NORTHEAST UTILITIES
THE CONNECTICUT LIGHT AND POWER COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NORTH ATLANTIC ENERGY CORPORATION
1995 Form 10-K Annual Report
Table of Contents
PART I
Page
Item 1. Business............................................... 1
The Northeast Utilities System.............................. 1
Public Utility Regulation................................... 2
Competition and Marketing................................... 3
Competition and Cost Recovery.......................... 3
Retail Marketing....................................... 4
Wholesale Marketing.................................... 5
Rates....................................................... 7
Connecticut Retail Rates............................... 7
New Hampshire Retail Rates............................. 9
Massachusetts Retail Rates............................. 14
Resource Plans.............................................. 16
Construction........................................... 16
Future Needs........................................... 17
Financing Program........................................... 17
1995 Financings........................................ 17
1996 Financing Requirements............................ 18
1996 Financing Plans................................... 18
Financing Limitations.................................. 19
Electric Operations......................................... 22
Distribution and Load.................................. 22
Regional and System Coordination....................... 25
Transmission Access.................................... 26
Fossil Fuels........................................... 26
Nuclear Generation..................................... 27
Nonutility Businesses....................................... 38
Private Power Development.............................. 38
Energy Management Services............................. 39
Regulatory and Environmental Matters........................ 39
Environmental Regulation............................... 39
Electric and Magnetic Fields........................... 48
FERC Hydro Project Licensing........................... 49
Employees................................................... 49
Item 2. Properties............................................. 51
Item 3. Legal Proceedings...................................... 56
Item 4. Submission of Matters to a Vote of Security Holders.... 61
PART II
Item 5. Market for Registrants' Common Equity and Related
Shareholder Matters.................................... 61
Item 6. Selected Financial Data................................ 61
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 62
Item 8. Financial Statements and Supplementary Data............ 62
Item 9. Changes in Disagreements with Accountants on
Accounting and Financial Disclosure.................... 63
PART III
Item 10. Directors and Executive Officers of the Registrants.... 64
Item 11. Executive Compensation................................. 68
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 73
Item 13. Certain Relationships and Related Transactions......... 76
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.................................... 77
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms
that are found throughout this report:
NU............................ Northeast Utilities
CL&P.......................... The Connecticut Light and Power ompany
Charter Oak................... Charter Oak Energy, Inc.
WMECO......................... Western Massachusetts Electric Company
HWP........................... Holyoke Water Power Company
NUSCO or the Service Company.. Northeast Utilities Service Company
NNECO......................... Northeast Nuclear Energy Company
NAEC.......................... North Atlantic Energy Corporation
NAESCO or North Atlantic...... North Atlantic Energy Service Corporation
PSNH.......................... Public Service Company of New Hampshire
RRR........................... The Rocky River Realty Company
HEC........................... HEC Inc.
Quinnehtuk.................... The Quinnehtuk Company
the System.................... The Northeast Utilities System
CYAPC......................... Connecticut Yankee Atomic Power Company
MYAPC......................... Maine Yankee Atomic Power Company
VYNPC......................... Vermont Yankee Nuclear Power Corporation
YAEC.......................... Yankee Atomic Electric Company
the Yankee Companies.......... CYAPC, MYAPC, VYNPC, and YAEC
GENERATING UNITS
Millstone 1................... Millstone Unit No. 1, a 660-MW nuclear
generating unit completed in 1970
Millstone 2................... Millstone Unit No. 2, an 870-MW nuclear electric
generating unit completed in 1975
Millstone 3................... Millstone Unit No. 3, a 1,154-MW nuclear
electric generating unit completed in 1986
Seabrook or Seabrook 1........ Seabrook Unit No. 1, a 1,148-MW nuclear electric
generating unit completed in 1986. Seabrook 1
went into service in 1990.
REGULATORS
DOE........................... U.S. Department of Energy
DPU........................... Massachusetts Department of Public Utilities
DPUC.......................... Connecticut Department of Public Utility
Control
MDEP.......................... Massachusetts Department of Environmental
Protection
CDEP.......................... Connecticut Department of Environmental
Protection
EPA........................... U.S. Environmental Protection Agency
FERC.......................... Federal Energy Regulatory Commission
NHDES......................... New Hampshire Department of Environmental
Services
NHPUC......................... New Hampshire Public Utilities Commission
NRC........................... Nuclear Regulatory Commission
SEC........................... Securities and Exchange Commission
Other
1935 Act...................... Public Utility Holding Company Act of 1935
CAAA.......................... Clean Air Act Amendments of 1990
DSM........................... Demand-Side Management
Energy Policy Act............. Energy Policy Act of 1992
EWG........................... Exempt wholesale generator
FAC........................... Fuel adjustment clause
FPPAC......................... Fuel and purchased power adjustment clause
(PSNH)
FUCO.......................... Foreign utility company
GUAC.......................... Generation utilization adjustment clause
(CL&P)
IRM........................... Integrated resource management
kWh........................... Kilowatt-hour
MW............................ Megawatt
NBFT.......................... Niantic Bay Fuel Trust, lessor of nuclear fuel
used by CL&P and WMECO
NEPOOL........................ New England Power Pool
NUGs.......................... Nonutility generators
NUG&T......................... Northeast Utilities Generation and
Transmission Agreement
QF............................ Qualifying facility
NORTHEAST UTILITIES
THE CONNECTICUT LIGHT AND POWER COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NORTH ATLANTIC ENERGY CORPORATION
PART I
ITEM 1. BUSINESS
THE NORTHEAST UTILITIES SYSTEM
Northeast Utilities (NU) is the parent company of the Northeast Utilities
system (the System). NU is not an operating company. The System furnishes
retail electric service in Connecticut, New Hampshire and western Massachusetts
through four of NU's wholly owned subsidiaries (The Connecticut Light and Power
Company [CL&P], Public Service Company of New Hampshire [PSNH], Western
Massachusetts Electric Company [WMECO] and Holyoke Water Power Company [HWP]).
In addition to their retail electric service, CL&P, PSNH, WMECO and HWP
(including its wholly owned subsidiary, Holyoke Power and Electric Company
[HPE]) (the System companies) together furnish firm wholesale electric service
to five municipal electric systems and one investor-owned utility. The System
companies also supply 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.
North Atlantic Energy Corporation (NAEC) is a special-purpose subsidiary of
NU that owns a 35.98 percent interest in the Seabrook nuclear generating
facility (Seabrook) in Seabrook, New Hampshire and sells its share of the
capacity and output from Seabrook to PSNH under two life-of-unit, full-cost
recovery contracts.
Several wholly owned subsidiaries of NU provide support services for the
System companies and, in some cases, for other New England utilities. Northeast
Utilities Service Company (NUSCO) provides centralized accounting,
administrative, information resources, engineering, financial, legal,
operational, planning, purchasing and other services to the System companies.
North Atlantic Energy Service Corporation (NAESCO) has operational
responsibility for Seabrook. Northeast Nuclear Energy Company (NNECO) acts as
agent for the System companies and other New England utilities in operating the
Millstone nuclear generating facilities in Connecticut. Three other
subsidiaries construct, acquire or lease some of the property and facilities
used by the System companies.
NU has two other principal subsidiaries, Charter Oak Energy, Inc. (Charter
Oak) and HEC Inc. (HEC), which have nonutility businesses. Directly and
through subsidiaries, Charter Oak develops and invests in cogeneration, small-
power production and other forms of nonutility generation and in exempt
wholesale generators (EWGs)(collectively, NUGs) and foreign utility companies
(FUCOs) as permitted under the Energy Policy Act of 1992 (Energy Policy Act).
HEC provides energy management services for the System's commercial, industrial
and institutional electric customers and others. See "Nonutility Businesses."
NU is functionally organized into two core business groups. The first
group, the Energy Resources Group, is devoted to energy resource acquisition,
nuclear, fossil and hydroelectric generation and wholesale marketing. The
second group, the Retail Business Group, oversees all customer service,
transmission and distribution operations and retail marketing in Connecticut,
New Hampshire and Massachusetts. These two core business groups receive
services from various support functions known collectively as the Corporate
Center.
PUBLIC UTILITY REGULATION
The System is regulated by various federal and state agencies.
NU is regulated as a registered electric utility holding company under the
Public Utility Holding Company Act of 1935 (1935 Act). Accordingly, the
Securities and Exchange Commission (SEC) has jurisdiction over NU and its
subsidiaries with respect to, among other things, securities issues, sales and
acquisitions of securities and utility assets, intercompany loans, services
performed by and for associated companies, certain accounts and records,
involvement in nonutility operations and dividends. The 1935 Act limits the
System, with certain exceptions, to the business of being an electric utility in
the Northeastern region of the country. In 1995, the staff of the SEC
recommended "conditional repeal" of the 1935 Act and substantial loosening of
rules presently restricting NU's capital-raising and diversification activities.
In 1995, a bill was introduced in the United States Senate to repeal the 1935
Act. To date these proposals have not been acted on.
The System companies are also subject to the Federal Power Act as
administered by the Federal Energy Regulatory Commission (FERC). FERC regulates
the wholesale power sales and interstate transmission service of the System.
The Energy Policy Act amended the Federal Power Act to authorize FERC to order
wholesale transmission wheeling services and under certain circumstances to
require electric utilities to enlarge transmission capacity necessary to provide
such services. FERC's authority to order wheeling does not extend to retail
wheeling, and FERC may not issue a wheeling order that is inconsistent with
state laws governing the retail marketing areas of electric utilities. For more
information regarding retail wheeling, see "Competition and Marketing-Retail
Marketing" and "Rates."
The Nuclear Regulatory Commission (NRC) has broad jurisdiction over the
System's nuclear units. Each of the System companies is subject to broad
regulation by its respective state and/or local regulatory authorities with
jurisdiction over the service areas in which each company operates. For more
information regarding recent NRC actions taken with respect to the System's
nuclear units, including the recent designation of Millstone Station on the
NRC's watch list, see "Electric Operations-Nuclear Generation-Nuclear Plant
Performance."
The System incurs substantial capital expenditures and operating expenses
to identify and comply with environmental, energy, licensing and other
regulatory requirements, including those described herein, and it expects to
incur additional costs to satisfy further requirements in these and other areas
of regulation. For more information regarding specific regulatory actions and
proceedings, see generally "Rates," "Electric Operations" and "Regulatory and
Environmental Matters."
COMPETITION AND MARKETING
COMPETITION AND COST RECOVERY
Competition in the energy industry continues to grow as a result of
legislative and regulatory action, surplus generating capacity, technological
advances, relatively high prices in certain regions of the country, including
New England, and the increased availability of natural gas.
A major risk of competition for many utilities, including the System, is
"strandable costs." These are costs that have been incurred by utilities in the
past to meet their public service obligations, with the expectation that they
would be recovered from customers in the future, and yet under certain
circumstances might not be recoverable from customers in a fully competitive
electric utility industry. The System's exposure to the risk of strandable
costs is primarily based on: (i) the System's relatively high investment in
nuclear generating capacity, which has a high initial cost to build; (ii)
state-mandated purchased-power arrangements priced above market and (iii)
significant regulatory assets, which are those costs (including purchased-power
costs) that have been deferred by state regulators for future collection from
customers.
As of December 31, 1995, the System's regulatory assets totaled
approximately $2 billion. The System expects to recover substantially all of
its regulatory assets from customers, and unless amortization is changed from
currently scheduled rates, the System's regulatory assets are expected to be
substantially decreased in the next five years. There are many contingencies,
however, that may affect the System's ability to recover strandable costs,
including the results of various electric utility restructuring initiatives in
the System's service territory and the uncertainty of future rate schedules for
CL&P, WMECO and PSNH.
In 1995, regulators in both Connecticut and Massachusetts concluded that
electric utilities should be allowed a reasonable opportunity to recover
strandable costs. There has been no such finding in New Hampshire; however, on
February 22, 1996, PSNH and the staff of the New Hampshire Public Utilities
Commission (NHPUC) reached an agreement, subject to further approvals, on a
limited, retail wheeling program under which PSNH would recover all of its
strandable costs allocable to this program.
The System believes that its assets would be worth more than their net
depreciated value if all segments of the industry, not only generation, were to
be deregulated and become competitive. These assets could include the
transmission and distribution system and much of the System's coal-fired and
hydroelectric generation.
The worst case scenario for the System would be for a rapid movement to an
openly competitive market on terms such that all of its strandable costs cannot
be recovered with little opportunity to realize the true value of below-market
assets if such assets remain subject to traditional regulation. The System
cannot predict at this time what will be the ultimate result of the various
legislative and regulatory restructuring initiatives.
Competitive forces in the utility industry also create a risk that
customers may choose alternative energy suppliers or relocate outside of the
System's service territory. In response, the System has developed, and is
continuing to develop, a number of marketing initiatives to retain and continue
to serve its existing customers. In late 1994 the System began a reengineering
process, which is ongoing, to become more competitive while improving customer
service and maintaining a high level of operational performance.
The System's strandable cost risk and exposure to revenue loss from
competitive forces are somewhat mitigated by a diverse customer retail base and
lack of significant dependence on any one retail customer or industry.
RETAIL MARKETING
The System companies continue to operate predominantly in state-approved
franchise territories under traditional cost-of-service regulation. Retail
wheeling, under which a retail customer would be permitted to select an
electricity supplier other than its local electric utility and require the local
electric utility to transmit the power to the customer's site, is not generally
required in any of the System's jurisdictions. Emphasis on developing
approaches to deregulation, however, is growing nationwide. For additional
information regarding retail wheeling and electric industry restructuring
initiatives in the System's service territory, see "Rates."
While retail wheeling is not yet generally required in the System's retail
service territory, competitive forces nonetheless are influencing retail
pricing. The System companies have been devoting increasing attention in recent
years to negotiating long-term power supply arrangements with certain retail
customers. Such arrangements are offered to customers who require an incentive
to locate or expand their operations in the System's service territory, are
considering leaving or reducing operations in the service territory, are facing
short-term financial problems or are considering generating their own
electricity.
Approximately 6 percent of the System's retail revenues were under
negotiated rate agreements at the end of 1995, up from 4 percent at the end of
1994. In 1995, those negotiated rate reductions amounted to approximately $35
million, up from $20 million in 1994. CL&P accounted for approximately $19
million of the 1995 rate reductions, PSNH for $7.5 million, WMECO for $7 million
and HWP for $1.5 million. Management believes that the level of contractual
rate reductions is likely to increase further in 1996, but that these agreements
provide long-term benefits to the System by helping to stabilize retail revenues
and attract additional retail load to its service territory. Currently, the
costs of providing these discounts are borne by NU shareholders through reduced
earnings prior to rate changes in the System's various jurisdictions. The
System companies may request that such costs be shared by their customers during
subsequent rate proceedings.
Regulators in both Connecticut and New Hampshire took steps in 1995 that
allowed electric utilities additional flexibility in negotiating special rate
agreements with electric customers. In March 1995, the Connecticut Department
of Public Utility Control (DPUC) approved new guidelines for CL&P's general rate
riders that (i) allow CL&P to enter into special rate agreements of up to ten
years with eligible customers, (ii) expand the eligibility for such rate
agreements, (iii) authorize CL&P to provide additional services instead of rate
concessions and (iv) lower the minimum pricing for such rate agreements. The
Connecticut Consumer Counsel (CCC) appealed the DPUC's decision to the
Connecticut Superior Court in May 1995, and the matter is pending. Previously,
agreements with existing customers that were longer than five years had to be
individually approved by the DPUC. CL&P's ten-year agreement with Pratt &
Whitney, CL&P's largest industrial customer, was approved by the DPUC in June
1995 under the DPUC's previous rules.
In November 1995, the NHPUC issued guidelines permitting electric utilities
to offer economic development and business retention rates. On February 23,
1996, the NHPUC issued an order accepting a package of rates submitted by PSNH
that would result in rate reductions of up to 20 percent for existing
manufacturers, who may close their business or move out of the state, and up to
30 percent for manufacturers creating new or expanded electric load. The order,
however, includes a condition that prevents PSNH from recovering from other
customers the difference between the economic development rates and full tariff
rates, which would have the effect of PSNH losing money on each sale. As a
result, PSNH will seek reconsideration by the NHPUC before deciding whether to
offer an economic development rate. The order does not include the same
restriction for business retention rates, and therefore, PSNH will proceed with
the necessary tariff filings to offer these rates.
In 1994, the Massachusetts Department of Public Utilities (DPU) authorized
WMECO to reduce rates by 5 percent for all customers whose demand exceeds one
megawatt (MW) as long as those customers agree to give WMECO at least five years
notice before generating their own power or purchasing it from an alternative
supplier. The DPU also permits WMECO to offer specified discounts with a five-
year term to attract new businesses and encourage business expansion in the
state. The DPU must approve all other special rate agreements individually.
Demand-side management (DSM) programs are also used by the System to make
its customers more efficient and viable employers in its service territory. The
System companies expect to spend approximately $50 million in 1996 on DSM
programs. These programs help customers improve the efficiency of their
electric lighting, manufacturing and heating, ventilating and air conditioning
systems. DSM program costs are recovered from customers through various cost
recovery mechanisms. For further information on the System's DSM programs, see
"Rates."
The System is continuing to expand its Retail Marketing organization to
provide better customer service. Beginning in 1996, the System expects to
devote significantly more resources to its retail marketing efforts. Much of
the increased spending will be for developing new energy-related products and
services and investing in technology that will be used to support new
initiatives.
WHOLESALE MARKETING
The System acts as both a buyer and a seller of electricity in the highly
competitive wholesale electricity market in the Northeastern United States
(Northeast). Because economic growth in this region has been modest since 1989
and because many new sources of power have become operational since that time, a
significant surplus of generating capacity currently exists in New England and
New York. As a result, wholesale electricity pricing is now significantly lower
than it was in the late 1980s.
As a result of the continued expiration of some older, higher priced
contracts, the System's wholesale revenues decreased to $303 million in 1995
from $331 million in 1994. Over the same period, sales of energy declined from
9.12 billion kilowatt-hours (KWh) in 1994 to 8.72 billion KWh in 1995. As a
result of new contracts entered into in recent years, wholesale revenues in 1996
are expected to be comparable in amount to 1995.
The System's most important wholesale market at this time remains New
England. Of the $303 million in total 1995 wholesale revenues, approximately
$280 million came from sales to investor-owned, cooperative and municipal
utilities in New England. Because most investor-owned utilities in New England
have surplus generation, sales to those utilities have declined in recent years
while sales to municipal utilities have increased. In 1995, revenues from sales
to one new municipal customer, Madison Electric Works in Madison, Maine, were
approximately $7 million. That load is expected to grow in the coming years as
a paper company in Madison expands its operations.
The largest cooperative served by the System is the Connecticut Municipal
Electric Energy Cooperative (CMEEC), which accounted for $71 million of
wholesale revenues in 1995. Half of those sales resulted from a new ten-year
agreement signed in January 1995 under which CMEEC buys power from CL&P on
behalf of the Town of Wallingford, Connecticut. The contract price includes
amortization of a lump sum payment to CL&P for early termination of a prior
agreement with Wallingford directly for a comparable amount of System power
sales.
In 1995, the System also had sales of $52 million to the New Hampshire
Electric Cooperative (NHEC), approximately 90 percent of PSNH's wholesale
revenues. NHEC is a party to a full-requirements power supply agreement with
PSNH that cannot be terminated by its terms prior to November 1, 2006. In 1995,
PSNH filed a complaint against NHEC with FERC challenging NHEC's decision to
take bids on 20 megawatts (MW) of power, representing 14 percent of NHEC's total
load, from qualifying facilities (QFs) to replace a comparable amount of
capacity from PSNH supplied under the power supply agreement. PSNH believes
that the solicitation of such bids violated the terms of its power supply
agreement. That complaint is still pending at FERC and NHEC has not yet
accepted any bids from new suppliers.
The System's second-largest wholesale market is New York State. In 1995,
the System's sales to utilities in New York accounted for $14 million of
revenues. Also in 1995, the Suffolk County Electric Agency announced that the
System had won 200 MW of a 300-MW bid to provide base-load generation to
customers in Suffolk County, Long Island. This contract, however, is subject to
FERC approval and could be contested by other parties. Accordingly, it is
unclear whether or when that contract will take effect.
The System also plans to expand its wholesale market through electric
brokering activities and wholesale sales at market-based rates. On August 18,
1995, CL&P, PSNH, WMECO, NAEC and NUSCO received an order from the SEC under the
1935 Act allowing them to engage in electric brokering and marketing activities
primarily throughout New England, New York, Pennsylvania, New Jersey and
Maryland with both interconnected and remote parties. This order will allow the
companies to arrange to both broker or buy and sell electricity from owned and
contracted sources outside the System's retail service area. To date, the
System has not received approval from FERC permitting it to sell power outside
of New England at market-based rates.
The System's transmission system is an open-access wholesale transmission
system: other parties, either utilities or independent power producers, can use
NU's transmission system to move power from a seller to a wholesale buyer at
FERC-approved rates, provided adequate capacity across those lines is available
and service reliability is not endangered. See "Electric Operations-
Transmission Access" for further information on pending FERC proceedings
relating to the System's transmission tariffs.
RATES
CONNECTICUT RETAIL RATES
GENERAL
CL&P's retail rates are subject to the jurisdiction of the DPUC.
Connecticut law provides that revised rates may not be put into effect without
the prior approval of the DPUC. Connecticut law also authorizes the DPUC to
order a rate reduction under certain circumstances before holding a full-scale
rate proceeding. The DPUC is further required to review a utility's rates every
four years if there has not been a rate proceeding during such period.
The DPUC issued a decision in CL&P's most recent rate case in June 1993
(1993 Decision) approving a multi-year rate plan that provided for annual retail
rate increases of $46.0 million, or 2.01 percent, in July 1993, $47.1 million,
or 2.04 percent, in July 1994 and $48.2 million, or 2.06 percent, in July 1995.
These rate increases were implemented as scheduled. CL&P's rates in place as
of July 1995 will remain in effect after July 1, 1996 unless a rate change is
approved by the DPUC. For more information regarding the 1993 Decision, see
"Item 3. Legal Proceedings."
ELECTRIC INDUSTRY RESTRUCTURING IN CONNECTICUT
Throughout the first half of 1995, the DPUC conducted a generic proceeding
studying the restructuring of the electric industry and competition in order to
develop findings and recommendations to be presented to legislative
policymakers. In March 1995, as part of this proceeding, CL&P introduced its
plan, entitled "Path to a Competitive Future," for the future of the electric
industry and related regulation in Connecticut. The plan calls for full
recovery of all existing plant and regulatory assets and a fully competitive
market for electricity by approximately 2003.
On July 14, 1995, the DPUC issued its final decision in this proceeding.
The decision stressed the importance of retaining the benefits of the existing
electric system, which it described as the "least costly and most reliable in
the world." One key conclusion was that retail access could result in benefits
to customers under certain circumstances, but addressing the many transition
issues must precede such access. In addition, the decision concluded that
utilities are entitled to a reasonable opportunity to recover costs potentially
strandable by the evolution toward competitive markets. The decision did not
specify any particular time-frame for competition.
In February 1996, the Connecticut Legislative Task Force for restructuring
the electric industry issued its interim report to the legislature. The report
broadly establishes certain restructuring goals, including lowering electric
prices (possibly through, among other things, a reduction in the gross earnings
tax on electric revenues) and assuring reliable electric service to all
customers. A final report to the legislature is due by January 1, 1997.
CL&P ADJUSTMENT CLAUSES
CL&P has a fossil fuel adjustment clause (FAC) which adjusts retail rates
for changes in the price of fossil fuel reflected in base rates. If the price
of fossil fuel increases above the level reflected in base rates, CL&P can
recover the amount of the increase from retail customers on a current basis,
subject to periodic review by the DPUC. Conversely, if the price of fossil fuel
decreases below the level reflected in base rates, CL&P must credit the amount
of the decrease on a current basis to its customers through the FAC. The FAC
also adjusts retail rates for the costs of power purchased from third parties,
including NUGs. On December 28, 1995, the DPUC approved, in significant part,
CL&P's request to exclude from the calculation of the FAC rate both the fuel
costs and the KWh sales of CL&P's firm and non-firm wholesale sales, thus
neutralizing the effect of these sales on the fuel clause and eliminating a
critical disincentive to making such sales.
CL&P's current retail rates also assume that the nuclear units in which
CL&P has entitlements will operate at a 72 percent composite capacity factor. A
generation utilization adjustment clause (GUAC) levels the effect on rates of
fuel costs incurred or avoided due to variations in nuclear generation above and
below that performance level. Because nuclear fuel is less expensive than any
other fuel utilized by the System, when actual nuclear performance is above the
specified level, net fuel costs are lower than the costs reflected in base rates
and when nuclear performance is below the specified level, net fuel costs are
higher than the costs reflected in base rates. At the end of each 12-month
period ending July 31, these net variations from the costs reflected in base
rates are, with DPUC approval, generally refunded to or collected from customers
over the subsequent 12-month period beginning September 1.
For the 1992-1993 and 1993-1994 GUAC periods, the DPUC issued decisions
that disallowed $7.9 million and $7.8 million, respectively, of the GUAC
deferrals accrued during these periods, finding that CL&P had overrecovered
those amounts through base rate fuel recoveries. CL&P appealed both of these
decisions and prevailed in the Connecticut Superior Court. The DPUC and other
parties then appealed that court's decisions to the Connecticut Supreme Court.
Oral argument before the Supreme Court will be held in the Spring of 1996.
On January 17, 1995, the DPUC issued a decision that allowed CL&P to
continue to recover $80 million of the GUAC costs for the 1994-95 GUAC period
(net of $19 million of asserted base fuel overrecoveries for the period) over an
18-month period (instead of the usual 12 months) beginning in September 1995.
CL&P has appealed the $19 million that was set aside from its allowed recovery
and will seek to join its appeal on this decision to the appeals currently
pending before the Connecticut Supreme Court. The DPUC's decision on the 1994-
1995 GUAC period is also subject to the results of prudence reviews of the
extended 1994-1995 outage at Millstone 2 and another 1994 Millstone 2 outage
discussed below. For additional information regarding recent nuclear outages,
see "Electric Operations-Nuclear Generation-Nuclear Plant Performance."
In August 1995, the DPUC began investigating the adoption of a fuel clause
designed to track and recover all costs of energy incurred to serve customers,
which would supersede the current FAC and GUAC. A final decision is scheduled
for April 1996.
The DPUC has conducted several reviews to examine the prudence of certain
costs, including purchased-power costs, incurred in connection with outages at
various nuclear units located in Connecticut, that occurred during the period
July 1991 to February 1992. Three of these prudence reviews are still pending
at the DPUC. Approximately $92 million of costs are at issue in these remaining
cases. Management believes its actions with respect to these outages have been
prudent and does not expect the outcome of the appeals to result in material
disallowances.
On April 10, 1995, the DPUC initiated a proceeding to investigate the
prudence of an extended outage at Millstone 2, which ended on June 18, 1994,
involving the repair of damage to a reactor coolant pump. Approximately $13
million of replacement power costs related to the outage are at issue in this
proceeding. Hearings in this proceeding are expected to begin in March 1996.
DEMAND-SIDE MANAGEMENT
CL&P participates in a collaborative process for the development and
implementation of DSM programs for its residential, commercial and industrial
customers. CL&P is allowed to recover DSM costs in excess of costs reflected in
base rates over periods ranging from approximately four to ten years.
On April 12, 1995, the DPUC issued an order approving CL&P's budget of
$36.7 million for 1995 DSM expenditures and an amortization period for new
expenditures of approximately four years. On October 3, 1995, CL&P filed its
1996-1997 DSM programs and budgets with the DPUC. CL&P proposed a budget level
of $37.1 million for 1996 DSM expenditures and an amortization period for new
expenditures of approximately 2.4 years. CL&P's unrecovered DSM costs at
December 31, 1995, excluding carrying costs, which are collected currently, were
approximately $117 million.
NEW HAMPSHIRE RETAIL RATES
GENERAL
PSNH's 1989 Rate Agreement (Rate Agreement) with the state of New Hampshire
provides for seven base rate increases of 5.5 percent per year beginning in 1990
and a comprehensive fuel and purchased power adjustment clause (FPPAC). The
first six base rate increases went into effect as scheduled and the remaining
base rate increase is scheduled to be put into effect on June 1, 1996,
concurrently with the semiannual adjustment for the FPPAC. Political and
economic pressures, caused by PSNH's high retail electric rates, may force PSNH
to accept less than an additional 5.5 percent rate increase scheduled for 1996,
including an FPPAC increase; may lead to challenges to the Rate Agreement in the
future; and may make recoveries of deferred costs after June 1, 1997 more
difficult. The Rate Agreement provides that PSNH's rates will be subject to
traditional rate regulation after the fixed rate period expires on June 1, 1997,
but that the FFPAC will continue through June 1, 2000. The base rates effective
as of June 1, 1996 will remain in effect after June 1, 1997 unless a rate change
is approved by the NHPUC. For additional information regarding a recent lawsuit
concerning the Rate Agreement, see "Item 3. Legal Proceedings."
ELECTRIC INDUSTRY RESTRUCTURING IN NEW HAMPSHIRE
On February 22, 1996, PSNH and the staff of the NHPUC reached an agreement
that, if approved by the NHPUC, would resolve the terms of PSNH's participation
in an Electric Retail Competition Pilot Program (Program) in New Hampshire.
Under this agreement, PSNH will provide access to approximately 3 percent of its
retail customers (35.13 MW) to other electric suppliers. PSNH will charge
participating customers for delivery services, comprised of distribution,
transmission, acquisition premium and access charge components. PSNH would
recover all strandable costs through these charges. Only the energy portion of
its tariffs, which account for approximately 20 percent of PSNH's typical retail
bill, would be exposed to alternative suppliers. Program participants will also
receive a 10 percent "incentive rebate" off PSNH's traditional rates to
encourage participation in the Program. The System estimates that, due to the
10 percent incentive feature, the Program, if implemented as proposed, could
cost PSNH approximately $5 million over its two-year term.
The settlement terms are not binding on any future restructuring programs.
The System companies also need FERC approval to allow Program participants
access to the System's transmission system. Although the Program is scheduled
to begin on May 28, 1996, this date is subject to both state and federal
regulatory approvals.
If the above-settlement is not approved by the NHPUC, PSNH could be subject
to the final guidelines for the Program issued by the NHPUC on February 28,
1996. The guidelines propose a two-year retail wheeling experiment under which
a selected group of retail customers aggregating 50 MW of demand would be free
to purchase power from suppliers other than their franchised local utility.
Strandable costs resulting from the Program would be split equally between
utility investors and participating customers, but, if requested, the NHPUC
would allow for a review of these costs after the conclusion of a separate
strandable cost proceeding.
On January 9, 1996, legislation was introduced in New Hampshire, requiring
electric utilities to submit restructuring plans to the NHPUC by June 30, 1996,
with final approval by June 30, 1997. The NHPUC would be further directed to
implement full retail competition by June 30, 1998 or at the earliest date
determined to be in the public interest by the NHPUC.
Under the New Hampshire's Limited Electrical Energy Producers Act (LEEPA),
a qualifying generator of not greater than 5-MW capacity is permitted to sell
its output to up to three retail customers. LEEPA also provides that the local
franchised utility could be ordered to wheel the energy to these retail
customers. On January 8, 1996, the NHPUC issued an order stating that the LEEPA
retail wheeling provision was not pre-empted by federal law and that it had
authority to order such retail wheeling service if it was found to be in the
public good.
In 1994, Freedom Electric Power Company, now known as Freedom Energy
Company, LLC (Freedom), filed a petition with the NHPUC for permission to
operate as a retail electric utility selling to large industrial customers in
New Hampshire, including customers of PSNH. On June 6, 1995, the NHPUC
determined that electric utility franchises in New Hampshire are not exclusive
as a matter of law. PSNH appealed this decision to the New Hampshire Supreme
Court. Oral arguments on the appeal were heard on February 8, 1996. Pending
this appeal and the related FERC proceeding referenced below, the NHPUC has
delayed further activity in the underlying proceeding, including whether to
allow Freedom to operate as a retail electric utility.
On July 14, 1995, Freedom filed a petition for declaratory ruling with FERC
requesting a ruling that it is entitled to transmission access from PSNH. PSNH
and numerous parties seeking intervenor status in this proceeding have filed
comments with FERC opposing Freedom's petition as a sham transaction prohibited
by the Energy Policy Act.
FPPAC
The FPPAC provides for the recovery or refund by PSNH, for the ten-year
period beginning on May 16, 1991, of the difference between its actual prudent
energy and purchased power costs and the estimated amounts of such costs
included in base rates established by the Rate Agreement. The FPPAC amount is
calculated for a six-month period based on forecasted data and is reconciled to
actual data in subsequent FPPAC billing periods.
For the period December 1, 1994 through November 30, 1995, the NHPUC
approved a continuation of the FPPAC rate that had been in effect during the
last half of 1994. This rate treatment allowed PSNH to limit overall rate
increases in 1995 to a level that did not exceed an overall 5.5 percent
increase, while maintaining an FPPAC rate level sufficient to collect 1994
Seabrook refueling costs. On November 27, 1995, the NHPUC approved a zero rate
for the FPPAC period December 1, 1995 through May 31, 1996 that resulted in a
2.6 percent decrease in rates.
On April 4, 1995, the NHPUC opened a proceeding to consider whether under
the Rate Agreement PSNH may recover its $28 million of expenditures-including
approximately $22 million for pollution control additions at the Merrimack
fossil generating station-and approximately $3.5 million of annual operating and
maintenance expenses necessary for current compliance with the Clean Air Act
Amendments of 1990 (CAAA) at PSNH's fossil generating stations. Also at issue is
the prudence of PSNH's use of the selective catalytic reduction technology at
Merrimack Station's Unit 2. Since June 1, 1995, the NHPUC has allowed PSNH to
collect its CAAA costs through FPPAC until there is a final decision in this
proceeding. For more information regarding the CAAA, see "Regulatory and
Environmental Matters-Environmental Regulation-Air Quality Requirements."
NUGs
The costs associated with purchases by PSNH from certain NUGs at prices
above the level assumed in rates are deferred and recovered through the FPPAC
over ten years. As of December 31, 1995, NUG deferrals, including the remaining
buy-out of two wood-fired NUGs discussed below, totaled approximately $192
million.
Under the Rate Agreement, PSNH and the State of New Hampshire have an
obligation to use their best efforts to renegotiate burdensome purchased power
arrangements with 13 specified NUGs that were selling their output to PSNH under
long-term rate orders. If authorized, PSNH will exchange near-term cash
payments for partial relief from high-cost purchased power obligations to the
NUGs, with such payments and an associated return on the unamortized portion
being recoverable from customers in a future amortization period.
In 1994, the NHPUC approved new purchased power agreements with five
hydroelectric NUGs, which management anticipates will result in a decrease in
payments to these NUGs during a year with normal waterflow of approximately 14
percent, or $1.4 million per year. The first of these new power purchase
agreements will expire in 2022.
In addition, PSNH has been involved in negotiations with eight wood-fired
NUGs. In September 1994, the NHPUC approved settlement agreements with two of
these wood-fired NUGs covering approximately 20 MW of capacity. Pursuant to the
settlement agreements, PSNH paid the owners approximately $40 million in
exchange for the cancellation of the rate orders under which these NUGs sold
their entire output at rates in excess of PSNH's replacement power costs. As of
December 31, 1995, PSNH had not yet recovered the approximately $34.2 million of
deferred costs remaining to be collected on these settlement agreements. These
NUGs also agreed not to compete with PSNH or other System subsidiaries in New
Hampshire.
PSNH has reached agreements, subject to NHPUC approval, with the six
remaining NUGs. The NHPUC will conduct hearings on four of the final settlement
agreements during the first half of 1996, while the parties finalize the terms
of the two remaining agreements. The six agreements could result in net savings
of approximately $430 million to PSNH's customers over a period of 20 years
following guaranteed payments of approximately $250 million. If the NHPUC fails
to provide for full recovery of strandable costs, however, management would
reevaluate whether to proceed with the NUG buydown agreements.
UNAMORTIZED PSNH ACQUISITION COSTS
The Rate Agreement also provides for the recovery by PSNH through rates of
unamortized PSNH acquisition costs, which is the aggregate value placed by
PSNH's reorganization plan on PSNH's assets in excess of the net book value of
its non-Seabrook assets and the value assigned to Seabrook. The unrecovered
balance of the unamortized PSNH acquisition costs at December 31, 1995 was
approximately $588.9 million. In accordance with the Rate Agreement,
approximately $143 million of this amount is scheduled to be amortized and
recovered through rates by 1998, and the remaining amount, approximately $446
million, is being amortized and will be recovered through rates by 2011. PSNH
earns a return each year on the unamortized portion of the cost. For more
information regarding PSNH's recovery of these costs after 1997, see
"Unamortized PSNH Acquisition Costs" in the notes to NU's financial statements
and "Unamortized Acquisition Costs" in the notes to PSNH's financial statements.
DEMAND-SIDE MANAGEMENT/LEAST COST PLANNING
On January 29, 1996, the NHPUC approved a settlement in PSNH's DSM
proceeding authorizing a 1996 budget of approximately $4.3 million, including
direct program costs plus the recovery of certain lost revenues attributable to
the program of approximately $2.8 million.
On April 10, 1995, in connection with PSNH's 1994 integrated least-cost
resource plan filing, the NHPUC ordered PSNH to conduct future least-cost
planning by evaluating resource options available to PSNH based on the economics
of only the PSNH system, rather than the combined NU system. This ruling could
have an adverse effect on the System's future resource planning.
SEABROOK POWER CONTRACTS
PSNH and NAEC have entered into two power contracts that obligate PSNH to
purchase NAEC's 35.98 percent ownership of the capacity and output of Seabrook
for the term of Seabrook's NRC operating license and to pay NAEC's "cost of
service" during this period, whether or not Seabrook continues to operate.
NAEC's cost of service includes all of its prudently incurred Seabrook-related
costs, including maintenance and operation expenses, cost of fuel, depreciation
of NAEC's recoverable investment in Seabrook and a phased-in return on that
investment. The payments by PSNH to NAEC under these contracts constitute
purchased power costs for purposes of the FPPAC and are recovered from customers
under the Rate Agreement. Decommissioning costs are separately collected by
PSNH in its base rates. See "Rates-New Hampshire Retail Rate-General" and "-
FPPAC" for information relating to the Rate Agreement. At December 31, 1995,
NAEC's net utility plant investment in Seabrook was approximately $707.1
million.
If Seabrook were retired prior to the expiration of its NRC operating
license term, NAEC would continue to be entitled under the contracts to recover
its remaining Seabrook investment and a return on that investment and its other
Seabrook-related costs over a 39-year period, less the period during which
Seabrook has operated.
The contracts provide that NAEC's return on its "allowed investment" in
Seabrook (its investment in working capital, fuel, capital additions after the
date of commercial operation and a portion of the initial investment) is
calculated based on NAEC's actual capitalization over the term of the contracts,
its actual debt and preferred equity costs and a common equity cost of 12.53
percent for the first ten years of the contracts, and thereafter at an equity
rate of return to be fixed in a filing with FERC. The portion of the initial
investment, which is included in the allowed investment, has increased annually
since May 1991 and will reach 100 percent by May 31, 1996. As of December 31,
1995, 85 percent of the initial investment was included in rates.
NAEC is entitled to earn a deferred return on the portion of the initial
investment not yet phased into rates. The deferred return on the excluded
portion of the initial investment, together with a return on it, will be
recovered between 1997 and 2001. At December 31, 1995, the amount of this
deferred return was $162.4 million. For additional information regarding the
contracts, see "Seabrook Power Contracts" in the notes to PSNH's financial
statements.
MASSACHUSETTS RETAIL RATES
GENERAL
WMECO's retail rates are subject to the jurisdiction of the DPU. The rates
charged under HWP's contracts with industrial customers are not subject to the
ratemaking jurisdiction of any state or federal regulatory agency.
In 1994, the DPU approved a settlement offer from WMECO and the
Massachusetts Attorney General (AG) that, among other things, provided that
WMECO's customers' overall bills would be reduced by approximately $13.3 million
over a 20-month period from June 1, 1994 to January 31, 1996. Under the 1994
settlement agreement, base rates would revert to their pre-settlement level
after February 1, 1996, resulting in a 2.4 percent rate increase. WMECO,
however, did not increase its rates on February 1, 1996, pending settlement
negotiations.
On February 27, 1996, WMECO and the AG submitted a proposed settlement to
the DPU that would continue the rate reduction first instituted in June 1994.
The settlement provides, among other things, that WMECO's rates remain about 2.4
percent lower than otherwise authorized (a reduction of approximately $8 million
per year) through February 1998. In addition, the agreement accelerates WMECO's
recovery of strandable costs by an additional $5.8 million in 1996 and $10
million in 1997. The terms of the settlement were put into effect as of March
1, 1996, but are subject to final DPU approval.
ELECTRIC INDUSTRY RESTRUCTURING IN MASSACHUSETTS
In February 1995, the DPU began an investigation into electric industry
restructuring in Massachusetts. On March 31, 1995, WMECO submitted its plan for
the future of the electric industry entitled "Path To A Competitive Future" to
the DPU. WMECO's comments paralleled those submitted by CL&P to the DPUC in
March 1995. See "Rates-Connecticut Retail Rates-Electric Industry Restructuring
in Connecticut." On August 16, 1995, the DPU found that it was in the public
interest that electric utilities have an opportunity to recover net,
nonmitigatable strandable costs during a transition to full competition, which
period is to be no longer than ten years. Strandable costs are to be recovered
by a mandatory charge. The DPU also ordered WMECO and two other Massachusetts
utilities to submit, by February 16, 1996, plans for moving to a competitive
generation market, retail choice of electric suppliers and incentive regulation
for transmission and distribution.
On February 16, 1996, WMECO filed its restructuring plan with the DPU.
WMECO's plan, if implemented, would institute a stable five-year rate path based
on performance incentives; a universal service charge to recover "net"
strandable costs; a comprehensive approach to pay off rapidly strandable costs;
and rate design modifications that reflect more market influence. In addition,
WMECO's plan would put into place the structural changes needed for a more
competitive retail marketplace by proposing illustrative rates which unbundle
charges for generation, distribution, transmission and ancillary services;
building the information system necessary to provide customers the data to make
informed choices within a competitive market; developing rules necessary to
provide fair competition and adequate customer protection in a competitive
retail market; and proposing pilot programs to test customer choice of alternate
suppliers of energy.
Several other utilities and the Massachusetts Division of Energy Resources
(DOER) also filed restructuring plans with the DPU. The DOER plan requires,
among other things, (i) total retail choice by January 1, 1998; (ii) the
separation of presently regulated electric utility into unregulated generation
and regulated distribution companies by January 1, 2001; and (iii) the use of a
market-based valuation process (e.g., auction) for identifying and mitigating
strandable costs. A final schedule for implementation of a Massachusetts
restructuring plan has not yet been issued.
WMECO FUEL ADJUSTMENT CLAUSE AND GENERATING UNIT OPERATING PERFORMANCE
In Massachusetts, all fuel costs are collected on a current basis by means
of a forecasted semi-annual fuel clause, which is trued up periodically. The
DPU must hold public hearings before permitting semi-annual adjustments in
WMECO's retail fuel adjustment clause. In addition to energy costs, the fuel
adjustment clause includes capacity and transmission charges and credits that
result from short-term transactions with other utilities and from certain FERC-
approved contracts among the System operating companies.
Massachusetts law establishes an annual performance program related to fuel
procurement and use and requires the DPU to review generating unit performance
and related fuel costs. Fuel clause revenues collected in Massachusetts are
subject to potential refund, pending the DPU's examination of the actual
performance of WMECO's generating units. The DPU has found that possession of a
minority ownership interest in a generating plant does not relieve a company of
its responsibilities for the prudent operation of that plant. Accordingly, the
DPU has established goals for the three Millstone units and for the three
regional nuclear operating units (the Yankee plants) in which WMECO has
ownership interests.
The DPU has initiated prudence reviews of WMECO's 1993-1994 and 1994-1995
generating unit performances. Pursuant to the terms of the February 27, 1996
settlement proposal discussed above and subject to DPU approval, these prudence
reviews would be terminated. In addition the settlement precludes any prudence
review concerning the extended 1994-1995 Millstone 2 outage.
DEMAND-SIDE MANAGEMENT
In 1992, the DPU established a conservation charge (CC) to be included in
WMECO's customers' bills. The CC includes incremental DSM program costs above
or below base rate recovery levels, lost fixed-cost recovery adjustments and the
provision for a DSM incentive mechanism.
On August 24, 1995 and November 27, 1995, the DPU issued decisions limiting
WMECO's recovery of lost base revenues in calendar year 1996 to those revenues
lost due to implementation of conservation-related costs in the most recent
three-year period. The DPU decision did not affect 1995 revenues, but the
three-year limit on recovery is expected to reduce 1996 revenues by
approximately $5.5 million.
On January 17, 1996, the DPU approved a two-year settlement proposal that
resolves WMECO's DSM-related proceedings before the DPU. The settlement
resolves: (i) DSM budget levels for 1996 and 1997 (at $12.4 million and $11.9
million, respectively); (ii) the CC for each rate class for 1996 and 1997; and
(iii) energy savings associated with past DSM activity. The DSM budget levels
agreed upon for 1996 and 1997 are considerably lower than the $15.8 million in
effect for 1995.
The February 27, 1996 settlement proposal of WMECO and the AG, however,
modifies, in part, the above-referenced DSM decisions. If approved by the DPU,
the settlement would shift $8 million now included in the CC as lost base
revenues into base rates.
RESOURCE PLANS
CONSTRUCTION
The System's construction program in the period 1996 through 2000 is
estimated as follows:
1996 1997 1998 1999 2000
(Millions)
CL&P $154.6 $172.9 $155.3 $146.0 $147.6
PSNH 51.5 38.2 36.9 41.8 32.5
WMECO 30.4 44.2 42.4 34.0 33.8
NAEC 6.0 6.6 6.9 7.2 7.4
OTHER 22.6 5.1 3.2 2.0 1.9
TOTAL $265.1 $267.0 $244.7 $231.0 $223.2
====== ====== ====== ====== ======
The construction program data shown above include all anticipated capital
costs necessary for committed projects and for those reasonably expected to
become committed, regardless of whether the need for the project arises from
environmental compliance, nuclear safety, reliability requirements or other
causes. The construction program's main focus is maintaining and upgrading the
existing transmission and distribution system and nuclear and fossil-generating
facilities.
The construction program data shown above generally include the anticipated
capital costs necessary for fossil generating units to operate at least until
their scheduled retirement dates. Whether a unit will be operated beyond its
scheduled retirement date, be deactivated or be retired on or before its
scheduled retirement date is regularly evaluated in light of the System's needs
for resources at the time, the cost and availability of alternatives and the
costs and benefits of operating the unit compared with the costs and benefits of
retiring the unit. Retirement of certain of the units could, in turn, require
substantial compensating expenditures for other parts of the System's bulk power
supply system. Those compensating capital expenditures have not been fully
identified or evaluated and are not included in the table.
FUTURE NEEDS
The System periodically updates its long-range resource needs through its
integrated demand and supply planning process. The System does not foresee the
need for any new major generating facilities at least until 2011.
The System's long-term plans rely, in part, on certain DSM programs. These
System company sponsored measures, including installations to date, are
projected to lower the System summer peak load in 2011 by 752 MW and lower the
winter peak load as of January 1, 2012 by 495 MW. See "Rates" for information
about rate treatment of DSM costs.
In addition, System companies have long-term arrangements to purchase the
output from certain NUGs under federal and state laws, regulations and orders
mandating such purchases. NUGs supplied 649 MW of firm capacity in 1995. This
is the maximum amount that the System companies expect to purchase from NUGs for
the foreseeable future. See "Rates-New Hampshire Retail Rates- NUGs" for
information concerning PSNH's efforts to renegotiate its agreements with 13 NUGs
and "CL&P Cogeneration Costs" in the notes to NU's financial statements and
"Cogeneration Costs" in the notes to CL&P's financial statements for information
regarding CL&P's termination of one of its purchased-power agreements.
The System's long-term resource plan also considers the economic viability
of continuing the operation of certain of the System's fossil fuel generating
units beyond their current book retirement dates. Continued operation of
existing fossil fuel units past their book retirement dates (and replacing
certain critically located peaking units if they fail) is expected to provide
approximately 2,300 MW of resources by 2011 that would otherwise have been
retired.
The System's need for new resources may be affected by unscheduled
retirements of its existing generating units, regulatory approval of the
continued operation of fossil fuel units and nuclear units past scheduled
retirement dates and deactivation of plants resulting from environmental
compliance or licensing decisions.
FINANCING PROGRAM
1995 FINANCINGS
On January 23, 1995, CL&P Capital, L.P. (CL&P LP) issued $100 million of
9.3 percent Cumulative Monthly Income Preferred Securities (MIPS), Series A.
CL&P is the sole general partner of CL&P LP and is the guarantor of the MIPS
securities. The net proceeds from the issuance and sale of MIPS, along with the
proceeds of short-term debt, were used to retire $67.5 million of CL&P's 1989
Series 9 percent preferred stock and $50 million of variable-rate 1989 Dutch
Auction Rate Transferable Securities.
In December 1995, NAEC completed a $225 million variable rate note facility
with a group of banks. NAEC retired $205 million principal amount of its 15.23
percent notes, due 2000, in early November 1995, with funding in early December
1995 from the proceeds of the variable rate note facility. Interest rate swap
agreements were entered into to effectively convert the interest rate on the new
notes from variable to fixed. Under the terms of the interest rate swap
agreements, the effective interest rate on the new notes is 7.05 percent. The
refinancing is expected to save approximately $4 million annually over the next
five years.
Total System debt, including short-term and capitalized leased obligations,
was $4.25 billion as of December 31, 1995, compared with $4.54 billion as of
December 31, 1994 and $4.88 billion as of December 31, 1993. For more
information regarding 1995 financings, see Notes to Consolidated Statements of
Capitalization of NU's financial statements and "Short-Term Debt" in the notes
to CL&P's, PSNH's, WMECO's and NAEC's financial statements.
1996 FINANCING REQUIREMENTS
The System's aggregate capital requirements for 1996, exclusive of
requirements under the Niantic Bay Fuel Trust (NBFT) and a one percent sinking
and improvement fund for CL&P and WMECO, are as follows:
Total
CL&P PSNH WMECO NAEC Other System
(Millions)
Construction........... $154.6 $51.5 $30.4 $6.0 $22.6 $265.1
Nuclear Fuel...... - 1.8 - 0.6 - 2.4
Maturities............. - 172.5 - - - 172.5
Cash Sinking-funds..... 9.4 - 1.5 20.0 16.3 47.2
------ ------ ----- ----- ----- ------
Total............ $164.0 $225.8 $31.9 $26.6 $38.9 $487.2
====== ====== ===== ===== ===== ======
For further information on NBFT and the System's financing of its nuclear fuel
requirements, see "Leases" in the notes to NU's, CL&P's and WMECO's financial
statements. For further information on the System's 1996 and five-year
financing requirements, see "Notes to Consolidated Statements of Capitalization"
in NU's financial statements and "Long-Term Debt" in the notes to CL&P's, PSNH's
and WMECO's financial statements.
1996 FINANCING PLANS
The System Companies propose to finance their 1996 requirements, through
both internal cash flow and external funds, with internally generated funds
expected to provide substantially all of the necessary funds for the System.
This estimate excludes the nuclear fuel requirements financed through the NBFT
and any additional financing needed in connection with the PSNH NUGs
settlements, but includes assumed funding of liability for prior spent nuclear
fuel in the amounts of $160.2 million for CL&P and $38.6 million for WMECO. For
more information regarding the NUGs settlements, see "Rates-New Hampshire Retail
Rates-NUGs." In addition to financing their 1996 requirements, the System
companies intend, if market conditions permit, to continue to refinance a
portion of their outstanding long-term debt and preferred stock, if that can be
done advantageously.
In April 1995, NU began issuing NU common stock to fund its Dividend
Reinvestment Plan (DRP). The total amount financed through the DRP in 1995 was
approximately $41 million. NU expects to raise approximately the same amount of
capital through the DRP in 1996.
CL&P intends to issue through the Connecticut Development Authority $62
million principal amount of Pollution Control Revenue Bonds in the first half of
1996. The net proceeds of these bonds will be used to reimburse CL&P for its
share of the cost of pollution control and solid waste disposal facilities at
Millstone 3. PSNH also intends to establish a new $225 million revolving credit
agreement in the second quarter of 1996 to replace its existing $125 million
revolving credit agreement, which expires in May 1996. This credit facility will
be used by PSNH primarily for refunding of a $172.5 million principal amount
issue of maturing first mortgage bonds and for working capital purposes.
On October 18, 1995, Moody's Investors Service lowered its ratings of PSNH
and NAEC securities, bringing the rating for PSNH's First Mortgage Bonds below
investment grade. Standard and Poor's had previously downgraded PSNH's first
mortgage bonds below investment grade. NAEC's securities have never been rated
investment grade by either agency. With both of the major nationally recognized
securities rating organizations that rate PSNH and NAEC securities rating them
below investment grade, PSNH's and NAEC's borrowing costs have increased and the
future availability and cost of funds for those companies could be restricted.
FINANCING LIMITATIONS
The amounts of short-term borrowings that may be incurred by NU, CL&P,
PSNH, WMECO, HWP and NAEC are subject to periodic approval by the SEC under the
1935 Act. Effective June 28, 1995, the SEC no longer regulates the short-term
borrowings of NU's non-utility subsidiary companies from nonaffiliates or
through the Northeast Utilities System Money Pool (Money Pool).
The following table shows the amount of short-term borrowings authorized by
the SEC for each company as of January 1, 1996 and the amounts of outstanding
short-term debt of those companies at the end of 1995.
Maximum Authorized Short-Term Debt
Short-Term Debt Outstanding at 12/31/95*
(Millions)
NU.................. $ 150 $ 58
CL&P ............... 325 52
PSNH ............... 175 -
WMECO............... 60 24
HWP................. 5 -
NAEC................ 50 8
NNECO............... ** -
RRR................. ** 17
Quinnehtuk.......... ** 5
HEC................. ** 2
---
Total $ 166
* This column includes borrowings of various System companies from NU and
other System companies through the Money Pool. Total System short-term
indebtedness to unaffiliated lenders was $99 million at December 31, 1995.
** Effective June 28, 1995, the SEC no longer regulates the short-term debt
issuances of these companies.
The supplemental indentures under which NU issued $175 million in
principal amount of 8.58 percent amortizing notes in December 1991 and $75
million in principal amount of 8.38 percent amortizing notes in March 1992
contain restrictions on dispositions of certain System companies' stock,
limitations of liens on NU assets and restrictions on distributions on and
acquisitions of NU stock. Under these provisions, neither NU, CL&P, PSNH nor
WMECO may dispose of voting stock of CL&P, PSNH or WMECO other than to NU or
another System company, except that CL&P may sell voting stock for cash to
third persons if so ordered by a regulatory agency so long as the amount sold is
not more than 19 percent of CL&P's voting stock after the sale. The
restrictions also generally prohibit NU from pledging voting stock of CL&P,
PSNH or WMECO or granting liens on its other assets in amounts greater than 5
percent of the total common equity of NU. As of December 31, 1995, no NU debt
was secured by liens on NU assets. Finally, NU may not declare or make
distributions on its capital stock, acquire its capital stock (or rights
thereto), or permit a System company to do the same, at times when there is an
event of default under the supplemental indentures under which the amortizing
notes were issued.
The charters of CL&P and WMECO contain preferred stock provisions
restricting the amount of unsecured debt those companies may incur. As of
December 31, 1995, CL&P's charter would permit CL&P to incur an additional $466
million of unsecured debt and WMECO's charter would permit it to incur an
additional $112 million of unsecured debt.
In connection with NU's acquisition of PSNH, certain financial conditions
intended to prevent NU from relying on CL&P resources if the PSNH acquisition
strains NU's financial condition were imposed by the DPUC. The principal
conditions provide for a DPUC review if CL&P's common equity falls to 36 percent
or below, require NU to obtain DPUC approval to secure NU financings with CL&P
stock or assets and obligate NU to use its best efforts to sell CL&P preferred
or common stock to the public if NU cannot meet CL&P's need for equity capital.
At December 31, 1995, CL&P's common equity ratio was 42.8 percent.
While not directly restricting the amount of short-term debt that CL&P,
WMECO, RRR, NNECO and NU may incur, credit agreements to which CL&P, WMECO, HWP,
RRR, NNECO and NU are parties provide that the lenders are not required to make
additional loans, or that the maturity of indebtedness can be accelerated, if
NU (on a consolidated basis) does not meet a common equity ratio test that
requires, in effect, that NU's consolidated common equity (as defined) be at
least 30 percent for three consecutive quarters. At December 31, 1995, NU's
common equity ratio was 35.7 percent.
Under a certain credit agreement, PSNH is prohibited from incurring
additional debt unless it is able to demonstrate, on a pro forma basis for the
prior quarter and going forward, that its equity ratio (as defined) will be at
least 27 percent of total capitalization (as defined) through June 30, 1996 and
28.5 percent through June 30, 1997. In addition, PSNH must demonstrate that its
ratio of operating income to interest expense will be at least 1.75 to 1 for the
end of each fiscal quarter for the remaining term of the agreement. At December
31, 1995, PSNH's common equity ratio was 36.4 percent and its operating income
to interest expense ratio for the 12-month period was 2.74 to 1.
During 1995, NAEC entered into a credit agreement that prohibits the
incurrence of additional debt unless NAEC demonstrates that at all times its
common equity (as defined) will be at least 25 percent and its ratio of adjusted
net income (as defined) to interest expense will be at least 1.35 to 1 through
December 31, 1997 and 1.50 to 1 thereafter. At December 31, 1995, NAEC's common
equity ratio was 28.3 percent and its adjusted net income to interest expense
ratio for the 12-month period was 1.51 to 1.
See "Short-Term Debt" in the notes to NU's, CL&P's, PSNH's and WMECO's
financial statements for information about credit lines available to System
companies.
The indentures securing the outstanding first mortgage bonds of CL&P,
PSNH, WMECO and NAEC provide that additional bonds may not be issued, except for
certain refunding purposes, unless earnings (as defined in each indenture and
before income taxes, and, in the case of PSNH, without deducting the
amortization of PSNH's regulatory asset) are at least twice the pro forma annual
interest charges on outstanding bonds and certain prior lien obligations and the
bonds to be issued.
The preferred stock provisions of CL&P's, PSNH's and WMECO's charters also
prohibit the issuance of additional preferred stock (except for refinancing
purposes) unless income before interest charges (as defined and after income
taxes and depreciation) is at least 1.5 times the pro forma annual interest
charges on indebtedness and the annual dividend requirements on preferred stock
that will be outstanding after the additional stock is issued.
NU is dependent on the earnings of, and dividends received from, its
subsidiaries to meet its own financial requirements, including the payment of
dividends on NU common shares. At the current indicated annual dividend of
$1.76 per share, NU's aggregate annual dividends on common shares outstanding at
December 31, 1995, including unallocated shares held by the Employee Stock
Option Plan, would be approximately $239 million. Dividends are payable on
common shares only if, and in the amounts, declared by the NU Board of Trustees.
SEC rules under the 1935 Act require that dividends on NU's shares be
based on the amounts of dividends received from subsidiaries, not on the
undistributed retained earnings of subsidiaries. The SEC's order approving NU's
acquisition of PSNH under the 1935 Act approved NU's request for a waiver of
this requirement through June 1997. PSNH and NAEC were effectively prohibited
from paying dividends to NU through May 1993. Through the remainder of 1993 and
1994, PSNH did not pay dividends, to allow it to build up the common equity
portion of its capitalization and to fund the buyout of certain NUGs operating
in New Hampshire. See "Rates-New Hampshire Retail Rates-FPPAC and NUGs." PSNH
and NAEC paid dividends to NU of $52 million and $24 million, respectively, in
1995. If PSNH does not fund its pro rata share of NU's dividend requirements,
NU expects to fund that portion of its dividend requirements with the proceeds
of borrowings.
The supplemental indentures under which CL&P's and WMECO's first mortgage
bonds and the indenture under which PSNH's first mortgage bonds have been issued
limit the amount of cash dividends and other distributions these subsidiaries
can make to NU out of their retained earnings. As of December 31, 1995, CL&P
had $245.3 million, WMECO had $93.8 million and PSNH had $143.0 million of
unrestricted retained earnings. PSNH's preferred stock provisions also limit
the amount of cash dividends and other distributions PSNH can make to NU if
after taking the dividend or other distribution into account, PSNH's common
stock equity is less than 25 percent of total capitalization. The indenture
under which NAEC's Series A Bonds have been issued also limits the amount of
cash dividends or distributions NAEC can make to NU to retained earnings plus
$10 million. At December 31, 1995, $69.6 million was available to be paid under
this provision.
PSNH's credit agreement prohibits it from declaring or paying any cash
dividends or distributions on any of its capital stock, except for dividends on
the preferred stock, unless minimum interest coverage and common equity ratio
tests are satisfied. At December 31, 1995, $201 million was available to be
paid under these provisions. NAEC's common equity covenant referred to above
could also operate to restrict NAEC's ability to pay common dividends.
Certain subsidiaries of NU established the Money Pool to provide a more
effective use of the cash resources of the System and to reduce outside short-
term borrowings. NUSCO administers the Money Pool as agent for the
participating companies. Short-Term borrowing needs of the participating
companies (except NU) are first met with available funds of other member
companies, including funds borrowed by NU from third parties. NU may lend to,
but not borrow from, the Money Pool. Investing and borrowing subsidiaries
receive or pay interest based on the average daily Federal Funds rate, except
that borrowings based on loans from NU bear interest at NU's cost. Funds may be
withdrawn or repaid to the Money Pool at any time without prior notice.
ELECTRIC OPERATIONS
DISTRIBUTION AND LOAD
The System companies own and operate a fully integrated electric utility
business. The System operating companies' retail electric service territories
cover approximately 11,335 square miles (4,400 in CL&P's service area, 5,445 in
PSNH's service area and 1,490 in WMECO's service area) and have an estimated
total population of approximately 4 million (2.5 million in Connecticut, 963,000
in New Hampshire and 582,000 in Massachusetts). The companies furnish retail
electric service in 149, 198 and 59 cities and towns in Connecticut, New
Hampshire and Massachusetts, respectively. In December 1995, CL&P furnished
retail electric service to approximately 1.1 million customers in Connecticut,
PSNH provided retail electric service to approximately 405,000 customers in New
Hampshire and WMECO served approximately 194,000 retail electric customers in
Massachusetts. HWP serves 38 retail customers in Holyoke, Massachusetts.
The following table shows the sources of 1995 electric revenues based on
categories of customers:
CL&P PSNH WMECO NAEC Total System
Residential........ 41% 34% 37% - 37%
Commercial.......... 35 29 32 - 31
Industrial .......... 13 18 20 - 15
Wholesale* .......... 8 17 7 100% 14
Other ................ 3 2 4 - 3
---- ---- --- --- ---
Total ................ 100% 100% 100% 100% 100%
* Includes capacity sales.
NAEC's 1995 electric revenues were derived entirely from sales to PSNH
under the Seabrook power contracts. See "Rates-New Hampshire Retail Rates-
Seabrook Power Contracts" for a discussion of the contracts.
Through December 31, 1995, the all-time peak demand on the System was 6,358
MW, which occurred on August 2, 1995. The System was also selling approximately
1,217 MW of capacity to other utilities at that time. At the time of the peak,
the System's generating capacity, including capacity purchases, was 8,035 MW.
System energy requirements were met in 1995 and 1994 as set forth below:
Source 1995 1994
Nuclear .................................... 52% 54%
Oil ........................................ 4 7
Coal ....................................... 10 8
Hydroelectric .............................. 3 4
Natural gas ................................ 5 3
NUGs ....................................... 13 14
Purchased-power............................. 13 10
-- --
100% 100%
The actual changes in retail KWh sales for the last two years and the
forecasted sales growth estimates for the ten-year period 1995 through 2005, in
each case exclusive of wholesale revenues, for the System, CL&P, PSNH and WMECO
are set forth below:
1995 over 1994 over Forecast 1995-2005
1994 1993 Compound Rate of Growth
System......... (.1)% 2.9% 1.2%
CL&P........... (.3)% 3.4% 1.1%
PSNH........... .4 % 2.0% 1.6%
WMECO.......... (.1)% 1.4% 0.6%
The actual changes in total KWh sales for the last two years, including
wholesale KWh sales, for the System, CL&P, PSNH and WMECO are set forth below:
1995 over (under) 1994 1994 over (under) 1993
System ................... (1.24)% 2.53%
CL&P ..................... (2.21)% 3.66%
PSNH ..................... 1.08 % 1.70%
WMECO .................... 0.33 % 1.49%
For a discussion of trends in wholesale sales, see "Competition and Marketing-
Wholesale Marketing."
The combination of much milder winter temperatures and slower economic
growth caused retail electric sales to fall by 0.1 percent in 1995, compared
with 1994. The most significant reduction was in residential electric sales,
which are most affected by summer and winter temperature variations.
Residential sales were down 1.8 percent in 1995. By comparison, commercial
sales were up by .8 percent for the year and industrial sales rose 1.7 percent.
Had weather patterns in 1995 been similar to those in 1994, the System
estimates its total retail sales would have risen by 0.3 percent.
The reduced level of retail sales also resulted from a continued slowdown
of economic growth in New England, particularly in Connecticut. Retail sales at
CL&P fell by 0.3 percent in 1995. If weather effects were removed, CL&P's sales
would have been flat when compared with 1994. The lack of growth is primarily
attributable to the continued contraction of the manufacturing, defense,
insurance and financial services sectors in Connecticut. PSNH's retail sales
rose by 0.4 percent in 1995, largely because of a 4.4 percent increase in
industrial sales. Higher industrial sales were due primarily to the continued
growth of manufacturing activity in New Hampshire and a summer drought that
reduced hydroelectric self-generation by some of PSNH's larger customers. WMECO
retail sales were essentially flat in 1995 with 2.6 percent growth in commercial
sales partially offsetting lower residential sales. For more information on the
effect of competition on sales growth rates, see "Competition and Marketing."
In spite of further defense and insurance curtailments moderate growth is
forecasted to resume over the next ten years. The System forecasts a 1.0
percent growth rate of sales over this period. This growth rate is
significantly below historic rates due to fewer young people entering the
workforce and, in part, because of forecasted savings from System-sponsored DSM
programs that are designed to minimize operating expenses for System customers
and postpone the need for new capacity on the System. The forecasted ten-year
growth rate of System sales would be approximately 1.5 percent if the System did
not pursue DSM programs at the forecasted levels. See "Rates" for information
about rate treatment of DSM costs.
With the System's generating capacity of 7,956 MW as of January 1, 1996
(including the net of capacity sales to and purchases from other utilities, and
approximately 649 MW of capacity purchased from NUGs under existing contracts),
the System expects to meet reliably its projected annual peak load growth of 1.0
percent until at least the year 2011.
Taking into account projected load growth for the System and committed
capacity sales, but not taking into account future potential capacity sales to
other utilities or purchases from other utilities that are not subject to firm
commitments, the System's installed reserve is expected to be approximately
1,614 MW in the summer of 1996.
The System companies operate and dispatch their generation as provided in
the NEPOOL Agreement. In 1995, the peak demand on the NEPOOL system was 20,499
MW in July, which was 20 MW below the 1994 peak load of 20,519 MW in July of
that year. NEPOOL has projected that there will be an increase in demand in
1996 and estimates that the summer 1996 peak load could reach 22,368 MW. NEPOOL
projects that sufficient capacity will be available to meet this anticipated
demand.
REGIONAL AND SYSTEM COORDINATION
The System companies and most other New England utilities with electric
generating facilities are parties to the NEPOOL Agreement, which coordinates the
planning and operation of the region's generation and transmission facilities.
System transmission lines form part of the New England transmission system
linking System generating plants with one another and with the facilities of
other utilities in the Northeastern United States and Canada. The generating
facilities of all NEPOOL participants are dispatched as a single system through
the New England Power Exchange, a central dispatch facility. The NEPOOL
Agreement provides for a determination of the generating capacity
responsibilities of participants and certain transmission rights and
responsibilities. NEPOOL's objectives are to assure that the bulk power supply
of New England and adjoining areas conforms to proper standards of reliability,
to attain maximum practical economy in the bulk power supply system consistent
with such reliability standards and to provide for equitable sharing of the
resulting benefits and costs.
Since 1994, NEPOOL has been studying its own restructuring. On January 5,
1996, NEPOOL adopted a vision statement for the future called "NEPOOL Plus."
NEPOOL Plus, if implemented, will maintain the pool's current strengths and adds
key structural changes, including bid-based central energy dispatch, a changed
and expanded basis for governance and increased independence of the operational
function of NEPOOL staff as an independent system operator. The final NEPOOL
restructuring plan will be subject to approval by FERC. Representatives of the
System played an active role in the development of the plan. The System
believes that NEPOOL Plus is an important component of electric industry
restructuring in New England, providing the basis for a more efficient wholesale
market for electricity and offering the potential for retail market efficiencies
in the future.
There are two agreements that determine the manner in which costs and
savings are allocated among the System companies. Under the NUG&T, CL&P, WMECO
and HWP (Initial System Companies) pool their electric production costs and the
costs of their principal transmission facilities. Pursuant to the merger
agreement, the Initial System Companies and PSNH entered into a ten-year,
sharing agreement, expiring in June 2002, that provides, among other things, for
the allocation of the capability responsibility savings and energy expense
savings resulting from a single-system dispatch through NEPOOL.
TRANSMISSION ACCESS
In accordance with FERC's 1992 decision approving NU's acquisition of PSNH,
NU made compliance filings with FERC, including transmission tariffs. FERC made
all tariffs effective as of the merger date based on interim rates and terms of
service established by FERC pursuant to summary determinations (without
hearing). NU filed for rehearing of FERC's compliance tariff order in an effort
to reinstate the originally proposed rates. FERC has not yet acted on NU's
rehearing petition. In 1995, the System companies collected approximately $40
million in transmission revenues for transmission of power sales for the System
companies and other electric utility generators. For information regarding the
appeal of FERC's approval of NU's acquisition of PSNH, see "Item 3. Legal
Proceedings."
On March 29, 1995, FERC issued a Notice of Proposed Rulemaking (Mega-NOPR)
on industry restructuring that would require, among other things, utilities to
provide transmission access and certain ancillary services on the same terms as
the utility provides those services to itself. The Mega-NOPR also supports full
recovery of strandable costs as a result of retail wheeling with respect to
those customers under FERC's jurisdiction. A final rule is not expected until
June 1996.
On September 5, 1995, the System filed with FERC its four transmission
tariffs to meet the comparability standards articulated in the Mega-NOPR. On
October 31, 1995, FERC accepted for filing the System's revised transmission
tariffs and made them effective November 1, 1995. In the order, however, FERC
noted that certain terms and conditions for such tariffs were not fully
consistent with the Mega-NOPR pro forma tariffs and made the tariffs subject to
the final order in its Mega-NOPR proceeding. FERC also stated that the System
may use levelized rates rather than previously used depreciated embedded cost
rate methods. On February 29, 1996, NU filed a settlement with FERC in this
proceeding. The settlement resolves all issues except two rate design issues,
which will be resolved through expedited paper hearing procedures over the next
several months. If NU's rate design is confirmed, the System could collect
approximately $2 million of additional transmission revenues annually.
FOSSIL FUELS
The System's residual oil-fired generation stations used approximately 5.6
million barrels of oil in 1995. The System obtained the majority of its oil
requirements in 1995 through contracts with several large, independent oil
companies. Those contracts allow for some spot purchases when market conditions
warrant. Spot purchases represented approximately 10 percent of the System's
fuel oil purchases in 1995. The contracts expire annually or biennially. The
System currently does not anticipate any difficulties in obtaining necessary
fuel oil supplies on economic terms.
The System has five generating stations, aggregating approximately 800 MW,
which can fully or partially burn either residual oil or natural gas/coals, as
economics, environmental concerns or other factors dictate. CL&P is considering
converting its oil-fired Middletown Station in Connecticut to a dual-fuel
generating facility. Approximately 551 MW of capacity is capable of being
converted at the Middletown Station. CL&P, PSNH and WMECO have contracts with
the local gas distribution companies where the dual-fuel generating units are
located, under which natural gas is made available by those companies on an
interruptible basis. In addition, gas for CL&P'S Devon and Montville generating
stations is being purchased directly from producers and brokers on an
interruptible basis and transported through the interstate pipeline system and
the local gas distribution company. The System expects that interruptible
natural gas will continue to be available for its dual-fuel electric generating
units on economic terms and will continue to supplement fuel oil requirements.
See "Derivative Financial Instruments" in the notes to NU's and CL&P's
financial statements for information about CL&P's oil and natural gas swap
agreements that hedge against fuel price risk on certain long-term, fixed-price
energy contracts.
The System companies obtain their coal through long-term supply contracts
and spot market purchases. The System companies currently have an adequate
supply of coal. Because of changes in federal and state air quality
requirements, the System may be required to use lower sulfur coal in its plants
in the future. See "Regulatory and Environmental Matters-Environmental
Regulation-Air Quality Requirements."
NUCLEAR GENERATION
GENERAL
Certain System companies have interests in seven operating nuclear units:
Millstone 1, 2 and 3, Seabrook 1 and three other units, Connecticut Yankee (CY),
Maine Yankee (MY) and Vermont Yankee (VY), owned by regional nuclear generating
companies (the Yankee companies). System companies operate the three Millstone
units and Seabrook 1 and have operational responsibility for CY. Certain System
companies also have interests in Yankee Rowe owned by the Yankee Atomic Electric
Company (YAEC), which was permanently removed from service in 1992.
CL&P and WMECO own 100 percent of Millstone 1 and 2 as tenants in common.
Their respective ownership interests are 81 percent and 19 percent.
CL&P, PSNH and WMECO have agreements with other New England utilities
covering their joint ownership as tenants in common of Millstone 3. CL&P's
ownership interest in the unit is 52.93 percent, PSNH's ownership interest in
the unit is 2.85 percent and WMECO's interest is 12.24 percent. NAEC and CL&P
have 35.98 percent and 4.06 percent ownership interests, respectively, in
Seabrook. The Millstone 3 and Seabrook joint ownership agreements provide for
pro-rata sharing by the owners of each unit of the construction and operating
costs, the electrical output and the associated transmission costs.
CL&P, PSNH, WMECO and other New England electric utilities are the
stockholders of the Yankee companies. Each Yankee company owns a single nuclear
generating unit. The stockholder-sponsors of each Yankee company are
responsible for proportional shares of the operating costs of the respective
Yankee company and are entitled to proportional shares of the electrical output.
The relative rights and obligations with respect to the Yankee companies are
approximately proportional to the stockholders' percentage stock holdings, but
vary slightly to reflect arrangements under which nonstockholder electric
utilities have contractual rights to some of the output of particular units. The
Yankee companies and CL&P's, PSNH's and WMECO's stock ownership percentages in
the Yankee companies are set forth below:
CL&P PSNH WMECO System
Connecticut Yankee Atomic
Power Company (CYAPC) ...... 34.5% 5.0% 9.5% 49.0%
Maine Yankee Atomic Power
Company (MYAPC) ............ 12.0% 5.0% 3.0% 20.0%
Vermont Yankee Nuclear
Power Corporation (VYNPC)... 9.5% 4.0% 2.5% 16.0%
Yankee Atomic Electric
Company (YAEC) ............ 24.5% 7.0% 7.0% 38.5%
CL&P, PSNH and WMECO are obligated to provide their percentages of any
additional equity capital necessary for the Yankee companies, but do not expect
to need to contribute additional equity capital in the future. CL&P, PSNH and
WMECO believe that the Yankee companies, excluding YAEC, could require
additional external financing in the next several years to finance construction
expenditures, nuclear fuel and for other purposes. Although the ways in which
each Yankee company would attempt to finance these expenditures, if they are
needed, have not been determined, CL&P, PSNH and WMECO could be asked to provide
direct or indirect financial support for one or more Yankee companies. For
information regarding additional capital requirements at MY, see "Electric
Operations-Nuclear Generation-Nuclear Plant Performance."
On February 1, 1996, the System instituted a reorganization of its nuclear
organization that puts in place a six person team to lead the five nuclear units
that the System operates. The new nuclear management team is in charge of
overseeing safety, efficiency and community relations at all five nuclear units.
The new structure pools the expertise and strengths from each unit to manage
issues to be addressed at all the units.
NUCLEAR PLANT LICENSING AND NRC REGULATION
The operators of Millstone 1, 2 and 3, CY, MY, VY, and Seabrook 1 hold full
power operating licenses from the NRC. As holders of licenses to operate
nuclear reactors, CL&P, WMECO, NAESCO, NNECO, and the Yankee companies are
subject to the jurisdiction of the NRC. The NRC has broad jurisdiction over the
design, construction and operation of nuclear generating stations, including
matters of public health and safety, financial qualifications, antitrust
considerations and environmental impact. The NRC issues 40-year initial
operating licenses to nuclear units and NRC regulations permit renewal of
licenses for an additional 20-year period.
In addition, activities related to nuclear plant operation are routinely
inspected by the NRC for compliance with NRC regulations. The NRC has authority
to enforce its regulations through various mechanisms which include the issuance
of notices of violation (NOV) and civil monetary penalties. One regulatory
enforcement action, with an associated penalty of $50,000, was taken by the NRC
in 1995 for certain violations involving the operability of motor-operated
valves at Millstone 2.
The NRC also regularly conducts generic reviews of technical and other
issues, a number of which may affect the nuclear plants in which System
companies have interests. The cost of complying with any new requirements that
may result from these reviews cannot be estimated at this time, but such costs
could be substantial. For more information regarding recent actions taken by
the NRC with respect to the System's nuclear units, see "Electric Operations-
Nuclear Generation-Nuclear Plant Performance."
NUCLEAR PLANT PERFORMANCE
Capacity factor is a ratio that compares a unit's actual generating output
for a period with the unit's maximum potential output. The average capacity
factor for operating nuclear units in the United States was 77.6 percent in 1995
and 69.9 percent for the five nuclear units operated by the System in 1995,
compared with 67.5 percent for 1994.
The System anticipates total expenditures in 1996 of approximately $425
million for operations and maintenance (O&M) and $55.5 million in capital
improvements for the five nuclear plants that it operates.
When the nuclear units in which they have interests are out of service,
CL&P, PSNH and WMECO need to generate and/or purchase replacement power.
Recovery of replacement power costs is permitted, subject to prudence reviews,
through the GUAC for CL&P, through FPPAC for PSNH and through a retail fuel
adjustment clause for WMECO. For the status of regulatory and legal proceedings
related to recovery of replacement power costs for the 1991-1995 period, see
"Rates."
MILLSTONE UNITS
For the 12 months ended December 31, 1995, the three Millstone units'
composite capacity factor was 64.5 percent, compared with a composite capacity
factor of 66.4 percent for the 12 months ended December 31, 1994 and 79.3
percent for the same period in 1993.
On January 31, 1996, the NRC announced that the three Millstone nuclear
units had been placed on its "watch list" because of long standing performance
concerns that warranted "increased NRC attention until the licensee demonstrates
a period of improved performance." The NRC listed a number of problems which
have arisen since 1990 at Millstone Station, including licensed reactor operator
requalification failures, repetitive improper maintenance causing an unisolable
valve failure, problems with a supplemental leak collection release system,
inadequate erosion-corrosion monitoring, untimely corrective action involving a
heater drain tank recirculation line rupture, poor testing control causing an
inadvertent drain-down of a reactor vessel, a high number of safety system
failures, safety relief valve setpoint drift problems, untimely corrective
actions for identified design deficiencies, failures to implement procedures
which precipitated significant plant events and in some cases endangered plant
staff and failure to comply with safety-related aspects of Millstone's Final
Safety Analysis Report and portions of other requirements. Also mentioned were
two instances of escalated enforcement actions by the NRC for harassment,
intimidation and discrimination against employees raising safety concerns and a
continuing high volume of employee allegations of safety concerns not being
resolved appropriately by the System.
