FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-11419
THE CONNECTICUT LIGHT AND POWER COMPANY
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0303850
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
SELDEN STREET, BERLIN, CONNECTICUT 06037-1616
(Address of principal executive offices) (Zip Code)
(860) 665-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
Common Shares, $10.00 par value 12,222,930 shares
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996
and December 31, 1995 2
Consolidated Statements of Income - Three Months
and Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Part II. Other Information
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote
of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 21
PART I. FINANCIAL INFORMATION
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 6,209,561 $ 6,147,961
Less: Accumulated provision for depreciation......... 2,526,403 2,418,557
------------- -------------
3,683,158 3,729,404
Construction work in progress........................... 86,952 103,026
Nuclear fuel, net....................................... 130,890 138,203
------------- -------------
Total net utility plant............................. 3,901,000 3,970,633
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 252,766 238,023
Investments in regional nuclear generating
companies, at equity................................... 55,108 54,624
Other, at cost.......................................... 15,320 16,241
------------- -------------
323,194 308,888
------------- -------------
Current Assets:
Cash.................................................... 209 337
Notes receivable from affiliated companies.............. 187,950 -
Receivables, net........................................ 212,883 231,574
Accounts receivable from affiliated companies........... 3,516 3,069
Accrued utility revenues................................ 77,917 91,157
Fuel, materials, and supplies, at average cost.......... 83,628 68,482
Recoverable energy costs, net--current portion.......... - 78,108
Prepayments and other................................... 46,704 42,894
------------- -------------
612,807 515,621
------------- -------------
Deferred Charges:
Regulatory assets:
Income taxes,net...................................... 838,262 863,521
Unrecovered contractual obligation.................... 49,025 65,847
Deferred demand-side management costs................. 93,764 117,070
Recoverable energy costs, net (Note 3)<F3>............ 131,632 27,262
Cogeneration costs.................................... 85,969 92,162
Other................................................. 68,938 77,018
Unamortized debt expense................................ 16,265 14,977
Other................................................... 13,867 10,232
------------- -------------
1,297,722 1,268,089
------------- -------------
Total Assets........................................ $ 6,134,723 $ 6,063,231
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$10 par value. Authorized
24,500,000 shares; outstanding 12,222,930
shares................................................. $ 122,229 $ 122,229
Capital surplus, paid in................................ 638,820 637,981
Retained earnings....................................... 696,488 785,476
------------- -------------
Total common stockholder's equity.............. 1,457,537 1,545,686
Preferred stock not subject to mandatory
redemption............................................. 116,200 116,200
Preferred stock subject to mandatory redemption......... 155,000 155,000
Long-term debt (Note 7)<F7>............................. 1,834,974 1,812,646
------------- -------------
Total capitalization........................... 3,563,711 3,629,532
------------- -------------
Minority Interest in Consolidated Subsidiary.............. 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 102,265 108,408
------------- -------------
Current Liabilities:
Notes payable to banks.................................. - 41,500
Notes payable to affiliated company..................... - 10,250
Long-term debt and preferred stock--current
portion................................................ 203,362 9,372
Obligations under capital leases--current
portion................................................ 52,360 63,856
Accounts payable........................................ 108,430 110,798
Accounts payable to affiliated companies................ 41,105 44,677
Accrued taxes........................................... 14,069 52,268
Accrued interest........................................ 30,527 30,854
Other................................................... 65,583 20,027
------------- -------------
515,436 383,602
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,452,202 1,486,873
Accumulated deferred investment tax credits............. 138,763 142,447
Deferred contractual obligation......................... 49,025 65,847
Deferred nuclear outage costs........................... 65,486 17,290
Other................................................... 147,835 129,232
------------- -------------
1,853,311 1,841,689
------------- -------------
Commitments and Contingencies (Note 9)<F9>
Total Capitalization and Liabilities........... $ 6,134,723 $ 6,063,231
============= =============
</TABLE>
See accompanying notes to consolidated financial statement
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------------
1996 1995 1996 1995
--------- --------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues................................. $542,999 $525,147 $1,202,354 $1,126,341
--------- --------- ----------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power..... 137,472 123,008 360,847 282,923
