $ 28,145 $ 29,231
</TABLE>
<TABLE>
Consolidated Statement of Retained Earnings
Years Ended December 31,
(In Thousands)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C> <C> <C>
Retained Earnings - Beginning of Year $ 103,515 $ 100,767 $ 91,636
Net Income 33,383 31,101 32,907
Redemption Cost of Preferred Stock (16)
Amortization of Preferred Stock Redemption (596) (597) (596)
Total 136,302 131,271 123,931
Dividends Paid:
Preferred 1,988 2,977 3,676
Common 28,740 24,779 19,488
Retained Earnings - End of Year $ 105,574 $ 103,515 $ 100,767
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Eastern Edison Company and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31,
(In Thousands)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 33,383 $ 31,101 $ 32,907
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 28,981 29,477 28,582
Amortization of Nuclear Fuel 3,310 5,136 5,055
Deferred Taxes 5,500 2,981 8,530
Investment Tax Credit, Net (348) (1,016) (1,078)
Allowance for Funds Used During
Construction (263) (289) (417)
Other - Net (3,285) (3,331) (4,751)
Changes to Operating Assets and Liabilities:
Accounts Receivable (7,667) (7) 21,255
Fuel, Materials and Supplies 194 899 (145)
Accounts Payable 3,495 (792) 1,772
Accrued Taxes (2,814) 835 585
Other - Net 4,485 (5,063) (4,859)
Net Cash Provided from Operating Activities 64,971 59,931 87,436
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (23,613) (22,967) (15,194)
Net Cash Used in Investing Activities (23,613) (22,967) (15,194)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuances:
Long-Term Debt 0 195,000 35,000
Preferred Stock 0 30,000
Redemptions:
Long-Term Debt 0 (205,000 (80,000)
Preferred Stock 0 (41,600) (1,200)
Premium on Reacquisition and Financing (62) (12,430) (3,102)
Common Stock Dividends Paid (28,740) (24,779) (19,488)
Preferred Dividends Paid (1,988) (2,977) (3,676)
Net Cash Used in Financing Activities (30,790) (61,786) (72,466)
Net Increase (Decrease) in Cash
and Temporary Cash Investments 10,568 (24,822) (224)
Cash and Temporary Cash Investments at
Beginning of Year 697 25,519 25,743
Cash and Temporary Cash Investments at
End of Year $ 11,265 $ 697 $ 25,519
Cash paid during the year for:
Interest (Net of Amounts Capitalized)$ 18,406 $ 27,200 $ 26,786
Income Taxes $ 15,877 $ 13,372 $ 911
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Eastern Edison Company and Subsidiary
Consolidated Balance Sheets
December 31,
(In Thousands)
<CAPTION>
ASSETS
1994 1993
<S><C> <C> <C> <C>
Utility Plant and Other Investments:
Utility Plant $ 789,596 $ 791,443
Less Accumulated Provision for Depreciation 228,241 226,391
Net Utility Plant 561,355 565,052
Non-Utility Property - Net 2,705 2,705
Investment in Jointly Owned Companies 13,488 13,425
Other Investments (at cost) 50 50
Total Utility Plant and Other Investments 577,598 581,232
Current Assets:
Cash and Temporary Cash Investments 11,265 697
Accounts Receivable:
Customers 25,896 25,989
Others 3,800 2,569
Accrued Unbilled Revenue 8,283 8,595
Associated Companies 18,061 11,220
Fuel (at average cost) 6,344 6,324
Plant Materials and Operating Supplies
(at average cost) 3,300 3,514
Prepayments and Other Current Assets 5,952 4,877
Total Current Assets 82,901 63,785
Other Assets (Note A) 95,546 97,256
Total Assets $ 756,045 $ 742,273
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Equity $ 225,064 $ 223,005
Redeemable Preferred Stock - Net 29,665 29,670
Preferred Stock Redempton Cost (4,408) (4,846)
Long-term Debt - Net 229,224 264,134
Total Capitalization 479,545 511,963
Current Liabilities:
Long-term Debt Due Within One Year 35,000
Accounts Payable:
Public 24,578 22,611
Associated Companies 5,749 4,221
Customer Deposits 1,101 1,141
Taxes Accrued 1,411 4,225
Interest Accrued 5,486 6,136
Other Current Liabilities 15,259 9,009
Total Current Liabilities 88,584 47,343
Deferred Credits:
Unamortized Investment Credit 18,784 19,132
Other Deferred Credits 49,476 46,229
Total Deferred Credits 68,260 65,361
Accumulated Deferred Taxes 119,656 117,606
Commitments and Contingencies (Note J)
Total Liabilities and Capitalization $ 756,045 $ 742,273
( ) Denotes Contra
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Eastern Edison Company and Subsidiary
Consolidated Statements of Capitalization
December 31,