The NRC recognized that at present there are significant current
variations in the performance of the three units, but the foregoing events,
combined with a failure to sustain performance improvements across all three
units and to resolve employee concerns, required continued close NRC
monitoring of programs and performance at Millstone Station to assure
development and implementation of effective corrective action programs. While
the NRC did not specifically restrict operations of the Millstone units,
management expects that the increased NRC attention will inevitably have effects
and costs that cannot be accurately estimated at this time.
Management also plans to continue its extensive efforts already underway to
address the NRC's concerns that employees at the Millstone Station are unable to
raise nuclear safety issues to company supervisors and managers without fear of
retaliation. Among the NRC's recent actions has been the establishment of a
senior-level group to conduct an evaluation of the handling of Millstone
employee concerns. In February 1996, the NRC also requested information
regarding the process followed by the System in connection with its recent
nuclear workforce reduction. Management shares the NRC's concerns in this area
and is continuing to take steps to ensure that the environment at Millstone
Station is one in which workers feel free to raise issues without fear of
retaliation. For more information regarding the workforce reduction, see
"Employees."
On March 7, 1996, NUSCO received two letters from the NRC: the first
relates to Millstone 2 and the second concerns Millstone 3 and CY. The
correspondence regarding Millstone 2 notes "a number of operability and design
concerns" at the unit and requires NU to submit information to the NRC on what
NU has done to ensure future operations at Millstone 2 will conform to NRC
regulations and to the unit's operating license and Updated Final Safety
Analysis Report (UFSAR). That information must be submitted at least seven days
before Millstone 2 restarts subsequent to the outage described below. The
second NRC letter requests reports by April 6, 1996 on actions taken to date and
the System's plans and schedule to ensure that future operation of Millstone 3
and CY will conform to NRC regulations and the units' operating licenses and
UFSARs. Management does not know at this time whether the NRC will request
similar information and assurances regarding Seabrook.
Millstone 1, a 660-MW boiling-water reactor, has a license expiration date
of October 6, 2010. In 1995, Millstone 1 operated at a 77.2 percent capacity
factor. The unit began a planned refueling and maintenance outage on November
4, 1995. The original outage duration of 49 days has been extended to the
middle to late part of the second quarter to complete overlay repairs on the
reactor recirculation system and to respond to a December 1995 letter from the
NRC requesting information regarding actions to be taken to ensure that future
operations of Millstone 1 will be conducted in accordance with the terms and
conditions of its operating license and NRC regulations. Total replacement-
power costs for CL&P and WMECO are expected to be approximately $6.5 million per
month. It is also estimated that CL&P and WMECO will incur an additional $20
million of O&M costs as a result of the extended outage. The recovery of the
replacement power and O&M costs could be subject to refund as a result of
prudence reviews in Connecticut or Massachusetts.
Petitions were filed with the NRC in August 1995 seeking enforcement and
other sanctions against the System for its historic practice of off-loading the
full reactor core at Millstone 1 during refueling outages, as well as certain
refueling practices at the other Millstone units and Seabrook 1. The NRC
initiated several investigations in response to the petitions. One of the
investigations was completed by the NRC's Office of the Inspector General in
December 1995, which issued four findings: two critical of the System and two
critical of the NRC technical staff's oversight of the System.
In addition, several New England-based public interest groups have
requested a hearing on a license amendment issued by the NRC for Millstone 1
which would explicitly authorize the full-core offload practice. The request
for a hearing is pending before the NRC's Atomic Safety and Licensing Board, and
hearings are expected to take place in 1996.
Millstone 2, a 870-MW pressurized-water reactor, has a license expiration
date of July 31, 2015. In 1995, Millstone 2 operated at a 35.9 percent capacity
factor. In October 1994, Millstone 2 was shut down for a planned two month
refueling and maintenance outage, which was extended by eight months. The
outage encountered several unexpected difficulties that lengthened the duration
of the outage. The outage extension was primarily caused by a significant scope
increase in service water system repairs and an extremely deliberate approach to
the conduct of work during the early portion of the outage. The unit returned
to service on August 4, 1995. Replacement-power costs and O&M costs
attributable to the extension of the outage for CL&P and WMECO were
approximately $85 million and $24 million, respectively. The replacement power
costs were recovered as incurred for WMECO and are currently being recovered by
CL&P through the GUAC. O&M costs were deferred and are being amortized through
rates by both CL&P and WMECO. The recovery of the replacement power and O&M
costs could be subject to refund as a result of prudence reviews in Connecticut.
Millstone 2 was shut down on February 21, 1996 as a result of an
engineering evaluation that determined that some valves could be inoperable in
certain emergency scenarios. With the unit already off-line, management has
decided to move up a mid-cycle inspection outage that had previously been
scheduled to begin in mid-April. Management does not know at this time whether
the NRC's March 7, 1996 request for information discussed above will have a
material impact on the restart schedule for Millstone 2 but does believe there
will be an extension beyond the previously scheduled April 1995 restart date.
For each month the unit is not in service, the System will incur approximately
$8.5 million to $9 million for replacement power costs.
Millstone 3, a 1154-MW pressurized-water reactor, has a license expiration
date of November 25, 2025. In 1995, Millstone 3 operated at a 80.5 percent
capacity factor. The unit began a planned refueling outage on April 14, 1995,
which ended on June 7, 1995.
SEABROOK
Seabrook 1, a 1148-MW pressurized-water reactor, has a license expiration
date of October 17, 2026. The Seabrook operating license expires 40 years from
the date of issuance of authorization to load fuel, which was about three and
one-half years before Seabrook's full-power operating license was issued. The
System will determine at the appropriate time whether to seek recapture of some
or all of this period from the NRC and thus add up to an additional three and
one-half years to the operating term for Seabrook. In 1995, Seabrook operated
at a capacity factor of 83.2 percent. The unit began a planned refueling and
maintenance outage on November 3, 1995, which ended on December 11, 1995, the
shortest planned outage in the unit's operating history.
YANKEE UNITS
CONNECTICUT YANKEE
CY, a 582-MW pressurized-water reactor, has a license expiration date of
June 29, 2007. In 1995, CY operated at a capacity factor of 72.6 percent. CY
began a planned refueling and maintenance outage on January 28, 1995, which
ended on April 19, 1995. The outage was extended by 31 days to inspect and
replace service water piping and fan motor cables for the containment air
recirculation fan cooler units.
MAINE YANKEE
MY, a 870-MW pressurized-water reactor, has a license expiration date of
October 21, 2008. MY's operating license expires 40 years from the date of
issuance of the construction permit, which was about four years before MY's
full-power operating license was issued. At the appropriate time, MYAPC will
determine whether to seek recapture of this construction period from the NRC and
add it to the term of the MY operating license. In 1995, MY operated at a
capacity factor of 2.6 percent.
MY was out of service from early February 1995 through January 16, 1996 for
a routine refueling outage combined with the sleeving of MY's three steam
generators, at a cost of approximately $30 million. By order issued on January
3, 1996, the NRC suspended MY's authority to operate at full power and limited
MY to operating at 90 percent power pending the NRC's review and approval of a
computer code application used at MY. CL&P, WMECO and PSNH incurred additional
costs for replacement power (estimated at $1 million, $200,000 and $400,000,
respectively, per month) as result of the extended outage.
VERMONT YANKEE
VY, a 514-MW boiling water reactor, has a license expiration date of March
21, 2012. In 1995, VY operated at a capacity factor of 83.4 percent. VY had a
40-day planned refueling outage during 1995, which ended on May 3, 1995.
YANKEE ROWE
In February 1992, YAEC's owners voted to shut down Yankee Rowe permanently
based on an economic evaluation of the cost of a proposed safety review, the
reduced demand for electricity in New England, the price of alternative energy
sources and uncertainty about certain regulatory requirements. The power
contracts between CL&P, PSNH, WMECO and YAEC permit YAEC to recover from each
its proportional share of the Yankee Rowe shutdown and decommissioning costs.
For more information regarding the decommissioning of Yankee Rowe, see "Electric
Operations-Nuclear Generation-Decommissioning."
NUCLEAR INSURANCE
The NRC requires nuclear plant licensees to maintain a minimum of $1.06
billion in nuclear property and decontamination insurance coverage. The NRC
requires that proceeds from the policy following an accident that exceed $100
million will first be applied to pay expenses. The insurance carried by the
licensees of the Millstone units, Seabrook 1, CY, MY and VY meets the NRC's
requirements. YAEC has obtained an exemption for the Yankee Rowe plant from the
$1.06 billion requirement and currently carries $25 million of insurance that
otherwise meets the requirements of the rule. For more information regarding
nuclear insurance, see "Nuclear Insurance Contingencies" in the notes to NU's,
CL&P's, PSNH's, WMECO's and NAEC's financial statements.
NUCLEAR FUEL
The supply of nuclear fuel for the System's existing units requires the
procurement of uranium concentrates, followed by the conversion, enrichment and
fabrication of the uranium into fuel assemblies suitable for use in the System's
units. The majority of the System companies' uranium enrichment services
requirements is provided under a long-term contract with the United States
Enrichment Corporation (USEC), a wholly owned United States government
corporation. The majority of Seabrook's uranium enrichment services
requirements is furnished through a Russian trading company. The System expects
that uranium concentrates and related services for the units operated by the
System and for the other units in which the System companies are participating,
that are not covered by existing contracts, will be available for the
foreseeable future on reasonable terms and prices.
On August 10, 1995, NAESCO filed a complaint in the United States Court of
Federal Claims challenging the propriety of the prices charged by the USEC for
uranium enrichment services procured for Seabrook Station in 1993. The
complaint is an appeal of the final decision rendered by the USEC contracting
officer denying NAESCO's claims, which range from $2.5 to $5.8 million, and will
likely be considered along with similar complaints that are pending before the
court on behalf of 13 other utilities.
As a result of the Energy Policy Act, the United States commercial nuclear
power industry is required to pay to the United States Department of Energy
(DOE), through a special assessment for the costs of the decontamination and
decommissioning of uranium enrichment plants owned by the United States
government, no more than $150 million for 15 years beginning in 1993. Each
domestic nuclear utility's payment is based on its pro rata share of all
enrichment services received by the United States commercial nuclear power
industry from the United States government through October 1992. Each year, the
DOE will adjust the annual assessment using the Consumer Price Index. The
Energy Policy Act provides that the assessments are to be treated as reasonable
and necessary current costs of fuel, which costs shall be fully recoverable in
rates in all jurisdictions. The System's total share of the estimated assessment
was approximately $62.4 million. Management believes that the DOE assessments
against CL&P, WMECO, PSNH and NAEC will be recoverable in future rates.
Accordingly, each of these companies has recognized these costs as a regulatory
asset, with a corresponding obligation on its balance sheet.
On June 22, 1995, the United States Court of Federal Claims held that, as
applied to YAEC, the Uranium Enrichment Decontamination and Decommissioning Fund
is an unlawful add-on to the bargained-for contract price for enriched uranium.
As a result, the federal government must refund the approximately $3.0 million
that YAEC has paid into the fund since its inception. NU is evaluating the
applicability of this decision to the $21 million that the System companies have
already paid into the fund, and whether this alters the System companies'
obligation to pay such special assessments in the future. The decision as to
YAEC has been appealed by the federal government.
Nuclear fuel costs associated with nuclear plant operations include amounts
for disposal of nuclear waste. The System companies include in their nuclear
fuel expense spent fuel disposal costs accepted by the DPUC, NHPUC and DPU in
rate case or fuel adjustment decisions. Spent fuel disposal costs are also
reflected in FERC-approved wholesale charges. Such provisions include
amortization and recovery in rates of previously unrecovered disposal costs of
accumulated spent nuclear fuel.
HIGH-LEVEL RADIOACTIVE WASTE
The Nuclear Waste Policy Act of 1982 (NWPA) provides that the federal
government is responsible for the permanent disposal of spent nuclear reactor
fuel and high-level waste. As required by the NWPA, electric utilities
generating spent nuclear fuel and high-level waste are obligated to pay fees
into a fund which would be used to cover the cost of siting, constructing,
developing and operating a permanent disposal facility for this waste. The
System companies have been paying for such services for fuel burned starting in
April 1983 on a quarterly basis since July 1983. The DPUC, NHPUC and DPU permit
the fee to be recovered through rates.
In return for payment of the fees prescribed by the NWPA, the federal
government is to take title to and dispose of the utilities' high-level wastes
and spent nuclear fuel. The NWPA provides that a disposal facility be
operational and for the DOE to accept nuclear waste for permanent disposal in
1998. On April 28, 1995, DOE issued an interpretative release stating that it
does not have an unconditional statutory or contractual obligation to accept
spent fuel beginning January 1, 1998.
On June 23, 1995, the DPUC and the New Hampshire Office of Consumer
Advocate joined the Connecticut, New Hampshire and Massachusetts Attorneys
General and a number of states in a lawsuit filed in federal court against the
DOE, seeking a declaratory judgment that the DOE has a statutory obligation to
take high-level nuclear waste from utilities in 1998 and to establish judicially
administered milestones to enforce that obligation. On October 4, 1995, NUSCO,
NAESCO and CYAPC joined a companion lawsuit filed by a number of utilities
seeking similar relief. The cases were consolidated by the federal court of
appeals. Oral argument was held on January 17, 1996, and the matter is still
pending. Nuclear utilities and state regulators are presently considering
additional steps that they might take to ensure that the DOE is able to meet its
obligations with regard to nuclear waste disposal as soon as possible.
Until the federal government begins accepting nuclear waste for disposal,
operating nuclear generating plants will need to retain high-level waste and
spent fuel on-site or make some other provisions for their storage. With the
addition of new storage racks, storage facilities for Millstone 3 and CY are
expected to be adequate for the projected life of the units. The storage
facilities for Millstone 1 and 2 are expected to be adequate (maintaining the
capacity to accommodate a full-core discharge from the reactor) until 2001.
Fuel consolidation, which has been licensed for Millstone 2, could provide
adequate storage capability for the projected lives of Millstone 1 and 2. In
addition, other licensed technologies, such as dry storage casks or on-site
transfers, are being considered to accommodate spent fuel storage requirements.
With the current installation of new racks in its existing spent fuel pool,
Seabrook is expected to have spent fuel storage capacity until at least 2010.
In 1995, MYAPC began replacing the fuel racks in the spent fuel pool at MY
to provide for additional storage capacity. MYAPC believes that the replacement
of the fuel racks will provide adequate storage capacity through MY's current
licensed operating life. The storage capacity of the spent fuel pool at VY is
expected to be reached in 2005, and the available capacity of the pool is
expected to be able to accommodate full-core removal until 2001.
Because the Yankee Rowe plant was permanently shut down in February 1992,
YAEC is considering the construction of a temporary facility to store the spent
nuclear fuel produced by the Yankee Rowe plant over its operating lifetime until
that fuel is removed by the DOE. See "Electric Operations-Nuclear
Generation-Decommissioning" for further information on the closing and
decommissioning of Yankee Rowe, including a recent order issued by the NRC
halting decommissioning activities at Yankee Rowe.
LOW-LEVEL RADIOACTIVE WASTE
In April 1995, the Northwest interstate compact passed a resolution and
order broadening the types of low-level radioactive waste (LLRW) acceptable for
disposal at the privately operated Envirocare facility in Utah. This policy
change made a significant portion of utility LLRW acceptable for disposal at
Envirocare. In July 1995, the state of South Carolina reopened the Barnwell
LLRW disposal site to the nation (except for North Carolina).
These events enabled Seabrook to begin shipping its first LLRW ever and,
for the first time since 1992, gave Millstone Station and CY a choice of
disposal sites for certain categories of LLRW. By the end of November 1995, the
System had contracts with both Barnwell and Envirocare for operational LLRW
disposal. The vast majority of LLRW in storage from July 1994 through June 1995
at Millstone station and CY, and in storage since startup at the Seabrook plant,
was shipped to either Barnwell or Envirocare by the end of 1995. The System
incurred approximately $8 million in off-site LLRW disposal costs in 1995 for
the five nuclear units it operates.
Because access to LLRW disposal may be lost at any time, the System has
plans that will allow for on-site storage of LLRW for at least five years in the
event that disposal is interrupted. Both Connecticut and New Hampshire are also
pursuing other options for out-of-state disposal of LLRW.
MY had stored all its LLRW on-site since January 1, 1993, when it lost
access to off-site disposal facilities. Most of this stored waste has been
shipped to Barnwell since Maine regained access to the site in mid-1995. The
plant has the capability to store a volume of LLRW equivalent to at least five
years generation, in the event that off-site disposal access is lost.
VY has stored all its LLRW on-site since July 1994. The plant also has the
capacity to store a volume of LLRW equivalent to at least five years generation,
in the event that off-site disposal access is lost. With access to Barnwell in
mid-1995, VY has elected to continue storing most of its LLRW on-site in
anticipation of lower future disposal costs at the yet-to-be constructed Texas
LLRW disposal site.
Both Maine and Vermont are in the process of implementing an agreement with
Texas to provide access to a LLRW disposal facility that is to be developed in
that state. All three states plan to form a LLRW compact that is currently
awaiting approval by Congress.
DECOMMISSIONING
Based upon the System's most recent comprehensive site-specific updates of
the decommissioning costs for each of the three Millstone units and for
Seabrook, the recommended decommissioning method continues to be immediate and
complete dismantlement of those units at their retirement. The table below sets
forth the estimated Millstone and Seabrook decommissioning costs for the System
companies. The estimates are based on the latest site studies, escalated to
December 31, 1995 dollars.
CL&P PSNH WMECO NAEC System
(Millions)
Millstone 1 $300.3 $ - $ 70.4 $ - $ 370.7
Millstone 2 265.8 - 62.3 - 328.1
Millstone 3 232.0 12.5 53.7 - 298.2
Seabrook 1 17.2 - - 152.5 169.7
----- ----- ------ ------ -------
Total $815.3 $12.5 $186.4 $152.5 $1166.7
====== ===== ====== ====== =======
As of December 31, 1995, the balances (at market) in certain external
decommissioning trust funds, as discussed more fully below, were as follows:
CL&P PSNH WMECO NAEC System
(Millions)
Millstone 1 $113.2 $ - $ 33.8 $ - $147.0
Millstone 2 73.2 - 22.8 - 96.0
Millstone 3 49.9 2.4 13.3 - 65.6
Seabrook 1 1.7 - - 15.3 17.0
------ ------ ------ ----- ------
Total $238.0 $ 2.4 $ 69.9 $15.3 $325.6
====== ====== ====== ===== ======
Pursuant to Connecticut law, CL&P has periodically filed plans with the
DPUC for financing the decommissioning of the three Millstone units. In 1986,
the DPUC approved the establishment of separate external trusts for the
currently tax-deductible portions of decommissioning expense accruals for
Millstone 1 and 2 and for all expense accruals for Millstone 3. In its 1993
CL&P multiyear rate case decision, the DPUC allowed CL&P's full decommissioning
estimate for the three Millstone units to be collected from customers. This
estimate includes an approximate 16 percent contingency factor for the
decommissioning cost of each unit. The estimated aggregate cost of
decommissioning the System's ownership share in the Millstone units is
approximately $997 million in December 1995 dollars.
WMECO has established independent trusts to hold all decommissioning
expense collections from customers. In its 1990 WMECO multiyear rate case
decision, the DPU allowed WMECO's decommissioning estimate for the three
Millstone units ($840 million in December 1990 dollars) to be collected from
customers. Due to the settlement in the 1992 WMECO rate case, the aggregate
decommissioning estimate for the three Millstone units remains unchanged.
New Hampshire enacted a law in 1981 requiring the creation of a state-
managed fund to finance decommissioning of any units in that state. The New
Hampshire Decommissioning Fund Commission (NHDFC) approved a revised
decommissioning estimate in June 1995. On the basis of this revised estimate,
the total decommissioning cost for the System's ownership share of Seabrook is
$169.7 million in December 1995 dollars. NAEC's costs for decommissioning are
billed by it to PSNH and recovered by PSNH under the Rate Agreement. Under the
Rate Agreement, PSNH is entitled to a base rate increase to recover increased
decommissioning costs. See "Rates-New Hampshire Retail Rates-General" for
further information on the Rate Agreement.
The decommissioning cost estimates for the System nuclear units are
reviewed and updated regularly to reflect inflation and changes in
decommissioning requirements and technology. Changes in requirements or
technology, or adoption of a decommissioning method other than immediate
dismantlement, could change these estimates. CL&P, PSNH and WMECO attempt to
recover sufficient amounts through their allowed rates to cover their expected
decommissioning costs. Only the portion of currently estimated total
decommissioning costs that has been accepted by regulatory agencies is reflected
in rates of the System companies. Based on present estimates, and assuming its
nuclear units operate to the end of their respective license periods, the System
expects that the decommissioning trusts funds will be substantially funded when
those expenditures have to be made.
CYAPC, YAEC, VYNPC and MYAPC are all collecting revenues for
decommissioning from their power purchasers. The table below sets forth the
estimated decommissioning costs of the Yankee units for the System companies.
The estimates are based on the latest site studies, escalated to December 31,
1995 dollars. For information on the equity ownership of the System companies
in each of the Yankee units, see "Electric Operations-Nuclear Generation-
General."
CL&P PSNH WMECO System
(Millions)
VY $ 33.0 $ 13.9 $ 8.7 $ 55.6
Yankee Rowe* 65.9 18.8 18.8 103.5
CY 133.0 19.3 36.6 188.9
MY 42.4 17.7 10.6 70.7
------ ------ ------ ------
Total $274.3 $ 69.7 $ 74.7 $418.7
====== ====== ====== ======
- ---------------
* The costs shown include all remaining decommissioning costs and other
closing costs associated with the early retirement of Yankee Rowe as of December
31, 1995.
As of December 31, 1995, the balances (at market) in the external
decommissioning trust funds for the Yankee units were as follows:
CL&P PSNH WMECO System
(Millions)
VY $ 13.4 $ 5.7 $ 3.5 $ 22.6
Yankee Rowe 29.0 8.3 8.3 45.6
CY 61.6 8.9 17.0 87.5
MY 17.1 7.1 4.2 28.4
---- ---- ---- ----
Total $121.1 $30.0 $33.0 $184.1
====== ===== ===== ======
YAEC has begun decommissioning its nuclear facility. However, on October
12, 1995, the NRC issued an order halting major dismantlement or decommissioning
activities at Yankee Rowe until after completion of an adjudicatory hearing
process. The NRC's action was taken in response to a recent federal appeals
court decision finding that the NRC should have offered a hearing opportunity
prior to authorizing Yankee Rowe's component removal program in 1993. On January
16, 1996, the NRC issued a decision requiring that the proceeding, including
hearings if necessary, be completed by mid-July 1996. Based on a pre-hearing
conference held on February 21, 1996, YAEC expects that the NRC will reapprove
the Yankee Rowe decommissioning plan.
On December 29, 1995, FERC approved a revised decommissioning estimate for
Yankee Rowe, which assumed prompt resumption of major decommissioning
activities. Based on the revised decommissioning estimate, the total remaining
decommissioning cost for the System's ownership share of Yankee Rowe is
approximately $103.5 million in December 1995 dollars.
CYAPC accrues decommissioning costs on the basis of immediate dismantlement
at retirement. In May 1993, FERC approved a settlement agreement in a CYAPC
rate proceeding allowing a revised decommissioning estimate of $294.2 million
(in July 1992 dollars) to be recovered in rates beginning on June 1, 1993. This
amount will increase by a stated amount each year for inflation. The most
current estimated decommissioning cost of the System's ownership share is
approximately $188.9 million in year-end 1995 dollars.
MYAPC estimates the cost of the System's ownership share of decommissioning
MY at $70.7 million in December 31, 1995 dollars based on a study completed in
July 1993. VYNPC estimates the cost of the System's ownership share of
decommissioning VY at $55.6 million in December 31, 1995 dollars based on a
study completed in March 1994.
NONUTILITY BUSINESSES
PRIVATE POWER DEVELOPMENT
The System participates as a developer and investor in domestic and
international private power projects through its subsidiary, Charter Oak.
Management currently does not permit Charter Oak to invest in facilities which
are located within the System service territory or sell electric output to any
of the System electric utility companies. Charter Oak is investing primarily in
projects outside of the United States.
Charter Oak owns, through wholly owned special-purpose subsidiaries, a 10
percent equity interest in a 220-MW natural gas-fired combined-cycle
cogeneration QF in Texas, a 56 MW interest in a 1,875-MW natural gas-fired
cogeneration facility in the United Kingdom and a 33 percent equity interest in
a 114-MW natural gas-fired project in Argentina.
Charter Oak is currently participating in the development of projects in
Latin America and the Pacific Rim. Specifically, Charter Oak is engaged in
constructing a 168-MW natural gas-fired project located in Argentina and a 20-MW
wind-power project in Costa Rica.
Although Charter Oak has no full-time employees, 14 NUSCO employees are
dedicated to Charter Oak activities on a full-time basis. Other NUSCO employees
provide services as required. NU's Board of Trustees has authorized investments
up to $200 million in Charter Oak. NU's total investment in Charter Oak was
approximately $64 million as of December 31, 1995. NU currently is committed to
invest or guarantee up to an additional $75 million in Charter Oak to fund
completion of the natural gas-fired project in Argentina and the wind-power
project in Costa Rica. To date, Charter Oak's consolidated revenues and net
income (loss) have not been material to the System.
ENERGY MANAGEMENT SERVICES
In 1990, NU organized a subsidiary corporation, HEC, to acquire
substantially all of the assets and personnel of a nonaffiliated energy
management services company. In general, HEC contracts to reduce its customers'
energy costs and/or conserve energy and other resources. HEC also provides DSM
consulting services to utilities and others. HEC's energy management and
consulting services previously had been directed primarily to the commercial,
industrial and institutional markets and utilities in New England and New York,
but, on July 19, 1995, HEC received expanded authority from the SEC to perform
energy management services without geographical limitation. NU's aggregate
equity investment in HEC was approximately $4 million through December 31, 1995.
REGULATORY AND ENVIRONMENTAL MATTERS
ENVIRONMENTAL REGULATION
GENERAL
The System and its subsidiaries are subject to federal, state and local
regulations with respect to water quality, air quality, toxic substances,
hazardous waste and other environmental matters. Similarly, the System's major
generation and transmission facilities may not be constructed or significantly
modified without a review by the applicable state agency of the environmental
impact of the proposed construction or modification. Compliance with
environmental laws and regulations, particularly air and water pollution control
requirements, may limit operations or require substantial investments in new
equipment at existing facilities. See "Resource Plans" for a discussion of the
System's construction plans.
SURFACE WATER QUALITY REQUIREMENTS
The federal Clean Water Act (CWA) requires every "point source" discharger
of pollutants into navigable waters to obtain a National Pollutant Discharge
Elimination System (NPDES) permit from the United States Environmental
Protection Agency (EPA) or state environmental agency specifying the allowable
quantity and characteristics of its effluent. System facilities have all
required NPDES permits in effect. Compliance with NPDES and state water
discharge permits has necessitated substantial expenditures and may require
further expenditures because of additional requirements that could be imposed in
the future.
On October 13, 1995, the Connecticut Department of Environmental Protection
(CDEP) issued a consent order to CL&P and the Long Island Lighting Company
(LILCO) requiring those companies to address leaks from the Long Island cable,
which is jointly owned by CL&P and LILCO. The order requires CL&P and LILCO to
study and propose alternatives for prevention, detection and mitigation of oil
leaks and to evaluate the ecological effects of leaks on the environment.
Alternatives to be studied include replacement of the cable and the dielectric
fluid currently used in the cable. The System will incur additional costs to
meet the requirements of the order and to meet any subsequent CDEP requirements
resulting from the studies under the consent order, which costs cannot be
estimated at this time. Management also cannot determine at this time whether
long-term future operation of the cable will remain cost effective subsequent to
any additional CDEP requirements.
In early February 1996, the CDEP notified CL&P and LILCO that it desired to
amend the consent order to cover transformer oil that was inadvertently
introduced into the cable by LILCO at its pumping station on Long Island. LILCO
is in the process of removing the transformer oil from the cable and has
instituted safeguards to prevent it from happening again. The System does not
believe that any of the transformer oil reached the part of the cable in
Connecticut.
The United States Attorney's Office in New Haven, Connecticut has commenced
an investigation and has issued subpoenas to CL&P, NU, NUSCO, CONVEX and LILCO
seeking documents relating to operation and maintenance of and recent leaks from
the Long Island cable. Since the investigation is in its preliminary stages and
the government has not revealed the scope of its investigation, management
cannot evaluate the likelihood of a criminal proceeding being initiated at this
time. However, management is aware of nothing that would suggest that any
System company, officer or employee has engaged in conduct that would warrant
such a proceeding.
The CWA requires EPA and state permitting authorities to approve the
cooling water intake structure design and thermal discharge of steam-electric
generating plants. All System steam-electric plants have received these
approvals. In the renewed NPDES discharge permit for the three Millstone
nuclear units, issued in 1992, CDEP included a condition requiring a feasibility
study of various structural or operational modifications of the cooling water
intake system to reduce the entrainment of winter flounder larvae. The report,
submitted in 1993, concluded that the mitigation alternatives examined were not
technically feasible or cost effective. The CDEP found that the current cooling
water intake represents the "best available technology" for minimizing adverse
impacts, but required NNECO to schedule refueling outages, when possible, to
coincide with high larval winter flounder abundance at the intakes and to report
the results of such efforts. The NPDES permit further states that additional
evidence may result in the agency imposing more stringent requirements.
Merrimack Station's NPDES permit requires site work to isolate adjacent
wetlands from the station's waste water system. Plans have been approved by the
New Hampshire Department of Environmental Services (NHDES), and PSNH is now
preparing a permit application to begin construction.
The Merrimack permit also requires PSNH to perform further biological
studies because significant numbers of migratory fish are being restored to
lower reaches of the Merrimack River. These studies are in progress and initial
results will be reported in 1996. Preliminary findings from these studies
indicate that Merrimack Station's once-through cooling system does not interfere
with the establishment of a balanced aquatic community. However, if NHDES
determines there is interference, PSNH could be required to construct a
partially enclosed cooling water system for Merrimack Station. The amount of
capital expenditures relating to the foregoing cannot be determined at this
time. However, if such expenditures were required, they would likely be
substantial and a reduction of Merrimack Station's net generation capability
could result.
The ultimate cost impact of the CWA and state water quality regulations on
the System cannot be estimated because of uncertainties such as the impact of
changes to the effluent guidelines or water quality standards. Additional
modifications, in some cases extensive and involving substantial cost, may
ultimately be required for some or all of the System's generating facilities.
In response to several major oil spills in recent years, Congress passed
the Oil Pollution Act of 1990 (OPA 90). OPA 90 sets out the requirements for
facility response plans and periodic inspections of spill response equipment at
facilities that can cause substantial harm to the environment by discharging oil
or hazardous substances into the navigable waters of the United States and onto
adjoining shorelines. Pursuant to OPA 90, EPA has authority to regulate
nontransportation-related fixed onshore facilities and the United States Coast
Guard (Coast Guard) has the authority to regulate transportation-related onshore
facilities. Response plans were filed for all System facilities believed to be
subject to this requirement. The Coast Guard has completed its final review
process and issued its approval of these plans. The EPA has issued its approval
of all facility plans except PSNH's Schiller Station, where the EPA has
authorized continued operation pending its final plan approval.
OPA 90 includes limits on the liability that may be imposed on persons
deemed responsible for release of oil. The limits do not apply to oil spills
caused by negligence or violation of laws or regulations. OPA 90 also does not
preempt state laws regarding liability for oil spills. In general, the laws of
the states in which the System owns facilities and through which the System
transports oil could be interpreted to impose strict liability for the cost of
remediating releases of oil and for damages caused by releases. The System and
its principal oil transporter currently carry a total of $900 million in
insurance coverage for oil spills.
AIR QUALITY REQUIREMENTS
The Clean Air Act Amendments of 1990 (CAAA) made extensive revisions and
additions to the federal Clean Air Act and imposed many stringent new
requirements on air emissions sources. The CAAA contains provisions that
further regulate emissions of sulfur dioxide (SO2) and nitrogen oxide (NOX) for
the purpose of controlling acid rain and ground level ozone. In addition, the
CAAA addresses the control of toxic air pollutants. Installation of continuous
emissions monitors (CEMs) and expanded permitting provisions are also included.
Existing and future federal and state air quality regulations could hinder
or possibly preclude the construction of new, or the modification of existing,
fossil units in the System's service area and could raise the capital and
operating cost of existing units. The ultimate cost impact of these
requirements on the System cannot be estimated because of uncertainties about
how EPA and the states will implement various requirements of the CAAA.
Nitrogen Oxide. Title I of the CAAA identifies NOX emissions as a
precursor of ambient ozone. The Northeastern region of the United States,
including Connecticut, Massachusetts and New Hampshire, currently exceeds the
ambient air quality standard for ozone. Pursuant to the CAAA, states exceeding
the ozone standard must implement plans to address ozone nonattainment. All
three states have issued final regulations to implement Phase I reduction
requirements, and the System has met these requirements. Compliance with Phase I
requirements has cost the System a total of approximately $41 million: $10
million for CL&P, $27 million for PSNH, $1 million for WMECO and $3 million for
HWP. Compliance has been achieved using a combination of currently available
technology, combustion efficiency improvements and emissions trading.
Compliance costs for Phase II, effective in 1999, are expected to result in an
additional cost of $10 to $15 million.
In December 1993, PSNH reached a revised agreement regarding NOX emissions
with various environmental groups and the New Hampshire Business and Industrial
Association (NHBIA). The agreement provides for aggressive unit-specific NOX
emission rate limits for PSNH's generating facilities, effective May 31, 1995.
The agreement relieves PSNH of a prior commitment to retire or repower Merrimack
Unit 2 by May 15, 1999. More stringent emission rate limits equivalent to the
range of 0.1 to 0.4 pounds of NOX per million Btu, however, are required for the
unit by that date. In May 1994, NHDES promulgated the New Hampshire NOX
reduction rule in accordance with the terms of the NHBIA Agreement. PSNH has
complied with the requirements of this rule by installing controls on the units.
The additional requirements for Merrimack Unit 2 for 1999 may be attained
through increased catalytic reduction of NOX at an additional estimated cost of
$5 to $7 million.
Sulfur Dioxide. The CAAA mandates reductions in SO2 emissions to control
acid rain. These reductions are to occur in two phases. First, certain high
SO2 emitting plants were required to reduce their emissions beginning January 1,
1995. All Phase I units will be allocated SO2 allowances for the period 1995-
1999. These allowances are freely tradable. One allowance entitles a source to
emit one ton of SO2 in a year. No unit may emit more SO2 in a particular year
than the amount for which it has allowances. The only System units subject to
the Phase I reduction requirements are PSNH's Merrimack Units 1 and 2.
Additionally, Newington Station in New Hampshire and Mt. Tom Station in
Massachusetts are conditional Phase I units. This means that the System can
decide to include these plants as Phase I units during any year and obtain
allowances for that year. The System has included these plants as Phase I units
for 1995.
On January 1, 2000, the start of Phase II, a nationwide cap of 8.9 million
tons per year of utility SO2 emissions will be imposed and existing units will
be granted allowances to emit SO2. Most of the System companies' allocated
allowances will substantially exceed its expected SO2 emissions for 2000 and
subsequent years, except for PSNH, which expects to purchase additional SO2
allowances from either affiliated or nonaffilated companies.
New Hampshire and Massachusetts have each instituted acid rain control laws
that limit SO2 emissions. The System is meeting the new SO2 limitations by
using natural gas and lower sulfur coal in its plants. Under the existing fuel
adjustment clauses in Connecticut, New Hampshire and Massachusetts, the System
should be able to recover the additional fuel costs of compliance with the CAAA
and state laws from its customers. For more information regarding a prudence
hearing in New Hampshire on costs associated with PSNH's capital expenditures to
comply with Phase I reduction requirements, see "Rates-New Hampshire Retail
Rates-FPPAC."
Management does not believe that the acid rain provisions of the CAAA will
have a significant impact on the System's overall costs or rates due to the very
strict limits on SO2 emissions already imposed by Connecticut, New Hampshire and
Massachusetts. In addition, management believes that Title IV of the CAAA (acid
rain) requirements for NOX limitations will not have a significant impact on
System costs due to the more stringent NOX limitations resulting from Title I of
the CAAA discussed above.
EPA, Connecticut, New Hampshire and Massachusetts regulations also include
other air quality standards, emission standards and monitoring and testing and
reporting requirements that apply to the System's generating stations. They
require that new or modified fossil fuel-fired electric generating units operate
within stringent emission limits. The System could incur additional costs to
meet these requirements, which costs cannot be estimated at this time.
Air Toxics. Title III of the CAAA directed EPA to study air toxics and
mercury emissions from fossil fired steam electric generation units to determine
if they should be regulated. EPA exempted these plants from the hazardous air
pollutant program pending completion of the studies, expected this year. Should
EPA determine that such generating plants' emissions must be controlled to the
same extent as emissions from other sources under Title III, the System could be
required to make substantial capital expenditures to upgrade or replace
pollution control equipment, but the amount of these expenditures cannot be
readily estimated.
TOXIC SUBSTANCES AND HAZARDOUS WASTE REGULATIONS
PCBs. Under the federal Toxic Substances Control Act of 1976 (TSCA), EPA
has issued regulations that control the use and disposal of polychlorinated
biphenyls (PCBs). PCBs had been widely used as insulating fluids in many
electric utility transformers and capacitors before TSCA prohibited any further
manufacture of such PCB equipment. System companies have taken numerous steps
to comply with these regulations and have incurred increased costs for disposal
of used fluids and equipment that are subject to the regulations.
In general, the System sends fluids with concentrations of PCBs equal to or
higher than 500 ppm but lower than 8,500 ppm to an unaffiliated company to
dispose of using a chemical treatment process. Electrical capacitors that
contain PCB fluid are sent off-site to dispose of through burning in high
temperature incinerators approved by EPA. The System disposes of solid wastes
containing PCBs in secure chemical waste landfills.
Asbestos. Federal, Connecticut, New Hampshire and Massachusetts asbestos
regulations have required the System to expend significant sums on removal of
asbestos, including measures to protect the health of workers and the general
public and to properly dispose of asbestos wastes. Asbestos costs for the
System are expected to be approximately $2 million in 1996. These costs are
generally included in capital budgets.
RCRA. Under the federal Resource Conservation and Recovery Act of 1976, as
amended (RCRA), the generation, transportation, treatment, storage and disposal
of hazardous wastes are subject to EPA regulations. Connecticut, New Hampshire
and Massachusetts have adopted state regulations that parallel RCRA regulations
but in some cases are more stringent. The procedures by which System companies
handle, store, treat and dispose of hazardous wastes are regularly revised,
where necessary, to comply with these regulations.
CL&P is expecting that EPA and CDEP will approve clean closure for CL&P's
Montville and Middletown Stations' former surface impoundments. For the Norwalk
Harbor and Devon sites, CL&P has applied for post-closure permits and is
awaiting approval from EPA and CDEP. The System estimates that it will incur
approximately $2.1 million in total costs for 30-year maintenance monitoring,
and closure of the container storage areas and surface impoundments for these
sites in the future, but the ultimate amount will depend on EPA's final
disposition.
Hazardous Waste Liability. As many other industrial companies have done in
the past, System companies have disposed of residues from operations by
depositing or burying such materials on-site or disposing of them at off-site
landfills or facilities. Typical materials disposed of include coal
gasification waste, fuel oils, gasoline and other hazardous materials that might
contain PCBs. It has since been determined that deposited or buried wastes,
under certain circumstances, could cause groundwater contamination or create
other environmental risks. The System has recorded a liability for what it
believes is, based upon currently available information, its estimated
environmental remediation costs for waste disposal sites for which the System
companies expect to bear legal liability, and continues to evaluate the
environmental impact of its former disposal practices. Under federal and state
law, government agencies and private parties can attempt to impose liability on
System companies for such past disposal. As of December 31, 1995, the liability
recorded by the System for its estimated environmental remediation costs for
known sites needing remediation including those sites described below, exclusive
of recoveries from insurance or third parties, was approximately $15 million.
This amount represents the minimum reserve required by the Financial Accounting
Standards Board. These costs could be significantly higher if alternative
remedies become necessary.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, commonly known as Superfund, EPA has the
authority to clean up or order cleanup of hazardous waste sites and to impose
the cleanup costs on parties deemed responsible for the hazardous waste
activities on the sites. Responsible parties include the current owner of a
site, past owners of a site at the time of waste disposal, waste transporters
and waste generators. It is EPA's position that all responsible parties are
jointly and severally liable, so that any single responsible party can be
required to pay the entire costs of cleaning up the site. As a practical
matter, however, the costs of cleanup are usually allocated by agreement of the
parties, or by the courts on an equitable basis among the parties deemed
responsible, and several federal appellate court decisions have rejected EPA's
position on strict joint and several liability. Superfund also contains
provisions that require System companies to report releases of specified
quantities of hazardous materials and require notification of known hazardous
waste disposal sites. System companies are in compliance with these reporting
and notification requirements.
The System currently is involved in two Superfund sites in Connecticut, one
in Kentucky and two in New Hampshire. The level of study of each site and the
information about the waste contributed to the site by the System and other
parties differs from site to site. Where reliable information is available that
permits the System to make a reasonable estimate of the expected total costs of
remedial action and/or the System's likely share of remediation costs for a
particular site, those cost estimates are provided below. All cost estimates
were made in accordance with Financial Accounting Standards Board standards
where remediation costs were probable and reasonably estimable. Any estimated
costs disclosed for cleaning up the sites discussed below were determined
without consideration of possible recoveries from third parties, including
insurance recoveries. Where the System has not accrued a liability, the costs
either were not material or there was insufficient information to accurately
assess the System's exposure.
A coalition of major parties had previously joined "Northeast Utilities
(Connecticut Light and Power)" (NU (CL&P))as defendants in connection with the
Beacon Heights and Laurel Park Superfund sites in Connecticut. In 1993, the
United States District Court for the District of Connecticut dismissed the
coalitions' claims against NU (CL&P) and a number of other defendants. The
coalitions, however, have appealed the district court's decision, which is
currently pending.
EPA has issued a notice of potential liability to NNECO and CYAPC as
potentially responsible parties (PRPs) at the Maxey Flats nuclear waste disposal
site in Fleming County, Kentucky. The System had sent a substantial volume of
LLRW from Millstone 1, Millstone 2 and CY to this site. PRPs that are members
of the Maxey Flats PRP Steering Committee, including System companies, and
several federal government agencies, including DOE and the Department of Defense
as well as the Commonwealth of Kentucky have reached a tentative settlement with
EPA embodied in a consent decree. On February 8, 1996, this consent decree was
filed by the United States Department of Justice in a federal district court in
Kentucky for approval. NUSCO, on behalf of NNECO and CYAPC, signed the consent
decree in March 1995. The System has recorded a liability for future remediation
costs for this site based on its best estimate of its share of ultimate
remediation costs under the tentative agreement. The System's future liability
at the site has been assessed at slightly over $1 million.
PSNH has committed approximately $280,000 as its share to clean up one
municipal landfill Superfund site in Dover, New Hampshire and has been assessed
a de minimus share at another such site in North Hampton, New Hampshire. Some
additional costs may be incurred at these sites, but they are not expected to be
significant.
As discussed below, in addition to the remediation efforts for the above-
mentioned Superfund sites, the System has been named as a PRP and is monitoring
developments in connection with several state environmental actions.
In 1987, CDEP published a list of 567 hazardous waste disposal sites in
Connecticut. The System owns two sites on this list, which are also listed on
the EPA's list of hazardous waste sites. The System has spent approximately
$700,000, as of December 31, 1995, completing investigations at these sites.
Both sites were formerly used by CL&P predecessor companies for the manufacture
of coal gas (also known as town gas sites) from the late 1800s to the 1950s.
This process resulted in the production of coal tar and creosote residues and
other byproducts, which, when not sold for other industrial or commercial uses,
were frequently deposited on or near the production facilities. Site
investigations are being carried out to gain an understanding of the
environmental and health risks of these sites. Assessments of the need for site
remediation is ongoing. The level of future cleanup will be established in
cooperation with CDEP, which has recently issued cleanup standards for soil and
groundwater.
One of the sites is a 25.8-acre site located in the south end of Stamford,
Connecticut. Site investigations have located coal tar deposits covering
approximately 5.5 acres and having a volume of approximately 45,000 cubic yards.
A final risk assessment report for the site was completed in January 1994.
Several remedial options have been evaluated to clean up the site, if necessary.
The estimated costs of remediation and institutional controls range from $5 to
$13 million.
The second site is a 3.5-acre former coal gasification facility that
currently serves as an active substation in Rockville, Connecticut. Site
investigations have located creosote and other polyaromatic hydrocarbon
contaminants which may require remediation. Several options are being evaluated
to remediate the site if necessary. To further evaluate the health risks at the
site, additional studies are being planned in coordination with the CDEP during
1996.
As part of the 1989 divestiture of CL&P's gas business, site investigations
were performed for properties that were transferred to Yankee Gas Services
Company (Yankee Gas). CL&P agreed to accept liability for any required cleanup
for the three sites it retained. These three sites include Stamford and
Rockville (discussed above) and Torrington, Connecticut. At the Torrington
site, investigations have been completed and the cost of any remediation, if
necessary, is not expected to be material. CL&P and Yankee Gas also share a
site in Winsted, Connecticut and any liability for required cleanup there. CL&P
and Yankee Gas will share the costs of cleanup of sites formerly used in CL&P's
gas business but not currently owned by either of them.
PSNH contacted NHDES in December 1993 concerning possible coal tar
contamination in Laconia, New Hampshire in Lake Opechee and the Winnipesaukee
River near an area where PSNH and a second PRP formerly owned and operated a
coal gasification plant from the late 1800's to the 1950's. PSNH completed a
preliminary site investigation in December 1994. Results indicate that off-site
coal tar/creosote contamination is present in the adjacent water body. A
comprehensive site investigation is planned for 1996. The cost of remediation,
if necessary, at this site is estimated at $5 to 8 million. PSNH has entered
into an interim cost sharing agreement with the other PRP wherein the other PRP
will bear 25 percent of this cost. A second coal gasification facility formerly
owned and operated by a predecessor company to PSNH is located in Keene, New
Hampshire. The NHDES has been notified of the presence of coal tar
contamination and further site investigations are planned in 1996. Additional
New Hampshire sites include several former manufactured gasification facilities,
an inactive ash landfill located at Dover Point and a municipal landfill in
Peterborough. Historic reviews of these sites are ongoing. PSNH's liability at
these sites cannot be estimated at this time.
In Massachusetts, System companies have been designated by the
Massachusetts Department of Environmental Protection (MDEP) as PRPs for twelve
sites under MDEP's hazardous waste and spill remediation program. At two sites,
the System may incur remediation costs that may be material to HWP depending on
the remediation requirements. At one site, HWP has been identified by MDEP as
one of three PRPs in a coal tar site in Holyoke, Massachusetts. HWP owned and
operated the Holyoke Gas Works from 1859 to 1902. The site is located on the
east side of Holyoke, adjacent to the Connecticut River and immediately
downstream of HWP's Hadley Falls Station. MDEP has designated both the land and
river deposit areas as priority waste disposal sites. Due to the presence of
tar patches in the vicinity of the spawning habitat of the shortnose sturgeon
(SNS)-an endangered species-the National Oceanographic and Atmospheric
Administration (NOAA) and National Marine Fisheries Service have taken an active
role in overseeing site activities. Both MDEP and NOAA have indicated they may
require the removal of tar deposits from the vicinity of the SNS spawning
habitat. To date, HWP has spent approximately $405,000 for river studies and
construction costs for an oil containment boom to prevent leaching hydrocarbons
from entering the Hadley Falls tailrace and the Connecticut River. The total
estimated costs for remediation of this site range from $2 to $3 million. The
second site is a former manufactured gas plant facility in Easthampton,
Massachusetts, owned by WMECO. The site is currently undergoing investigations
both on-site and off-site to identify the extent of coal tar deposits.
In the past, the System has received other claims from government agencies
and third parties for the cost of remediating sites not currently owned by the
System but affected by past System disposal activities and may receive more such
claims in the future. The System expects that the costs of resolving claims for
remediating sites about which it has been notified will not be material, but
cannot estimate the costs with respect to sites about which it has not been
notified. If the System, regulatory agencies or courts determine that remedial
actions must be taken in relation to past disposal practices on property owned
or used for disposal by the System in the past, the System could incur
substantial costs.
ELECTRIC AND MAGNETIC FIELDS
In recent years, published reports have discussed the possibility of
adverse health effects from electric and magnetic fields (EMF) associated with
electric transmission and distribution facilities and appliances and wiring in
buildings and homes. Most researchers, as well as scientific review panels
considering all significant EMF epidemiological and laboratory research to date,
agree that current information remains inconclusive, inconsistent and
insufficient for risk assessment of EMF exposures. Based on this information
management does not believe that a causal relationship has been established or
that significant capital expenditures are appropriate to minimize
unsubstantiated risks. NU is closely monitoring research and government policy
developments.
The System supports further research into the subject and is participating
in the funding of the National EMF Research and Public Information Dissemination
Program and other industry-sponsored studies. If further investigation were to
demonstrate that the present electricity delivery system is contributing to
increased risk of cancer or other health problems, the industry could be faced
with the difficult problem of delivering reliable electric service in a cost-
effective manner while managing EMF exposures. In addition, if the courts were
to conclude that individuals have been harmed and that utilities are liable for
damages, the potential monetary exposure for all utilities, including the System
companies, could be enormous. Without definitive scientific evidence of a
causal relationship between EMF and health effects, and without reliable
information about the kinds of changes in utilities' transmission and
distribution systems that might be needed to address the problem, if one is
found, no estimates of the cost impacts of remedial actions and liability awards
are available.
The Connecticut Interagency EMF Task Force (Task Force) provided a report
to the state legislature in January 1995. The Task Force advocates a policy of
"voluntary exposure control," which involves providing people with information
to enable them to make individual decisions about EMF exposure. Neither the
Task Force, nor any Connecticut state agency, has recommended changes to the
existing electrical supply system. The Connecticut Siting Council (Siting
Council) previously adopted a set of EMF "best management practices," which are
now considered in the justification, siting and design of new transmission lines
and substations. The Siting Council also opened a generic docket in 1994 to
conduct a comparative life-cycle cost analysis of overhead and underground
transmission lines, which was mandated by Connecticut PA-176. This act was
adopted by the General Assembly in part due to public EMF concerns. The Siting
Council hired consultants in 1995 to assist with this analysis. A decision is
expected in 1996.
EMF has become increasingly important as a factor in facility siting
decisions in many states. Several bills involving EMF were introduced in
Massachusetts in 1995, with no action taken. These bills were similar to ones
introduced in previous years, on which no action was taken. WMECO supported one
of the bills, which would have authorized a special commission to investigate
health effects, if any, of EMF, and conduct EMF measurements in schools and
daycare centers near transmission lines. The Connecticut General Assembly
likewise took no action on a bill introduced in 1995 concerning electromagnetic
sources near schools.
CL&P has been the focus of media reports charging that EMF associated with
a CL&P substation and related distribution lines in Guilford, Connecticut, are
linked with various cancers and other illnesses in several nearby residents.
See "Item 3. Legal Proceedings," for information about two suits brought by
plaintiffs who now live or formerly lived near that substation.
FERC HYDRO PROJECT LICENSING
Federal Power Act licenses may be issued for hydroelectric projects for
terms of up to 50 years as determined by FERC. Upon the expiration of a
license, any hydroelectric project so licensed is subject to reissuance by FERC
to the existing licensee or to others upon payment to the licensee of the lesser
of fair value or the net investment in the project plus severance damages less
certain amounts earned by the licensee in excess of a reasonable rate of return.
The System companies hold FERC licenses for 19 hydroelectric projects
aggregating approximately 1,142 MW of capacity, located in Connecticut,
Massachusetts and New Hampshire. Four of the System licenses expired on
December 31, 1993 (WMECO's Gardners Falls project and PSNH's Ayers Island, Smith
and Gorham projects). On August 1, 1994, FERC issued new 30-year licenses to
PSNH for the continued operation of the Smith and Gorham projects. Although
rehearing requests on these new licenses are pending with FERC, it is
anticipated that it will be economic for PSNH to continue operation of these
projects. FERC has issued annual licenses allowing the Gardners Falls and Ayers
Island projects to continue operations pending completion of the relicensing
process. It is not known whether FERC will require any substantial changes in
the operation or design of these two projects if and when it issues new
licenses.
The license for HWP's Holyoke Project expires in late 1999. The
relicensing process for this project began in 1994. On November 29, 1995, the
Holyoke Gas and Electric Department initiated the process of applying to FERC
for the license on the Holyoke Project. Absent significant differences in
competing license applications, the Federal Power Act gives a preference to an
existing licensee for the new license. Applications must be filed with FERC by
August 1997.
CL&P's FERC licenses for operation of the Falls Village and Housatonic
Hydro Projects expire in 2001. The relicensing process for these projects will
begin later in 1996.
FERC has issued a notice indicating that it has authority to order project
licensees to decommission projects that are no longer economic to operate. FERC
has not required any such project decommissioning to date; the potential costs
of decommissioning a project, however, could be substantial. It is likely that
this FERC decision will be appealed at an appropriate time.
EMPLOYEES
As of December 31, 1995, the System companies had 9,051 full and part-time
employees on their payrolls, of which 2,285 were employed by CL&P, 1,339 by
PSNH, 533 by WMECO, 101 by HWP, 1,333 by NNECO, 2,589 by NUSCO and 871 by
NAESCO. NU, NAEC and Charter Oak have no employees.
In 1995 and early 1996, the System implemented a program to reduce the
nuclear organization's total workforce by approximately 220 employees, which
included both early retirements and involuntary terminations. The pretax cost
of the program was approximately $8.7 million.
Approximately 2,275 employees of CL&P, PSNH, WMECO, NAESCO and HWP are
covered by nine union agreements, which expire between May 31, 1996 and October
1, 1998. Approximately 370 union employees of WMECO and HWP returned to work on
September 1, 1995, ending a strike that began on May 25, 1995.
ITEM 2. Properties
The physical properties of the System are owned or leased by subsidiaries
of NU. CL&P's principal plants and other properties are located either on land
which is owned in fee or on land, as to which CL&P owns perpetual occupancy
rights adequate to exclude all parties except possibly state and federal
governments, which has been reclaimed and filled pursuant to permits issued by
the United States Army Corps of Engineers. The principal properties of PSNH
are held by it in fee. In addition, PSNH leases space in an office building
under a 30-year lease expiring in 2002. WMECO's principal plants and a major
portion of its other properties are owned in fee, although one hydroelectric
plant is leased. NAEC owns a 35.98 percent interest in Seabrook 1 and
approximately 719 acres of exclusion area land located around the unit. In
addition, CL&P, PSNH, and WMECO have certain substation equipment, data
processing equipment, nuclear fuel, nuclear control room simulators, vehicles,
and office space that are leased. With few exceptions, the System companies'
lines are located on or under streets or highways, or on properties either
owned or leased, or in which the company has appropriate rights, easements, or
permits from the owners.
CL&P's properties are subject to the lien of its first mortgage indenture.
PSNH's properties are subject to the lien of its first mortgage indenture. In
addition, any PSNH outstanding revolving credit agreement borrowings are
secured by a second lien, junior to the lien of the first mortgage indenture,
on PSNH's property located in New Hampshire. WMECO's properties are subject to
the lien of its first mortgage indenture. NAEC's First Mortgage Bonds are
secured by a lien on the Seabrook 1 interest described above, and all rights of
NAEC under the Seabrook Power Contract. In addition, CL&P's and WMECO's
interests in Millstone 1 are subject to second liens for the benefit of lenders
under agreements related to pollution control revenue bonds. Various of these
properties are also subject to minor encumbrances which do not substantially
impair the usefulness of the properties to the owning company.
The System companies' and NAEC's properties are well maintained and are in
good operating condition.
Transmission and Distribution System
At December 31, 1995, the System companies owned 103 transmission and 427
distribution substations that had an aggregate transformer capacity of
25,000,646 kilovoltamperes (kVa) and 9,134,229 kVa, respectively; 3,057 circuit
miles of overhead transmission lines ranging from 69 kilovolt (kV) to 345 kV,
and 192 cable miles of underground transmission lines ranging from 69 kV to 138
kV; 32,593 pole miles of overhead and 1,912 conduit bank miles of underground
distribution lines; and 391,562 line transformers in service with an aggregate
capacity of 16,422,713 kVa.
Electric Generating Plants
As of December 31, 1995, the electric generating plants of the System
companies and NAEC, and the System companies' entitlements in the generating
plants of the three operating Yankee regional nuclear generating companies were
as follows (See "Item 1. Business - Electric Operations, Nuclear Generation" for
information on ownership and operating results for the year.):
Claimed
Year Capability*
Owner Plant Name (Location) Type Installed (kilowatts)
- ----- --------------------- ---- --------- -----------
CL&P Millstone (Waterford, CT)
Unit 1 Nuclear 1970 524,637
Unit 2 Nuclear 1975 708,345
Unit 3 Nuclear 1986 606,453
Seabrook (Seabrook, NH) Nuclear 1990 47,013
CT Yankee (Haddam, CT) Nuclear 1968 201,204
ME Yankee (Wiscasset, ME) Nuclear 1972 94,832
VT Yankee (Vernon, VT) Nuclear 1972 45,353
---------
Total Nuclear-Steam Plants (7 units) 2,227,837
Total Fossil-Steam Plants (9 units) 1954-73 1,776,400
Total Hydro-Conventional (25 units) 1903-55 98,930
Total Hydro-Pumped Storage (7 units) 1928-73 905,150
Total Internal Combustion (15 units) 1966-86 390,450
---------
Total CL&P Generating Plant (63 units) 5,398,767
=========
PSNH Millstone (Waterford, CT)
Unit 3 Nuclear 1986 32,624
CT Yankee (Haddam, CT) Nuclear 1968 29,160
ME Yankee (Wiscasset, ME) Nuclear 1972 39,514
VT Yankee (Vernon, VT) Nuclear 1972 19,068
---------
Total Nuclear-Steam Plants (4 units) 120,366
Total Fossil-Steam Plants (7 units) 1952-78 1,004,065
Total Hydro-Conventional (20 units) 1917-83 67,510
Total Internal Combustion (5 units) 1968-70 108,450
---------
Total PSNH Generating Plant (36 units) 1,300,391
=========
WMECO Millstone (Waterford, CT)
Unit 1 Nuclear 1970 123,063
Unit 2 Nuclear 1975 166,155
Unit 3 Nuclear 1986 140,216
CT Yankee (Haddam, CT) Nuclear 1968 55,404
ME Yankee (Wiscasset, ME) Nuclear 1972 23,708
VT Yankee (Vernon, VT) Nuclear 1972 11,948
---------
Total Nuclear-Steam Plants (6 units) 520,494
Total Fossil-Steam Plants (1 unit) 1957 107,000
Total Hydro-Conventional (27 units) 1904-34 110,910**
Total Hydro-Pumped Storage (4 units) 1972-73 205,200
Total Internal Combustion (3 units) 1968-69 63,500
---------
Total WMECO Generating Plant(41 units) 1,007,104
=========
Claimed
Year Capability*
Owner Plant Name (Location) Type Installed (kilowatts)
- ----- --------------------- ---- --------- -----------
NAEC Seabrook (Seabrook, NH) Nuclear 1990 416,672
=========
HWP Mt. Tom (Holyoke, MA) Fossil-Steam 1960 147,000
Total Hydro-Conventional (15 units) 1905-83 43,560
---------
Total HWP Generating Plant (16 units) 190,560
=========
NU System Millstone (Waterford, CT)
Unit 1 Nuclear 1970 647,700
Unit 2 Nuclear 1975 874,500
Unit 3 Nuclear 1986 779,293
Seabrook (Seabrook, NH) Nuclear 1990 463,685
CT Yankee (Haddam, CT) Nuclear 1968 285,768
ME Yankee (Wiscasset, ME) Nuclear 1972 158,054
VT Yankee (Vernon, CT) Nuclear 1972 76,369
---------
Total Nuclear-Steam Plants (7 units) 3,285,369
Total Fossil-Steam Plants (18 units) 1952-78 3,034,465
Total Hydro-Conventional (87 units) 1903-83 320,910**
Total Hydro-Pumped Storage (7 units) 1928-73 1,110,350
Total Internal Combustion (23 units) 1966-86 562,400
---------
Total NU System Generating Plant
Including Regional Yankees (142 units) 8,313,494
=========
Excluding Regional Yankees (139 units) 7,793,303
=========
*Claimed capability represents winter ratings as of December 31, 1995.
**Total Hydro-Conventional capability includes the Cobble Mtn. plant's
33,960 kW which is leased from the City of Springfield, MA.
Franchises
NU's operating subsidiaries hold numerous franchises in the territories
served by them. For more information regarding recent judicial, regulatory and
legislative decisions and initiatives that may affect the terms under which the
System companies provide electric service in their franchised territories, see
"Connecticut Retail Rates - Electric Industry Restructuring in Connecticut;"
"New Hampshire Retail Rates - Electric Industry Restructuring in New Hampshire;"
and "Massachusetts Retail Rates - Electric Industry Restructuring in
Massachusetts," and "Item 3. Legal Proceedings."
CL&P. Subject to the power of alteration, amendment or repeal by the
General Assembly of Connecticut and subject to certain approvals, permits and
consents of public authority and others prescribed by statute, CL&P has, subject
to certain exceptions not deemed material, valid franchises free from burdensome
restrictions to sell electricity in the respective areas in which it is now
supplying such service.
In addition to the right to sell electricity as set forth above, the
franchises of CL&P include, among others, rights and powers to manufacture,
generate, purchase, transmit and distribute electricity, to sell electricity at
wholesale to other utility companies and municipalities and to erect and
maintain certain facilities on public highways and grounds, all subject to such
consents and approvals of public authority and others as may be required by law.
The franchises of CL&P include the power of eminent domain.
PSNH. Subject to the power of alteration, amendment or repeal by the
General Court (legislature) of the State of New Hampshire and subject to certain
approvals, permits and consents of public authority and others prescribed by
statute, PSNH has, subject to certain exceptions not deemed material, valid
franchises free from burdensome restrictions to sell electricity in the
respective areas in which it is now supplying such service.
In addition to the right to sell electricity as set forth above, the
franchises of PSNH include, among others, rights and powers to manufacture,
generate, purchase, transmit and distribute electricity, to sell electricity at
wholesale to other utility companies and municipalities and to erect and
maintain certain facilities on certain public highways and grounds, all subject
to such consents and approvals of public authority and others as may be required
by law. The franchises of PSNH include the power of eminent domain.
NNECO. Subject to the power of alteration, amendment or repeal by the
General Assembly of Connecticut and subject to certain approvals, permits and
consents of public authority and others prescribed by statute, NNECO has a valid
franchise free from burdensome restrictions to sell electricity to utility
companies doing an electric business in Connecticut and other states.
In addition to the right to sell electricity as set forth above, the
franchise of NNECO includes, among others, rights and powers to manufacture,
generate and transmit electricity, and to erect and maintain facilities on
certain public highways and grounds, all subject to such consents and approvals
of public authority and others as may be required by law.
WMECO. WMECO is authorized by its charter to conduct its electric business
in the territories served by it, and has locations in the public highways for
transmission and distribution lines. Such locations are granted pursuant to the
laws of Massachusetts by the Department of Public Works of Massachusetts or
local municipal authorities and are of unlimited duration, but the rights
thereby granted are not vested. Such locations are for specific lines only,
and, for extensions of lines in public highways, further similar locations must
be obtained from the Department of Public Works of Massachusetts or the local
municipal authorities. In addition, WMECO has been granted easements for its
lines in the Massachusetts Turnpike by the Massachusetts Turnpike Authority.
HWP and Holyoke Power and Electric Company (HP&E). HWP, and its wholly
owned subsidiary HP&E, are authorized by their charters to conduct their
businesses in the territories served by them. HWP's electric business is
subject to the restriction that sales be made by written contract in amounts of
not less than 100 horsepower, except for municipal customers in the counties of
Hampden or Hampshire, Massachusetts and except for customers who occupy property
in which HWP has a financial interest, by ownership or purchase money mortgage.
HWP also has certain dam and canal and related rights, all subject to such
consents and approvals of public authorities and others as may be required by
law. The two companies have locations in the public highways for their
transmission and distribution lines. Such locations are granted pursuant to the
laws of Massachusetts by the Department of Public Works of Massachusetts or
local municipal authorities and are of unlimited duration, but the rights
thereby granted are not vested. Such locations are for specific lines only and,
for extensions of lines in public highways, further similar locations must be
obtained from the Department of Public Works of Massachusetts or the local
municipal authorities. The two companies have no other utility franchises.
NAEC. NAEC is authorized by the NHPUC to own and operate its interest in
Seabrook 1.
ITEM 3. LEGAL PROCEEDINGS
1. Litigation Relating to Electric and Magnetic Fields
In December 1991, NU and CL&P were sued in Connecticut Superior Court by
Melissa Bullock, a nineteen-year old woman, and her mother, Suzanne Bullock,
both residents of 28 Meadow Street in Guilford, Connecticut. The plaintiffs
allege that they have lived in close proximity to CL&P's Meadow Street
substation and distribution lines since 1979. The suit claims that Melissa
Bullock suffers from a form of brain cancer and related physical and
psychological injuries, which were "brought on as a result of exposure in her
home to electromagnetic radiation generated by the defendants." Suzanne Bullock
claims various physical and psychological injuries, and a diminution in the
value of her property. The various counts against NU and CL&P include
allegations of negligence, product liability, nuisance, unfair trade practices
and strict liability. The suit seeks monetary damages, both compensatory and
punitive, in as-yet unspecified amounts, as well as an injunction to cease
emission of "dangerous levels" of electric and magnetic fields (EMF) into the
plaintiffs' home. The plaintiffs are represented in part by counsel with a
nationwide emphasis on similar litigation, and management considers this lawsuit
to be a test case. The case is presently in the pre-trial discovery process.
Trial is not anticipated until 1997.
In January 1992, a related lawsuit by two other plaintiffs also alleging
cancer from EMF emanating from CL&P's Meadow Street substation and distribution
lines was served on CL&P and NU. The plaintiffs are represented by the same
counsel as the Bullocks, and the claims are nearly identical to the Bullocks'
suit. This case is also in the pretrial discovery process; a trial date is not
yet known.
Management believes that the allegations that EMF caused or contributed to
the plaintiffs' illnesses are not supported by current scientific studies. NU
and CL&P intend to defend the lawsuits vigorously. For information on EMF
studies and state and federal initiatives, see "Item 1. Business - Regulatory
and Environmental Matters - Electric and Magnetic Fields."
2. Southeastern Connecticut Regional Resources Recovery Authority (SCRRRA) -
Application of the Municipal Rate
This matter involves three separate disputes over the rates that apply to
CL&P's purchases of the generation of the SCRRRA project in Preston,
Connecticut.
Municipal Rate Litigation: In 1990, CL&P initiated a challenge in federal
district court to the DPUC's approval of an electricity purchase contract for
the SCRRRA project under Connecticut's so-called "municipal rate law." Under
this law, CL&P would be required to purchase a portion of the electricity from
the resource recovery facility at a rate equal to the retail rate that CL&P
charges municipalities for electricity ("municipal rate"), which is
significantly higher than CL&P's avoided costs. The district court subsequently
ordered the parties to seek FERC's resolution of this matter. On January 11,
1995, FERC ruled that a state cannot require an electric utility to enter into a
contract paying a qualifying facility more than the utility's avoided costs. On
April 12, 1995, FERC denied several petitions for rehearing and reaffirmed its
ruling. SCRRRA and other participants in the FERC proceeding have appealed
FERC's ruling to the United States Court of Appeals. FERC moved to dismiss the
appeal on jurisdictional grounds, which motion is still pending. Should CL&P
ultimately prevail, the benefits to CL&P customers would be approximately $14.5
million.
Non-Participant Towns: CL&P also contested SCRRRA's claim that CL&P must
pay the municipal rate for the portion of the project's electricity that is
derived from the trash of towns that are not long-term participants in the
project. On April 20, 1994, the DPUC granted SCRRRA's request that the
municipal rate be made applicable to the non-participant's portion of
electricity.
On June 9, 1994, CL&P filed an appeal of the DPUC's ruling in the Hartford
Superior Court. A total of approximately $3.5 million is in dispute for the
years 1992 through 1994. The rate CL&P would be required to pay would also be
substantially higher in later years if the DPUC's ruling is upheld. On February
6, 1995, the Superior Court granted the SCRRRA's motion to stay this proceeding
until FERC issues a final decision on the municipal rate law. This case could
be moot once the FERC decision is final.
Excess Capacity: CL&P also contested SCRRRA's claim that CL&P must
purchase, at the applicable contract rates (each of which is higher than CL&P's
current avoided costs), any excess of the project's generation above 13.85 MW
per hour. On May 3, 1994, the Connecticut Appellate Court affirmed a Superior
Court ruling that the DPUC should decide this issue. On September 20, 1995, the
DPUC ruled that the project's electricity sales under the contract are limited
to no more than an average of 13.85 MW in any month. If the current level of
plant operations continues, CL&P's total savings would be in the range of $11.4
million (present worth basis) over the contract's entire term. In November
1995, CL&P and SCRRRA each filed appeals of the DPUC decision in Hartford
Superior Court. CL&P maintains that its purchase obligation is limited to 13.85
MW applied on an hourly basis (instead of on a monthly basis), while SCRRRA
maintains that CL&P's purchase obligation is not limited to 13.85 MW. These
appeals are now in the briefing stage, after which the case will wait assignment
to a judge for oral argument.
3. CL&P's 1992-1993 Retail Rate Case
In June 1993, the DPUC issued a decision approving a multi-year rate plan
for CL&P. Two appeals have been filed from the 1993 Decision, one by CL&P and
the other by the Connecticut Office of Consumer Counsel (OCC) and the City of
Hartford (City). The two appeals were consolidated, and in May 1994, the City's
appeal was dismissed by the Hartford Superior Court on jurisdictional grounds.
The City appealed that dismissal to the Connecticut Appellate Court. The
Supreme Court of Connecticut transferred the jurisdictional issue to itself and,
in August 1995, affirmed the lower court's dismissal of the City. The City
filed several post-decision motions, which the Supreme Court subsequently denied
on September 13, 1995. The OCC's appeal is now proceeding in Hartford Superior
Court. The other appeal, CL&P's challenge to certain aspects of the rate
decision, is also proceeding in Hartford Superior Court.
4. Connecticut DPUC - CL&P's Petition for Declaratory Ruling Regarding
Proposed Retail Sales of Electricity by Texas-Ohio Power, Inc. (TOP)
On August 3, 1995, CL&P filed a petition for declaratory rulings with the
DPUC to determine whether TOP, which built a small congeneration plant in
Manchester, Connecticut, can sell electricity from the facility to two CL&P
retail customers in Manchester. The plant is located on property leased from
one of the two customers. TOP expected to sell electricity to the other
customer, a manufacturing facility located on adjacent property, via a 500 foot
distribution line. TOP is a unit of Texas-Ohio Gas, a Houston-based gas
pipeline operator and marketer. CL&P's petition pointed to the fact that CL&P
has a franchised right to sell electricity in Manchester and TOP has not been
authorized to compete by engaging in retail electricity sales within that
territory. The petition also requested that the DPUC rule that, under
Connecticut statutes, as well as judicial and DPUC decisions interpreting
Connecticut law, TOP is prohibited from selling electricity at retail in
Connecticut.
On December 4, 1995, CL&P informed the DPUC that it had entered into a flex
rate contract with one of the two retail customers thereby retaining them as a
customer and mooting the need for the DPUC to decide the issue of sales by a
private power producer to an off-site customer. However, on December 6, 1995,
the DPUC acted on CL&P's original petition and issued a final decision denying
all of the specific declaratory rulings requested by CL&P. The DPUC concluded
that, because TOP's project would not use the public streets, it did not require
specific legislative authorization to make retail sales of electricity.
Further, the DPUC found that specific statutory prohibitions against selling
electricity at retail did not apply to TOP.
On January 17, 1996, CL&P appealed the DPUC's decision to the Hartford
Superior Court. CL&P's appeal asks the Court to reverse the DPUC decision,
insofar as it concludes that TOP is not prohibited from making retail electric
sales in Connecticut, and to vacate the portions of the decision that deal with
electricity sales to off-site customers. NU cannot predict the outcome of this
proceeding or its ultimate effect on the System.
5. FERC - PSNH Acquisition Case
In 1992, FERC's approval of NU's acquisition of PSNH was appealed to the
United States Court of Appeals for the First Circuit (Court). The Court
affirmed the decision approving the merger but ordered FERC to address whether,
if FERC had applied a more stringent "public interest standard" to the Seabrook
power contract, any modifications would have been necessary. Purporting to
apply this standard, FERC reaffirmed certain modifications to the contract,
interpreting the standard liberally to allow it to intervene in contracts on
behalf of non-parties to the contract. NU requested rehearing, arguing that
FERC had not applied the appropriate standard, which request was denied by FERC
in July 1994. In September 1994, NU filed a Petition for Review with the First
Circuit Court of Appeals concerning FERC's application of a "public interest
standard" to the Seabrook Power Contract. On May 23, 1995, the Court affirmed
FERC's order. The Court held that FERC had correctly applied the "public
interest standard" to modify terms of the contract. The order affects only
future changes to the Seabrook Power Contract, including changes to
decommissioning charges and rate of return.
6. New Hampshire Office of Consumer Advocate and the Campaign for Ratepayers
Rights Case
On November 1, 1995, the New Hampshire Office of Consumer Advocate (OCA)
and the Campaign for Ratepayers Rights filed suit in Superior Court against the
NHPUC seeking a declaratory ruling that special contracts entered into by and
between PSNH and certain retail customers are prohibited by the 1989 rate
agreement between PSNH and the State of New Hampshire (Rate Agreement). The
petition is based on an alleged inconsistency between the New Hampshire statute
that allows special contracts agreed to by a utility and a customer when deemed
appropriate by the NHPUC and the legislation accepting the Rate Agreement
wherein PSNH received protection against NHPUC actions fixing rates other than
in the manner agreed upon in the Rate Agreement. The petition alleges that the
special contracts constitute a breach of the Rate Agreement by PSNH, thereby
estopping PSNH from claiming benefits under the Rate Agreement. On December 11,
1995, the Superior Court denied a request for an emergency injunction which
would have prevented the NHPUC from authorizing any further special contracts
between PSNH and large industrial customers. The New Hampshire Attorney General
is representing the NHPUC in this action. However, OCA disputes the New
Hampshire Attorney General's authority to provide such representation. While NU
believes this proceeding should be dismissed on procedural grounds, it cannot
predict the outcome of this proceeding or its ultimate effect on the System.
7. Tax Litigation
In 1991, per Connecticut statute, the Town of Haddam performed a town-wide
revaluation of the Connecticut Yankee (CY) property in that town. Based on the
report of the engineering firm hired by the town to perform the revaluation,
Haddam determined that the full fair-market value of the property, as of October
1, 1991, was $840 million. At that time, CY's net-book value was $245 million.
In March 1992, CY appealed this excessive valuation to Haddam's Board of
Tax Review, which subsequently rejected CY's appeal. CY then, in July 1992,
appealed to the Middletown Superior Court. At issue is the fair market value of
utility property. NU believes that the assessments should be based on a fair
market value that approximates net book cost. This is the assessment level that
taxing authorities are predominantly using throughout Connecticut. However,
Haddam advocates a method that approximates reproduction costs.
Two expert appraisals of the property were prepared for CY's use in the
appeal - 1) Stone & Webster's determination that the full fair-market value of
CY's property, as of October 1, 1991, was $230 million and 2) AUS Consulting of
Milwaukee's finding of a value of $219.4 million. Trial began in Middletown
Superior Court in early December 1995, and a decision is expected during the
first half of 1996. NU cannot predict the outcome of this proceeding or its
ultimate effect on the System.
8. Other Legal Proceedings
The following sections of Item 1 "Business" discuss additional legal
proceedings: See "Competition and Marketing" for information regarding a DPUC
proceeding on guidelines for CL&P's flexible rate agreements; "Wholesale
Marketing" for information on a PSNH complaint filed against NHEC at the FERC;
"Rates" for information about CL&P's rate and fuel clause adjustment clause
proceedings, NHPUC proceedings involving Freedom Energy Company, New Hampshire's
LEEPA statute and PSNH's franchise rights, and the Seabrook Power Contract;
"Electric Operations -- Generation and Transmission" for information about
proceedings relating to power and transmission issues; "Electric Operations --
Nuclear Generation" for information related to nuclear plant performance,
nuclear fuel enrichment pricing, high-level and low-level radioactive waste
disposal, decommissioning matters and NRC regulation; "Regulatory and
Environmental Matters" for information about proceedings involving surface water
and air quality, toxic substances and hazardous waste, electric and magnetic
fields, licensing of hydroelectric projects, and other matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No Event that would be described in response to this item occurred
with respect to NU, CL&P, WMECO, PSNH or NAEC.
PART II
Item 5. Market for the Registrants' Common Equity and Related
Shareholder Matters
NU. The common shares of NU are listed on the New York Stock Exchange. The
ticket symbol is "NU," although it is frequently presented as "Noeast Util"
and/or "NE Util" in various financial publications. The high and low sales
prices for the past two years, by quarters, are shown below.
Year Quarter High Low
---- ------- ---- ---
1995 First $24 1/4 21
Second 23 7/8 21 3/8
Third 24 1/2 22
Fourth 25 3/8 23 1/2
1994 First $25 3/4 23
Second 24 7/8 21 1/4
Third 24 5/8 20 3/8
Fourth 23 3/8 21 1/4
As of January 31, 1996, there were 129,943 common shareholders of record of
NU. As of the same date, there were a total of 135,985,056 common shares
issued, including approximately 8.5 million unallocated ESOP shares held in the
ESOP trust.
NU declared and paid quarterly dividends of $0.44 in 1995 and $0.44 in
1994. On January 23, 1996, the Board of Trustees declared a dividend of $0.44
per share, payable on March 31, 1996 to holders of record on March 1, 1996. The
declaration of future dividends may vary depending on capital requirements and
income as well as financial and other conditions existing at the time.
Information with respect to dividend restrictions for NU and its
subsidiaries is contained in Item 1. Business under the caption "Financing
Program - Financing Limitations" and in Note (b) to the "Consolidated Statements
of Common Shareholders' Equity" on page 30 of NU's 1996 Annual Report to
Shareholders, which information is incorporated herein by reference.
CL&P, PSNH, WMECO, and NAEC. The information required by this item is not
applicable because the common stock of CL&P, PSNH, WMECO, and NAEC is held
solely by NU.
Item 6. Selected Financial Data
NU. Reference is made to information under the heading "Selected
Consolidated Financial Data" contained on page 45 of NU's 1995 Annual Report to
Shareholders, which information is incorporated herein by reference.
CL&P. Reference is made to information under the heading "Selected
Financial Data" contained on page 35 of CL&P's 1995 Annual Report, which
information is Incorporated herein by reference.
PSNH. Reference is made to information under the heading "Selected
Financial Data" contained on pages 32 and 33 of PSNH's 1995 Annual Report, which
information is incorporated herein by reference.
WMECO. Reference is made to information under the heading "Selected
Financial Data" contained on page 33 of WMECO's 1995 Annual Report, which
information is incorporated herein by reference.
NAEC. Reference is made to information under the heading "Selected
Financial Data" contained on page 21 of NAEC's 1995 Annual Report, which
information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
NU. Reference is made to information under the heading "Management's
Discussion and Analysis" contained on pages 15 through 21 in NU's 1995 Annual
Report to Shareholders, which information is incorporated herein by reference.