Other......................................... 196,726 146,411 386,570 291,655
Maintenance...................................... 83,120 43,765 132,168 85,528
Depreciation..................................... 61,784 58,600 124,500 119,337
Amortization of regulatory assets, net........... 6,725 9,298 3,975 18,404
Federal and state income taxes................... 957 38,098 29,484 80,421
Taxes other than income taxes.................... 41,018 40,100 89,636 86,015
--------- --------- ----------- -----------
Total operating expenses................... 527,802 459,280 1,127,180 964,283
--------- --------- ----------- -----------
Operating Income................................... 15,197 65,867 75,174 162,058
--------- --------- ----------- -----------
Other Income:
Deferred nuclear plants return--other funds...... 458 1,154 907 2,397
Equity in earnings of regional nuclear
generating companies........................... 1,957 1,989 3,793 3,061
Other, net....................................... 2,175 862 3,489 (2,254)
Income taxes..................................... 91 810 (396) 2,893
--------- --------- ----------- -----------
Other income, net.......................... 4,681 4,815 7,793 6,097
--------- --------- ----------- -----------
Income before interest charges............. 19,878 70,682 82,967 168,155
--------- --------- ----------- -----------
Interest Charges:
Interest on long-term debt....................... 30,339 31,489 60,131 62,444
Other interest................................... 279 1,556 771 2,639
Deferred nuclear plants return--borrowed funds... (40) (452) (86) (894)
--------- --------- ----------- -----------
Interest charges, net...................... 30,578 32,593 60,816 64,189
--------- --------- ----------- -----------
Net Income (Loss).................................. $(10,700) $ 38,089 $ 22,151 $ 103,966
========= ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1996 1995
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 22,151 $ 103,966
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 124,500 119,337
Deferred income taxes and investment tax credits, net... (46,362) 33,554
Deferred nuclear plants return, net of amortization..... 6,272 51,056
Recoverable energy costs, net of amortization........... (25,444) (53,643)
Deferred cogeneration costs, net........................ 6,193 (38,533)
Deferred demand-side-management
costs, net of amortization............................ 23,306 6,792
Deferred nuclear refueling outage, net of amortization.. 24,797 (18,299)
Nuclear compliance reserves............................. 38,447 -
Other sources of cash................................... 111,602 64,054
Other uses of cash...................................... (45,096) (12,333)
Changes in working capital:
Receivables and accrued utility revenues................ 31,484 35,646
Fuel, materials, and supplies........................... (15,146) (4,249)
Accounts payable........................................ (5,940) (39,715)
Accrued taxes........................................... (38,199) (24,450)
Other working capital (excludes cash)................... 2,154 6,367
----------- -----------
Net cash flows from operating activities.................... 214,719 229,550
----------- -----------
Financing Activities:
Issuance of Monthly Income
Preferred Securities..................................... - 100,000
Issuance of long-term debt (Note 7)<F7>................... 222,000 -
Net decrease in short-term debt........................... (51,750) (20,500)
Reacquisitions and retirements of long-term debt.......... (9,479) (6,669)
Reacquisitions and retirements of preferred stock......... - (117,500)
Cash dividends on preferred stock......................... (7,611) (13,405)
Cash dividends on common stock............................ (103,528) (79,572)
----------- -----------
Net cash flows from (used for) financing activities......... 49,632 (137,646)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................. (56,363) (59,635)
Nuclear fuel............................................ 2,255 (7,006)
----------- -----------
Net cash flows used for investments in plant.............. (54,108) (66,641)
NU System Money Pool...................................... (187,950) -
Investments in nuclear decommissioning trusts............. (22,858) (26,263)
Other investment activities, net.......................... 437 947
----------- -----------
Net cash flows used for investments......................... (264,479) (91,957)
----------- -----------
Net Decrease In Cash For The Period......................... (128) (53)
Cash - beginning of period.................................. 337 264
----------- -----------
Cash - end of period........................................ $ 209 $ 211
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Presentation
The accompanying unaudited consolidated financial statements should be
read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) in this Form 10-
Q, the Annual Report of the Connecticut Light and Power Company (the
company or CL&P) on Form 10-K for the year ended December 31, 1995
(1995 Form 10-K), the First Quarter 1996 Form 10-Q, and the company's
Form 8-Ks dated January 31, 1996, March 30, 1996, April 15, 1996, June
6, 1996, June 18, 1996, June 28, 1996, and July 22, 1996. In the
opinion of the company, the accompanying financial statements contain
all adjustments necessary to present fairly the financial position as
of June 30, 1996, the results of operations for the three-month and
six-month periods ended June 30, 1996 and 1995, and the statements of
cash flows for the six-month periods ended June 30, 1996 and 1995.