(In Thousands)
<CAPTION>
1994 1993
<S><C> <C> <C> <C>
Common Stock:
$25 par value, authorized and outstanding
2,891,357 shares $ 72,284 $ 72,284
Other Paid-In Capital 47,249 47,249
Common Stock Expense (43) (43)
Retained Earnings 105,574 103,515
Total Common Equity 225,064 223,005
Redeemable Preferred Stock:
6 5/8%, $100 par value, 300,000 shares <F1> 30,000 30,000
Expense, Net of Premium (335) (330)
Preferred Stock Redemption Cost (4,408) (4,846)
Total Redeemable Preferred Stock 25,257 24,824
Long-Term Debt:
First Mortgage and Collateral Trust Bonds:
5 7/8% due 1998 20,000 20,000
6 7/8% due 2003 40,000 40,000
8% due 2023 40,000 40,000
5 3/4% due 1998 40,000 40,000
6.35% due 2003 8,000 8,000
4.875% due 1996 7,000 7,000
8.90% Secured Medium-Term Notes due 1995 10,000 10,000
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
Unsecured Medium-Term Notes:
9-9 1/4% due 1995 - Series A 25,000 25,000
Unamortized (Discount) - Net (776) (866)
264,224 264,134
Less Portion Due Within One Year 35,000
Total Long-Term Debt 229,224 264,134
Total Capitalization $ 479,545 $ 511,963
<FN>
<F1> Authorized and Outstanding.
</FN>
</TABLE>
EASTERN EDISON COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993, and 1992
(A) Summary of Significant Accounting Policies:
General: The accounting policies and practices of Eastern Edison and of
Montaup are subject to regulation by FERC and the MDPU 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.
Reclassifications: Certain prior period amounts on the financial
statements have been reclassified to conform with current presentation.
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 2.25 to 4.50 percent. Montaup is entitled to
the electricity produced from these facilities based on its ownership interests
and is billed pursuant to contractual agreements which are approved by FERC.
One of the four nuclear generating facilities is being decommissioned, but
Montaup is required to pay, and has received FERC authorization to recover, its
proportionate share of any unrecovered costs and costs incurred after the
plant's retirement. Montaup's share of all unrecovered assets and the total
estimated costs to decommission the unit aggregated approximately $18.4 million
at December 31, 1994 and is included with Other Liabilities on the Consolidated
Balance Sheet. Also due to recoverability, a regulatory asset has been
recorded for the same amount and is included with Other Assets.
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 EUA. In addition to its investment in Eastern Edison, EUA has interests in
two other retail companies, a service corporation, and three other non-utility
companies.
Transactions between Montaup and other affiliated companies include the
following: sales of electricity by Montaup to Blackstone and Newport
aggregating approximately $126,237,000 in 1994, $121,447,000 in 1993, and
$117,714,000 in 1992; accounting, engineering and other services rendered by
EUA Service to Eastern Edison and Montaup of approximately $27,365,000,
$27,418,000 and $23,196,000 in 1994, 1993 and 1992 respectively; and, operating
expense from the rental of transmission and generation facilities by Blackstone
and Newport to Montaup aggregating approximately $2,665,000 in 1994, $2,884,000
in 1993 and $2,445,000 in 1992. Montaup rental of transmission facilities to
Newport for the years 1994, 1993, and 1992 amounted to $149,000, $487,000 and
$365,000, respectively. 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 3.2% in 1994, 1993 and 1992 based on the
average depreciable property balances at the beginning and end of each year.
Electric Plant Held for Future Use: In January 1994 Montaup determined
that it would not be economically feasible to bring its 42-year old, coal-fired
Somerset Station Unit 5 generating unit into compliance with Clean Air Act
Amendments of 1990 (Clean Air Act). The unit was placed in cold storage and
its net investment, $5.4 million, was transferred to electric plant held for
future use pending final determination by Montaup of its usefulness. Under
terms of the settlement agreement filed with FERC, entered into by Montaup and
the intervenors in Montaup's 1994 rate decrease application and filed with
FERC, Montaup continues to earn a return on the net investment of the unit.