CL&P. Reference is made to information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained on pages 29 through 34 in CL&P's 1995 Annual Report, which information
is incorporated herein by reference.
PSNH. Reference is made to information under the heading
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained on pages 26 through 31 in PSNH's 1995
Annual Report, which information is incorporated herein by reference.
WMECO. Reference is made to information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained on pages 27 through 32 in WMECO's 1995 Annual Report, which
information is incorporated herein by reference.
NAEC. Reference is made to information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained on pages 17 through 20 in NAEC's 1995 Annual Report, which information
is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
NU. Reference is made to information under the headings "Company Report,"
"Report of Independent Public Accountants," "Consolidated Statements of Income,"
"Consolidated Statements of Cash Flows," "Consolidated Statements of Income
Taxes," "Consolidated Balance Sheets," "Consolidated Statements of
Capitalization," "Consolidated Statements of Common Shareholders' Equity,"
"Notes to Consolidated Financial Statements," and "Consolidated Statements of
Quarterly Financial Data" contained on pages 22 through 44 in NU's 1995. Annual
Report to Shareholders, which information, which information is incorporated
herein by reference.
CL&P. Reference is made to information under the headings "Consolidated
Balance Sheets," "Consolidated Statements of Income," "Consolidated Statements
of Cash Flows," "Consolidated Statements of Common Stockholder's Equity," "Notes
to Consolidated Financial Statements," "Report of Independent Public
Accountants," and "Statements of Quarterly Financial Data" contained on pages 2
through 28 and page 35 in CL&P's 1995 Annual Report, which information is
incorporated herein by reference.
PSNH. Reference is made to information under the headings "Balance
Sheets," "Statements of Income," "Statements of Cash Flows," "Statements of
Common Equity," "Notes to Financial Statements," "Report of Independent Public
Accountants," "Independent Auditors' Report," and "Statements of Quarterly
Financial Data" contained on pages 2 through 25 and page 34 in PSNH's 1995
Annual Report, which information is incorporated herein by reference.
WMECO. Reference is made to information under the headings "Balance
Sheets," "Statements of Income," "Statements of Cash Flows," "Statements of
Common Stockholder's Equity," "Notes to Financial Statements," "Report of
Independent Public Accountants," and "Statements of Quarterly Financial Data"
contained on pages 2 through 26 and page 33 in WMECO's 1995 Annual Report, which
information is incorporated herein by reference.
NAEC. Reference is made to information under the headings "Balance Sheet,"
"Statement of Income," "Statement of Cash Flows," "Statement of Common
Stockholder's Equity," "Notes to Financial Statements," "Report of Independent
Public Accountants," and "Statement of Quarterly Financial Data" contained on
pages 2 through 16 and page 21 in NAEC's 1995 Annual Report which information is
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
No event that would be described in response to this item has occurred with
respect to NU, CL&P, PSNH, WMECO, or NAEC.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
NU.
In addition to the information provided below concerning the executive
officers of NU, incorporated herein by reference is the information contained in
the sections "Proxy Statement," "Committee Composition and Responsibility,"
"Common Stock Ownership of Certain Beneficial Owners," "Common Stock Ownership
of Management," "Compensation of Trustees," "Summary Compensation Table,"
"Pension Benefits," and "Report on Executive Compensation" of the definitive
proxy statement for solicitation of proxies by NU's Board of Trustees, dated
April 1, 1996 and filed with the Commission pursuant to Rule 14a-6 under the
Securities Exchange Act of 1934 (the Act).
First First
Positions Elected Elected
Name Held an Officer a Trustee
- ----------------------- --------- ---------- ---------
Bernard M. Fox CHB, P, CEO, T 05/01/83 05/20/86
CL&P.
First First
Positions Elected Elected
Name Held an Officer a Director
- ----------------------- --------- ---------- ----------
Robert G. Abair D - 01/01/89
Robert E. Busch P, D 06/01/87 06/01/87
John H. Forsgren EVP, CFO 02/01/96 -
Bernard M. Fox CH, D 05/15/81 05/01/83
William T. Frain, Jr. D - 02/01/94
Cheryl W. Grise SVP, CAO, D 06/01/91 01/01/94
Barry Ilberman VP 02/01/89 -
John B. Keane VP, TR, D 08/01/92 08/01/92
Francis L. Kinney SVP 04/24/74 -
Hugh C. MacKenzie P, D 07/01/88 06/06/90
John J. Roman VP, CONT 04/01/92 -
Robert P. Wax VP, SEC, GC 08/01/92 -
PSNH.
First First
Positions Elected Elected
Name Held an Officer a Director
- ----------------------- --------- ---------- ----------
Robert E. Busch P 06/05/92
John C. Collins D - 10/19/92
John H. Forsgren EVP, CFO 02/01/96 -
Bernard M. Fox CH, CEO, D 06/05/92 06/05/92
William T. Frain, Jr. P, COO, D 03/18/71 02/01/94
Cheryl W. Grise D 02/06/95
Barry Ilberman VP 07/01/94 -
Gerald Letendre D - 10/19/92
Hugh C. MacKenzie D - 02/01/94
Jane E. Newman D - 10/19/92
John J. Roman VP, CONT 04/01/92 -
Robert P. Wax VP,SEC,GC,D 08/01/92 02/01/93
WMECO.
First First
Positions Elected Elected
Name Held an Officer a Director
- ----------------------- --------- ---------- ----------
Robert G. Abair VP, CAO, D 09/06/88 01/01/89
Robert E. Busch P, D 06/01/87 06/01/87
John H. Forsgren EVP, CFO 02/01/96 -
Bernard M. Fox C, D 05/15/81 05/01/83
William T. Frain, Jr. D - 02/01/94
Cheryl W. Grise SVP, D 06/01/91 01/01/94
Barry Ilberman VP 02/01/89 -
John B. Keane VP, TR, D 08/01/92 08/01/92
Francis L. Kinney SVP 04/24/74 -
Hugh C. MacKenzie P, D 07/01/88 06/06/90
John J. Roman VP, CONT 04/01/92 -
Robert P. Wax VP, SEC, AC, GC 08/01/92 -
NAEC.
First First
Positions Elected Elected
Name Held an Officer a Director
- ----------------------- --------- ---------- ----------
Robert E. Busch P, D 10/21/91 10/16/91
Ted C. Feigenbaum EVP, CNO, D 10/21/91 10/16/91
John H. Forsgren EVP, CFO 02/01/96 -
Bernard M. Fox C, CEO, D 10/21/91 10/16/91
William T. Frain, Jr. D - 02/01/94
Cheryl W. Grise SVP, CAO, D 10/21/91 01/01/94
Barry Ilberman VP 01/29/92 -
Francis L. Kinney SVP 10/21/91 -
John B. Keane VP, TR, D 08/01/92 08/01/92
Hugh C. MacKenzie D - 01/01/94
John J. Roman VP, CONT 04/01/92 -
Robert P. Wax VP, SEC, GC 08/01/92 -
Key:
AC - Assistant Clerk
CAO - Chief Administrative Office EVP - Executive Vice President
CEO - Chief Executive Officer GC - General Counsel
CFO - Chief Financial Officer P - President
CH - Chairman SEC - Secretary
CHB - Chairman of the Board SVP - Senior Vice President
CNO - Chief Nuclear Officer T - Trustee
COO - Chief Operating Officer TR - Treasurer
CONT - Controller VP - Vice President
D - Director
Name Age Business Experience During Past 5 Years
- ------------------------ --- ---------------------------------------
Robert G. Abair (1) 57 Elected Vice President and Chief Administrative
Officer of WMECO in 1988.
Robert E. Busch (2) 49 Elected President-Energy Resources Group of NU,
CL&P, PSNH and WMECO February, 1996 and
President of NAEC in 1994; previously Executive
Vice President and Chief Financial Officer of NU,
CL&P, PSNH, and WMECO since 1992; Executive Vice
President and Chief Financial Officer of NAEC
since 1992; Senior Vice President and Chief
Financial Officer of NU, CL&P and WMECO since
1990.
John C. Collins (3) 51 Executive Vice President, Lahey Clinic, since
1995. Previously Chief Executive Officer, The
Hitchcock Clinic, Dartmouth - Hitchcock
Medical Center from 1977 to 1995.
Ted C. Feigenbaum (4) 45 Elected Executive Vice President and Chief Nuclear
Officer of NAEC February, 1996; previously
Senior Vice President of NAEC since 1991; Senior
Vice President and Chief Nuclear Officer of PSNH
June, 1992 to August, 1992; President and Chief
Executive Officer - New Hampshire Yankee Division
of PSNH October, 1990 to June, 1992 and Chief
Nuclear Production Officer of PSNH January, 1990
to June, 1992.
John H. Forsgren 49 Elected Executive Vice President and Chief
Financial Officer of NU, CL&P, PSNH, WMECO and
NAEC February, 1996; previously Managing Director
of Chase Manhattan Bank since 1995; Executive Vice
President of Sun International Investments, LTD
since 1994; and Senior Vice President-Chief
Financial Officer of Euro Disney, The Walt Disney
Company.
Bernard M. Fox (5) 53 Elected Chairman of the Board, President and Chief
Executive Officer of NU, Chairman of CL&P, PSNH,
WMECO and NAEC, and Chief Executive Officer of
PSNH and NAEC in 1995; previously Vice Chairman of
CL&P and WMECO, and Vice Chairman and Chief
Executive Officer of NAEC since 1994; Chief
Executive Officer of NU, CL&P, PSNH, WMECO and
NAEC in 1993; President and Chief Operating
Officer of NU, CL&P and WMECO in 1990 and NAEC
since 1991; Vice Chairman of PSNH since 1992.
William T. Frain, Jr. (6)54 Elected President and Chief Operating Officer of
PSNH in 1994; previously Senior Vice President of
PSNH since 1992; previously Vice President and
Treasurer of PSNH since 1991.
Cheryl W. Grise 43 Elected Senior Vice President and Chief
Administrative Officer of CL&P, PSNH and NAEC, and
Senior Vice President of WMECO in 1995; previously
Senior Vice President-Human Resources and
Administrative Services of CL&P, WMECO and NAEC
since 1994; Vice President-Human Resources of NAEC
since 1992 and of CL&P and WMECO since 1991.
Barry Ilberman 46 Elected Vice President-Corporate and Environmental
Affairs of CL&P, PSNH, WMECO and NAEC, in 1994;
previously Vice President-Corporate Planning of
CL&P, WMECO since 1992; Vice President-Corporate
Business Practices of CL&P, WMECO since 1991; and
Vice President-Human Resources of CLP, WMECO since
1989.
John B. Keane (7) 49 Elected Vice President and Treasurer of NU, CL&P,
PSNH, WMECO and NAEC in 1993; previously Vice
President, Secretary and General Counsel-Corporate
of NU, CL&P and WMECO since 1993; Vice President,
Assistant Secretary and General Counsel-Corporate
of PSNH and NAEC, Vice President, Secretary and
General Counsel-Corporate of NU and CL&P, and Vice
President, Secretary, Assistant Clerk and General
Counsel-Corporate of WMECO since 1992; previously
Associate General Counsel of NUSCO since 1985.
Francis L. Kinney (8) 63 Elected Senior Vice President-Governmental Affairs
of CL&P, WMECO and NAEC in 1994; previously Vice
President-Public Affairs of NAEC since 1992 and of
CL&P and WMECO since 1978.
Gerald Letendre 54 President, Diamond Casting & Machine Co., Inc.
since 1972.
Hugh C. MacKenzie (9) 53 Elected President-Retail Business Group of NU
Feburary, 1996 and President of CL&P and WMECO in
1994; previously Senior Vice President-Customer
Service Operations of CL&P and WMECO since 1990.
Jane E. Newman (10) 50 Executive Vice President, Exeter Trust Company
since 1995. Previously President, Coastal
Broadcasting Corporation since 1992; previously
Assistant to the President of the United State for
Management and Administration from 1989 to 1991.
John J. Roman 42 Elected Vice President and Controller of NU, CL&P,
PSNH, WMECO and NAEC in 1995; previously Assistant
Controller of CL&P, PSNH, WMECO and NAEC since
1992.
Robert P. Wax 47 Elected Vice President, Secretary and General
Counsel of PSNH and NAEC in 1994; elected Vice
President, Secretary and General Counsel of NU and
CL&P and Vice President, Secretary, Assistant
Clerk and General Counsel of WMECO in 1993;
previously Vice President, Assistant Secretary and
General Counsel of PSNH and NAEC since 1993;
previously Vice President and General Counsel-
Regulatory of NU, CL&P, PSNH, WMECO, and NAEC
since 1992; previously Associate General Counsel
of NUSCO since 1985.
(1) Trustee of Easthampton Savings Bank.
(2) Director of Connecticut Yankee Atomic Power Company.
(3) Director of Fleet Bank - New Hampshire and Hamden Assurance Company
Limited.
(4) Director of Connecticut Yankee Atomic Power Company and Maine Yankee Atomic
Power Company.
(5) Director of The Institute of Living, The Institute of Nuclear Power
Operations, The Connecticut Business and Industry Association, Mount
Holyoke College, Fleet Financial Group, CIGNA Corporation, Connecticut
Yankee Atomic Power Company and The Dexter Corporation.
(6) Director of Connecticut Yankee Atomic Power Company, the Business and
Industry Association of New Hampshire, the Greater Manchester Chamber of
Commerce; Trustee of Optima Health, Inc., and Saint Anselm's College.
(7) Director of Maine Yankee Atomic Power Company, Vermont Yankee Nuclear Power
Corporation, Yankee Atomic Electric Company and Connecticut Yankee Atomic
Power Company
(8) Director of Mid-Conn Bank.
(9) Director of Connecticut Yankee Atomic Power Company.
(10) Director of Exeter Trust Company, Perini Corporation, NYNEX
Telecommunications and Consumers Water Company.
There are no family relationships between any director or executive officer
and any other director or executive officer of NU, CL&P, PSNH, WMECO or NAEC.
ITEM 11. EXECUTIVE COMPENSATION
NU.
Incorporated herein by reference is the information contained in the
sections "Summary Compensation Table," "Pension Benefits," and "Report on
Executive Compensation" of the definitive proxy statement for solicitation of
proxies by NU's Board of Trustees, dated April 1, 1996 and filed with the
Commission pursuant to Rule 14a-6 under the Act.
SUMMARY COMPENSATION TABLE
The following table presents the cash and non-cash compensation received by the
CEO and the next four highest paid executive officers of the System, and by two
retired executive officers who would have been among the five highest paid
executive officers but for their retirement, in accordance with rules of the
Securities and Exchange Commission (SEC):
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
Options/ Long
Re- Stock Term All
Other stricted Appreci- Incentive Other
Annual Stock ation Program Compen-
Name and Salary Bonus($) Compensa- Awards Rights Payouts sation(&)
Principal Position Year ($) (1) tion($) ($) (#) ($) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bernard M. Fox(4) 1995 551,300 (3) None None None 130,165 7,350
Chairman of the Board, 1994 544,459 308,896 None None None 115,771 4,500
President and Chief 1993 478,775 180,780 None None None 61,155 7,033
Executive Officer
Robert E. Busch(5) 1995 350,000 (3) None None None 63,100 7,350
President - Energy 1994 346,122 173,366 None None None 44,073 4,500
Resources Group 1993 255,915 78,673 None None None 32,337 7,072
Hugh C. MacKenzie(6) 1995 247,665 (3) None None None 46,789 7,350
President - Retail 1994 245,832 113,416 None None None 40,449 4,500
Business Group 1993 192,502 51,765 None None None 28,000 5,775
Francis L. Kinney(7) 1995 190,100 (3) None None None 29,808 5,584
Senior Vice 1994 191,303 57,425 None None None 24,549 4,500
President - Govern- 1993 188,090 28,620 None None None 27,020 5,423
mental Affairs (principal subsidiaries)
Cheryl W. Grise(8) 1995 178,885 (3) None None None 24,834 5,361
Senior Vice President -1994 169,354 64,412 None None None 17,616 4,491
Chief Administrative 1993 136,475 25,728 None None None 0 4,094
Officer (principal subsidiaries)
William B. Ellis(9) 1995 249,420 (3) None None None 158,393 7,350
Retired 1994 457,769 129,742 None None None 185,003 4,500
1993 521,250 160,693 None None None 87,363 None
John F. Opeka(10) 1995 275,449 (3) None None None 56,779 7,350
Retired 1994 283,069 65,775 None None None 54,556 4,500
1993 277,304 58,259 None None None 40,014 6,875
</TABLE>
Notes:
(1) Awards under the 1993 and 1994 short-term programs of the Northeast
Utilities Executive Incentive Plan (EIP) were paid the next year in the
form of cash. In accordance with the requirements of the SEC, these awards
are included as "bonus" in the years earned.
(2) "All Other Compensation" consists of employer matching contributions under
the Northeast Utilities Service Company Supplemental Retirement and Savings
Plan, generally available to all eligible employees.
(3) Awards under the short-term program of the EIP have typically been made by
the Committee on Organization, Compensation and Board Affairs in April each
year.
(4) Mr. Fox is a Director and Executive Officer of CL&P, PSNH, WMECO and NAEC.
(5) Mr. Busch is a Director of CL&P, WMECO and NAEC and an Executive Officer of
CL&P, PSNH, WMECO and NAEC.
(6) Mr. MacKenzie is a Director of CL&P, PSNH, WMECO and NAEC and an Executive
Officer of CL&P and WMECO.
(7) Mr. Kinney is an Executive Officer of CL&P, WMECO and NAEC.
(8) Mrs. Grise is a Director of CL&P, PSNH, WMECO and NAEC and an Executive
Officer of CL&P, WMECO and NAEC.
(9) Mr. Ellis retired as Chairman of the Board and a Trustee of Northeast
Utilities, and as Chairman and a Director of CL&P, PSNH, WMECO, and NAEC on
August 1, 1995.
(10) Mr. Opeka retired as Executive Vice President - Nuclear of NAEC and as a
Director of NAEC, CL&P and WMECO on November 1, 1995.
PENSION BENEFITS
The following table shows the estimated annual retirement benefits payable to
an executive officer of Northeast Utilities upon retirement, assuming that
retirement occurs at age 65 and that the officer is at that time not only
eligible for a pension benefit under the Northeast Utilities Service Company
Retirement Plan (the Retirement Plan) but also eligible for the "make-whole
benefit" and the "target benefit" under the Supplemental Executive Retirement
Plan for Officers of Northeast Utilities System Companies (the Supplemental
Plan). The Supplemental Plan is a non-qualified pension plan providing
supplemental retirement income to system officers. The "make-whole benefit"
under the Supplemental Plan, available to all officers, makes up for benefits
lost through application of certain tax code limitations on the benefits that
may be provided under the Retirement Plan and includes as "compensation" awards
under the Executive Incentive Compensation Program and Executive Incentive Plan
and deferred compensation (as earned). The "target benefit" further supplements
these benefits and is available to officers at the Senior Vice President level
and higher who are selected by the Board of Trustees to participate in the
target benefit and who remain in the employ of Northeast Utilities companies
until at least age 60 (unless the Board of Trustees sets an earlier age). Each
of the executive officers of Northeast Utilities named in the "Summary
Compensation Table" is currently eligible for a target benefit.
The benefits presented are based on a straight life annuity beginning at age
65 and do not take into account any reduction for joint and survivorship annuity
payments.
ANNUAL TARGET BENEFIT
FINAL AVERAGE
COMPENSATION YEARS OF CREDITED SERVICE
15 20 25 30 35
$200,000 $72,000 $96,000 $120,000 $120,000 $120,000
250,000 90,000 120,000 150,000 150,000 150,000
300,000 108,000 144,000 180,000 180,000 180,000
350,000 126,000 168,000 210,000 210,000 210,000
400,000 144,000 192,000 240,000 240,000 240,000
450,000 162,000 216,000 270,000 270,000 270,000
500,000 180,000 240,000 300,000 300,000 300,000
600,000 216,000 288,000 360,000 360,000 360,000
700,000 252,000 336,000 420,000 420,000 420,000
800,000 288,000 384,000 480,000 480,000 480,000
900,000 324,000 432,000 540,000 540,000 540,000
1,000,000 360,000 480,000 600,000 600,000 600,000
1,100,000 396,000 528,000 660,000 660,000 660,000
1,200,000 432,000 576,000 720,000 720,000 720,000
Final average compensation for purposes of calculating the "target benefit"
is the highest average annual compensation of the participant during any 36
consecutive months compensation was earned. Compensation taken into account
under the "target benefit" described above includes salary, bonus, restricted
stock awards, and long-term incentive payouts shown in the Summary Compensation
Table, but does not include employer matching contributions under the 401(k)
Plan. In the event that an officer's employment terminates because of
disability, the retirement benefits shown above would be offset by the amount of
any disability benefits payable to the recipient that are attributable to
contributions made by Northeast Utilities and its subsidiaries under long term
disability plans and policies.
As of December 31, 1995, the five executive officers named in the Summary
Compensation Table above had the following years of credited service for
retirement compensation purposes: Mr. Fox - 31, Mr. Busch - 22, Mr. MacKenzie
- - 30, Mr. Kinney - 34, and Mrs. Grise - 15. Assuming that retirement were to
occur at age 65 for these officers, retirement would occur with 43, 38, 41, 36
and 36 years of credited service, respectively.
In 1992, Northeast Utilities entered into an agreement with Mr. Fox to
provide for an orderly Chief Executive Officer succession. The agreement states
that if Mr. Fox is terminated as Chief Executive Officer without cause, he will
be entitled to specified severance pay and benefits. Those benefits consist
primarily of (i) two years' base pay, medical, dental and life insurance
benefits; (ii) a supplemental retirement benefit equal to the difference between
the target benefit he would be entitled to receive if he had reached the age of
55 on the termination date and the actual target benefit to which he is entitled
as of the termination date; and (iii) a target benefit under the Supplemental
Plan, notwithstanding that he might not have reached age 60 on the termination
date and notwithstanding other forfeiture provisions of that plan. The
agreement also provides specified death and disability benefits. The agreement
does not address Mr. Fox's normal compensation and benefits, which are to be
determined by the Committee on Organization, Compensation and Board Affairs and
the Board in accordance with their customary practices. The agreement terminates
two years after Northeast Utilities gives Mr. Fox a notice of termination, but
no earlier than the date he becomes 55.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
NU.
Incorporated herein by reference is the information contained in the
sections "Common Stock Ownership of Certain Beneficial Owners," "Common Stock
Ownership of Management," "Compensation of Trustees," "Summary Compensation
Table," "Pension Benefits," and "Report on Executive Compensation" of the
definitive proxy statement for solicitation of proxies by NU's Board of
Trustees, dated April 1, 1996 and filed with the Commission pursuant to Rule
14a-6 under the Act.
CL&P, PSNH, WMECO AND NAEC.
NU owns 100% of the outstanding common stock of registrants CL&P, PSNH,
WMECO and NAEC. As of February 27, 1996, the Directors of CL&P, PSNH, WMECO and
NAEC, beneficially owned the number of shares of each class of equity securities
of NU listed below. No equity securities of CL&P, PSNH, WMECO or NAEC are owned
by the Directors and Executive Officers of their respective companies.
CL&P, PSNH, WMECO, and NAEC DIRECTORS AND NAMED EXECUTIVE OFFICERS
------------------------------------------------------------------
Amount and
Nature of
Title Of Name of Beneficial Percent of
Class Beneficial Owner Ownership (1) Class (2)
- ------- ---------------------- ----------- ----------
NU Common Robert G. Abair(3) 6,489 (3,023)
NU Common Robert E. Busch(4) 10,074 (5,492)
NU Common John C. Collins(5) 25
NU Common Ted C. Feigenbaum(6) 474 (474)
NU Common John H. Forsgren(7) 0
NU Common Bernard M. Fox(8) 25,092 (3,597)
NU Common William T. Frain, Jr.(9) 1,793 (536)
NU Common Cheryl W. Grise(10) 3,407 (1,116)
NU Common Barry Ilberman(11) 6,822 (3,156)
NU Common John B. Keane(12) 2,122 (1,475)
NU Common Francis L. Kinney(13) 3,697 (2,189)
NU Common Gerald Letendre(5) 0
NU Common Hugh C. MacKenzie(14) 8,047 (2,724)
NU Common Jane E. Newman(5) 0
NU Common John J. Roman(15) 1,624 (1,624)
NU Common Robert P. Wax(16) 2,791 (2,260)
Amount beneficially owned by Directors and Executive Officers
as a group - CL&P 71,958 (27,192) shares
- PSNH 59,675 (20,505) shares
- WMECO 71,958 (27,192) shares
- NAEC 65,943 (24,642) shares
(1) Unless otherwise noted, each Director and Executive Officer of CL&P,
PSNH, WMECO and NAEC has sole voting and investment power with respect
to the listed shares. The numbers in parentheses reflect the number of
shares owned by each Director and Executive Officer under the Northeast
Utilities Service Company Supplemental Retirement and Savings Plan
(401(k) Plan), as to which the Officer has no investment power.
(2) As of February 27, 1996 there were 136,023,358 common shares of NU
outstanding. The percentage of such shares beneficially owned by any
Director or Executive Officer, or by all Directors and Executive
Officers of CL&P, PSNH, WMECO and NAEC as a group, does not exceed one
percent.
(3) Mr. Abair is a Director of CL&P and WMECO.
(4) Mr. Busch is a Director of CL&P, WMECO and NAEC and an Executive Officer
of CL&P, PSNH, WMECO and NAEC.
(5) Messrs. Collins, Letendre and Ms. Newman are Directors of PSNH. Mr.
Collins shares voting and investment power with his wife for 25 shares.
(6) Mr. Feigenbaum is a Director and an Executive Officer of NAEC.
(7) Mr. Forsgren is an Executive Officer of CL&P, PSNH, WMECO and NAEC.
(8) Mr. Fox is a Director and Executive Officer of CL&P, PSNH, WMECO and
NAEC. Mr. Fox shares voting and investment power with his wife for
3,031 of these shares. In addition, Mr. Fox's wife has sole voting and
investment power for 140 shares as to which Mr. Fox disclaims beneficial
ownership.
(9) Mr Frain is a Director of CL&P, PSNH, WMECO and NAEC and an Executive
Officer of PSNH.
(10) Mrs. Grise is a Director of CL&P, PSNH, WMECO and NAEC and an Executive
Officer of CL&P, WMECO and NAEC.
(11) Mr. Ilberman is an Executive Officer of CL&P, PSNH, WMECO and NAEC.
Mr. Ilberman shares voting and investment power with his wife for 290 of
these shares and voting and investment power with his mother for 1,161
of these shares.
(12) Mr. Keane is a Director of CL&P, WMECO and NAEC.
(13) Mr. Kinney is an Executive Officer of CL&P, WMECO and NAEC. Mr. Kinney
shares voting and investment power with his wife for 1,508 of these
shares.
(14) Mr. MacKenzie is a Director of CL&P, PSNH, WMECO and NAEC and an
Executive Officer of CL&P and WMECO. Mr. MacKenzie shares voting and
investment power with his wife for 1,467 shares.
(15) Mr. Roman is an Executive Officer of CL&P, PSNH, WMECO and NAEC.
(16) Mr. Wax is a Director of PSNH and an Executive Officer of CL&P, PSNH,
WMECO and NAEC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NU.
Incorporated herein by reference is the information contained in the
section "Certain Relationships and Related Transactions" of the definitive proxy
statement for solicitation of proxies by NU's Board of Trustees, dated April 1,
1996 and filed with the Commission pursuant to Rule 14a-6 under the Act.
CL&P, PSNH, WMECO, AND NAEC.
No relationships or transactions that would be described in response to
this item exist now or existed during 1995 with respect to CL&P, PSNH, WMECO,
and NAEC.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements:
The Report of Independent Public Accountants and financial statements
of NU, CL&P, PSNH, WMECO, and NAEC are hereby incorporated by
reference and made a part of this report (see "Item 8. Financial
Statements and Supplementary Data").
Report of Independent Public Accountants
on Schedules S-1
Consent of Independent Public Accountants S-2
2. Schedules:
Financial Statement Schedules for NU (Parent),
NU and Subsidiaries, CL&P and Subsidiaries,
PSNH and WMECO are listed in the Index to
Financial Statement Schedules S-3
3. Exhibits Index E-1
(b) Reports on Form 8-K:
NU, CL&P, PSNH, WMECO, and NAEC filed Form 8-Ks dated January 31,
1996 on January 31, 1996. This 8-K filing disclosed that the NRC had
announced that the Millstone Nuclear Power Station had been placed on
its "watch list."
NORTHEAST UTILITIES
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.
NORTHEAST UTILITIES
-------------------
(Registrant)
Date: March 13, 1996 By /s/Bernard M. Fox
-------------- -----------------
Bernard M. Fox
Chairman of the Board,
President and
Chief Executive 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.
Date Title Signature
- ---- ----- ---------
March 13, 1996 A Trustee, Chairman /s/Bernard M. Fox
- -------------- of the Board, -----------------
President and Bernard M. Fox
Chief Executive Officer
March 13, 1996 Executive Vice /s/ John H. Forsgren
- -------------- President and Chief --------------------
Financial Officer John H. Forsgren
March 13, 1996 Vice President and /s/John J. Roman
- -------------- Controller ----------------
John J. Roman
NORTHEAST UTILITIES
SIGNATURES (CONT'D)
Date Title Signature
- ---- ----- ---------
March 13, 1996 Trustee /s/Alfred F. Boschulte
- -------------- ----------------------
Alfred F. Boschulte
March 13, 1996 Trustee /s/Cotton Mather Cleveland
- -------------- --------------------------
Cotton Mather Cleveland
March 13, 1996 Trustee /s/George David
- -------------- ---------------
George David
March 13, 1996 Trustee /s/E. Gail de Planque
- -------------- ---------------------
E. Gail de Planque
March 13, 1996 Trustee /s/Gaynor N. Kelley
- -------------- -------------------
Gaynor N. Kelley
March 13, 1996 Trustee /s/Elizabeth T. Kennan
- -------------- ----------------------
Elizabeth T. Kennan
March 13, 1996 Trustee /s/Denham C. Lunt, Jr.
- -------------- ----------------------
Denham C. Lunt, Jr.
NORTHEAST UTILITIES
SIGNATURES (CONT'D)
Date Title Signature
- ---- ----- ---------
March 13, 1996 Trustee /s/William J. Pape II
- -------------- ---------------------
William J. Pape II
March 13, 1996 Trustee /s/Robert E. Patricelli
- -------------- -----------------------
Robert E. Patricelli
March 13, 1996 Trustee /s/Norman C. Rasmussen
- -------------- ----------------------
Norman C. Rasmussen
March 13, 1996 Trustee /s/John F. Swope
- -------------- ----------------
John F. Swope
March 13, 1996 Trustee /s/John F. Turner
- -------------- -----------------
John F. Turner
THE CONNECTICUT LIGHT AND POWER COMPANY
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.
THE CONNECTICUT LIGHT AND POWER COMPANY
---------------------------------------
(Registrant)
Date: March 13, 1996 By /s/Bernard M. Fox
-------------- -----------------
Bernard M. Fox
Chairman
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.
Date Title Signature
- ---- ----- ---------
March 13, 1996 Chairman and /s/Bernard M. Fox
- -------------- a Director -----------------
Bernard M. Fox
March 13, 1996 President and /s/Hugh C. MacKenzie
- -------------- a Director --------------------
Hugh C. MacKenzie
March 13, 1996 Executive Vice /s/ John H. Forsgren
- -------------- President and Chief --------------------
Financial Officer John H. Forsgren
March 13, 1996 Vice President and /s/John J. Roman
- -------------- Controller ----------------
John J. Roman
THE CONNECTICUT LIGHT AND POWER COMPANY
SIGNATURES (CONT'D)
Date Title Signature
- ---- ----- ---------
March 13, 1996 Director /s/Robert G. Abair
- -------------- ------------------
Robert G. Abair
March 13, 1996 Director /s/Robert E. Busch
- -------------- ------------------
Robert E. Busch
March 13, 1996 Director /s/William T. Frain, Jr.
- -------------- ------------------------
William T. Frain, Jr.
March 13, 1996 Director /s/Cheryl W. Grise
- -------------- ------------------
Cheryl W. Grise
March 13, 1996 Director /s/John B. Keane
- -------------- ----------------
John B. Keane
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
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.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
---------------------------------------
(Registrant)
Date: March 13, 1996 By /s/Bernard M. Fox
-------------- -----------------
Bernard M. Fox
Chairman and
Chief Executive 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.
Date Title Signature
- ---- ----- ---------
March 13, 1996 Chairman, Chief /s/Bernard M. Fox
- -------------- Executive Officer -----------------
and a Director Bernard M. Fox
March 13, 1996 President, Chief /s/William T. Frain, Jr.
- -------------- Operating Officer ------------------------
and a Director William T. Frain, Jr.
March 13, 1996 Executive Vice /s/ John H. Forsgren
- -------------- President and Chief --------------------
Financial Officer John H. Forsgren
March 13, 1996 Vice President and /s/John J. Roman
- -------------- Controller ----------------
John J. Roman
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
SIGNATURES (CONT'D)
Date Title Signature
- ---- ----- ---------
Director
- -------------- ------------------
John C. Collins
March 13, 1996 Director /s/Cheryl W. Grise
- -------------- ------------------
Cheryl W. Grise
Director
- -------------- ------------------
Gerald Letendre
March 13, 1996 Director /s/Hugh C. MacKenzie
- -------------- --------------------
Hugh C. MacKenzie
March 13, 1996 Director /s/Jane E. Newman
- -------------- -----------------
Jane E. Newman
March 13, 1996 Director /s/Robert P. Wax
- -------------- ----------------
Robert P. Wax
WESTERN MASSACHUSETTS ELECTRIC COMPANY
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.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
--------------------------------------
(Registrant)
Date: March 13, 1996 By /s/Bernard M. Fox
-------------- -----------------
Bernard M. Fox
Chairman
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.
Date Title Signature
- ---- ----- ---------
March 13, 1996 Chairman and /s/Bernard M. Fox
- -------------- a Director -----------------
Bernard M. Fox
March 13, 1996 President and /s/Hugh C. MacKenzie
- -------------- a Director --------------------
Hugh C. MacKenzie
March 13, 1996 Executive Vice /s/ John H. Forsgren
- -------------- President and Chief --------------------
Financial Officer John H. Forsgren
March 13, 1996 Vice President and /s/John J. Roman
- -------------- Controller ----------------
John J. Roman
WESTERN MASSACHUSETTS ELECTRIC COMPANY
SIGNATURES (CONT'D)
Date Title Signature
- ---- ----- ---------
March 13, 1996 Director /s/Robert G. Abair
- -------------- ------------------
Robert G. Abair
March 13, 1996 Director /s/Robert E. Busch
- -------------- ------------------
Robert E. Busch
March 13, 1996 Director /s/William T. Frain, Jr.
- -------------- ------------------------
William T. Frain, Jr.
March 13, 1996 Director /s/Cheryl W. Grise
- -------------- ------------------
Cheryl W. Grise
March 13, 1996 Director /s/John B. Keane
- -------------- ----------------
John B. Keane
NORTH ATLANTIC ENERGY CORPORATION
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.
NORTH ATLANTIC ENERGY CORPORATION
---------------------------------
(Registrant)
Date: March 13, 1996 By /s/Bernard M. Fox
-------------- -----------------
Bernard M. Fox
Chairman and
Chief Executive 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.
Date Title Signature
- ---- ----- ---------
March 13, 1996 Chairman, Chief /s/Bernard M. Fox
- -------------- Executive Officer -----------------
and a Director Bernard M. Fox
March 13, 1996 President and /s/Robert E. Busch
- -------------- a Director ------------------
Robert E. Busch
March 13, 1996 Executive Vice /s/ John H. Forsgren
- -------------- President and Chief --------------------
Financial Officer John H. Forsgren
NORTH ATLANTIC ENERGY CORPORATION
SIGNATURES (CONT'D)
Date Title Signature
- ---- ----- ---------
March 13, 1996 Vice President and /s/John J. Roman
- -------------- Controller ----------------
John J. Roman
March 13, 1996 Director /s/Ted C. Feigenbaum
- -------------- --------------------
Ted C. Feigenbaum
March 13, 1996 Director /s/William T. Frain, Jr.
- -------------- ------------------------
William T. Frain, Jr.
March 13, 1996 Director /s/Cheryl W. Grise
- -------------- ------------------
Cheryl W. Grise
March 13, 1996 Director /s/John B. Keane
- -------------- ----------------
John B. Keane
March 13, 1996 Director /s/Hugh C. MacKenzie
- -------------- --------------------
Hugh C. MacKenzie
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Northeast Utilities'
annual report to shareholders and The Connecticut Light and Power
Company's, Western Massachusetts Electric Company's, North Atlantic
Energy Corporation's, and Public Service Company of New Hampshire's
annual reports, incorporated by reference in this Form 10-K, and have
issued our reports thereon dated February 16, 1996. Our reports on the
financial statements include an explanatory paragraph with respect to the change
in method of accounting for property taxes, if applicable to each company, as
described in notes to the related company's financial statements. Our audits
were made for the purpose of forming an opinion on each company's statements
taken as a whole. The schedules listed in the accompanying index are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not part of each company's basic financial statements. These schedules
have been subjected to the auditing procedures applied in the audits of each
company's basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to each company's basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included or incorporated by reference in this Form
10-K, into previously filed Registration Statement No. 33-55279 of The
Connecticut Light and Power Company, No. 33-56537 of CL&P Capital, LP, No. 33-
51185 of Western Massachusetts Electric Company, and No. 33-34622, No. 33-44814,
and No. 33-40156 of Northeast Utilities.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 13, 1996
SCHEDULE I
NORTHEAST UTILITIES (PARENT)
FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AT DECEMBER 31, 1995 AND 1994
(Thousands of Dollars)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
- ------
Other Property and Investments:
Investments in subsidiary companies, at
equity............................................... $2,701,866 $2,625,228
Investments in transmission companies, at equity...... 23,557 26,106
Other, at cost........................................ 250 636
----------- -----------
2,725,673 2,651,970
----------- -----------
Current Assets:
Cash.................................................. 18 42
Notes receivable from affiliated companies............ 9,675 1,975
Receivables from affiliated companies................. 607 2,598
Prepayments........................................... 138 228
----------- -----------
10,438 4,843
----------- -----------
Deferred Charges:
Accumulated deferred income taxes..................... 6,984 7,749
Unamortized debt expense.............................. 11 31
Other................................................. 122 26
----------- -----------
7,117 7,806
----------- -----------
Total Assets..................................... $2,743,228 $2,664,619
=========== ===========
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common Shareholders' Equity:
Common shares, $5 par value--Authorized
225,000,000 shares; 135,611,166 shares issued and
127,050,647 shares outstanding in 1995 and
134,210,226 shares issued and
124,994,322 outstanding in 1994..................... $ 678,056 $ 671,051
Capital surplus, paid in.............................. 936,308 904,371
Deferred benefit plan--employee stock ownership plan.. (198,152) (213,324)
Retained earnings..................................... 1,007,340 946,988
----------- -----------
Total common shareholders' equity................... 2,423,552 2,309,086
Long-term debt........................................ 210,000 224,000
----------- -----------
Total capitalization................................ 2,633,552 2,533,086
----------- -----------
Current Liabilities:
Notes payable to banks................................ 57,500 104,000
Long-term debt and preferred stock--current portion... 14,000 12,000
Accounts payable...................................... 18,213 962
Accounts payable to affiliated companies.............. 1,074 2,944
Accrued taxes......................................... 6,539 7,454
Accrued interest...................................... 2,864 3,623
Dividend reinvestment plan............................ 8,995 -
Other................................................. 2 17
----------- -----------
109,187 131,000
----------- -----------
Other Deferred Credits.................................. 489 533
----------- -----------
Total Capitalization and Liabilities $2,743,228 $2,664,619
=========== ===========
</TABLE>
SCHEDULE I
NORTHEAST UTILITIES (PARENT)
FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(Thousands of Dollars Except Share Information)
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Operating Revenues............... $ - $ - $ -
------------- ------------- -------------
Operating Expenses:
Other.......................... 14,267 13,114 2,677
Federal income taxes........... (8,585) (10,736) (7,564)
------------- ------------- -------------
Total operating expenses...... 5,682 2,378 (4,887)
------------- ------------- -------------
Operating Income (Loss).......... (5,682) (2,378) 4,887
------------- ------------- -------------
Other Income:
Equity in earnings of
subsidiaries.................. 310,025 309,769 263,725
Equity in earnings of
transmission companies........ 3,561 3,418 3,736
Other, net..................... 329 679 1,302
------------- ------------- -------------
Other income, net............ 313,915 313,866 268,763
------------- ------------- -------------
Income before interest
charges..................... 308,233 311,488 273,650
------------- ------------- -------------
Interest Charges 25,799 24,614 23,697
------------- ------------- -------------
Earnings for Common Shares $ 282,434 $ 286,874 $ 249,953
============= ============= =============
Earnings Per Common Share........ $ 2.24 $ 2.30 $ 2.02
============= ============= =============
Common Shares Outstanding
(average)....................... 126,083,645 124,678,192 123,947,631
============= ============= =============
</TABLE>
SCHEDULE I
NORTHEAST UTILITIES (PARENT)
FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, 1993
(Thousands of Dollars)
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Operating Activities:
Net income $ 282,434 $ 286,874 $ 249,953
Adjustments to reconcile to net cash
from operating activities:
Equity in earnings of subsidiary companies (310,025) (309,769) (263,725)
Cash dividends received from subsidiary companies 272,350 201,403 191,297
Deferred income taxes 772 (1,890) (3,199)
Other sources of cash 6,916 3,007 197
Other uses of cash (528) (169) (3,915)
Changes in working capital:
Receivables 1,991 30,525 (25,012)
Accounts payable 15,381 (43,601) 27,066
Other working capital (excludes cash) 7,396 7,615 (3,010)
-------------- -------------- --------------
Net cash flows from operating activities 276,687 173,995 169,652
-------------- -------------- --------------
Financing Activities:
Issuance of common shares 47,218 14,551 22,252
Net (decrease) increase in short-term debt (46,500) 31,500 2,000
Reacquisitions and retirements of long-term debt (12,000) (9,000) (5,000)
Cash dividends on common shares (221,701) (219,317) (218,179)
-------------- -------------- --------------
Net cash flows used for financing activities (232,983) (182,266) (198,927)
-------------- -------------- --------------
Investment Activities:
NU System Money Pool (7,700) 17,650 32,975
Investment in subsidiaries (38,963) (10,912) (4,853)
Other investment activities, net 2,935 1,503 1,152
-------------- -------------- --------------
Net cash flows (used for) from investments (43,728) 8,241 29,274
-------------- -------------- --------------
Net decrease in cash for the period (24) (30) (1)
Cash - beginning of period 42 72 73
-------------- -------------- --------------
Cash - end of period $ 18 $ 42 $ 72
============== ============== ==============
Supplemental Cash Flow Information
Cash paid during the year for:
Interest, net of amounts capitalized $ 26,430 $ 24,235 $ 23,808
============== ============== ==============
Income taxes (refund) $ (8,418) $ (16,786) $ -
============== ============== ==============
</TABLE>
<TABLE>
NORTHEAST UTILITIES AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 16,826 $ 18,010 $ - $ 20,458 (a)$ 14,378
========= ========= ========= ========= =========
Asset valuation reserves $ 21,585 $ 31,481 $ - $ - $ 53,066
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 34,721 $ 11,475 $ - $ 7,787 (b)$ 38,409
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
NORTHEAST UTILITIES AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1994
(Thousands of Dollars)
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 14,629 $ 23,194 $ - $ 20,997 (a) $ 16,826
========= ========= ========= ========= =========
Asset valuation reserves $ 797 $ 29,688 $ - $ 8,900 (b) $ 21,585
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 28,286 $ 13,150 $ - $ 6,715 (c) $ 34,721
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally the reduction in the carrying amounts of assets.
(c) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
NORTHEAST UTILITIES AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1993
(Thousands of Dollars)
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 13,255 $ 21,118 $ - $ 19,744 (a) $ 14,629
========= ========= ========= ========= =========
Asset valuation reserves $ 17,628 $ 23,169 $ - $ 40,000 (b) $ 797
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 24,489 $ 54,583 $ - $ 50,786 (c) $ 28,286
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally the reduction in the carrying amounts of assets.
(c) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 12,778 $ 12,722 $ - $ 14,933 (a)$ 10,567
========= ========= ========= ========= =========
Asset valuation reserves $ 21,585 $ 25,481 $ - $ - $ 47,066
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 19,529 $ 5,633 $ - $ 5,288 (b)$ 19,874
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1994
(Thousands of Dollars)
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 10,816 $ 17,177 $ - $ 15,215 (a) $ 12,778
========= ========= ========= ========= =========
Asset valuation reserves $ 797 $ 29,688 $ - $ 8,900 (b) $ 21,585
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 14,905 $ 9,924 $ - $ 5,300 (c) $ 19,529
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally the reduction in the carrying amounts of assets.
(c) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1993
(Thousands of Dollars)
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 8,358 $ 16,366 $ - $ 13,908 (a) $ 10,816
========= ========= ========= ========= =========
Asset valuation reserves $ 17,628 $ 23,169 $ - $ 40,000 (b) $ 797
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 12,665 $ 29,036 $ - $ 26,796 (c) $ 14,905
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally the reduction in the carrying amounts of assets.
(c) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period(a)expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 2,015 $ 2,454 $ - $ 2,887 (a)$ 1,582
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 5,113 $ 3,668 $ - $ 639 (b)$ 8,142
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1994
(Thousands of Dollars)
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 1,816 $ 2,999 $ - $ 2,800 (a) $ 2,015
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 3,960 $ 1,525 $ - $ 372 (b) $ 5,113
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1993
(Thousands of Dollars)
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 2,780 $ 1,771 $ - $ 2,735 (a) $ 1,816
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 4,420 $ 457 $ - $ 917 (b) $ 3,960
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
WESTERN MASSACHUSETTS ELECTRIC COMPANY SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 2,032 $ 2,836 $ - $ 2,638 (a)$ 2,230
========= ========= ========= ========= =========
Asset valuation reserves $ - $ 6,000 $ - $ - $ 6,000
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 4,674 $ 1,340 $ - $ 870 (b)$ 5,144
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
WESTERN MASSACHUSETTS ELECTRIC COMPANY SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1994
(Thousands of Dollars)
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 1,997 $ 3,017 $ - $ 2,982 (a) $ 2,032
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 3,842 $ 1,473 $ - $ 641 (b) $ 4,674
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
WESTERN MASSACHUSETTS ELECTRIC COMPANY SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1993
(Thousands of Dollars)
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 2,117 $ 2,812 $ - $ 2,932 (a) $ 1,997
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 2,543 $ 6,192 $ - $ 4,893 (b) $ 3,842
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
EXHIBIT INDEX
Each document described below is incorporated by reference to the files of
the Securities and Exchange Commission, unless the reference to the document is
marked as follows:
* - Filed with the 1995 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1995 NU Form 10-K, File No. 1-5324 into
the 1995 Annual Reports on Form 10-K for CL&P, PSNH, WMECO and NAEC.
# - Filed with the 1995 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1995 NU Form 10-K, File No. 1-5324 into
the 1995 Annual Report on Form 10-K for CL&P.
@ - Filed with the 1995 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1995 NU Form 10-K, File No. 1-5324 into
the 1995 Annual Report on Form 10-K for PSNH.
** - Filed with the 1995 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1995 NU Form 10-K, File No. 1-5324 into
the 1995 Annual Report on Form 10-K for WMECO.
## - Filed with the 1995 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1995 Form 10-K, File No. 1-5324 into the
1995 Annual Report on Form 10-K for NAEC.
Exhibit
Number Description
3 Articles of Incorporation and By-Laws
3.1 Northeast Utilities
3.1.1 Declaration of Trust of NU, as amended through May 24, 1988.
(Exhibit 3.1.1, 1988 NU Form 10-K, File No. 1-5324)
3.2 The Connecticut Light and Power Company
3.2.1 Certificate of Incorporation of CL&P,restated to March 2,
1994. (Exhibit 3.2.1, 1993 NU Form 10-K, File No. 1-5324)
3.2.2 By-laws of CL&P, as amended to March 1, 1982. (Exhibit
3.2.2, 1993 NU Form 10-K, File No. 1-5324)
3.3 Public Service Company of New Hampshire
3.3.1 Articles of Incorporation, as amended to May 16, 1991.
(Exhibit 3.3.1, 1993 NU Form 10-K, File No. 1-5324)
3.3.2 By-laws of PSNH, as amended to November 1, 1993. (Exhibit
3.3.2, 1993 NU Form 10-K, File No. 1-5324)
3.4 Western Massachusetts Electric Company
3.4.1 Articles of Organization of WMECO, restated to February 23,
1995. (Exhibit 3.4.1, 1994 NU Form 10-K, File No. 1-5324)
3.4.2 By-laws of WMECO, as amended to February 13, 1995. (Exhibit
3.4.2, 1994 NU Form 10-K, File No. 1-5324)
3.5 North Atlantic Energy Corporation
3.5.1 Articles of Incorporation of NAEC dated September 20, 1991.
(Exhibit 3.5.1, 1993 NU Form 10-K, File No. 1-5324)
3.5.2 Articles of Amendment dated October 16, 1991 and June 2,
1992 to Articles of Incorporation of NAEC. (Exhibit 3.5.2,
1993 NU Form 10-K, File No. 1-5324)
3.5.3 By-laws of NAEC, as amended to November 8, 1993. (Exhibit
3.5.3, 1993 NU Form 10-K, File No. 1-5324)
4 Instruments defining the rights of security holders, including indentures
4.1 Northeast Utilities
4.1.1 Indenture dated as of December 1, 1991 between Northeast
Utilities and IBJ Schroder Bank & Trust Company, with
respect to the issuance of Debt Securities. (Exhibit 4.1.1,
1991 NU Form 10-K, File No. 1-5324)
4.1.2 First Supplemental Indenture dated as of December 1, 1991
between Northeast Utilities and IBJ Schroder Bank & Trust
Company, with respect to the issuance of Series A Notes.
(Exhibit 4.1.2, 1991 NU Form 10-K, File No. 1-5324)
4.1.3 Second Supplemental Indenture dated as of March 1, 1992
between Northeast Utilities and IBJ Schroder Bank & Trust
Company with respect to the issuance of 8.38% Amortizing
Notes. (Exhibit 4.1.3, 1992 NU Form 10-K, File No. 1-5324)
4.1.4 Warrant Agreement dated as of June 5, 1992 between
Northeast Utilities and the Service Company. (Exhibit
4.1.4, 1992 NU Form 10-K, File No. 1-5324)
4.1.4.1 Additional Warrant Agent Agreement dated as of
June 5, 1992 between Northeast Utilities and State
Street Bank and Trust Company. (Exhibit 4.1.4.1,
1992 NU Form 10-K, File No. 1-5324)
4.1.4.2 Exchange and Disbursing Agent Agreement dated as
of June 5, 1992 among Northeast Utilities, Public
Service Company of New Hampshire and State Street
Bank and Trust Company. Exhibit 4.1.4.2, 1992 NU
Form 10-K, File No. 1-5324)
4.1.5 Credit Agreements among CL&P, NU, WMECO, NUSCO (as Agent)
and 15 Commercial Banks dated December 3, 1992 (364 Day and
Three-Year Facilities). (Exhibit C.2.38, 1992 NU Form U5S,
File No. 30-246)
4.1.6 Credit Agreements among CL&P, WMECO, NU, Holyoke Water Power
Company, RRR, NNECO and NUSCO (as Agent) and 2 commercial
banks dated December 3, 1992 (364 Day and Three-Year
Facilities). (Exhibit C.2.39, 1992 NU Form U5S, File No.
30-246)
4.2 The Connecticut Light and Power Company
4.2.1 Indenture of Mortgage and Deed of Trust between CL&P and
Bankers Trust Company, Trustee, dated as of May 1, 1921.
(Composite including all twenty-four amendments to May 1,
1967.) (Exhibit 4.1.1, 1989 NU Form 10-K, File No. 1-5324)
Supplemental Indentures to the Composite May 1, 1921
Indenture of Mortgage and Deed of Trust between CL&P and
Bankers Trust Company, dated as of:
4.2.2 April 1, 1967. (Exhibit 4.16, File No. 2-60806)
4.2.3 January 1, 1968. (Exhibit 4.18, File No. 2-60806)
4.2.4 December 1, 1969. (Exhibit 4.20, File No. 2-60806)
4.2.5 June 30, 1982. (Exhibit 4.33, File No. 2-79235)
4.2.6 December 1, 1989. (Exhibit 4.1.26, 1989 NU Form
10-K, File No. 1-5324)
4.2.7 April 1, 1992. (Exhibit 4.30, File No. 33-59430)
4.2.8 July 1, 1992. (Exhibit 4.31, File No. 33-59430)
4.2.9 July 1, 1993. (Exhibit A.10(b), File No. 70-8249)
4.2.10 July 1, 1993. (Exhibit A.10(b), File No. 70-8249)
4.2.11 December 1, 1993. (Exhibit 4.2.14, 1993 NU Form 10-K,
File No. 1-5324)
4.2.12 February 1, 1994. (Exhibit 4.2.15, 1993 NU Form 10-K, File
No. 1-5324)
4.2.13 February 1, 1994. (Exhibit 4.2.16, 1993 NU Form 10-K,
File No. 1-5324)
4.2.14 June 1, 1994. (Exhibit 4.2.15, 1994 NU Form 10-K,
File No. 1-5324)
4.2.15 October 1, 1994. (Exhibit 4.2.16, 1994 NU Form 10-K,
File No. 1-5324)
4.2.16 Financing Agreement between Industrial Development Authority
of the State of New Hampshire and CL&P (Pollution Control
Bonds, 1986 Series) dated as of December 1, 1986. (Exhibit
C.1.47, 1986 NU Form U5S, File No. 30-246)
4.2.16.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds, 1986 Series) dated as of
August 1, 1994. (Exhibit 1 (Execution Copy), File
No. 70-7320)
4.2.17 Financing Agreement between Industrial Development Authority
of the State of New Hampshire and CL&P (Pollution Control
Bonds, 1988 Series) dated as of October 1, 1988. (Exhibit
C.1.55, 1988 NU Form U5S, File No. 30-246)
# 4.2.17.1 Letter of Credit (Pollution Control Bonds, 1988
Series) dated October 27, 1988.
# 4.2.17.2 Reimbursement and Security Agreement (Pollution
Control Bonds, 1988 Series) dated as of October 1,
1988.
4.2.18 Financing Agreement between Industrial Development Authority
of the State of New Hampshire and CL&P (Pollution Control
Bonds) dated as of December 1, 1989. (Exhibit C.1.39, 1989
NU Form U5S, File No. 30-246)
4.2.19 Loan and Trust Agreement among Business Finance Authority of
the State of New Hampshire, CL&P and the Trustee (Pollution
Control Bonds, 1992 Series A) dated as of December 1,
1992.(Exhibit C.2.33, 1992 NU Form U5S, File No. 30-246)
# 4.2.19.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds, 1992 Series A) dated as
of December 1, 1992.
4.2.20 Loan Agreement between Connecticut Development Authority and
CL&P (Pollution Control Bonds - Series A, Tax Exempt
Refunding) dated as of September 1, 1993. (Exhibit 4.2.21,
1993 NU Form 10-K, File No. 1-5324)
4.2.20.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds - Series A, Tax Exempt
Refunding) dated as of September 1, 1993.
(Exhibit 4.2.23, 1993 NU Form 10-K, File No. 1-
5324)
4.2.21 Loan Agreement between Connecticut Development Authority and
CL&P (Pollution Control Bonds - Series B, Tax Exempt
Refunding) dated as of September 1, 1993. (Exhibit 4.2.22,
1993 NU Form 10-K, File No. 1-5324)
4.2.21.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds - Series B, Tax Exempt
Refunding) dated as of September 1, 1993.
(Exhibit 4.2.24, 1993 NU Form 10-K, File No. 1-
5324)
4.2.22 Amended and Restated Limited Partnership Agreement (CL&P
Capital, L.P.) among CL&P, NUSCO, and the persons who became
limited partners of CL&P Capital, L.P. in accordance with
the provisions thereof dated as of January 23, 1995 (MIPS).
(Exhibit A.1 (Execution Copy), File No. 70-8451)
4.2.23 Indenture between CL&P and Bankers Trust Company, Trustee
(Series A Subordinated Debentures), dated as of January 1,
1995 (MIPS). (Exhibit B.1 (Execution Copy), File No. 70-
8451)
4.2.24 Payment and Guaranty Agreement of CL&P dated as of January
23, 1995 (MIPS). (Exhibit B.3 (Execution Copy), File No.
70-8451)
4.3 Public Service Company of New Hampshire
4.3.1 First Mortgage Indenture dated as of August 15, 1978
between PSNH and First Fidelity Bank, National
Association,New Jersey, Trustee, (Composite including all
amendments to May 16, 1991). (Exhibit 4.4.1, 1992 NU Form
10-K, File No. 1-5324)
4.3.1.1 Tenth Supplemental Indenture dated as of May 1,
1991 between PSNH and First Fidelity Bank,
National Association. (Exhibit 4.1, PSNH Current
Report on Form 8-K dated February 10, 1992, File
No. 1-6392).
4.3.2 Revolving Credit Agreement dated as of May 1, 1991.
(Exhibit 4.12, PSNH Current Report on Form 8-K dated
February 10, 1992, File No. 1-6392)
4.3.3 Series A (Tax Exempt New Issue) PCRB Loan and Trust
Agreement dated as of May 1, 1991. (Exhibit 4.2, PSNH
Current Report on Form 8-K dated February 10, 1992, File No.
1-6392)
4.3.4 Series B (Tax Exempt Refunding) PCRB Loan and Trust
Agreement dated as of May 1, 1991. (Exhibit 4.3, PSNH
Current Report on Form 8-K dated February 10, 1992, File No.
1-6392)
4.3.5 Series C (Tax Exempt Refunding) PCRB Loan and Trust
Agreement dated as of May 1, 1991. (Exhibit 4.4, PSNH
Current Report on Form 8-K dated February 10, 1992, File No.
1-6392)
4.3.6 Series D (Taxable New Issue) PCRB Loan and Trust Agreement
dated as of May 1, 1991. (Exhibit 4.5, PSNH Current Report
on Form 8-K dated February 10, 1992, File No. 1-6392)
4.3.6.1 First Supplement to Series D (Tax Exempt
Refunding Issue) PCRB Loan and Trust Agreement
dated as of December 1, 1992. (Exhibit 4.4.5.1,
1992 NU Form 10-K, File No. 1-5324)
4.3.6.2 Second Series D (May 1, 1991 Taxable New Issue and
December 1, 1992 Tax Exempt Refunding Issue) PCRB
Letter of Credit and Reimbursement Agreement dated
as of May 1, 1995 (Exhibit B.4, Execution Copy,
File No. 70-8036)
4.3.7 Series E (Taxable New Issue) PCRB Loan and Trust Agreement
dated as of May 1, 1991. (Exhibit 4.6, PSNH Current Report
on Form 8-K dated February 10, 1992, File No. 1-6392)
4.3.7.1 First Supplement to Series E (Tax Exempt
Refunding Issue) PCRB Loan and Trust Agreement
dated as of December 1, 1993. (Exhibit 4.3.8.1,
1993 NU Form 10-K, File No. 1-5324)
4.3.7.2 Second Series E (May 1, 1991 Taxable New Issue and
December 1, 1993 Tax Exempt Refunding Issue) PCRB
Letter of Credit and Reimbursement Agreement dated
as of May 1, 1995. (Exhibit B.5, Execution Copy,
File No. 70-8036)
4.4 Western Massachusetts Electric Company
4.4.1 First Mortgage Indenture and Deed of Trust between WMECO and
Old Colony Trust Company, Trustee, dated as of August 1,
1954. (Exhibit 4.4.1, 1993 NU Form 10-K, File No. 1-5324)
Supplemental Indentures thereto dated as of:
4.4.2 March 1, 1967. (Exhibit 2.5, File No. 2-68808)
4.4.3 September 1, 1990. (Exhibit 4.3.15, 1990 NU Form 10-K,
File No. 1-5324.)
4.4.4 December 1, 1992. (Exhibit 4.15, File No. 33-55772)
4.4.5 January 1, 1993. (Exhibit 4.5.13, 1992 NU Form 10-K, File
No. 1-5324)
4.4.6 March 1, 1994. (Exhibit 4.4.11, 1993 NU Form 10-K, File
No. 1-5324)
4.4.7 March 1, 1994. (Exhibit 4.4.12, 1993 NU Form 10-K, File
No. 1-5324)
4.4.8 Loan Agreement between Connecticut Development Authority and
WMECO, (Pollution Control Bonds - Series A, Tax Exempt
Refunding) dated as of September 1, 1993. (Exhibit 4.4.13,
1993 NU Form 10-K, File No. 1-5324)
4.4.8.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds - Series A, Tax Exempt
Refunding) dated as of September 1, 1993.
(Exhibit 4.4.14, 1993 NU Form 10-K, File No. 1-
5324)
4.5 North Atlantic Energy Corporation
4.5.1 First Mortgage Indenture and Deed of Trust between NAEC and
United States Trust Company of New York, Trustee, dated as
of June 1, 1992. (Exhibit 4.6.1, 1992 NU Form 10-K, File
No. 1-5324)
## 4.5.2 Term Credit Agreement dated as of November 9, 1995.
10 Material Contracts
10.1 Stockholder Agreement dated as of July 1, 1964 among the stockholders
of Connecticut Yankee Atomic Power Company (CYAPC). (Exhibit 10.1,
1994 NU Form 10-K, File No. 1-5324)
10.2 Form of Power Contract dated as of July 1, 1964 between CYAPC and each
of CL&P, HELCO, PSNH and WMECO. (Exhibit 10.2, 1994 NU Form 10-K,
File No. 1-5324)
10.2.1 Form of Additional Power Contract dated as of April 30,
1984, between CYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.2.1, 1994 NU Form 10-K, File No. 1-5324)
10.2.2 Form of 1987 Supplementary Power Contract dated as of April
1, 1987, between CYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.2.6, 1987 NU Form 10-K, File No. 1-5324)
10.3 Capital Funds Agreement dated as of September 1, 1964 between CYAPC
and CL&P, HELCO, PSNH and WMECO. (Exhibit 10.3, 1994 NU Form 10-K,
File No. 1-5324)
10.4 Stockholder Agreement dated December 10, 1958 between Yankee Atomic
Electric Company (YAEC) and CL&P, HELCO, PSNH and WMECO. (Exhibit
10.4, 1993 NU Form 10-K, File No. 1-5324)
10.5 Form of Amendment No. 3, dated as of April 1, 1985, to Power Contract
between YAEC and each of CL&P, PSNH and WMECO, including a composite
restatement of original Power Contract dated June 30, 1959 and
Amendment No. 1 dated April 1, 1975 and Amendment No. 2 dated October
1, 1980. (Exhibit 10.5, 1988 NU Form 10-K, File No. 1-5324.)
10.5.1 Form of Amendment No. 4 to Power Contract, dated May 6,
1988, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.1, 1989 NU Form 10-K, File No. 1-5324)
10.5.2 Form of Amendment No. 5 to Power Contract, dated June 26,
1989, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.2, 1989 NU Form 10-K, File No. 1-5324)
10.5.3 Form of Amendment No. 6 to Power Contract, dated
July 1,1989, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.3, 1989 NU Form 10-K, File No. 1-5324)
10.5.4 Form of Amendment No. 7 to Power Contract, dated February
1, 1992, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.4, 1993 NU Form 10-K, File No. 1-5324)
10.6 Stockholder Agreement dated as of May 20, 1968 among stockholders of
MYAPC. (Exhibit 4.15, File No. 2-30018)
10.7 Form of Power Contract dated as of May 20, 1968 between MYAPC and each
of CL&P, HELCO, PSNH and WMECO. (Exhibit 4.14, File No. 2-30018)
10.7.1 Form of Amendment No. 1 to Power Contract dated as of March
1, 1983 between MYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.7.1, 1993 NU Form 10-K, File No. 1-5324)
10.7.2 Form of Amendment No. 2 to Power Contract dated as of
January 1, 1984 between MYAPC and each of CL&P, PSNH and
WMECO. (Exhibit 10.7.2, 1993 NU Form 10-K, File No. 1-
5324)
10.7.3 Form of Amendment No. 3 to Power Contract dated as of
October 1, 1984 between MYAPC and each of CL&P, PSNH and
WMECO. (Exhibit No. 10.7.3, 1994 NU Form 10-K, File No. 1-
5324)
10.7.4 Form of Additional Power Contract dated as of February 1,
1984 between MYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.7.4, 1993 NU Form 10-K, File No. 1-5324)
10.8 Capital Funds Agreement dated as of May 20, 1968 between Maine Yankee
Atomic Power Company (MYAPC) and CL&P, PSNH, HELCO and WMECO.
(Exhibit 4.13, File No. 2-30018)
10.8.1 Amendment No. 1 to Capital Funds Agreement, dated as of
August 1, 1985, between MYAPC, CL&P, PSNH and WMECO.
(Exhibit No. 10.8.1, 1994 NU Form 10-K, File No. 1-5324)
10.9 Sponsor Agreement dated as of August 1, 1968 among the sponsors of
VYNPC. (Exhibit 4.16, File No. 2-30285)
10.10 Form of Power Contract dated as of February 1, 1968 between VYNPC
and each of CL&P, HELCO, PSNH and WMECO. (Exhibit 4.18, File No. 2-
30018)
10.10.1 Form of Amendment to Power Contract dated as of June 1, 1972
between VYNPC and each of CL&P, HELCO, PSNH and WMECO.
(Exhibit 5.22, File No. 2-47038)
10.10.2 Form of Second Amendment to Power Contract dated as of
April 15, 1983 between VYNPC and each of CL&P, PSNH and
WMECO. (Exhibit 10.10.2, 1993 NU Form 10-K, File No. 1-
5324)
10.10.3 Form of Third Amendment to Power Contract dated as of April
24, 1985 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit No. 10.10.3, 1994 NU Form 10-K, File No. 1-5324)
10.10.4 Form of Fourth Amendment to Power Contract dated as of
June 1, 1985 between VYNPC and each of CL&P, PSNH and
WMECO. (Exhibit 10.10.4, 1986 NU Form 10-K, File No. 5324)
10.10.5 Form of Fifth Amendment to Power Contract dated as of May 6,
1988 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.5, 1990 NU Form 10-K, File No. 1-5324)
10.10.6 Form of Sixth Amendment to Power Contract dated as of May
6, 1988 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.6, 1990 NU Form 10-K, File No. 1-5324)
10.10.7 Form of Seventh Amendment to Power Contract dated as of June
15, 1989 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.7, 1990 NU Form 10-K, File No. 1-5324)
10.10.8 Form of Eighth Amendment to Power Contract dated as of
December 1, 1989 between VYNPC and each of CL&P, PSNH and
WMECO. (Exhibit 10.10.8, 1990 NU Form 10-K, File No. 1-
5324)
10.10.9 Form of Additional Power Contract dated as of February 1,
1984 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.9, 1993 NU Form 10-K, File No. 1-5324)
10.11 Capital Funds Agreement dated as of February 1, 1968 between Vermont
Yankee Nuclear Power Corporation (VYNPC) and CL&P, HELCO, PSNH and
WMECO. (Exhibit 4.16, File No. 2-30018)
10.11.1 Form of First Amendment to Capital Funds Agreement dated as
of March 12, 1968 between VYNPC and CL&P, HELCO, PSNH and
WMECO. (Exhibit 4.17, File No. 2-30018)
10.11.2 Form of Second Amendment to Capital Funds Agreement dated
as of September 1, 1993 between VYNPC and CL&P, HELCO, PSNH
and WMECO. (Exhibit 10.11.2, 1993 NU Form 10-K, File No. 1-
5324)
10.12 Amended and Restated Millstone Plant Agreement dated as of December
1, 1984 by and among CL&P, WMECO and Northeast Nuclear Energy Company
(NNECO). (Exhibit 10.12, 1994 NU Form 10-K, File No. 1-5324)
10.13 Sharing Agreement dated as of September 1, 1973 with respect to 1979
Connecticut nuclear generating unit (Millstone 3). (Exhibit 6.43, File
No. 2-50142)
10.13.1 Amendment dated August 1, 1974 to Sharing Agreement - 1979
Connecticut Nuclear Unit. (Exhibit 5.45, File No. 2-52392)
10.13.2 Amendment dated December 15, 1975 to Sharing Agreement -
1979 Connecticut Nuclear Unit. (Exhibit 7.47, File No. 2-
60806)
10.13.3 Amendment dated April 1, 1986 to Sharing Agreement - 1979
Connecticut Nuclear Unit. (Exhibit 10.17.3, 1990 NU Form
10-K, File No. 1-5324)
10.14 Agreement dated July 19, 1990, among NAESCO and Seabrook Joint owners
with respect to operation of Seabrook. (Exhibit 10.53, 1990 NU Form
10-K, File No. 1-5324)
10.15 Sharing Agreement between CL&P, WMECO, HP&E, HWP and PSNH dated as of
June 1, 1992. (Exhibit 10.17, 1992 NU Form 10-K, File No. 1-5324)
10.16 Rate Agreement by and between NUSCO, on behalf of NU, and the
Governor of the State of New Hampshire and the New Hampshire Attorney
General dated as of November 22, 1989. (Exhibit 10.44, 1989 NU Form
10-K, File No. 1-5324)
* 10.16.1 First Amendment to Rate Agreement dated as of December 5,
1989.
* 10.16.2 Second Amendment to Rate Agreement dated as of December 12,
1989.
* 10.16.3 Third Amendment to Rate Agreement dated as of December 3,
1993.
* 10.16.4 Fourth Amendment to Rate Agreement dated as of September 21,
1994.
* 10.16.5 Fifth Amendment to Rate Agreement dated as of September 9,
1994.
10.17 Form of Seabrook Power Contract between PSNH and NAEC, as amended and
restated. (Exhibit 10.45, NU 1992 Form 10-K, File No. 1-5324)
10.18 Agreement (composite) for joint ownership, construction and operation
of New Hampshire nuclear unit, as amended through the November 1,
1990 twenty-third amendment. (Exhibit No. 10.17, 1994 NU Form 10-K,
File No. 1-5324)
10.18.1 Memorandum of Understanding dated November 7, 1988 between
PSNH and Massachusetts Municipal Wholesale Electric Company
(Exhibit 10.17, PSNH 1989 Form 10-K, File No. 1-6392)
10.18.2 Agreement of Settlement among Joint Owners dated as of
January 13, 1989. (Exhibit 10.13.21, 1988 NU Form
10-K, File No. 1-5324)
10.18.2.1 Supplement to Settlement Agreement, dated as of
February 7, 1989, between PSNH and Central Maine
Power Company. (Exhibit 10.18.1, PSNH 1989 Form
10-K, File No. 1-6392)
10.19 Amended and Restated Agreement for Seabrook Project Disbursing Agent
dated as of November 1, 1990. (Exhibit 10.4.7, File No. 33-35312)
10.19.1 Form of First Amendment to Exhibit 10.19. (Exhibit 10.4.8,
File No. 33-35312)
10.19.2 Form (Composite) of Second Amendment to Exhibit 10.19.
(Exhibit 10.18.2, 1993 NU Form 10-K, File No. 1-5324)
10.20 Agreement dated November 1, 1974 for Joint Ownership, Construction and
Operation of William F. Wyman Unit No. 4 among PSNH, Central Maine
Power Company and other utilities. (Exhibit 5.16 , File No. 2-52900)
10.20.1 Amendment to Exhibit 10.20 dated June 30, 1975. (Exhibit
5.48, File No. 2-55458)
10.20.2 Amendment to Exhibit 10.20 dated as of August 16, 1976.
(Exhibit 5.19, File No. 2-58251)
10.20.3 Amendment to Exhibit 10.20 dated as of December 31, 1978.
(Exhibit 5.10.3, File No. 2-64294)
10.21 Form of Service Contract dated as of July 1, 1966 between each of NU,
CL&P and WMECO and the Service Company. (Exhibit 10.20, 1993 NU Form
10-K, File No. 1-5324)
10.21.1 Service Contract dated as of June 5, 1992 between PSNH and
the Service Company. (Exhibit 10.12.4, 1992 NU Form 10-K,
File No. 1-5324)
10.21.2 Service Contract dated as of June 5, 1992 between NAEC and
the Service Company. (Exhibit 10.12.5, 1992 NU Form 10-K,
File No. 1-5324)
10.21.3 Form of Annual Renewal of Service Contract. (Exhibit
10.20.3, 1993 NU Form 10-K, File No. 1-5324)
10.22 Memorandum of Understanding between CL&P, HELCO, HP&E, HWP and WMECO
dated as of June 1, 1970 with respect to pooling of generation and
transmission. (Exhibit 13.32, File No. 2-38177)
10.22.1 Amendment to Memorandum of Understanding between CL&P,
HELCO, HP&E, HWP and WMECO dated as of February 2, 1982 with
respect to pooling of generation and transmission. (Exhibit
10.21.1, 1993 NU Form 10-K, File No. 1-5324)
10.22.2 Amendment to Memorandum of Understanding between CL&P,
HELCO, HP&E, HWP and WMECO dated as of January 1, 1984 with
respect to pooling of generation and transmission. (Exhibit
10.21.2, 1994 NU Form 10-K, File No. 1-5324)
10.23 New England Power Pool Agreement effective as of November 1, 1971, as
amended to November 1, 1988. (Exhibit 10.15, 1988 NU Form 10-K, File
No. 1-5324.)
10.23.1 Twenty-sixth Amendment to Exhibit 10.23 dated as of March
15, 1989. (Exhibit 10.15.1, 1990 NU Form 10-K, File No. 1-
5324)
10.23.2 Twenty-seventh Amendment to Exhibit 10.23 dated as of
October 1, 1990. (Exhibit 10.15.2, 1991 NU Form 10-K, File
No. 1-5324)
10.23.3 Twenty-eighth Amendment to Exhibit 10.23 dated as of
September 15, 1992. (Exhibit 10.18.3, 1992 NU Form 10-K,
File No. 1-5324)
10.23.4 Twenty-ninth Amendment to Exhibit 10.23 dated as of May 1,
1993. (Exhibit 10.22.4, 1993 NU Form 10-K, File No. 1-5324)
* 10.23.5 Thirty-second Amendment (Amendments 30 and 31 were
withdrawn) to Exhibit 10.23 dated as of September 1, 1995.
10.24 Agreements among New England Utilities with respect to the Hydro-
Quebec interconnection projects. (See Exhibits 10(u) and 10(v);
10(w), 10(x), and 10(y), 1990 and 1988, respectively, Form 10-K of New
England Electric System, File No. 1-3446.)
10.25 Trust Agreement dated February 11, 1992, between State Street Bank and
Trust Company of Connecticut, as Trustor, and Bankers Trust Company,
as Trustee, and CL&P and WMECO, with respect to NBFT. (Exhibit 10.23,
1991 NU Form 10-K, File No. 1-5324)
10.25.1 Nuclear Fuel Lease Agreement dated as of February 11, 1992,
between Bankers Trust Company, Trustee, as Lessor, and CL&P
and WMECO, as Lessees. (Exhibit 10.23.1, 1991 NU Form 10-K,
File No. 1-5324)
10.26 Simulator Financing Lease Agreement, dated as of February 1, 1985, by
and between ComPlan and NNECO. (Exhibit 10.25, 1994 NU Form 10-K,
File No. 1-5324)
10.27 Simulator Financing Lease Agreement, dated as of May 2, 1985, by and
between The Prudential Insurance Company of America and NNECO.
(Exhibit No. 10.26, 1994 NU Form 10-K, File No. 1-5324)
10.28 Lease dated as of April 14, 1992 between The Rocky River Realty
Company (RRR) and Northeast Utilities Service Company (NUSCO) with
respect to the Berlin, Connecticut headquarters (office lease).
(Exhibit 10.29, 1992 NU Form 10-K, File No. 1-5324)
10.28.1 Lease dated as of April 14, 1992 between RRR and NUSCO with
respect to the Berlin, Connecticut headquarters (project
lease). (Exhibit 10.29.1, 1992 NU Form 10-K, File No. 1-
5324)
10.29 Millstone Technical Building Note Agreement dated as of December 21,
1993 between, by and between The Prudential Insurance Company of
America and NNECO. (Exhibit 10.28, 1993 NU Form 10-K, File No. 1-
5324)
10.30 Lease and Agreement, dated as of December 15, 1988, by and between
WMECO and Bank of New England, N.A., with BNE Realty Leasing
Corporation of North Carolina. (Exhibit 10.63, 1988 NU Form 10-K,
File No. 1-5324.)
10.31 Note Agreement dated April 14, 1992, by and between The Rocky River
Realty Company (RRR) and Purchasers named therein (Connecticut General
Life Insurance Company, Life Insurance Company of North America, INA
Life Insurance Company of New York, Life Insurance Company of
Georgia), with respect to RRR's sale of $15 million of guaranteed
senior secured notes due 2007 and $28 million of guaranteed senior
secured notes due 2017. (Exhibit 10.52, 1992 NU Form 10-K, File No.
1-5324)
10.31.1 Note Guaranty dated April 14, 1992 by Northeast Utilities
pursuant to Note Agreement dated April 14, 1992 between RRR
and Note Purchasers, for the benefit of The Connecticut
National Bank as Trustee, the Purchasers and the owners of
the notes. (Exhibit 10.52.1, 1992 NU Form 10-K, File No. 1-
5324)
10.31.2 Assignment of Leases, Rents and Profits, Security Agreement
and Negative Pledge, dated as of April 14, 1992 among RRR,
NUSCO and The Connecticut National Bank as Trustee, securing
notes sold by RRR pursuant to April 14, 1992 Note Agreement.
(Exhibit 10.52.2, 1992 NU Form 10-K, File No. 1-5324)
10.32 Master Trust Agreement dated as of September 2, 1986 between CL&P and
WMECO and Colonial Bank as Trustee, with respect to reserve funds for
Millstone 1 decommissioning costs. (Exhibit 10.80, 1986 NU Form 10-K,
File No. 1-5324)
10.32.1 Notice of Appointment of Mellon Bank, N.A. as Successor
Trustee, dated November 20, 1990, and Acceptance of
Appointment. (Exhibit 10.41.1, 1992 NU Form 10-K, File No.
1-5324)
10.33 Master Trust Agreement dated as of September 2, 1986 between CL&P and
WMECO and Colonial Bank as Trustee, with respect to reserve funds for
Millstone 2 decommissioning costs. (Exhibit 10.81, 1986 NU Form 10-K,
File No. 1-5324)
10.33.1 Notice of Appointment of Mellon Bank, N.A. as Successor
Trustee, dated November 20, 1990, and Acceptance of
Appointment. (Exhibit 10.42.1, 1992 NU Form 10-K, File No.
1-5324)
10.34 Master Trust Agreement dated as of April 23, 1986 between CL&P and
WMECO and Colonial Bank as Trustee, with respect to reserve funds for
Millstone 3 decommissioning costs. (Exhibit 10.82, 1986 NU Form 10-K,
File No. 1-5324)
10.34.1 Notice of Appointment of Mellon Bank, N.A. as Successor
Trustee, dated November 20, 1990, and Acceptance of
Appointment. (Exhibit 10.43.1, 1992 NU Form 10-K, File No.
1-5324)
10.35 NU Executive Incentive Plan, effective as of January 1, 1991.
(Exhibit 10.44, NU 1991 Form 10-K, File No. 1-5324)
10.36 Supplemental Executive Retirement Plan for Officers of NU System
Companies, Amended and Restated effective as of January 1, 1992.