All adjustments are of a normal, recurring, nature except those
described below in Notes 3 and 9B. The results of operations for the
three-month and six-month periods ended June 30, 1996 and 1995 are not
necessarily indicative of the results expected for a full year.
Certain reclassifications of prior period data have been made to
conform with the current period presentation.
Northeast Utilities (NU) is the parent company of the Northeast
Utilities system (the system). The system furnishes retail electric
service in Connecticut, New Hampshire, and western Massachusetts
through four wholly owned subsidiaries, CL&P, Public Service Company
of New Hampshire (PSNH), Western Massachusetts Electric Company
(WMECO), and Holyoke Water Power Company (HWP). A fifth wholly owned
subsidiary, North Atlantic Energy Corporation (NAEC), sells all of its
capacity and output of the Seabrook nuclear power plant to PSNH. In
addition to its retail electric service, the system furnishes firm and
other wholesale electric services to various municipalities and other
utilities. The system serves about 30 percent of New England's
electric needs and is one of the 20 largest electric utility systems
in the country as measured by revenues.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
2. NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
established accounting standards for evaluating and recording asset
impairment. The company adopted SFAS 121 as of January 1, 1996. SFAS 121
requires the evaluation of long-lived assets for impairment when certain
events occur or when conditions exist that indicate the carrying amounts of
assets may not be recoverable.
Based on the current regulatory environment in the system's service areas,
as of June 30, 1996, SFAS 121 did not have a material impact on the
company's financial position or results of operations. This conclusion may
change in the future as competitive factors influence wholesale and retail
pricing in the electric utility industry or if the cost-of-service based
regulatory structure were to change. For further information, see CL&P's
1995 Form 10-K and CL&P's First Quarter 1996 Form 10-Q.
3. REGULATORY ASSETS - RECOVERABLE ENERGY COSTS
Settlement Agreement: On July 1, 1996, the Connecticut Department of
Public Utility Control approved a modified settlement agreement (Modified
Settlement). As a result of the Modified Settlement, CL&P wrote off
approximately $6 million associated with its deferred 1995-1996 generation
utilization adjustment clause (GUAC) balance as of March 31, 1996. The
Modified Settlement also provides for the accelerated recovery of CL&P's
other regulatory assets of approximately $127-$175 million during 1996 and
1997. For further information on the CL&P Modified Settlement and the
original settlement proposal, see Note 9B in this Form 10-Q and the
company's Form 8-Ks dated April 15, 1996, June 18, 1996, and June 28, 1996.
Recoverable Energy Costs: The Modified Settlement resolved all outage-
related fuel recovery issues through March 31, 1996. For periods
subsequent to March 31, 1996, the Modified Settlement has provided for an
interim regulatory deferred fuel accounting mechanism. The net effect of
this mechanism, combined with the GUAC and the fossil-fuel adjustment
clause, operates as though CL&P has a fully tracking fuel clause. As of
June 30, 1996, CL&P had a net GUAC balance of approximately $83 million.
For further information on CL&P's recoverable energy costs, see Note 9B and
the MD&A in this Form 10-Q, CL&P's First Quarter 1996 Form 10-Q, and CL&P's
1995 Form 10-K.
4. NUCLEAR DECOMMISSIONING
For information on nuclear decommissioning, see the company's First Quarter
1996 Form 10-Q and the company's 1995 Form 10-K.
5. LEASE AGREEMENT
On June 21, 1996, CL&P entered into an operating lease agreement for CL&P
to acquire the use of four turbine generators having an installed cost of
approximately $70 million. The initial lease term is for a five-year
period. The lease agreement provides for a renewal option under which CL&P
may lease the turbines, at their fair market value, for five additional
consecutive twelve-month renewal terms. The rental payments are based upon
a five-year floating interest rate. The initial interest rate was 6.44
percent. Upon termination of the lease agreement, ownership of the
turbines will remain with the lessor. For further information on leases,
see CL&P's 1995 Form 10-K.
6. ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
On July 11, 1996, CL&P entered into an agreement for the sale of up to $200
million of eligible accounts receivable with limited recourse. The
agreement provides for a loss reserve pursuant to which additional customer
receivables are allocated to the purchaser on an interim basis, to protect
against bad debt. To the extent actual loss experience of the pool
receivables exceeds the loss reserve, the purchaser absorbs the excess.
For receivables sold, CL&P has retained collection and servicing
responsibilities as agent for the purchaser. As collections reduce
previously sold undivided interests, new receivables would customarily be
sold. As of August 13, 1996, no receivables had been sold under this
program.
The FASB has issued SFAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" which establishes, in
part, accounting standards for the accounting and recognition of transfers
of financial assets. SFAS 125 will be effective for transfers and
servicing of financial assets occurring after December 31, 1996 and will be
applied prospectively. Management is currently evaluating the effects of
this accounting standard on future transactions related to the accounts
receivable securitization program.
7. CAPITALIZATION
On May 21, 1996, the Connecticut Development Authority issued $62 million
of tax-exempt pollution control revenue bonds. Concurrent with such
issuance, the proceeds of the bonds were loaned to CL&P for the
reimbursement of a portion of CL&P's share of the previously incurred costs
of financing, acquiring, constructing, and installing pollution control,
sewage, and solid waste disposal facilities at Millstone 3. The bonds will
mature on May 1, 2031 and bear, at CL&P's discretion, a variable or fixed
interest rate. Variable interest rates may reach a maximum rate of 12
percent. The bonds were issued with an initial interest rate of 3.7 percent
per annum. The bonds are backed by a five-year letter of credit and are
secured by a second mortgage on CL&P's interest in Millstone 1.
On June 25, 1996, CL&P issued $160 million of First and Refunding Mortgage
Bonds, 1996 Series A. The 1996 Series A Bonds bear interest at an annual
rate of 7.875%, and will mature on June 1, 2001. The net proceeds from
the issuance and sale of the 1996 Series A Bonds, plus funds from other
sources, will be used to repay approximately $193.3 million in principal
amount of CL&P's Series UU bonds, due April 1, 1997. Prior to maturity of
the Series UU bonds, CL&P may utilize a portion of the net proceeds to
reduce short-term borrowing requirements.
For further information on capitalization, see the company's 1995 Form
10-K.
8. DERIVATIVE FINANCIAL INSTRUMENTS
CL&P uses fuel-swap agreements with financial institutions to hedge against
some of the fuel-price risk created by the sale of long-term negotiated
energy contracts. These fuel swaps reduce exposure associated with rising
fuel prices and effectively fix most of CL&P's cost of fuel and the
profitability for these negotiated energy contracts. Under the swap
agreements, CL&P exchanges monthly payments based on the differential
between a fixed and variable price for the associated fuel. As of June 30,
1996, CL&P had outstanding contracts with a total notional value of
approximately $234.9 million, and a negative mark-to-market position of
approximately $8.7 million.
These swap agreements have been made with various financial institutions,
each of which is rated "BBB+" or better by Standard & Poor's rating group.
CL&P is exposed to credit risk on its fuel swaps if the counterparties fail
to perform their obligations. However, CL&P anticipates that the
counterparties will be able to fully satisfy their obligations under the
contracts. For further information on derivative financial instruments see
the MD&A in this Form 10-Q and CL&P's 1995 Form 10-K and CL&P's First
Quarter 1996 Form 10-Q.
9. COMMITMENTS AND CONTINGENCIES
A. Construction Program: For information regarding the company's
construction program, see CL&P's 1995 Form 10-K.
B. Nuclear Performance:
Modified Settlement: CL&P had previously reported in its 1995 Form
10-K that nuclear outages which occurred at Millstone station over the
period October 1990 through August 1995 were the subject of prudence
reviews in Connecticut. The Modified Settlement previously discussed
in Note 3 terminated these proceedings and such termination did not
have a material adverse impact on CL&P's financial position or results
of operations. For additional information regarding the prudence
reviews, see CL&P's 1995 Form 10-K. For additional information
regarding the Modified Settlement, see Note 3 and the MD&A in this
Form 10-Q and the company's Form 8-Ks dated April 15, 1996, June 18,
1996, and June 28, 1996.