Other Assets: The components of Other Assets at December 31, 1994 and
1993 are detailed as follows:
<TABLE>
<CAPTION>
(in Thousands) 1994 1993
<S> <C> <C> <C>
Regulatory Assets:
Unamortized losses on reacquired debt $16,693 $18,401
Unrecovered plant and decommissioning cost 18,400 16,908
Deferred SFAS 109 costs (Note B) 39,506 42,255
Deferred SFAS 106 costs (Note J) 2,723 1,365
Other regulatory assets 7,280 6,704
Total regulatory assets 84,602 85,633
Other deferred charges and assets:
Unamortized debt expenses 3,345 3,639
Other 7,599 7,984
Total Other Assets $95,546 $97,256
</TABLE>
Allowance_for_Funds_Used_During_Construction: 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
9.56%, in 1994, 9.3% in 1993 and 10.83% in 1992.
Operating_Revenues: Revenues are based on billing rates authorized by
applicable federal and state regulatory commissions. Eastern Edison follows
the policy of accruing the estimated amount of unbilled base rate revenues
for electricity provided at the end of the month to more closely match costs
and revenues. Montaup recognizes revenues when billed. In addition,
Eastern Edison and Montaup also record the difference between fuel costs
incurred and fuel costs billed. Montaup also records the difference between
purchased power costs incurred and billed.
Income_Taxes: The general policy of Eastern Edison and Montaup with
respect to accounting for federal 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.
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.
(B) Income Taxes:
Components of income tax expense for the years 1994, 1993, and 1992 are as
follows:
<TABLE>
<CAPTION>
_____________________________________________________________________________
(In_Thousands)_______________________________1994_________1993________1992___
<S> <C> <C> <C>
Federal:
Current $ 9,143 $11,554 $ 8,236
Deferred 4,697 2,841 6,141
Investment Tax Credit, Net (348) (1,016) (1,078)
13,492 13,379 13,299
State:
Current 1,468 2,359 2,044
Deferred 870 207 731
2,338 2,566 2,775
Charged to Operations 15,830 15,945 16,074
Charged to Other Income:
Current 617 392 171
Deferred (67) (67) 1,658
Total $16,380 $16,270 $17,903
======= ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
______________________________________________________________________________
(In_Thousands)__________________________________1994________1993________1992__
<S> <C> <C> <C>
Federal Income Tax Computed at
Statutory Rates $17,417 $16,580 $17,275
(Decreases) Increases in Tax from:
Equity Component of AFUDC (92) (101) (142)
Depreciation Differences (321) 851 493
Amortization and Utilization of ITC (945) (1,066) (1,069)
Consolidated Tax Savings (651) (314)
State Taxes, Net of Federal Income
Tax Benefit 1,614 1,735 2,087
Cost of Removal (226) (273) 150
Other (416) 1,142 (891)
Total Income Tax Expense $16,380 $16,270 $17,903
======= ======= =======
</TABLE>
Eastern Edison and Montaup adopted FASB statement 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. At December 31, 1994 and 1993 no valuation allowance was
deemed necessary for total deferred tax assets. The total deferred tax assets
and liabilities at December 31, 1994 and 1993 are comprised as follows:
<TABLE>
<CAPTION>
Deferred Tax Deferred Tax
Assets Liabilities
($000) ($000)
<S> <C> <C> <C> <C> <C>
1994 1993 1994 1993
Plant Related Plant Related
Differences $16,221 $16,721 Differences $137,072 $135,707
Alternative Refinancing
Minimum Tax 4,479 4,254 Costs 1,772 1,866
Litigation Provisions 795 811 Pensions 1,233 1,404
Pensions 514 421
Other __1,866 __2,142 Other ___3,024 __2,595
Total $23,875 $24,349 Total $143,101 $141,572
======= ======= ======== =========
</TABLE>
As of December 31, 1994 and 1993, the Company had recorded on its
Consolidated Balance Sheet a regulatory liability to ratepayers of
approximately $25.2 million and $24.7 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, 1994, and 1993 a regulatory asset
of approximately $39.5 million and $42.3 million, respectively has been
recorded, representing the cumulative amount of federal income taxes on
temporary depreciation differences which were previously flowed through to
ratepayers.