(Exhibit 10.45.1, NU Form 10-Q for the Quarter Ended June 30, 1992,
File No. 1-5324)
10.36.1 Amendment 1 to Exhibit 10.36, effective as of August 1,
1993. (Exhibit 10.35.1, 1993 NU Form 10-K, File No. 1-5324)
10.36.2 Amendment 2 to Exhibit 10.36, effective as of January 1,
1994. (Exhibit 10.35.2, 1993 NU Form 10-K, File No. 1-5324)
* 10.36.3 Amendment 3 to Exhibit 10.36, effective as of January 1,
1996.
10.37 Loan Agreement dated as of December 2, 1991, by and between NU and
Mellon Bank, N.A., as Trustee, with respect to NU's loan of $175
million to an ESOP Trust. (Exhibit 10.46, NU 1991 Form 10-K, File No.
1-5324)
10.37.1 First Amendment to Exhibit 10.37 dated February 7, 1992.
(Exhibit 10.36.1, 1993 NU Form 10-K, File No. 1-5324)
10.37.2 Loan Agreement dated as of March 19, 1992 by and between NU
and Mellon Bank, N.A., as Trustee, with respect to NU's loan
of $75 million to the ESOP Trust. (Exhibit 10.49.1, 1992 NU
Form 10-K, File No. 1-5324)
10.37.3 Second Amendment to Exhibit 10.37 dated April 9, 1992.
(Exhibit 10.36.3, 1993 NU Form 10-K, File No. 1-5324)
10.38 Employment Agreement. (Exhibit 10.48, NU Form 10-Q for the Quarter
Ended June 30, 1992, File No. 1-5324)
* 10.39 Northeast Utilities Deferred Compensation Plan for Trustees, Amended
and Restated December 13, 1994.
* 10.40 Deferred Compensation Plan for Officers of Northeast Utilities System
Companies adopted September 23, 1986.
* 10.41 Reciprocal Support Agreement Among NNECO, NAESCO, CYAPC, YAEC and
NUSCO dated January 1, 1996.
13 Annual Report to Security Holders (Each of the Annual Reports is filed
only with the Form 10-K of that respective registrant.)
* 13.1 Portions of the Annual Report to Shareholders of NU (pages 15-46) that
have been incorporated by reference into this Form 10-K.
13.2 Annual Report of CL&P.
13.3 Annual Report of WMECO.
13.4 Annual Report of PSNH.
13.5 Annual Report of NAEC.
*21 Subsidiaries of the Registrant.
27 Financial Data Schedules (Each Financial Data Schedule is filed only with
the Form 10-K of that respective registrant.)
27.1 Financial Data Schedule of NU.
27.2 Financial Data Schedule of CL&P.
27.3 Financial Data Schedule of WMECO.
27.4 Financial Data Schedule of PSNH.
27.5 Financial Data Schedule of NAEC.
EXHIBIT 4.2.17.1
October 27, 1988
Irrevocable Letter of Credit No. 84179
Chemical Bank,
as agent for the Trustee
under Indenture of
Trust dated as of
October 1, 1988
Dear Sirs:
At the request, on the instructions and for the account, of The
Connecticut Light and Power Company, a Connecticut corporation (the
"Company"), we hereby establish this irrevocable Letter of Credit in your
favor, as agent for the Trustee under Indenture of Trust dated as of October
1, 1988 between The Industrial Development Authority of the State of New
Hampshire (the "Issuer") and Baybank Middlesex (the "Trustee") as Trustee,
(the "Indenture") pursuant to which $10,000,000 in aggregate principal amount
of the Issuer's Pollution Control Revenue Bonds (The Connecticut Light and
Power Company Project) Series 1988 (the "Bonds") were issued.
We hereby irrevocably authorize you to draw on us in accordance with the
terms and conditions hereinafter set forth, an aggregate amount not exceeding
$10,833,334 (as reduced from time to time in accordance with the provisions
hereof, the "Stated Amount") of which an aggregate amount not exceeding
$10,000,000 may be drawn upon with respect to principal of the Bonds (or the
principal portion of the purchase price of Bonds purchased pursuant to
Section 2.4 of the Indenture) and of which an aggregate amount not exceeding
$833,334 (representing 200 days of interest at 15% per annum) may be drawn
upon with respect to interest on the Bonds (or the interest portion of the
purchase price of Bonds purchased pursuant to Section 2.4 of the Indenture).
Subject to the foregoing and the further provisions of this Letter of
Credit, a demand for payment may be made by you by presentation to us at 299
Park Avenue, New York, New York 10171 (Attention: Letter of Credit
Department) of your sight draft(s), accompanied by your drawing certificate:
(a) in the form of Annex A attached hereto (an "A Drawing") if the
drawing is made with respect to the payment of principal of the Bonds upon
the acceleration, redemption or stated maturity thereof;
(b) in the form of Annex B attached hereto (a "B Drawing") if the
drawing is made with respect to the payment of interest on the Bonds on or
prior to their stated maturity date;
(c) in the form of Annex C attached hereto (a "C Drawing") if the
drawing is made with respect to the payment of the portion of the purchase
price of Bonds tendered for purchase pursuant to Section 2.4 of the Indenture
("Pledged Bonds") equal to the principal amount of such Bonds; and
(d) in the form of Annex D attached hereto (a "D Drawing") if the
drawing is made with respect to the payment of the portion of the purchase
price of Pledged Bonds equal to the amount of accrued and unpaid interest on
such Bonds.
The aforesaid certificates, which form an integral part of this Letter
of Credit, shall have all blanks appropriately filled in and shall be signed
by your authorized officer, and any sight draft and the aforesaid
certificates shall be either in the form of a letter on your letterhead or a
communication by telecopy or tested telex. Any telecopy or tested telex
pursuant to which a drawing is made hereunder shall be promptly confirmed to
us in a letter on your letterhead.
Each sight draft drawn under this credit must bear on its face the
clause "Drawn under Union Bank of Switzerland, New York Branch Letter of
Credit No. 84179".
Demand for payment may be made by you under this Letter of Credit prior
to the expiration hereof at any time during the Bank's business hours at its
aforesaid address, on a Business Day (as hereinafter defined). As used herein
the term "Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in the City of New York and in the cities in which
the principal offices of the Trustee, the Registrar, the Paying Agent, and
the Tender Agent (all as defined in the Indenture) are located are required
by law, regulation or executive order to close or on which such banks are
generally voluntarily closed for business in such locations and on which the
New York Stock Exchange is open. If demand for payment is made by you
hereunder at or prior to 1:00 P.M., New York City time, on a Business Day,
and provided that such demand for payment and the documents presented in
connection therewith conform to the terms and conditions hereto, payment
shall be made to you of the amount demanded, in immediately available funds,
not later than 3:00 P.M., New York City time, on the same Business Day. If
demand for payment is made by you hereunder after 1:00 P.M., New York City
time, on a Business Day, and provided that such demand for payment and the
documents presented in connection therewith conform to the terms hereof,
payment shall be made to you of the amount demanded, in immediately available
funds, not later than 10:00 A.M., New York City time, on the next succeeding
Business Day.
The demand for payment hereunder shall not exceed the Stated Amount. The
Stated Amount shall be reduced by delivery to us of your certificate in the
form of Annex E in the amount specified in such certificate.
The Stated Amount shall also be reduced by the amount of any drawing
hereunder, except that (i) the amount of each B Drawing in respect of
interest shall forthwith be restored unless we shall notify you no later than
16 days after a drawing in respect of interest that the same shall not be
restored by reason of the failure of the Company to have reimbursed such
drawing; and (ii) the amount of each C Drawing and D Drawing shall be
restored upon release by us of the Pledged Bonds in respect of which such C
Drawing and D Drawing were made.
This Letter of Credit shall expire at our close of business at our
aforesaid address on the earlier to occur of (i) the Expiration Date (or if
the same is not a Business Day, the first Business Day following the
Expiration Date) or (ii) the date on which we receive from the Trustee a
certificate in the form of Annex F hereto. This Letter of Credit shall be
promptly surrendered to us by you upon such expiration. The Expiration Date
shall initially be August 19, 1993 and shall be automatically extended for
successive additional twelve month periods unless we shall give you, not
later than fifty-one months prior to the then-current Expiration Date,
written notice of our election not so to extend the Expiration Date.
This Letter of Credit sets forth in full the terms of our undertaking,
and this undertaking shall not in any way be modified, amended, amplified or
limited by reference to any document, instrument or agreement referred to
herein or in which this Letter of Credit is referred to or to which this
Letter of Credit relates, and any such reference shall not be deemed to
incorporate herein by reference any document, instrument or agreement.
This Letter of Credit is transferable in its entirety (but not in part)
to any transferee who has succeeded Baybank Middlesex as Trustee under the
Indenture and may be successively transferred. Transfer of this Letter of
Credit to such transferee shall be effected by the presentation to us of this
Letter of Credit accompanied by a certificate substantially in the form of
Annex G attached hereto.
Only you (or a transferee as permitted by the terms of this Letter of
Credit) may make drawings under this Letter of Credit. Upon the payment to
you or your account of the amount specified in a sight draft drawn hereunder,
we shall be fully discharged on our obligation under this Letter of Credit
with respect to such draft, and we shall not thereafter be obligated to make
any further payments under this Letter of Credit in respect of such draft to
you or to any other person who may have made to you or who makes to you a
demand for payment of the purchase price or principal of, or interest on, any
Bond.
Except as otherwise stated, this Letter of Credit is subject to the
Uniform Customs and Practice for Documentary Credits (1983 Revision),
International Chamber of Commerce Publication No. 400 and, to the extent the
same are not dispositive, this Letter of Credit shall be governed by, and
construed in accordance with, New York law.
Communications to us with respect to this Letter of Credit shall be in
writing and be addressed to us at 299 Park Avenue, New York, New York 10171
(Attention: Letter of Credit Department), specifically referring to the
number of this Letter of Credit. Communications to you with respect to this
Letter of Credit shall be in writing and be addressed to you at 55 Water
Street, Room 505, New York, New York.
Very truly yours,
UNION BANK OF SWITZERLAND, NEW YORK BRANCH
By: /s/Charles E. Arnold
By: /s/Susan E. Zieg
Annex A
DRAWING CERTIFICATE
[Date]
Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171
Attention: Letter of Credit Department
Re: Drawing Certificate
Gentlemen:
Chemical Bank (the "Beneficiary") hereby certifies to Union Bank of
Switzerland, New York Branch (the "Bank") with reference to Irrevocable
Letter of Credit No. 84179 (the "Letter of Credit"; the terms "Bonds",
"Indenture", "Stated Amount" and "Trustee" as used herein having their
respective meanings set forth in the Letter of Credit) that:
1. The Beneficiary is the agent for the Trustee under the Indenture.
2. The Beneficiary is making a demand for payment under the Letter of
Credit with respect to $ to be used for the payment of principal of the
Bonds.
3. The amount of this demand for payment was computed in accordance with
the terms and conditions of the Bonds and the Indenture and is made in
accordance with Section 5.7 of the Indenture.
4. The amount of principal of the Bonds which is due and payable is $
and is the amount of the sight draft accompanying this Certificate.
5. The amount hereby demanded does not exceed the portion of the Stated
Amount available to be drawn under the Letter of Credit in respect of
principal of the Bonds.
6. Upon receipt by the Beneficiary of the amount demanded hereby, (a)
the Beneficiary will apply the same directly to the payment when due of the
appropriate amount owing on account of the Bonds pursuant to the Indenture,
(b) no portion of said amount shall be applied by the Beneficiary for any
other purpose, and (c) no portion of said amount shall be commingled with
other funds held by the Beneficiary.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
Certificate as of the day of , 19 .
CHEMICAL BANK, as agent for the Trustee
By:
Annex B
DRAWING CERTIFICATE
[Date]
Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171
Attention: Letter of Credit Department
Re: Drawing Certificate
Gentlemen:
Chemical Bank (the "Beneficiary") hereby certifies to Union Bank of
Switzerland, New York Branch (the "Bank") with reference to Irrevocable
Letter of Credit No. 84179 (the "Letter of Credit"; the terms "Bonds",
"Indenture", "Stated Amount" and "Trustee" as used herein having their
respective meanings set forth in the Letter of Credit) that:
1. The Beneficiary is the agent for the Trustee under the Indenture.
2. The Beneficiary is making a demand for payment under the Letter of
Credit with respect to $ to be used for the payment of interest on
the Bonds on or prior to their stated maturity date.
3. The amount of this demand for payment was computed in accordance with
the terms and conditions of the Bonds and the Indenture and is demanded in
accordance with Section 5.7 of the Indenture.
4. The amount of interest on the Bonds which is due and payable is $
, and is the amount of the sight draft accompanying this Certificate.
5. The amount hereby demanded does not exceed the portion of the Stated
Amount available to be drawn under the Letter of Credit in respect of
interest on the Bonds.
6. Upon receipt by the Beneficiary of the amount demanded hereby, (a)
the Beneficiary will apply the same directly to the payment when due of the
appropriate amount owing on account of the Bonds pursuant to the Indenture,
(b) no portion of said amount shall be applied by the Beneficiary for any
other purpose, and (c) no portion of said amount shall be commingled with
other funds held by the Beneficiary.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
Certificate as of the day of , 19 .
CHEMICAL BANK, as agent for the Trustee
By:
Annex C
DRAWING CERTIFICATE
[Date]
Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171
Attention: Letter of Credit Department
Re: Drawing Certificate
Gentlemen:
Chemical Bank (the "Beneficiary") hereby certifies to Union Bank of
Switzerland, New York Branch (the "Bank") with reference to Irrevocable
Letter of Credit No. 84179 (the "Letter of Credit" the terms "Bonds",
"Indenture", "Pledged Bonds", "Stated Amount" and "Trustee" as used herein
having their respective meanings set forth in the Letter of Credit) that:
1. The Beneficiary is the agent for the Trustee under the Indenture.
2. The Beneficiary is making a demand for payment under the Letter of
Credit to be applied to the payment of the portion of the purchase price of
Bonds tendered for purchase pursuant to Section 2.4 of the Indenture, equal
to the principal amount thereof.
3. The amount of this demand for payment was computed in accordance with
the terms and conditions of the Bonds and the Indenture and is made in
accordance with Section 5.7 of the Indenture.
4. The amount of the portion of the purchase price equal to the
principal amount of such Bonds is $ , and is the amount of the sight
draft accompanying this Certificate.
5. The amount hereby demanded does not exceed the portion of the Stated
Amount available to be drawn under the Letter of Credit in respect of
principal of the Bonds.
6. Upon receipt by the Beneficiary of the amount demanded hereby, (a)
the Beneficiary will apply the same directly to the payment when due of the
appropriate amount owing on account of the purchase price of Pledged Bonds
pursuant to the Indenture, (b) no portion of said amount shall be applied by
the Beneficiary for any other purpose, and (c) no portion of said amount
shall be commingled with other funds held by the Beneficiary.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
Certificate as of the day of , 19 .
CHEMICAL BANK, as agent for the Trustee
By:
Annex D
DRAWING CERTIFICATE
[Date]
Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171
Attention: Letter of Credit Department
Re: Drawing Certificate
Gentlemen:
Chemical Bank (the "Beneficiary") hereby certifies to Union Bank of
Switzerland, New York Branch (the "Bank") with reference to Irrevocable
Letter of Credit No. 84179 (the "Letter of Credit"; the terms "Bonds",
"Indenture", "Pledged Bonds", "Stated Amount" and "Trustee" as used herein
having their respective meanings set forth in the Letter of Credit) that:
1. The Beneficiary is the agent for the Trustee under the Indenture.
2. The Beneficiary is making a demand for payment under the Letter of
Credit to be applied to the payment of the purchase price of Bonds tendered
for purchase pursuant to Section 2.4 of the Indenture, equal to the amount of
accrued and unpaid interest on such Bonds to the date of purchase thereof.
3. The amount of this demand for payment was computed in accordance with
the terms and conditions of the Bonds and the Indenture and is made in
accordance with Section 5.7 of the Indenture.
4. The amount of such portion of the purchase price equal to accrued and
unpaid interest on such Bond to the date of purchase thereof is $ , and
is the amount of the sight draft accompanying this Certificate.
5. The amount hereby demanded does not exceed the portion of the Stated
Amount available to be drawn under the Letter of Credit in respect of
interest on the Bonds.
6. Upon receipt by the Beneficiary of the amount demanded hereby, (a)
the Beneficiary will apply the same directly to the payment when due of the
appropriate amount owing on account of the purchase price of Pledged Bonds
pursuant to the Indenture, (b) no portion of said amount shall be applied by
the Beneficiary for any other purpose, and (c) no portion of said amount
shall be commingled with other funds held by the Beneficiary.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
Certificate as of the day of , 19 .
CHEMICAL BANK, as agent for the Trustee
By:
ANNEX E
[Date]
Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171
Attention: Letter of Credit Department
Re: Irrevocable Letter of Credit No. 84179
Gentlemen:
Chemical Bank (the "Beneficiary") hereby certifies to Union Bank of
Switzerland, New York Branch (the "Bank") with reference to Irrevocable
Letter of Credit No. 84179 (the "Letter of Credit"; the terms "Bonds",
"Indenture", "Stated Amount" and "Trustee" as used herein having their
respective meanings set forth in the Letter of Credit) that:
1. The Beneficiary is the agent for the Trustee under the Indenture.
2. The Beneficiary hereby notifies you that on or prior to the date
hereof $ principal amount of the Bonds have been paid, redeemed or
defeased pursuant to the Indenture from Priority amounts (as defined in the
Indenture).
3. Following the payment, redemption or the defeasance referred to in
paragraph (2) above, the aggregate principal amount of all of the Bonds
outstanding is $ .
4. The amount of interest (computed at a rate of 15% per annum),
accruing on the Bonds referred to in paragraph (3) above in any period of 200
days is $ .
5. The amount available to be drawn by the Beneficiary under the Letter
of Credit in respect of interest on the Bonds or the portion of the purchase
price of Pledged Bonds equal to accrued interest is reduced to $ (such
amount being equal to the amount specified in paragraph 4 above) upon receipt
by the Bank of this certificate.
6. The Stated Amount of the Letter of Credit is reduced to $
(such amount being equal to the sum of the amounts specified in paragraphs 3,
and 4 above), upon receipt by the Bank of this certificate.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
Certificate this day of , 19 .
CHEMICAL BANK, as agent for the Trustee
By:
Annex F
[Date]
Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171
Attention: Letter of Credit Department
Re: Irrevocable Letter of Credit No. 84179
Gentlemen:
Chemical Bank (the "Beneficiary") hereby certifies to Union Bank of
Switzerland, New York Branch (the "Bank") with reference to Irrevocable
Letter of Credit No. 84179 (the "Letter of Credit"; the terms "Bonds",
"Indenture" and "Trustee" as used herein having their respective meanings set
forth in the Letter of Credit) that:
1. The Beneficiary is the agent for the Trustee under the Indenture.
2. The Beneficiary hereby notifies you that all Bonds have been paid,
redeemed or defeased pursuant to the Indenture from Priority Amounts (as
defined in the Indenture) or the Letter of Credit is no longer required to be
maintained pursuant to the Indenture.
3. The Letter of Credit is attached hereto and is being surrendered to
you herewith.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
Certificate this day of , 19 .
CHEMICAL BANK, as agent for the Trustee
By:
Annex G
[Date]
Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171
Dear Sirs:
We refer to Letter of Credit No. 84179, issued in favor of CHEMICAL
BANK, as agent for the Trustee in the amount of $ .
For value received we hereby irrevocably transfer to ,
hereinafter referred to as the transferee, all rights of the undersigned to
draw under the above Letter of Credit in its entirety.
By this transfer, all rights of the undersigned in such Letter of Credit
are transferred to the transferee and the transferee shall have the sole
rights relating to any amendments whether increases or extensions or other
amendments and whether now existing or hereafter made. All amendments are to
be advised direct to the transferee without necessity of any consent of or
notice to the undersigned.
The Letter of Credit is returned herewith.
Please notify the transferee of this transfer and the conditions of the
Letter of Credit.
In connection with the above transactions, we herewith hand you our
check to the order of Union Bank of Switzerland, New York Branch for $
representing its transfer fee, which is to be considered earned whether or
not any drafts are drawn and whether or not payments are made under the above
Letter of Credit. We also agree to pay to you on demand any expenses which
may be incurred by you in connection with this transfer.
Very truly yours,
(Signature of Transferer)
SIGNATURE AUTHENTICATED
(Bank)
(Authorized Signature)
EXHIBIT 4.2.17.2
Reimbursement and Security Agreement
REIMBURSEMENT AND SECURITY AGREEMENT, dated as of October 1, 1988
between The CONNECTICUT LIGHT AND POWER COMPANY, a Connecticut corporation
(the "Company"), and UNION BANK OF SWITZERLAND, NEW YORK BRANCH (the "Bank")
WHEREAS, The Industrial Development Authority of the State of New
Hampshire (the "Issuer") proposes (i) to issue $10,000,000 aggregate
principal amount of its Pollution Control Revenue Bonds (The Connecticut
Light and Power Company Project) Series 1988 (the "Bonds") pursuant to an
Indenture of Trust dated as of October 1, 1988 (the "Indenture"), between the
Issuer and Baybank Middlesex, as trustee (the "Trustee"), and (ii) to lend
the proceeds of the sale of the Bonds to the Company pursuant to a Financing
Agreement between the Issuer and the Company, dated as of October 1, 1988
(the "Loan Agreement");
WHEREAS, in order to provide security for the payment when due of the
principal of, and interest on, the Bonds, the Company has requested the Bank
to issue an irrevocable letter of credit substantially in the form of Exhibit
A hereto (the "Letter of Credit") initially in the amount of $10,833,334 of
which $1O,000,000 may be drawn on in respect of principal of the Bonds and
$833,334 (representing 200 days of interest at 15% per annum) may be drawn on
in respect of interest on the Bonds
NOW THEREFORE, in consideration of the premises and in order to induce
the Bank to issue the Letter of Credit, the parties hereto hereby agree as
follows:
SECTION 1 (a) Definitions. The following terms, as used herein, have
the following respective meanings:
"Adjusted Capitalization" means, at any date, an amount equal to the sum
of (i) the Capitalization of the Company at such date, plus (ii) the excess,
if any, of (x) the aggregate unpaid principal amount of all short-term
indebtedness for borrowed money of the Company at such date over (y) 10% of
the Capitalization of the Company as of the date of the most recently
prepared financial statements of the Company which have been included in a
Form 10-K or 10-Q filed with the Securities and Exchange Commission (or, if
the Company is not at the time subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, the most recent annual or
quarterly financial statements, as the case may be, delivered pursuant to
Section 6(a) hereof).
"Agreement" means this Reimbursement and Security Agreement, as the same
may from time to time be amended, supplemented or modified.
"Beneficiary" means Chemical Bank, as agent for the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York and in the cities in which the
principal offices of the Trustee, the Registrar, the Paying Agent, and the
Tender Agent (all as defined in the Indenture) are located are required by
law, regulation or executive order to close or on which such banks are
generally voluntarily closed for business in such locations and on which the
New York Stock Exchange is open.
"Capitalization of the Company" means at any date, an amount equal to
the sum of (i) the total principal amount of all long-term indebtedness for
borrowed money, secured or unsecured, of the Company then outstanding
(excluding, however, indebtedness (not to exceed $320,000,000, provided,
that, if the Company merges or consolidates with WMECO, the exclusion for the
surviving entity shall be $400,000,000) existing under any nuclear fuel
financing so long as the proceeds of such indebtedness are used solely to
finance the purchase and carrying of nuclear fuel and so long as the
appropriate regulatory authorities have not taken any action which would not
allow the costs with respect to such financing to be recovered through the
rate making process), (ii) the aggregate of the par value of, or stated
capital represented by, the outstanding shares of all classes of capital
stock of the Company and (iii) the surplus of the Company, paid in, earned
and other, if any.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Common Equity" means an amount equal to the sum of the aggregate of the
par value of, or stated capital represented by, the outstanding shares of
common stock of the Company, and the surplus of the Company, paid in, earned
and other, if any, as of the date of the most recently prepared financial
statements of the Company which have been included in a Form 10-K or 10-Q
filed with the Securities and Exchange Commission (or, if the Company is not
at the time subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended, the most recent annual or quarterly financial
statements, as the case may be, delivered pursuant to Section 6(a) hereof).
"Controlled Group" means all members of a controlled group of
corporations and all trades of businesses (whether or not incorporated) under
common control, which, together with the Company, are treated as a single
employer under Section 414(b) or 414(c) of the Code.
"Date of Issuance" means the date on which the Letter of Credit is
issued upon request of the Company pursuant to Section 2(a) hereof, which
date shall in no event be later than October 31, 1988.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person as lessee under
capital leases, (v) all Debt of others secured by a Lien on any asset of such
Person, whether or not such Debt is assumed by such Person, and (vi) all Debt
of others Guaranteed by such Person.
"Default" means any event or condition which with the giving of notice
or the lapse of time or both would, unless cured or waived, become an Event
of Default.
"Disclosure Document" means the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987, the Company's Quarterly Reports on
Form 10-Q for the fiscal quarters ended March 31, 1988 and June 30, 1988, and
the Company's Current Reports on Form 8-K dated January 26, 1988, March 24,
1988 and June 22, 1988.
"Drawing" means any "A Drawing", "B Drawing", "C Drawing" and "D
Drawing" as such terms are defined in the Letter of Credit.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means any of the events specified in Section 7
hereof.
"Expiration Date" means the date on which the Letter of Credit expires
in accordance with its terms.
"Guaranty" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt of any other
Person or in any manner providing for the payment of any Debt of any other
Person or otherwise protecting the holder of such Debt against loss (whether
by agreement to keep-well, to purchase assets, goods, securities or services,
to take-or-pay or otherwise); provided that the term "Guaranty" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a correlative meaning.
"HELCO" means the Hartford Electric Light Company, a previously existing
Connecticut corporation which merged with and into the Company effective as
of the close of business on June 30, 1982.
"Lien" means with respect to any asset, (i) any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
or (ii) the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset.
"Northeast" means Northeast Utilities, a Massachusetts voluntary
business association.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an Individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code and is either (i) maintained by the Company or
any member of the Controlled Group for employees of the Company or any member
of the Controlled Group or (ii) maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than one
employer makes contributions and to which the Company or any member of the
Controlled Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions.
"Pledged Bonds" has the meaning set forth in Section 8 hereof.
"Related Documents" means the Bonds, the Indenture and the Loan
Agreement and any other agreement or instrument relating hereto or thereto.
"Reportable Event" shall have the meaning set forth in Section 5(h)
hereof.
"Significant Subsidiary" means at the time any determination thereof is
to be made, a Subsidiary which is a "significant subsidiary" within the
meaning of Regulation S-X of the Securities and Exchange Commission.
"Stated Amount" has the meaning set forth in the Letter of Credit.
"Subsidiary" means as to any Person, any corporation or other entity of
which securities or other ownership interests having more than 50% of the
ordinary voting power to elect the board of directors or other persons
performing similar functions is at the time owned directly or indirectly by
such Person; unless otherwise specified, "Subsidiary" shall mean a Subsidiary
of the Company.
"Tangible Net Worth" means at any date the stockholder's equity of the
Company less its Intangible Assets, all determined as of such date. For
purposes of this definition "Intangible Assets" means the amount (to the
extent reflected in determining such consolidated stockholder's equity) of
(i) all write-ups (other than write-ups resulting from foreign currency
transactions and write-ups of assets of a going concern business made within
twelve months after the acquisition of such business) subsequent to December
31, 1987 in the book value of any asset owned by the Company, (ii) all
investments in unconsolidated Subsidiaries and all equity investments in
Persons which are not Subsidiaries and (iii) all unamortized debt, discount
and expense, unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, franchises, organization or
developmental expenses and other intangible items.
"Unfunded Vested Liabilities" means with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all vested
nonforfeitable benefits under such Plan exceeds (ii) the fair market value of
all Plan assets allocable to such benefits, all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of the Company or any member of the
Controlled Group to the PBGC of the Plan under Title IV of ERISA.
"Wholly-Owned Subsidiary" means as to any Person, any Subsidiary all of
the shares of capital stock or other ownership interests of which (except
directors' qualifying shares) are at the time directly or indirectly owned by
such Person; unless otherwise specified, "Wholly-Owned Subsidiary" shall mean
a Wholly-Owned Subsidiary of the Company.
"WMECO" means Western Massachusetts Electric Company, a Massachusetts
corporation and its successors.
(b) Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required
to be delivered hereunder shall be prepared, in accordance with generally
accepted accounting principles as in effect from time to time, applied on a
basis consistent with the most recent audited consolidated financial
statements of the Company delivered to the Bank.
SECTION 2. Issuance of the Letter of Credit; Conditions Precedent to
Issuance. (a) Subject to satisfaction of the conditions precedent set forth
in subsections (b) and (c) of this Section 2, the Bank shall issue the Letter
of Credit in the Stated Amount, effective on the Date of Issuance and
expiring on the Expiration Date.
(b) As a condition precedent to the issuance of the Letter of Credit,
the Bank shall have received on or before the Date of Issuance the following,
each dated such date, in form and substance reasonably satisfactory to the
Bank:
(i) the facility fee referred to in Section 3(b)(i);
(ii) an opinion of Messrs. Day, Berry & Howard, counsel to the
Company, in form and substance satisfactory to the Bank;
(iii) a copy of the opinion of Messrs. Kutak Rock & Campbell, bond
counsel, delivered to the Issuer upon issuance of the Bonds;
(iv) copies of all approvals, authorizations or consents of, or
notices to or registrations with, any governmental body or agency required
for the Company to enter into this Agreement and of all such approvals,
authorizations, notices or registrations required to be obtained or made by
the Company prior to the Date of Issuance in connection with the transactions
contemplated by this Agreement, the Indenture, and any Related Document to
which the Company is a party;
(v) a certificate of the Company certifying the names and true
signatures of the individuals authorized to sign this Agreement and the other
documents to be delivered by the Company hereunder;
(vi) executed copies (or duplicates thereof) of the other Related
Documents, each of which shall be in form and substance reasonably
satisfactory to the Bank;
(vii) such other documents, instruments, approvals (and, if
requested by the Bank, certified duplicates of executed copies thereof) or
opinions as the Bank may reasonably request.
(c) The following statements shall be true and correct on the Date of
Issuance and the Bank shall have received a certificate signed by a senior
officer of the Company dated the Date of Issuance, stating that:
(i) the representations and warranties of the Company contained in
Section 5 hereof or in the Related Documents are correct on and as of the
Date of Issuance as though made on and as of such date;
(ii) no Default or Event of Default shall have occurred and be
continuing or would result from the issuance of the Letter of Credit; and
(iii) no Event of Default as defined in tho Loan Agreement or
event which, with the giving of notice or lapse of time, or both, could
become such an Event of Default, shall have occurred and be continuing.
SECTION 3. Reimbursement and Other Payments.
(a) The Company agrees to pay to the Bank:
(i) no later than the close of business on the day on which any
amount is paid pursuant to an A Drawing under the Letter of Credit in respect
of principal of the Bonds, a B Drawing in respect of interest on the Bonds or
a D Drawing in respect of the portion of the purchase price of Bonds tendered
for purchase pursuant to Section 2.4 of the Indenture which represents
accrued interest on the Bonds, a sum equal to the amount so drawn;
(ii) no later than the earliest of (x) the Expiration Date, (y) the
date on which the Pledged Bonds with respect to which such C Drawing was made
are remarketed and (z) the date on which the principal of the Bonds becomes
due and payable, whether at stated maturity, by acceleration or otherwise, a
sum equal to any amount paid pursuant to a C Drawing under the Letter of
Credit in respect of the portion of the purchase price for Bonds tendered for
purchase pursuant to Section 2.4 of the Indenture which represents principal
of the Bonds (and interest on such amount as provided in clause (iii) below);
(iii) interest on any amount unpaid by the Company under clause
(ii) from the date such amount is drawn under the Letter of Credit until due,
payable monthly in arrears, on the last day of each month and when such
amount is paid, at a fluctuating interest rate per annum (computed on the
basis of a year of 360 days for the actual number of days elapsed) equal to
1% per annum over the Bank's prime rate as announced to be in effect from
time to time (the "Prime Rate") which rate shall change as and when said
Prime Rate shall change; and
(iv) interest on any and all amounts unpaid by the Company when due
hereunder from the date such amounts become due until payment in full,
payable on demand, at a fluctuating interest rate per annum (on the basis of
a 360 day year for the actual number of days elapsed) equal to 2% per annum
above the cost to the Bank of overnight funds in the amount or amounts so
unpaid (but in no event higher than the maximum rate permitted by applicable
law), the determination by the Bank of such cost to be conclusive and binding
on the Company, absent manifest error.
(b) The Company agrees that it will pay to the Bank (i) a facility fee
in the amount of $10,833, payable on the Date of Issuance, (ii) letter of
credit fees with respect to the Letter of Credit (computed on the basis of a
year of 365, or 366 days, as the case may be, for the actual number of days
elapsed), payable semi-annually in arrears on the last day of June and
December in each year in an amount equal to 45/100 of 1% per annum of the
Stated Amount in effect from time to time (provided that the letter of credit
fees for the first six months from the Date of Issuance shall be non-
refundable and shall be due and payable in all events and be based on the
initial Stated Amount notwithstanding any reduction of the Stated Amount or
any cancellation of the Letter of Credit), (iii) utilization fees in the
amount of $100 for each Drawing under the Letter of Credit, payable on
demand, and (iv) a transfer fee upon each transfer of the Letter of Credit in
an amount equal to the Bank's then current letter of credit transfer fee.
(c) If after the date hereof, any change in any law or regulation or in
the interpretation thereof by any court or administrative or governmental
authority charged with the administration thereof or the enactment of any law
or regulation shall either (i) impose, modify or deem applicable any reserve,
special deposit or similar requirement (excluding capital adequacy
requirements), against letters of credit issued by, or assets held by, or
deposits in or for the account of, the Bank or (ii) impose on the Bank any
other condition regarding this Agreement or the Letter of Credit and the
result of any event referred to in clause (i) or (ii) of this subsection
shall be to increase the cost to the Bank of issuing or maintaining the
Letter of Credit (which increase in cost shall be calculated in accordance
with the Bank's reasonable allocation of the aggregate of such cost increases
resulting from such events), then, upon written demand by the Bank, the
Company shall pay to the Bank an amount equal to such increase in cost. Such
amount shall bear interest thereon from the second Business Day after receipt
by the Company of such demand until payment in full thereof at the rate
provided in clause (iii) of subsection (a) of this Section. A certificate as
to the amount of such increase in cost shall be submitted by the Bank to the
Company together with the aforesaid demand therefor and shall be conclusive
as to the amount thereof, absent manifest error.
(d) All payments by the Company to the Bank hereunder shall be made in
lawful currency of the United States and in immediately available funds at
the Bank's New York office, which at the date hereof is located at 299 Park
Avenue, New York, New York 10171. Whenever any payment hereunder shall be
due on a day which is not a Business Day, the date for payment thereof shall
be extended to the next succeeding Business Day, and any interest thereon
shall be payable for such extended time at the specified rate.
SECTION 4. Obligations Absolute. Subject to the provisions hereof,
the obligations of the Company under Section 3(a) of this Agreement shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement, irrespective of any of the
following circumstances:
(i) any lack of validity or enforceability of the Letter of Credit or
any of the Related Documents;
(ii) any amendment or waiver of, or consent to departure from, all or
any of the Related Documents;
(iii) the existence of any claim, setoff, defense or other rights
which the Company may have at any time against the Trustee, the Beneficiary
or any transferee of the Letter of Credit (or any persons or entities for
whom the Trustee, the Beneficiary or any such transferee may be acting), the
Bank or any other Person or entity, whether in connection with this
Agreement, the Related Documents or any unrelated transactions (provided that
nothing herein shall prevent the assertion of such claim by separate suit or
by compulsory counterclaim in a suit instituted by the Bank);
(iv) any statement or any other document presented under the Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(v) payment by the Bank under the Letter of Credit against presentation
of a draft or certificate which does not comply with the terms of the Letter
of Credit, provided such payment shall not have constituted gross negligence
or willful misconduct of the Bank; or
(vi) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, provided that the same shall not have
constituted gross negligence or willful misconduct of the Bank.
SECTION 5. Representations and Warranties. The Company represents
and warrants to the Bank as follows:
(a) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Connecticut;
each Significant Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the state of its respective
organization; and the Company and each Significant Subsidiary is duly
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction where, because of the nature of its activities
or properties, such qualification is required.
(b) Authorization; No Conflict. The execution and delivery of, and the
performance by the Company of its obligations under, this Agreement and the
Related Documents to which it is a party are within the Company's corporate
powers, have been duly authorized by all necessary corporate action, have
received all necessary governmental or regulatory approval (including,
without limitation, approvals of the Securities and Exchange Commission under
the Public Utility Holding Company Act of 1935, as amended, and the
Connecticut Department of Public Utility Control, which approvals have been
duly obtained and are in full force and effect), and do not, subject to the
Company's compliance with the requirements of its preferred stock provisions
with respect to the incurrence of unsecured indebtedness and subject also to
the Company's compliance with or satisfaction of all of its contractual
obligations with respect to the incurrence of unsecured indebtedness or with
respect to the amount of unsecured indebtedness which may be incurred or
remain outstanding, and will not contravene or conflict with any provision of
law or of the charter or by-laws of the Company or any Significant Subsidiary
or of any agreement binding upon the Company or any Significant Subsidiaries.
(c) Validity and Binding Nature. This Agreement and the Loan Agreement
are legal, valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms.
(d) Financial Statements. The Company's audited financial statements
as at December 31, 1987, and unaudited financial statements as at March 31
and June 30, 1988, copies of which have been furnished to the Bank, have been
prepared in conformity with generally accepted accounting principles (except,
in the case of unaudited financial statements, for period-end adjustments)
applied on a basis consistent with that of the preceding fiscal periods, and
accurately present the financial condition of the Company as at such dates
and the results of its operations for the periods then ended, and since June
30, 1988 there has been no material adverse change in its financial condition
or operations.
(e) Litigation and Contingent Liabilities. No litigation (including,
without limitation, derivative actions), arbitration proceedings or
governmental, judicial, administrative or regulatory proceedings are pending
or, to the best of its knowledge, threatened against the Company or any
Subsidiary in which the management of the Company believes there is a
reasonable possibility of an outcome which could materially and adversely
affect the business or operations of the Company and its Subsidiaries, except
as set forth in the Schedule of Litigation heretofore delivered by the
Company to the Bank or in the Company's Disclosure Documents, copies of which
have been heretofore furnished by the Company to the Bank. Other than any
liability incident to such litigation or proceedings so set forth, or arising
out of the obligations referred to in the Company's Disclosure Documents,
neither the Company nor any Subsidiary has any material contingent
liabilities not provided for or disclosed in the financial statements
(including the notes thereto) referred to in Section 5(d) hereof.
(f) Liens. None of the assets of the Company or any Significant
Subsidiary of the Company is subject to any Lien, except (i) for current
taxes not delinquent or taxes being contested in good faith and by
appropriate proceedings, (ii) liens arising in the ordinary course of
business for sums not due or sums being contested in good faith and by
appropriate proceedings, but not involving any deposits or advances or
borrowed money or the deferred purchase price of property or services, (iii)
to the extent shown or referred to in the financial statements of the Company
referred to in Section 5(d) hereof (including the notes thereto), (iv) the
lien of that certain Indenture of Mortgage and Deed of Trust dated as of May
1, 1921, as amended and supplemented, from the Company to Bankers Trust
Company, as Trustee (the "Company Indenture"), and Liens permitted by the
Company Indenture, (v) the lien of that certain First Mortgage Indenture and
Deed of Trust dated as of January 1, 1958, as amended and supplemented, from
HELCO to The First National Bank of Boston, as Successor Trustee (the "HELCO
Indenture"), and Liens permitted by the HELCO Indenture, (vi) the lien of
that certain Open-End Mortgage and Trust Agreement dated as of October 1,
1986, as amended, from the Company to Bank of Boston Connecticut, as trustee,
with respect to the Company's interest in the Millstone Unit No. 1 nuclear
electric generating facility, (vii) the lien of that certain Loan Agreement
dated as of June 1, 1977, between the Company and HELCO and the Connecticut
Development Authority, with respect to certain pollution control facilities
located at several fossil-fired electric generating plants in Connecticut and
(viii) liens pursuant to Connecticut General Statutes Section 22a-452a or any
successor provision.
(g) Subsidiaries; Ownership. The Company has no Subsidiaries except as
disclosed in Exhibit B attached hereto and made a part hereof. All of the
outstanding shares of stock of each Significant Subsidiary have been validly
issued, are fully paid and nonassessable shares and are owned beneficially
and of record, free from any Lien, pledge, charge, security interest or other
encumbrance, by the Company or by a Subsidiary. No Subsidiary owns any
shares of stock of the Company.
(h) Pension Benefit Plans. Each Plan complies in all material respects
with all applicable requirements of law and regulations, and (i) the Company
has received no notice to the effect that it is not in full compliance with
any of the requirements of ERISA, and the regulations promulgated thereunder
and, to the best of its knowledge, there exists no event described in Section
4043 of ERISA, excluding subsections 4043(b)(2) and 4043(b)(3) thereof
("Reportable Event"), (ii) neither the Company nor any Significant Subsidiary
has withdrawn from any such Plan or initiated steps to do so, and (iii) no
steps have been taken to terminate any such Plan.
(i) Investment Company Act. The Company is not an "investment company"
or a company "controlled" by an "investment company", within the meaning of
the Investment Company Act of 1940 as amended.
(j) Public Utility Holding Company Act. Northeast, which is the sole
holder of common stock of the Company, is a "holding company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
(k) Accuracy of Information. All factual information heretofore or
contemporaneously furnished by or on behalf of the Company or any Subsidiary
to the Bank for purposes of or in connection with this Agreement or any
transaction contemplated hereby is, and all other factual information
hereafter furnished by or on behalf of the Company or any Subsidiary to the
Bank will be, true and accurate in every material respect on the date as of
which such information is dated or certified and not incomplete by omitting
to state any material fact necessary to make such information not misleading.
(l) Related Documents. The Company makes, to and for the benefit of
the Bank, each of the representations and warranties of the Company contained
in any of the Related Documents, as fully as if such representations and
warranties were set forth at length herein.
(m) Common Equity. Common Equity is equal to at least 30% of the
Adjusted Capitalization.
SECTION 6. Covenants. Until the Expiration Date and performance of
all obligations of the Company hereunder, unless the Bank shall otherwise
consent in writing, the Company will:
(a) Reports Certificates and Other Information. Furnish to the Bank:
(i) Within 105 days after each fiscal year of the Company, a copy
of an annual report of the Company with respect to such fiscal year to the
Securities and Exchange Commission on Form 10-K, containing financial
statements with respect to such year prepared in conformity with generally
accepted accounting principles applied on a basis consistent (except for such
changes with which the Company's independent public accountants concur) with
the audited financial statements of the Company as at December 31, 1987, duly
certified by independent public accountants of nationally recognized standing
selected by the Company, together with a certificate from such accountants to
the effect that, in making the examination necessary for the signing of the
annual audit report with respect to such financial statements by such
accountants, they have not become aware of any Event of Default or Default
that has occurred and is continuing, or, if they have become aware of any
such event, describing it and the steps, if any, being taken to cure it.
(ii) Within 50 days after each quarter (except the last quarter) of
each fiscal year of the Company, a copy of a report of the Company with
respect to such quarter to the Securities and Exchange Commission on Form 10-
Q, containing financial statements with respect to such quarter prepared in
the same manner as the audited financial statements referred to in Section
6(a)(i) hereof, signed by a proper accounting officer of the Company.
(iii) Contemporaneously with the furnishing of a copy of each
annual report and of each quarterly report provided for in this Section 6(a),
a certificate dated the date of such annual report or such quarterly report
and signed by the President, any Vice President, the Treasurer or any
Assistant Treasurer of the Company, to the effect that no Event of Default or
Default has occurred and is continuing, or, if there is any such event,
describing it and the steps, if any, being taken to cure it.
(iv) In addition to the reports referred to in clauses (i) and (ii)
of this Section 6(a), (x) copies of each prospectus and Form 8-K filed by the
Company or any Significant Subsidiary with the Securities and Exchange
Commission, promptly upon the filing thereof, (y) the Company's financial
forecasts and projections that are generally distributed to the financial
community, if any, promptly upon the distribution thereof, and (z) within the
same time frames applicable to financial statements and other data regarding
the Company, the corresponding consolidated financial statements and other
data for Northeast.
(v) Forthwith upon the learning of the occurrence of any of the
following (to the extent not otherwise disclosed pursuant to the preceding
provisions of this Section 6(a)), written notice thereof, describing the same
and the steps being taken with respect thereto: (i) the occurrence of an
Event of Default or Default, or (ii) the institution of, or any adverse
determination in, any litigation, arbitration proceedings or governmental,
judicial, administrative or regulatory proceedings (other than general rate
proceedings) which is material to the Company and the Subsidiaries taken on a
consolidated basis, or which is material to Northeast and the Subsidiaries of
Northeast taken on a consolidated basis, or (iii) the occurrence of a
Reportable Event under, or the institution of steps by the Company or any
member of the Controlled Group to withdraw from, or the institution of any
steps to terminate, any Plan.
(vi) From time to time such other information concerning the
Company and the Subsidiaries as the Bank may reasonably request.
If the Company ever ceases to be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, the
requirements of (i) and (ii) shall be deemed complied with if the Company
delivers the financial statements and certificates referred to therein.
(b) Books, Records, and Inspections. Maintain, and cause each
Significant Subsidiary to maintain, complete and accurate books and records;
permit, and cause each Subsidiary to permit, access by the Bank to the books
and records of the Company and of any Subsidiary; and permit, and cause each
Subsidiary to permit, the Bank to inspect the properties and operations of
the Company and of any Subsidiary.
(c) Insurance. Maintain, and cause each significant Subsidiary to
maintain, such insurance as may be required by law and such other insurance
to such extent and against such hazards and liabilities, as is customarily
maintained by companies similarly situated.
(d) Taxes and Other Similar Charges. Pay, and cause each Significant
Subsidiary the same shall become in default, all taxes, assessments and other
similar charges except as contested in good faith and by appropriate
proceedings.
(e) Mergers, Consolidations, Sales. Not, and not permit any Significant
Subsidiary to, be a party to any merger or consolidation, or, except in the
ordinary course of its business, sell, transfer, convey or lease all or any
substantial part of its assets, or sell or assign with or without recourse
any receivables, except, after receipt of all necessary corporate and
governmental or regulatory approvals, for (i) any such merger or
consolidation, sale, transfer, conveyance, lease or assignment of or by any
Wholly-Owned Subsidiary into, with or to the Company or into, with or to any
other Wholly-Owned Subsidiary and any such purchase or other acquisition by
the Company or any Wholly-Owned Subsidiary of the assets or stock of any
Wholly-Owned Subsidiary, (ii) any such sale of assets (other than stock)
which comprise all or any part of its interest in a nuclear power generating
plant (whether completed or under construction), or which comprise the gas
business and gas properties of the Company and (iii) any such merger or
consolidation of the Company or any Significant Subsidiary into, with or to
Northeast and/or a Wholly-Owned Subsidiary of Northeast if, but only if, (w)
in the case of a merger or consolidation of any Significant Subsidiary,
Tangible Net Worth immediately following, and giving effect to, such merger
or consolidation shall equal or exceed Tangible Net Worth immediately prior
thereto, (x) before and after giving effect to any such merger or
consolidation, no Event of Default or Default shall have occurred and be
continuing, (y) in the case of a merger or consolidation of the Company, the
successor or surviving corporation, if not the Company, shall have assumed or
succeeded to all of the liabilities of the Company (including the liabilities
of the Company under this Agreement) and (z) the Bank shall have received the
favorable written opinion of Day, Berry & Howard, or other counsel to the
Company satisfactory to the Bank, to the effect of clause (y) of this Section
6(e)(iii). Notwithstanding the foregoing, the Company may sell or assign,
with or without recourse, receivables (not constituting all or any
substantial part of its assets), provided, that, in the reasonable opinion of
the Bank, such sale or assignment of receivables will not materially
adversely affect the financial condition of the Company or its ability to
perform its obligations hereunder or under the Related Documents to which it
is a party.
(f) Maintenance of Properties. Cause all material properties used or
useful in the conduct of the business of the Company or any Significant
Subsidiary to be maintained and kept in reasonable condition, repair and
working order, and cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company or such Significant Subsidiary may be necessary so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the Company or
such Significant Subsidiary shall not be prevented from discontinuing the
operation and maintenance of any such properties if such discontinuance is,
in the judgment of the Company or such Significant Subsidiary, desirable in
the operation or maintenance of its business and not disadvantageous in any
material respect to the Bank.
(g) Conduct of Business. Carry out and conduct, and cause each
Significant Subsidiary to carry out and conduct, its primary business in
substantially the same manner and in substantially the same fields as such
business is now carried on and conducted, and do or cause to be done all
lawful things necessary to preserve and keep in full force and effect the
corporate existence and the rights (charter and statutory) and franchises of
the Company and of each Significant Subsidiary, except as otherwise provided
in Section 6(e) hereof; PROVIDED, HOWEVER, that neither the Company nor any
Significant Subsidiary shall be required to preserve any such right or
franchise if it shall determine that the preservation thereof is no longer
necessary, desirable or permissible in the operation of its business and that
the loss thereof is not disadvantageous in any material respect to the Bank.
(h) Compliance with Law. Comply, and cause each Significant Subsidiary
to comply, in all material respects with all laws, rules, regulations and
governmental orders (Federal, state and local) having applicability to it or
to the business or businesses at any time conducted by the Company or such
Significant Subsidiary, as the case may be, except to the extent that the
failure to comply with any provision of the foregoing would not have a
material adverse effect on the present or future financial condition or
operations of the Company or such Significant Subsidiary, and would not
impair the Company's ability to perform its obligations under this Agreement.
(i) Negative Pledge. Not create, assume or permit to exist, nor permit
any Significant Subsidiary to create, assume or permit to exist, any Liens on
any assets now owned or hereafter acquired other than:
(i) Liens created by the Company Indenture or the HELCO Indenture;
(ii) Liens on the Company's interest in the Millstone Unit No. 1,
Millstone Unit No. 2 or Millstone Unit No. 3 nuclear electric generating
facilities or nuclear fuel for any or all nuclear units in which the Company
has an interest (including, without limitation, Millstone Unit No. 1,
Millstone Unit No. 2 and Millstone Unit No. 3);
(iii) Liens permitted by the Company Indenture or the HELCO
Indenture;
(iv) any Lien created or assumed to secure debt owing by any
Subsidiary to the Company or to any Wholly-Owned Subsidiary;
(v) any purchase money security interest or construction mortgage
on assets hereafter acquired or constructed by the Company or any Significant
Subsidiary and any Lien on any assets existing at the time of acquisition
thereof by the Company or any Significant Subsidiary, or created within 180
days from the date of completion of the acquisition or construction; PROVIDED
that such Lien shall at all times be confined solely to the assets so
acquired or constructed and any additions thereto;
(vi) any existing Liens on assets now owned by the Company or any
Significant Subsidiary, Liens on assets of any Significant Subsidiary
existing at the time it becomes a Subsidiary and Liens existing on assets of
a corporation or other going concern business when it is merged into or with
the Company or a Significant Subsidiary or when substantially all of its
assets are acquired by the Company or a Significant Subsidiary; PROVIDED that
such Liens shall at all times be confined solely to such assets, or if such
assets constitute a utility system, additions to or substitutions for such
assets;
(vii) Liens resulting from legal proceedings being contested in
good faith and for which reserves which in the judgment of the Company are
adequate have been established by the Company or the applicable Significant
Subsidiary;
(viii) Liens created in favor of the other contracting party in
connection with advance or progress payments;
(ix) any Liens in favor of any state of the United States or any
political subdivision of any such state, or any agency of any such state or
political subdivision, or trustee acting on behalf of holders of obligations
issued by any of the foregoing or any financial institution lending to or
purchasing obligations of any of the foregoing, which security is created or
assumed for the purpose of financing all or part of the cost of acquiring or
constructing the property subject thereto;
(x) Liens resulting from conditional sale agreements, capital
leases or other title retention agreements;
(xi) Liens on property of the Company or any Significant Subsidiary
related to the financing of pollution control facilities;
(xii) any other Liens incurred in the ordinary course of
business otherwise than to secure borrowings;
(xiii) Liens under Connecticut General Statutes Section 22a-452a
or any successor provision;
(xiv) any extension, renewal or replacement of Liens permitted
by clauses (i) to (v), (viii) to (xi) and (xiii); PROVIDED, HOWEVER, that the
principal amount of debt secured thereby shall not, at the time of such
extension, renewal or replacement, exceed the principal amount of
indebtedness so secured and that such extension, renewal or replacement shall
be limited to all or a part of the property which secured the Lien so
extended, renewed or replaced; and
(xv) Liens (in addition to those permitted pursuant to clauses (i)
through (xiv) above) securing Debt in an aggregate principal amount not
exceeding $200,000,000; provided, that, no such Lien shall be permitted on
any receivable of the Company or any Significant Subsidiary unless in the
reasonable opinion of the Bank the existence of such Lien will not materially
adversely affect the financial condition of the Company or its ability to
perform its obligations hereunder or under the Related Documents.
(j) Pension Benefit Plans. Maintain, and cause each Significant
Subsidiary to maintain, each Plan in compliance with all applicable
requirements of law and regulations.
(k) Related Documents. Not agree to any amendment or supplement to any
Related Document without the prior written consent of the Bank.
(l) Use of Proceeds. Use the proceeds of the Bonds to pay the costs of
the Product as provided in the Loan Agreement.
SECTION 7. Events of Default. (A) The following events shall be
Events of Default hereunder unless waived by the Bank pursuant to Section 9
hereof:
(a) the Company shall fail to pay when due any amount payable under
Section 3 hereof, and such failure shall continue unremedied for five
Business Days;
(b) the Company shall fail to observe or perform any other covenant,
restriction or agreement contained in this Agreement for 30 days after the
Company becomes aware of such failure;
(c) any representation, warranty, certification or statement made by
the Company in this Agreement or any Related Document to which it is a party
or in any certificate, financial statement or other document delivered pur-
suant to this Agreement or any Related Document to which it is a party shall
prove to have been incorrect in any material respect when made;
(d) an event of default as defined in any mortgage, indenture,
agreement or instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness of the Company or any
Significant Subsidiary of $5,000,000 or more, whether such indebtedness now
exists or shall hereafter be created, shall occur and shall continue beyond
any grace or cure period applicable thereto and shall consist of default in
payment of such indebtedness at maturity or shall result in such indebtedness
becoming or being declared due and payable, or permitting the respective
obligee to declare such indebtedness due and payable, prior to the date on
which it would otherwise become due and payable;
(e) an event of default as defined in the Indenture or the Loan
Agreement shall occur and be continuing;
(f) a final judgment or order for the payment of money in excess of
$5,000,000 shall be rendered against the Company or any Significant
Subsidiary and such final judgment or order shall continue unsatisfied and
unstayed for a period of 30 days;
(g) the Company or any member of the Controlled Group shall fail to pay
when due an amount or amounts aggregating in excess of $1,000,000 which it
shall have become liable to pay to the PBGC or to a Plan under Title IV of
ERISA; or notice of intent to terminate a Plan or Plans having aggregate
Unfunded Vested Liabilities in excess of $5,000,000 shall be filed under
Title IV of ERISA by the Company, any member of the Controlled Group, any
plan administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any such Plan or Plans or a condition
shall exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any such Plan or Plans must be terminated and, at the time
said proceeding is instituted or such condition exists, as the case may be,
the liability of the Company or any member of the Controlled Group to the
PBGC or such Plan or Plans under Title IV of ERISA may reasonably be expected
to be in excess of $5,000,000; or a proceeding shall be instituted by a
fiduciary of any such Plan or Plans to enforce Section 515 of ERISA and, at
the time such proceeding is instituted, the liability of the Company or any
member of the Controlled Group to such Plan or Plans is in excess of
$1,000,000; or
(h) the Company or any Significant Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any action to
authorize any of the foregoing; or
(i) an involuntary case or other proceeding shall be commenced against
the Company or any Significant Subsidiary seeking liquidation, reorganization
or other relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and unstayed for a period
of 60 days; or an order for relief shall be entered against the Company or
any Significant Subsidiary under the federal bankruptcy laws as now or
hereafter in effect.
(B) If an Event of Default occurs and is continuing hereunder, the Bank
may in its sole discretion notify the Company and the Trustee of such
occurrence. Upon receipt by the Trustee of such notice from the Bank, the
Trustee shall immediately declare the principal of all Bonds then outstanding
and the interest accrued thereon immediately due and payable.
SECTION 8. Pledge. The Company hereby pledges, assigns,
hypothecates, transfers, and delivers to the Bank all its right, title and
interest to, and hereby grants to the Bank a first lien on, and security
interest in, all right, title and interest of the Company in and to the
following (the "Collateral"):
(a) all Bonds which may from time to time be purchased with proceeds of
C Drawings and/or D Drawings under the Letter of Credit (the "Pledged
Bonds");
(b) all income, earnings, profits, interest, premium or other payments
in whatever form in respect of the Pledged Bonds;
(c) all proceeds (cash and non-cash) arising out of the sale, exchange,
collection, enforcement or other disposition of all or any portion of the
Pledged Bonds;
as collateral security for the prompt and complete payment when due of all
amounts due in respect of the reimbursement obligations of the Company set
forth in clauses (ii) and (iii) of Section 3(a) with respect to such Pledged
Bonds (the "Obligations").
In the event that the Company shall fail to pay any amount when due
under clauses (ii) or (iii) of Section 3(a) with respect to the Pledged
Bonds, the Bank, without demand of performance or other demand, advertisement
or notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon the Company or any other person (all and
each of which demands, advertisements and/or notices are hereby expressly
waived), may forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, assign, give
option or options to purchase, contract to sell or otherwise dispose of and
deliver said Collateral, or any part thereof, in one or more parcels at
public or private sale or sales, at any exchange, broker's board or at any of
the Bank's offices or elsewhere upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk, with the right to
the Bank upon any such sale or sales, public or private, to purchase the
whole or any part of said Collateral so sold, free of any right or equity of
redemption in the Company, which right or equity is hereby expressly waived
or released. The Bank shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care, safekeeping or otherwise of any and all of the Collateral or in any
way relating to the rights of the Bank hereunder, including reasonable
attorney's fees and legal expenses, to the payment in whole or in part of the
Obligations in such order as the Bank may elect, the Company remaining liable
for any deficiency remaining unpaid after such application, and only after so
applying such net proceeds and after the payment by the Bank of any other
amount required by any provision of law, including, without limitation,
Section 9-504(1)(c) of the Uniform Commercial Code, need the Bank account for
the surplus, if any, to the Company. The Company agrees that the Bank need
not give more than ten days' notice of the time and place of any public sale
or of the time after which a private sale or other intended disposition is to
take place and that such notice is reasonable notification of such matters.
No notification need be given to the Company if it has signed after default a
statement renouncing or modifying any right to notification of sale or other
intended disposition. In addition to the rights and remedies granted to it
in this Agreement and in any other instrument or agreement securing,
evidencing or relating to any of the Obligations, the Bank shall have all the
rights and remedies of a secured party under the Uniform Commercial Code of
the State of New York.
The Company covenants that the pledge, assignment and delivery of the
Collateral hereunder will create a valid, perfected, first priority security
interest in all right, title or interest of the Company in or to such Col-
lateral, and the proceeds thereof, subject to no prior pledge, lien,
mortgage, hypothecation, security interest, charge, option or encumbrance or
to any agreement purporting to grant to any third party a security interest
in the property or assets of the Company which would include the Collateral.
The Company covenants and agrees that it will defend the Bank's right, title
and security interest in and to the Collateral and the proceeds thereof
against the claims and demands of all persons whomsoever.
Provided the Company shall have paid all amounts then due under clause
(i) of Section 3(a) and shall have paid all interest which may be owing under
clause (iii) of Section 3(a), the Bank will promptly pay over to the Company
any interest it may receive from the Trustee on any Pledged Bonds.
Pledged Bonds shall be released from the security interest created
hereunder upon satisfaction of the Obligations with respect to such Pledged
Bonds.
SECTION 9. Amendments and Waivers. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the Company or
the Bank therefrom shall in any event be effective unless the same shall be
in writing and signed by the Company and the Bank. Any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 10. Notices. All notices, requests and other communications
to either party hereunder shall be in writing (including bank wire, telex or
similar writing) and shall be given to such party, addressed to it, at its
address or telex number set forth below or such other address or telex number
as such party may hereafter specify for the purpose by notice to the other
party. Each such notice, request or communication shall be effective (i) if
given by telex, when such telex is transmitted to the telex number specified
below and the appropriate answerback is received, (ii) if given by mail 5
days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified below:
Party Address
The Connecticut Light 107 Selden Street
and Power Company Berlin, Connecticut 06037 (if delivered)
or
P.O. Box 270
Hartford, Connecticut 06141 (if mailed)
Telex: 99370
Attn: Assistant
Treasurer-Long Term
Financing
Union Bank of
Switzerland, New York 299 Park Avenue
Branch New York, New York 10171
Telex: UB 129 299 NYK
Attn: Christopher W. Criswell
or to such other address as either party may specify in a notice to the
other.
SECTION 11. No Waiver; Remedies. No failure on the part of the Bank
to exercise, and no delay in exercising, any right hereunder shall operate as
a waiver thereof nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 12. Indemnification. The Company hereby indemnifies and
holds harmless the Bank from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which the Bank may incur (or which
may be claimed against the Bank by any person or entity whatsoever) by reason
of or in connection with the execution and delivery or transfer of, or
payment or failure to pay under, the Letter of Credit as provided herein;
provided that the Company shall not be required to indemnify the Bank for any
claims, damages, losses, liabilities, costs or expenses to the extent, but
only to the extent, caused by the willful misconduct or gross negligence of
the Bank. Nothing in this Section 12 is intended to limit the Company's
reimbursement obligation contained in Section 3(a) hereof.
SECTION 13. Continuing Obligations. The obligations of the Company
under this Agreement shall continue until the later of (i) the Expiration
Date or (ii) the date upon which all amounts due and owing to the Bank
hereunder shall have been paid in full. This Agreement shall (a) be binding
upon the parties hereto and their respective successors and assignor and (b)
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, transferees and assigns; PROVIDED, HOWEVER, that (i)
the Company may not, except in connection with a merger, consolidation or
sale of all or a substantial part of its assets permitted by Section 6(e),
assign all or any part of this Agreement without the prior written consent of
the Bank and (ii) the obligations of the Company pursuant to Sections 3 and
12 hereof shall survive the termination of this Agreement.
SECTION 14. Liability of the Bank. The Company assumes all risks of
the acts or omissions of the Trustee, the Beneficiary or any transferee of
the Letter of Credit with respect to its use of the Letter of Credit.
Neither the Bank nor any of its officers or directors shall be liable or
responsible for: (a) the use which may be made of the Letter of Credit or for
any acts or omissions of the Trustee, the Beneficiary or any transferee in
connection therewith; or (b) the validity, sufficiency or genuineness of
documents, or of any endorsement(s) thereon, even if such documents should in
fact prove to be in any respect invalid, insufficient, fraudulent or forged.
In furtherance and not in limitation of the foregoing, the Bank may accept,
in the absence of gross negligence or willful misconduct, documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary.
SECTION 15. Costs, Expenses and Taxes. The Company agrees to pay on
demand all reasonable costs and expenses in connection with the preparation,
execution, delivery, filing and administration of this Agreement and any
other documents delivered in connection with or related to this Agreement,
including the reasonable fees and expenses of counsel for the Bank with
respect thereto and with respect to advising the Bank as to its rights and
responsibilities under this Agreement or any waiver or amendment of this
Agreement. In addition, the Company shall pay any and all stamp and other
taxes and fees payable or determined to be payable (and notified by the Bank
to be payable) in connection with the execution, delivery, filing and
recording of this Agreement and such other documents and agrees to save the
Bank harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
SECTION 16. Waiver of Right of Set-off; Limitation on Collateral.
(a) The Bank hereby irrevocably waives any banker's lien or right of set-off
that it may have at law or otherwise in order to appropriate and apply to the
payment of any and all of the obligations of the Company now or hereafter
existing in respect of the reimbursement obligation of the Company set forth
in Section 3(a) of this Agreement, any balances, credits, deposits, accounts
or moneys of the Company at any time with the Bank when and if there shall be
a drawing under the Letter of Credit (or as a result thereof) during the
pendency of any proceeding by or against the Company seeking relief in
respect of the Company under Title 11 of the United States Code, as now
constituted or hereafter amended; PROVIDED, HOWEVER, that such waiver shall
not be operative if (i) it has been determined by the court in such
proceeding that the exercise of the Bank's right of set-off or banker's lien
will not lead to the Bank's being released, prevented, enjoined or
restrained, permanently, preliminarily or temporarily, from fulfilling its
obligations under the Letter of Credit and (ii) the exercise of such banker's
lien or right of set-off would not constitute any payment (including pursuant
to the Letter of Credit) to the Trustee a voidable preference payment under
Federal bankruptcy law then in effect.
(b) The Bank agrees that, except as to its security interest in Pledged
Bonds, it will not at any time accept any collateral as security for the
payment of the reimbursement obligation of the Company set forth in Section
3(a) of this Agreement unless provision is made prior to or simultaneously
with the taking of such collateral security by the Bank for an equal and
ratable security interest in such collateral security to be granted to the
Trustee for the benefit of the holders from time to time of the Bonds.
(c) The Bank agrees that any payments under the Letter of Credit will
be made with the Bank's own funds and not with funds of the Issuer or the
Company.
SECTION 17. Severability. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of
such provision in any other jurisdiction.
SECTION 18. Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New
York.
SECTION 19. Headings. Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
THE CONNECTICUT LIGHT AND POWER
COMPANY
By: /s/ Robert C. Aronson
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By: /s/Charles E. Arnold
By:/s/ Susan E. Zeig
SUBSIDIARIES -- EXHIBIT B
Percentage
of
Voting
Shares
Owned by the
Company
Research Park, Inc. 100%
The City and Suburban Electric and Gas Company 100%*
Electric Power, Incorporated 100%*
The Connecticut Transmission Corporation 100%*
The Nutmeg Power Company 100%*
The Mohawk Gas Company 100%*
The Connecticut Steam Company 100%*
*Inactive
EXHIBIT 4.2.19.1
[EXECUTION COPY]
LETTER OF CREDIT
AND REIMBURSEMENT AGREEMENT
Dated as of December 1, 1992
Among
THE CONNECTICUT LIGHT AND
POWER COMPANY
as Account Party
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY
as Issuing Bank and as Agent
and
THE PARTICIPATING BANKS
REFERRED TO HEREIN
Relating to
Business Finance Authority of the State of New Hampshire Pollution Control
Refunding Revenue Bonds (The Connecticut Light and Power Company Project -
1992 Series A)
LETTER OF CREDIT AND
REIMBURSEMENT AGREEMENT
Dated as of December 1, 1992
THIS LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT (this "Agreement") is made
by and among:
(i) The Connecticut Light and Power Company, a corporation duly
organized and validly existing under the laws of the State of Connecticut
(the "Account Party");
(ii) Canadian Imperial Bank of Commerce, New York Agency ("CIBC"), as
issuer of the Letter of Credit (the "Issuing Bank");
(iii) The Participating Banks (as hereinafter defined) from time to
time party hereto; and
(iv) CIBC as agent (together with any successor agent hereunder, the
"Agent") for such Participating Banks and the Issuing Bank.
PRELIMINARY STATEMENT
The Business Finance Authority of the State of New Hampshire (the
"Issuer") proposes to issue, pursuant to a Loan and Trust Agreement, dated as
of December 1, 1992 (as supplemented or amended from time to time with the
written consent of the Issuing Bank, the "Indenture"), by and among the
Issuer, the Account Party and BayBank, as trustee (such entity, or its
successor as trustee, being the "Trustee"), $21,000,000 aggregate principal
amount of Business Finance Authority of the State of New Hampshire Pollution
Control Refunding Revenue Bonds (The Connecticut Light and Power Company
Project - 1992 Series A) (the "Bonds") and, pursuant to the Indenture, the
Account Party has requested the Issuing Bank to issue its irrevocable letter
of credit in favor of the Paying Agent (as defined below), in substantially
the form of Exhibit 1.01A hereto (such letter of credit, as it may from time
to time be extended or modified pursuant to the terms of this Agreement,
being the "Letter of Credit"), in the amount of $21,311,000 (the "Stated
Amount"), of which (i) $21,000,000 shall support the payment of principal of
the Bonds (or the portion of the purchase or redemption price of the Bonds
corresponding to principal), (ii) $311,000 shall support the payment of up to
45 days' interest on the principal amount of the Bonds (or the portion of the
purchase or redemption price of the Bonds corresponding to interest),
computed at a maximum interest rate of 12% per annum on the basis of the
actual days elapsed and a year of 365 or 366 days (as applicable) and (iii)
$0.00 shall support the payment of premium on the Bonds. The Issuing Bank
has agreed to issue the Letter of Credit subject to the terms and conditions
set forth herein (including the terms and conditions relating to the rights
and obligations of the Participating Banks).
NOW, THEREFORE, in consideration of the premises and in order to induce
the Issuing Bank to issue the Letter of Credit and the Participating Banks to
participate in the Letter of Credit and make advances hereunder, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01 Certain Defined Terms. In addition to the terms defined
in the Preliminary Statement hereto, as used in this Agreement, the following
terms shall have the following meanings (such meanings to be applicable to
the singular and plural forms of the terms defined):
"Advances" means Initial Advances and Term Advances, without
differentiation; individually, an "Advance".
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling (including, but not limited to all directors and
officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control another entity
if such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such entity, whether
through the ownership of voting securities, by contract or otherwise.
"Alternate Base Rate" means, for any Interest Period or any other
period, a fluctuating interest rate per annum equal at all times to the
highest from time to time of:
(a) the rate of interest announced publicly by CIBC in New York, New
York, from time to time, as CIBC's prime rate; and
(b) 1/2 of one percent per annum above the Federal Funds Rate from time
to time.
Each change in the Alternate Base Rate shall take effect concurrently with
any change in such prime rate or Federal Funds Rate, as the case may be.
"Applicable Lending Office" means, with respect to each Participating
Bank, (i)(A)such Participating Bank's "Domestic Lending Office" in the case
of a Base Rate Advance, (B)such Participating Bank's "CD Lending Office" in
the case of a CD Rate Advance and (C)such Participating Bank's "Eurodollar
Lending Office" in the case of a Eurodollar Rate Advance, in each case as
specified opposite such Participating Bank's name on Schedule I hereto (in
the case of a Participating Bank initially party to this Agreement) or in the
Participation Assignment pursuant to which such Participating Bank became a
Participating Bank (in the case of any other Participating Bank), or (ii)
such other office or affiliate of such Participating Bank as such
Participating Bank may from time to time specify to the Account Party and the
Agent.
"Assessment Rate" means, for any Interest Period or any other period,
the annual assessment rate per annum estimated by the Agent on the first day
of such Interest Period or such other period, as the case may be, for
determining the then average current annual assessment payable by insured
banks to the Federal Deposit Insurance Corporation (or any successor) for
insuring U.S. dollar deposits in the United States. The "Assessment Rate"
shall be adjusted automatically on and as of the effective date of each
change in any such rate.
"Available Amount" in effect at any time means the maximum aggregate
amount available to be drawn at such time under the Letter of Credit, the
determination of such maximum amount to assume compliance with all conditions
for drawing and no reduction for (i) any amount drawn by the Paying Agent to
make a regularly scheduled payment of interest on the Bonds (unless such
amount will not be reinstated under the Letter of Credit) or (ii) any amount
not available to be drawn because Bonds are held by or for the account of the
Account Party and/or in pledge for the benefit of the Issuing Bank.
"Base Rate Advance" means an Advance in respect of which the Account
Party has selected in accordance with Article III hereof, or this Agreement
otherwise provides for, interest to be computed on the basis of the Alternate
Base Rate.
"Bonds" has the meaning assigned to that term in the Preliminary
Statement.
"Business Day" means a day of the year that is not a Sunday or legal
holiday or a day on which banks are authorized to close in New York City and,
(i) if the applicable Business Day relates to any Eurodollar Rate Advance, is
a day on which dealings are carried on in the London interbank market and/or
(ii) if the applicable Business Day relates to any action to be taken by, or
notice furnished to or by, or payment to be made to or by, the Trustee, the
Paying Agent or the Remarketing Agent, is a day on which (A) banking
institutions are not authorized pursuant to law to close, (B) banking
institutions in all of the cities in which the principal offices of the
Issuing Bank, the Trustee, the Paying Agent and, if applicable, the
Remarketing Agent are located are not required or authorized to remain closed
and (C) the New York Stock Exchange is not closed.
"CD Rate" means for any Interest Period for any CD Rate Advances
comprising part of the same Term Borrowing, an interest rate per annum equal
at all times during such Interest Period to the sum of:
(i) the rate per annum obtained by dividing (x) the consensus bid rate
determined by the Agent to be the average (rounded upward to the nearest
whole multiple of 1/100 of 1% per annum, if such average is not such a
multiple) of the bid rates per annum, at 9:00 A.M. (New York City time) (or
as soon thereafter as practicable) on the first day of such Interest Period,
of three New York certificate of deposit dealers of recognized standing
selected by the Agent for the purchase at face value of certificates of
deposit of CIBC in an aggregate amount substantially equal to the CD Rate
Advance of CIBC comprising part of the same Term Borrowing and with a
maturity equal to such Interest Period, by (y) a percentage equal to 100%
minus the Domestic Reserve Percentage for such Interest Period, plus
(ii) 0.875% per annum; plus
(iii) the Assessment Rate for such Interest Period.
"CD Rate Advance" means an Advance in respect of which the Account Party
has selected in accordance with Article III hereof, and this Agreement
provides for, interest to be computed on the basis of the CD Rate.
"CL&P Indenture" has the meaning assigned to that term in Section
7.02(a)(i)(A) hereof.
"Closing Date" means the Business Day upon which each of the conditions
precedent enumerated in Sections 5.01 and 5.02 hereof shall be fulfilled to
the satisfaction of the Agent, the Issuing Bank, the Participating Banks and
the Account Party. All transactions contemplated to occur on the Closing
Date shall occur contemporaneously on or prior to December 17, 1992, at the
offices of King & Spalding, 120 West 45th Street, New York, New York 10036,
at 10:00 A.M. (New York City time), or at such other place and time as the
parties hereto may mutually agree.
"Collateral" means all of the collateral in which liens, mortgages or
security interests are purported to be granted by any or all of the Security
Documents.
"Commitment" means, for each Participating Bank, such Participating
Bank's Percentage of the Available Amount. "Commitments" shall refer to the
aggregate of the Commitments.
"Confidential Information" has the meaning assigned to that term in
Section 10.09 hereof.
"Consolidated Capitalization" means, for any period, the aggregate of
all amounts that would, in accordance with generally accepted accounting
principles and consistent with those applied in the preparation of the
Account Party's consolidated financial statements included in its Annual
Report on Form 10-K for the year ended December 31, 1991, appear on the
Account Party's consolidated balance sheet as the sum of (i) the total
principal amount of all long-term Debt of the Account Party and its
Subsidiaries (excluding, however, Debt not to exceed $400,000,000 existing
under any nuclear fuel financing so long as the proceeds of such Debt are
used solely to finance the purchase and carrying of nuclear fuel and so long
as the appropriate regulatory authorities have not taken any action which
would not allow the costs with respect to such financing to be recovered
through the rate making process), (ii) the aggregate of the par value of, or
stated capital represented by, the outstanding shares of all classes of
common and preferred shares of the Account Party and its Subsidiaries, (iii)
the consolidated surplus of the Account Party and its Subsidiaries, paid-in,
earned and other, if any, and (iv) the excess, if any, of (A) the aggregate
unpaid principal amount of all short-term Debt of the Account Party and its
Subsidiaries over (B) 10% of the sum of clauses (i), (ii) and (iii) above.
"Consolidated Common Equity" means, for any period, an amount equal to
the sum of the aggregate of the par value of, or stated capital represented
by, the outstanding common shares of the Account Party and its Subsidiaries
and the surplus, paid-in, earned and other, if any, of the Account Party and
its Subsidiaries as determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Conversion", "Convert" or "Converted" each refers to a conversion of
Term Advances pursuant to Section 3.04 hereof, including, but not limited to
any selection of a longer or shorter Interest Period to be applicable to such
Term Advances or any conversion of a Term Advance as described in Section
3.04(c) hereof.
"Credit Termination Date" means the date on which the Letter of Credit
shall terminate in accordance with its terms.
"Debt" means, for any Person, without duplication, (i) indebtedness of
such Person for borrowed money, including but not limited to obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (ii) obligations of such Person to pay the deferred purchase
price of property or services (excluding any obligation of such Person to the
United States Department of Energy or its successor with respect to
disposition of spent nuclear fuel burned prior to April 3, 1983), (iii)
obligations of such Person as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting principles,
recorded as capital leases, (iv) obligations under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor against loss
in respect of, indebtedness or obligations of others of the kinds referred to
in clauses (i) through (iii), above, and (v) liabilities in respect of
unfunded vested benefits under ERISA Plans.
"Default Rate" means a fluctuating interest rate equal at all times to
2% per annum above the Alternate Base Rate in effect from time to time.
"Domestic Reserve Percentage" means, for any Interest Period or any
other period, the reserve percentage applicable on the first day of such
Interest Period or such other period, as the case may be, under regulations
issued from time to time by the Board of Governors of the Federal Reserve
System (or any successor) for determining the maximum reserve requirement
(including, but not limited to, any emergency, supplemental or other marginal
reserve requirement) for CIBC with respect to liabilities consisting of or
including (among other liabilities) U.S. dollar nonpersonal time deposits in
the United States and with a maturity equal to such Interest Period or such
other period, as the case may be. The Domestic Reserve Percentage shall be
determined from time to time by the Agent and shall be adjusted automatically
on and as of the effective date of each change in any reserve requirement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means, with respect to any Person, any trade or
business (whether or not incorporated) which is a "commonly controlled
entity" of the Account Party within the meaning of the regulations under
Section 414 of the Internal Revenue Code of 1986, as amended from time to
time.
"ERISA Multiemployer Plan" means a "multiemployer plan" subject to Title
IV of ERISA.
"ERISA Plan" means an employee benefit plan (other than an ERISA
Multiemployer Plan) maintained for employees of the Account Party or any
ERISA Affiliate and covered by Title IV of ERISA.
"ERISA Plan Termination Event" means (i) a Reportable Event described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the PBGC
under such regulations) with respect to an ERISA Plan or an ERISA
Multiemployer Plan, or (ii) the withdrawal of the Account Party or any of its
ERISA Affiliates from an ERISA Plan or an ERISA Multiemployer Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate
an ERISA Plan or an ERISA Multiemployer Plan or the treatment of an ERISA
Plan or an ERISA Multiemployer Plan under Section 4041 of ERISA, or (iv) the
institution of proceedings to terminate an ERISA Plan or an ERISA
Multiemployer Plan by the PBGC, or (v) any other event or condition which
might constitute grounds under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any ERISA Plan or ERISA
Multiemployer Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Rate" means for any Interest Period for any Eurodollar Rate
Advances comprising part of the same Term Borrowing, an interest rate per
annum equal at all times during such Interest Period to the sum of:
(i) the rate per annum (rounded upward to the nearest whole multiple of
1/100 of 1% per annum, if such rate is not such a multiple) determined by the
Agent at which deposits in United States dollars in amounts comparable to the
Eurodollar Rate Advance of CIBC comprising part of such Term Borrowing and
for comparable periods as such Interest Period are offered by the principal
office of CIBC in London, England to prime banks in the London interbank
market at 11:00 A.M. (London time) two Business Days before the first day of
such Interest Period, plus
(ii) 0.75% per annum.
"Eurodollar Rate Advance" means an Advance in respect of which the
Account Party has selected in accordance with Article III hereof, and this
Agreement provides for, interest to be computed on the basis of the
Eurodollar Rate.