Millstone: CL&P has disclosed in its 1995 Form 10-K, its First
Quarter 1996 Form 10-Q and its Form 8-Ks dated January 31, 1996, March
30, 1996, April 15, 1996, June 6, 1996, June 18, 1996, June 28, 1996,
and July 22, 1996 that, among other things, the Millstone power
station has been placed on the NRC's watch list, the three Millstone
units are currently out of service, the company is currently
responding to NRC requests for information and the company is
currently incurring costs, including replacement power costs, while
the three Millstone units are down.
Management cannot predict when the NRC will allow any of the
Millstone units to return to service and thus cannot estimate the
total replacement power costs the company will ultimately incur.
Management now estimates CL&P will expense about $95 million of
incremental nuclear operation and maintenance costs in 1996.
Approximately $68 million of the $95 million was expensed in the first
and second quarters of 1996. It is likely this estimate will rise as
CL&P and the NRC identify additional issues that need to be resolved.
The recovery of fuel, purchased power, and other outage-related costs
is subject to prudence reviews. While it is too early to estimate the
total amount of such costs or the results of any prudence reviews,
management believes that there is a significant exposure to non-
recovery of a material amount of such costs.
For further information, see the SEC filings referenced above and the
MD&A in this Form 10-Q.
Connecticut Yankee (CY): For information regarding CY, see the MD&A
in this Form 10-Q, CL&P's First Quarter 1996 Form 10-Q and CL&P's Form
8-Ks dated June 6, 1996 and July 22, 1996.
C. Environmental Matters: For information regarding environ-mental
matters, see the company's 1995 Form 10-K.
D. Nuclear Insurance Contingencies: For information regarding nuclear
insurance contingencies, see the company's 1995 Form 10-K.
E. Long-Term Contractual Arrangements: For information regarding long-
term contractual arrangements, see the company's 1995 Form 10-K.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of CL&P's (the company) financial
condition and the principal factors having an impact on the results of
operations. The company is a wholly-owned subsidiary of Northeast Utilities
(NU). This discussion should be read in conjunction with CL&P's consolidated
financial statements and footnotes in this Form 10-Q, the 1995 Form 10-K, the
First Quarter 1996 Form 10-Q, and the Form 8-Ks dated January 31, 1996, March
30, 1996, April 15, 1996, June 6, 1996, June 18, 1996, June 28, 1996, and July
22, 1996.
FINANCIAL CONDITION
Overview
CL&P had a net loss of approximately $11 million for the three months ended June
30, 1996, a decrease of $49 million from the same period in 1995. Net income was
approximately $22 million for the six months ended June 30, 1996, a decrease of
approximately $82 million from the same period in 1995. The decreases for the
three- and six-month periods were primarily due to higher operating costs and
reserves related to the outages at the Millstone units, the impact of CL&P's
approved rate settlement agreement, and costs associated with meeting summer
capacity requirements. These decreases were partially offset by higher retail
sales and lower amortization of regulatory assets in 1996. In addition, six-
month earnings decreased due to a one- time tax benefit from a favorable tax
ruling, recognized in the first quarter of 1995.
CL&P expects to continue incurring substantial costs during the remainder of
1996 as a result of the Millstone outages, which could result in a loss for the
third quarter. Management expects that net income for 1996 will be well below
1995 net income. A key factor affecting 1996 net income will be the level of
costs expended to address Nuclear Regulatory Commission (NRC) concerns and the
replacement-power costs incurred to serve CL&P's customers in the absence of
energy from the Millstone units. Management currently estimates that it will
expense about $95 million of incremental operation and maintenance costs in
1996, approximately $68 million of which were expensed during the first six
months of 1996, including a reserve for future costs of $38 million. It is
likely that these costs will rise as NU and the NRC identify additional issues
that need to be resolved. Monthly replacement-power costs attributable to the
three Millstone outages are expected to be approximately $18 to $25 million.
Nuclear Performance
Millstone
CL&P has a 81-percent ownership interest in Millstone units 1 and 2, and a 52.9-
percent ownership interest in Millstone 3.
Millstone units 1, 2, and 3 have been out-of-service since November 4, 1995,
February 21, 1996, and March 30, 1996, respectively. For further information on
the current Millstone outages see CL&P's 1995 10-K, Form 8-Ks dated January 31,
1996, March 30, 1996, June 6, 1996, June 18, 1996, June 28, 1996, and July 22,
1996, and the First Quarter 1996 Form 10-Q.