Eastern Edison and Montaup have approximately $100,000 and $4.4 million,
respectively, of alternative minimum tax credits which can be utilized to
reduce the EUA System's consolidated regular tax liability and have no
expiration.
(C) Capital Stock:
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, 1994 and 1993, 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 mandatory
sinking funds sufficient to redeem 15,000 shares during each twelve-month
period 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 Mort
gage and Collateral Trust Bonds, retained earnings in the amount of
approximately $100,458,000 as of December 31, 1994 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, in the principal amount of approximately $264 million.
The Company'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 1994 are:
$35 million in 1995, $7 million in 1996, none in 1997, $60 million in 1998 and
none in 1999.
(G) Lines of Credit:
EUA System companies including Eastern Edison maintain short-term lines of
credit with various banks aggregating approximately $150 million. At December
31, 1994, unused short-term lines of credit were approximately $118 million.
These credit lines are available to other EUA System companies under joint
credit line arrangements. In accordance with informal agreements with the
various banks, commitment fees are required to maintain certain lines of
credit. During 1994 the weighted average interest rate for short-term
borrowings by the Company was 3.7%.
(H) Jointly Owned Facilities:
At December 31, 1994, 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 (dollars in thousands):
<TABLE>
<CAPTION>
Accumulated
Provision For Net Construc-
Utility Depreciation Utility tion
Percent Plant in and Plant in Work in
Owned Service Amortization Service Progress
<S> <C> <C> <C> <C> <C>
Montaup:
Canal Unit 2 50.00% $ 67,031 $41,400 $25,631 $1,658
Wyman Unit 4 1.96% 4,017 1,908 2,109 22
Seabrook Unit 1 2.90% 203,772 19,458 184,314 664
Millstone Unit 3 4.01% 183,532 37,154 146,378 462
</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, 1994,
Montaup's total net investment in nuclear fuel of the Seabrook and Millstone
Units amounted to $4.0 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.
(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 were based on quoted
market prices for such securities.
The estimated fair values of the Company's financial instruments at
December 31, 1994 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
<S> <C> <C> <C>
_________________________________________________________________
Cash and Temporary Cash Investments $ 11,265 $ 11,265
Redeemable Preferred Stock 30,000 27,000
Long-Term Debt 265,000 244,238
</TABLE>
(J) Commitments and Contingencies:
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. On February 28, 1991, EUA
Power (now known as Great Bay Power Corporation), a 12.13% owner of the
Seabrook Project in which Montaup has a 2.9% ownership interest, filed for
protection under Chapter 11 of the federal Bankruptcy Code. It conducted its
business as a Debtor-in-Possession until November 23, 1994, at which time its
Plan of Reorganization became effective and Great Bay Power emerged from
Chapter 11.
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 prescribed fees for the disposal of such wastes and 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 anticipates that a permanent disposal site for spent fuel will
be ready to accept fuel for storage or disposal by the year 2010. Montaup owns
a 4.01% interest in Millstone Unit 3 and a 2.9% interest in Seabrook Unit 1.
Northeast Utilities, the operator of the units, indicates that Millstone Unit 3
has sufficient on-site storage facilities to accommodate its spent fuel for the
projected life of the unit. Expenditures for additional rack storage
facilities are projected to be made by 1999. At the Seabrook Project, there is
on-site storage capacity which, with rack additions, should be sufficient to at
least the year 2010.
The Energy Policy Act 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 since 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.
Also, Montaup is recovering through rates its share of estimated
decommissioning costs for Millstone Unit 3 and Seabrook Unit 1. Montaup's
share of the current estimate of total costs to decommission Millstone Unit 3
is $18.0 million in 1994 dollars, and Seabrook Unit 1 is $11.5 million in 1994
dollars. These figures are based on studies performed for the lead owner 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 non-contributory defined benefit pension plans covering
substantially all of their employees. Regular plan benefits are based on years
of service and average compensation over the four years prior to retirement.
In the case of the supplemental retirement plan for certain officers of the EUA
System, benefits are based on compensation at retirement date. It is the EUA
System's policy to fund the regular plan on a current basis in amounts
determined to meet the funding standards established by the Employee Retirement
Income Security Act of 1974.