"Eurodollar Reserve Percentage" of any Participating Bank for each
Interest Period for each Eurodollar Rate Advance means the reserve percentage
applicable during such Interest Period (or if more than one such percentage
shall be so applicable, the daily average of such percentages for those days
in such Interest Period during which any such percentage shall be so
applicable) under Regulation D or other regulations issued from time to time
by the Board of Governors of the Federal Reserve System (or any successor)
for determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement, without benefit of or credit for proration, exemptions or
offsets) for such Participating Bank with respect to liabilities or assets
consisting of or including "eurocurrency liabilities" having a term equal to
such Interest Period.
"Event of Default" has the meaning assigned to that term in Section
8.01.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published on the next succeeding Business Day, the average of
the quotations for such day on such transactions received by the Agent from
three Federal funds brokers of recognized standing selected by it.
"FERC" means the Federal Energy Regulatory Commission.
"Governmental Approval" means any authorization, consent, approval,
license, permit, certificate, exemption of, or filing or registration with,
any governmental authority or other legal or regulatory body (including,
without limitation, the Securities and Exchange Commission, the FERC, the
Nuclear Regulatory Commission and the Connecticut Department of Public
Utility Control), required in connection with either (i) the execution,
delivery or performance of any Loan Document or Related Document or the grant
and perfection of any lien or security interest contemplated by the Security
Documents or (ii) the nature of the Account Party's or any Principal
Subsidiary's business as conducted or the nature of the property owned or
leased by it.
"Hazardous Substance" means any waste, substance or material identified
as hazardous, dangerous or toxic by any office, agency, department,
commission, board, bureau or instrumentality of the United States of America
or of the State or locality in which the same is located having or exercising
jurisdiction over such waste, substance or material.
"Indemnified Person" has the meaning assigned to that term in Section
10.04(b) hereof.
"Indenture" has the meaning assigned to that term in the Preliminary
Statement.
"Initial Advance" has the meaning assigned to that term in Section
3.02(a) hereof.
"Initial Repayment Date" has the meaning assigned to that term in
Section 3.02(a) hereof.
"Interest Component" has the meaning assigned to that term in the Letter
of Credit.
"Interest Drawing" has the meaning assigned to that term in the Letter
of Credit.
"Interest Period" has the meaning assigned to that term in Section
3.03(b) hereof.
"Issuer" has the meaning assigned to that term in the Preliminary
Statement.
"Issuer Resolution" means the resolution adopted by the Issuer that
authorized the issuance of the Bonds, approved the terms and provisions of
the Bonds, and approved those of the documents related to the Bonds to which
the Issuer is a party.
"Letter of Credit" has the meaning assigned to that term in the
Preliminary Statement.
"Lien" has the meaning assigned to that term in Section 7.02(a) hereof.
"Loan Documents" means this Agreement and the Security Documents.
"Majority Lenders" means on any date of determination, (i) the Issuing
Bank and (ii) Participating Banks who, collectively, on such date, have
Percentages in the aggregate of at least 66-2/3%. Determination of those
Participating Banks satisfying the criteria specified above for action by the
Majority Lenders shall be made by the Agent and shall be conclusive and
binding on all parties absent manifest error.
"Moody's" means Moody's Investors Service, Inc. or any successor
thereto.
"NU" means Northeast Utilities, an unincorporated voluntary business
association organized under the laws of the Commonwealth of Massachusetts.
"Participant" shall have the meaning assigned to that term in Section
10.06(b) hereof.
"Participating Banks" means the Persons listed on the signature pages
hereof following the heading "Participating Banks" and any other Person who
becomes a party hereto pursuant to Section 10.06 hereof.
"Participation Assignment" means a participation assignment entered into
pursuant to Section 10.06 hereof by any Participating Bank and an assignee,
in substantially the form of Exhibit 1.01B hereto.
"Participation Percentage" means, as of any date of determination (i)
with respect to a Participating Bank initially a party hereto, the percentage
set forth opposite such Participating Bank's name on the signature pages
hereof, except as provided in clause (iii), below, (ii) with respect to a
Participating Bank that became a party hereto by operation of Section
10.06(a) hereof, the Participation Percentage stated to be assumed by such
assignee Participating Bank in the relevant Participation Assignment, except
as provided in clause (iii), below, and (iii) with respect to any
Participating Bank described in clauses (i) and (ii), above, that assigns a
percentage of its interests in accordance with Section 10.06(a) hereof, its
participation percentage as reduced by the percentage so assigned.
"Paying Agent" means (i) BayBank, as the initial paying agent for the
Bonds under the Indenture, and (ii) any successor paying agent for the Bonds
under the Indenture.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor
entity) established under ERISA.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, estate, unincorporated
association, joint venture or other entity, or a government or any political
subdivision or agency thereof.
"Pledge Agreement" means the Pledge Agreement, dated as of December 1,
1992, by the Account Party in favor of the Issuing Bank, in substantially the
form of Exhibit 1.01C hereto, and as the same may from time to time be
amended, modified or supplemented.
"Pledged Bonds" shall have the meaning assigned to that term in the
Pledge Agreement.
"Premium Component" has the meaning assigned to that term in the Letter
of Credit.
"Principal Component" has the meaning assigned to that term in the
Letter of Credit.
"Principal Subsidiary" means a Subsidiary, whether owned directly or
indirectly by the Account Party, which, with respect to the Account Party and
its Subsidiaries taken as a whole, represents a material portion of the
Account Party's consolidated assets or consolidated net income (or loss), (it
being understood that, as of the date of this Agreement, the Account Party
has no Principal Subsidiaries).
"Purchase Contract" means the Bond Purchase Agreement, dated December
16, 1992, among the Issuer, the Account Party and Goldman, Sachs & Co.
"Recipient" has the meaning assigned to that term in Section 10.09
hereto.
"Regulatory Transaction" means any merger or consolidation of the
Account Party with or into, or any purchase or acquisition by the Account
Party of the assets of (and any related assumption by the Account Party of
the liabilities of) any utility company or utility-related company, if such
transaction is undertaken pursuant to an order or request of, or otherwise in
fulfillment of the stated goals of, a utility regulatory agency having
jurisdiction over NU or any of its Subsidiaries.
"Regulatory Transaction Entity" means any utility company or utility-
related company (other than the Account Party) that is the subject of a
Regulatory Transaction.
"Related Documents" means the Letter of Credit, the Bonds, the
Indenture, any Remarketing Agreement and the Purchase Contract.
"Remarketing Agent" has the meaning assigned to that term in the
Indenture.
"Remarketing Agreement" means (i) the Remarketing Agreement, dated as of
December 1, 1992, between the Account Party and Goldman, Sachs & Co., as the
same may be amended from time to time; and (ii) any successor remarketing
agreement between the Account Party and a successor Remarketing Agent as
shall be in effect from time to time in accordance with the terms of the
Indenture.
"S&P" means Standard and Poor's Corporation or any successor thereto.
"Security Documents" means the Pledge Agreement and the Indenture.
"Stated Amount" has the meaning assigned to that term in the Preliminary
Statement hereto.
"Stated Termination Date" means the expiration date specified in clause
(i) of the first paragraph of Paragraph (1) of the Letter of Credit, as such
date may be extended pursuant to Section 2.05 hereof.
"Subsidiary" shall mean, with respect to any person (the Parent), any
corporation, association or other business entity of which securities or
other ownership interests representing 50% or more of the ordinary voting
power are, at the time as of which any determination is being made, owned or
controlled by the Parent or one or more Subsidiaries of the Parent or by the
Parent and one or more Subsidiaries of the Parent.
"Tender Drawing" has the meaning assigned to that term in the Letter of
Credit.
"Term Advance" has the meaning assigned to that term in Section 3.02(b)
hereof, and refers to a Base Rate Advance, a CD Rate Advance or a Eurodollar
Rate Advance (each of which shall be a "Type" of Term Advance). The Type of
a Term Advance may change from time to time when such Term Advance is
Converted. For purposes of this Agreement, all Term Advances of a
Participating Bank (or portions thereof) made as, or Converted to, the same
Type and Interest Period on the same day shall be deemed a single Term
Advance by such Participating Bank until repaid or next Converted.
"Term Borrowing" means a borrowing consisting of Term Advances of the
same Type and Interest Period made on the same day by the Participating
Banks, ratably in accordance with their respective Participation Percentages.
A Term Borrowing may be referred to herein as being a "Type" of Term
Borrowing, corresponding to the Type of Term Advances comprising such Term
Borrowing. For purposes of this Agreement, all Term Advances made as, or
Converted to, the same Type and Interest Period on the same day shall be
deemed a single Term Borrowing until repaid or next Converted.
"Termination Date" means the Stated Termination Date or the earlier date
of termination of the Commitments pursuant to Sections 2.02 or 8.02
hereunder.
"Trustee" has the meaning assigned to that term in the Preliminary
Statement hereto.
"Type" has the meaning assigned to such term in the definitions of "Term
Advance" and "Term Borrowing" herein.
"Unmatured Default" means the occurrence and continuance of an event
which, with the giving of notice or lapse of time or both, would constitute
an Event of Default.
SECTION 1.02 Computation of Time Periods. In the computation of
periods of time under this Agreement any period of a specified number of days
or months shall be computed by including the first day or month occurring
during such period and excluding the last such day or month. In the case of
a period of time "from" a specified date "to" or "until" a later specified
date, the word "from" means "from and including" and the words "to" and
"until" each means "to but excluding".
SECTION 1.03 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles applied on a basis consistent with the application
employed in the preparation of the Account Party's consolidated financial
statements included in its Annual Report on Form 10-K for the year ended
December 31, 1991.
SECTION 1.04 Computations of Outstandings. Whenever reference is made
in this Agreement to the principal amount outstanding on any date under this
Agreement, such reference shall refer to the sum of (i) the Available Amount
on such date, (ii) the aggregate principal amount of all Advances outstanding
on such date and (iii) the aggregate amount of all demand loans under Section
3.01 hereunder on such date, in each case after giving effect to all
transactions to be made on such date and the application of the proceeds
thereof.
ARTICLE II
THE LETTER OF CREDIT
SECTION 2.01 The Letter of Credit. The Issuing Bank agrees, on the
terms and conditions hereinafter set forth (including, without limitation,
the applicable conditions precedent set forth in Article V hereof), to issue
the Letter of Credit to the Paying Agent, upon not less than three Business
Days prior notice from the Account Party, on the Closing Date.
SECTION 2.02 Termination of the Commitments. The obligation of the
Issuing Bank to issue the Letter of Credit shall automatically terminate if
unexercised at 5:00 P.M. (New York City time) on December 31, 1992.
SECTION 2.03 Commissions and Fees. (a) The Account Party hereby
agrees to pay to the Agent, for the account of the Participating Banks
ratably in accordance with their respective Participation Percentages, a
letter of credit commission on the Available Amount in effect from time to
time from the date of issuance of the Letter of Credit until the Termination
Date (disregarding for such purpose any temporary diminution thereof arising
from drawings under the Letter of Credit to pay interest (or purchase price
corresponding to interest) on the Bonds, regardless of whether the amount so
drawn shall be thereafter reinstated), at a rate equal to 0.60% per annum,
payable quarterly in arrears on the first day of March, June, September and
December in each year, commencing on the first such date to occur following
the date of issuance of the Letter of Credit, and on the Credit Termination
Date.
(b) The Account Party also agrees to pay to the Agent, for the account
of the Issuing Bank, such other fees as may be agreed upon from time to time
by the Account Party and the Issuing Bank.
SECTION 2.04 Reinstatement of the Letter of Credit. (a) The Interest
Component and the Principal Component shall, from time to time, be reinstated
by the Issuing Bank in accordance with, and only to the extent provided in,
the Letter of Credit. In no event shall reductions in the Premium Component
be reinstated.
(b) Interest Component. With respect to reinstatement of reductions in
the Interest Component resulting from Interest Drawings:
(i) The Issuing Bank may only deliver to the Paying Agent any notice of
non-reinstatement pursuant to Paragraph 5(i)(A) of the Letter of Credit if
(A) the Issuing Bank and/or the Participating Banks have not been reimbursed
in full by the Account Party for one or more drawings, together with
interest, if any, owing thereon pursuant to this Agreement, or (B) an Event
of Default has occurred and is then continuing.
(ii) If, subsequent to any such delivery of a notice of non-
reinstatement, the circumstances giving rise to the delivery of such notice
of non-reinstatement shall have ceased to exist (whether as a result of
reimbursement of unreimbursed drawings, or waiver or cure of an Event of
Default, or otherwise), then, provided that no other Event of Default shall
have occurred and be continuing, the Issuing Bank shall deliver to the Paying
Agent, by hand delivery or facsimile transmission, a Notice of Reinstatement
in the form of Exhibit 5 to the Letter of Credit reinstating that portion of
the Interest Component in respect of which such notice of non-reinstatement
was given.
(c) Principal Component. With respect to reinstatement of a reduction
in the Principal Component resulting from any Tender Drawing, IF:
(i) such reduction has not been reinstated pursuant to Paragraph
5(ii)(A) of the Letter of Credit;
(ii) the Issuing Bank and/or the Participating Banks shall have been
reimbursed by the Account Party for such Tender Drawing;
(iii) any demand loan(s) and Advance(s) made in respect of such
Tender Drawing shall have been repaid by the Account Party, together with any
interest thereon and any other amounts payable hereunder in connection
therewith; AND
(iv) no Event of Default shall have occurred and then be continuing;
THEN, the Issuing Bank shall deliver to the Paying Agent, by hand delivery or
facsimile transmission, a Notice of Reinstatement in the form of Exhibit 5 to
the Letter of Credit reinstating the Principal Component to the extent of
such Tender Drawing.
SECTION 2.05 Extension of the Stated Termination Date. Unless the
Letter of Credit shall have previously expired in accordance with its terms,
at least 105 days but not more than 120 days before the Stated Termination
Date, the Account Party may, by notice to the Agent (any such notice being
irrevocable), request the Issuing Bank and the Participating Banks to extend
the Stated Termination Date of the Letter of Credit for a period of one year.
If the Account Party shall make such request, the Agent shall promptly inform
the Issuing Bank and the Participating Banks and, no later than 60 days prior
to the Stated Termination Date, the Agent shall notify the Account Party in
writing (with a copy of such notice to the Trustee and the Paying Agent) if
the Issuing Bank and the Participating Banks consent to such request and the
conditions of such consent (including conditions relating to legal
documentation). The granting of any such consent shall be in the sole and
absolute discretion of the Issuing Bank and the Participating Banks, and if
the Agent shall not so notify the Account Party, such lack of notification
shall be deemed to be a determination not to consent to such request.
ARTICLE III
REIMBURSEMENT AND ADVANCES
SECTION 3.01 Reimbursement on Demand. Subject to the provisions of
Section 3.02 hereof, the Account Party hereby agrees to pay (whether with the
proceeds of Initial Advances made pursuant to this Agreement or otherwise) to
the Issuing Bank on demand (a) on and after each date on which the Issuing
Bank shall pay any amount under the Letter of Credit pursuant to any draft,
but only after so paid by the Issuing Bank, a sum equal to such amount so
paid (which sum shall constitute a demand loan from the Issuing Bank to the
Account Party from the date of such payment by the Issuing Bank until so paid
by the Account Party), plus (b) interest on any amount remaining unpaid by
the Account Party to the Issuing Bank under clause (a), above, from the date
such amount becomes payable on demand until payment in full, at the Default
Rate in effect from time to time. No reinstatement of the Interest Component
or the Principal Component despite the failure by the Account Party to
reimburse the Issuing Bank for any previous drawing to pay interest on the
Bonds shall limit or impair the Account Party's obligations under this
Section 3.01.
SECTION 3.02 Advances. Each Participating Bank agrees to make Initial
Advances and Term Advances for the account of the Account Party from time to
time upon the terms and subject to the conditions set forth in this
Agreement.
(a) Initial Advances; Repayment of Initial Advances. If the Issuing
Bank shall honor any Tender Drawing and if the conditions precedent set forth
in Section 5.03 of this Agreement have been satisfied as of the date of such
honor, then, each Participating Bank's payment made to the Issuing Bank
pursuant to Section 3.07 hereof in respect of such Tender Drawing shall be
deemed to constitute an advance made for the account of the Account Party by
such Participating Bank (each such advance being an "Initial Advance" made by
such Participating Bank). Each Initial Advance shall be made as a Base Rate
Advance, shall bear interest at the Alternate Base Rate and shall not be
entitled to be Converted. Subject to Article VIII of this Agreement, each
Initial Advance and all interest thereon shall be due and payable on the
earlier to occur of (i) the date 30 days from the date of such Initial
Advance (such repayment date being the "Initial Repayment Date" for such
Initial Advance) and (ii) the Termination Date. The Account Party may repay
the principal amount of any Initial Advance with (and to the extent of) the
proceeds of a Term Advance made pursuant to subsection (b), below, and may
prepay Initial Advances in accordance with Section 3.06 hereof.
(b) Term Advances; Repayment. Subject to the satisfaction of the
conditions precedent set forth in Section 5.04 hereof and the other
conditions of this subsection (b), each Participating Bank agrees to make one
or more advances for the account of the Account Party ("Term Advances") on
each Initial Repayment Date in an aggregate principal amount equal to the
amount of such Participating Bank's Initial Advances maturing on such Initial
Repayment Date. All Term Advances comprising a single Term Borrowing shall
be made upon written notice given by the Account Party to the Agent not later
than 11:00 A.M. (New York City time) (A) in the case of a Term Borrowing
comprised of Base Rate Advances, on the Business Day of such proposed Term
Borrowing, (B) in the case of a Term Borrowing comprised of CD Rate
Advances, two Business Days prior to the date of such Term Borrowing and (C)
in the case of a Term Borrowing comprised of Eurodollar Rate Advances, three
Business Days prior to the date of such proposed Term Borrowing. The Agent
shall notify each Participating Bank of the contents of such notice promptly
after receipt thereof. Each such notice shall specify therein the following
information: (W) the date on which such Term Borrowing is to be made, (X) the
principal amount of Term Advances comprising such Term Borrowing, (Y) the
Type of Term Borrowing and (Z) the duration of the initial Interest Period,
if applicable, proposed to apply to the Term Advances comprising such Term
Borrowing. The proceeds of each Participating Bank's Term Advances shall be
applied solely to the repayment of the Initial Advances made by such
Participating Bank and shall in no event be made available to the Account
Party. The principal amount of each Term Advance, together with all accrued
and unpaid interest thereon, shall be due and payable on the earlier to occur
of (x) the same calendar date occurring 35 months following the date upon
which such Term Advance is made (or, if such month does not have a
corresponding date, on the last day of such month) and (y) the Termination
Date.
SECTION 3.03 Interest on Advances. The Account Party shall pay
interest on the unpaid principal amount of each Advance from the date of such
Advance until such principal amount is paid in full at the applicable rate
set forth below:
(a) Alternate Base Rate. Except to the extent that the Account Party
shall elect to pay interest on any Advance for any Interest Period pursuant
to paragraph (c) or (d) of this Section 3.03, the Account Party shall pay
interest on each Advance (including all Initial Advances) from the date
thereof until the date such Advance is due, at a fluctuating interest rate
per annum in effect from time to time equal to the Alternate Base Rate in
effect from time to time. The Account Party shall pay interest on each
Advance bearing interest in accordance with this subsection quarterly in
arrears on the first day of March, June, September and December in each year
and on the Termination Date or the earlier date for repayment of such Advance
(including the Initial Repayment Date therefor, in the case of an Initial
Advance).
b. Interest Periods. Subject to the other requirements of this
Section 3.03, the Account Party may from time to time elect to have the
interest on all Term Advances comprising part of the same Term Borrowing
determined and payable for a specified period (an "Interest Period" for such
Term Advances) in accordance with paragraph (c) or (d) of this Section 3.03.
The first day of an Interest Period for such Term Advances shall be the date
such Advance is made or most recently Converted, which shall be a Business
Day. All Interest Periods shall end on or prior to the Stated Termination
Date. Any Interest Period for a Term Advance that would otherwise end after
the Termination Date or earlier date for the repayment of such Advance shall
be deemed to end on the Termination Date or such earlier repayment date, as
the case may be.
(c) CD Rate. Subject to the requirements of this Section 3.03 and
Article V hereof, the Account Party may from time to time elect to have any
Term Advances comprising part of the same Term Borrowing made as, or
Converted to, CD Rate Advances. The Interest Period applicable to such CD
Rate Advances shall be of 30, 60, 90 or 180 days' duration, as the Account
Party shall select in its notice delivered to the Agent pursuant to Section
3.02(b) or 3.04 hereof, as applicable. If the Account Party shall have made
such election, the Account Party shall pay interest on such CD Rate Advances
at the CD Rate, for the applicable Interest Period for such CD Rate Advances,
which interest shall be payable on the last day of such Interest Period, on
the date for repayment for such CD Rate Advances and also, in the case of any
Interest Period of 180 days' duration, on the 90th day of such Interest
Period.
(d) Eurodollar Rate. Subject to the requirements of this Section 3.03
and Article V hereof, the Account Party may from time to time elect to have
any Term Advances comprising part of the same Term Borrowing made as, or
Converted to, Eurodollar Rate Advances. The Interest Period applicable to
such Eurodollar Rate Advances shall be of one, two, three or six whole
months' duration, as the Account Party shall select in its notice delivered
to the Agent pursuant to Section 3.02(b) or 3.04 hereof, as applicable. If
the Account Party shall have made such election, the Account Party shall pay
interest on such Eurodollar Rate Advances at the Eurodollar Rate, for the
applicable Interest Period for such Eurodollar Rate Advances, which interest
shall be payable on the last day of such Interest Period, on the date for
repayment for such Eurodollar Rate Advances and also, in the case of any
Interest Period of six months' duration, on that day of the third month of
such Interest Period which corresponds with the first day of such Interest
Period (or, if any such month does not have a corresponding day, then on the
last day of such month). Any Interest Period pertaining to Eurodollar Rate
Advances that begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day of a
calendar month.
(e) Interest Rate Determinations. The Agent shall give prompt notice
to the Account Party and the Participating Banks of the Eurodollar Rate or CD
Rate determined from time to time by the Agent to be applicable to each
Eurodollar Rate Advance or CD Rate Advance, as the case may be.
SECTION 3.04 Conversion of Term Advances. Subject to the satisfaction
of the conditions precedent set forth in Section 5.03 hereof, the Account
Party may elect to Convert one or more Term Advances of any Type to one or
more Term Advances of the same or any other Type on the following terms and
subject to the following conditions:
(a) Each Conversion shall be made as to all Term Advances comprising a
single Term Borrowing upon written notice given by the Account Party to the
Agent not later than 11:00 A.M. (New York City time) on the third Business
Day prior to the date of the proposed Conversion. The Agent shall notify
each Participating Bank of the contents of such notice promptly after receipt
thereof. Each such notice shall specify therein the following information:
(A) the date of such proposed Conversion (which in the case of CD Rate
Advances or Eurodollar Rate Advances shall be the last day of the Interest
Period then applicable to such Term Advances to be Converted), (B) Type of,
and Interest Period, if any, applicable to the Term Advances proposed to be
Converted, (C) the aggregate principal amount of Term Advances proposed to be
Converted, and (D) the Type of Term Advances to which such Term Advances are
proposed to be Converted and the Interest Period, if any, to be applicable
thereto.
(b) During the continuance of an Unmatured Default or an Event of
Default, the right of the Account Party to Convert Term Advances to CD Rate
Advances or to Eurodollar Rate Advances shall be suspended, and all CD Rate
Advances and Eurodollar Rate Advances then outstanding shall be Converted to
Base Rate Advances on the last day of the Interest Period then in effect, if,
on such day, an Unmatured Default or an Event of Default shall be continuing.
(c) If no notice of Conversion is received by the Agent as provided in
subsection (a) above with respect to any outstanding CD Rate Advances or
Eurodollar Rate Advances, the Agent shall treat such absence of notice as a
deemed notice of Conversion providing for such Advances to be Converted to
Base Rate Advances on the last day of the Interest Period then in effect for
such CD Rate Advances or Eurodollar Rate Advances.
SECTION 3.05 Other Terms Relating to the Making and Conversion of
Advances. (a) Notwithstanding anything in Section 3.02, 3.03 or 3.04, above,
to the contrary:
(i) at no time shall more than six different Term Borrowings be
outstanding hereunder; and
(ii) each Term Borrowing consisting of CD Rate Advances or Eurodollar
Rate Advances shall be in the aggregate principal amount of $10,000,000 or
an integral multiple of $1,000,000 in excess thereof.
(b) Each notice of borrowing pursuant to Section 3.02(b) hereof and
each notice of Conversion pursuant to Section 3.04 hereof shall be
irrevocable and binding on the Account Party.
SECTION 3.06 Prepayment of Advances. (a) The Account Party shall have
no right to prepay any principal amount of any Advances except in accordance
with subsections (b) and (c) below.
(b) The Account Party may, upon at least one Business Day's notice to
the Agent stating the proposed date and aggregate principal amount of the
prepayment and the specific Initial Advances or Term Borrowing(s) to be
prepaid, and if such notice is given, the Account Party shall, prepay, in
whole or ratably in part, together with accrued interest to the date of such
prepayment on the principal amount prepaid and any amounts due pursuant to
Section 4.03, the outstanding principal amount of (i) all Initial Advances
made on the same date or (ii) all Term Advances comprising the same Term
Borrowing, in each case as the Account Party shall designate in such notice;
provided, however, that each partial prepayment shall be in an aggregate
principal amount not less than $10,000,000, or, if less, the aggregate
principal amount of all Advances then outstanding.
(c) Prior to or simultaneously with the resale of all of the Bonds
purchased with the proceeds of a Tender Drawing, the Account Party shall
prepay, or cause to be prepaid, in full, the then outstanding principal
amount of all Initial Advances and of all Term Advances comprising the same
Term Borrowing(s) arising pursuant to such Tender Drawing, together with all
interest thereon to the date of such prepayment. If less than all of such
Bonds are resold, then prior to or simultaneously with such resale the
Account Party shall prepay or cause to be prepaid that portion of such
Advances, together with all interest thereon to the date of such prepayment,
equal to the then outstanding principal amount thereof multiplied by a
fraction, the numerator of which shall be the principal amount of the Bonds
resold and the denominator of which shall be the principal amount of all of
the Bonds purchased with the proceeds of the relevant Tender Drawing.
SECTION 3.07 Participation; Reimbursement of Issuing Bank. (a) The
Issuing Bank hereby sells and transfers to each Participating Bank, and each
Participating Bank hereby acquires from the Issuing Bank, an undivided
interest and participation to the extent of such Participating Bank's
Participation Percentage in and to (i) the Letter of Credit, including the
obligations of the Issuing Bank under and in respect thereof and the Account
Party's reimbursement and other obligations in respect thereof and (ii) each
demand loan or deemed demand loan made by the Issuing Bank, whether now
existing or hereafter arising.
(b) If the Issuing Bank (i) shall not have been reimbursed in full for
any payment made by the Issuing Bank under the Letter of Credit on the date
of such payment or (ii) shall make any demand loan to the Account Party, the
Issuing Bank shall promptly notify the Agent and the Agent shall promptly
notify each Participating Bank of such non-reimbursement or demand loan and
the amount thereof. Upon receipt of such notice from the Agent, each
Participating Bank shall pay to the Issuing Bank, directly, an amount equal
to such Participating Bank's ratable portion (according to such Participating
Bank's Participation Percentage) of such unreimbursed amount or demand loan
paid or made by the Issuing Bank, plus interest on such amount at a rate per
annum equal to the Federal Funds Rate from the date of such payment by the
Issuing Bank to the date of payment to the Issuing Bank by such Participating
Bank. All such payments by each Participating Bank shall be made in United
States dollars and in same day funds:
(x) not later than 2:45 P.M. (New York City time) on the day such
notice is received by such Participating Bank if such notice is received at
or prior to 12:30 P.M. (New York City time) on a Business Day; or
(y) not later than 12:00 Noon (New York City time) on the Business Day
next succeeding the day such notice is received by such Participating Bank,
if such notice is received after 12:30 P.M. (New York City time) on a
Business Day.
If a Participating Bank shall have paid to the Issuing Bank its ratable
portion of any unreimbursed amount or demand loan paid or made by the Issuing
Bank, together with all interest thereon required by the second sentence of
this subsection (b), such Participating Bank shall be entitled to receive its
ratable share of all interest paid by the Account Party in respect of such
unreimbursed amount or demand loan from the date paid or made by the Issuing
Bank. If such Participating Bank shall have made such payment to the Issuing
Bank, but without all such interest thereon required by the second sentence
of this subsection (b), such Participating Bank shall be entitled to receive
its ratable share of the interest paid by the Account Party in respect of
such unreimbursed amount or demand loan only from the date it shall have paid
all interest required by the second sentence of this subsection (b).
(c) Each Participating Bank's obligation to make each payment to the
Issuing Bank, and the Issuing Bank's right to receive the same, shall be
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including, without limitation, the foregoing or Section 4.06
hereof, or the occurrence or continuance of an Event of Default, or the non-
satisfaction of any condition precedent set forth in Sections 5.03 or 5.04
hereof, or the failure of any other Participating Bank to make any payment
under this Section 3.07. Each Participating Bank further agrees that each
such payment shall be made without any offset, abatement, withholding or
reduction whatsoever.
(d) The failure of any Participating Bank to make any payment to the
Issuing Bank in accordance with subsection (b) above, shall not relieve any
other Participating Bank of its obligation to make payment, but neither the
Issuing Bank nor any Participating Bank shall be responsible for the failure
of any other Participating Bank to make such payment. If any Participating
Bank shall fail to make any payment to the Issuing Bank in accordance with
subsection (b) above, then such Participating Bank shall pay to the Issuing
Bank forthwith on demand such corresponding amount together with interest
thereon, for each day until the date such amount is repaid to the Issuing
Bank at the Federal Funds Rate. Nothing herein shall in any way limit, waive
or otherwise reduce any claims that any party hereto may have against any
non-performing Participating Bank.
(e) If any Participating Bank shall fail to make any payment to the
Issuing Bank in accordance with subsection (b) above, then, in addition to
other rights and remedies which the Issuing Bank may have, the Agent is
hereby authorized, at the request of the Issuing Bank, to withhold and to
apply the payment of such amounts owing to such Participating Bank to the
Issuing Bank and any related interest, that portion of any payment received
by the Agent that would otherwise be payable to such Participating Bank. In
furtherance of the foregoing, if any Participating Bank shall fail to make
any payment to the Issuing Bank in accordance with subsection (b), above, and
such failure shall continue for five Business Days following written notice
of such failure from the Issuing Bank to such Participating Bank, the Issuing
Bank may acquire, or transfer to a third party in exchange for the sum or
sums due from such Participating Bank, such Participating Bank's interest in
the related unreimbursed amounts and demand loans and all other rights of
such Participating Bank hereunder in respect thereof, without, however,
relieving such Participating Bank from any liability for damages, costs and
expenses suffered by the Issuing Bank as a result of such failure. The
purchaser of any such interest shall be deemed to have acquired an interest
senior to the interest of such Participating Bank and shall be entitled to
receive all subsequent payments which the Issuing Bank or the Agent would
otherwise have made hereunder to such Participating Bank in respect of such
interest.
ARTICLE IV
PAYMENTS
SECTION 4.01 Payments and Computations. (a) The Account Party
shall make each payment hereunder (i) in the case of reimbursement
obligations pursuant to Section 3.01 hereof (excluding any portion thereof in
respect of which an Initial Advance is to be made), not later than 2:30 P.M.
(New York City time) on the day the related drawing under the Letter of
Credit is paid by the Issuing Bank, and (ii) in all other cases, not later
than 12:30 P.M. (New York City time) on the day when due, in each case in
lawful money of the United States of America to the Agent at its address
referred to in Section 10.02 hereof in immediately available funds. The
Agent will promptly thereafter cause to be distributed like funds relating to
the payment of reimbursements, principal, interest, fees or other amounts
payable to the Issuing Bank and the Participating Banks to whom the same are
payable, ratably, at its address set forth in Section 10.02 hereof (in the
case of the Issuing Bank) or for the account of their respective Applicable
Lending Offices (in the case of the Participating Banks), in each case to be
applied in accordance with the terms of this Agreement.
(b) The Account Party hereby authorizes the Issuing Bank, and each
Participating Bank, if and to the extent payment owed to the Issuing Bank, or
such Participating Bank, as the case may be, is not made when due hereunder,
to charge from time to time against any or all of the Account Party's
accounts with the Issuing Bank or such Participating Bank, as the case may
be, any amount so due.
(c) All computations of interest based on the Alternate Base Rate when
based on CIBC's prime rate referred to in the definition of "Alternate Base
Rate" and all computations of fees and commissions hereunder shall be made by
the Agent on the basis of a year of 365 or 366 days, as the case may be. All
other computations of interest hereunder (including computations of interest
based on the CD Rate, the Eurodollar Rate and the Federal Funds Rate
(including the Alternate Base Rate if and so long as such Rate is based on
the Federal Funds Rate), and of other amounts pursuant to Section 4.03
hereof, shall be made by the Agent or the party claiming such other amounts,
as the case may be, on the basis of a year of 360 days. In each such case,
such computation shall be made for the actual number of days (including the
first day, but excluding the last day) occurring in the period for which such
interest, commissions or fees are payable. Each such determination by the
Agent or a Participating Bank, as the case may be, shall be conclusive and
binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder shall be stated to be due, or the
last day of an Interest Period hereunder shall be stated to occur, on a day
other than a Business Day, such payment shall be made and the last day of
such Interest Period shall occur on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
payment of interest, commissions and fees hereunder; provided, however, that
if such extension would cause payment of interest on or principal of
Eurodollar Rate Advances to be made, or the last day of an Interest Period
for a Eurodollar Rate Advance to occur, in the next following calendar month,
such payment shall be made on the next preceding Business Day and such
reduction of time shall in such case be included in the computation of
payment of interest hereunder.
(e) Unless the Agent shall have received notice from the Account Party
prior to the date on which any payment is due to the Issuing Bank or the
Participating Banks hereunder that the Account Party will not make such
payment in full, the Agent may assume that the Account Party has made such
payment in full to the Agent on such date and the Agent may, in reliance upon
such assumption, cause to be distributed to the Issuing Bank and/or each
Participating Bank on such due date an amount equal to the amount then due
the Issuing Bank and/or such Participating Bank. If and to the extent the
Account Party shall not have so made such payment in full to the Agent, the
Issuing Bank and/or each such Participating Bank shall repay to the Agent
forthwith on demand such amount distributed to the Issuing Bank and/or such
Participating Bank, together with interest thereon, for each day from the
date such amount is distributed to the Issuing Bank and/or such Participating
Bank until the date the Issuing Bank and/or such Participating Bank repays
such amount to the Agent, at the Federal Funds Rate.
(f) If, after the Agent has paid to the Issuing Bank or any
Participating Bank any amount pursuant to subsection (a) above, such payment
is rescinded or must otherwise be returned or must be paid over by the Agent
or the Issuing Bank to any Person, whether pursuant to any bankruptcy or
insolvency law, Section 4.04 hereof or otherwise, such Participating Bank
shall, at the request of the Agent or the Issuing Bank, promptly repay to the
Agent or the Issuing Bank, as the case may be, an amount equal to its ratable
share of such payment, together with any interest required to be paid by the
Agent or the Issuing Bank with respect to such payment.
SECTION 4.02 Default Interest. Any amounts payable hereunder that are
not paid when due shall (to the fullest extent permitted by law) bear
interest, from the date when due until paid in full, at the Default Rate,
payable on demand.
SECTION 4.03 Yield Protection. (a) Change in Circumstances.
Notwithstanding any other provision herein, if after the date hereof, the
adoption of or any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof (whether or not
having the force of law) shall (i) change the basis of taxation of payments
to the Issuing Bank or any Participating Bank of the principal of or interest
on any Eurodollar Rate Advance or CD Rate Advance made by such Participating
Bank or any fees or other amounts payable hereunder (other than changes in
respect of taxes imposed on the overall net income of the Issuing Bank or
such Participating Bank, or its Applicable Lending Office, by the
jurisdiction in which the Issuing Bank or such Participating Bank has its
principal office or in which such Applicable Lending Office is located or by
any political subdivision or taxing authority therein), or (ii) shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
against letters of credit (or participatory interests therein) issued by,
commitments or assets of, deposits with or for the account of, or credit
extended by, the Issuing Bank or such Participating Bank (excluding, in the
case of CD Rate Advances, any such requirement included in the CD Rate), or
(iii) shall impose on the Issuing Bank or such Participating Bank any other
condition affecting this Agreement, the Letter of Credit or participatory
interests therein or Eurodollar Rate Advances or CD Rate Advances, and the
result of any of the foregoing shall be (A) to increase the cost to the
Issuing Bank or such Participating Bank of issuing, maintaining or
participating in this Agreement or the Letter of Credit or of agreeing to
make, making or maintaining any Advance or (B) to reduce the amount of any
sum received or receivable by the Issuing Bank or such Participating Bank
hereunder (whether of principal, interest or otherwise), then the Account
Party will pay to the Issuing Bank or such Participating Bank, upon demand,
such additional amount or amounts as will compensate the Issuing Bank or such
Participating Bank for such additional costs incurred or reduction suffered.
(b) Capital. If the Issuing Bank or any Participating Bank shall have
determined that the applicability of any law, rule, regulation or guideline
adopted pursuant to or arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards", or
the adoption after the date hereof of any law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any governmental
authority, central bank or comparable agency charged with the interpretation
or administration thereof, or compliance by the Issuing Bank or any
Participating Bank (or any Applicable Lending Office of the Issuing Bank or
such Participating Bank), or any holding company of any such entity, with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has
or would have the effect (i) of reducing the rate of return on such entity's
capital or on the capital of such entity's holding company, if any, as a
consequence of this Agreement, the Letter of Credit or such entity's
participatory interest therein, any Commitment hereunder or the portion of
the Advances made by such entity pursuant hereto to a level below that which
such entity or such entity's holding company could have achieved, but for
such applicability, adoption, change or compliance (taking into consideration
such entity's policies and the policies of such entity's holding company with
respect to capital adequacy), or (ii) of increasing or otherwise determining
the amount of capital required or expected to be maintained by such entity or
such entity's holding company based upon the existence of this Agreement, the
Letter of Credit or such entity's participatory interest therein, any
Commitment hereunder, the portion of the Advances made by such entity
pursuant hereto and other similar such credits, participations, commitments,
agreements or assets, then from time to time the Account Party shall pay to
the Issuing Bank or such Participating Bank, upon demand, such additional
amount or amounts as will compensate such entity or such entity's holding
company for any such reduction or allocable capital cost suffered.
(c) Eurodollar Reserves. The Account Party shall pay to each
Participating Bank upon demand, so long as such Participating Bank shall be
required under regulations of the Board of Governors of the Federal Reserve
System to maintain reserves with respect to liabilities or assets consisting
of or including Eurocurrency Liabilities, additional interest on the unpaid
principal amount of such Participating Bank's portion of each Eurodollar Rate
Advance, from the date of such Advance until such principal amount is paid in
full, at an interest rate per annum equal at all times to the remainder
obtained by subtracting (i) the rate described in clause (i) of the
definition of "Eurodollar Rate" for the Interest Period for such Advance from
(ii) the rate obtained by dividing such rate by a percentage equal to 100%
minus the Eurodollar Reserve Percentage of such Participating Bank for such
Interest Period. Such additional interest shall be determined by such
Participating Bank and notified to the Account Party and the Issuing Bank.
(d) Breakage Indemnity. The Account Party shall indemnify each
Participating Bank against any loss, cost or reasonable expense which such
Participating Bank may sustain or incur as a consequence of (i) any failure
by the Account Party to fulfill on the date of any Advance or Conversion
hereunder the applicable conditions set forth in Articles III and V, (ii) any
failure by the Account Party to Convert any Advance hereunder after
irrevocable notice of Conversion has been given pursuant to Section 3.04
hereof, (iii) any payment, prepayment or Conversion of a Eurodollar Rate
Advance or CD Rate Advance required or permitted by any other provision of
this Agreement or otherwise made or deemed made on a date other than the last
day of the Interest Period applicable thereto, (iv) any default in payment or
prepayment of the principal amount of any Advance or any part thereof or
interest accrued thereon, as and when due and payable (at the due date
thereof, by irrevocable notice of prepayment or otherwise) or (v) the
occurrence of any Event of Default, including, in each such case, any loss or
reasonable expense sustained or incurred or to be sustained or incurred in
liquidating or employing deposits from third parties acquired to effect or
maintain such Advance or any part thereof as a Eurodollar Rate Advance or CD
Rate Advance. Such loss, cost or reasonable expense shall include an amount
equal to the excess, if any, as reasonably determined by such Participating
Bank, of (A) its cost of obtaining the funds for the Advance being paid,
prepaid, Converted or not borrowed (based on the Eurodollar Rate or CD Rate)
for the period from the date of such payment, prepayment, Conversion or
failure to borrow to the last day of the Interest Period for such Advance
(or, in the case of a failure to borrow, the Interest Period for such Advance
which would have commenced on the date of such failure) over (B) the amount
of interest (as reasonably determined by such Participating Bank) that would
be realized by such Participating Bank in reemploying the funds so paid,
prepaid, Converted or not borrowed for such period or Interest Period, as the
case may be. For purposes of this subsection (d), it shall be presumed that
each Participating Bank shall have funded each such Advance with a fixed-rate
instrument bearing the rates and maturities designated in the determination
of the applicable interest rate for such Advance.
(e) Notices. A certificate of the Issuing Bank or any Participating
Bank setting forth such entity's claim for compensation hereunder and the
amount necessary to compensate such entity or its holding company pursuant to
subsections (a) through (d) of this Section 4.03 shall be submitted to the
Account Party and the Issuing Bank and shall be conclusive and binding for
all purposes, absent manifest error. The Account Party shall pay the Issuing
Bank or such Participating Bank directly the amount shown as due on any such
certificate within ten days after its receipt of the same. The failure of
any entity to provide such notice or to make demand for payment under this
Section 4.03 shall not constitute a waiver of such Participating Bank's
rights hereunder; provided, that such entity shall not be entitled to demand
payment pursuant to subsections (a) through (d) of this Section 4.03 in
respect of any loss, cost, expense, reduction or reserve if such demand is
made more than one year following the later of such entity's incurrence or
sufferance thereof or such entity's actual knowledge of the event giving rise
to such entity's rights pursuant to such subsections. The protection of this
Section 4.03 shall be available to the Issuing Bank and each Participating
Bank regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
(f) Change in Legality. Notwithstanding any other provision herein, if
the adoption of or any change in any law or regulation or in the
interpretation or administration thereof by any governmental authority
charged with the administration or interpretation thereof shall make it
unlawful for any Participating Bank to make or maintain any Eurodollar Rate
Advance or to give effect to its obligations as contemplated hereby with
respect to any Eurodollar Rate Advance, then, by written notice to the
Account Party and the Issuing Bank, such Participating Bank may:
(i) declare that Eurodollar Rate Advances will not thereafter be made
by such Participating Bank hereunder, whereupon the right of the Account
Party to select Eurodollar Rate Advances for any Advance or Conversion shall
be forthwith suspended until such Participating Bank shall withdraw such
notice as provided hereinbelow or shall cease to be a Participating Bank
hereunder; and
(ii) require that all outstanding Eurodollar Rate Advances be Converted
to Base Rate Advances, in which event all Eurodollar Rate Advances shall be
automatically Converted to Base Rate Advances as of the effective date of
such notice as provided hereinbelow.
Upon receipt of any such notice, the Agent shall promptly notify the
Participating Banks thereof. Promptly upon becoming aware that the
circumstances that caused such Participating Bank to deliver such notice no
longer exist, such Participating Bank shall deliver notice thereof to the
Account Party and the Agent withdrawing such prior notice (but the failure to
do so shall impose no liability upon such Participating Bank). Promptly upon
receipt of such withdrawing notice from such Participating Bank, the Agent
shall deliver notice thereof to the Account Party and the Participating Banks
and such suspension shall terminate. Prior to any Participating Bank giving
notice to the Account Party under this subsection (f), such Participating
Bank shall use reasonable efforts to change the jurisdiction of its
Applicable Lending Office, if such change would avoid such unlawfulness and
would not, in the sole determination of such Participating Bank, be otherwise
disadvantageous to such Participating Bank. Any notice to the Account Party
by any Participating Bank shall be effective as to each Eurodollar Rate
Advance on the last day of the Interest Period currently applicable to such
Eurodollar Rate Advance; provided that if such notice shall state that the
maintenance of such Advance until such last day would be unlawful, such
notice shall be effective on the date of receipt by the Account Party and the
Agent.
(g) Market Rate Disruptions. If, (i) the Agent determines that an
adequate basis does not exist for the determination of the CD Rate for CD
Rate Advances, or the Eurodollar Rate for Eurodollar Rate Advances or (ii) if
the Majority Lenders shall notify the Agent that the Eurodollar Rate or CD
Rate, as the case may be, will not adequately reflect the cost to such
Majority Lenders of making, funding or maintaining their respective
Eurodollar Rate Advances or CD Rate Advances, the right of the Account Party
to select or receive or Convert into such Type of Advances shall be forthwith
suspended until the Agent shall notify the Account Party and the
Participating Banks that the circumstances causing such suspension no longer
exist, and until such notification from the Agent, each request for or
Conversion into such Type of Advance hereunder shall be deemed to be a
request for or Conversion into Base Rate Advances.
SECTION 4.04 Sharing of Payments, Etc. If any Participating Bank
shall obtain any payment (whether voluntary, involuntary, through the
exercise of any right of set-off, or otherwise, but excluding any proceeds
received by assignments or sales of participations in accordance with Section
10.06 hereof to a Person that is not an Affiliate of the Account Party) on
account of the Advances owing to it (other than pursuant to Section 4.03
hereof) in excess of its ratable share of payments on account of the Advances
obtained by all the Participating Banks, such Participating Bank shall
forthwith purchase from the other Participating Banks such participation in
the portions of the Advances owing to them as shall be necessary to cause
such purchasing Participating Bank to share the excess payment ratably with
each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Participating Bank, such
purchase from each Participating Bank shall be rescinded and such
Participating Bank shall repay to the purchasing Participating Bank the
purchase price to the extent of such recovery together with an amount equal
to such Participating Bank's ratable share (according to the proportion of
(i) the amount of such Participating Bank's required repayment to (ii) the
total amount so recovered from the purchasing Participating Bank) of any
interest or other amount paid or payable by the purchasing Participating Bank
in respect of the total amount so recovered. The Account Party agrees that
any Participating Bank so purchasing a participation from another
Participating Bank pursuant to this Section 4.04 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Participating
Bank were the direct creditor of the Account Party in the amount of such
participation. Notwithstanding the foregoing, if any Participating Bank shall
obtain any such excess payment involuntarily, such Participating Bank may, in
lieu of purchasing participation from the other Participating Banks in
accordance with this Section 4.04, on the date of receipt of such excess
payment, return such excess payment to the Agent for distribution in
accordance with Section 4.01(a) hereof.
SECTION 4.05 Taxes. (a) All payments by the Account Party hereunder
shall be made in accordance with Section 4.01, free and clear of and without
deduction for all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding,
in the case of each Participating Bank and the Issuing Bank, taxes imposed on
its overall net income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Participating Bank or the Issuing
Bank (as the case may be) is organized or any political subdivision thereof
and, in the case of each Participating Bank, taxes imposed on its overall net
income, and franchise taxes imposed on it, by the jurisdiction of such
Participating Bank's Applicable Lending Office or any political subdivision
thereof (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes"). If
the Account Party shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder to any Participating Bank or the Issuing
Bank, (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 4.05) such Participating Bank or
the Issuing Bank (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Account Party
shall make such deductions and (iii) the Account Party shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Account Party agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement (hereinafter referred to as "Other Taxes").
(c) The Account Party will indemnify each Participating Bank and the
Issuing Bank for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes and any Other Taxes imposed by any jurisdiction on
amounts payable under this Section 4.05) paid by such Participating Bank or
the Issuing Bank (as the case may be) and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or
not such Taxes or Other Taxes were correctly or legally asserted. This
indemnification shall be made within 30 days from the date such Participating
Bank or the Issuing Bank (as the case may be) makes written demand therefor.
If any Taxes or Other Taxes for which a Participating Bank or the Issuing
Bank has received payments from the Account Party hereunder shall be finally
determined to have been incorrectly or illegally asserted and are refunded to
such Participating Bank, such Participating Bank shall promptly forward to
the Account Party any such refunded amount. The Account Party's, the Issuing
Bank's and each Participating Bank's obligations under this Section 4.05
shall survive the payment in full of the Advances.
(d) Within 30 days after the date of any payment of Taxes, the Account
Party will furnish to the Issuing Bank, at its address referred to in Section
10.02 hereof, the original or a certified copy of a receipt evidencing
payment thereof.
(e) Each Participating Bank not incorporated in the United States or a
jurisdiction within the United States shall, on or prior to the date it
becomes a Participating Bank hereunder, deliver to the Account Party and the
Issuing Bank such certificates, documents or other evidence, as required by
the Internal Revenue Code of 1986, as amended from time to time (the "Code"),
or treasury regulations issued pursuant thereto, including Internal Revenue
Service Form 4224 and any other certificate or statement of exemption
required by Treasury Regulation Section 1.1441-1(a) or Section 1.1441-6(c) or
any subsequent version thereof, properly completed and duly executed by such
Participating Bank establishing that it is (i) not subject to withholding
under the Code or (ii) totally exempt from United States of America tax under
a provision of an applicable tax treaty. Each Participating Bank shall
promptly notify the Account Party and the Issuing Bank of any change in its
Applicable Lending Office and shall deliver to the Account Party and the
Issuing Bank together with such notice such certificates, documents or other
evidence referred to in the immediately preceding sentence. Unless the
Account Party and the Issuing Bank have received forms or other documents
satisfactory to them indicating that payments hereunder are not subject to
United States of America withholding tax or are subject to such tax at a rate
reduced by an applicable tax treaty, the Account Party or the Issuing Bank
shall withhold taxes from such payments at the applicable statutory rate in
the case of payments to or for any Participating Bank organized under the
laws of a jurisdiction outside the United States of America. Each
Participating Bank represents and warrants that each such form supplied by it
to the Issuing Bank and the Account Party pursuant to this Section 4.05, and
not superseded by another form supplied by it, is or will be, as the case may
be, complete and accurate.
(f) Any Participating Bank claiming any additional amounts payable
pursuant to this Section 4.05 shall use reasonable efforts (consistent with
legal and regulatory restrictions) to file any certificate or document
requested by the Account Party or to change the jurisdiction of its
Applicable Lending Office if the making of such a filing or change would
avoid the need for or reduce the amount of any such additional amounts which
may thereafter accrue and would not, in the sole determination of such
Participating Bank, be otherwise disadvantageous to such Participating Bank.
SECTION 4.06 Obligations Absolute. The obligations of the Account
Party under this Agreement shall be unconditional and irrevocable, and shall
be paid strictly in accordance with the terms of this Agreement (as the same
may be amended from time to time) under all circumstances, including, without
limitation, the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any of
the Security Documents or Related Documents or any document or agreement
delivered in connection therewith;
(ii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the obligations of the Account Party in respect
of the Letter of Credit or any other amendment or waiver of or any consent to
departure from all or any of the Loan Documents or the Related Documents or
any document or agreement delivered in connection therewith;
(iii) the existence of any claim, set-off, defense or other right
which the Account Party may have at any time against the Paying Agent, the
Trustee or any other beneficiary, or any transferee, of the Letter of Credit
(or any persons or entities for whom the Paying Agent, the Trustee, any such
beneficiary or any such transferee may be acting), the Agent, the Issuing
Bank, or any other person or entity, whether in connection with this
Agreement, the transactions contemplated in any of the Loan Documents or the
Related Documents, or any unrelated transaction;
(iv) any statement or any other document presented under the Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect,
except to the extent that a court of competent jurisdiction shall determine
that the Issuing Bank shall have engaged in gross negligence or willful
misconduct with respect thereto;
(v) payment by the Issuing Bank under the Letter of Credit against
presentation of a draft or certificate which does not comply with the terms
of the Letter of Credit, except to the extent that a court of competent
jurisdiction shall determine that the Issuing Bank shall have engaged in
gross negligence or willful misconduct with respect thereto;
(vi) any exchange of, release of or non-perfection of any interest in
any collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any of the obligations of the
Account Party in respect of the Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
SECTION 4.07 Evidence of Indebtedness. The Issuing Bank and each
Participating Bank shall maintain, in accordance with their usual practice,
an account or accounts evidencing the indebtedness of the Account Party
resulting from each drawing under the Letter of Credit (in the case of the
Issuing Bank) and from each Advance (in the case of each Participating Bank)
made from time to time hereunder and the amounts of principal and interest
payable and paid from time to time hereunder. In any legal action or
proceeding in respect of this Agreement, the entries made in such account or
accounts shall, in the absence of manifest error, be conclusive evidence of
the existence and amounts of the obligations of the Account Party therein
recorded.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01 Conditions Precedent to the Issuance of the Letter of
Credit. The obligation of the Issuing Bank to issue the Letter of Credit and
of each Participating Bank to make the Advances to be made by it is subject
to the fulfillment of the conditions precedent that the Agent shall have
received on or before the day of such issuance the following, each dated such
day (except where specified otherwise below), in form and substance
satisfactory to each Participating Bank (except where specified otherwise
below) and in sufficient copies for each Participating Bank:
(a) Agreements:
(i) Counterparts of this Agreement, duly executed and delivered by the
Account Party, the Agent, the Issuing Bank and each Participating Bank listed
on the signature pages hereto.
(ii) Counterparts of the Pledge Agreement, duly executed by the Account
Party, the Agent and the Issuing Bank.
(iii) Executed copies (or duplicate copies thereof certified as of
the Closing Date by the Account Party in a manner satisfactory to the Agent
to be a true copy) of the Indenture, duly executed by the parties thereto.
(b) Corporate Matters:
(i) A certificate of the Secretary of the Account Party certifying that
attached thereto are (A) a true and correct listing of the documents
comprising the Articles of Incorporation of the Account Party and a true and
correct copy of the By-laws of the Account Party, in each case as in effect
on the Closing Date and (B) true and correct copies of the resolutions of the
Board of Directors of the Account Party approving, if and to the extent
necessary, this Agreement, the other Loan Documents, the Related Documents to
which it is a party and the other documents to be delivered by or on behalf
of the Account Party hereunder and thereunder, and of all documents
evidencing other necessary corporate action, if any, with respect to the
execution, delivery and performance by or on behalf of the Account Party of
this Agreement, the other Loan Documents and such Related Documents and
certifying that such resolutions and other corporate actions, if any, are in
full force and effect and have not been revoked, rescinded or modified.
(ii) A certificate of the Secretary of the Account Party certifying the
names and true signatures of the officers of the Account Party authorized to
sign this Agreement, the other Loan Documents, the Related Documents to which
it is a party and the other documents to be delivered hereunder and
thereunder.
(c) Governmental Approvals:
(i) A certificate of a duly authorized officer of the Account Party
certifying that attached thereto are true and correct copies of all
Governmental Approvals referred to in clause (i) of the definition of
"Governmental Approval" required to be obtained or made by the Company.
(d) Financial, Accounting and Compliance Matters:
(i) A certificate signed by the Treasurer or Assistant Treasurer of the
Account Party, certifying as to the absence of any material adverse change in
the financial condition, operations, properties or prospects of the Account
Party since December 31, 1991.
(ii) A certificate signed by the Chief Financial Officer, Treasurer or
Assistant Treasurer of NU, certifying as to the absence of any material
adverse change in the financial condition, operations, properties or
prospects of NU since December 31, 1991.
(iii) A certificate of a duly authorized officer of the Account
Party to the effect that:
(A) the representations and warranties contained in Section 6.01 are
correct in all material respects on and as of the Closing Date before and
after giving effect to the issuance of the Letter of Credit; and
(B) no event has occurred and is continuing which constitutes an Event
of Default or Unmatured Default, or would result from the issuance of the
Letter of Credit.
(e) Relating to the Issuance of the Bonds:
(i) An executed copy (or a duplicate copy thereof certified by the
Account Party in a manner satisfactory to the Agent to be a true copy) of the
Remarketing Agreement, duly executed by the Remarketing Agent and the Account
Party.
(ii) An executed copy (or a duplicate copy thereof certified by the
Account Party in a manner satisfactory to the Agent to be a true copy) of the
Purchase Contract, duly executed by Goldman, Sachs & Co., the Issuer and the
Account Party.
(iii) A letter from Palmer & Dodge, counsel to the Issuer, addressed
to the Agent, the Issuing Bank and the Participating Banks and stating
therein that the Agent, the Issuing Bank and the Participating Banks may rely
on the opinion of such firm in the form of Exhibit H to the Purchase Contract
and delivered pursuant to Section 14(i)(2)(G) of the Purchase Contract,
together with copies of such opinion.
(iv) A letter from Palmer & Dodge, Bond Counsel, addressed to the Agent,
the Issuing Bank and the Participating Banks and stating therein that the
Agent, the Issuing Bank and the Participating Banks may rely on the opinion
of such firm in the form of Appendix C to the Purchase Contract and delivered
pursuant to Section 14(i)(2)(H) of the Purchase Contract, together with a
copy of such opinion.
(v) Copies of the Preliminary Official Statement and Official Statement
used in connection with the offering and remarketing of the Bonds, and any
amendments, supplements or "stickers" thereto.
(vi) Copies of the Issuer Resolution, and, to the extent not otherwise
referenced in this Section 5.01(e), of all other agreements, documents,
certificates and opinions delivered in connection with the issuance of the
Bonds.
(f) Opinions of Counsel:
Favorable opinions of:
(i) Day, Berry & Howard, counsel to the Account Party, in substantially
the form of Exhibit 5.01A and as to such other matters as the Majority
Lenders, through the Agent, may reasonably request; and
(ii) King & Spalding, special New York counsel to the Agent and the
Issuing Bank, in substantially the form of Exhibit 5.01B.
(g) Miscellaneous:
(i) Letters from S&P and Moody's to the effect that the Bonds have been
rated A-1+ and VMIG-1, respectively, such letters to be in form and substance
satisfactory to the Issuing Bank.
(ii) Such other approvals, opinions and documents as the Majority
Lenders, through the Issuing Bank, may reasonably request as to the legality,
validity, binding effect or enforceability of the Loan Documents or the
financial condition, properties, operations or prospects of the Account
Party.
SECTION 5.02 Additional Conditions Precedent to the Issuance of the
Letter of Credit. The obligation of the Issuing Bank to issue the Letter of
Credit and of each Participating Bank to make the Advances to be made by it
shall be subject to the further conditions precedent that, on the date of the
issuance of the Letter of Credit:
(a) the representations and warranties contained in Section 6.01 shall
be correct in all material respects on and as of the Closing Date before and
after giving effect to the issuance of the Letter of Credit;
(b) no event shall have occurred and be continuing which constitutes an
Event of Default or Unmatured Default, or would result from the issuance of
the Letter of Credit; and
(c) The Account Party shall have paid all fees under or referenced in
Section 2.03 hereof, to the extent then due and payable.
SECTION 5.03 Conditions Precedent to Initial Advances and Conversions
of Advances. The obligation of each Participating Bank to make any Initial
Advance or to Convert any Term Advance shall be subject to the conditions
precedent that, on the date of such Initial Advance or Conversion, the
following statements shall be true:
(a) the representations and warranties contained in Section 6.01 of
this Agreement (other than the last sentence of subsection (f) and clause
(ii) of subsection (g) thereof) are true and correct on and as of the date of
such Initial Advance or Conversion, before and after giving effect to such
Initial Advance or Conversion and to the application of the proceeds (if any)
therefrom, as though made on and as of such date; and
(b) no event has occurred and is continuing which constitutes an Event
of Default.
Unless the Account Party shall have previously advised the Agent in writing
that one or more of the statements contained in subsections (a) and (b) of
this Section 5.03 is no longer true, the Account Party shall be deemed to
have represented and warranted, on and as of the date of any Initial Advance
or Conversion, that the above statements are true.
SECTION 5.04 Conditions Precedent to Term Advances. The obligation of
each Participating Bank to make any Term Advance shall be subject to the
conditions precedent that, on the date of such Term Advance the following
statements shall be true:
(a) the representations and warranties contained in Section 6.01 of
this Agreement (including the last sentence of subsection (f) and clause (ii)
of subsection (g) thereof) are true and correct on and as of the date of such
Term Advance, before and after giving effect to such Term Advance and to the
application of the proceeds therefrom, as though made on and as of such
date; and
(b) no event has occurred and is continuing which constitutes an Event
of Default or an Unmatured Default.
Unless the Account Party shall have previously advised the Agent in writing
that one or more of the statements contained in subsections (a) and (b) of
this Section 5.04 is no longer true, the Account Party shall be deemed to
have represented and warranted, on and as of the date of any Term Advance,
that the above statements are true.
SECTION 5.05 Reliance on Certificates. The Agent, the Issuing Bank
and the Participating Banks shall be entitled to rely conclusively upon the
certificates delivered from time to time by officers of the Account Party, NU
and the other parties to the Loan Documents and Related Documents as to the
names, incumbency, authority and signatures of the respective persons named
therein until such time as the Agent may receive a replacement certificate,
in form acceptable to the Agent, from an officer of such Person identified to
the Agent as having authority to deliver such certificate, setting forth the
names and true signatures of the officers and other representatives of such
Person thereafter authorized to act on behalf of such Person.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01 Representations and Warranties of the Account Party. The
Account Party represents and warrants as follows:
(a) Each of the Account Party and its Principal Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has the requisite corporate
power and authority to own its property and assets and to carry on its
business as now conducted and is qualified to do business in every
jurisdiction where, because of the nature of its business or property, such
qualification is required, except where the failure so to qualify would not
have a material adverse effect on the financial condition, properties,
prospects or operations of the Account Party or of the Account Party and its
Principal Subsidiaries taken as a whole. The Account Party has the corporate
power to execute, deliver and perform its obligations under this Agreement,
each other Loan Document and each Related Document to which it will be a
party.
(b) The execution, delivery and performance by the Account Party of
each Loan Document and Related Document to which it is a party are within the
Account Party's corporate powers, have been duly authorized by all necessary
corporate action, and do not and will not contravene (i) the Account Party's
charter or by-laws or any law or legal restriction or (ii) any contractual
restriction binding on or affecting the Account Party or its properties or
any of its Principal Subsidiaries or its properties.
(b) Each of the Account Party and its Principal Subsidiaries is not in
violation of any law, or in default with respect to any judgment, writ,
injunction, decree, rule or regulation of any court or governmental agency or
instrumentality, where such violation or default would have a material
adverse effect on the financial condition, properties, prospects or
operations of the Account Party or of the Account Party and its Principal
Subsidiaries taken as a whole.
(c) All Governmental Approvals referred to in clause (i) in the
definition of "Governmental Approvals" have been duly obtained or made, and
all applicable periods of time for review, rehearing or appeal with respect
thereto have expired, except as described below. If the period for appeal of
the order of the Securities and Exchange Commission approving the
transactions contemplated hereby has not expired, the filing of an appeal of
such order will not affect the validity of said transactions, unless such
order has been otherwise stayed or any of the parties hereto has actual
knowledge that any of such transactions constitutes a violation of the Public
Utility Holding Company Act of 1935 or any rule or regulation thereunder. No
such stay exists and the Account Party has no reason to believe that any of
such transactions constitutes any such violation. If the period for appeal
of the decision of the Connecticut Department of Public Utility Control (the
"CDPUC") approving the transactions contemplated hereby has not expired, the
filing of an appeal of such decision will not affect the validity of said
transactions, unless operation of such decision has been stayed or suspended
by the CDPUC or a reviewing court prior to the consummation of such
transactions. No such stay or suspension exists. No representation or
warranty is made concerning the applicable periods of time for review,
rehearing or appeal with respect to Governmental Approvals of the Issuer or
the Governor and Executive Council of the State of New Hampshire in
connection with the issuance of the Bonds. The Account Party and each of its
Principal Subsidiaries have obtained or made all Governmental Approvals
referred to in clause (ii) of the definition of "Governmental Approvals",
except (i) those which are not yet required but which are obtainable in the
ordinary course of business as and when required, (ii) those the absence of
which would not materially adversely affect the financial condition,
properties, prospects or operations of the Account Party or any Principal
Subsidiary and (iii) those which the Account Party is diligently attempting
in good faith to obtain, renew or extend, or the requirement for which the
Account Party is contesting in good faith by appropriate proceedings or by
other appropriate means; in each case described in the foregoing clause
(iii), such attempt or contest, and any delay resulting therefrom, is not
reasonably expected to have a material adverse effect on the financial
condition, properties, prospects or operations of the Account Party or any
Principal Subsidiary or to magnify to any significant degree any such
material adverse effect that would reasonably be expected to result from the
absence of such Governmental Approval.
(e) This Agreement, each other Loan Document and each Related Document
to which the Account Party is a party have been duly executed and delivered
by or on behalf of the Account Party and are legal, valid and binding
obligations of the Account Party enforceable against the Account Party in
accordance with their respective terms; subject to the qualifications,
however, that the enforcement of the rights and remedies herein and therein
is subject to bankruptcy and other similar laws of general application
affecting rights and remedies of creditors and the application of general
principles of equity (regardless of whether considered in a proceeding in
equity or at law) and that indemnification against violations of securities
and similar laws may be subject to matters of public policy.
(f) (i) The audited balance sheet of the Account Party as at December
31, 1991, and the audited statements of income and cash flows of the Account
Party for the fiscal year then ended as set forth in the Account Party's
Annual Report on Form 10-K for such fiscal year and (ii) the unaudited
balance sheet of the Account Party as at September 30, 1992 and the unaudited
statements of income and cash flows of the Account Party for the nine-month
period then ended as set forth in the Account Party's Quarterly Report on
Form 10-Q for the period then ended, fairly present in all material respects
the financial condition and results of operations of the Account Party at and
for the respective periods ended on such dates, and have been prepared in
accordance with generally accepted accounting principles consistently
applied. Since June 30, 1992, there has been no material adverse change in
the financial condition, operations, properties or prospects of the Account
Party and its Subsidiaries, if any, taken as a whole.
(g) There is no pending or known threatened action or proceeding
(including, without limitation, any action or proceeding relating to any
environmental protection laws or regulations) affecting the Account Party or
its properties, or any of its Principal Subsidiaries or its properties,
before any court, governmental agency or arbitrator (i) which affects or
purports to affect the legality, validity or enforceability of the Loan
Documents or the Related Documents or any of them or (ii) as to which there
is a reasonable possibility of an adverse determination and which, if
adversely determined, would materially adversely affect the financial
condition, properties, prospects or operations of the Account Party and its
Principal Subsidiaries taken as a whole; except, (A) for purposes of clause
(i) only, such as is described under "Litigation" in the Official Statement
used in connection with the offering and remarketing of the Bonds and (B) for
purposes of clause (ii) only, such as is described in the Account Party's
Annual Report on Form 10-K for the fiscal year ended December 31, 1991, in
the Account Party's Quarterly Reports on Form 10-Q for the periods ended
March 31, June 30 or September 30, 1992, or in the Account party's Current
Report on Form 8-K, dated January 29, 1992 or in Schedule II hereto.
(h) No ERISA Plan Termination Event has occurred nor is reasonably
expected to occur with respect to any ERISA Plan which would materially
adversely affect the financial condition, properties, prospects or operations
of the Account Party and its Subsidiaries taken as a whole, except as
disclosed to and consented to in writing by the Majority Lenders. Since the
date of the most recent Schedule B (Actuarial Information) to the annual
report of each such ERISA Plan (Form 5500 Series), there has been no material
adverse change in the funding status of the ERISA Plans referred to therein,
and no "prohibited transaction" has occurred with respect thereto that,
singly or in the aggregate with all other "prohibited transactions" and after
giving effect to all likely consequences thereof, would be reasonably
expected to have a material adverse effect on the financial condition,
properties, prospects or operations of the Account Party and its Subsidiaries
taken as a whole. Neither the Account Party nor any of its ERISA Affiliates
has incurred nor reasonably expects to incur any material withdrawal
liability under ERISA to any ERISA Multiemployer Plan, except as disclosed to
and consented to in writing by the Majority Lenders.
(i) The Account Party or one of its Principal Subsidiaries has good and
marketable title (or, in the case of personal property, valid title) or valid
leasehold interests in the electric generating plants of which it is named as
"owner" in Item 2 of the Account Party's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 under the caption "System Generating
Plants", except for minor defects in title that do not interfere with the
ability of the Account Party or any of its Principal Subsidiaries to conduct
its business as now conducted. All such assets and properties are free and
clear of any Lien, other than Liens permitted under Section 7.02(a) hereof.
(j) All outstanding shares of capital stock having ordinary voting
power for the election of directors of the Account Party have been validly
issued, are fully paid and nonassessable and are owned beneficially by NU,
free and clear of any Lien. NU is a "holding company" (as defined in the
Public Utility Holding Company Act of 1935, as amended).
(k) The Account Party and each of its Principal Subsidiaries has filed
all tax returns (Federal, state and local) required to be filed and paid
taxes shown thereon to be due, including interest and penalties, or, to the
extent the Account Party or any of its Principal Subsidiaries is contesting
in good faith an assertion of liability based on such returns, has provided
adequate reserves in accordance with generally accepted accounting principles
for payment thereof.
(l) No exhibit, schedule, report or other written information provided
by or on behalf of the Account Party or its agents to the Agent, the Issuing
Bank or the Participating Banks in connection with the negotiation, execution
and closing of this Agreement, the other Loan Documents or the Related
Documents knowingly contained when made any material misstatement of fact or
knowingly omitted to state any material fact necessary to make the statements
contained therein not misleading in light of the circumstances under which
they were made.
(m) No proceeds of any Advance will be used in violation of, or in any
manner that would result in a violation by any party hereto of, Regulations
G, T, U or X promulgated by the Board of Governors of the Federal Reserve
System or any successor regulations. The Account Party (A) is not an
"investment company" within the meaning ascribed to that term in the
Investment Company Act of 1940 and (B) is not engaged in the business of
extending credit for the purpose of buying or carrying margin stock.
ARTICLE VII
COVENANTS OF THE ACCOUNT PARTY
SECTION 7.01 Affirmative Covenants. So long as any amounts shall
remain available to be drawn under the Letter of Credit or any Advance or
other amounts shall remain unpaid hereunder or any Participating Bank shall
have any Commitment, the Account Party will, unless the Majority Lenders
shall otherwise consent in writing:
(a) Use of Proceeds. Apply all proceeds of each Advance solely as
specified in Section 3.02 and Section 6.01(m) hereof.
(b) Payment of Taxes, Etc. Pay and discharge before the same shall
become delinquent, and cause each of its Principal Subsidiaries to pay and
discharge before the same shall become delinquent, all taxes, assessments and
governmental charges, royalties or levies imposed upon it or upon its
property except to the extent the Account Party or any of its Principal
Subsidiaries is contesting the same in good faith by appropriate proceedings
and has set aside adequate reserves in accordance with generally accepted
accounting principles for the payment thereof.
(c) Maintenance of Insurance. Maintain, or cause to be maintained,
insurance (including appropriate plans of self-insurance) covering the
Account Party, its Principal Subsidiaries and their respective properties, in
effect at all times in such amounts and covering such risks as may be
required by law and in addition as is usually carried by companies engaged in
similar businesses and owning similar properties.
(d) Preservation of Existence, Etc. Subject at all times to Section
7.02(b) hereof, preserve and maintain, and cause each of its Principal
Subsidiaries to preserve and maintain, its existence, corporate or otherwise,
material rights (statutory and otherwise) and franchises except for such
rights and franchises which do not materially adversely affect the financial
condition, properties, prospects or operations of the Account Party or any of
its Principal Subsidiaries.
(e) Compliance with Laws, Etc. Comply, and cause each of its Principal
Subsidiaries to comply, in all material respects with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
including, without limitation, any such laws, rules, regulations and orders
issued by the Securities and Exchange Commission or relating to zoning,
environmental protection, use and disposal of Hazardous Substances, land use,
construction and building restrictions, ERISA and employee safety and health
matters relating to business operations, except to the extent (i) that the
Account Party or any of its Principal Subsidiaries is contesting the same in
good faith by appropriate proceedings or (ii) that any such non-compliance,
and the enforcement or correction thereof, would not materially adversely
affect the financial condition, properties, prospects or operations of the
Account Party or any of its Principal Subsidiaries.
(f) Inspection Rights. At any time and from time to time upon
reasonable notice, permit the Issuing Bank and its agents and representatives
to examine the records and books of account of, and the properties of, the
Account Party and any of its Principal Subsidiaries.
(g) Keeping of Books. Keep proper records and books of account, in
which full and correct entries shall be made of all financial transactions of
the Account Party and its Principal Subsidiaries and the assets and business
of the Account Party and its Principal Subsidiaries, in accordance with
generally accepted accounting practices consistently applied.
(h) Conduct of Business. Conduct its primary business, and cause each
of its Principal Subsidiaries to conduct its primary business, in
substantially the same manner and in substantially the same fields as such
business is conducted on the Closing Date.
(i) Maintenance of Properties, Etc. (i) As to properties of the type
described in Section 6.01(i) hereof, subject at all times to Section 7.02(b)
hereof, maintain, and cause its Principal Subsidiaries to maintain, title of
the quality described therein; and (ii) preserve, maintain, develop, and
operate, and cause its Principal Subsidiaries to preserve, maintain, develop
and operate, in substantial conformity with all laws, material contractual
obligations and prudent practices prevailing in the industry, all of its
properties which are used or useful in the conduct of its or its Principal
Subsidiaries' respective businesses in good working order and condition,
ordinary wear and tear excepted, except to the extent such non-conformity
would not materially adversely affect the financial condition, properties,
prospects or operations of the Account Party or any of its Principal
Subsidiaries; provided, however, that the Account Party or any Principal
Subsidiary will not be prevented from discontinuing the operation and
maintenance of any such properties if such discontinuance is, in the judgment
of the Account Party or such Principal Subsidiary, desirable in the operation
or maintenance of its business and would not materially adversely affect the
financial condition, properties, prospects or operations of the Account Party
or such Principal Subsidiary.
(j) Governmental Approvals. Duly obtain, and cause each of its
Principal Subsidiaries to duly obtain, on or prior to such date as the same
may become legally required, and thereafter maintain in effect at all times,
all Governmental Approvals on its or such Principal Subsidiary's part to be
obtained, except with respect to those Governmental Approvals referred to in
clause (ii) of the definition of "Governmental Approvals", (i) those the
absence of which would not materially adversely affect the financial
condition, properties, prospects or operations of the Account Party or any
Principal Subsidiary and (ii) those which the Account Party is diligently
attempting in good faith to obtain, renew or extend, or the requirement for
which the Account Party is contesting in good faith by appropriate
proceedings or by other appropriate means; provided, however, that the
exception afforded by clause (ii), above, shall be available only if and for
so long as such attempt or contest, and any delay resulting therefrom, does
not have a material adverse effect on the financial condition, properties,
prospects or operations of the Account Party or any Principal Subsidiary and
does not magnify to any significant degree any such material adverse effect
that would reasonably be expected to result from the absence of such
Governmental Approval.
(k) Consolidated Common Equity to Consolidated Capitalization Ratio.
Maintain at all times a ratio of Consolidated Common Equity to Consolidated
Capitalization of not less than 0.30:1.00.
(l) Further Assurances. Promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary
or that any Participating Bank through the Issuing Bank may reasonably
request in order to fully give effect to the interests and properties
purported to be covered by the Security Documents.
(m) Related Documents. Perform and comply in all material respects
with each of the provisions of each Related Document to which it is a party.
SECTION 7.02 Negative Covenants. So long as any amount shall remain
available to be drawn under the Letter of Credit or any Advance or other
amounts shall remain unpaid hereunder or any Participating Bank shall have
any Commitment, the Account Party will not, without the written consent of
the Majority Lenders:
(a) Liens, Etc. Create, incur, assume or suffer to exist any lien,
security interest, or other charge or encumbrance (including the lien or
retained security title of a conditional vendor) of any kind, or any other
type of preferential arrangement the intent or effect of which is to assure a
creditor against loss or to prefer one creditor over another creditor upon or
with respect to any of its properties or assets (any of the foregoing being
referred to herein as a "Lien"), excluding, however, from the operation of
the foregoing restrictions the Liens created or perfected under or in
connection with the Pledge Agreement, and the following, whether now existing
or hereafter created or perfected:
(i) Liens created by (A) the Indenture of Mortgage and Deed of Trust
dated as of May 1, 1921, from the Account Party to Bankers Trust Company, as
Trustee, as amended and supplemented (the "CL&P Indenture"), or (B) the First
Mortgage Indenture and Deed of Trust dated as of January 1, 1958, from the
Hartford Electric Light Company ("HELCO") to the First National Bank of
Boston, as Successor Trustee, as amended and supplemented (the "HELCO
Indenture");
(ii) Liens on the Account Party's interest in the Millstone Unit No. 1,
Millstone Unit No. 2 or Millstone Unit No. 3 nuclear generating units in
Waterford, Connecticut, or nuclear fuel for any or all nuclear units in which
the Account Party has an interest (including, without limitation, Millstone
Unit No. 1, Millstone Unit No. 2 and Millstone Unit No. 3);
(iii) "Permitted Liens" or "Permitted Encumbrances" under the CL&P
Indenture or the HELCO Indenture;
(iv) any Lien on assets of any of its Subsidiaries created or assumed to
secure Debt owing by any of its Subsidiaries to the Account Party or to any
wholly-owned Subsidiary of the Account Party;
(v) any purchase money Lien or construction mortgage on assets
hereafter acquired or constructed by the Account Party or any of its
Subsidiaries and any Lien on any assets existing at the time of acquisition
thereof by the Account Party or any of its Subsidiaries, or created within
180 days from the date of completion of such acquisition or construction;
provided that such Lien shall at all times be confined solely to the assets
so acquired or constructed and any additions thereto;
(vi) any existing Liens on assets now owned by the Account Party or any
of its Subsidiaries; Liens on assets or stock of any class of, or any
partnership or joint venture interest in, any of its Subsidiaries existing at
the time it becomes a Subsidiary of the Account Party, and liens existing on
assets of a corporation or other going concern when it is merged into or with
the Account Party or a Subsidiary of the Account Party, or when substantially
all of its assets are acquired by the Account Party or a Subsidiary of the
Account Party; provided that such Liens shall at all times be confined solely
to such assets, or if such assets constitute a utility system, additions to
or substitutions for such assets;
(vii) Liens resulting from legal proceedings being contested in good
faith by appropriate legal or administrative proceedings by the Account Party
or any of its Subsidiaries, and as to which the Account Party or any of its
Subsidiaries, as the case may be, to the extent required by generally
accepted accounting principles applied on a consistent basis, shall have set
aside on its books adequate reserves;
(viii) Liens created in favor of the other contracting party in
connection with advance or progress payments;
(ix) any Liens in favor of any state of the United States or any
political subdivision of any such state, or any agency of any such state or
political subdivisions, or trustee acting on behalf of holders of obligations
issued by any of the foregoing or any financial institutions lending to or
purchasing obligations of any of the foregoing, which Lien is created or
assumed for the purpose of financing all or part of the cost of acquiring or
constructing the property subject thereto;
(x) Liens resulting from conditional sale agreements, capital leases or
other title retention agreements;
(xi) Liens on property of the Account Party or any of its Subsidiaries
related to the financing of pollution control facilities;
(xii) Liens on accounts receivable and power contracts resulting
from financing transactions;
(xiii) any other Liens incurred in the ordinary course of business
otherwise than to secure Debt; and
(xiv) any extension, renewal or replacement of Liens permitted by
clauses (i) through (vi) and (viii) through (xiii); provided, however, that
the principal amount of Debt secured thereby shall not, at the time of such
extension, renewal or replacement, exceed the principal amount of Debt so
secured and that such extension, renewal or replacement shall be limited to
all or a part of the property which secured the Lien so extended, renewed or
replaced;
(b) Mergers, and Sales of Assets, Etc. Merge with or into or
consolidate with or into, any person, or permit any of its Subsidiaries to be
a party to, any merger or consolidation, or purchase or otherwise acquire all
or substantially all of the assets or stock of any class of, or any
partnership or joint venture interest in, any other person or entity, or
sell, transfer, convey or lease all or any substantial part of its assets
(other than sales, transfers or conveyances of receivables and power
contracts), except for, and then only after receipt of all necessary
corporate and governmental or regulatory approvals and provided, that, before
and after giving effect to any such merger, consolidation, purchase,
acquisition, sale, transfer, conveyance or lease, no Event of Default or
Unmatured Default shall have occurred and be continuing:
(i) any such merger or consolidation, sale, transfer, conveyance, lease
or assignment of or by any wholly-owned Subsidiary of the Account Party into
the Account Party or into, with or to any other wholly-owned Subsidiary of
the Account Party and any such purchase or other acquisition by the Account
Party or any wholly-owned Subsidiary of the Account Party of the assets or
stock of any wholly-owned Subsidiary of the Account Party;
(ii) any such sale of assets (other than stock) which comprise all or
any part of its interest in a nuclear power generating plant (whether
completed or under construction);
(iii) any such merger or consolidation of the Account Party with or
into another wholly-owned Subsidiary of NU and/or a Regulatory Transaction
Entity and/or an entity owning a cogeneration or independent power project,
pursuant to "step-in" or similar rights granted pursuant to a pre-existing
power purchase contract, if (but only if): (A) the successor or surviving
corporation, if not the Account Party, shall have assumed or succeeded to all
of the liabilities of the Account Party (including the liabilities of the
Account Party under this Agreement), and (B) the Agent shall have received
the favorable written opinion of counsel to the Account Party, in form and
substance satisfactory to the Agent and the Majority Lenders, to the effect
of the foregoing subclause (A); provided, however, in the event of a merger
or consolidation with a Regulatory Transaction Entity, if the purchase price
plus the amount of any liabilities assumed in connection with such merger or
consolidation exceeds $100,000,000, the Account Party shall deliver to the
Agent with sufficient copies for each Participating Bank 30 days prior to
such merger or consolidation, a certificate of a duly authorized officer of
the Account Party demonstrating projected compliance with the ratio set forth
in Section 7.01(k) hereof for and as of each of the three consecutive fiscal
quarters immediately succeeding such merger or consolidation and certifying
that such projections were prepared in good faith and on reasonable
assumptions;
(iv) any purchase or acquisition of all or substantially all of the
assets of or stock of any class of, or any partnership or joint venture
interest in (and any assumption of the related liabilities) (A) an entity
owning a cogeneration or independent power project, pursuant to "step-in" or
similar rights granted pursuant to a pre-existing power purchase contract;
(B) a Regulatory Transaction Entity; or (C) any other Person if the purchase
price of such acquisition plus the amount of any liabilities assumed by the
Account Party in connection therewith does not exceed $50,000,000 in the
aggregate; provided, however, in the event of a purchase or acquisition of a
Regulatory Transaction Entity, if the purchase price plus the amount of any
liabilities assumed in connection with such purchase or acquisition exceeds
in the aggregate $100,000,000, the Account Party shall deliver to the Agent
with sufficient copies for each Participating Bank 30 days prior to such
purchase or acquisition, a certificate of a duly authorized officer of the
Account Party demonstrating projected compliance with the ratio set forth in
Section 7.01(k) hereof for and as of each of the three consecutive fiscal
quarters immediately succeeding such purchase or acquisition and certifying
that such projections were prepared in good faith and on reasonable
assumptions; or
(v) any purchase or acquisition of a joint venture interest in a
generating and/or transmission facility or in a mutual insurance company
providing nuclear liability or nuclear property or replacement power
insurance.