The NRC has recently informed NU that it will require the creation of an
independent, third-party corrective action verification team to verify that
corrective actions have been taken at Millstone to address design and
configuration management issues. The NRC has indicated that it will issue an
order confirming the requirement for such a team and reconfirming its
requirement that NU seek formal approval by the NRC commissioners for restart of
the Millstone units. Management cannot presently estimate the effect these
efforts will have on the timing of restart or what additional costs, if any,
this may cause.
Connecticut Yankee
CL&P has a 34.5-percent ownership equity interest in the Connecticut Yankee
Atomic Power Company (CYAPC) which operates the Connecticut Yankee nuclear power
plant (CY).
On July 22, 1996, CY was taken out of service as a precautionary measure to
address a hypothetical accident scenario involving the plant's service water
system. On August 8, 1996, after evaluating certain other pending technical and
regulatory issues, CY's management decided to delay the restart of the unit and
to begin a scheduled September refueling outage. The refueling outage was
accelerated in order to allow time to resolve the pending issues.
On August 9, 1996, the NRC requested that CYAPC submit, within thirty days,
additional information that would reconfirm the basis for continued operation of
CY and address the implications of certain issues related to CY's design basis.
NU cannot estimate at this time whether compliance with this request will impact
the restart date for CY.
CYAPC cannot presently estimate whether the outage will extend beyond the 60
days planned for the refueling outage. Although a vote by the NRC Commissioners
is not required prior to restart of the unit at this time, CYAPC will work
closely with the NRC staff to evaluate and implement the corrective actions
necessary to address the pending issues. Management cannot presently estimate
the additional costs associated with the outage.
For further information on CY see CL&P's Form 8-Ks dated June 6, 1996, and July
22, 1996, and the First Quarter 1996 Form 10-Q.
Rate Matters
Connecticut
On July 1, 1996, the Connecticut Department of Public Utility Control (DPUC)
approved a modified rate settlement agreement (the Modified Settlement). The
Modified Settlement is expected to reduce estimated year-end 1996 earnings by
approximately $35 million, of which approximately $13 million was recognized
during the second quarter.
Although the Modified Settlement will decrease 1996 earnings, management
believes it will better position CL&P for the restructuring of the electric-
power industry. The 18-month base-rate freeze, and accelerated recovery of
regulatory assets provided for in the Modified Settlement, will preserve current
cash flow while reducing potentially strandable investments. In addition, the
termination of certain pending litigation and the elimination of the need to
file a rate case during 1996 will allow CL&P to focus its efforts on preparing
itself for a more competitive environment.
For further information on the Modified Settlement see Note 3 of the Notes to
Consolidated Financial Statements in this Form 10-Q, CL&P's Form 8-Ks dated
April 15, 1996, and June 28, 1996, and the First Quarter 1996 Form 10-Q.
Liquidity And Capital Resources
Cash provided from operations decreased approximately $15 million in the first
six months of 1996, from 1995, primarily due to higher cash operating expenses
and lower funds from working capital, partially offset by higher revenues from
recoveries of fuel costs paid in prior periods and higher retail sales. Cash
from financing activities increased approximately $187 million primarily due to
higher issuances of long-term debt. Cash used for investments increased
approximately $172 million primarily due to an increase in loans to other
companies under the NU system Money Pool.
In May 1996, Standard & Poor's Rating Group (S&P) and Moody's Investors Service
downgraded all debt and preferred stock of CL&P and bonds of CYAPC. All CL&P
securities remain on S&P's CreditWatch. These rating actions could adversely
affect the future availability and cost of funds.
CL&P has taken various actions to ensure that they will have access to adequate
cash resources, at reasonable cost, even if the nuclear outages extend
significantly longer, or the associated costs are significantly greater, than
management currently foresees. These actions have resulted in an increase of
approximately $180 million in investments in the NU System Money Pool.
CL&P completed a $62 million tax-exempt debt issue in May 1996, and issued $160
million of first-mortgage bonds in June 1996. Additionally, CL&P established a
facility under which it may sell, from time to time, up to $200 million of
fractional interests in its billed and unbilled accounts receivable, with
recourse. This facility has not been used to date. Additionally, CL&P applied
to the Securities and Exchange Commission for an increase of $50 million in the
agreement under which it effects revolving credit borrowings. This increase
would raise its aggregate short-term debt level up to $375 million.