Net pension expense (income) for 1994, 1993 and 1992 included the
following components:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 1,783,085 $ 1,414,382 $ 1,342,740
Interest cost on projected benefit
obligation 5,217,393 5,133,080 4,719,450
Actual loss (return) on assets 926,980 (10,891,951) (4,834,470)
Net amortization and deferrals (7,677,600) 4,017,972 (1,689,973)
Total pension expense (income) $ 249,858 $( 326,517) $( 462,253)
=========== ============ ===========
</TABLE>
Assumptions used to determine pension cost:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Discount Rate 7.25% 8.75% 8.75%
Compensation Increase Rate 4.75% 6.00% 6.00%
Long-Term Return on Assets 9.50% 10.00% 10.00%
</TABLE>
The discount rate used to determine pension costs changed effective
January 1, 1995 to 8.25%. The funded status of the plan cannot be presented
separately for Eastern Edison and Montaup as they participate in the plan with
other subsidiaries of EUA.
All benefits provided under the supplemental plan are unfunded and any
payments to plan participants are made by Eastern Edison or Montaup. For the
three years ended December 31, 1994, 1993 and 1992 expenses related to the
supplemental plan were $266,000, $1.3 million and $169,000, respectively.
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.
Eastern Edison and Montaup adopted FAS106, "Accounting for Post-Retirement
Benefits Other Than Pensions," as of January 1, 1993. This standard
establishes accounting and reporting standards for such post-retirement
benefits as health care and life insurance. FAS106 further requires the
accrual of the cost of such benefits during an employee's years of service and
the recognition of the actuarially determined total post-retirement benefit
obligations (Transition Obligation) earned by existing employees and retirees.
The Company elected to recognize the Transition Obligation over a twenty year
period as permitted by FAS106. The resultant annual expense, including
amortization of the Transition Obligation and net of capitalized amounts,
amounted to approximately $4.5 million in 1994 and $4.8 million in 1993. As a
result of regulatory decisions issued in December 1992, Eastern Edison and
Montaup established regulatory assets of approximately $1.4 million and $1.4
million in 1994 and 1993, respectively. Montaup was allowed to defer
FAS106-related costs through 1995 or until it filed for recovery of such
amounts prior to that time. Montaup has requested and received authority to
recover all of its FAS106 expenses including a five-year amortization of
deferred amounts in its 1994 rate decrease application. The total cost of
Post-Retirement Benefits other than Pensions for 1994 and 1993 includes the
following components (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1994 1993
Service cost $ 880 $ 767
Interest cost 3,252 3,556
Actual return on plan assets (75) (41)
Amortization of transition obligation 2,026 2,040
Net other amortization & deferrals (50) (40)
Total Post-Retirement Benefit Cost $6,033 $6,282
Assumptions
Discount rate 7.25% 8.75%
Health care cost trend rate-near-term 13.00% 13.00%
-long-term 5.00% 6.25%
Salary increase rate 4.75% 6.00%
Rate of return on plan assets- Union 8.50% 8.50%
- Non-union 5.50% 5.50%
Reconciliation of funded status:
1994 1993
Accumulated Post-Retirement Benefit Obligation (APBO):
Retirees $(20,227) $(20,556)
Active employee fully eligible for benefits (4,116) (7,669)
Other active employees (9,255) (9,488)
Total (33,598) (37,713)
Fair Value of assets (Primarily Notes and Bonds) 2,169 747
Unrecognized Transition Obligation 30,007 31,674
Unrecognized Net (Gain) Loss (3,158) 2,597
(Accrued)/Prepaid Post-Retirement Benefit Cost $(4,580) $ (2,695)
</TABLE>
The discount rate used to determine post-retirement benefit costs was
changed effective January 1, 1995, to 8.25% and was used to calculate the
funded status of Post-Retirement Benefits at December 31, 1994.
Increasing the assumed health care cost trend rate by 1% each year would
increase the total post-retirement benefit cost for 1994 by $481,000 and
increase the total accumulated post-retirement benefit obligation by $4.1
million.
Eastern Edison and Montaup have also established an irrevocable external
Voluntary Employee Benefit Association (VEBA) Trust Fund as required by the
aforementioned regulatory decisions. Contributions to the VEBA fund commenced
in March 1993 and contributions totaling approximately $2.9 million and $2.3
million were made during 1994 and 1993, respectively.