(c) Compliance with ERISA. (i) Terminate, or permit any ERISA
Affiliate to terminate, any ERISA Plan so as to result in any liability of
the Account Party or any Principal Subsidiary to the PBGC in an amount
greater than $1,000,000, or (ii) permit to exist any occurrence of any
Reportable Event (as defined in Title IV of ERISA) which, alone or together
with any other Reportable Event with respect to the same or another ERISA
Plan, has a reasonable possibility of resulting in liability of the Account
Party or any Subsidiary to the PBGC in an aggregate amount exceeding
$1,000,000, or any other event or condition, which presents a material risk
of such a termination by the PBGC of any ERISA Plan or has a reasonable
possibility of resulting in a liability of the Account Party or any
Subsidiary to the PBGC in an aggregate amount exceeding $1,000,000.
SECTION 7.03 Reporting Obligations. So long as any amount shall
remain available to be drawn under the Letter of Credit or any Advance or
other amounts shall remain unpaid hereunder or any Participating Bank shall
have any Commitment, the Account Party will, unless the Majority Lenders
shall otherwise consent in writing, furnish to the Agent in sufficient copies
for the Issuing Bank and each Participating Bank, the following:
(i) as soon as possible and in any event within ten days after the
occurrence of each Event of Default or Unmatured Default continuing on the
date of such statement, a statement of the Chief Financial Officer, Treasurer
or Assistant Treasurer of the Account Party setting forth details of such
Event of Default or Unmatured Default and the action which the Account Party
proposes to take with respect thereto;
(ii) as soon as available and in any event within 50 days after the end
of each of the first three quarters of each fiscal year of the Account Party,
a copy of the Account Party's Quarterly Report on Form 10-Q, if any,
submitted to the Securities and Exchange Commission with respect to such
quarter, containing financial statements in reasonable detail and duly
certified (subject to year-end audit adjustments) by the Chief Financial
Officer, Treasurer, Assistant Treasurer or Comptroller of the Account Party
as having been prepared in accordance with the system of management financial
reports of the Account Party applied on a basis consistent with the financial
statements referred to in Section 6.01(f) hereof and accompanied by a
certificate of a duly authorized officer of the Account Party (X) stating
that no Event of Default or Unmatured Default has occurred and is continuing
or, if an Event of Default or Unmatured Default has occurred and is
continuing, describing the nature thereof and the action which the Account
Party proposes to take with respect thereto and (Y) demonstrating compliance
with Section 7.01(k) hereof for and as of the end of such fiscal quarter,
such demonstration to be in a schedule (in form satisfactory to the Agent)
which sets forth the computations used in determining such compliance;
(iii) as soon as available and in any event within 105 days after
the end of each fiscal year of the Account Party, a copy of the Account
Party's Annual Report on Form 10-K submitted to the Securities and Exchange
Commission with respect to such year, containing financial statements
certified by a nationally-recognized independent public accountant and to be
accompanied by a certificate of the Chief Financial Officer, Treasurer,
Assistant Treasurer or Comptroller of the Account Party (X) stating that no
Event of Default or Unmatured Default has occurred and is continuing, or if
an Event of Default or Unmatured Default has occurred and is continuing,
describing the nature thereof and the action which the Account Party proposes
to take with respect thereto and (Y) demonstrating compliance with Section
7.01(k) hereof for and as of the end of such fiscal year, such demonstration
to be in a schedule (in form satisfactory to the Agent) which sets forth the
computations used in determining such compliance;
(iv) as soon as possible and in any event (A) within 30 days after the
Chief Financial Officer, Treasurer or any Assistant Treasurer of the Account
Party knows or has reason to know that any ERISA Plan Termination Event
described in clause (i) of the definition of ERISA Plan Termination Event
with respect to any ERISA Plan or ERISA Multiemployer Plan has occurred and
(B) within 10 days after the Account Party knows or has reason to know that
any other ERISA Plan Termination Event with respect to any ERISA Plan or
ERISA Multiemployer Plan has occurred, a statement of the Chief Financial
Officer, Treasurer or Assistant Treasurer of the Account Party describing
such ERISA Plan Termination Event and the action, if any, which the Account
Party proposes to take with respect thereto;
(v) promptly after receipt thereof by the Account Party or any of its
ERISA Affiliates from the PBGC, copies of each notice received by the Account
Party or any such ERISA Affiliate of the PBGC's intention to terminate any
ERISA Plan or ERISA Multiemployer Plan or to have a trustee appointed to
administer any ERISA Plan or ERISA Multiemployer Plan;
(vi) promptly after receipt thereof by the Account Party or any of its
ERISA Affiliates from an ERISA Multiemployer Plan sponsor, a copy of each
notice received by the Account Party or any of its ERISA Affiliates
concerning the imposition or amount of withdrawal liability in an aggregate
principal amount of at least $10,000,000 pursuant to Section 4202 of ERISA in
respect of which the Account Party may be liable;
(vii) promptly after the Account Party or any Subsidiary becomes
aware of the commencement thereof, notice of all actions, suits, proceedings
or other events of the type described in Section 6.01(g) hereof;
(viii) promptly after the filing thereof, copies of each prospectus
(excluding any prospectus contained in any Form S-8) and Current Report on
Form 8-K, if any, which the Account Party or any Principal Subsidiary files
with the Securities and Exchange Commission or any governmental authority
which may be substituted therefor;
(ix) promptly after receipt thereof, any assertion of the character
described in Section 8.01(h) hereof and the action the Account Party proposes
to take with respect thereto; and
(x) promptly after requested, such other information respecting the
financial condition, operations, properties, prospects or otherwise, of the
Account Party or its Subsidiaries as the Agent on behalf of the Majority
Lenders may from time to time reasonably request in writing.
ARTICLE VIII
DEFAULTS
SECTION 8.01 Events of Default. The following events shall each
constitute an "Event of Default" if the same shall occur and be continuing
after the grace period and notice requirement (if any) applicable thereto:
(a) The Account Party shall fail to pay any interest on any Advance or
pursuant to Section 4.02 hereof within two days after the same becomes due;
the Account Party shall fail to reimburse the Issuing Bank for any Interest
Drawing (as defined in the Letter of Credit) within two days after such
reimbursement becomes due; or the Account Party shall fail to make any other
payment required to be made pursuant to Article II or Article III hereof when
due; or
(b) Any representation or warranty made by the Account Party (or any of
its officers or agents) in this Agreement, the Pledge Agreement or the
Purchase Contract, or in any certificate or other writing delivered pursuant
to this Agreement or the Purchase Contract, shall prove to have been
incorrect in any material respect when made or deemed made; or
(c) The Account Party shall fail to perform or observe any term or
covenant on its part to be performed or observed contained in Sections
7.01(d) or (k), Section 7.02(b) or Section 7.03(i) hereof; or
(d) The Account Party shall fail to perform or observe any other term
or covenant on its part to be performed or observed contained in this
Agreement or the Pledge Agreement and any such failure shall remain
unremedied, after the earlier of written notice having been given to the
Account Party by the Agent, the Issuing Bank or any Participating Bank, and
actual knowledge thereof by the Account Party, for a period of 30 days; or
(e) The Account Party or any Principal Subsidiary shall fail to pay any
of its Debt when due (including any interest or premium thereon but excluding
Debt arising hereunder and excluding other Debt aggregating in no event more
than $10,000,000 in principal amount at any one time) whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise, and such
failure shall continue after the applicable grace period, if any, specified
in any agreement or instrument relating to such Debt; or any other default
under any agreement or instrument relating to any such Debt, or any other
event, shall occur and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such default
or event is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment or as a result of the Account Party's or such Principal
Subsidiary's exercise of a prepayment option) prior to the stated maturity
thereof; or
(f) The Account Party or any Principal Subsidiary shall generally not
pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make an assignment for the
benefit of creditors; or any proceeding shall be instituted by or against the
Account Party or such Principal Subsidiary seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of its debts
under any law relating to bankruptcy, insolvency, or reorganization or relief
of debtors, or seeking the entry of an order for relief or the appointment of
a receiver, trustee, or other similar official for it or for any substantial
part of its property and, in the case of a proceeding instituted against the
Account Party or such Principal Subsidiary, either the Account Party or such
Principal Subsidiary shall consent thereto or such proceeding shall remain
undismissed or unstayed for a period of 90 days or any of the actions sought
in such proceeding (including without limitation the entry of an order for
relief against the Account Party or such Principal Subsidiary or the
appointment of a receiver, trustee, custodian or other similar official for
the Account Party or such Principal Subsidiary or any of its property) shall
occur; or the Account Party or such Principal Subsidiary shall take any
corporate or other action to authorize any of the actions set forth above in
this subsection (f); or
(g) Any judgment or order for the payment of money in excess of
$10,000,000 shall be rendered against the Account Party or its properties, or
any Principal Subsidiary or its properties, and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order and shall not have been stayed or (ii) there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(h) Any material provision of any Loan Document or any Related Document
shall for any reason other than the express terms thereof or the exercise of
any right or option expressly contained therein cease to be valid and binding
on the Account Party, or shall be determined to be invalid or unenforceable
by any court, governmental agency or authority having jurisdiction over the
Account Party, or the Account Party shall deny that it has any further
liability or obligation under this Agreement or any Related Document, or any
party to a Related Document shall so assert in writing; provided, that in the
case of any party other than the Account Party making such assertion in
respect of any Related Document, such assertion shall not in and of itself
constitute an Event of Default hereunder until (i) such asserting party shall
cease to perform under and in compliance with such Related Document, (ii) the
Account Party shall fail to diligently prosecute, by appropriate action or
proceedings, a rescission of such assertion or a binding determination as to
the merits thereof or (iii) such a binding determination shall have been made
in favor of such asserting party's position; or
(i) The Security Documents shall for any reason, except to the extent
permitted by the terms thereof, fail or cease to create valid and perfected
Liens (to the extent purported to be granted by such documents and subject to
the exceptions permitted thereunder) in any of the Collateral (other than
Liens in favor of the Trustee with respect to the interests of the Issuer
under the Indenture), provided, that such failure or cessation relating to
any non-material portion of such Collateral shall not constitute an Event of
Default hereunder unless the same shall not have been corrected within 30
days after the Account Party becomes aware thereof; or
(j) NU shall cease to own 100% of the issued and outstanding shares of
the capital stock of the Account Party having ordinary voting power for the
election of directors, free and clear of any Liens; or
(k) An event of default (as defined therein) shall have occurred and be
continuing under the Indenture.
SECTION 8.02 Remedies Upon Events of Default. Upon the occurrence and
during the continuance of any Event of Default, then, and in any such event,
the Agent with the concurrence of the Issuing Bank may, and upon the
direction of the Majority Lenders the Agent shall (i) if the Letter of Credit
shall not have been issued, instruct the Issuing Bank to (whereupon the
Issuing Bank shall) by notice to the Account Party declare its commitment to
issue the Letter of Credit to be terminated, whereupon the same shall
forthwith terminate, (ii) if the Letter of Credit shall have been issued,
instruct the Issuing Bank to (whereupon the Issuing Bank shall) furnish to
the Trustee and the Paying Agent written notice of such Event of Default in
accordance with Section 6.01(a)(iv) of the Indenture and of the Issuing
Bank's determination to terminate the Letter of Credit on the fifth business
day (as defined in the Indenture) following the Trustee's and Paying Agent's
receipt of such notice, (iii) if the Letter of Credit shall have been issued,
instruct the Issuing Bank to (whereupon the Issuing Bank shall) furnish to
the Trustee and the Paying Agent written notice that the Interest Component
will not be reinstated in the amount of one or more Interest Drawings, all as
provided in the Letter of Credit; (iv) declare the Advances and all other
principal amounts outstanding hereunder, all interest thereon and all other
amounts payable hereunder to be forthwith due and payable, whereupon the
Advances and all other principal amounts outstanding hereunder, all such
interest and all such other amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Account Party, and (v)
instruct the Issuing Bank to (whereupon the Issuing Bank shall) exercise all
the rights and remedies provided herein and under and in respect of the
Security Documents; provided, however, that in the event of the occurrence of
any Event of Default described in Section 8.01(f) with respect to the Account
Party, (A) the commitment of the Issuing Bank to issue the Letter of Credit
and the Commitments and the obligations of the Participating Banks to make
Advances shall automatically be terminated, and (B) the Advances and all
other principal amounts outstanding hereunder, all interest accrued and
unpaid thereon and all other amounts payable hereunder shall automatically
become due and payable, without presentment, demand, protest or any notice of
any kind, all of which are hereby expressly waived by the Account Party.
ARTICLE IX
THE AGENT, THE PARTICIPATING BANKS AND THE ISSUING BANK
SECTION 9.01 Authorization of Agent; Actions of Agent and Issuing
Bank. The Issuing Bank and each Participating Bank hereby appoint and
authorize the Agent to take such action as agent on their behalf and to
exercise such powers under this Agreement as are delegated to the Agent by
the terms hereof, together with such powers as are reasonably incidental
thereto; provided, however, that neither the Agent nor the Issuing Bank shall
be required to take any action which exposes the Agent or the Issuing Bank to
personal liability or which is contrary to this Agreement or applicable law.
As to any matters not expressly provided for by any Related Document
(including, without limitation, enforcement or collection thereof), neither
the Agent nor the Issuing Bank shall be required to exercise any discretion
or take any action. The Agent agrees to deliver promptly (i) to the Issuing
Bank and each Participating Bank copies of each notice delivered to it by the
Account Party and (ii) to each Participating Bank copies of each notice
delivered to it by the Issuing Bank, in each case pursuant to the terms of
this Agreement.
SECTION 9.02 Reliance, Etc. Neither the Agent, the Issuing Bank, nor
any of their directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement or any Related Document, except for its or their own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction. Without limitation of the generality of the foregoing, each of
the Agent and the Issuing Bank (i) may consult with legal counsel (including
counsel for the Account Party), independent public accountants and other
experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (ii) makes no warranty or representation to
any Participating Bank and shall not be responsible to any Participating Bank
for any statements, warranties or representations made in or in connection
with this Agreement or any Related Document; (iii) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement or any Related Document on
the part of the Account Party to be performed or observed, or to inspect any
property (including the books and records) of the Account Party; (iv) shall
not be responsible to any Participating Bank for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement
or any Related Document or any other instrument or document furnished
pursuant hereto and thereto; and (v) shall incur no liability under or in
respect of this Agreement or any Related Document by acting upon any notice,
consent, certificate or other instrument or writing (which may be by
telegram, cable or telex), including, without limitation, any thereof from
time to time purporting to be from the Trustee, believed by it to be genuine
and signed or sent by the proper party or parties.
SECTION 9.03 The Agent, the Issuing Bank and Affiliates. The Agent
and the Issuing Bank shall have the same rights and powers under this
Agreement as any other Participating Bank and may exercise (or omit from
exercising) the same as though they were not the Agent and the Issuing Bank,
respectively, and the term "Participating Bank" shall, unless otherwise
expressly indicated, include CIBC in its individual capacity. The Agent, the
Issuing Bank and their respective Affiliates may accept deposits from, lend
money to, act as trustee under indentures of, and generally engage in any
kind of business with, the Account Party, any of its subsidiaries and any
Person who may do business with or own securities of the Account Party or any
such subsidiary, all as if CIBC was not the Agent or the Issuing Bank, and
without any duty to account therefor to the Participating Banks.
SECTION 9.04 Participating Bank Credit Decision. Each of the Issuing
Bank and each Participating Bank acknowledges that it has, independently and
without reliance upon the Agent, the Issuing Bank or any other Participating
Bank and based on the financial information referred to in Section 6.01(f)
hereof and such other documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
of the Issuing Bank and each Participating Bank also acknowledges that it
will, independently and without reliance upon the Agent, the Issuing Bank or
any other Participating Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement.
SECTION 9.05 Indemnification. The Participating Banks agree to
indemnify the Agent and the Issuing Bank (to the extent not reimbursed by the
Account Party), ratably according to their respective Participation
Percentages, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against the Agent or the Issuing Bank in any way
relating to or arising out of this Agreement or any action taken or omitted
by the Agent or the Issuing Bank under this Agreement, provided that no
Participating Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's or the Issuing Bank's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Participating Bank agrees to reimburse the Agent and the Issuing Bank
promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by the Agent and the Issuing Bank in
connection with the preparation, execution, delivery, administration,
modification, amendment, waiver or enforcement (whether through negotiations,
legal proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement to the extent that the Agent and the
Issuing Bank are entitled to reimbursement for such expenses pursuant to
Section 10.04 hereof but are not reimbursed for such expenses by the Account
Party.
SECTION 9.06 Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Issuing Bank, the Participating Banks
and the Account Party, with any such resignation to become effective only
upon the appointment of a successor Agent pursuant to this Section 9.06.
Upon any such resignation, the Issuing Bank shall have the right to appoint a
successor Agent, which shall be another commercial bank or trust company
reasonably acceptable to the Account Party, organized or licensed under the
laws of the United States, or of any State thereof. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent and the execution and
delivery by the Account Party and the successor Agent of an agreement
relating to the fees, if any, to be paid to the successor Agent in connection
with its acting as Agent hereunder, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged from
its duties and obligations under this Agreement. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article IX shall inure
to its benefit as to any actions taken or omitted to be taken by it while it
was Agent under this Agreement.
SECTION 9.07 Issuing Bank. (a) All notices received by the Issuing
Bank pursuant to this Agreement or any Related Document (other than the
Letter of Credit) shall be promptly delivered to the Agent for distribution
to the Participating Banks.
(b) The Issuing Bank shall not amend or waive any provision or consent
to the amendment or waiver of any Related Document without the written
consent of the Majority Lenders.
(c) Upon receipt by the Issuing Bank from time to time of any amount
pursuant to the terms of any Related Document (other than pursuant to the
terms of this Agreement), the Issuing Bank shall promptly deliver to the
Agent such amount.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Amendments, Etc. No amendment or waiver of any provision
of this Agreement or the Pledge Agreement, nor consent to any departure by
the Account Party therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Majority Lenders, and then such waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless in writing and signed by the Issuing Bank and
all the Participating Banks, do any of the following: (a) waive, modify or
eliminate any of the conditions specified in Article V, (b) increase the
Commitments of the Participating Banks that may be maintained hereunder or
subject the Participating Banks to any additional obligations, (c) reduce the
principal of, or interest on, the Advances, any amount reimbursable on demand
pursuant to Section 3.01, or any fees or other amounts payable hereunder, (d)
postpone any date fixed for any payment of principal of, or interest on, the
Advances, such reimbursable amounts or any fees or other amounts payable
hereunder (other than fees payable to the Issuing Bank or the Agent pursuant
to Section 2.03(b) hereof), (e) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Advances, or the number of
Participating Banks which shall be required for the Participating Banks or
any of them to take any action hereunder, (f) amend this Agreement or the
Pledge Agreement in a manner intended to prefer one or more Participating
Banks over any other Participating Banks, (g) amend this Section 10.01, or
(h) release any of the Collateral otherwise than in accordance with any
provisions for such release contained in the Security Documents, or change
any provision of any Security Document providing for the release of all or
substantially all of the Collateral; and provided, further, that no
amendment, waiver or consent shall, unless in writing and signed by the
Issuing Bank or the Agent in addition to the Participating Banks required
above to take such action, affect the rights or duties of the Issuing Bank or
the Agent, as the case may be, under this Agreement or the Pledge Agreement.
SECTION 10.02 Notices, Etc. All notices and other communications
provided for hereunder and under the other Loan Documents shall be in writing
(including telegraphic, telex, telecopy or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered:
(i) if to the Account Party, to it in care of Northeast Utilities
Service Company at 107 Selden Street, Berlin, Connecticut 06037 (telecopy:
(203) 665-5457), Attention: Assistant Treasurer;
(ii) if to the Issuing Bank or the Agent, to it at its address at Two
Paces West, 2727 Paces Ferry Road, Suite 1200, Atlanta, Georgia 30339,
Attention: Clare Coyne, (telephone: (404) 319-4836, telecopy: (404) 319-
4950), with a copy to: Utilities Group, 200 West Madison Street, Suite 2300,
Chicago, Illinois 60606, (telephone: (312) 855-3212, telecopy: (312)
750-0927);
(iii) if to any Participating Bank, to it at its address set forth
on the signature pages hereof or in the Participation Assignment pursuant to
which it became a Participating Bank; or
as to each party other than any Participating Bank, at such other address as
shall be designated by such party in a written notice to the other parties,
and, as to any Participating Bank, at such other address as shall be
designated by such Participating Bank in a written notice to the Account
Party and the Agent. All such notices and communications shall, when mailed,
telegraphed, telexed, telecopied or cabled, be effective five days after when
deposited in the mails, or when delivered to the telegraph company, confirmed
by telex answerback, telecopied or delivered to the cable company,
respectively, except that notices and communications to the Agent or the
Issuing Bank pursuant to Article II, III or IV shall not be effective until
received by the Agent or the Issuing Bank, as the case may be.
SECTION 10.03 No Waiver of Remedies. No failure on the part of any
Participating Bank or the Issuing Bank to exercise, and no delay in
exercising, any right hereunder or under any Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 10.04 Costs, Expenses and Indemnification. (a) The Account
Party agrees to pay on demand all costs and expenses, if any (including,
without limitation, reasonable counsel fees and expenses), of (i) the Agent
and the Issuing Bank in connection with the preparation, negotiation,
execution and delivery of the Loan Documents and the administration of the
Loan Documents, the care and custody of any and all collateral, and any
proposed modification, amendment, or consent relating thereto; and (ii) the
Agent, the Issuing Bank and each Participating Bank in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement or any other Loan Document.
(b) The Account Party hereby agrees to indemnify and hold the Agent,
the Issuing Bank and each Participating Bank and their respective officers,
directors, employees, professional advisors and affiliates (each, an
"Indemnified Person") harmless from and against any and all claims, damages,
losses, liabilities, costs or expenses (including reasonable attorney's fees
and expenses, whether or not such Indemnified Person is named as a party to
any proceeding or investigation or is otherwise subjected to judicial or
legal process arising from any such proceeding or investigation) which any of
them may incur or which may be claimed against any of them by any person or
entity (except to the extent such claims, damages, losses, liabilities, costs
or expenses arise from the gross negligence or willful misconduct of the
Indemnified Person):
(i) by reason of or in connection with the execution, delivery or
performance of any of the Loan Documents or the Related Documents or any
transaction contemplated thereby, or the use by the Account Party of the
proceeds of any Advance or the use by the Paying Agent or the Trustee of the
proceeds of any drawing under the Letter of Credit;
(ii) in connection with or resulting from the utilization, storage,
disposal, treatment, generation, transportation, release or ownership of any
Hazardous Substance (A) at, upon or under any property of the Account Party
or any of its Affiliates or (B) by or on behalf of the Account Party or any
of its Affiliates at any time and in any place;
(iii) in connection with any documentary taxes, assessments or
charges made by any governmental authority by reason of the execution and
delivery of any of the Loan Documents;
(iv) by reason of or in connection with the execution and delivery or
transfer of, or payment or failure to make payment under, the Letter of
Credit; provided, however, that the Account Party shall not be required to
indemnify the Agent, the Issuing Bank or any Participating Bank pursuant to
this Section for any claims, damages, losses, liabilities, costs or expenses
to the extent caused by (A) the Issuing Bank's willful misconduct or gross
negligence, as determined by a court of competent jurisdiction, in
determining whether documents presented under the Letter of Credit are
genuine or comply with the terms of the Letter of Credit or (B) the Issuing
Bank's willful or grossly negligent failure, as determined by a court of
competent jurisdiction, to make lawful payment under the Letter of Credit
after the presentation to it by the Paying Agent of a draft and certificate
strictly complying with the terms and conditions of the Letter of Credit; or
(v) by reason of any inaccuracy or alleged inaccuracy in any material
respect, or any untrue statement or alleged untrue statement of any material
fact, contained in any preliminary official statement relating to the Bonds
or in any Preliminary Official Statement or Official Statement relating to
the Bonds or any amendment or supplement thereto, except to the extent
contained in or arising from information in any Preliminary Official
Statement or Official Statement relating to the Bonds supplied in writing by
and describing the Issuing Bank.
(c) Nothing contained in this Section 10.04 is intended to limit the
Account Party's obligations set forth in Articles II, III and IV. The
Account Party's obligations under this Section 10.04 shall survive the
creation and sale of any participation interest pursuant to Section 10.06
hereof and shall survive as well the repayment of all amounts owing to the
Agent, the Issuing Bank and the Participating Banks under the Loan Documents
and the termination of the Commitments. If and to the extent that the
obligations of the Account Party under this Section 10.04 are unenforceable
for any reason, the Account Party agrees to make the maximum contribution to
the payment and satisfaction thereof which is permissible under applicable
law.
SECTION 10.05 Right of Set-off. (a) Upon (i) the occurrence and during
the continuance of any Event of Default and (ii) the taking of any action or
the giving of any instruction by the Agent as specified by Section 8.02
hereof, the Issuing Bank and each Participating Bank are hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time
owing by the Issuing Bank or such Participating Bank to or for the credit or
the account of the Account Party against any and all of the obligations of
the Account Party now or hereafter existing under this Agreement in favor of
the Issuing Bank or such Participating Bank, irrespective of whether or not
the Issuing Bank or such Participating Bank shall have made any demand under
this Agreement and although such obligations may be unmatured. The Issuing
Bank and each Participating Bank agrees promptly to notify the Account Party
after any such set-off and application provided that the failure to give such
notice shall not affect the validity of such set-off and application. The
rights of the Issuing Bank and each Participating Bank under this Section are
in addition to other rights and remedies (including, without limitation,
other rights of set-off) which the Issuing Bank and/or such Participating
Bank may have.
(b) The Account Party agrees that it shall have no right of off-set,
deduction or counterclaim in respect of its obligations hereunder, and that
the obligations of the Issuing Bank and of the several Participating Banks
hereunder are several and not joint. Nothing contained herein shall
constitute a relinquishment or waiver of the Account Party's rights to any
independent claim that the Account Party may have against the Issuing Bank or
any Participating Bank, but no Participating Bank shall be liable for the
conduct of the Issuing Bank or any other Participating Bank, and the Issuing
Bank shall not be liable for the conduct of any Participating Bank.
SECTION 10.06 Binding Effect; Assignments and Participants. (a) This
Agreement shall become effective when it shall have been executed and
delivered by the Account Party, the Agent, the Issuing Bank and each
Participating Bank named on the signature pages hereto and thereafter shall
be binding upon and inure to the benefit of the Account Party, the Agent, the
Issuing Bank and each Participating Bank and their respective successors and
assigns, except that the Account Party shall not have the right to assign its
rights hereunder or any interest herein without the prior written consent of
the Issuing Bank and each Participating Bank, and the Issuing Bank may not
assign its commitment to issue the Letter of Credit or its obligations under
or in respect of the Letter of Credit.
(b) Each Participating Bank may assign all or any portion of its rights
under this Agreement, under the Letter of Credit or in any security
hereunder, including, without limitation, any instruments securing the
Account Party's obligations hereunder; provided that (i) no assignment by any
Participating Bank may be made to any Person, other than to another
Participating Bank, except with the prior written consent of the Issuing Bank
and the Account Party (which consent, in the case of the Account Party, shall
not be unreasonably withheld and, in the case of an assignment to an
Affiliate of a Participating Bank shall not be required), (ii) any assignment
shall be of a constant and not a varying percentage of all of the assignor's
rights and obligations hereunder and (iii) the parties to each such
assignment shall execute and deliver to the Agent a Participation Assignment,
together with a processing fee of $3,000. Upon receipt of a completed
Participation Assignment and the processing fee, the Agent will record in a
register maintained for such purpose the name of the assignee and the
percentage participation interest assigned by the assignor and assumed by the
assignee for purposes of the determination of such assignor's and assignee's
respective Participation Percentages. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Participation Assignment, which effective date shall be at least five
Business Days after the execution thereof, the assignee shall, to the extent
of such assignment, become a party hereto and have all of the rights and
obligations of a Participating Bank hereunder and, to the extent of such
assignment, such assigning Participating Bank shall be released from its
obligations hereunder (without relieving such Participating Bank from any
liability for damages, costs and expenses suffered by the Issuing Bank or the
Account Party as a result of the failure by such Participating Bank to
perform its obligations hereunder).
(c) Each Participating Bank may grant participations to one or more
Persons in all or any part of, or any interest (undivided or divided) in,
such Participating Bank's rights and obligations under this Agreement (any
such Person being referred to hereinafter as a "Participant" and such
interests are collectively, referred to hereinafter as the "Rights");
provided, however, that (i) such Participating Bank's obligations under this
Agreement shall remain unchanged; (ii) any such Participant shall be entitled
to the benefits and cost protections provided for in Section 4.03 hereof on
the same basis as if it were a Participating Bank hereunder; (iii) the
Account Party, the Agent and the Issuing Bank shall continue to deal solely
and directly with such Participating Bank in connection with such
Participating Bank's rights and obligations under this Agreement; and (iv) no
such Participant, other than an Affiliate of such Participating Bank, shall
be entitled to require such Participating Bank to take or omit to take any
action hereunder, unless such action or omission would have an effect of the
type described in subsections (c), (d) or (h) of Section 10.01 hereof.
(d) Notwithstanding anything contained in this Section 10.06 to the
contrary, the Issuing Bank and any Participating Bank may assign and pledge
all or any portion of the Advances (or participating interests therein) owing
to the Issuing Bank or such Participating Bank to any Federal Reserve Bank
(and its transferees) as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release the
Issuing Bank or such Participating Bank from its obligations hereunder.
SECTION 10.07 Relation of the Parties; No Beneficiary. No term,
provision or requirement, whether express or implied, of any Loan Document,
or actions taken or to be taken by any party thereunder, shall be construed
to create a partnership, association, or joint venture between such parties
or any of them. No term or provision of the Loan Documents shall be
construed to confer a benefit upon, or grant a right or privilege to, any
Person other than the parties hereto.
SECTION 10.08 Issuing Bank Not Liable. As between the Agent, the
Issuing Bank and the Participating Banks on the one hand, and the Account
Party on the other, the Account Party assumes all risks of the acts or
omissions of the Paying Agent, the Trustee and any other beneficiary or
transferee of the Letter of Credit with respect to its use of the Letter of
Credit. Neither the Agent, the Issuing Bank, any Participating Bank, nor any
of their respective officers or directors shall be liable or responsible for:
(a) the use which may be made of the Letter of Credit or any acts or
omissions of the Paying Agent, the Trustee and any other beneficiary or
transferee in connection therewith; (b) the validity, sufficiency or
genuineness of documents, or of any endorsement thereon, even if such
documents should prove to be in any or all respects invalid, insufficient,
fraudulent or forged; (c) payment by the Issuing Bank against presentation of
documents which do not comply with the terms of the Letter of Credit,
including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; or (d) any other circumstances whatsoever
in making or failing to make payment under the Letter of Credit, except that
the Account Party shall have a claim against the Issuing Bank, and the
Issuing Bank shall be liable to the Account Party, to the extent of any
direct, as opposed to consequential, damages suffered by the Account Party
which the Account Party proves were caused by (i) the Issuing Bank's willful
misconduct or gross negligence, as determined by a court of competent
jurisdiction, in determining whether documents presented under the Letter of
Credit are genuine or comply with the terms of the Letter of Credit or (ii)
the Issuing Bank's willful or grossly negligent failure, as determined by a
court of competent jurisdiction, to make lawful payment under the Letter of
Credit after the presentation to it by the Paying Agent of a draft and
certificate strictly complying with the terms and conditions of the Letter of
Credit. In furtherance and not in limitation of the foregoing, the Issuing
Bank may accept original or facsimile (including telecopy) sight drafts and
accompanying certificates presented under the Letter of Credit that appear on
their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.
SECTION 10.09 Confidentiality. In connection with the negotiation and
administration of this Agreement and the other Loan Documents, the Account
Party has furnished and will from time to time furnish to the Agent, the
Issuing Bank and the Participating Banks (each, a "Recipient") written
information which is identified to the Recipient when delivered as
confidential (such information, other than any such information which (i) was
publicly available, or otherwise known to the Recipient, at the time of
disclosure, (ii) subsequently becomes publicly available other than through
any act or omission by the Recipient or (iii) otherwise subsequently becomes
known to the Recipient other than through a Person whom the Recipient knows
to be acting in violation of his or its obligations to the Account Party,
being hereinafter referred to as "Confidential Information"). The Recipient
will not knowingly disclose any such Confidential Information to any third
party (other than to those persons who have a confidential relationship with
the Recipient), and will take all reasonable steps to restrict access to such
information in a manner designed to maintain the confidential nature of such
information, in each case until such time as the same ceases to be
Confidential Information or as the Account Party may otherwise instruct. It
is understood, however, that the foregoing will not restrict the Recipient's
ability to freely exchange such Confidential Information with prospective
assignees of or participants in the Recipient's position herein, but the
Recipient's ability to so exchange Confidential Information shall be
conditioned upon any such prospective assignee's or participant's entering
into an understanding as to confidentiality similar to this provision. It is
further understood that the foregoing will not prohibit the disclosure of any
or all Confidential Information if and to the extent that such disclosure may
be required (i) by a regulatory agency or otherwise in connection with an
examination of the Recipient's records by appropriate authorities, (ii)
pursuant to court order, subpoena or other legal process or (iii) otherwise,
as required by law; in the event of any required disclosure under clause (ii)
or (iii), above, the Recipient agrees to use reasonable efforts to inform the
Account Party as promptly as practicable unless the Recipient is prohibited
from doing so by court order, subpoena or other legal process.
SECTION 10.10 Waiver of Jury Trial. The Account Party, the Agent, the
Issuing Bank, and the Participating Banks each hereby irrevocably waives all
right to trial by jury in any action, proceeding or counterclaim arising out
of or relating to this Agreement or any other Loan Document, or any other
instrument or document delivered hereunder or thereunder.
SECTION 10.11 Governing Law. This Agreement and the Pledge Agreement
shall be governed by, and construed in accordance with, the laws of the State
of New York. The Account Party, the Agent, the Issuing Bank and each
Participating Bank each (i) irrevocably submits to the jurisdiction of any
New York State court or Federal court sitting in New York City in any action
arising out of any Loan Document, (ii) agrees that all claims in such action
may be decided in such court, (iii) waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum and (iv) consents to
the service of process by mail. A final judgment in any such action shall be
conclusive and may be enforced in other jurisdictions. Nothing herein shall
affect the right of any party to serve legal process in any manner permitted
by law or affect its right to bring any action in any other court.
SECTION 10.12 Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
THE ACCOUNT PARTY:
THE CONNECTICUT LIGHT AND POWER COMPANY
By
/s/ Eugene Vertfeuille
Title: Assistant Treasurer
THE AGENT AND ISSUING BANK:
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY,
as Agent and as Issuing Bank
By
/s/Kris A. Grosshans
Vice President CIBC Inc. and Agent
THE PARTICIPATING BANKS:
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY
By
/s/Kris A. Grosshans
Vice President CIBC Inc. and Agent
Participation Percentage: 100%
Address for Notices
Canadian Imperial Bank of Commerce,
New York Agency
Two Paces West
2727 Paces Ferry Road
Suite 1200
Atlanta, GA 30339
Attention: Clare Coyne
Telephone: (404) 319-4836
Fax: (404) 319-4950
With a Copy To:
Canadian Imperial Bank of Commerce
200 West Madison Street, Suite 2300
Chicago, IL 60606
Attention: Kris A. Grosshans
Telephone: (312) 855-3212
Fax: (312) 750-0927
SCHEDULE I
APPLICABLE LENDING OFFICES
Name of Domestic Eurodollar
Participating Bank Lending Office CD Lending Office Lending Office
Canadian Imperial Two Paces West Same as Domestic Same as Domestic
Bank of Commerce, 2727 Paces Ferry Lending Office Lending Office
New York Agency Road
Suite 1200
Atlanta, GA 30339
Attn: Clare Coyne
Tel: (404) 319-4836
Fax: (404) 319-4950
SCHEDULE II
PENDING ACTIONS
EXHIBIT 1.01A
to Reimbursement Agreement
IRREVOCABLE LETTER OF CREDIT
NO.
December 17, 1992
BayBank
7 New England Executive Park
Burlington, Massachusetts 01803
Attention: Corporate Trust Department
Dear Sir or Madam:
We hereby establish, at the request and for the account of The
Connecticut Light and Power Company (the "Account Party"), in your favor, as
Paying Agent (the "Paying Agent") under that certain Loan and Trust
Agreement, dated as of December 1, 1992 (the "Indenture"), by and among the
Business Finance Authority of the State of New Hampshire (the "Issuer"), the
Account Party and BayBank, as trustee (the "Trustee"), pursuant to which
$21,000,000 in aggregate principal amount of the Issuer's Pollution Control
Refunding Revenue Bonds (The Connecticut Light and Power Company Project -
1992 Series A) (the "Bonds"), are being issued, our Irrevocable Letter of
Credit No. , in the amount of US$21,311,000.00 (TWENTY-ONE MILLION THREE
HUNDRED ELEVEN THOUSAND AND NO ONE-HUNDREDTHS UNITED STATES DOLLARS) (subject
to reduction and reinstatement as provided below).
(1) Credit Termination Date. This Letter of Credit shall expire on the
earliest to occur of (i) December 17, 1995 (the "Stated Termination Date"),
(ii) the date upon which we honor a draft accompanying a written and
completed certificate signed by you in substantially the form of Exhibit 2
attached hereto, and stating therein that such draft is the final draft to be
drawn under this Letter of Credit and that, upon the honoring of such draft,
this Letter of Credit will expire in accordance with its terms, (iii) the
date upon which we receive a written certificate signed by you and stating
therein that no Bonds entitled to the benefits of this Letter of Credit (as
determined in accordance with the Indenture) ("Eligible Bonds") are
"outstanding" under the Indenture, (iv) the fifth business day following
receipt by you and the Trustee of written notice from us that an Event of
Default (as defined below) has occurred under the Reimbursement Agreement (as
defined below) and of our determination to terminate this Letter of Credit on
such fifth business day and (v) the date upon which we receive a written
certificate signed by you and stating therein that a substitute or
replacement Credit Facility (as defined in the Indenture) has been provided
pursuant to Section 317 of the Indenture (such earliest date being the
"Credit Termination Date").
As used herein, the term "business day" shall mean any day of the year
(i) that is not a Sunday or legal holiday, (ii) that is a day on which banks
are not required or authorized to close in New York City and (iii) that is a
day on which banking institutions in all of the cities in which the principal
offices of the Trustee, the Paying Agent and the Remarketing Agent (as
defined in the Indenture) are located are not required or authorized to
remain closed and (iv) that is a day on which the New York Stock Exchange is
not closed.
As used herein "Reimbursement Agreement" shall mean the Letter of Credit
and Reimbursement Agreement, dated as of December 1, 1992, between the
Account Party, us and certain Participating Banks referred to therein, and
the term "Event of Default" shall mean an "Event of Default" as that term is
defined in the Reimbursement Agreement.
(2) Principal, Interest and Premium Components. The aggregate amount
which may be drawn under this Letter of Credit, subject to reductions in
amount and reinstatement as provided below, is US$21,311,000.00 (TWENTY-ONE
MILLION THREE HUNDRED ELEVEN THOUSAND AND NO ONE-HUNDREDTHS UNITED STATES
DOLLARS), of which the aggregate amounts set forth below may be drawn as
indicated.
(i) An aggregate amount not exceeding US$21,000,000.00 (TWENTY-ONE
MILLION AND NO ONE-HUNDREDTHS UNITED STATES DOLLARS), as such amount may be
reduced and reinstated as provided below, may be drawn in respect of payment
of principal (whether upon scheduled or accelerated maturity, or upon
redemption) of Eligible Bonds or the portion of the purchase price of
Eligible Bonds corresponding to principal (the "Principal Component").
(ii) An aggregate amount not exceeding US$311,000.00 (THREE HUNDRED
ELEVEN THOUSAND AND NO ONE-HUNDREDTHS UNITED STATES DOLLARS), as such amount
may be reduced and reinstated as provided below, may be drawn in respect of
payment of (A) accrued and unpaid interest on Eligible Bonds not in the
Flexible Mode (as defined in the Indenture) or that portion of the redemption
price or purchase price of such Eligible Bonds corresponding to accrued and
unpaid interest, but not more than an amount equal to accrued and unpaid
interest on such Eligible Bonds for up to a maximum of 45 days immediately
preceding the date of such drawing and (B) unpaid interest (whether accrued
or to accrue) on Eligible Bonds in the Flexible Mode or that portion of the
redemption price or purchase price of such Eligible Bonds corresponding to
such interest, but not more than an amount equal to such interest on such
Eligible Bonds for up to a maximum of 45 days immediately preceding the next
Purchase Date (as defined in the Indenture) for each such Eligible Bond (or,
if interest on any such Eligible Bond was not paid on the most recent
Purchase Date for such Bond, for up to a maximum of 45 days immediately
preceding the date of such drawing), calculated, in each case referred to in
the foregoing clause (A) or clause (B) at a maximum rate of twelve percent
(12%) per annum, or such lesser rate of interest as shall equal the Maximum
Interest Rate (as defined in the Indenture) in effect under the Indenture
with respect to such Eligible Bonds, and in any case calculated on the basis
of a year of 365 or 366 days (as applicable) for the actual days elapsed (the
"Interest Component").
(iii) An aggregate amount not exceeding US$0.00 (ZERO UNITED STATES
DOLLARS) may be drawn in respect of premium on Eligible Bonds (the "Premium
Component"). If, subsequent to the date hereof, the Premium Component shall
be increased by us at the request of the Account Party, the Premium Component
shall be subject to reduction as provided below, and amounts drawn in respect
thereof shall not be subject to reinstatement.
(3) Drawings. Funds under this Letter of Credit are available to you
against (i) your draft, stating on its face: "Drawn under Irrevocable Letter
of Credit No. , dated December 17, 1992", and (ii) the
appropriate certificate specified below, purportedly executed by you and
appropriately completed.
Exhibit Setting Forth
Type of Drawing Form of Certificate Required
Tender Drawing Exhibit 1
(as hereinafter defined)
Redemption/Mandatory Exhibit 2
Purchase Drawing
(as hereinafter defined)
Interest Drawing Exhibit 3
(as hereinafter
defined)
Drafts and certificates hereunder shall be dated the date of
presentation and shall be presented at our office located at Two Paces West,
2727 Paces Ferry Road, Suite 1200, Atlanta, Georgia 30339, Attention: Clare
Coyne (telephone: (404) 319-4836) (or at such other office as we may
designate by written notice to you). Presentation of such drafts and
certificates may be made (a) by physical presentation of such drafts and
certificates or (b) by facsimile transmission of such drafts and certificates
received by us at (404) 319-4950 (or at such other number as we may designate
by written notice to you) with prior telephone notice to us at (404) 319-
4836, Attention: Clare Coyne, (or at such other number as we may designate by
written notice to you) that such presentation is to be made by facsimile
transmission and with the original executed drafts and certificates to be
received by us not later than our close of business on the next business day,
it being understood that payments hereunder shall be made upon receipt by us
of such facsimile transmission; provided, however, that presentations of
drafts and certificates relating to Tender Drawings in respect of Eligible
Bonds in the Flexible Mode shall in all instances be made in accordance with
the foregoing clause (b). Drafts drawn under and in strict compliance with
the terms of this Letter of Credit will be duly honored by us upon
presentation thereof in accordance with this Paragraph 3 if presented on or
prior to 4:00 P.M. (New York City time) on the Credit Termination Date as
follows:
(i) Tender Drawings; Flexible Mode. In the case of drafts and
certificates relating to Tender Drawings in respect of Eligible Bonds in the
Flexible Mode presented in accordance with the foregoing clause (b):
(A) if such drafts and certificates are presented as aforesaid at or
prior to 1:30 P.M. (New York City time) on a business day, and provided that
such drafts and certificates strictly conform to the requirements of this
Letter of Credit, we will initiate a wire transfer of the amount so drawn to
your account indicated below at or prior to 3:30 P.M. (New York City time) on
the same business day;
(B) if such drafts and certificates are presented as aforesaid after
1:30 P.M. but at or prior to 4:00 P.M. (New York City time) on a business
day, and provided that such drafts and certificates strictly conform to the
requirements of this Letter of Credit, we will initiate a wire transfer of
the amount so drawn to your account indicated below at or prior to 10:00 A.M.
on the business day next succeeding the business day on which such drafts and
certificates were presented (notwithstanding that such day of presentation
may have been the Credit Termination Date); and
(C) if such drafts and certificates are presented as aforesaid after
4:00 P.M. (New York City time) on a business day, and provided that such
drafts and certificates strictly conform to the requirements of this Letter
of Credit, we will initiate a wire transfer of the amount so drawn to your
account indicated below at or prior to 1:00 P.M. (New York City time) on the
business day next succeeding the business day on which such drafts and
certificates were presented (notwithstanding that such day of presentation
may have been the Credit Termination Date);
and
(ii) All Other Drawings: In the case of any other drafts and
certificates:
(A) if such drafts and certificates are presented as aforesaid at or
prior to 4:00 P.M. (New York City time) on a business day, and provided that
such drafts strictly conform to the requirements of this Letter of Credit, we
will initiate a wire transfer of the amount so drawn to your account
indicated below at or prior to 10:00 A.M. (New York City time) on the
business day next succeeding the business day on which such drafts and
certificates were presented (notwithstanding that such day of presentation
may have been the Credit Termination Date); and
(B) if such drafts and certificates are presented as aforesaid after
4:00 P.M. (New York City time) on a business day, and provided that such
drafts and certificates strictly conform to the requirements of this Letter
of Credit, we will initiate a wire transfer of the amount so drawn to your
account indicated below at or prior to 1:00 P.M. (New York City time) on the
business day next succeeding the business day on which such drafts and
certificates were presented (notwithstanding that such day of presentation
may have been the Credit Termination Date).
Wire transfers of funds paid in respect of any drawing hereunder shall be
made to you at BayBank Boston, ABA # 011001742, credit Account No. 002-298-5,
Attention: Corporate Trust, or to such other account as you may from time to
time specify to us in writing. All payments made by us under this Letter of
Credit will be made with our own funds and not with any funds of the Account
Party or the Issuer.
(4) Reductions. The Interest Component shall be reduced immediately
following our honoring any draft drawn hereunder to pay unpaid interest on
Eligible Bonds or to pay that portion of the purchase price or redemption
price corresponding to unpaid interest on Eligible Bonds, in each case by an
amount equal to the amount of such draft (any such drawing being an "Interest
Drawing"). The Principal Component shall be reduced immediately following
our honoring any draft drawn hereunder: (i) pursuant to Section 308(c)(ii) of
the Indenture to pay that portion of purchase price corresponding to
principal of Eligible Bonds that are (A) subject to mandatory tender for
purchase pursuant to Section 301(d)(iii), 301(e)(iv)(B) or 301(f)(iii) of the
Indenture or (B) tendered for purchase by the holders thereof pursuant to
Section 301(e)(iii) of the Indenture (any such drawing in respect of the
circumstances referred to in this clause (i) being a "Tender Drawing"), (ii)
pursuant to Section 308(c)(i) of the Indenture to pay the principal of
Eligible Bonds or that portion of the redemption price of Eligible Bonds
corresponding to principal, whether at stated maturity, upon acceleration or
upon redemption, or (iii) pursuant to Section 308(c)(ii) of the Indenture to
pay that portion of the purchase price corresponding to principal of Eligible
Bonds that are subject to mandatory tender for purchase pursuant to Section
301(e)(iv)(A) of the Indenture (any such drawing in respect of the
circumstances referred to in the foregoing clause (ii) or in this clause
(iii) being a "Redemption/Mandatory Purchase Drawing"), in each such case by
an amount equal to the amount of such draft. The Premium Component shall be
reduced immediately following our honoring any draft drawn hereunder to pay
premium on Eligible Bonds in connection with a Redemption/Mandatory Purchase
Drawing, by an amount equal to the amount of such draft.
Additionally, upon receipt of a Notice of Reduction in the form of
Exhibit 4 to this Letter of Credit purportedly executed by you, we will
reduce the Principal Component, Interest Component and Premium Component to
the amounts therein stated.
(5) Reinstatement. The Interest Component and the Principal Component
shall, from time to time, be reinstated by us in accordance with, and only to
the extent provided in, the following subparagraphs (i) and (ii). In no
event shall reductions in the Premium Component be reinstated.
(i) Interest Component. Reductions in the Interest Component resulting
from Interest Drawings shall be reinstated as follows:
(A) Immediately following each drawing hereunder to pay unpaid interest
on Eligible Bonds in the Flexible Mode or to pay that portion of purchase
price, but not redemption price, corresponding to unpaid interest on Eligible
Bonds in the Flexible Mode, the amount so drawn shall be automatically
reinstated to the Interest Component unless, not later than the business day
preceding such drawing you shall have received written notice from us that we
will not reinstate the Interest Component in the amount of such drawing. On
the fifth day following each drawing hereunder to pay accrued and unpaid
interest on Eligible Bonds that are not in the Flexible Mode, or to pay that
portion of purchase price, but not redemption price, corresponding to accrued
and unpaid interest on Eligible Bonds that are not in the Flexible Mode, the
amount so drawn shall be automatically reinstated to the Interest Component,
unless you shall have theretofore received written notice from us that we
will not reinstate the Interest Component in the amount of such drawing. Any
notice of non-reinstatement delivered pursuant to this subparagraph (i)(A)
shall be in writing and shall be delivered to you by hand delivery or
facsimile transmission.
(B) If, subsequent to any such delivery of a notice of non-
reinstatement as aforesaid, we shall deliver to you, by hand delivery or
facsimile transmission, a Notice of Reinstatement in the form of Exhibit 5
hereto, then, upon such delivery to you, the Interest Component shall be
immediately reinstated to the extent specified in such Notice of
Reinstatement.
(C) In no event shall the Interest Component be reinstated to an amount
in excess of 45 days' interest on Eligible Bonds, computed at the rate of 12%
per annum on the basis of a year of 365 or 366 days (as applicable) for the
actual days elapsed, or such lesser rate of interest as shall equal the
Maximum Interest Rate (as defined in the Indenture) in effect under the
Indenture with respect to such Eligible Bonds.
(ii) Principal Component. Reductions in the Principal Component
resulting from Redemption/Mandatory Purchase Drawings shall in no event be
reinstated. Reductions in the Principal Component resulting from Tender
Drawings shall be reinstated as follows:
(A) Immediately upon receipt by us of proceeds from the remarketing of
Pledged Bonds (as defined in the Indenture), or of written notice from you
that you have received such proceeds (or a window receipt guaranteeing same
day payment in immediately available funds of such proceeds as contemplated
by Section 312(a) of the Indenture), the Principal Component shall be
reinstated automatically by the amount of such proceeds.
(B) Immediately upon your receipt from us, by hand delivery or
facsimile transmission, of a Notice of Reinstatement in the form of Exhibit 5
hereto, the Principal Component shall be immediately reinstated to the extent
specified in such Notice of Reinstatement.
(C) In no event shall the Principal Component be reinstated to an
amount in excess of the aggregate principal amount of Eligible Bonds then
outstanding under the Indenture.
Any Notice of Reinstatement delivered to you in the form set forth in Exhibit
5 hereto, whether delivered pursuant to subparagraph (i) or subparagraph
(ii), above, may be combined, in a single such Notice, with any other Notice
of Reinstatement delivered pursuant to the other such subparagraph.
(6) Notices. Communications (other than drawings) with respect to this
Letter of Credit shall be in writing and shall be addressed to us at Two
Paces West, 2727 Paces Ferry Road, Suite 1200, Atlanta, Georgia 30339,
Attention: Clare Coyne (telephone: (404) 319-4836, telecopy: (404) 319-4950,
with a copy to: Canadian Imperial Bank of Commerce, Utilities Group, 200
West Madison Street, Suite 2300, Chicago, Illinois 60606 (telephone: (312)
855-3212, telecopy: (312) 750-0927) (or at such other office as we may
designate by written notice to you), specifically referring to the number of
this Letter of Credit.
(7) Transfer. This Letter of Credit is transferable in its entirety
(but not in part) to any transferee who has succeeded you as Paying Agent
under the Indenture and may be successively so transferred. Transfer of the
available balance under this Letter of Credit to such transferee shall be
effected by the presentation to us of this Letter of Credit accompanied by a
certificate substantially in form set forth in Exhibit 6.
(8) Governing Law, Etc. Except as otherwise provided herein, this
Letter of Credit shall be governed by and construed in accordance with the
Uniform Customs and Practices for Documentary Credits (1983 Revision)
Publication No. 400 of the International Chamber of Commerce ("UCP") and, to
the extent not inconsistent with the UCP, the laws of the State of New York,
including the Uniform Commercial Code as in effect in the State of New York.
This Letter of Credit sets forth in full our undertaking, and, except as
expressly set forth herein, such undertaking shall not in any way be
modified, amended, amplified or limited by reference to any document,
instrument or agreement referred to herein (including, without limitation,
the Bonds, the Indenture and the Reimbursement Agreement), except only the
certificates and the drafts referred to herein; and any such reference shall
not be deemed to incorporate herein by reference any document, instrument or
agreement except for such certificates and such drafts. Whenever and
wherever the terms of this Letter of Credit shall refer to the purpose of a
draft hereunder, or the provisions of any agreement or document pursuant to
which such draft may be presented hereunder, such purpose or provisions shall
be conclusively determined by reference to the certificate accompanying such
draft; in furtherance of this sentence, whether any drawing is in respect of
payment of regularly scheduled interest on the Bonds or of principal of or
interest on the Bonds upon scheduled or accelerated maturity or is a Tender
Drawing or a Redemption/Mandatory Purchase Drawing shall be conclusively
determined by reference to the certificate accompanying such drawing.
Very truly yours,
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY
By
Title:
By
Title:
EXHIBIT 1
TO THE LETTER OF CREDIT
CERTIFICATE FOR TENDER DRAWING
The undersigned, a duly authorized officer of , (the
"Paying Agent"), hereby certifies as follows to Canadian Imperial Bank of
Commerce, New York Agency (the "Bank"), with reference to Irrevocable Letter
of Credit No. (the "Letter of Credit") issued by the Bank in favor
of the Paying Agent. Terms defined in the Letter of Credit and used but not
defined herein shall have the meanings given them in the Letter of Credit.
(1) The Paying Agent is the Paying Agent under the Indenture for the
holders of the Bonds.
(2) The Paying Agent is making a Tender Drawing under the Letter of
Credit in the amount of $ pursuant to Section 308(c)(ii) of
the Indenture to pay that portion of the purchase price corresponding to
principal of Eligible Bonds that are
[subject to mandatory tender for purchase pursuant to Section
[301(d)(iii)] [301(e)(iv)(B)] [301(f)(iii)] of the Indenture.]
[tendered for purchase by the holders thereof pursuant to Section
301(e)(iii) of the Indenture.]
(3) The amount of purchase price corresponding to principal of Eligible
Bonds and with respect to the payment of which the Paying Agent, pursuant to
the foregoing Sections of the Indenture, is drawing under the Letter of
Credit, is as follows, and the amount of the draft accompanying this
Certificate does not exceed such amount:
Principal: $
(4) The amount of the draft accompanying this Certificate being drawn
in respect of purchase price corresponding to principal of Eligible Bonds, as
indicated in paragraph (3), above, does not exceed the Principal Component of
the Letter of Credit. The amount of the draft accompanying this Certificate
in respect of purchase price corresponding to principal of such Bonds has
been computed in accordance with the terms and conditions of such Eligible
Bonds and the Indenture.
(5) No proceeds of this drawing will be applied to the payment of
purchase price of any Bonds that are not Eligible Bonds, including any
Pledged Bonds (as defined in the Indenture), any Company Bonds (as defined in
the Indenture) and any Bonds in the Fixed Rate Mode (as defined in the
Indenture).
[(6) The Eligible Bonds in respect of which this drawing is being made
are Eligible Bonds in the Flexible Mode, and payment of this drawing shall be
made in accordance with Paragraph 3(i) of the Letter of Credit.]
[(6) The Eligible Bonds in respect of which this drawing is being made
are not Eligible Bonds in the Flexible Mode, and payment of this drawing
shall be made in accordance with Paragraph 3(ii) of the Letter of Credit].
IN WITNESS WHEREOF, the Paying Agent has executed and delivered this
Certificate as of the day of , 19 .
[NAME OF PAYING AGENT],
as Paying Agent
By
Title:
EXHIBIT 2
TO THE LETTER OF CREDIT
CERTIFICATE FOR REDEMPTION/
MANDATORY PURCHASE DRAWING
The undersigned, a duly authorized officer of , (the
"Paying Agent"), hereby certifies as follows to Canadian Imperial Bank of
Commerce, New York Agency (the "Bank"), with reference to Irrevocable Letter
of Credit No. (the "Letter of Credit") issued by the Bank in favor
of the Paying Agent. Terms defined in the Letter of Credit and used but not
defined herein shall have the meanings given them in the Letter of Credit.
(1) The Paying Agent is the Paying Agent under the Indenture for the
holders of the Bonds.
(2) The Paying Agent is making a Redemption/Mandatory Purchase Drawing
under the Letter of Credit in the amount of $
[pursuant to Section 308(c)(i) and Section 605 of the Indenture to pay
the principal of Eligible Bonds due pursuant to the Indenture upon maturity
or as a result of acceleration of such Eligible Bonds in accordance with the
Indenture and the terms of such Eligible Bonds.]
[pursuant to Section 308(c)(i) of the Indenture to pay that portion of
the redemption price corresponding to principal of [and premium on] Eligible
Bonds due pursuant to the Indenture upon redemption of such Eligible Bonds in
accordance with the Indenture and the terms of such Eligible Bonds.]
[pursuant to Section 308(c)(ii) of the Indenture to pay that portion of
the purchase price of Eligible Bonds corresponding to principal that are
subject to mandatory tender for purchase pursuant to Section 301(e)(iv)(A) of
the Indenture.]
(3) The amount of [principal of] [redemption price corresponding to
principal of] [and premium on] [purchase price corresponding to principal of]
Eligible Bonds which is due and payable and with respect to the payment of
which the Paying Agent, pursuant to the foregoing Section[s] of the
Indenture, is to draw under the Letter of Credit is as follows, and the
amount of the draft accompanying this Certificate does not exceed such
amount:
Principal: $
[Premium: $ ]
(4) The amount of the draft accompanying this Certificate being drawn
in respect of payment of [principal] [redemption price corresponding to
principal] [purchase price corresponding to principal] of Eligible Bonds, as
indicated in paragraph (3), above, does not exceed the Principal Component of
the Letter of Credit. [The amount of the draft accompanying this Certificate
being drawn in respect of that portion of the redemption price of Eligible
Bonds corresponding to premium, as indicated in paragraph (3), above, does
not exceed the Premium Component of the Letter of Credit.] The amount of the
draft accompanying this Certificate in respect of payment of [principal]
[redemption price corresponding to principal] [and premium] [purchase price
corresponding to principal] of such Eligible Bonds has been computed in
accordance with the terms and conditions of such Eligible Bonds and the
Indenture.
(5) No proceeds of this drawing will be applied to the payment of
principal, redemption price (including premium, if any) or purchase price of
any Bonds that are not Eligible Bonds, including any Pledged Bonds (as
defined in the Indenture), any Company Bonds (as defined in the Indenture),
and any Bonds in the Fixed Rate Mode (as defined in the Indenture).
(6) Payment of this drawing shall be made in accordance with Paragraph
3(ii) of the Letter of Credit.
[(7) The draft accompanying this Certificate is the final draft to be
drawn under the Letter of Credit, and, upon the honoring of such draft, the
Letter of Credit will expire in accordance with its terms.]
IN WITNESS WHEREOF, the Paying Agent has executed and delivered this
Certificate as of the day of , 19 .
[NAME OF PAYING AGENT],
as Paying Agent
By
Title:
EXHIBIT 3
TO THE LETTER OF CREDIT
CERTIFICATE FOR INTEREST DRAWING
The undersigned, a duly authorized officer of ,
(the "Paying Agent"), hereby certifies as follows to Canadian Imperial Bank
of Commerce, New York Agency (the "Bank"), with reference to Irrevocable
Letter of Credit No. (the "Letter of Credit") issued by the Bank in
favor of the Paying Agent. Terms defined in the Letter of Credit and used
but not defined herein shall have the meanings given them in the Letter of
Credit.
(1) The Paying Agent is the Paying Agent under the Indenture for the
holders of the Bonds.
(2) The Paying Agent is making a drawing under the Letter of Credit in
the amount of $ with respect to [the payment of interest] [the
payment of the portion of redemption price corresponding to interest] [the
payment of the portion of purchase price corresponding to interest] on
Eligible Bonds in accordance with the Indenture.
(3) The amount of [interest] [redemption price corresponding to
interest] [purchase price corresponding to interest] on Eligible Bonds that
is due and owing is as follows, and the amount of the draft accompanying this
Certificate does not exceed such amount:
Interest:
(4) The amount of the draft accompanying this Certificate being drawn
in respect of payment of [interest] [redemption price corresponding to
interest] [purchase price corresponding to interest] on Eligible Bonds, as
indicated in paragraph (3), above, does not exceed the Interest Component of
the Letter of Credit. The amount of the draft accompanying this Certificate
in respect of payment of [interest] [redemption price corresponding to
interest] [purchase price corresponding to interest] on Eligible Bonds has
been computed in accordance with the terms and conditions of such Eligible
Bonds and the Indenture.
(5) Payment of this drawing shall be made in accordance with Paragraph
3(ii) of the Letter of Credit.
IN WITNESS WHEREOF, the Paying Agent has executed and delivered this
Certificate as of the day of , 19 .
[NAME OF PAYING AGENT],
as Paying Agent
By
Title:
EXHIBIT 4
TO THE LETTER OF CREDIT
NOTICE OF REDUCTION
The undersigned, a duly authorized officer of ,
(the "Paying Agent"), hereby certifies as follows to Canadian Imperial Bank
of Commerce, New York Agency (the "Bank"), with reference to Irrevocable
Letter of Credit No. (the "Letter of Credit") issued by the Bank in
favor of the Paying Agent. Terms defined in the Letter of Credit and used
but not defined herein shall have the meanings given them in the Letter of
Credit.
(1) The Paying Agent is the Paying Agent under the Indenture for the
holders of the Bonds.
(2) As of the date hereof, the aggregate principal amount of Eligible
Bonds (including for this purpose all Pledged Bonds and all Company Bonds)
outstanding is
Principal: $
(3) You are hereby directed to reduce the [Principal] [Premium] [and]
[Interest] Components of the Letter of Credit as follows:
[The Principal Component of the Letter of Credit is reduced to $
.]
[The Premium Component of the Letter of Credit is reduced to $
.]
[The Interest Component of the Letter of Credit is reduced to $
.]
IN WITNESS WHEREOF, the Paying Agent has executed and delivered this
Certificate as of the day of , 19 .
[NAME OF PAYING AGENT],
as Paying Agent
By
Title:
EXHIBIT 5
TO THE LETTER OF CREDIT
NOTICE OF REINSTATEMENT
The undersigned, a duly authorized officer of Canadian Imperial Bank of
Commerce, New York Agency (the "Bank"), hereby gives the following notice to
, as paying agent (the "Paying Agent"), with reference to Irrevocable
Letter of Credit No. (the "Letter of Credit") issued by the Bank in
favor of the Paying Agent. Terms defined in the Letter of Credit and used
but not defined herein have the meanings given them in the Letter of Credit.
The Bank hereby notifies you that:
[1.] [Pursuant to Paragraph 5(i)(B) of the Letter of Credit and Section
2.04(b)(ii) of the Reimbursement Agreement, the Interest Component has
been reinstated by $ .]
[2.] [Pursuant to Paragraph 5(ii)(B) of the Letter of Credit and Section
2.04(c) of the Reimbursement Agreement, the Principal Component has been
reinstated by $ .]
IN WITNESS WHEREOF, the Bank has executed and delivered this Notice of
Reinstatement as of the day of , 19
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY
By
Title:
EXHIBIT 6
TO THE LETTER OF CREDIT
INSTRUCTIONS TO TRANSFER
, 19
Re: Irrevocable Letter of Credit No.
Gentlemen:
The undersigned, as Paying Agent under that certain Loan and Trust
Agreement, dated as of December 1, 1992 (the "Indenture"), by and among the
Business Finance Authority of the State of New Hampshire (the "Issuer"), The
Connecticut Light and Power Company and BayBank, as Trustee, is named as
beneficiary in the Letter of Credit referred to above (the "Letter of
Credit"). The Transferee named below has succeeded the undersigned as Paying
Agent under such Indenture.
(Name of Transferee)
(Address)
Therefore, for value received, the undersigned hereby irrevocably
instructs you to transfer to such Transferee all rights of the undersigned to
draw under the Letter of Credit.
Such Transferee shall hereafter have the sole rights as beneficiary
under the Letter of Credit; provided, however, that no rights shall be deemed
to have been transferred to such Transferee until such transfer complies with
the requirements of the Letter of Credit pertaining to transfers.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the day of , 19 .
[NAME OF RETIRING PAYING AGENT],
as Paying Agent
By
Title:
The undersigned, [Name of Transferee], hereby accepts the foregoing
transfer of rights under the Letter of Credit.
[Name of Transferee]
By
Title:
Address of Principal
Corporate Trust Office:
[insert address]
EXHIBIT 1.01B
PARTICIPATION ASSIGNMENT
Dated , 19
Reference is made to the Letter of Credit and Reimbursement Agreement,
dated as of December 1, 1992 (said Agreement, as it may hereafter be amended
or otherwise modified from time to time, being the "Agreement"; unless
otherwise defined herein terms defined in the Agreement are used herein with
the same meaning), among The Connecticut Light and Power Company (the
"Account Party"), Canadian Imperial Bank of Commerce, New York Agency
("CIBC"), as Issuing Bank, the Participating Banks named therein and from
time to time parties thereto, and CIBC, as Agent. Pursuant to the Agreement,
(the "Assignor") has purchased a participation from the Issuing Bank
in and to the Letter of Credit and each payment thereunder and demand loan
made by the Issuing Bank and has committed to make Advances to the Account
Party.
The Assignor and (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor,
without recourse to the Assignor that portion set forth in Section 1(c) of
Schedule 1 hereto (the "Assigned Interest") of the Assignor's rights and
obligations under the Agreement and the Pledge Agreement, including, without
limitation, the participation purchased by the Assignor pursuant to Section
3.07 of the Agreement in respect of unreimbursed amounts and demand loans
owing from time to time to the Issuing Bank, the Commitment of the Assignor
to make Advances and the Advances outstanding on the Effective Date (as
hereinafter defined). Such Assigned Interest represents the percentage
interest specified in Section 2(b) of Schedule 1 of all outstanding rights
and obligations of the Participating Banks under the Agreement, and, after
giving effect to such sale and assignment, the Assignee's and Assignor's
Participation Percentages will be as set forth in Sections 2(b) and 2(c),
respectively, of Schedule 1. The effective date of this sale and assignment
shall be the date specified in Section 3 of Schedule 1 (the "Effective
Date").
2. On the Effective Date, the Assignee will pay to the Assignor, in
same day funds, at such address and account as the Assignor shall advise the
Assignee, an amount equal to (1) the aggregate amount of unreimbursed letter
of credit payments, demand loans and Advances outstanding (as set forth in
Section 1 of Schedule 1) times (2) the Assigned Interest. From and after the
Effective Date, the Assignor agrees that the Assignee shall be entitled to
all rights, powers and privileges of the Assignor under the Agreement and the
Pledge Agreement to the extent of the Assigned Interest, including without
limitation (i) the right to receive all payments in respect of the Assigned
Interest for the period from and after the Effective Date, whether on account
of reimbursements, principal, interest, fees, indemnities in respect of
claims arising after the Effective Date, increased costs, additional amounts
or otherwise; (ii) the right to vote and to instruct the Agent and the
Issuing Bank under the Agreement based on the Assigned Interest; (iii) the
right to set-off and to appropriate and apply deposits of the Account Party
as set forth in the Agreement; and (iv) the right to receive notices,
requests, demands and other communications. The Assignor agrees that it will
promptly remit to the Assignee any amount received by it in respect of the
Assigned Interest (whether from the Account Party, the Agent or otherwise) in
the same funds in which such amount is received by the Assignor.
3. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Agreement or
the Related Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Agreement, the Related Documents or
any other instrument or document furnished pursuant thereto; and (iii) makes
no representation or warranty and assumes no responsibility with respect to
the financial condition of the Account Party or the performance or observance
by the Account Party of any of its obligations under the Agreement, the
Related Documents or any other instrument or document furnished pursuant
thereto.
4. The Assignee (i) confirms that it has received a copy of the
Agreement, together with copies of the financial statements referred to in
Section 6.01(f) thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment; (ii) agrees that it will, independently and without reliance
upon the Agent, the Issuing Bank, the Assignor or any other Participating
Bank and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not
taking action under the Agreement and the Related Documents; (iii) appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under the Agreement and the Pledge Agreement as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; (iv) agrees that it will perform in accordance
with its terms all of the obligations which by the terms of the Agreement are
required to be performed by it as a Participating Bank and (v) confirms that
it has paid the processing fee referred to in subsection 10.06(b) of the
Agreement.
5. Following the execution of this Assignment, it will be delivered to
the Agent for acceptance and recording by the Agent. Upon such acceptance
and recording and receipt of the consent of the Issuing Bank required
pursuant to Section 10.06(b) of the Agreement (which shall be evidenced by
the Issuing Bank's execution of this Assignment on the appropriate space on
Schedule 1), as of the Effective Date, (i) the Assignee shall be a party to
the Agreement and, to the extent provided in this Assignment, have the rights
and obligations of a Participating Bank thereunder and under the Pledge
Agreement and (ii) the Assignor shall, to the extent provided in this
Assignment, relinquish its rights and be released from its obligations under
the Agreement and the Pledge Agreement.
6. Upon such acceptance, recording and consent, from and after the
Effective Date, the Agent shall make all payments under the Agreement in
respect of the interest assigned hereby (including, without limitation, all
payments of principal, interest and fees with respect thereto) to the
Assignee at its address set forth on Schedule 1 hereto. The Assignor and
Assignee shall make all appropriate adjustments in payments under the
Agreement for periods prior to the Effective Date directly between
themselves.
7. This Assignment shall be governed by, and construed in accordance
with, the laws of the State of New York.
8. This Assignment may be executed in counterparts by the parties
hereto, each of which counterpart when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be
executed by their respective officers thereunto duly authorized, as of the
date first above written, such execution being made on Schedule 1 hereto.
Schedule 1
to
Participation Assignment
Dated , 19
Section 1
a. Total Unreimbursed
Payments and demand loans $
b. Total Advances: $
c. Assigned Interest:* %
Section 2
a. Assignor's Participation
Percentage (immediately
prior to the effectiveness
of this Assignment) %
b. Assignee's Participation
Percentage** (upon the
effectiveness of this
Assignment) %
c. Assignor's Participation
Percentage** (upon
the effectiveness of
this Assignment) %
Section 3
Effective Date***: ,19
[NAME OF ASSIGNOR]
By
Title:
[NAME OF ASSIGNEE]
By
Title:
[Address]
Telecopier No.
Attention:
Consented to this day
of ,
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
as Issuing Bank
By
Title:
Accepted this day****
of ,
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY,
as Agent
By
Title:
*Specify percentage to no more than 8 decimal points.
**The sum of the percentages set forth in Section 2(b) and (c) shall equal
the percentage set forth in Section 2(a).
***Such date shall be at least 5 Business Days after the execution of this
Assignment.
****Not to be accepted without proof of Account Party's consent pursuant to
Section 10.06(b) of the Reimbursement Agreement.
APPLICABLE LENDING OFFICES
The Assignee's Applicable Lending Offices are as follows:
Domestic Lending Office:
CD Lending Office:
Eurodollar Lending Office:
EXHIBIT 1.01C
PLEDGE AGREEMENT
Dated as of December 1, 1992
THIS PLEDGE AGREEMENT ("this Agreement") is made by and between:
(i) The Connecticut Light and Power Company, a corporation duly
organized and validly existing under the laws of the State of Connecticut
(the "Account Party"); and
(ii) Canadian Imperial Bank of Commerce, New York Agency ("CIBC"), as
issuer of the Letter of Credit (the "Issuing Bank");
for the benefit of the Issuing Bank and
(iii) The Agent (as defined therein) and the Participating Banks (as
defined therein) from time to time party to the Reimbursement Agreement
hereinafter referred to.
PRELIMINARY STATEMENT
The Business Finance Authority of the State of New Hampshire (the
"Issuer") proposes to issue, pursuant to a Loan and Trust Agreement, dated as
of December 1, 1992 (as supplemented or amended from time to time with the
written consent of the Issuing Bank, the "Indenture"), by and among the
Issuer, the Account Party and BayBank, as trustee (such entity, or its
successor as trustee, being the "Trustee"), $21,000,000 aggregate principal
amount of Business Finance Authority of the State of New Hampshire Pollution
Control Refunding Revenue Bonds (The Connecticut Light and Power Company
Project - 1992 Series A) (the "Bonds") and, pursuant to the Indenture, the
Account Party has requested the Issuing Bank to issue the letter of credit
referred to therein in favor of the Paying Agent described therein. The
Issuing Bank has agreed to issue such letter of credit subject to the terms
and conditions set forth in that certain Letter of Credit and Reimbursement
Agreement, of even date herewith, among the Account Party, the Issuing Bank,
the Agent and the Participating Banks referred to therein and relating to the
Bonds (said Letter of Credit and Reimbursement Agreement, as it may hereafter
be amended, modified or supplemented from time to time, being hereinafter
referred to as the "Reimbursement Agreement").
It is a condition precedent to the obligation of the Issuing Bank to
issue such letter of credit and of the Participating Banks to make the
Advances described in the Reimbursement Agreement that the Account Party
shall have made the pledge described in this Agreement.
NOW THEREFORE, in consideration of the premises and to induce the
Issuing Bank to issue such letter of credit and to induce the Participating
Banks to make such Advances, the Account Party hereby agrees as follows
(capitalized terms used herein and not otherwise defined herein having the
meanings assigned them in the Reimbursement Agreement):
SECTION 1. Pledge. The Account Party hereby pledges to the Issuing
Bank for the benefit of the Agent and the Participating Banks, and grants to
the Issuing Bank for the benefit of the Agent and the Participating Banks a
security interest in, the following (the "Pledged Collateral"):
(i) the Pledged Bonds (as defined in the Indenture) and the
instruments, if any, evidencing the Pledged Bonds, and all interest, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
Pledged Bonds; and
(ii) all proceeds (other than the proceeds of the initial sale upon
issuance of the Pledged Bonds) of any and all of the foregoing collateral
(including, without limitation, proceeds that constitute property of the
types described above).
SECTION 2. Security for Obligations. This Agreement secures the
payment of all obligations of the Account Party now or hereafter existing
under the Reimbursement Agreement, whether for reimbursement, principal,
interest, fees, expenses or otherwise, and all obligations of the Account
Party now or hereafter existing under this Agreement (all such obligations of
the Account Party being the "Obligations"). Without limiting the generality
of the foregoing, this Agreement secures the payment of all amounts which
constitute part of the Obligations and would be owed by the Account Party to
the Issuing Bank, the Agent or any Participating Bank under the Reimbursement
Agreement but for the fact that they are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding
involving the Account Party.
SECTION 3. Delivery of Pledged Collateral. (a) All certificates or
instruments representing or evidencing the Pledged Collateral shall be
delivered to the Paying Agent and held by the Paying Agent on behalf of the
Issuing Bank pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Issuing
Bank. For the better perfection of the Issuing Bank's, the Agent's and the
Participating Banks' rights in and to the Pledged Collateral, the Account
Party shall forthwith, upon the pledge of any Pledged Collateral hereunder,
cause such Pledged Collateral to be registered in the name of such nominee or
nominees of the Issuing Bank as the Issuing Bank shall direct.
(b) If, prior to the payment in full of the Obligations and the
termination of the Letter of Credit, the Account Party shall become entitled
to receive or shall receive any payment in respect of the Pledged Collateral,
the Account Party agrees to accept the same as the agent of the Issuing Bank,
the Agent and the Participating Banks, to hold the same in trust for the
Issuing Bank, the Agent and the Participating Banks and to deliver the same
to the Issuing Bank. All such sums so received by the Issuing Bank shall be
credited against the Obligations in such order as the Agent shall, in its
sole discretion, elect.