CL&P has entered into fuel-swap agreements to reduce a portion of the fuel-price
risk associated with its long-term negotiated energy contracts. These
swaps are not used for trading purposes. The differential paid or received as
fuel prices change is recognized in income when realized. As of June 30, 1996,
CL&P had outstanding agreements with a total notional value of approximately
$234.9 million. The settlement amounts associated with the swaps increased
earnings by approximately $2.5 million for the first six months of 1996. These
swaps minimize exposure associated with rising fuel prices and effectively fix
the cost of fuel and the profitability of certain of CL&P's long-term negotiated
contract sales.
RESULTS OF OPERATIONS
Comparison of the Second Quarter of 1996 with the Second Quarter of 1995
Changes in Operating Revenues Increase/(Decrease)
(Millions of Dollars)
Regulatory decisions $ 9
Fuel and purchased-power cost recoveries (12)
Retail sales 16
Other revenues 5
----
Total revenue change $18
Revenues related to regulatory decisions increased primarily because of the mid-
1995 retail-rate increase. Fuel and purchased-power cost recoveries decreased
primarily due to lower average fossil fuel prices and lower revenues from sales
to outside utilities. Retail sales increased 4.7 percent primarily due to modest
economic growth 1996.
Fuel, purchased, and net interchange power expense increased approximately $14
million primarily due to higher energy costs in 1996 due to the nuclear
outages, partially offset by lower fossil and nuclear generation.
Other operation and maintenance expense increased approximately $90 million
primarily due to higher costs associated with the nuclear outages ($43 million,
including $28 million of reserves for future costs) and higher costs associated
with meeting summer capacity requirements ($21 million). In addition, these
costs reflect higher recognition of postretirement benefit costs, higher office
equipment expenses, higher recognition of demand-side-management costs, and
higher outside services related to the nuclear outages.
Amortization of regulatory assets, net decreased approximately $3 million
primarily due to the completion of the amortization of Millstone 3 phase-in
costs, partially offset by lower 1996 cogeneration deferrals and higher 1996
amortization of previously deferred cogeneration costs.
Federal and state income taxes decreased approximately $36 million primarily due
to lower book taxable income.
Comparison of the First Six Months of 1996 with the First Six Months of 1995
Changes in Operating Revenues Increase/(Decrease)
(Millions of Dollars)
Regulatory decisions $12
Fuel and purchased-power cost recoveries 32
Retail sales 38
Wholesale revenues (7)
Other revenues 1
----
Total revenue change $76
Revenues related to regulatory decisions increased primarily because of the mid-
1995 retail-rate increase, partially offset by 1996 reserves for over-
recoveries of demand-side-management costs. Fuel and purchased-power cost
recoveries increased primarily due to higher 1996 outside energy costs and the
recovery of Generation Utilization Adjustment Clause (GUAC) costs. Retail sales
increased 4.8 percent primarily due to modest economic growth in 1996 and mild
weather in the first quarter of 1995.
Fuel, purchased, and net interchange power expense increased approximately $77
million primarily due to higher outside energy costs in 1996 and the 1996
write-off of unamortized GUAC balances as agreed to as part of the 1996 Modified
Settlement, partially offset by lower fossil and nuclear generation.
Other operation and maintenance expense increased approximately $142 million
primarily due to higher costs associated with the nuclear outages ($84 million,
including $38 million of reserves for future costs), 1996 costs associated with
meeting summer capacity requirements ($21 million). In addition, these costs
reflect higher recognition of postretirement benefit costs, higher office
equipment expenses, and higher outside services related to the nuclear outages,
partially offset by lower 1996 charges from the regional nuclear generating
units.
Amortization of regulatory assets, net decreased approximately $14 million
primarily due to the completion of the amortization of Millstone 3 phase-in
costs, partially offset by lower 1996 cogeneration deferrals and higher 1996
amortization of previously deferred cogeneration costs.
Federal and state income taxes decreased approximately $48 million primarily due
to lower book taxable income, partially offset by tax benefits from a favorable
tax ruling recognized during the first quarter of 1995.
Taxes other than income taxes increased approximately $4 million primarily due
to higher 1996 Connecticut gross earnings tax expense and higher property tax
expense.