Prior to 1993, Eastern Edison and Montaup followed the "pay-as-you-go"
methodology for accounting for post-retirement benefits other than pensions.
The costs of the benefit, which amounted to approximately $1.5 million in 1992
were charged to expense.
Post-Employment Benefits: In November 1992, FASB issued Statement No.
112, "Employers' Accounting for Postemployment Benefits" for fiscal years
beginning after December 15, 1993. The estimated impact of this standard is
immaterial to Eastern Edison's results of operations and therefore no liability
was recorded.
Long-Term Purchased Power Contracts: Eastern Edison 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, 1994, the aggregate annual minimum commitments
for such contracts are approximately $129 million in 1995 and 1996 and $128
million in 1997, $132 million 1998, $133 million in 1999 and will aggregate
$1.6 billion for the ensuing years. In addition, the EUA System is required to
pay additional amounts depending on the actual amount of energy received under
such contracts. The demand costs associated with these contracts are reflected
as Purchased Power-Demand on the Consolidated Statement of Income. Such costs
are recoverable through rates.
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
the public and to the environment because of an actual or threatened release of
hazardous substances. 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 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 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 Eastern Edison and Montaup 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 carrier in these matters.
As of December 31, 1994, Eastern Edison and Montaup have incurred costs of
approximately $125,000 in connection with the foregoing environmental matters
and estimate that additional expenditures may be incurred through 1996 up to
$800,000.
As a general matter Eastern Edison and Montaup will seek to recover costs
relating to environmental proceedings in their rates. Montaup is currently
recovering certain of the incurred costs in its rates. Estimated amounts after
1996 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 Eastern Edison and Montaup do not believe that the ultimate impact of
the environmental costs will be material to their financial position and thus,
no loss provision is required at this time.
The Clean Air Act Amendments of 1990 (Clean Air Act) created new
regulatory programs and generally updated and strengthened air pollution
control laws. These amendments will expand the regulatory role of the United
States Environmental Protection Agency (EPA) regarding emissions from electric
generating facilities and a host of other sources. Montaup generating
facilities will most probably be first affected in 1995, when EPA regulations
will take effect. Tests at Montaup's coal-fired Somerset Unit No. 6 indicated
it would be able to utilize lower sulfur coal than had been burned to meet the
1995 air standards with only a minimal capital investment. Montaup determined
that it would not be economical to repair Unit No. 5 of the Somerset Station
and therefore has placed it in deactivated reserve. Eastern Edison does not
anticipate the impact from the Amendments to be material to its financial
position.
In April 1992, NESCAUM, an environmental advisory group for eight
Northeast states including Massachusetts and Rhode Island issued
recommendations for oxides of nitrogen controls for existing utility boilers
required to meet the ozone non-attainment requirements of the Clean Air Act
Amendments. The NESCAUM recommendations are more restrictive than EPA's
requirements. The DEP has amended its regulations to require that Reasonably
Available Control Technology (RACT) be implemented at all stationary sources
potentially emitting 50 tons per year or more of oxides of nitrogen. Rhode
Island has also issued similar regulations requiring that RACT be implemented at
all stationary sources potentially emitting 50 tons or more per year of nitrogen
oxide. Montaup has initiated compliance through, among other things, selective,
noncatalytic reduction processes.
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 of the others have indicated no direct
association. The 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 EMF, are continuing.
Some states have enacted regulations to limit the strength of EMF at the
edge of transmission line rights-of way. Rhode Island 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. There is a bill pending in the
Massachusetts legislature that would authorize the MDPU to examine the
potential health effects of EMF. Management cannot predict the impact, if any,
which legislation or other developments concerning EMF may have on Eastern
Edison or Montaup.
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 $5.6 million of the outstanding debt of these two companies. In
addition, Montaup has a minimum rental commitment which totals approximately
$14.2 million under a noncancellable transmission facilities support agreement
for years subsequent to 1994.