(c) Notwithstanding the foregoing subsection (a), if and for so long as
the Bonds are to be held in the Book-Entry Only System (as defined in the
Indenture), the Account Party's obligations under such subsection shall be
deemed satisfied if such Pledged Bonds are (i) registered in the name of DTC
(as defined in the Indenture) in accordance with the Book-Entry Only System,
(ii) credited on the books of DTC to the account of the Paying Agent (or its
nominee) and (iii) further credited on the books of the Paying Agent (or such
nominee) to the account of the Issuing Bank (or its nominee).
SECTION 4. Representations and Warranties. The Account Party
represents and warrants as follows:
(a) The pledge of the Pledged Collateral pursuant to this Agreement
creates, upon the Paying Agent's taking possession of the Pledged Bonds
pursuant to Section 3 hereof (whether by physical possession or by means of
registration to DTC and book-entry credit as described in subsection (c)
thereof), a valid and perfected first priority security interest in the
Pledged Collateral, securing the payment of the Obligations.
(b) No consent of any other person or entity and no authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required (i) for the pledge by
the Account Party of the Pledged Collateral pursuant to this Agreement or for
the execution, delivery or performance of this Agreement by the Account
Party, (ii) for the perfection or maintenance of the security interest
created hereby (including the first priority nature of such security
interest), other than any filings of Uniform Commercial Code financing
statements that may be required for such perfection with respect to any
"proceeds" of the Pledged Bonds, or (iii) for the exercise by the Issuing
Bank of the voting or other rights provided for in this Agreement or the
remedies in respect of the Pledged Collateral pursuant to this Agreement
(except as may be required in connection with any disposition of any portion
of the Pledged Collateral by laws affecting the offering and sale of
securities generally and except for such as have already been obtained and
are in full force and effect).
SECTION 5. Further Assurances. The Account Party agrees that at any
time and from time to time, at the expense of the Account Party, the Account
Party will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable,
or that the Issuing Bank may reasonably request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable the Issuing Bank to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.
SECTION 6. Release. In the event that any Pledged Bonds are
subsequently remarketed by the Remarketing Agent and the proceeds thereof,
when added to any amounts paid to the Issuing Bank and/or the Agent by the
Account Party, are sufficient to (a) reimburse the Issuing Bank and the
Participating Banks in full for the drawing under the Letter of Credit
pursuant to which such Pledged Bonds became Pledged Bonds, (b) repay or
prepay any demand loan or Advance made in respect thereof and (c) pay all
interest, fees and other amounts accrued in respect thereof pursuant to the
Reimbursement Agreement, the lien of this Agreement shall be released as to
such Pledged Bonds (but not as to any other Pledged Bonds).
SECTION 7. Transfers and Other Liens. The Account Party agrees that
it will not (i) sell, assign or otherwise dispose of, or grant any option
with respect to, any of the Pledged Collateral, or (ii) create or permit to
exist any lien, security interest, option or other charge or encumbrance upon
or with respect to any of the Pledged Collateral, except for the security
interest under this Agreement.
SECTION 8. Bank Appointed Attorney-in-Fact. The Account Party
hereby appoints the Issuing Bank the Account Party's attorney-in-fact, with
full authority in the place and stead of the Account Party and in the name of
the Account Party or otherwise, from time to time in the Issuing Bank's
discretion to take any action and to execute any instrument which the Issuing
Bank may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, to receive, indorse and collect all
instruments made payable to the Account Party representing any interest
payment or other distribution in respect of the Pledged Collateral or any
part thereof and to give full discharge for the same.
SECTION 9. Bank May Perform. If the Account Party fails to perform
any agreement contained herein, the Issuing Bank may itself perform, or cause
performance of, such agreement, and the expenses of the Issuing Bank incurred
in connection therewith shall be payable by the Account Party under Section
10.04 of the Reimbursement Agreement.
SECTION 10. The Issuing Bank's Duties. The powers conferred on the
Issuing Bank hereunder are solely to protect its interest in the Pledged
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Pledged Collateral in its actual
possession and the accounting for moneys actually received by it hereunder,
the Issuing Bank shall have no duty as to any Pledged Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral,
whether or not the Issuing Bank has or is deemed to have knowledge of such
matters, or as to the taking of any necessary steps to preserve rights
against any parties or any other rights pertaining to any Pledged Collateral.
The Issuing Bank shall be deemed to have exercised reasonable care in the
custody and preservation of any Pledged Collateral in its actual possession
if such Pledged Collateral is accorded treatment substantially equal to that
which the Issuing Bank accords its own property.
SECTION 11. Remedies upon Default. If any Event of Default shall
have occurred and be continuing:
(a) The Issuing Bank may exercise in respect of the Pledged Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the Uniform Commercial Code in effect in the State of New York at that
time (the "Code") (whether or not the Code applies to the affected Pledged
Collateral), and may also, without notice except as specified below, sell the
Pledged Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange, broker's board or at any of the Issuing Bank's
offices or elsewhere, for cash, on credit or for future delivery, and upon
such other terms as the Issuing Bank may deem commercially reasonable. The
Account Party agrees that, to the extent notice of sale shall be required by
law, at least ten days' notice to the Account Party of the time and place of
any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Issuing Bank shall not be obligated
to make any sale of Pledged Collateral regardless of notice of sale having
been given. The Issuing Bank may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
was so adjourned.
(b) Any cash held by the Issuing Bank as Pledged Collateral and all
cash proceeds received by the Issuing Bank in respect of any sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral may, in the discretion of the Issuing Bank, be held by the Issuing
Bank as collateral for, and/or then or at any time thereafter be applied
(after payment of any amounts payable to the Issuing Bank pursuant to Section
9 hereof and/or Section 10.04 of the Reimbursement Agreement) in whole or in
part by the Issuing Bank against, all or any part of the Obligations in such
order as the Issuing Bank shall elect. Any surplus of such cash or cash
proceeds held by the Issuing Bank and remaining after payment in full of all
the Obligations shall be paid over to the Account Party or to whomsoever may
be lawfully entitled to receive such surplus.
SECTION 12. Continuing Security Interest; Assignments. This
Agreement shall create a continuing security interest in the Pledged
Collateral and shall (i) remain in full force and effect until the later of
(x) the payment in full of the Obligations and all other amounts payable
under this Agreement and (y) the expiration or termination of the
Commitments, (ii) be binding upon the Account Party, its successors and
assigns, and (iii) inure to the benefit of, and be enforceable by, the
Issuing Bank, the Agent, the Participating Banks and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), any Participating Bank may, subject to Section 10.06
of the Reimbursement Agreement, assign or otherwise transfer all or any
portion of its rights and obligations under the Reimbursement Agreement
(including, without limitation, all or any portion of its Commitment and the
Advances owing to it) to any other person or entity, and such other person or
entity shall thereupon become vested with all the benefits in respect thereof
granted to such Participating Bank herein or otherwise. Upon the later of
the payment in full of the Obligations and all other amounts payable under
this Agreement and the expiration or termination of the Commitments, the
security interest granted hereby shall terminate and all rights to the
Pledged Collateral shall revert to the Account Party. Upon any such
termination, the Issuing Bank will, at the Account Party's expense, return to
the Account Party such of the Pledged Collateral as shall not have been sold
or otherwise applied pursuant to the terms hereof and execute and deliver to
the Account Party such documents as the Account Party shall reasonably
request to evidence such termination.
IN WITNESS WHEREOF, the Account Party has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
THE CONNECTICUT LIGHT AND POWER COMPANY,
as Account Party and pledgor
By
Title:
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY,
as Issuing Bank and pledgee
By
Title:
EXHIBIT 4.5.2
[EXECUTION COPY]
U.S. $225,000,000
TERM CREDIT AGREEMENT
Dated as of November 9, 1995
Among
NORTH ATLANTIC ENERGY CORPORATION
as Borrower
THE BANKS NAMED HEREIN
as Banks
THE FIRST NATIONAL BANK OF CHICAGO
BARCLAYS BANK PLC
THE FIRST NATIONAL BANK OF BOSTON
UNION BANK
as Arrangers
THE FIRST NATIONAL BANK OF CHICAGO
as Administrative Agent
TERM CREDIT AGREEMENT
Dated as of November 9, 1995
THIS TERM CREDIT AGREEMENT (the "Agreement") is made by and among:
(i) NORTH ATLANTIC ENERGY CORPORATION, a corporation duly organized and
validly existing under the laws of the State of New Hampshire (the
"Borrower");
(ii) The financial institutions (the "Banks") listed on the signature
pages hereof and the other Lenders (as hereinafter defined) from time to time
party hereto;
(iii) THE FIRST NATIONAL BANK OF CHICAGO ("First Chicago"), BARCLAYS
BANK PLC ("Barclays"), THE FIRST NATIONAL BANK OF BOSTON ("Bank of Boston")
and UNION BANK ("Union"), as the Arrangers hereof; and
(iv) First Chicago as administrative agent (the "Administrative Agent")
for the Lenders hereunder.
PRELIMINARY STATEMENT
The Borrower wishes to redeem its outstanding 15.23% Notes Due July,
2000 (the Existing Notes). Subject to the conditions and upon the terms of
this Agreement and the Notes referred to herein, the Borrower wishes to
borrow, and the Banks have agreed, severally and not jointly, to lend, an
aggregate amount of up to $225,000,000 to finance all or a portion of the
redemption price of the Existing Notes.
Based upon the foregoing and subject to the conditions and upon the
terms set forth in this Agreement, the parties agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be
applicable to the singular and plural forms of the terms defined):
"Adjusted Net Income" of the Borrower, for any period, means the
Borrower's net income for such period, determined in accordance with general-
ly accepted accounting principles on a basis consistent with the standards
referred to in Section 1.03 hereof, and:
(i) increased by the amount of current and deferred federal and state
income taxes for such period (calculated on a basis consistent with footnote
5 to the Borrower's financial statements included in its 1994 Annual Report);
(ii) decreased by the amount of Income Taxes-credit (as included under
"Other Income") for such period; and
(iii) increased by the Borrower's Interest Expense for such period.
"Advance" means an Advance by a Lender to the Borrower pursuant to
Section 3.01 hereof, and refers to a Base Rate Advance or a Eurodollar Rate
Advance (each of which shall be a "Type" of Advance). The Type of an Advance
may change from time to time as and when such Advance is Converted. For
purposes of this Agreement, all Advances of a Lender (or portions thereof)
made of, or Converted into, the same Type and Interest Period on the same day
shall be deemed to be a single Advance by such Lender until repaid or next
Converted.
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling (including, but not limited to all directors and
officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control another entity
if such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such entity, whether
through the ownership of voting securities, by contract or otherwise.
"Alternate Base Rate" means, for any Interest Period or any other
period, a fluctuating interest rate per annum equal at all times to the
highest from time to time of:
(a) the rate of interest announced publicly by First Chicago, Chicago,
Illinois, from time to time, as First Chicago's corporate base rate; and
(b) 1/2 of one percent per annum above the Federal Funds Rate from time
to time.
Each change in the Alternate Base Rate shall take effect concurrently with
any change in such base rate or Federal Funds Rate.
"Applicable Lending Office" means, with respect to each Lender, (1)(A)
such Lender's "Domestic Lending Office" in the case of a Base Rate Advance,
and (B) such Lender's "Eurodollar Lending Office" in the case of a Eurodollar
Rate Advance, in each case as specified opposite such Lender's name on
Schedule I hereto or in the Lender Assignment pursuant to which it became a
Lender, or (ii) such other office or affiliate of such Lender as such Lender
may from time to time specify to the Borrower and the Administrative Agent.
"Applicable Margin" means, on any date for any Eurodollar Rate Advance,
the applicable percentage per annum set forth below, based on the then
Applicable Rating Level.
Level 1 Level 2 Level 3 Level 4
0.80% 1.00% 1.375% 1.75%
Any change in the Applicable Margin caused by a change in the Applicable
Rating Level shall take effect immediately upon such change in the Applicable
Rating Level.
"Applicable Rate" means:
(i) in the case of each Base Rate Advance, a rate per annum equal at
all times to the Alternate Base Rate in effect from time to time; and
(ii) in the case of each Eurodollar Rate Advance comprising part of the
same Borrowing, a rate per annum during each Interest Period equal at all
times to the sum of the Eurodollar Rate for such Interest Period plus the
Applicable Margin in effect from time to time during such Interest Period.
"Applicable Rating Level" on any date for any Eurodollar Rate Advance,
shall be determined in accordance with the following table on the basis of
the ratings of Moody's and S&P, respectively, then applicable to the First
Mortgage Bonds of PSNH:
Level 1 Level 2 Level 3 Level 4
Baa3 and BBB- Ba1/BB+ Ba2/BB Below Ba2 or
or higher Below BB
In the event of a "split" rating, the Applicable Rating Level shall be
determined on the basis of the lower of the two ratings (and, if applicable,
the higher Applicable Rating Level and Applicable Margin). The Applicable
Rating Level shall be redetermined as and when any change in the ratings used
in the determination thereof shall be announced by either Moody's or S&P.
"Authorized Replacement First Mortgage Bonds" shall have the meaning
assigned to that term in Section 7.02(c).
"Base Rate Advance" means an Advance in respect of which the Borrower
has selected in accordance with Article III hereof, or this Agreement
otherwise provides for, interest to be computed on the basis of the Alternate
Base Rate.
"Borrowing" means a borrowing consisting of Advances of the same Type
and Interest Period made on the same day by the Lenders, ratably in accor-
dance with their respective Commitments. For purposes of this Agreement: (i)
each Borrowing shall be deemed to be of the same "Type" as the Advances
comprising such Borrowing, and (ii) all Advances made of, or Converted into,
the same Type and Interest Period on the same day shall be deemed a single
Borrowing hereunder until repaid or next Converted.
"Business Day" means a day of the year on which banks are not required
or authorized to close in New York City, or Chicago, Illinois and, if the
applicable Business Day relates to any Eurodollar Rate Advance, on which
dealings are carried on in the London interbank market.
"Closing Date" means the day upon which each of the conditions precedent
enumerated in Section 5.01 hereof shall be fulfilled to the satisfaction of
the Lenders, the Administrative Agent and the Borrower. All transactions
contemplated to occur on the Closing Date shall take place on or prior to
December 31, 1995, at the offices of King & Spalding, 120 West 45th Street,
New York, New York 10036, at 10:00 A.M. (New York City time), or such other
place and time as the parties hereto may mutually agree.
"Commitment" means, for each Lender, the amount set forth opposite such
Lender's name on Schedule IV hereto, or, if such Lender has entered into one
or more Lender Assignments, set forth for such Lender in the Register
maintained by the Administrative Agent pursuant to Section 10.07(c), in each
such case as such amount may be reduced from time to time pursuant to Section
2.03 hereof. "Commitments" shall refer to the aggregate of the Lenders'
Commitments hereunder.
"Common Equity" means, as of any day, the aggregate of all amounts that
would, in accordance with generally accepted accounting principles applied on
a basis consistent with the standards referred to in Section 1.03 hereof,
appear on the balance sheet of the Borrower as of such day as the sum of (i)
the aggregate of the par value of, or stated capital represented by, the
outstanding shares of common stock of the Borrower and the surplus, paid-in,
earned and other, if any, of the Borrower.
"Common Equity Ratio" means, as of any day, the ratio of (i) Common
Equity as of such day to (ii) Total Capitalization as of such day.
"Confidential Information" has the meaning assigned to that term in
Section 10.08.
"Conversion", "Convert" or "Converted" each refers to a conversion of
Advances pursuant to Section 3.02, including, but not limited to any selec-
tion of a longer or shorter Interest Period to be applicable to such Advances
or any conversion of an Advance as described in Section 3.02(c).
"Debt" means, for any Person, without duplication (including, for
example, Debt evidenced by notes or securities that are supported by letters
of credit and reimbursement obligations in respect of such letters of
credit), (i) indebtedness of such Person for borrowed money, (ii) obligations
of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) obligations of such Person to pay the deferred purchase
price of property or services, (iv) obligations of such Person as lessee
under leases which shall have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases, (v) obligations
(contingent or otherwise) of such Person under reimbursement or similar
agreements with respect to the issuance of letters of credit, (vi) net
obligations (contingent or otherwise) of such Person under interest rate
swap, "cap", "collar" or other hedging agreements, (vii) obligations under
direct or indirect guaranties in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (vi), above, and (viii) liabili-
ties in respect of unfunded vested benefits under ERISA Plans.
"Disclosure Documents" means the Information Memorandum, the Borrower's
1994 Annual Report, the Borrower's Annual Report on Form 10-K for the year
ended December 31, 1994, the Borrower's Quarterly Reports on Form 10-Q for
the quarters ended March 31 and June 30, 1995, any Current Report on Form 8-K
of the Borrower filed by the Borrower with the Securities and Exchange
Commission after June 30, 1995 and furnished to the Banks prior to the
execution and delivery of this Agreement, and the Disclosure Letter.
"Disclosure Letter" means that certain Memorandum, dated November 7,
1995, prepared by Robert A. Bersak, Assistant Secretary and Assistant General
Counsel of PSNH and transmitted to the Arrangers and the Banks by letter,
dated November 7, 1995, from David McHale, Assistant Treasurer, of NUSCO.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means, with respect to any Person, any trade or
business (whether or not incorporated) which is a "commonly controlled
entity" of the Borrower within the meaning of the regulations under Section
414 of the Internal Revenue Code of 1986, as amended from time to time.
"ERISA Multiemployer Plan" means a "multiemployer plan" subject to Title
IV of ERISA.
"ERISA Plan" means an employee benefit plan (other than an ERISA
Multiemployer Plan) maintained for employees of the Borrower or any ERISA
Affiliate and covered by Title IV of ERISA.
"ERISA Plan Termination Event" means (i) a Reportable Event described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the PBGC
under such regulations) with respect to an ERISA Plan or an ERISA
Multiemployer Plan, or (ii) the withdrawal of the Borrower or any of its
ERISA Affiliates from an ERISA Plan or an ERISA Multiemployer Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate
an ERISA Plan or an ERISA Multiemployer Plan or the treatment of an ERISA
Plan or an ERISA Multiemployer Plan under Section 4041 of ERISA, or (iv) the
institution of proceedings to terminate an ERISA Plan or an ERISA
Multiemployer Plan by the PBGC, or (v) any other event or condition which
might constitute grounds under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any ERISA Plan or ERISA
Multiemployer Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Rate" means, for each Interest Period for each Eurodollar
Rate Advance comprising part of the same Borrowing, an interest rate per
annum equal to the average (rounded upward to the nearest 1/100 of 1% per
annum) of the rate per annum at which deposits in U.S. Dollars are offered by
the principal office of each of the Reference Banks in London, England in
the amount of such Reference Bank's Eurodollar Rate Advance to prime banks in
the London interbank market at 11:00 A.M. (London time) two Business Days
before the first day of such Interest Period and for a period equal to such
Interest Period. The Eurodollar Rate for the Interest Period for each
Eurodollar Rate Advance comprising part of the same Borrowing shall be
determined by the Administrative Agent on the basis of the applicable rates
(averaged as set forth above) furnished to and received by the Administrative
Agent from the Reference Banks two Business Days before the first day of such
Interest Period, subject, however, to the provisions of Sections 3.05(d) and
4.03(g).
"Eurodollar Rate Advance" means an Advance in respect of which the
Borrower has selected in accordance with Article III hereof, and this
Agreement provides for, interest to be computed on the basis of the Eurodol-
lar Rate.
"Eurodollar Reserve Percentage" of any Lender for each Interest Period
for each Eurodollar Rate Advance means the reserve percentage applicable
during such Interest Period (or if more than one such percentage shall be so
applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable)
under Regulation D or other regulations issued from time to time by the Board
of Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including, without limitation, any emergen-
cy, supplemental or other marginal reserve requirement, without benefit of or
credit for proration, exemptions or offsets) for such Lender with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities
having a term equal to such Interest Period.
"Event of Default" has the meaning specified in Section 8.01.
"Existing Notes" has the meaning assigned to that term in the Prelimi-
nary Statement.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published on the next succeeding Business Day the average of
the quotations for such day on such transactions received by the Administra-
tive Agent from three Federal funds brokers of recognized standing selected
by it.
"First Mortgage Bonds" means first mortgage bonds of the Borrower issued
or to be issued pursuant to that certain First Mortgage Indenture and Deed of
Trust, dated as of June 1, 1992, between the Borrower and United States Trust
Company of New York, as trustee (together with any successor, the "First
Mortgage Trustee"), as the same may be amended, modified and supplemented
from time to time (the "First Mortgage Indenture").
"Funding Date" means the date for the initial borrowing of the Advances
and the payment of the redemption price of the Existing Notes, as notified by
the Borrower to the Administrative Agent at least five Business Days prior
to such date in accordance with Sections 3.01 and 5.02; provided, however,
that the Funding Date shall in any event occur: (i) on or after the Closing
Date, (ii) not later than 35 days following the Closing Date and (iii) not
later than December 31, 1995.
"Governmental Approval" means any authorization, consent, approval,
license, permit, certificate, exemption of, or filing or registration with,
any governmental authority or other legal or regulatory body, including any
renewal thereof. For purposes of this Agreement, Chapter 362-C of the
Revised Statutes Annotated of New Hampshire, in effect on the date hereof,
shall be deemed to be a Governmental Approval.
"Hazardous Substance" means any waste, substance or material identified
as hazardous or toxic by any office, agency, department, commission, board,
bureau or instrumentality of the United States of America or of the State or
locality in which the same is located having or exercising jurisdiction over
such waste, substance or material.
"Indemnified Person" has the meaning assigned to that term in Section
10.04(b) hereof.
"Information Memorandum" means the Confidential Information Memorandum,
dated August 28, 1995, regarding the Borrower, as distributed to the Adminis-
trative Agent, the Arrangers and the Lenders.
"Interest Coverage Ratio" means, for any period, the ratio of (i)
Adjusted Net Income for such period to (ii) Interest Expense for such period.
"Interest Expense" means, for any period, the aggregate interest expense
of the Borrower for such period, determined in accordance with generally
accepted accounting principles on a basis consistent with the standards
referred to in Section 1.03 hereof.
"Interest Period" has the meaning assigned to that term in Section
3.05(a) hereof.
"Joint Ownership Agreement" means the Agreement for Joint Ownership,
Construction and Operation of New Hampshire Nuclear Units, among PSNH and the
other parties named therein, dated as of May 1, 1973, as amended from time to
time.
"Lender Assignment" means an assignment and agreement entered into by a
Lender and an assignee, and accepted by the Administrative Agent, in substan-
tially the form of Exhibit 10.07 hereto.
"Lenders" means the financial institutions listed on the signature pages
hereof, and each assignee that shall become a party hereto pursuant to
Section 10.07(a).
"Lien" has the meaning assigned to that term in Section 7.02(a) hereof.
"Loan Documents" means this Agreement and the Notes.
"Majority Lenders" means on any date of determination, Lenders who,
collectively, on such date (i) hold at least 66-2/3% of the then aggregate
unpaid principal amount of the Advances owing to the Lenders or (ii) if no
Advances are then outstanding, represent at least 66-2/3% of the Commitments.
Determination of those Lenders satisfying the criteria specified above for
action by the Majority Lenders shall be made by the Administrative Agent and
shall be conclusive and binding on all parties absent manifest error.
"Moody's" means Moody's Investors Service, Inc., or any successor
thereto.
"1994 Annual Report" means the 1994 Annual Report of the Borrower
included in the Borrower's Annual Report on Form 10-K for the year ended
December 31, 1994.
"Note" means a promissory note of the Borrower payable to the order of a
Lender, in substantially the form of Exhibit 1.01A hereto, evidencing the
aggregate indebtedness of the Borrower to such Lender resulting from the
Advances made by such Lender.
"NU" means Northeast Utilities, an unincorporated voluntary business
association organized under the laws of the Commonwealth of Massachusetts.
"NUSCO" means Northeast Utilities Service Company, a Connecticut
corporation and a wholly-owned subsidiary of NU.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor
entity) established under ERISA.
"Permitted Investments" means each and any of the following; provided
that no such Permitted Investment shall have a final maturity not later than
12 months from the date of investment therein.
(i) direct obligations of the United States of America, or obligations
guaranteed as to principal and interest by the United States of America;
(ii) certificates of deposit, eurodollar certificates of deposit or
bankers' acceptances issued, or time deposits held, or investment contracts
guaranteed, by (A) any Bank; or (B) any other commercial bank, trust company,
savings and loan association or savings bank organized under the laws of the
United States of America, or any State thereof, or of any other country which
is a member of the Organization for Economic Cooperation and Development (or
a political subdivision of any such country) having outstanding unsecured
indebtedness that is rated (on the date of acquisition thereof) AA- or better
by S&P or Aa3 or better by Moody's (or an equivalent rating by another
nationally recognized credit rating agency of similar standing if neither of
such corporations is then in the business of rating unsecured bank indebted-
ness);
(iii) obligations with any Arranger or any other bank or trust
company described in clause (ii), above, in respect of the repurchase of
obligations of the type described in clause (i), above, provided that such
repurchase obligations shall be fully secured by obligations of the type
described in said clause (i) and the possession of such obligations shall be
transferred to, and segregated from other obligations owned by, such Arranger
or such other bank or trust company;
(iv) commercial paper rated (on the date of acquisition thereof) A-1 or
P-1 or better by S&P or Moody's, respectively (or an equivalent rating by
another nationally recognized credit rating agency of similar standing if
neither of such corporations is then in the business of rating commercial
paper).
(v) deposits with or loans to the NU System Money Pool on the terms and
conditions from time to time applicable to other participants therein, but in
no event on terms less favorable to the Borrower than are applicable to such
other participants.
(vi) investments in securities of industrial and other nonutility local
enterprises described in Rule 40(a)(5) under PUHCA; provided, however, that
the total amount invested shall not exceed (i) $1,000,000 in any calendar
year and (ii) $5,000,000 at any one time outstanding.
"Permitted Liens" has the meaning ascribed to that term in Section
7.02(a).
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, estate, unincorporated associa-
tion, joint venture or other entity, or a government or any political
subdivision or agency thereof.
"Pre-Funding Exposure Fee" has the meaning assigned that term in Section
2.02(b).
"PSNH" means Public Service Company of New Hampshire, a corporation
organized under the laws of the State of New Hampshire.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended.
"Rate Agreement" means the Agreement dated as of November 22, 1989, as
amended by the First Amendatory Agreement dated as of December 5, 1989, the
Second Amendatory Agreement dated as of December 12, 1989, the Third Amend-
ment to Rate Agreement dated as of December 28, 1993, the Fourth Amendment to
Rate Agreement dated as of September 21, 1994 and the Fifth Amendment to Rate
Agreement dated as of September 9, 1994, among NUSCO, the Governor and
Attorney General of the State of New Hampshire and adopted by PSNH as of July
10, 1990 (but excluding the Unit Contract appended as Exhibit A thereto).
"Recipient" has the meaning assigned to that term in Section 10.08
hereof.
"Reference Banks" means, initially, First Chicago, Barclays, Bank of
Boston and Union, and shall include any other or different Lender(s) as may
from time to time agree to act as Reference Banks hereunder with the consent
of the Borrower.
"Register" has the meaning specified in Section 10.07(c).
"S&P" means Standard & Poor's Rating Group or any successor thereto.
"Seabrook" means the nuclear-fueled, steam-electric generating plant at
a site located in Seabrook, New Hampshire, and all real property interests,
fixtures, and other assets related thereto.
"Seabrook Interests" means all of the Borrower's right, title and
interest in and to Seabrook, presently constituting 35.98201% of Seabrook.
"Significant Contracts" means the Unit Contract and the Tax Allocation
Agreement.
"Tax Allocation Agreement" means the Tax Allocation Agreement dated as
of January 1, 1990 among NU and the members of the consolidated group of
which NU is the common parent, including the Borrower, as amended and as the
same may be further amended, modified or supplemented in accordance with the
terms hereof and thereof.
"Termination Date" means the earliest to occur of November 9, 2000,
(ii) December 31, 1995, if the Funding Date shall not have occurred on or
prior to such date, (iii) the date of termination in whole of the Commitments
pursuant to Section 8.02 or (iv) the date of acceleration of all amounts
payable hereunder and under the Notes pursuant to Section 8.02.
"Total Capitalization" means, as of any day, the aggregate of all
amounts that would, in accordance with generally accepted accounting princi-
ples applied on a basis consistent with the standards referred to in Section
1.03 hereof, appear on the balance sheet of the Borrower as of such day as
the sum of (i) the principal amount of all long-term Debt of the Borrower on
such day (including the current portion thereof), (ii) the par value of, or
stated capital represented by, the outstanding shares of all classes of
common and preferred shares of the Borrower on such day and (iii) the surplus
of the Borrower, paid-in, earned and other, if any, on such day.
"Type" has the meaning assigned to such term (i) in the definition of
"Advance" when used in such context and (ii) in the definition of "Borrowing"
when used in such context.
"Unit Contract" means the Unit Contract, dated as of June 1, 1992,
between the Borrower and PSNH, as the same may from time to time be amended,
modified or supplemented in accordance with the terms hereof and thereof.
"Unmatured Default" means the occurrence and continuance of an event
which, with the giving of notice or lapse of time or both, would constitute
an Event of Default.
SECTION 1.02 Computation of Time Periods. In the computation of
periods of time under this Agreement any period of a specified number of days
or months shall be computed by including the first day or month occurring
during such period and excluding the last such day or month. In the case of
a period of time "from" a specified date "to" or "until" a later specified
date, the word "from" means "from and including" and the words "to" and
"until" each means "to but excluding".
SECTION 1.03 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles applied on a basis consistent with the financial
statements included in the Borrower's 1994 Annual Report, except for such
changes, if any, as are consistent with generally accepted accounting
principles and are disclosed to the Lenders. Any such change that would
affect the calculation of any figure or ratio contained in any covenant or
agreement herein to be performed or observed by the Borrower shall be
disregarded for such purpose unless and until the Borrower and the Majority
Lenders shall have agreed upon a replacement figure or ratio that, after
giving effect to such change, reflects the original intent of the parties.
The parties agree to negotiate in good faith to reach any such agreement.
SECTION 1.04 Computations of Outstandings. Whenever reference is made
in this Agreement to the principal amount outstanding on any date under this
Agreement, such reference shall refer to the sum of the aggregate principal
amount of all Advances outstanding on such date, after giving effect to all
Advances to be made on such date and the application of the proceeds thereof.
ARTICLE II
COMMITMENTS
SECTION 2.01 The Commitments. Each Lender severally agrees, on the
terms and conditions hereinafter set forth, to make Advances to the Borrower
on the Funding Date in an aggregate amount not to exceed such Lender's
Commitment. In no event may any Advance repaid or prepaid hereunder be
reborrowed.
SECTION 2.02 Fees. (a) The Borrower agrees to pay to the Administra-
tive Agent for the account of the Lenders, on the Closing Date, certain fees
as specified in the materials accompanying the distribution of the Informa-
tion Memorandum.
(b) The Borrower agrees to pay to the Administrative Agent for the
account of each Lender a fee (the "Pre-Funding Exposure Fee") on each
Lender's Commitment for the period from the Closing Date to the Funding Date
(or, if earlier, the Termination Date), such Pre-Funding Exposure Fee to be
computed at a rate per annum equal to 0.75% and to be payable on the Funding
Date (or, if earlier, the Termination Date).
(c) The Borrower agrees to pay to the Arrangers and the Administrative
Agent, for their respective accounts, such other fees in such amounts and
payable at such times, as agreed among them from time to time in writing.
SECTION 2.03 Termination of the Commitments. (a) The Commitment of
each Lender shall automatically terminate upon the first to occur of (i) the
making of the Advances and (ii) 5:00 P.M. (New York City time) on December
31, 1995.
ARTICLE III
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 3.01 Initial Funding. (a) All Borrowings (other than
Borrowings resulting solely from Conversions) shall be made simultaneously on
the Funding Date and shall consist of Advances of the same Type and Interest
Period made on such day by the Lenders ratably according to their respective
Commitments. The Borrower may request that more than one Borrowing, but no
more than six Borrowings, be made on the Funding Date, within the limits of
the Commitments. All such Borrowings shall be made on notice, given not
later than 10:00 A.M. (New York City time) three Business Days prior to the
date of the proposed Funding Date, by the Borrower to the Administrative
Agent, who shall give to each Lender prompt notice thereof on the same day
such notice is received. Each such notice of a Borrowing (a "Notice of
Borrowing") shall be in substantially the form of Exhibit 3.01A hereto,
specifying therein the requested (i) Funding Date, (ii) Type of Advances
comprising such Borrowing and (iii) Interest Period for each such Advance.
Each requested Borrowing shall be subject to the provisions of Sections 3.03,
4.03 and 5.02 hereof.
(b) Each Lender shall, before 12:00 noon (New York City time) on the
Funding Date, make available for the account of its Applicable Lending Office
to the Administrative Agent at the Administrative Agent's address referred to
in Section 10.02, in same day funds, such Lender's ratable portion of each
Borrowing to be made on such date. After the Administrative Agent's receipt
of such funds and upon fulfillment of the applicable conditions set forth in
Section 5.02, the Administrative Agent will make such funds available to the
Borrower at the Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a
Lender prior to the Funding Date that such Lender will not make available to
the Administrative Agent such Lender's ratable portion of all or any
Borrowings to be made on such date, the Administrative Agent may assume that
such Lender has made such portion available to the Administrative Agent on
such date in accordance with subsection (b) of this Section 3.01 and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that
any such Lender (a "non-performing Lender") shall not have so made such
ratable portion available to the Administrative Agent, the non-performing
Lender and the Borrower severally agree to repay (but without duplication) to
the Administrative Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is
made available to the Borrower until the date such amount is repaid to the
Administrative Agent, at (i) in the case of the Borrower, the interest rate
applicable at the time to Advances comprising such Borrowing and (ii) in the
case of such Lender, the Federal Funds Rate. Nothing herein shall in any way
limit, waive or otherwise reduce any claims that any party hereto may have
against any non-performing Lender.
(d) The failure of any Lender to make the Advance to be made by it as
part of any Borrowing shall not relieve any other Lender of its obligation,
if any, hereunder to make its Advance as a part of such Borrowing, but no
Lender shall be responsible for the failure of any other Lender to make the
Advance to be made by such other Lender.
SECTION 3.02 Conversion of Advances. So long as no Event of Default
shall have occurred and be continuing, the Borrower may from time to time
after the Funding Date elect to Convert any one or more Advances of any Type
to one or more Advances of the same or any other Type on the following terms
and subject to the following conditions:
(a) Each such Conversion shall be made as to all Advances comprising a
single Borrowing, on notice given not later than 10:00 A.M. (New York City
time) on the third Business Day prior to the date of the proposed Conversion
by the Borrower to the Administrative Agent, who shall give to each Lender
prompt notice thereof. Each such notice of Conversion (a "Notice of Conver-
sion") shall be in substantially the form of Exhibit 3.02A hereto, specifying
therein the requested (i) date of such Conversion, (ii) Type of, and Interest
Period applicable to, the Advances proposed to be Converted, (iii) except in
the case of a Conversion described in subsection (c) below, Type of Advances
to which such Advances are proposed to be Converted, (iv) except in the case
of a Conversion to Base Rate Advances, the initial Interest Period to be
applicable to the Advances resulting from such Conversion and (v) aggregate
amount of Advances proposed to be Converted. No Conversion may be requested
by the Borrower hereunder (and no Notice of Conversion shall be effective)
unless made in compliance with Section 3.03 hereof.
(b) The Borrower may not select an Interest Period of greater than one
month (in the case of Conversions to Eurodollar Rate Advances) during the
continuance of an Unmatured Default or an Event of Default.
(c) If no Notice of Conversion in respect of an Advance is received by
the Administrative Agent as provided in subsection (a) above with respect to
any Eurodollar Rate Advance, the Administrative Agent shall treat such
absence of notice as a deemed Notice of Conversion providing for each such
Advance to be Converted to a Base Rate Advance on the last day of the
Interest Period then in effect for such Advance.
SECTION 3.03 Other Terms Relating to the Making and Conversion of
Advances. (a) Notwithstanding anything in Section 3.01 or 3.02 above to the
contrary:
(i) at no time shall more than six different Borrowings be outstanding
hereunder;
(ii) each Borrowing hereunder which is to be comprised of Base Rate
Advances shall be in an aggregate principal amount of no less than
$1,000,000;
(iii) each Borrowing hereunder which is to be comprised of Eurodol-
lar Rate Advances shall be in the aggregate principal amount of $10,000,000
or an integral multiple of $1,000,000 in excess thereof.
(b) Each Notice of Borrowing and Notice of Conversion shall be
irrevocable and binding on the Borrower.
SECTION 3.04 Repayment of Advances. The Borrower shall repay the
entire principal amount of all Advances together with all accrued and unpaid
interest thereon on the Termination Date.
SECTION 3.05 Interest. (a) Interest Periods. The period between the
date of each Advance and the date of payment in full of such Advance shall be
divided into successive periods of months or days ("Interest Periods") for
purposes of computing interest applicable thereto. The initial Interest
Period for each Advance shall begin on the day such Advance is made, and each
subsequent Interest Period shall begin on the last day of the immediately
preceding Interest Period for such Advance. All Advances comprising part of
the same Borrowing shall have the same Interest Period, as selected by the
Borrower in accordance with this Section 3.05(a). The duration of each
Interest Period shall be (i) in the case of any Base Rate Advance, until the
earlier of repayment of such Advance in full or the Termination Date, and
(ii) in the case of any Eurodollar Rate Advance, 1, 2, 3, or 6 months, in
each case as the Borrower may, upon notice received by the Administrative
Agent in accordance with Sections 3.01(a) and 3.02, select; provided,
however, that the Borrower may not select any Interest Period which ends
after the Termination Date.
(b) Interest Rates. The Borrower shall pay interest on the unpaid
principal amount of each Advance owing to each Lender from the date of such
Advance until such principal amount shall be paid in full, at the Applicable
Rate for such Advance (except as otherwise provided in this subsection (b)),
payable as follows:
(i) Base Rate Advances. If such Advance is a Base Rate Advance,
interest thereon shall be payable quarterly in arrears on the last day of
November, February, May and August in each year, commencing February, 1996,
on the date such Base Rate Advance shall be paid in full and on the Termina-
tion Date; provided that during the continuation of any Event of Default,
each Base Rate Advance shall bear interest at a rate per annum equal to 2%
per annum above the Applicable Rate in effect from time to time for Base Rate
Advances.
(ii) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate
Advance, interest thereon shall be payable on the last day of each Interest
Period thereof and, if any such Interest Period has a duration of more than
three months, also on the day of the third month during such Interest Period
which corresponds to the first day of such Interest Period (or, if any such
month does not have a corresponding day, then on the last day of such month);
provided that during the continuation of an Event of Default, each Eurodollar
Rate Advance shall bear interest at a rate per annum equal to the greater of
(A) 2% per annum above the Applicable Rate for such Advance and (B) 2% per
annum above the Alternate Base Rate.
(c) Other Amounts. Any other amounts payable hereunder that are not
paid when due shall (to the fullest extent permitted by law) bear interest,
from the date when due until paid in full, at a rate per annum equal at all
times to 2% per annum above the Alternate Base Rate, payable on demand.
(d) Interest Rate Determinations. The Administrative Agent shall give
prompt notice to the Borrower and the Lenders of the Applicable Rate deter-
mined from time to time by the Administrative Agent for each Advance. Each
Reference Bank agrees to furnish to the Administrative Agent timely informa-
tion for the purpose of determining the Eurodollar Rate for any Interest
Period. If any one Reference Bank shall not furnish such timely information,
the Administrative Agent shall determine such interest rate on the basis of
the timely information furnished by the remaining Reference Banks.
ARTICLE IV
PAYMENTS
SECTION 4.01 Payments and Computations. (a) The Borrower shall make
each payment hereunder and under the other Loan Documents not later than 1:00
P.M. (New York City time) on the day when due in U.S. Dollars to the
Administrative Agent at its address referred to in Section 10.02 in same day
funds. The Administrative Agent will promptly thereafter cause to be
distributed like funds relating to the payment of principal, interest, fees
or other amounts payable to the Lenders, to the respective Lenders to whom
the same are payable, for the account of their respective Applicable Lending
Offices, in each case to be applied in accordance with the terms of this
Agreement. Upon its acceptance of a Lender Assignment and recording of the
information contained therein in the Register pursuant to Section 10.07, from
and after the effective date specified in such Lender Assignment, the
Administrative Agent shall make all payments hereunder and under the Notes in
respect of the interest assigned thereby to the Lender assignee thereunder,
and the parties to such Lender Assignment shall make all appropriate adjust-
ments in such payments for periods prior to such effective date directly
between themselves.
(b) The Borrower hereby authorizes the Administrative Agent, and each
Lender, if and to the extent payment owed to the Administrative Agent, or
such Lender, as the case may be, is not made when due hereunder (or, in the
case of a Lender, under the Note held by such Lender), to charge from time to
time against any or all of the Borrower's accounts with the Administrative
Agent, or such Lender, as the case may be, any amount so due.
(c) All computations of interest and other amounts pursuant to Section
4.03 shall be made by the Lender claiming such interest or amount, on the
basis of a year of 360 days. All other computations of interest and fees
hereunder shall be made by the Administrative Agent on the basis of a year of
360 days. In each such case, such computation shall be made for the actual
number of days (including the first day, but excluding the last day) occur-
ring in the period for which such interest, fees or other amounts are
payable. Each such determination by the Administrative Agent or a Lender
shall be conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under any other Loan Document
shall be stated to be due, or the last day of an Interest Period hereunder
shall be stated to occur, on a day other than a Business Day, such payment
shall be made and the last day of such Interest Period shall occur on the
next succeeding Business Day, and such extension of time shall in such case
be included in the computation of payment of interest and fees hereunder;
provided, however, that if such extension would cause payment of interest on,
or principal of, Eurodollar Rate Advances to be made, or the last day of an
Interest Period for a Eurodollar Rate Advance to occur, in the next following
calendar month, such payment shall be made on the next preceding Business Day
and such reduction of time shall in such case be included in the computation
of payment of interest hereunder.
(e) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Lenders
hereunder that the Borrower will not make such payment in full, the Adminis-
trative Agent may assume that the Borrower has made such payment in full to
the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the
Administrative Agent, each such Lender shall repay to the Administrative
Agent forthwith on demand such amount distributed to such Lender, together
with interest thereon, for each day from the date such amount is distributed
to such Lender until the date such Lender repays such amount to the Adminis-
trative Agent, at the Federal Funds Rate.
SECTION 4.02 Prepayments. (a) Generally. The Borrower shall have no
right to prepay any principal amount of any Advances except in accordance
with subsections (b) and (c) below.
(b) Optional. The Borrower may, upon at least three Business Days'
notice to the Administrative Agent stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given the Borrower
shall, prepay the outstanding principal amounts of Advances comprising part
of the same Borrowing, in whole or ratably in part, together with accrued
interest to the date of such prepayment on the principal amount prepaid and
all other amounts, if any, payable in connection therewith pursuant to
Section 4.03(d); provided, however, that each partial prepayment shall be in
an aggregate principal amount not less than $10,000,000.
(c) Mandatory. If, without the prior written consent of the Majority
Lenders, either of the Unit Contract or the Tax Allocation Agreement is
terminated or invalidated or if the terms thereof are amended or modified
(except, in the case of the Tax Allocation Agreement, for such amendments and
modifications as may be required by applicable law) and the Majority Lenders
in their reasonable discretion determine that such amendment or modification
is adverse to the interests of the Lenders, the entire aggregate principal
amount of all Advances then outstanding, together with all unpaid interest
and other accrued and unpaid amounts in respect thereof, shall become
immediately due and payable, and the Borrower shall immediately prepay all
such Advances, interest, fees and other amounts.
SECTION 4.03 Yield Protection.
(a) Change in Circumstances. Notwithstanding any other provision
herein, if after the date hereof, the adoption of or any change in applicable
law or regulation or in the interpretation or administration thereof by any
governmental authority charged with the interpretation or administration
thereof (whether or not having the force of law) shall (i) change the basis
of taxation of payments to any Lender of the principal of or interest on any
Eurodollar Rate Advance made by such Lender or any fees or other amounts
payable hereunder (other than changes in respect of taxes imposed on the
overall net income of such Lender or its Applicable Lending Office by the
jurisdiction in which such Lender has its principal office or in which such
Applicable Lending Office is located or by any political subdivision or
taxing authority therein), or (ii) shall impose, modify or deem applicable
any reserve, special deposit or similar requirement against commitments or
assets of, deposits with or for the account of, or credit extended by, such
Lender, or (iii) shall impose on such Lender or the London interbank market
any other condition affecting this Agreement or Eurodollar Rate Advances made
by such Lender, and the result of any of the foregoing shall be to increase
the cost to such Lender of agreeing to make, making or maintaining any
Advance or to reduce the amount of any sum received or receivable by such
Lender hereunder or under the Notes (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender upon demand such
additional amount or amounts as will compensate such Lender for such addi-
tional costs incurred or reduction suffered.
(b) Capital. If any Lender shall have determined that any change after
the date hereof in any law, rule, regulation or guideline adopted pursuant to
or arising out of the July 1988 report of the Basle Committee on Banking
Regulations and Supervisory Practices entitled "International Convergence of
Capital Measurement and Capital Standards", or the adoption after the date
hereof of any other law, rule, regulation or guideline regarding capital
adequacy, or any change in any of the foregoing or in the interpretation or
administration of any of the foregoing by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any Applicable Lending Office of
such Lender) or any Lender's holding company with any request or directive
regarding capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would have the
effect (i) of reducing the rate of return on such Lender's capital or on the
capital of such Lender's holding company, if any, as a consequence of this
Agreement, the Commitment of such Lender hereunder or the Advances made by
such Lender pursuant hereto to a level below that which such Lender or such
Lender's holding company could have achieved, but for such applicability,
adoption, change or compliance (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), or (ii) of increasing or otherwise determining the amount
of capital required or expected to be maintained by such Lender or such
Lender's holding company based upon the existence of this Agreement, the
Commitment of such Lender hereunder, the Advances made by such Lender
pursuant hereto and other similar such commitments, agreements or assets,
then from time to time the Borrower shall pay to such Lender upon demand such
additional amount or amounts as will compensate such Lender or such Lender's
holding company for any such reduction or allocable capital cost suffered.
(c) Eurodollar Reserves. The Borrower shall pay to each Lender upon
demand, so long as such Lender shall be required under regulations of the
Board of Governors of the Federal Reserve System to maintain reserves with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities, additional interest on the unpaid principal amount of each
Eurodollar Rate Advance of such Lender, from the date of such Advance until
such principal amount is paid in full, at an interest rate per annum equal at
all times to the remainder obtained by subtracting (i) the Eurodollar Rate
for the Interest Period for such Advance from (ii) the rate obtained by
dividing such Eurodollar Rate by a percentage equal to 100% minus the
Eurodollar Reserve Percentage of such Lender for such Interest Period. Such
additional interest shall be determined by such Lender and notified to the
Borrower and the Administrative Agent.
(d) Breakage Indemnity. The Borrower shall indemnify each Lender
against any loss, cost or reasonable expense which such Lender may sustain or
incur as a consequence of (i) any failure by the Borrower to borrow or
Convert any Advance hereunder after irrevocable Notice of Borrowing or Notice
of Conversion has been given pursuant to Section 3.01 or 3.02, (ii) any
payment, prepayment or Conversion of a Eurodollar Rate Advance required or
permitted by any other provision of this Agreement or otherwise made or
deemed made on a date other than the last day of the Interest Period applica-
ble thereto, (iii) any default in payment or prepayment of the principal
amount of any Advance or any part thereof or interest accrued thereon, as and
when due and payable (at the due date thereof, by irrevocable notice of
prepayment or otherwise) or (iv) the occurrence of any Event of Default,
including, in each such case, any loss or reasonable expense sustained or
incurred or to be sustained or incurred in liquidating or employing deposits
from third parties acquired to effect or maintain such Advance or any part
thereof as a Eurodollar Rate Advance. Such loss, cost or reasonable expense
shall include an amount equal to the excess, if any, as reasonably determined
by such Lender, of (A) its cost of obtaining the funds for the Advance being
paid, prepaid, Converted or not borrowed (based on the Eurodollar Rate) for
the period from the date of such payment, prepayment, Conversion or failure
to borrow to the last day of the Interest Period for such Advance (or, in the
case of a failure to borrow, the Interest Period for such Advance which would
have commenced on the date of such failure) over (B) the amount of interest
(as reasonably determined by such Lender) that would be realized by such
Lender in reemploying the funds so paid, prepaid, Converted or not borrowed
for such period or Interest Period, as the case may be. For purposes of this
subsection (d), it shall be presumed that each Lender shall have funded each
such Advance with a fixed-rate instrument bearing the rates and maturities
designated in the determination of the Applicable Rate for such Advance.
(e) Notices. A certificate of each Lender setting forth such Lender's
claim for compensation hereunder and the amount necessary to compensate such
Lender or its holding company pursuant to subsections (a) through (d) of this
Section 4.03 shall be submitted in writing to the Borrower and the Adminis-
trative Agent and shall be conclusive and binding for all purposes, absent
manifest error. The Borrower shall pay each Lender directly the amount shown
as due on any such certificate within 10 days after its receipt of the same.
The failure of any Lender to provide such notice or to make demand for
payment under this Section 4.03 shall not constitute a waiver of such
Lender's rights hereunder; provided that such Lender shall not be entitled to
demand payment pursuant to subsections (a) through (d) of this Section 4.03
in respect of any loss, cost, expense, reduction or reserve if such demand is
made more than three years following such Lender's incurrence or sufferance
thereof or more than one year following such Lender's actual knowledge of the
event giving rise to such Lender's rights pursuant to such subsections. Each
Lender shall use reasonable efforts to ensure the accuracy and validity of
any claim made by it hereunder, but the foregoing shall not obligate any
Lender to assert any possible invalidity or inapplicability of the law, rule,
regulation, guideline or other change or condition which shall have occurred
or been imposed.
(f) Change in Legality. Notwithstanding any other provision herein, if
the adoption of or any change in any law or regulation or in the interpre-
tation or administration thereof by any governmental authority charged with
the administration or interpretation thereof shall make it unlawful for any
Lender to make or maintain any Eurodollar Rate Advance or to give effect to
its obligations as contemplated hereby with respect to any Eurodollar Rate
Advance, then, by written notice to the Borrower and the Administrative
Agent, such Lender may:
(i) declare that Eurodollar Rate Advances will not thereafter be made
by such Lender hereunder, whereupon the right of the Borrower to select
Eurodollar Rate Advances for any Borrowing or Conversion shall be forthwith
suspended until such Lender shall withdraw such notice as provided hereinbe-
low or shall cease to be a Lender hereunder pursuant to Section 10.07(g)
hereof; and
(ii) require that all outstanding Eurodollar Rate Advances made by it be
Converted to Base Rate Advances, in which event all such Eurodollar Rate
Advances by all Lenders shall be automatically Converted to Base Rate
Advances as of the effective date of such notice as provided herein below.
Upon receipt of any such notice, the Administrative Agent shall promptly
notify the other Lenders. Promptly upon becoming aware that the circumstanc-
es that caused such Lender to deliver such notice no longer exist, such
Lender shall deliver notice thereof to the Borrower and the Administrative
Agent withdrawing such prior notice (but the failure to do so shall impose no
liability upon such Lender). Promptly upon receipt of such withdrawing
notice from such Lender (or upon such Lender assigning all of its Commit-
ments, Advances, participation and other rights and obligations hereunder in
accordance with Section 10.07(g)), the Administrative Agent shall deliver
notice thereof to the Borrower and the Lenders and such suspension shall
terminate. Prior to any Lender giving notice to the Borrower under this
subsection (f), such Lender shall use reasonable efforts to change the
jurisdiction of its Applicable Lending Office, if such change would avoid
such unlawfulness and would not, in the sole determination of such Lender, be
otherwise disadvantageous to such Lender. Any notice to the Borrower by any
Lender shall be effective as to each Eurodollar Rate Advance on the last day
of the Interest Period currently applicable to such Eurodollar Rate Advance;
provided that if such notice shall state that the maintenance of such Advance
until such last day would be unlawful, such notice shall be effective on the
date of receipt by the Borrower and the Administrative Agent.
(g) Market Rate Disruptions. If (i) less than two Reference Banks
furnish timely information to the Administrative Agent for determining the
Eurodollar Rate for Eurodollar Rate Advances in connection with any proposed
Borrowing or Conversion or (ii) if the Majority Lenders shall notify the
Administrative Agent that the Eurodollar Rate will not adequately reflect the
cost to such Majority Lenders of making, funding or maintaining their
respective Eurodollar Rate Advances, the right of the Borrower to select or
receive such Eurodollar Rate Advances for any Borrowing or Conversion shall
be forthwith suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist, and until such notification from the Administrative Agent each
requested Borrowing or Conversion into Eurodollar Rate Advances hereunder
shall be deemed to be a request for Base Rate Advances.
SECTION 4.04 Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise, but excluding any proceeds received by assignments or
sales of participations in accordance with Section 10.07 hereof to a Person
that is not an Affiliate of the Borrower) on account of the Advances owing to
it (other than pursuant to Section 4.03 hereof) in excess of its ratable
share of payments on account of the Advances obtained by all the Lenders,
such Lender shall forthwith purchase from the other Lenders such
participation in the Advances owing to them as shall be necessary to cause
such purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each
Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an
amount equal to such Lender's ratable share (according to the proportion of
(i) the amount of such Lender's required repayment to (ii) the total amount
so recovered from the purchasing Lender) of any interest or other amount paid
or payable by the purchasing Lender in respect of the total amount so
recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 4.04 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were
the direct creditor of the Borrower in the amount of such participation.
Notwithstanding the foregoing, if any Lender shall obtain any such excess
payment involuntarily, such Lender may, in lieu of purchasing participation
from the other Lenders in accordance with this Section 4.04, on the date of
receipt of such excess payment, return such excess payment to the
Administrative Agent for distribution in accordance with Section 4.01(a).
SECTION 4.05 Taxes. (a) All payments by the Borrower hereunder and
under the other Loan Documents shall be made in accordance with Section 4.01,
free and clear of and without deduction for all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Lender and the Adminis-
trative Agent, taxes imposed on its overall net income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Lender or the
Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Lender, taxes imposed on its
overall net income, and franchise taxes imposed on it, by the jurisdiction of
such Lender's Applicable Lending Office or any political subdivision thereof
(all such non-excluded taxes, levies, imposts, deductions, charges, withhold-
ings and liabilities being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder or under any other Loan Document to any Lender or
the Administrative Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 4.05) such Lender or
the Administrative Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or under any other
Loan Document or from the execution, delivery or registration of, or other-
wise with respect to, this Agreement or any other Loan Document (hereinafter
referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender and the Administrative
Agent for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes and any Other Taxes imposed by any jurisdiction on
amounts payable under this Section 4.05) paid by such Lender or the Adminis-
trative Agent (as the case may be) and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or
not such Taxes or Other Taxes were correctly or legally asserted. Any
Lender's claim for such indemnification shall be set forth in a certificate
of such Lender setting forth in reasonable detail the amount necessary to
indemnify such Lender pursuant to this subsection (c) and shall be submitted
to the Borrower and the Administrative Agent and shall be conclusive and
binding for all purposes, absent manifest error. The Borrower shall pay each
Lender directly the amount shown as due on any such certificate within 30
days after its receipt of the same. If any Taxes or Other Taxes for which a
Lender or the Administrative Agent has received payments from the Borrower
hereunder shall be finally determined to have been incorrectly or illegally
asserted and are refunded to such Lender or the Administrative Agent, such
Lender or the Administrative Agent, as the case may be, shall promptly
forward to the Borrower any such refunded amount. The Borrower's, the
Administrative Agent's and each Lender's obligations under this Section 4.05
shall survive the payment in full of the Advances.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Administrative Agent, at its address referred to in
Section 10.02, the original or a certified copy of a receipt evidencing
payment thereof.
(e) Each Lender shall, on or prior to the date it becomes a Lender
hereunder, deliver to the Borrower and the Administrative Agent such certifi-
cates, documents or other evidence, as required by the Internal Revenue Code
of 1986, as amended from time to time (the "Code"), or treasury regulations
issued pursuant thereto, including Internal Revenue Service Form 4224 and any
other certificate or statement of exemption required by Treasury Regulation
Section 1.1441-1(a) or Section 1.1441-6(c) or any subsequent version thereof,
properly completed and duly executed by such Lender establishing that it is
(i) not subject to withholding under the Code or (ii) totally exempt from
United States of America tax under a provision of an applicable tax treaty.
Each Lender shall promptly notify the Borrower and the Administrative Agent
of any change in its Applicable Lending Office and shall deliver to the
Borrower and the Administrative Agent together with such notice such certifi-
cates, documents or other evidence referred to in the immediately preceding
sentence. Each Lender will use good faith efforts to apprise the Borrower as
promptly as practicable of any impending change in its tax status that would
give rise to an obligation by the Borrower to pay any additional amounts
pursuant to this Section 4.05. Unless the Borrower and the Administrative
Agent have received forms or other documents satisfactory to them indicating
that payments hereunder or under the Notes are not subject to United States
of America withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, the Borrower or the Administrative Agent shall
withhold taxes from such payments at the applicable statutory rate in the
case of payments to or for any Lender organized under the laws of a jurisdic-
tion outside the United States of America. Each Lender represents and
warrants that each such form supplied by it to the Administrative Agent and
the Borrower pursuant to this Section 4.05, and not superseded by another
form supplied by it, is or will be, as the case may be, complete and accu-
rate.
(f) Any Lender claiming any additional amounts payable pursuant to this
Section 4.05 shall use reasonable efforts (consistent with legal and
regulatory restrictions) to file any certificate or document requested by the
Borrower or to change the jurisdiction of its Applicable Lending Office if
the making of such a filing or change would avoid the need for or reduce the
amount of any such additional amounts which may thereafter accrue and would
not, in the sole determination of such Lender, be otherwise disadvantageous
to such Lender.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01 Conditions Precedent to the Closing Date. The commit-
ments of the Lenders to make Advances under and in accordance with this
Agreement shall not become effective until the following conditions precedent
shall have been fulfilled:
(a) The Administrative Agent shall have received the following, each
dated the date of delivery thereof (unless otherwise specified below), in
form and substance satisfactory to each Lender and (except for the Notes) in
sufficient copies for each Lender:
(i) Counterparts of this Agreement, duly executed by each party hereto.
(ii) The Notes to the order of the respective Lenders, duly executed by
the Borrower.
(iii) True and complete photocopies of the Significant Contracts in
effect on the Closing Date and all amendments, modifications and supplements
thereto, in each case duly executed by the respective parties thereto.
(iv) A certificate of the Secretary of the Borrower certifying (A)
the names and true signatures of the officers of the Borrower authorized to
sign this Agreement and the Notes and the other documents to be delivered
hereunder and thereunder and (B) that attached thereto are true and correct
copies of the Articles of Incorporation of the Borrower, and all amendments
thereto, and the By-laws of the Borrower, in each case as in effect on such
date and (C) that attached thereto are true and correct copies of the
resolutions of the Board of Directors of the Borrower approving this Agree-
ment and the Notes and the other documents to be delivered by the Borrower
hereunder and thereunder, and of all documents evidencing other necessary
corporate action, if any, with respect to the execution, delivery and
performance by the Borrower of this Agreement and the Notes.
(v) A certificate of a duly authorized officer of the Borrower
certifying that, except as set forth in the Disclosure Documents, there is no
pending or known threatened action or proceeding (including, without limita-
tion, any action or proceeding relating to any environmental protection laws
or regulations) affecting the Borrower or its properties before any court,
governmental agency or arbitrator, which may: (A) purport to affect the
legality, validity or enforceability of the Existing Notes, any Loan Document
or any Significant Contract or (B) materially adversely affect the financial
condition, properties, prospects or operations of the Borrower as a whole.
(vi) A certificate of a duly authorized officer of the Borrower stating
that (i) the representations and warranties contained in Section 6.01 are
correct, in all material respects, on and as of the Closing Date before and
after giving effect to the initial Advances and the application of the
proceeds thereof, as though made on and as of such date and (ii) no event has
occurred and is continuing which constitutes an Event of Default or Unmatured
Default, or would result from such initial Advances or the application of the
proceeds thereof.
(vii) A certificate signed by the Treasurer or Assistant Treasurer
of the Borrower, certifying as to the absence of any material adverse change
in the financial condition, operations, properties or prospects of the
Borrower since December 31, 1994, except as disclosed in the Disclosure
Documents.
(viii) Copies, certified by the Borrower, of all Governmental Approv-
als listed in Schedule II hereof.
(ix) Favorable opinions of:
(A) Rath, Young and Pignatelli, P.A., special New Hampshire counsel to
the Borrower, in substantially the form of Exhibit 5.01A hereto;
(B) Jeffrey C. Miller, Esq., Assistant General Counsel of NUSCO, in
substantially the form of Exhibit 5.01B hereto; and
(C) C.E. Shively, Esq., Senior Counsel of PSNH, in substantially the
form of Exhibit 5.01C hereto;
(x) A certificate of PSNH, signed by a duly authorized officer of PSNH,
certifying as to the absence of any material adverse change in the financial
condition, operations, properties or prospects of PSNH since December 31,
1994, except as disclosed in the disclosure documents referred to in such
certificate.
(xi) Such other approvals, opinions and documents as any Lender, through
the Administrative Agent, may reasonably request as to the legality,
validity, binding effect or enforceability of this Agreement and the Notes.
(b) There shall exist no injunction or temporary restraining order
which, in the judgment of the Administrative Agent or the Arrangers would
prohibit the making of the Advances or the consummation of the redemption of
the Existing Notes; except as set forth in the Disclosure Documents, there
shall be no pending or known threatened action or proceeding (including,
without limitation, any action or proceeding relating to any environmental
protection laws or regulations) affecting the Borrower or its properties
before any court, governmental agency or arbitrator, which may: (i) purport
to affect the legality, validity or enforceability of the Existing Notes, any
Loan Document or any Significant Contract or (ii) materially adversely affect
the financial condition, properties, prospects or operations of the Borrower
as a whole.
(c) All other legal and regulatory matters relating to this Agreement,
the Notes, the Advances and the redemption of the Existing Notes shall be
satisfactory to the Arrangers and the Lenders.
(d) No Default or Event of Default shall have occurred and be continu-
ing.
(e) The Borrower shall have paid all fees under or referenced in
Section 2.02 hereof, to the extent then due and payable.
(f) The Closing Date shall have occurred on or prior to December 31,
1995.
SECTION 5.02 Conditions Precedent to Funding Date. The obligation of
each Lender to make its Advances on the Funding Date is subject to the
fulfillment of the conditions precedent that:
(a) The Closing Date shall have occurred.
(b) The Borrower shall have delivered to the Administrative Agent a
Notice of Borrowing in respect of the Advances, specifying the Funding Date,
at least three Business Days prior to the Funding Date.
(c) The Funding Date shall occur (i) on or not more than 35 days
following the Closing Date and (ii) on or before December 31, 1995.
(d) The Existing Notes shall have been called for redemption in whole,
and upon application of the proceeds of the Advances in accordance with
Section 6.01(l) (together with such other funds of the Borrower as may be
required) the redemption price of all of the Existing Notes will be paid, and
the Existing Notes shall be redeemed in whole, on the Funding Date.
(e) All Pre-Funding Exposure Fees shall have been paid in accordance
with Section 2.02.
The acceptance by or on behalf of the Borrower of the proceeds of the
Advances shall constitute a representation and warranty by the Borrower that
the foregoing conditions have been satisfied.
SECTION 5.03 Reliance on Certificates. The Lenders and the Adminis-
trative Agent shall be entitled to rely conclusively upon the certificates
delivered from time to time by officers of the Borrower and the other parties
to the Significant Contracts as to the names, incumbency, authority and
signatures of the respective persons named therein until such time as the
Administrative Agent may receive a replacement certificate, in form accept-
able to the Administrative Agent, from an officer of such Person identified
to the Administrative Agent as having authority to deliver such certificate,
setting forth the names and true signatures of the officers and other
representatives of such Person thereafter authorized to act on behalf of such
Person.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01 Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized and validly existing
under the laws of the State of New Hampshire. The Borrower is duly qualified
to do business in, and is in good standing in, all other jurisdictions where
the nature of its business or the nature of property owned or used by it
makes such qualifications necessary.
(b) The execution, delivery and performance by the Borrower of each
Loan Document are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, and do not and will not
contravene (i) the Borrower's charter or by-laws or (ii) any law or legal or
contractual restriction binding on or affecting the Borrower; and such
execution, delivery and performance do not or will not result in or require
the creation of any Lien upon or with respect to any of its properties. Each
Significant Contract was duly authorized, executed and delivered by the
Borrower and is in full force and effect.
(c) No Governmental Approval is required for the execution, delivery or
performance by the Borrower of the Loan Documents, except for those
Governmental Approvals set forth on Schedule II, each of which has been duly
obtained or made and is in full force and effect and in respect of which all
applicable periods of time for review, rehearing or appeal have expired. No
Governmental Approval is required (i) for the performance by the Borrower of
the Significant Contracts or (ii) in connection with the nature of the
Borrower's business, except in each case for such as have been duly obtained
or made and are in full force and effect and in respect of which all applica-
ble periods of time for review, rehearing or appeal have expired, or, in the
case of Governmental Approvals referred to in clause (ii), such as can
reasonably be expected to be obtained in the ordinary course of the
Borrower's business without undue burden or expense.
(d) This Agreement, the Notes and each Significant Contract are legal,
valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms; subject to the qualifica-
tion, however, that the enforcement of the rights and remedies herein and
therein is subject to bankruptcy and other similar laws of general applica-
tion affecting rights and remedies of creditors and that the remedy of
specific performance or of injunctive relief is subject to the discretion of
the court before which any proceedings therefor may be brought.
(e) The audited balance sheet of the Borrower as of December 31, 1994,
and the related statements of the Borrower setting forth the results of
operations and cash flows of the Borrower for the fiscal year then ended, and
the unaudited balance sheet of the Borrower as of June 30, 1995, and the
related statements of the Borrower setting forth the results of operations
and cash flows of the Borrower for the fiscal quarter then ended, copies of
which have been furnished to each Bank, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Borrower at and for the periods ended on such dates, and have been prepared
in accordance with generally accepted accounting principles consistently
applied. Except as reflected in such financial statements and in the
Disclosure Documents, the Borrower has no material non-contingent liabili-
ties, and all contingent liabilities have been appropriately reserved. The
financial projections contained in the Information Memorandum were prepared
in good faith and on the basis of reasonable assumptions, and, as of the date
of this Agreement, nothing has come to the attention of the Borrower's senior
management to indicate that such assumptions are no longer reasonable. Since
December 31, 1994, there has been no material adverse change in the
Borrower's financial condition, operations, properties or prospects, except
as disclosed in the Disclosure Documents.
(f) Except as set forth in the Disclosure Documents, there is no
pending or known threatened action or proceeding (including, without limita-
tion, any action or proceeding relating to any environmental protection laws
or regulations) affecting the Borrower or its properties before any court,
governmental agency or arbitrator, which may: (i) purport to affect the
legality, validity or enforceability of the Existing Notes, any Loan Document
or any Significant Contract or (ii) materially adversely affect the financial
condition, properties, prospects or operations of the Borrower as a whole.
(g) The Borrower has title to its assets sufficient for the operation
of its business, subject only to Permitted Liens. All insurance required by
Section 7.01(c) hereof is in full force and effect.
(h) No ERISA Plan Termination Event has occurred nor is reasonably
expected to occur with respect to any ERISA Plan which would materially
adversely affect the financial condition, properties, prospects or operations
of the Borrower, except as disclosed to and consented by the Majority Lenders
in writing. Since the date of the most recent Schedule B (Actuarial Informa-
tion) to the Annual Report of the Borrower (Form 5500 Series), if any, there
has been no material adverse change in the funding status of the ERISA Plans
referred to therein and no "prohibited transaction" (other than such as may
be exempted under Section 408 of ERISA and applicable regulations thereunder)
has occurred with respect thereto, except as described in the Disclosure
Documents. Neither the Borrower nor any of its ERISA Affiliates has incurred
nor reasonably expects to incur any material withdrawal liability under ERISA
to any ERISA Multiemployer Plan, except as disclosed to and consented by the
Majority Lenders in writing.
(i) The Borrower has filed all tax returns (federal, state and local)
required to be filed and paid taxes shown thereon to be due, including
interest and penalties, or, to the extent the Borrower is contesting in good
faith an assertion of liability based on such returns, has provided adequate
reserves in accordance with generally accepted accounting principles for
payment thereof.
(j) No exhibit, schedule, report or other written information provided
by the Borrower or its agents to the Lenders in connection with the negotia-
tion, execution and closing of this Agreement (including, without limitation,
the Information Memorandum) knowingly contained when made any material
misstatement of fact or knowingly omitted to state any material fact neces-
sary to make the statements contained therein not misleading in light of the
circumstances under which they were made.
(k) No event has occurred and is continuing which constitutes a
material default under the Rate Agreement or any Significant Contract.
(l) All proceeds of the Advances will be irrevocably deposited with the
trustee for the Existing Notes for the payment of the redemption price of the
Existing Notes, and upon such application (together with such other funds of
the Borrower as may be required) the redemption price of all of the Existing
Notes will be deemed to have been paid under the terms of the indenture
governing the Existing Notes, and the Existing Notes will be deemed "paid"
thereunder, on the Funding Date.
(m) No proceeds of any Advance will be used (i) to acquire any equity
security of a class which is registered pursuant to Section 12 of the
Securities Exchange Act of 1934 or (ii) to buy or carry any margin stock
(within the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System) or to extend credit to others for such purpose. The
Borrower (i) is not an "investment company" within the meaning ascribed to
that term in the Investment Company Act of 1940 and (ii) is not engaged in
the business of extending credit for the purpose of buying or carrying margin
stock.
(n) The Borrower is in compliance in all material respects with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, including without limitation any such laws, rules,
regulations and orders relating to utilities, zoning, environmental protec-
tion, use and disposal of Hazardous Substances, land use, construction and
building restrictions, and employee safety and health matters relating to
business operations and without limiting the foregoing all "financial
protection" and other requirements of the Price-Anderson Act, as amended from
time to time and all other laws relating to nuclear plant owners and opera-
tors, except to the extent (i) that the Borrower is contesting the same in
good faith by appropriate proceedings or (ii) that any such non-compliance,
and the enforcement or correction thereof, would not materially adversely
affect the financial condition, properties, prospects or operations of the
Borrower as a whole or (iii) disclosed in the Disclosure Documents.
(o) No Default or Event of Default has occurred and is continuing.
(p) No "Default" or "Event of Default" (as those terms are defined in
the First Mortgage Indenture) has occurred and is continuing. As of the date
of this Agreement, the aggregate principal amount of all First Mortgage Bonds
outstanding is $335,000,000.
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.01 Affirmative Covenants. So long as any Note shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower will,
unless the Majority Lenders shall otherwise consent in writing:
(a) Use of Proceeds. Apply all proceeds of each Advance solely as
specified in Section 6.01(l) hereof.
(b) Payment of Taxes, Etc. Pay and discharge before the same shall
become delinquent, all taxes, assessments and governmental charges, royalties
or levies imposed upon it or upon its property except to the extent the
Borrower is contesting the same in good faith by appropriate proceedings and
has set aside adequate reserves for the payment thereof.
(c) Maintenance of Insurance. Maintain, or cause to be maintained,
insurance (including appropriate plans of self-insurance) covering the
Borrower and its properties in effect at all times in such amounts and
covering such risks as may be required by law and in addition as is usually
carried by companies engaged in similar businesses and owning similar
properties. Such insurance shall in any event include all "financial
protection" required by the Price-Anderson Act, as amended from time to time.
(d) Preservation of Existence, Etc. Preserve and maintain its
corporate existence, material rights (statutory and otherwise) and franchis-
es.
(e) Compliance with Laws, Etc. Comply in all material respects with
the requirements of all applicable laws, rules, regulations and orders of any
governmental authority, including without limitation any such laws, rules,
regulations and orders relating to utilities, zoning, environmental protec-
tion, use and disposal of Hazardous Substances, land use, construction and
building restrictions, and employee safety and health matters relating to
business operations and without limiting the foregoing all "financial
protection" and other requirements of the Price-Anderson Act, as amended from
time to time and all other laws relating to nuclear plant owners and opera-
tors, except to the extent (i) that the Borrower is contesting the same in
good faith by appropriate proceedings or (ii) that any such non-compliance,
and the enforcement or correction thereof, would not materially adversely
affect the financial condition, properties, prospects or operations of the
Borrower as a whole.
(f) Inspection Rights. At any time and from time to time upon
reasonable notice and subject to reasonable coordination measures agreed upon
by the Administrative Agent and the Borrower, permit the Lenders and their
respective agents and representatives to examine and make copies of and
abstracts from the records and books of account of, and the properties of,
the Borrower and to discuss the affairs, finances and accounts of the
Borrower with the Borrower and with its officers, directors and accountants.
(g) Keeping of Books. Keep proper records and books of account, in
which full and correct entries shall be made of all financial transactions of
the Borrower and the assets and business of the Borrower, in accordance with
good accounting practices consistently applied.
(h) Performance of Related Agreements. Perform and observe all
material terms and provisions of each Significant Contract and take all
reasonable steps to enforce each Significant Contract substantially in
accordance with its terms and to preserve the rights of the Borrower thereun-
der; provided, that the foregoing provisions of this Section 7.01(h) shall
not preclude the Borrower from any waiver, amendment, modification, consent
or termination permitted under Section 7.02(h) hereof.
(i) Collection of Accounts Receivable. Promptly bill, and diligently
pursue collection of, in accordance with customary utility practices, all
accounts receivable owing to the Borrower and all other amounts that may from
time to time be owing to the Borrower for services rendered or goods sold.
(j) Maintenance of Financial Covenants.
(i) Common Equity Ratio. Maintain at all times a Common Equity Ratio
of not less than 0.25:1.00.
(ii) Interest Coverage Ratio. Maintain at all times during each period
indicated in the table below, an Interest Coverage Ratio not less than the
ratio specified for such period in such table:
Period Ratio
Through December 31, 1997 1.35:1.00
Thereafter 1.50:1.00
(k) Maintenance of Properties, Etc. Maintain, develop, and operate in
substantial conformity with all laws, material contractual obligations and
prudent practices prevailing in the industry, all of its properties which are
used or useful in the conduct of its business in good working order and
condition, ordinary wear and tear excepted, except to the extent such non-
conformity would not materially adversely affect the financial condition,
properties, prospects or operations of the Borrower as a whole.
(l) Governmental Approvals. Duly obtain on or prior to such date as
the same may become legally required, and thereafter maintain in effect at
all times, all Governmental Approvals required (i) for the execution,
delivery and performance by the Borrower of the Loan Documents, (ii) for the
performance by the Borrower of the Significant Contracts and (iii) in
connection with the nature of the Borrower's business, except, in the case of
clause (iii) only, those the absence of which would not materially adversely
affect the financial condition, properties, prospects or operations of the
Borrower as a whole.
SECTION 7.02 Negative Covenants. So long as any Note shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower will
not, without the written consent of the Majority Lenders:
(a) Liens, Etc. Create, incur, assume or suffer to exist any lien,
security interest, or other charge or encumbrance (including the lien or
retained security title of a conditional vendor) of any kind, or any other
type of preferential arrangement the intent or effect of which is to assure a
creditor against loss or to prefer one creditor over another creditor (other
than any preferential arrangement under the Joint Ownership Agreement with
respect to any party thereto) upon or with respect to any of its properties
of any character (any of the foregoing being referred to herein as a "Lien")
whether now owned or hereafter acquired, or sign or file under the Uniform
Commercial Code of any jurisdiction a financing statement which names the
Borrower as debtor, sign any security agreement authorizing any secured party
thereunder to file such financing statement, or assign accounts, excluding,
however, from the operation of the foregoing restrictions the following,
whether now existing or hereafter created or perfected (Permitted Liens):
(i) Liens for taxes, assessments or governmental charges or levies
thereon if the same shall not at the time be delinquent or thereafter can be
paid without penalty, or are being contested in good faith and by appropriate
proceedings and for which adequate reserves in accordance with generally
accepted accounting principles shall have been set aside on the Borrower's
books.
(ii) Liens imposed by law (other than ERISA), such as carriers;
warehousemen's and mechanics' liens and other similar liens arising in the
ordinary course of business which secure payment of obligations not more than
60 days past due.
(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation (other than ERISA).
(iv) Utility easements, building restrictions and such other encum-
brances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not
in any material way affect the marketability of the same or interfere with
the use thereof in the business of the Borrower.
(v) Liens in existence on the Closing Date none of which materially
adversely affects or will affect the ongoing conduct of the Borrower's
business and none of which (except as described in clause (vi) below) extends
to the Unit Contract.
(vi) The Lien of the First Mortgage Indenture to the extent of the First
Mortgage Bonds outstanding on the Funding Date, together with any other First
Mortgage Bonds permitted to be issued hereunder.
(vii) Attachment, judgment and other similar Liens arising in
connection with court proceedings, provided, the execution or other enforce-
ment thereof is effectively stayed, the claims secured thereby are being
contested at the time in good faith and no Event of Default shall have
occurred and be continuing;
(viii) any rights of the Nuclear Regulatory Commission with respect
to Seabrook; and
(ix) Liens against the interest of some other Person (other than the
Borrower) with respect to obligations which have not been assumed or guaran-
teed by the Borrower and on which the Borrower does not customarily pay
interest charges, existing on Seabrook or other property which the Borrower
jointly holds with such other Person (or such Person and others) or upon
property in which the Borrower is a tenant in common with such other Person
(or such Person and others).
(b) Debt, Create, incur, assume or suffer to exist any Debt, except
for:
(i) First Mortgage Bonds presently outstanding;
(ii) Until the redemption thereof on the Funding Date, Debt in respect
of the Existing Notes;
(iii) Debt arising under the Loan Documents;
(iv) Debt in respect of interest rate swaps, caps and similar arrange-
ments entered into for purposes of hedging interest rate risk arising under
the Loan Documents;
(v) Debt consisting of maintenance and similar obligations arising
under the Joint Ownership Agreement; and
(vi) other unsecured Debt not to exceed: (A) during the period from the
Closing Date through December 31, 1996, $50,000,000 at any time outstanding;
and (B) thereafter, $75,000,000 at any time outstanding less, for purposes of
this clause (B), the principal amount of any Authorized Replacement First
Mortgage Bonds;
and then only to the extent that the creation, incurrence, assumption or
existence of such Debt would not result in a violation of Section 7.01(j).
(c) First Mortgage Bonds. Create or issue, or incur or suffer to exist
any Debt in respect of, First Mortgage Bonds, except for:
(i) First Mortgage Bonds outstanding on the date hereof; and
(ii) On or after June 1, 1999, up to $50,000,000 of First Mortgage Bonds
issued on or after such date to finance or re-finance the repayment,
redemption or other retirement of a like principal amount of First Mortgage
Bonds outstanding on the Funding Date (such newly-issued First Mortgage Bonds
being herein referred to as "Authorized Replacement First Mortgage Bonds");
provided, however, that at no time shall the aggregate principal amount of
Authorized Replacement First Mortgage Bonds then outstanding, together with
the aggregate principal amount of Debt outstanding pursuant to Section
7.02(b)(vi)(B), exceed $75,000,000;
and then only to the extent that the creation, issuance, incurrence or
existence of such First Mortgage Bonds or Debt in respect of First Mortgage
Bonds would not result in a violation of Section 7.01(j).
(d) Mergers, Etc. Merge with or into or consolidate with or into, or
acquire all or substantially all of the assets of, any Person.