Other, net increased approximately $6 million primarily due to the 1995 write-
down of CL&P's wholesale investment in Millstone 3 as a result of the
Wallingford Settlement.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NU has learned that the Office of the U.S. Attorney for Connecticut together
with the U.S. Environmental Protection Agency is investigating possible criminal
violations of federal environmental laws at the Millstone facilities. This
investigation may have arisen out of allegations made by a former employee in a
Connecticut state lawsuit alleging he was wrongfully terminated in the January
1996 nuclear workforce reduction. NU has been informed by the government that
it is a target of the investigation, but that no one in senior management is
either a target or a subject of this investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of CL&P held on June 10, 1996,
stockholders voted to fix the number of directors for the ensuing year at eight.
The vote fixing the number of directors at eight was 12,222,930 shares in favor,
representing 100 percent of the issued and outstanding shares of common stock of
CL&P.
At the Annual Meeting, the following eight directors were elected, each by a
vote of 12,222,930 shares in favor, to serve on the Board of Directors for the
ensuing year: Robert G. Abair, Robert E. Busch, John H. Forsgren, Bernard M.
Fox, William T. Frain, Jr., Cheryl W. Grise, John B. Keane and Hugh C.
MacKenzie.
ITEM 5.OTHER INFORMATION
1. On July 23, 1996, the United States Court of Appeals for the District of
Columbia held that the United States Department of Energy (DOE) is obligated
under the Nuclear Waste Policy Act (NWPA) of 1982 to start disposing spent
nuclear fuel (SNF) no later than January 31, 1998. This decision followed a
request by numerous utilities, including certain NU subsidiaries, and state
utility commissions to review the DOE's final interpretation declaring that it
had no obligation under the NWPA or its contracts with utilities to accept SNF
absent an operational repository. The decision of the DOE was vacated, and the
case was remanded for further proceedings consistent with the appellate court's
opinion.
For additional information on this proceeding, see "Item 1. Business - Electric
Operations - Nuclear Generation - High-Level Radioactive Waste" in CL&P's Form
10-K.
2. On July 24, 1996, NU submitted the report of the Fundamental Cause
Assessment Team (FCAT) to the NRC. The FCAT was created by the nuclear
committee of the NU Board of Trustees to assist it in identifying fundamental
causes of the decline in performance of the Millstone units. The FCAT
identified the following fundamental causes: (1) the top levels of NU management
did not consistently exercise effective leadership and articulate and implement
appropriate vision and direction, (2) the nuclear organization did not establish
and maintain high standards and expectations, and (3) the nuclear organization's
leadership, management, and interpersonal skills were weak. The FCAT's findings
will be factored into the recovery plan that is being developed for the
Millstone units.
For additional information regarding actions taken by the Board of Trustees with
respect to nuclear performance, see CL&P's Form 10-Q for the quarter ended March
31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits:
Exhibit Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K:
1. CL&P filed a Form 8-K dated June 6, 1996 disclosing:
- The NRC had issued a report critical to the operations at Millstone.
In addition, the NRC is requiring NU to perform inspections at the
three Millstone plants and to submit a response to the NRC prior to
the restart of the three Millstone units.
- CY filed documents with the NRC expressing its view that the specific
issues identified at Millstone are not present to the same degree.
2. CL&P filed a Form 8-K dated June 18, 1996 regarding the DPUC's draft
decision which requested that the parties involved renegotiate portions of
the proposed CL&P settlement.
3. CL&P filed a Form 8-K dated June 28, 1996 disclosing:
- On July 2, 1996, Northeast Utilities Service Company, acting as agent
for the system companies, filed a response to the NRC outlining design
and configuration discrepancies at Millstone 3 and the costs estimated
to repair them.
- On July 1, 1996, the DPUC approved a modified CL&P settlement
agreement.
4. CL&P filed a Form 8-K dated July 22, 1996 disclosing:
- Revised estimates for replacement power and the incremental costs
associated with getting the nuclear units back on-line.
- CY was shutdown voluntarily by its operator, Connecticut Yankee Atomic
Power Company, to analyze CY's service water system.
- CL&P's operational actions in the event of long periods of hot
weather.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE CONNECTICUT LIGHT AND POWER COMPANY
Registrant
Date August 13, 1996 By: /s/ Bernard M. Fox
Bernard M. Fox
Chairman and Director
Date August 13, 1996 By: /s/ John J. Roman
John J. Roman
Vice President and Controller
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