Other
On January 8, 1992, the Massachusetts Municipal Wholesale Electric
Cooperative and its member municipalities, all of which are members of NEPOOL,
filed a suit in Massachusetts Superior Court against the investor-owned
utilities that are also members of NEPOOL. The suit alleges damages by
NEPOOL's establishment of minimum size requirements for generating units
designated as pool-planned generating units. The suit names as defendants
members of NEPOOL, including Blackstone, Eastern Edison, Montaup and Newport
(NEPOOL members of the EUA System). The FERC initiated an action when the EUA
subsidiaries and other participants filed an amendment to the NEPOOL Agreement
with the FERC that concerns many of the issues raised in the Massachusetts
litigation. The plaintiffs in the Massachusetts litigation, and one other
participant have objected to the amendment, and have sought to prevent or delay
its effectiveness. Extended settlement discussions have resulted in a
settlement signed by substantially all of the parties and intervenors in both
actions. The settlement, if fully implemented, will result in (i) a withdrawal
of the amendment to the NEPOOL Agreement, (ii) a termination of the FERC
proceeding, and (iii) after the FERC action is terminated and no longer subject
to appeal, the withdrawal by the settling plaintiffs of their Superior Court
complaint. The necessary papers were filed to withdraw the NEPOOL amendment
and terminate the FERC proceeding. That withdrawal and termination was
contested by three intervenors in the FERC proceeding. On February 10, 1995,
FERC issued an order accepting a notice of cancellation of the NEPOOL
amendment, effective September 12, 1994. If the settlement agreement is fully
implemented, the Superior Court action will be required to be dismissed as to
all but one non-settling plaintiff. Management cannot predict the ultimate
outcome of this proceeding at this time.
In December 1992, Montaup commenced a declaratory judgment action in which
it sought to have the Massachusetts Superior Court determine its rights under
the Power Purchase Agreement between it and Aquidneck Power Limited Partnership
(Aquidneck). Montaup sought a declaration that the Power Purchase Agreement
was binding on the parties according to its terms. Aquidneck asserted that
Montaup had either an express or implied obligation to negotiate new terms and
conditions to the Power Purchase Agreement.
In January 1994, a counterclaim by Aquidneck claimed certain breaches of
the Power Purchase Agreement, including an alleged failure on the part of
Montaup to renegotiate the terms and conditions of the Power Purchase
Agreement. Also in January 1994, Aquidneck sought to join EUA and EUA Service
as parties to the suit.
The Court has scheduled a hearing in April 1995 on Montaup's motion for
default judgement based on Aquidneck's failure to meet its discovery
obligations. In addition, Montaup intends to file a motion for summary
judgment.
Montaup, EUA and EUA Service intend to defend the counterclaim vigorously
and believe that Aquidneck's claims have no basis in law.
Report of Independent Accountants
To the Directors and Shareholder of
Eastern Edison Company and Subsidiary:
We have audited the consolidated financial statements of Eastern Edison Company
(a wholly-owned subsidiary of Eastern Utilities Associates) and its subsidiary,
Montaup Electric Company, (collectively referred to as the "Company" hereafter)
listed in item 14 (a) (1) of this Form 10-K. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1994 and 1993, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 2, 1995
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 561,355
<OTHER-PROPERTY-AND-INVEST> 16,243
<TOTAL-CURRENT-ASSETS> 82,901
<TOTAL-DEFERRED-CHARGES> 88,831
<OTHER-ASSETS> 6,715
<TOTAL-ASSETS> 756,045
<COMMON> 72,284
<CAPITAL-SURPLUS-PAID-IN> 47,206
<RETAINED-EARNINGS> 105,574
<TOTAL-COMMON-STOCKHOLDERS-EQ> 225,064
0
25,257
<LONG-TERM-DEBT-NET> 229,224
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 35,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 241,500
<TOT-CAPITALIZATION-AND-LIAB> 756,045
<GROSS-OPERATING-REVENUE> 418,424
<INCOME-TAX-EXPENSE> 15,830
<OTHER-OPERATING-EXPENSES> 349,352
<TOTAL-OPERATING-EXPENSES> 365,182
<OPERATING-INCOME-LOSS> 53,242
<OTHER-INCOME-NET> 2,860
<INCOME-BEFORE-INTEREST-EXPEN> 56,102
<TOTAL-INTEREST-EXPENSE> 22,719
<NET-INCOME> 33,383
1,988
<EARNINGS-AVAILABLE-FOR-COMM> 31,395
<COMMON-STOCK-DIVIDENDS> 28,740
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 64,971
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