(e) Sales, Etc., of Assets. Sell, lease, transfer or otherwise dispose
of all or any part of its assets other than dispositions of assets no longer
required in the ordinary course of the Borrower's business. Without
limitation of the foregoing, the Borrower shall not (i) sell, lease, transfer
or otherwise dispose of any of its receivables to any unaffiliated third
party, except for collection in the ordinary course of the Borrower's
business of delinquent accounts, or (ii) enter into any sale-leaseback
transaction.
(f) Investments in Other Persons. Make any loan or advance to any
Person or purchase or otherwise acquire any capital stock, obligations or
other securities of, make any capital contribution to, or otherwise invest
in, any Person other than Permitted Investments and loans, advances, purchas-
es and investments listed on Schedule III hereto.
(g) Compliance with ERISA. (i) Terminate, or permit any ERISA
Affiliate to terminate, any ERISA Plan so as to result in any material (in
the opinion of the Majority Lenders) liability of the Borrower to the PBGC,
or (ii) permit to exist any occurrence of any Reportable Event (as defined in
Title IV of ERISA), other than a Reportable Event not subject to the provi-
sion for 30-day notice to the PBGC under applicable regulations, or any other
event or condition, which presents a material (in the opinion of the Majority
Lenders) risk of such a termination by the PBGC of any ERISA Plan and such a
material liability to the Borrower.
(h) Significant Contracts.
(i) Amendments. Amend, modify or supplement or give any consent,
acceptance or approval to any amendment, modification or supplement or
deviation by any party from the terms of any Significant Contract, except any
amendment, modification or supplement to any Significant Contract that would
not reduce the rights or entitlements of the Borrower thereunder in any
material way or, in the case of the Tax Allocation Agreement, such changes as
may be required by applicable law.
(ii) Termination. Cancel or terminate (or consent to any cancellation
or termination of) any Significant Contract prior to the expiration of its
stated term.
(i) Change in Nature of Business. Engage in any material business
activity other than the generation and sale of electricity.
(j) Ownership in Seabrook and Nuclear Plants.
(i) acquire, directly or indirectly, any additional ownership interest
in Seabrook, or any ownership interest or any additional ownership interest
of any kind in any other nuclear-powered electric generating plant, except as
the Borrower may be required to acquire pursuant to the terms of the Joint
Ownership Agreement, provided, however, that, prior to acquiring any such
additional ownership interest in Seabrook, the Borrower shall deliver to the
Administrative Agent a written opinion of counsel (in form and substance
satisfactory to the Majority Lenders) to the effect that any such additional
ownership interest will be included in the "Ownership Share" (as defined in
the Unit Contract) and that any payments to the Borrower from PSNH of the
type referred to in Section B.(E)(1) and (2) of Exhibit C to the Rate
Agreement would reflect the Ownership Share as increased by such additional
ownership interest; or
(ii) amend, modify or supplement, or give any consent, acceptance or
approval to any amendment, modification or supplementation to, the Joint
Ownership Agreement which would cause (A) the Borrower to acquire any
additional ownership interest in Seabrook, except as permitted under clause
(i) above, or (B) increase the obligations of the Borrower thereunder without
increasing ratably the obligations of the other parties thereto.
(k) Subsidiaries. Create or suffer to exist any subsidiaries.
SECTION 7.03 Reporting Obligations. So long as any Note shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower will,
unless the Majority Lenders shall otherwise consent in writing, furnish to
the Administrative Agent in sufficient copies for each Lender, the following:
(i) as soon as possible and in any event within five (5) days after the
occurrence of each Event of Default or Unmatured Default continuing on the
date of such statement, a statement of the Chief Financial Officer, Treasurer
or Assistant Treasurer of the Borrower setting forth details of such Event of
Default or Unmatured Default and the action which the Borrower proposes to
take with respect thereto;
(ii) as soon as available and in any event within fifty (50) days after
the end of each of the first three quarters of each fiscal year of the
Borrower, (A) if and so long as the Borrower is required to submit to the
Securities and Exchange Commission a report on Form 10-Q, a copy of the
Borrower's report on Form 10-Q submitted to the Securities and Exchange
Commission with respect to such quarter and (B) if the Borrower ceases to be
required to submit such report, a balance sheet of the Borrower as of the end
of such quarter and statements of income and retained earnings and of cash
flows of the Borrower for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, all in reasonable detail
and duly certified (subject to year-end audit adjustments) by the Chief
Financial Officer, Treasurer or Assistant Treasurer of the Borrower as having
been prepared in accordance with generally accepted accounting principles, in
each such case, delivered together with a certificate of said officer (X)
stating that no Event of Default or Unmatured Default has occurred and is
continuing or, if an Event of Default or Unmatured Default has occurred and
is continuing, a statement as to the nature thereof and the action which the
Borrower proposes to take with respect thereto and (Y) demonstrating
compliance with Section 7.01(j) for and as of the end of such fiscal quarter
and compliance with Sections 7.02(b) and (c), as of the dates on which any
Debt was created, issued, incurred or assumed (using the Borrower's most
recent annual actuarial determinations in the computation of Debt referred to
in clause (ix) in the definition of "Debt") during such quarter and as of the
end of such fiscal quarter, such demonstration to be in a schedule (in form
satisfactory to the Majority Lenders) which sets forth the computations used
by the Borrower in determining such compliance;
(iii) as soon as available and in any event within 105 days after
the end of each fiscal year of the Borrower, (A) if and so long as the
Borrower is required to submit to the Securities and Exchange Commission a
report on Form 10-K, a copy of the Borrower's report on Form 10-K submitted
to the Securities and Exchange Commission with respect to such year and (B)
in any case, a copy of the annual report for such year for the Borrower
including therein an audited balance sheet of the Borrower as of the end of
such fiscal year and audited statements of income and retained earnings and
of cash flows of the Borrower for such fiscal year, in each case certified by
a nationally-recognized independent public accountant and delivered with a
certificate of the Chief Financial Officer, Treasurer or Assistant Treasurer
(X) stating that no Event of Default or Unmatured Default has occurred and is
continuing, or if an Event of Default or Unmatured Default has occurred and
is continuing, a statement as to the nature thereof and the action which the
Borrower proposes to take with respect thereto and (Y) demonstrating compli-
ance with Section 7.01(j) for and as of the end of such fiscal year and
compliance with Sections 7.02(b) and (c) as of the dates on which any Debt
was created, issued, incurred or assumed (using the Borrower's most recent
annual actuarial determinations in the computation of Debt referred to in
clause (viii) of the definition of "Debt") during the last fiscal quarter of
such fiscal year and as of the end of such fiscal year, such demonstration to
be in a schedule (in form satisfactory to the Majority Lenders) which sets
forth the computations used by the Borrower in determining such compliance;
(iv) as soon as available and in any event within 60 days prior to March
31 of each fiscal year, a copy of an operating budget/forecast of operations
of the Borrower as approved by the Board of Directors of the Borrower in form
satisfactory to the Lenders for the next fiscal year of the Borrower,
together with a certificate of the Chief Financial Officer, Treasurer or
Assistant Treasurer of the Borrower stating that such budget/forecast was
prepared in good faith and on reasonable assumptions;
(v) as soon as possible and in any event (A) within 30 days after the
Borrower knows or has reason to know that any ERISA Plan Termination Event
described in clause (i) of the definition of ERISA Plan Termination Event
with respect to any ERISA Plan or ERISA Multiemployer Plan has occurred and
(B) within 10 days after the Borrower knows or has reason to know that any
other ERISA Plan Termination Event with respect to any ERISA Plan or ERISA
Multiemployer Plan has occurred, a statement of the Chief Financial Officer,
Treasurer or Assistant Treasurer of the Borrower describing such ERISA Plan
Termination Event and the action, if any, which the Borrower proposes to take
with respect thereto;
(vi) promptly after receipt thereof by the Borrower or any of its ERISA
Affiliates from the PBGC, copies of each notice received by the Borrower or
any such ERISA Affiliate of the PBGC's intention to terminate any ERISA Plan
or ERISA Multiemployer Plan or to have a trustee appointed to administer any
ERISA Plan or ERISA Multiemployer Plan;
(vii) promptly and in any event within 30 days after the filing
thereof with the Internal Revenue Service, copies of each Schedule B (Actuar-
ial Information) to the Annual Report of the Borrower (Form 5500 Series) with
respect to each ERISA Plan (if any) to which the Borrower is a contributing
employer;
(viii) promptly after receipt thereof by the Borrower or any of its
ERISA Affiliates from an ERISA Multiemployer Plan sponsor, a copy of each
notice received by the Borrower or any of its ERISA Affiliates concerning the
imposition or amount of withdrawal liability in an aggregate principal amount
of at least $10,000,000 pursuant to Section 4202 of ERISA in respect of which
the Borrower may be liable;
(ix) promptly after the Borrower becomes aware of the occurrence
thereof, notice of all actions, suits, proceedings or other events (A) of the
type described in Section 6.01(f), or (B) which purport to affect the
legality, validity or enforceability of any of the Loan Documents or Signifi-
cant Contracts;
(x) promptly after the sending or filing thereof, copies of all such
proxy statements, financial statements, and reports which the Borrower sends
to its public security holders (if any) or files with, and copies of all
regular, periodic and special reports and all registration statements, if
any, which the Borrower files with, the Securities and Exchange Commission or
any governmental authority which may be substituted therefor, or with any
national securities exchange;
(xi) promptly after the sending or filing thereof, copies of all such
proxy statements, financial statements, and reports which PSNH sends to its
public security holders (if any) or files with, and copies of all regular,
periodic and special reports and all registration statements, if any, which
PSNH files with, the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or with any national securities
exchange;
(xii) promptly after receipt thereof, any assertion of the character
described in Section 8.01(i) hereof and the action the Borrower proposes to
take with respect thereto;
(xiii) promptly after knowledge of any material default under any
Significant Contract or the Rate Agreement, notice of such default and the
action the Borrower proposes to take with respect thereto;
(xiv) promptly after knowledge of any amendment, modification or
other change to any Significant Contract or the Rate Agreement or to any
Governmental Approval affecting any Significant Contract or the Rate Agree-
ment, notice of such amendment, modification or other change; and
(xv) promptly after requested, such other information respecting the
financial condition, operations, properties, prospects or otherwise, of the
Borrower or PSNH as the Administrative Agent or Majority Lenders may from
time to time reasonably request in writing.
ARTICLE VIII
DEFAULTS
SECTION 8.01 Events of Default. The following events shall each
constitute an "Event of Default" if the same shall occur and be continuing
after the grace period and notice requirement (if any) applicable thereto:
(a) The Borrower shall fail to pay any principal of any Note when due
or shall fail to pay any interest on any Note or any Pre-Funding Exposure
Fees or any other amount due hereunder within two days after the same becomes
due;
(b) Any representation or warranty made by the Borrower (or any of its
officers or agents) in this Agreement, any other Loan Document, certificate
or other writing delivered pursuant hereto or thereto shall prove to have
been incorrect in any material respect when made or deemed made; or
(c) The Borrower shall fail to perform or observe any term or covenant
on its part to be performed or observed contained in Sections 7.01(a), (d) or
(j), Section 7.02 or Section 7.03(i) hereof; provided, however, that in the
case of the Borrower's failure to perform or observe the covenant set forth
in Section 7.02(h), no Event of Default or Unmatured Default shall be
deemed to have occurred if the Borrower shall have prepaid the entire
aggregate principal amount of all Advances then outstanding, together with
all unpaid interest and other accrued and unpaid amounts in respect thereof
as provided in Section 4.02(c); or
(d) The Borrower shall fail to perform or observe any other term or
covenant on its part to be performed or observed contained in this Agreement
or any Loan Document and any such failure shall remain unremedied, after
written notice thereof shall have been given to the Borrower by the Adminis-
trative Agent or any Lender, for a period of 30 days; or
(e) The Borrower shall fail to pay any of its Debt when due (including
any interest or premium thereon but excluding Debt evidenced by the Notes and
excluding other Debt aggregating in no event more than $10,000,000 in
principal amount at any one time) whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise, and such failure shall
continue after the applicable grace period, if any, specified in any agree-
ment or instrument relating to such Debt; or any other default under any
agreement or instrument relating to any such Debt, or any other event, shall
occur and shall continue after the applicable grace period, if any, specified
in such agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such Debt; or
any such Debt shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment or as a
result of the Borrower's exercise of a prepayment option) prior to the stated
maturity thereof; unless in each such case the obligee under or holder of
such Debt or the trustee with respect to such Debt shall have waived in
writing such circumstance without consideration having been paid by the
Borrower so that such circumstance is no longer continuing; or
(f) PSNH shall fail to pay any of its Debt when due (including any
interest or premium thereon but excluding Debt aggregating less than
$10,000,000 in principal amount at any one time) whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise, and such
failure shall continue after the applicable grace period, if any, specified
in any agreement or instrument relating to such Debt; or any other default
under any agreement or instrument relating to any such Debt, or any other
event, shall occur and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such default
or event is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required prepay-
ment or as a result of PSNH's exercise of a prepayment option) prior to the
stated maturity thereof; unless in each such case the obligee under or holder
of such Debt or the trustee with respect to such Debt shall have waived in
writing such circumstance without consideration having been paid by PSNH so
that such circumstance is no longer continuing; or
(g) The Borrower or PSNH shall generally not pay its debts as such
debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make an assignment for the benefit of creditors; or any
proceeding shall be instituted by or against the Borrower or PSNH seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition
of its debts under any law relating to bankruptcy, insolvency, or reorganiza-
tion or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or for
any substantial part of its property and, in the case of a proceeding
instituted against the Borrower or PSNH, as the case may be, the Borrower or
PSNH, as the case may be, shall consent thereto or such proceeding shall
remain undismissed or unstayed for a period of 90 days or any of the actions
sought in such proceeding (including without limitation the entry of an order
for relief against the Borrower or PSNH, as the case may be, or the appoint-
ment of a receiver, trustee, custodian or other similar official for the
Borrower or PSNH, as the case may be, or any of their respective properties)
shall occur; or the Borrower or PSNH shall take any corporate or other action
to authorize any of the actions set forth above in this subsection (g); or
(h) Any judgment or order for the payment of money in excess of
$10,000,000 shall be rendered against the Borrower or its properties, or any
judgment or order for the payment of money in excess of $10,000,000 shall be
rendered against PSNH or its properties, and, in either case, either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order and shall not have been stayed or (ii) there shall be any
period of 15 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect; or
(i) Any material provision of any Loan Document, the Rate Agreement or
any Significant Contract shall for any reason other than the express terms
thereof or the exercise of any right or option expressly contained therein
cease to be valid and binding on any party thereto except as otherwise
expressly permitted by the exception contained in Section 7.02(h)(i) hereof;
or any party thereto other than the Lenders shall so assert in writing,
provided that in the case of any party other than the Borrower making such
assertion in respect of any Significant Contract (or PSNH in the case of the
Rate Agreement), such assertion shall not in and of itself constitute an
Event of Default hereunder until (i) such asserting party shall cease to
perform under and in compliance with the Rate Agreement or such Significant
Contract, (ii) the Borrower (or PSNH, in the case of the Rate Agreement)
shall fail to diligently prosecute, by appropriate action or proceedings, a
rescission of such assertion or a binding determination as to the merits
thereof or (iii) such a binding determination shall have been made in favor
of such asserting party's position; or
(j) The Borrower shall not have in full force and effect any or all
insurance required under Section 7.01(c) hereof or there shall be incurred
any uninsured damage, loss or destruction of or to the Borrower's properties
in an amount not covered by insurance (including fully-funded self-insurance
programs) which the Majority Lenders consider to be material; or
(k) A default by the Borrower shall have occurred under the Unit
Contract and shall not have been effectively cured within the time period
specified therein for such cure (or, if no such time period is specified
therein, 10 days); or a default by any party shall have occurred under any
Significant Contract or by PSNH shall have occurred under the Rate Agreement
and, in either such case, such default shall not have been effectively cured
within 30 days after notice from the Administrative Agent to the Borrower
stating that, in the opinion of the Majority Lenders, such default may have a
material adverse effect upon the financial condition, operations, properties
or prospects of the Borrower as a whole; or
(l) Any Governmental Approval (whether federal, state or local)
required to give effect to the Unit Contract or the Rate Agreement (includ-
ing, without limitation, Chapter 362-C of the New Hampshire Revised Statutes
and the enabling order of The New Hampshire Public Utilities Commission
issued pursuant thereto) shall be amended, modified or supplemented, or any
other regulatory or legislative action or change (whether federal, state or
local) having the effect, directly or indirectly, of modifying the benefits
or entitlements of the Borrower under the Unit Contract or of PSNH under the
Rate Agreement shall occur, and in any such case such amendment, modifica-
tion, supplement, action or change may have, in the opinion of the Majority
Lenders, a material adverse effect upon the financial condition, operations,
properties or prospects of the Borrower as a whole; or
(m) NU shall cease to own all of the outstanding common stock of the
Borrower and PSNH, in each case free and clear of any Liens.
SECTION 8.02 Remedies Upon Events of Default. Upon the occurrence and
during the continuance of any Event of Default, then, and in any such event,
the Administrative Agent shall at the request, or may with the consent, of
the Majority Lenders, upon notice to the Borrower (i) declare the Commitments
and the obligation of each Lender to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) declare the Notes, all
interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such interest and all
such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower; provided, however, that in the event
of an actual or deemed entry of an order for relief with respect to the
Borrower under the Federal Bankruptcy Code, (A) the Commitments and the
obligation of each Lender to make Advances shall automatically be terminated
and (B) the Notes, all such interest and all such amounts shall automatically
become and be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by the Borrower.
ARTICLE IX
THE ADMINISTRATIVE AGENT
SECTION 9.01 Authorization and Action. Each Lender hereby (i)
appoints and authorizes the Administrative Agent to take such action as agent
on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto and (ii) agrees that the Arrang-
ers, in their capacities as such, shall have no duties or obligations
hereunder. As to any matters not expressly provided for by any Loan Document
(including, without limitation, enforcement or collection thereof), the
Administrative Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Majority Lenders, and such instructions shall be binding
upon all Lenders; provided, however, that the Administrative Agent shall not
be required to take any action which exposes the Administrative Agent to
personal liability or which is contrary to this Agreement or applicable law.
The Administrative Agent agrees to deliver promptly to each Lender notice of
each notice given to it by the Borrower pursuant to the terms of this
Agreement.
SECTION 9.02 Administrative Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them
under or in connection with any Loan Document, except for its or their own
gross negligence or wilful misconduct. Without limitation of the generality
of the foregoing, the Administrative Agent: (i) may treat the payee of any
Note as the holder thereof until the Administrative Agent receives and
accepts a Lender Assignment entered into by the Lender which is the payee of
such Note, as assignor, and an assignee, as provided in Section 10.07; (ii)
may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not
be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii)
makes no warranty or representation to any Lender and shall not be (nor shall
any Arranger be) responsible to any Lender for the Information Memorandum or
any other statements, warranties or representations made in or in connection
with any Loan Document; (iv) shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions of any Loan Document on the part of the Borrower to be performed
or observed, or to inspect any property (including the books and records) of
the Borrower; (v) shall not be responsible to any Lender for the due execu-
tion, legality, validity, enforceability, genuineness, sufficiency or value
of any Loan Document, Significant Contract or any other instrument or
document furnished pursuant hereto; and (vi) shall incur no liability under
or in respect of any Loan Document by acting upon any notice, consent,
certificate or other instrument or writing (which may be by telegram, cable
or telex) believed by it to be genuine and signed or sent by the proper party
or parties.
SECTION 9.03 First Chicago, Barclays, Bank of Boston and Union and
Affiliates. With respect to its Commitment and the Note issued to it, each
of First Chicago, Barclays, Bank of Boston and Union shall have the same
rights and powers under this Agreement as any other Lender and may exercise
the same as though it were not the Administrative Agent or an Arranger, as
the case may be, and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include First Chicago, Barclays, Bank of Boston and
Union, each in its individual capacity. First Chicago, Barclays, Bank of
Boston and Union and their respective Affiliates may accept deposits from,
lend money to, act as trustee under indentures of, and generally engage in
any kind of business with, the Borrower, any of its subsidiaries and any
Person who may do business with or own securities of the Borrower or any such
subsidiary, all as if First Chicago, Barclays, Bank of Boston and Union were
not the Administrative Agent or an Arranger, and without any duty to account
therefor to the Lenders.
SECTION 9.04 Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon the Administrative Agent, the
Arrangers or any other Lender and based on the Information Memorandum and
other financial information referred to in Section 6.01(e) and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent, the Co-Agents or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under this
Agreement.
SECTION 9.05 Indemnification. The Lenders agree to indemnify the
Arrangers and the Administrative Agent, in their respective capacities as
such and to the extent not reimbursed by the Borrower, ratably according to
the respective principal amounts of the Notes then held by each such Lender
(or if no Notes are at the time outstanding or if any Notes are held by
Persons which are not Lenders, ratably according to the respective Commit-
ments of the Lenders), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against the Arrangers or the Administrative Agent in
their respective capacities as such in any way relating to or arising out of
this Agreement or any action taken or omitted by the Arrangers or the
Administrative Agent in their respective capacities as such under this
Agreement, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Arrangers or the
Administrative Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse the Administra-
tive Agent and the Arrangers promptly upon demand for its ratable share of
any out-of-pocket expenses (including counsel fees) incurred by the Adminis-
trative Agent and the Arrangers in connection with the preparation, execu-
tion, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement to the
extent that the Administrative Agent and the Arrangers are entitled to
reimbursement for such expenses pursuant to Section 10.04 but are not
reimbursed for such expenses by the Borrower.
SECTION 9.06 Successor Administrative Agent. The Administrative Agent
may resign at any time by giving written notice thereof to the Lenders and
the Borrower, with any such resignation to become effective only upon the
appointment of a successor Administrative Agent pursuant to this Section
9.06. Upon any such resignation, the Majority Lenders shall have the right
to appoint a successor Administrative Agent, which shall be an Arranger
(unless each Arranger shall decline such appointment, in which case such
successor Administrative Agent shall be a Lender or another commercial bank
or trust company reasonably acceptable to the Borrower organized or licensed
under the laws of the United States, or of any State thereof). If no
successor Administrative Agent shall have been so appointed by the Majority
Lenders, and shall have accepted such appointment, within 30 days after the
retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent, which shall be an Arranger (unless each
Arranger shall decline such appointment, in which case such successor
Administrative Agent shall be a Lender or shall be another commercial bank or
trust company organized or licensed under the laws of the United States or of
any State thereof reasonably acceptable to the Borrower). In addition to the
foregoing right of the Administrative Agent to resign, the Majority Lenders
may remove the Administrative Agent at any time, with or without cause,
concurrently with the appointment by the Majority Lenders of an Arranger as
the successor Administrative Agent. Upon the acceptance of any appointment
as Administrative Agent hereunder by a successor Administrative Agent and the
execution and delivery by the Borrower and the successor Administrative Agent
of an agreement relating to the fees to be paid to the successor Administra-
tive Agent under Section 2.02(c) hereof in connection with its acting as
Administrative Agent hereunder, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileg-
es and duties of the retiring Administrative Agent, and the retiring Adminis-
trative Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Article IX shall
inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Amendments, Etc. No amendment or waiver of any provision
of this Agreement or any Note, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent
shall, unless in writing and signed by all the Lenders, do any of the
following: (a) waive, modify or eliminate any of the conditions specified in
Article V (other than Section 5.02(c)(i), (b) increase the Commitments of the
Lenders that may be maintained hereunder or subject the Lenders to any
additional obligations, (c) reduce the principal of, or interest on, the
Notes, any Applicable Margin or any fees or other amounts payable hereunder,
(d) postpone any date fixed for any payment of principal of, or interest on,
the Notes or any fees or other amounts payable hereunder (other than fees
payable to the Administrative Agent pursuant to Section 2.02(c) hereof), (e)
change the percentage of the Commitments or of the aggregate unpaid principal
amount of the Notes, or the number of Lenders which shall be required for the
Lenders or any of them to take any action hereunder, (f) amend this Agreement
or any Note in a manner intended to prefer one or more Lenders over any other
Lender or (g) amend this Section 10.01; and provided, further, that no
amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent in addition to the Lenders required above to take such
action, affect the rights or duties of the Administrative Agent under this
Agreement or any Note.
SECTION 10.02 Notices, Etc. All notices and other communications
provided for hereunder and under the other Loan Documents shall be in writing
(including telegraphic, telex, telecopy or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, (i) if to the Borrow-
er, at its address at 1000 Elm Street, P.O. Box 330, Manchester, New Hamp-
shire 03105 (telecopy no. 603.669.2438), Attention: Treasurer, with a copy to
NUSCO at its address at 107 Selden Street, Berlin, Connecticut 06037
(telecopy no. 203.665.5457), Attention: Assistant Treasurer; (ii) if to any
Bank, at its Domestic Lending Office specified opposite its name on Schedule
I hereto; (iii) if to any Lender other than a Bank, at its Domestic Lending
Office specified in the Lender Assignment pursuant to which it became a
Lender; and (iv) if to the Administrative Agent, at its address at One First
National Plaza, Suite 0363, Chicago, Illinois 60670, Attention: Electric, Gas
and Telecommunications Department; or, as to each party, at such other
address as shall be designated by such party in a written notice to the other
parties. All such notices and communications shall, when mailed, tele-
graphed, telexed, telecopied or cabled, be effective five days after when
deposited in the mails, or when delivered to the telegraph company, confirmed
by telex answerback, telecopied or delivered to the cable company, respec-
tively, except that notices and communications to the Administrative Agent
pursuant to Article II, III, IV or IX shall not be effective until received
by the Administrative Agent.
SECTION 10.03 No Waiver of Remedies. No failure on the part of any
Lender or the Administrative Agent to exercise, and no delay in exercising,
any right hereunder or under any Note shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
SECTION 10.04 Costs, Expenses and Indemnification. (a) The Borrower
agrees to pay on demand all costs and expenses, if any (including, without
limitation, reasonable counsel fees and expenses), of (i) the Administrative
Agent and each Arranger in connection with the preparation, negotiation,
execution and delivery of the Loan Documents, the administration of the Loan
Documents, and any proposed modification, amendment, or consent relating
thereto; and (ii) the Administrative Agent, each Arranger and each Lender in
connection with the enforcement (whether through negotiations, legal proceed-
ings or otherwise) of this Agreement or the Notes.
(b) The Borrower hereby agrees to indemnify and hold each Lender, each
Arranger, the Administrative Agent and their respective officers, directors,
employees, professional advisors and affiliates (each, an "Indemnified
Person") harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses (including reasonable attorney's fees and
expenses, whether or not such Indemnified Person is named as a party to any
proceeding or investigation or is otherwise subjected to judicial or legal
process arising from any such proceeding or investigation) which any of them
may incur or which may be claimed against any of them by any person or entity
(except to the extent such claims, damages, losses, liabilities, costs or
expenses arise from the gross negligence or willful misconduct of the
Indemnified Person):
(i) by reason of or in connection with the execution, delivery or
performance of any of the Loan Documents or any transaction contemplated
thereby, or the use by the Borrower of the proceeds of any Advance;
(ii) in connection with or resulting from the utilization, storage,
disposal, treatment, generation, transportation, release or ownership of any
Hazardous Substance (A) at, upon or under any property of the Borrower or any
of its Affiliates or (B) by or on behalf of the Borrower or any of its
Affiliates at any time and in any place; or
(iii) in connection with any documentary taxes, assessments or
charges made by any governmental authority by reason of the execution and
delivery of any of the Loan Documents.
(c) The Borrower's obligations under this Section 10.04 shall survive
the assignment by any Lender pursuant to Section 10.07 and shall survive as
well the repayment of all amounts owing to the Lenders, the Arrangers and the
Administrative Agent under the Loan Documents and the termination of the
Commitments. If and to the extent that the obligations of the Borrower under
this Section 10.04 are unenforceable for any reason, the Borrower agrees to
make the maximum contribution to the payment and satisfaction thereof which
is permissible under applicable law.
SECTION 10.05 Right of Set-off. (a) Upon the occurrence and during the
continuance of any Event of Default, each Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time
owing by such Lender to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or hereafter
existing under this Agreement and the Note held by such Lender, irrespective
of whether or not such Lender shall have made any demand under this Agreement
or such Note and although such obligations may be unmatured. Each Lender
agrees promptly to notify the Borrower after any such set-off and application
made by such Lender, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each
Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which such Lender
may have.
(b) The Borrower agrees that it shall have no right of off-set,
deduction or counterclaim in respect of its obligations hereunder, and that
the obligations of the Lenders hereunder are several and not joint. Nothing
contained herein shall constitute a relinquishment or waiver of the
Borrower's rights to any independent claim that the Borrower may have against
the Administrative Agent or any Lender, but no Lender shall be liable for the
conduct of the Administrative Agent or any other Lender, and the Administra-
tive Agent shall not be liable for the conduct of any Lender.
SECTION 10.06 Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Administrative Agent
and when the Administrative Agent shall have been notified by each Bank that
such Bank has executed it and thereafter shall be binding upon and inure to
the benefit of the Borrower, the Administrative Agent and each Lender and
their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without
the prior written consent of the Lenders.
SECTION 10.07 Assignments and Participation. (a) Each Lender may
assign to one or more banks or other entities all or a portion of its rights
and obligations under this Agreement, the Notes and the Security Documents
(including, without limitation, all or a portion of its Commitment, the
Advances owing to it and the Note or Notes held by it) with the prior written
consent of the Borrower to the extent the assignee thereunder is not then a
Lender or an Affiliate of a Lender (which consent shall not be unreasonably
withheld); provided, however, that (i) each such assignment shall be of a
constant, and not a varying, percentage of all of the assigning Lender's
rights and obligations under this Agreement, (ii) to the extent the assignee
thereunder is not then a Lender or an Affiliate of a Lender, the amount of
the Commitment or Note(s) to be held by such assignee (after giving effect to
such assignment and any other assignments being made concurrently therewith
to the same assignee by one or more other Lenders) shall in no event be less
than $5,000,000, unless such assignment is of the entire amount of the
assigning Lender's Commitment, and (iii) the parties to each such assignment
shall execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register, a Lender Assignment, together with any Note or
Notes subject to such assignment and a processing and recordation fee of
$2,500. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Lender Assignment, which effective
date shall be at least five Business Days after the execution thereof, (x)
the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Lender Assignment, have the rights and obligations of a Lender hereunder and
(y) the Lender assignor thereunder shall, to the extent that rights and
obligations hereunder have been assigned by it to an assignee pursuant to
such Lender Assignment, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of a Lender Assignment
covering all or the remaining portion of an assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a party
hereto); provided, however, if an Event of Default shall have occurred and be
continuing and the Administrative Agent shall have declared all Advances to
be immediately due and payable hereunder a Lender may assign all or a portion
of its rights and obligations without the prior written consent of the
Borrower but otherwise in accordance with this Section.
(b) By executing and delivering a Lender Assignment, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as
provided in such Lender Assignment, such assigning Lender makes no represen-
tation or warranty and assumes no responsibility with respect to any state-
ments, warranties or representations made in or in connection with any Loan
Document or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Loan Document or any other instrument or document
furnished pursuant thereto; (ii) such assigning Lender makes no representa-
tion or warranty and assumes no responsibility with respect to the financial
condition of the Borrower or the performance or observance by the Borrower of
any of its obligations under any Loan Document or any other instrument or
document furnished pursuant thereto; (iii) such assignee confirms that it has
received a copy of each Loan Document, together with copies of the financial
statements referred to in Section 6.01(e) and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Lender Assignment; (iv) such assignee will,
independently and without reliance upon the Administrative Agent, the
Arrangers, such assigning Lender or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under this
Agreement and the Notes; (v) such assignee appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and the Notes as are delegated to
the Administrative Agent by the terms thereof, together with such powers as
are reasonably incidental thereto; and (vi) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of this Agreement and the Notes are required to be performed by it as a
Lender.
(c) The Administrative Agent shall maintain at its address referred to
in Section 10.02 a copy of each Lender Assignment delivered to and accepted
by it and a register for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Advances owing to,
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and
the Borrower, the Administrative Agent and the Lenders may treat each Person
whose name is recorded in the Register as a Lender hereunder for all purposes
of this Agreement. The Register shall be available for inspection by the
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of a Lender Assignment executed by an assigning
Lender and an assignee, together with any Note or Notes subject to such
assignment and any consent required by Section 10.07(a), the Administrative
Agent shall, if such Lender Assignment has been completed and is in substan-
tially the form of Exhibit 10.07 hereto, (i) accept such Lender Assignment,
(ii) record the information contained therein in the Register and (iii) give
prompt notice thereof to the Borrower. Within five Business Days after its
receipt of such notice, the Borrower, at its own expense, shall execute and
deliver to the Administrative Agent in exchange for the surrendered Note or
Notes a new Note to the order of such assignee in an amount equal to the
Commitment assumed by it pursuant to such Lender Assignment and, if the
assigning Lender has retained a Commitment hereunder, a new Note to the order
of the assigning Lender in an amount equal to the Commitment retained by it
hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note or Notes,
shall be dated the effective date of such Lender Assignment and shall
otherwise be in substantially the form of Exhibit 1.01A hereto.
(e) Each Lender may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under the
Loan Documents (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note or Notes held by it);
provided, however, that (i) such Lender's obligations under this Agreement
(including, without limitation, its Commitment to the Borrower hereunder)
shall remain unchanged, (ii) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations, (iii) such
Lender shall remain the holder of any such Note for all purposes of this
Agreement, (iv) the Borrower, the Administrative Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement, and (v)
unless the Borrower shall have previously consented to the sale of such
participation, the holder of any such participation, other than an Affiliate
of such Lender, shall not be entitled to require such Lender to take or omit
to take any action hereunder, except action (A) extending the time for
payment of interest on, or the maturity of the principal amount of, the Notes
or (B) reducing the principal amount of or the rate or amount of interest
payable on the Notes.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 10.07,
disclose to the assignee or participant or proposed assignee or participant,
any information relating to the Borrower furnished to such Lender by or on
behalf of the Borrower; provided that, prior to any such disclosure, the
assignee or participant or proposed assignee or participant shall agree, in
accordance with the terms of Section 10.08, to preserve the confidentiality
of any Confidential Information received by it from such Lender.
(g) If any Lender shall have delivered a notice to the Administrative
Agent described in Section 4.03 (a), (b), (c) or (f) hereof, or shall become
a non-performing Lender under Section 3.01(c) hereof, and if and so long as
such Lender shall not have withdrawn such notice or corrected such non-
performance in accordance with Section 3.01(c), the Borrower or the Adminis-
trative Agent may demand that such Lender assign in accordance with Section
10.07 hereof, to one or more assignees designated by either the Borrower or
the Administrative Agent (and reasonably acceptable to the other), all (but
not less than all) of such Lender's Commitment, Advances, participation and
other rights and obligations hereunder; provided that any such demand by the
Borrower during the continuance of an Event of Default or an Unmatured
Default shall be ineffective without the consent of the Majority Lenders.
If, within 30 days following any such demand by the Administrative Agent or
the Borrower, any such assignee so designated shall fail to tender such
assignment on terms reasonably satisfactory to the Lender, or the Borrower
and the Administrative Agent shall have failed to designate any such assign-
ee, then such demand by the Borrower or the Administrative Agent shall become
ineffective, it being understood for purposes of this provision that such
assignment shall be conclusively deemed to be on terms reasonably satisfacto-
ry to such Lender, and such Lender shall be compelled to tender such assign-
ment forthwith, if such assignee (1) shall agree to such assignment in
substantially the form of the Lender Assignment and (2) shall tender payment
to such Lender in an amount equal to the full outstanding dollar amount
accrued in favor of such Lender hereunder (as computed in accordance with the
records of the Administrative Agent.)
(h) Anything in this Section 10.07 to the contrary notwithstanding, any
Lender may assign and pledge all or any portion of its Commitment and the
Advances owing to it to any Federal Reserve Bank (and its transferees) as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal
Reserve Bank. No such assignment shall release the assigning Lender from its
obligations hereunder.
SECTION 10.08 Confidentiality. In connection with the negotiation and
administration of this Agreement and the other Loan Documents, the Borrower
has furnished and will from time to time furnish to the Administrative Agent
and the Lenders (each, a "Recipient") written information which is identified
to the Recipient when delivered as confidential (such information, other than
any such information which (i) was publicly available, or otherwise known to
the Recipient, at the time of disclosure, (ii) subsequently becomes publicly
available other than through any act or omission by the Recipient or (iii)
otherwise subsequently becomes known to the Recipient other than through a
Person whom the Recipient knows to be acting in violation of his or its
obligations to the Borrower, being hereinafter referred to as "Confidential
Information"). The Recipient will not knowingly disclose any such Confiden-
tial Information to any third party (other than to those persons who have a
confidential relationship with the Recipient), and will take all reasonable
steps to restrict access to such information in a manner designed to maintain
the confidential nature of such information, in each case until such time as
the same ceases to be Confidential Information or as the Borrower may
otherwise instruct. It is understood, however, that the foregoing will not
restrict the Recipient's ability to freely exchange such Confidential
Information with prospective participants in or assignees of the Recipient's
position herein, but the Recipient's ability to so exchange Confidential
Information shall be conditioned upon any such prospective participant's
entering into an understanding as to confidentiality similar to this provi-
sion. It is further understood that the foregoing will not prohibit the
disclosure of any or all Confidential Information if and to the extent that
such disclosure may be required (i) by a regulatory agency or otherwise in
connection with an examination of the Recipient's records by appropriate
authorities, (ii) pursuant to court order, subpoena or other legal process or
(iii) otherwise, as required by law; in the event of any required disclosure
under clause (ii) or (iii), above, the Recipient agrees to use reasonable
efforts to inform the Borrower as promptly as practicable.
SECTION 10.09 Waiver of Jury Trial. The Borrower, the Administrative
Agent, and the Lenders each hereby irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim arising out of or relating to
this Agreement or any other Loan Document, or any other instrument or
document delivered hereunder or thereunder.
SECTION 10.10 Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York. The Borrower, the Lenders and the Administrative Agent each (i)
irrevocably submits to the jurisdiction of any New York State Court or
Federal court sitting in New York City in any action arising out of any Loan
Document, (ii) agrees that all claims in such action may be decided in such
court, (iii) waives, to the fullest extent it may effectively do so, the
defense of an inconvenient forum and (iv) consents to the service of process
by mail. A final judgment in any such action shall be conclusive and may be
enforced in other jurisdictions. Nothing herein shall affect the right of
any party to serve legal process in any manner permitted by law or affect its
right to bring any action in any other court.
SECTION 10.11 Relation of the Parties; No Beneficiary. No term,
provision or requirement, whether express or implied, of any Loan Document,
or actions taken or to be taken by any party thereunder, shall be construed
to create a partnership, association, or joint venture between such parties
or any of them. No term or provision of the Loan Documents shall be con-
strued to confer a benefit upon, or grant a right or privilege to, any Person
other than the parties hereto.
SECTION 10.12 Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
NORTH ATLANTIC ENERGY CORPORATION
By
/s/David R. McHale
Assistant Treasurer
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent, as Arranger and as Bank
By
/s/ Kenneth J. Barn
Authorized Agent
BARCLAYS BANK PLC,
as Arranger and as Bank
By
/s/ Sydney G. Dennis
Associate Director
THE FIRST NATIONAL BANK OF BOSTON,
as Arranger and as Bank
By
/s/ Richard A. Low
Division Executive
UNION BANK, as Arranger and as Bank
By
/s/ John M. Edmonston
Vice President
LTCB Trust Company, as Bank
By
/s/ John J. Sullivan
Executive Vice President
CREDIT LYONNAIS, as Bank
CREDIT LYONNAIS, NEW YORK BRANCH
By
/s/ R. J. Ivosevich
Senior Vice President
CREDIT LYONNAIS, CAYMAN ISLAND BRANCH
By
/s/ R. J. Ivosevich
Senior Vice President
FLEET BANK, N.A., as Bank
By
/s/ Suresh V. Chivukula
Vice President
SCHEDULE I
NORTH ATLANTIC ENERGY COMPANY
U.S. $225,000,000 TERM CREDIT AGREEMENT
APPLICABLE LENDING OFFICES
Eurodollar
Name of Bank Domestic Lending Office Lending Office
Barclays Bank PLC 75 Wall Street Nassau Branch
New York, NY 10265 c/o Barclays Bank
Attn: Customer Service 75 Wall Street
Team I New York, NY 10265
Attn: Customer Service
Team 1
Telephone: 212-412-5028
Telecopy: 212-412-5002
with a copy to:
222 Broadway, 12th Floor Same as Domestic Lending
New York, NY 10038 Office
Attn: Customer Service
Team 1
Telephone: 212-412-5028
Telecopy: 212-412-5002
Credit Lyonnais, Credit Lyonnais, Cayman Credit Lyonnais, Cayman
New York Branch Island Branch Island Branch
c/o Credit Lyonnais, c/o Credit Lyonnais, New
New York Branch York Branch
1301 Avenue of the Americas 1301 Avenue of the Americas
18th Floor 18th Floor
New York, NY 10019 New York, NY 10019
Attention: Robert Wiezcorek Attention: Robert Wiezcorek
Telephone: 212-261-7320 Telephone: 212-261-7320
Telecopy: 212-459-3179 Telecopy: 212-459-3179
with a copy to: with a copy to:
Credit Lyonnais-Boston Office Credit Lyonnais-Boston
53 State Street Office
Boston, MA 02109 53 State Street
Attention: Lisa Leahy Boston, MA 02109
Telephone: 617-723-2615 Attention: Lisa Leahy
Telecopy: 617-723-4803 Telephone: 617-723-2615
Telecopy: 617-723-4803
The First Nat'l Commercial Loan Services Same as Domestic Lending
Bank of Boston 100 Federal Street 01-08-02 Office
Boston, MA 02110
Attn: Debora Williams
Telephone: 617-434-9623
Telecopy: 617-434-9820
with a copy to: with a copy to:
100 Federal Street 01-08-02 100 Federal Street 01-08-02
Boston, MA 02110 Boston, MA 02110
Attn: Michelle Appleby Attn: Michelle Appleby
Telephone: 617-434-6477 Telephone: 617-434-6477
Telecopy: 617-434-3652 Telecopy: 617-434-3652
The First Nat'l One First National Plaza Same as Domestic Lending
Bank of Chicago Suite 0636/1-10 Office
Chicago, IL 60670
Attn: Lynn Pozsgay
Telephone: 312-732-8705
Telecopy: 312-732-4840
Fleet Bank, N.A. One Constitution Plaza (CTHM Same as Domestic Lending
M03G) Office
Hartford, CT 06115
Attn: Suresh V. Chivukula
Telephone: 860-244-6038
Telecopy: 860-244-5391
LTCB Trust 165 Broadway Same as Domestic Lending
Company New York, NY 10006 Office
Attn: Winston Brown
Telephone: 212-608-3081
Telecopy: 212-608-3081
Union Bank 445 S. Figueroa Street Same as Domestic Lending
15th Floor Office
Los Angeles, CA 90071
Attn: David Musicant
Telephone: 213-236-5023
Telecopy: 213-236-4096
SCHEDULE II
GOVERNMENTAL APPROVALS
1. Order No. 21,839 of the New Hampshire Public Utilities Commission, dated
September 27, 1995
SCHEDULE III
INVESTMENTS
None
SCHEDULE IV
COMMITMENTS
Bank Commitment
The First National Bank of Chicago $42,500,000
Barclays Bank PLC $42,500,000
The First National Bank of Boston $42,500,000
Union Bank $42,500,000
Fleet Bank, N.A. $20,000,000
Credit Lyonnais, New York Branch $20,000,000
LTCB Trust Company $15,000,000
EXHIBIT 1.01A
FORM OF NOTE
$[insert amount of Lender's New York, New York
Commitment] [November , 1995]
FOR VALUE RECEIVED, the undersigned, NORTH ATLANTIC ENERGY CORPORATION,
a corporation organized under the laws of the State of New Hampshire, (the
"Borrower"), hereby promises to pay to the order of
(the "Lender"), at the office of The First National Bank of Chicago, One
First National Plaza, Chicago, Illinois 60670, on the Termination Date (as
defined in the Credit Agreement referred to below), the principal sum of
[AMOUNT OF COMMITMENT IN FIGURES] or, if less, the aggregate principal amount
of all Advances (as defined in such Credit Agreement) made by the Lender to
the Borrower outstanding on such Termination Date, in lawful money of the
United States of America in immediately available funds, and to pay interest
on such principal amount from time to time outstanding, in like funds, at
said office, at a rate or rates per annum and payable on such dates as
determined pursuant to such Credit Agreement. The Borrower further promises
to pay additional interest, on demand, on any overdue principal and, to the
extent permitted by law, overdue interest from their due dates at a rate or
rates determined as set forth in the Credit Agreement.
The Borrower hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The nonexercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Note and all payments and prepayments
of the principal hereof and interest hereon and the respective dates thereof
shall be endorsed by the holder hereof on the schedule attached hereto and
made a party hereof, or on a continuation thereof which shall be attached
hereto and made a part hereof, or otherwise recorded by such holder in its
internal records; provided, however, that any failure of the holder hereof to
make such a notation or any error in such notation shall not in any manner
affect the obligation of the Borrower to make payments of principal and
interest in accordance with the terms of this Note and the Credit Agreement.
This Note is one of the Notes referred to in that certain Term Credit
Agreement, dated as of November 9, 1995, among the Borrower, the Lenders and
Arrangers referred to therein and the First National Bank of Chicago, as
Administrative Agent thereunder (such Term Credit Agreement, as the same may
be amended, modified or supplemented from time to time, being herein referred
to as the "Credit Agreement") and is entitled to the benefits thereof. The
Credit Agreement, among other things, contains provisions for the accelera-
tion of the maturity hereof upon the happening of certain events, for
prepayment (including mandatory prepayment) of the principal hereof prior to
the maturity hereof and for the amendment or waiver of the Credit Agreement
or the provisions thereof, all upon the terms and conditions therein speci-
fied. This Note shall be construed in accordance with and governed by the
laws of the State of New York and any applicable laws of the United States of
America.
NORTH ATLANTIC ENERGY CORPORATION
By
Title:
GRID NOTE SCHEDULE
COMPANY NAME: NORTH ATLANTIC ENERGY CORPORATION
DATE OF
ADVANCE/
CONVERSION AMOUNT OF INTEREST INTEREST NUMBER INTEREST DATE AMOUNT NOTED
DATE PRINCIPAL RATE PERIOD OF DAYS DUE PAID PAID BY
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
EXHIBIT 3.01A
FORM OF NOTICE OF BORROWING
[Date]1
The First National Bank of Chicago,
as Administrative Agent for the
Lenders referred to below,
One First National Plaza
Chicago, Illinois 60670
Attention:
Ladies and Gentlemen:
The undersigned, NORTH ATLANTIC ENERGY CORPORATION (the "Borrower"),
refers to the Term Credit Agreement, dated as of November 9, 1995, among the
Borrower, the Lenders and Arrangers referred to therein and the First
National Bank of Chicago, as Administrative Agent thereunder (the "Credit
Agreement"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement.
Pursuant to Section 3.01 of the Credit Agreement, the Borrower hereby
notifies you of the Funding Date and requests an initial Borrowing under the
Credit Agreement. In that connection, the Borrower has hereinbelow specified
the Funding Date and set forth the terms on which such Borrowing is requested
to be made:
(A) Funding Date and Date of initial Borrowing
(which is a Business Day) ---------------------
(B) Principal Amount of Borrowing2 ---------------------
(C) Interest rate basis3 ---------------------
(D) Initial Interest Period and the last
day thereof4 ---------------------
1 Not later than 10:00 A.M. (New York City time) three Business days before
the specified Funding Date.
2 Not less than $10,000,00 and in integral multiples of 1,000,000 in excess
thereof (in the case of Eurodollar Rate Borrowings).
3 Eurodollar Advance or Base Rate Advance.
4 Which shall be subject to the definition of "Interest Period".
The undersigned hereby represents, warrants and certifies that (i) the
Closing Date has occurred, (ii) the Funding Date specified above is not more
than 35 days following the Closing Date and will occur on or before December
31, 1995 and (iii) all other conditions precedent specified in Section 5.02
of the Credit Agreement have been or will be satisfied on such Funding Date.
Very truly yours,
NORTH ATLANTIC ENERGY CORPORATION
By
Title:
EXHIBIT 3.02A
FORM OF NOTICE OF CONVERSION
[Date]1
The First National Bank of Chicago,
as Administrative Agent for the
Lenders referred to below,
One First National Plaza
Chicago, Illinois 60670
Attention:
Ladies and Gentlemen:
The undersigned, NORTH ATLANTIC ENERGY CORPORATION (the "Borrower"),
refers to the Term Credit Agreement, dated as of November 9, 1995, among the
Borrower, the Lenders and Arrangers referred to therein and the First
National Bank of Chicago, as Administrative Agent thereunder (the "Credit
Agreement"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement.
Pursuant to Section 3.02 of the Credit Agreement, the Borrower hereby
requests a Conversion under the Credit Agreement, and in that connection sets
forth below the information relating to such Conversion (the "Proposed
Conversion") as required by Section 3.02(a) of the Revolving Credit Agree-
ment.
(i) The Business Day of the Proposed
Conversion is: , 19 .
(ii) Type of, and Interest Period
applicable to, the Advances
(or portions thereof) proposed
to be Converted: .
(iii) Type of Advance to which
such Advances (or portions
thereof) are proposed to
be Converted: .
(iv) Except in the case of a Conversion
to Base Rate Advances, initial
Interest Period to be applicable
to the Advances resulting
from such Conversion: .
(v) The aggregate amount of Advances
(or portions thereof) proposed to
be Converted: $ .
The undersigned hereby certifies that on the date hereof, and on the
date of the Proposed Conversion, no event has occurred and is continuing, or
would result from such Proposed Conversion, which constitutes an Event of
Default.
Very truly yours,
NORTH ATLANTIC ENERGY CORPORATION
By
Title:
1 Not later than 10:00 A.M. three Business Days prior to date of the proposed
Conversion.
EXHIBIT 10.07A
LENDER ASSIGNMENT
Dated ,
Reference is made to that certain Term Credit Agreement, dated as of
November 9, 1995, among NORTH ATLANTIC ENERGY CORPORATION (the "Borrower"),
the Lenders and Arrangers referred to therein and the First National Bank of
Chicago, as Administrative Agent thereunder (said Agreement, as it may
hereafter be amended or otherwise modified from time to time, being the
"Credit Agreement"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Credit Agree-
ment.
Pursuant to the Credit Agreement, (the "Assignor") has committed to
make advances ("Advances") to the Borrower, which Advances are evidenced by a
promissory note (the "Note") issued by the Borrower to the Assignor.
The Assignor and (the Assignee) agree as follows:
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor,
without recourse to the Assignor, a portion of the Assignor's rights and
obligations under the Credit Agreement as of the Effective Date (as defined
below) which represents the percentage interest specified on Schedule 1 of
all outstanding rights and obligations of the Lenders under the Credit
Agreement (the "Assigned Interest"), including, without limitation, such
percentage interest in the Commitment as in effect on the Effective Date, the
Advances outstanding on the Effective Date and the Notes. After giving
effect to such sale and assignment, the Assignee's Commitment will be as set
forth in Section 2 of Schedule 1. The effective date of this sale and
assignment shall be the date specified on Schedule 1 hereto (the "Effective
Date").
2. On the Effective Date, the Assignee will pay to the Assignor, in
same day funds, at such address and account as the Assignor shall advise the
Assignee, the principal amount of the Advances outstanding under the Credit
Agreement which are being assigned hereunder, and the sale and assignment
contemplated hereby shall thereupon become effective. From and after the
Effective Date, the Assignor agrees that the Assignee shall be entitled to
all rights, powers and privileges of the Assignor under the Credit Agreement
and the Note to the extent of the Assigned Interest, including without
limitation (i) the right to receive all payments in respect of the Assigned
Interest for the period from and after the Effective Date, whether on account
of principal, interest, fees, indemnities in respect of claims arising after
the Effective Date (subject to Section 10.04 of the Credit Agreement),
increased costs, additional amounts or otherwise; (ii) the right to vote and
to instruct the Administrative Agent under the Credit Agreement based on the
Assigned Interest; (iii) the right to set-off and to appropriate and apply
deposits of the Borrower as set forth in the Credit Agreement; and (iv) the
right to receive notices, requests, demands and other communications. The
Assignor agrees that it will promptly remit to the Assignee any amount
received by it in respect of the Assigned Interest (whether from the Borrow-
er, the Administrative Agent or otherwise) in the same funds in which such
amount is received by the Assignor.
3. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit
Agreement or the Notes or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, the Notes or any
other instrument or document furnished pursuant thereto; (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under the Credit Agreement, the Notes or
any other instrument or document furnished pursuant thereto; and (iv)
attaches its Note and requests that the Administrative Agent obtain new
Note[s] from the Borrower in accordance with the terms of subsection 10.07(d)
of the Credit Agreement.
4. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 6.01(e) thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Lender Assignment; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Arrangers, the Assignor or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking
or not taking action under the Credit Agreement and the Notes; (iii) appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under the Credit Agreement and the Notes
as are delegated to the Administrative Agent by the terms thereof, together
with such powers as are reasonably incidental thereto; (iv) agrees that it
will perform in accordance with their terms all of the obligations which by
the terms of the Credit Agreement and the Notes are required to be performed
by it as a Lender; (v) specifies as its Domestic Lending Office (and address
for notices) and Eurodollar Lending Office the offices set forth beneath its
name on the signature pages hereof; (vi) attaches the forms prescribed by the
Internal Revenue Service of the United States certifying as to the Assignee's
status for purposes of determining exemption from United States withholding
taxes with respects to all payments to be made to the Assignee under the
Credit Agreement (and the Notes) or such other documents as are necessary to
indicate that all such payments are subject to such rates at a rate reduced
by an applicable tax treaty; and (vii) confirms that it has paid the
processing and recordation fee referred to in subsection 10.07(a)(iii) of the
Credit Agreement.
5. Following the execution of this Lender Assignment, it will be
delivered to the Administrative Agent for acceptance and recording by the
Administrative Agent. Upon such acceptance and recording and receipt of any
consent of the Borrower required pursuant to subsection 10.07(a), as of the
Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Lender Assignment, have the rights and
obligations of a Lender thereunder and under the Notes and (ii) the Assignor
shall, to the extent provided in this Lender Assignment, relinquish its
rights and be released from its obligations under the Credit Agreement and
the Notes.
6. Upon such acceptance, recording and consent, from and after the
Effective Date, the Administrative Agent shall make all payments under the
Credit Agreement and the Notes in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and
commitment fees with respect thereto) to the Assignee. The Assignor and
Assignee shall make all appropriate adjustments in payments under the Credit
Agreement and the Notes for periods prior to the Effective Date directly
between themselves.
7. This Lender Assignment shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Lender Assign-
ment to be executed by their respective officers thereunto duly authorized,
as of the date first above written, such execution being made on Schedule 1
hereto.
Schedule 1
to
Lender Assignment
Dated ,
Section 1.
Total Credit Agreement Commitments: $
Percentage Interest:1 %
Amount of Assigned Share: $
Section 2.
Assignee's Commitment: $
Section 3.
Effective Date:2 ,
[NAME OF ASSIGNOR]
By
Title:
[NAME OF ASSIGNEE]
By
Title:
1 Specify percentage to no more than 8 decimal points.
2 See Section 10.07(a). Such date shall be at least 5 Business Days after
the execution of this Lender Assignment.
Domestic Lending Office (and
address for notices):
[Address]
Eurodollar Lending Office:
[Address]
Consented to this day
of ,
NORTH ATLANTIC ENERGY CORPORATION
By
Title:
Accepted this day
of ,
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent
By
Title:
EXHIBIT 10.16.1
FIRST AMENDMENT TO RATE AGREEMENT
THIS FIRST AMENDATORY AGREEMENT dated as of December 5, 1989 is between
the parties to the agreement dated as of November 22, 1989 (the "Rate
Agreement") between Northeast Utilities Service Company, acting on behalf of
its parent Northeast Utilities, and the Governor and Attorney General of the
State of New Hampshire, acting on behalf of the State of New Hampshire (the
State").
WHEREAS, the parties desire to amend the Rate Agreement in the respects
specified below, and the Attorney General is authorized to act for the State
in agreeing to such amendments.
NOW, THEREFORE, in consideration of the mutual agreements below, the
Parties agree as follows:
1. Amendment of Paragraph 3(a). Paragraph 3(a) of the Rate Agreement
is hereby amended to read as follows:
3. NU System Capacity - (a) To assure an adequate supply of electric
service to the ratepayers of New Hampshire, NU system companies shall provide
capacity to Stand-Alone PSNH and NUNH after the First Effective Date through
a contract or contracts for unit entitlements designed to provide capacity at
the average cost of the NU system. (NU has provided the State with a
designation of the generating units from which the capacity is expected to be
provided and the estimated capacity cost per kilowatt year-by-year in
Appendix A to a letter dated November 20, 1989 from counsel for NU to Larry
Smukler, Senior Assistant Attorney General for the State of New Hampshire. A
copy of that letter and Appendix A thereto is attached hereto as Exhibit F.)
The capacity arrangement shall remain in effect for ten years unless the
Merger Agreement is terminated. In the event the Merger Agreement is
terminated, the capacity arrangement shall continue until October 31, 1995 or
such earlier date as may be specified in a notice of cancellation given by
Stand-Alone PSNH to NU after the effective date of such termination (the
"Termination Date") and at least two years prior to the date on which such
cancellation is to become effective, as Stand-Alone PSNH's capacity
requirements, as determined in accordance with Paragraph 3(b) hereof. The
capacity arrangement shall then terminate unless the Merger Agreement is
terminated under circumstances which require NU to pay Stand-Alone PSNH
termination fee under the Merger Agreement and Stand-Alone PSNH elects within
six months of the Termination Date to extend the capacity arrangement until
October 31, 1999. Stand-Alone PSNH shall specify in its notice of such
election the number of megawatts of capacity it will require for each year
under the arrangement. Stand-Alone PSNH shall provide the NU system companies
right of first refusal to any of the capacity provided by the NU system
companies that it proposes to resell.
2. Amendment of Schedule I to Exhibit A. The definition of "Recovery
Period" in paragraph H of Schedule I to Exhibit A. to the Rate Agreement is
hereby amended to read as follows:
The Recovery Period shall begin on the date that is six months after the
end of the "fixed rate period" (as that term is defined in the Agreement
dated November 22, l989 between Northeast Utilities Service Company, on
behalf of NU, and NH) and shall end on the date that is ten years after the
letter of the In-Service Date or the First Effective Date.
3. Addition of Exhibit F. The attachment hereto which is identified as
Exhibit F is hereby made Exhibit F to the Rate Agreement.
IN WITNESS WHEREOF, each of the Parties has duly executed this First
Amendatory Agreement.
NORTHEAST UTILITIES SERVICE COMPANY
By /s/Bernard M. Fox
THE STATE OF NEW HAMPSHIRE
By /s/John P. Arnold
New Hampshire
Attorney General
EXHIBIT F
November 20, 1989
Larry M. Smukler, Esq.
Senior Assistant Attorney General
Office of the Attorney General
Sate House Annex
Concord, NH 03301
Dear Larry:
Enclosed as Appendix A to this letter are the updated capacity costs,
transmission costs and the percentage of slice associated with the transfer
of capacity from the NU system companies to PSNH. At Norman Stahl's request,
this letter and Appendix A are cross-referenced in paragraph 3 of the
proposed agreement between NU and the State of New Hampshire. This letter
supersedes my prior letter to you of July 21, 1989.
Very truly yours,
/s/C. Duane Blinn
Day, Berry and Howard
Counsellors at Law
CDB/vw
Enclosure
cc: Frederick J. Coolbroth, Esq.
Mr. Robert E. Busch
Thomas D. Rath, Esq.
John B. Nolan, Esq.
Gerald Garfield, Esq.
John R. Bashaw, Esq.
Jeffrey G. Grody, Esq.
J. Miles Read, Esq.
APPENDIX A
CAPACITY COSTS ASSOCIATED WITH THE TRANSFER OF CAPACITY FROM THE NU SYSTEM
COMPANIES TO PSNH.
These capacity transfers are made from a slice of NU system units with
slice percentages and total costs (including transmission) as shown below.
Units Percentage
of Slice (%)
Millstone Unit 1 10.73
Millstone Unit 2 10.73
Millstone Unit 3 17.54
Middletown Unit 3 5.14
Middletown Unit 4 8.56
Montville Unit 6 8.77
Norwalk Harbor Unit 1 3.51
Norwalk Harbor Unit 2 3.72
South Meadow Unit 11 1.19
South Meadow Unit 12 1.19
South Meadow Unit 13 1.19
South Meadow Unit 14 1.19
Cos Cob Unit 10 0.58
Cos Cob Unit 11 0.58
Cos Cob Unit 12 0.58
Northfield 24.80
100.00
Estimated Estimated
Slice of System Transmission Total
Year Capacity Cost Cost Cost
($/KW-YR) ($/KW-YR) ($/KW-YR)
1990 184.2 10.0 194.2
1991 185.3 10.0 195.3
1991 184.4 10.0 194.4
1992 193.0 10.0 203.0
1994 183.7 10.0 193.7
1995 198.5 10.0 208.5
1996 183.2 10.0 193.2
The base rate level of the FPPAC assumes the following annual capacity
needs for NUNH. These needs take into account a 25% allocation to NUNH of
the capability responsibility benefit resulting from the combination of the
NU system companies with NUNH as a single pool participant.
Year Estimated NUNH
Capacity Need (MW)
1990 0
1991 0
1992 0
1993 0
1994 0
1995 0
1996 0
EXHIBIT 10.16.2
SECOND AMENDMENT TO RATE AGREEMENT
THIS SECOND AMENDATORY AGREEMENT dated as of December 12, 1989 is
between the parties to the agreement dated as of November 22, 1989, as
amended by the First Amendatory Agreement dated as of December 5, 1989 (the
"Rate Agreement") between Northeast Utilities Service Company, acting on
behalf of its parent Northeast Utilities, and the Governor and Attorney
General of the State of New Hampshire, acting on behalf of the State of New
Hampshire (the "State").
WHEREAS, the parties desire to amend the Rate Agreement in the respects
specified below, and the Attorney General is authorized to act for the State
in agreeing to such amendments.
NOW, THEREFORE, in consideration of the mutual agreements below, the
Parties agree as follows:
1. Amendment of Paragraph A and B of Exhibit B. The provisions of
paragraphs A and B of the Return on Equity Collar on pages 1 through 3 of
Exhibit B of the Rate Agreement are hereby amended to read as follows:
A. In the event the cumulative average net income ROE ("NI ROE") for
the entire fixed rate period, as defined below, for Stand-Alone PSNH, and/or
Stand-Alone PSNH and NUNH exceeds 13.25% or more on a net present value basis
("NPV"), 100% of any excess above 13.25% will be applied first as a credit to
reduce the amount of any unamortized SPP or NHEC deferrals or Seabrook
cancellation cost deferrals and, in the event any amount remains after such
application, the remainder will be credited to customer bills. The
determination of such excess shall be made on an annual basis beginning
twelve months after the Termination Date or the Acquisition Effective Date;
or
B. A prompt general rate increase or a surcharge of base rates will be
implemented if the cumulative NPV average NI ROE for Stand-Alone PSNH and/or
for Stand-Alone PSNH and NUNH is forecasted to fall below 8% in the third
12-month period after the rate increase described in paragraph 5(a)(ii) of
the Agreement, 9% in the fourth, 9-3/4% in the fifth and 10-1/2% in the sixth
12-month period (whether or not any portion thereof falls within or outside
of the fixed rate period) after the rate increase described in paragraph
5(a)(ii) of the Agreement which will permit the NI ROE to at least attain the
specified minimum level for the period. No floor amount will be applicable
from the First Effective Date through the second 12-month period after the
effective date of the rate increase described in paragraph 5(a)(ii) of the
Agreement.
2. Amendment of Paragraph B.D. of Exhibit C. The provisions of paragraph
B.D) on pages 3 through 5 of Exhibit C. to the Rate Agreement are hereby
amended to read as follows:
D. The entire payment made to qualifying facilities ("QF") and other
small power producers facilities (which includes both capacity and energy
expenses). The FPPAC base amounts listed in Schedule 1 include costs based
on the rates presently in effect for these facilities for the fixed rate
period. The following rules shall be applicable to costs with respect to the
eight specific small power producers (SPP's) listed in Schedule 2 hereto:
For the period from the First Effective Date to 1/1/92, the difference
between the actual costs paid to these SPP's and the assumed avoided cost
will be deferred.
The balance at 1/1/92 will be amortized in ten equal annual installments
beginning in 1992. For each of the calendar years beginning 1992 through
the end of the fixed rate period, the difference between the actual costs
paid to these SPP's and the assumed avoided cost will be deferred and will be
amortized in ten equal annual installments. In order to provide for a
sharing of benefits resulting from a reduction in SPP costs, 90% of the above
amortization will be included in the FPPAC during the fixed rate period and
90% of the total projected amortization based on the assumption that no
reductions in SPP costs are achieved has been included in the FPPAC BA base
during the fixed rate period. Commencing with the first year after the end
of the fixed rate period, the amortization of any remainder of any such
deferral as may exist will be included in this FPPAC and in each of the years
in which there is an unamortized balance, such balance will be included in
the rate base of NUNH for the purpose of determining revenue requirements.
The assumed avoided cost for each year is as follows:
Year Avoided Cost (cents/kWh)
1990 5.8
1991 6.0
1992 6.6
1993 6.8
1994 6.9
1995 7.2
1996 7.5
After FPPAC ceases to exist, any unrecovered balance will continue to be
amortized through rates over the balance of the applicable amortization
periods specified above. The FPPAC base amounts listed in Schedule 1 for the
fixed rate period include estimates of the effects of the above deferrals,
exclusions and amortization assuming there is no success in reducing the
payments to the eight SPPs identified in Exhibit C - Schedule 2.
3 Amendment of Schedule 1 to Exhibit C. Schedule 1 to Exhibit C is
amended to read as shown in the attachment hereto.
IN WITNESS WHEREOF, each of the parties has duly executed this Second
Amendatory Agreement.
NORTHEAST UTILITIES SERVICE COMPANY
By: /s/ Robert E. Busch
Senior Vice President-Finance
THE STATE OF NEW HAMPSHIRE
By: /s/ John P. Arnold
New Hampshire Attorney General
ATTACHMENT
EXHIBIT C - SCHEDULE 1
ANNUAL BASE RATE LEVEL OF THE FUEL CHARGE ("BA")
IN THE FUEL AND PURCHASED POWER ADJUSTMENT CLAUSE ("FPPAC")
Fuel and Purchased Power "BA"
Seabrook Seabrook
Pre-Commercial Post-Commercial
Year Operation (cents/kWh) Operation (cents/kWh)
1990 3.291 3.444
1991 3.154 3.427
1992 3.263 3.760
1993 3.457 4.104
1994 3.609 4.429
1995 3.985 4.857
1996 4.213 5.054
Note: This base rate level of fuel and purchased power assumes an initial
capital structure and cost for NEWCO as follows:
Structure Cost
Debt 80% 11.5 and 15.0%
Equity 20% 13.75%
At the Second Effective Date the base rate level fuel charges will be updated
using the actual NEWCO capital structure and cost and to reflect the results
of any renegotiation with the New Hampshire Electric Cooperative, Inc. It is
intended that such updates will have no impact on total rates if the
reference assumptions, as updated, are achieved
ADOPTION
WHEREAS, on November 22, 1989, Northeast Utilities Service Company
("NUSCO"), acting on behalf of its parent Northeast Utilities ("NU"), and the
Governor and Attorney General of the State of New Hampshire, acting on behalf
of the State of New Hampshire (the "State") entered into an agreement that
expressed the obligations of NU and the State with respect to NU's proposed
acquisition of Public Service Company of New Hampshire ("PSNH") and the
consummation of NUSCO's plan of reorganization for PSNH (the "Plan"); and
WHEREAS, said agreement between NUSCO and the State was amended on
December 5, 1989, and December 12, 1989 (the November 22, 1989 agreement and
the two subsequent amendments are referred to herein as the "Rate
Agreement"); and
WHEREAS, on April 20, 1990, the United States Bankruptcy Court for the
District of New Hampshire confirmed NUSCO's Plan; and
WHEREAS, the new Board of Directors for PSNH has authorized PSNH to
adopt the Rate Agreement.
NOW THEREFORE, pursuant to Paragraph 20 of the Rate Agreement, effective
as of the date set forth below PSNH hereby adopts the Rate Agreement, and
hereby agrees to be bound by all of the terms, conditions representations and
obligations set forth therein as if PSNH were an original party to the Rate
Agreement.
IN WITNESS WHEREOF, PSNH has duly executed this Adoption as of the 10th
day of July, 1990.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
By: /s/ Leon E. Maglathlin Jr.
Its: President
ACCEPTED
THE STATE OF NEW HAMPSHIRE
By: /s/ John P. Arnold
New Hampshire Attorney General
ACCEPTED
NORTHEAST UTILITIES SERVICE COMPANY
By: /s/ William B. Ellis
EXHIBIT 10.16.3
THIRD AMENDMENT TO THE RATE AGREEMENT
This THIRD AMENDATORY AGREEMENT executed as of the date written below,
is between the parties to the agreement dated as of November 22, 1989, as
amended by the First Amendatory Agreement dated as of December 5, 1989, and
the Second Amendatory Agreement dated as of December 12, 1989 (the "Rate
Agreement") between Northeast Utilities Service Company, acting on behalf of
its parent Northeast Utilities, and the Attorney General of the State of New
Hampshire, acting on behalf of the State of New Hampshire (the "State").
WHEREAS, the parties desire to amend the Rate Agreement in the respects
specified below, and the Attorney General is authorized to act for the State
in agreeing to such amendments.
NOW, THEREFORE, in consideration of the mutual agreement below, the
Parties agree as follows:
1. Definition of "Cumulative Net Present Value of Earnings for Common" for
Purposes of the James River/Wausau Papers Special Contracts.
The paragraph in Exhibit B to the Rate Agreement establishing how PSNH's
Cumulative Net Present Value of Earnings for Common shall be computed (DR
89-244, Ex. NU 1E, paragraph beginning on the third line from the bottom of
page D-83 and carried over onto page D-84) shall, subject to the approval of
the New Hampshire Public Utilities Commission (the "Commission"), be amended
and restated as follows:
The Cumulative Net Present Value of Earnings for Common shall be the sum of
the present value of Stand-Alone PSNH or NUNH earnings for common as reported
in the FERC Form No. 1 from the base year through the current year (i)
adjusted to eliminate the effects of any accruals recorded for expected
future refunds or rate increases as a result of the operation of this collar
from the base year through the current year, (ii) if PSNH is acquired by NU,
the earnings for common shall be further adjusted to eliminate any impacts of
the Seabrook investment during the Interim Period, and (iii) shall be further
adjusted to eliminate the effect of the discounts provided to James River
Corporation in Special Contract Electricity NUPUC-71 and to Wausau Papers of
New Hampshire in Special Contract - Electricity NUPUC-72, on file with the
NHPUC on June 22, 1993. The present value of earnings for common shall be the
earnings for common for the reported year divided by the present value factor
applicable to that year.
2. Amendment of Paragraph 5 and 8 of the Rate Agreement to Prevent
Compounding the Increases in Nuclear Decommissioning Costs.
a. Amendment of Paragraph 5(a)(v). Paragraph 5(a)(v) of the Rate
Agreement relative to adjustments in base rates in addition to the annual
5.5% base rate changes (DR 89-244, Ex. NU 1E, pages D-12 to D-13) shall,
subject to the approval of the Commission, be amended and restated as
follows:
(v) except for changes required by subparagraphs (ii), (iii) and (iv)
above, the only changes to base rates during the period commencing on the
First Effective Date and ending six years after the effective date of the
rate increase referred to in paragraph (a)(ii) (the "fixed rate period") will
be ones to adjust rates (A) for legislative or regulatory changes such as
changes to federal or state tax laws or regulations of environmental orders,
regulations, and laws, which require capital expenditures of at least
$20,000,000 or an increase or decrease in annual expenses of at least
$2,000,000, or (B) to reflect changes required by the Nuclear Decommissioning
Financing Committee in the level of monthly payments to be made into the
Nuclear Decommissioning Fund from the level prescribed in the Committee's
Seventeenth Supplemental Order of June 2, 1989, or (C) to provide revenues to
accomplish programs mandated for Stand-Alone PSNH or NUNH by legislators or
regulators, or (D) to recover costs associated with conservation and load
management programs that have been undertaken with the specific approval of
the NUPUC. In the event that a change or circumstance of the nature described
in clause (A), (B), (C) or (D) above occurs, Stand-Alone PSNH (or NUNH) shall
be entitled to file for a temporary rate increase, subject to refund, and the
temporary rate increase if granted by the NHPUC will remain in effect until a
final order by the NHPUC after a determination that the additional revenues
are associated with the reasonable expenses caused by such change. Rate
adjustments authorized under this paragraph, except for rate adjustments
authorized by clause (B) above, will increase or decrease the ongoing base
rate level which is subject to the 5.5% annual increases occurring in the
remainder of the fixed rate period. In addition, to the extent any new
accounting standards are promulgated during the fixed rate period,
Stand-Alone PSNH (or NUNH) shall be entitled to the same general rate
treatment accorded other utilities in the State by the NHPUC, including, but
not limited to, new accounting rules currently being contemplated by the
Financial Accounting Standards Board for Post-retirement benefits other than
pensions.
b. Amendment of Paragraph 8(a). Paragraph 8(a) of the Rate Agreement
relative to the obligations for payments into the Nuclear Decommissioning
Financing Fund and recovery of nuclear decommissioning costs (DR 89-244, Ex.
NU 1E, page D-17) shall, subject to the approval of the Commission, (the
"Commission"), be amended and restated as follows:
8. Decommissioning and Low Level Nuclear Waste.
Seabrook decommissioning costs, at the level specified by the Nuclear
Decommissioning Financing Committee's Seventeenth Supplemental Order of June
2, 1989, have been included in the rate increases provided in paragraph 5 of
this Agreement. All decommissioning costs attributable to Stand-Alone PSNH's
and later NEWCO's ownership interest in the Seabrook Project, including any
adjustments ordered by the Nuclear Decommissioning Financing Committee to the
levels of contributions in said Seventeenth Supplemental Order and subject to
paragraph 5(a)(v)(B) in this Agreement, shall be collected from NUNH by NEWCO
through Section E of Schedule I of the Unit Contract with respect to Seabrook
Nuclear Power Plan, Unit No. 1 ("Power Contract") and in accordance with New
Hampshire law. NEWCO will make all required payments to the Nuclear
Decommissioning Financing Fund.
c. Amendment of Paragraph 8(b). Paragraph 8(b) of the Rate Agreement
relative to nuclear decommissioning costs treatment in the event of a
premature decommissioning of Seabrook (DR 89-244, Ex. NU 1E, page D-18)
shall, subject to the approval of the Commission, be amended and restated as
follows:
(b) In the event of premature decommissioning of Seabrook,
decommissioning costs shall continue to be collected pursuant to paragraph
(a) under the Power Contract with NEWCO, and the NHPUC shall permit the pass
through to customers of the decommissioning costs NUNH pays to NEWCO in
accordance with paragraphs 5(a)(v) and 8(a) of this Agreement and New
Hampshire law.
3. Amendment of Paragraph B.E)(2) of Exhibit C - Delay in Recovery of
Deferred Seabrook Capital Expense. Paragraph B.E)(2) of Exhibit C to the Rate
Agreement relative to costs paid to NEWCO under the Seabrook Power Contract
that are recovered under FPPAC (DR 89-244, Ex. NU 1E, page D-96) shall,
subject to the approval of the Commission, be amended and restated as
follows:
(2) After the Second Effective Date, the entire payment made under the
Power Contract after Seabrook operates (but excluding decommissioning
payments which are to be made directly to the state Nuclear Decommissioning
Fund and which are included in the rates provided in paragraph 5 of the
Agreement); except for depreciation or amortization of, and a return on,
Stand-Alone PSNH's share of costs incurred after the First Effective Date to
place Seabrook in commercial operation which are determined by the NHPUC to
be imprudent in accordance with subparagraph (3) of this paragraph E;
provided, however, the charges made by NEWCO and collected from NUNH under
paragraph U of Schedule I of the Power Contract for the period from December
1, 1997 through May 31, 1998 will be deferred, with interest paid on the
unrecovered balance at three percent (3.00%), and thereafter will be
recovered through FPPAC beginning June 1, 1998 over a thirty-six month period
on an amortization basis comparable to that described in paragraph H of
Schedule I in addition to the Deferred Capital Expenses expected to be
collected under paragraph H of Schedule I of the Power Contract.
IN WITNESS WHEREOF, each of the Parties has duly executed this Third
Amendatory Agreement as of the day and year first above written.
NORTHEAST UTILITIES SERVICE Company
By: /s/ John W. Noyes
Date: December 28, 1993
THE STATE OF NEW HAMPSHIRE
By: /s/ Jeffrey R. Howard
Date: December 3, 1993
EXHIBIT 10.16.4
FOURTH AMENDMENT TO THE RATE AGREEMENT
THIS FOURTH AMENDATORY AGREEMENT dated as of the date last written below
is between the parties to the agreement dated as of November 22, 1989, as
amended by the First Amendatory Agreement dated as of December 5, 1989, the
Second Amendatory Agreement dated as of December 12, 1989, and the Third
Amendatory Agreement dated as of December 28, 1993 (the "Rate Agreement")
between Northeast Utilities Service Company, acting on behalf of its parent
Northeast Utilities, and the Governor and Attorney General of the State of
New Hampshire, acting on behalf of the State of New Hampshire (the "State").
WHEREAS, the parties desire to amend the Rate Agreement in the respects
specified below, and the Attorney General is authorized to act for the State
in agreeing to such amendments.
NOW, THEREFORE, in consideration of the mutual agreement below, the
Parties agree as follows:
I. By Report and Order No. 21,090 in Dockets DR 93-092 and DE 93-114,
North Atlantic Energy Corporation (NAEC) was granted permission to purchase
and acquire an ownership interest in Seabrook Station Unit I from the Vermont
Electric Generation and Transmission Cooperative, Inc. Pursuant to the same
order, the Commission accepted a recommendation to approve PSNH's decision to
enter into a unit power sales contract with NAEC under which PSNH would
purchase the output of this new ownership interest from NAEC. These
approvals were conditioned upon there being no change in rates paid by
customers of PSNH under base assumptions. The transfer of ownership was
completed on February 15, 1994.
II. In order to accomplish the objective of generating no increase in
base rates due to the newly acquired interest in Seabrook, the "BA"
assumptions under the Exhibit C, Schedule 1 of the Rate Agreement, as
amended, need to be recalculated. A change to the "BA" assumptions
necessitates an amendment to the Rate Agreement. The Parties hereby agree
that the Rate Agreement is amended so that base rates reflect the "BA"
figures which are depicted in Schedule A to this Fourth Amendment. This
Fourth Amendment is subject to the approval of the New Hampshire Public
Utilities Commission under Paragraph 17 of the Rate Agreement.
III. This Fourth Amendment is executed by the parties subject to the
approval of PSNH creditors and the New Hampshire Public Utilities Commission.
IN WITNESS WHEREOF, each of the Parties has duly executed this Fourth
Amendatory Agreement as of the day and year first above written.
NORTHEAST UTILITIES SERVICE COMPANY
By /s/ John J. Roman
Date: 9-9-94
THE STATE OF NEW HAMPSHIRE
Jeffrey R. Howard
Attorney General
By /s/ Wynn E. Arnold,
Assistant Attorney General
Date: 9-21-94
SCHEDULE A
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
RESTATEMENT OF THE FPPAC BA FACTOR
REFLECTING EFFECT OF VEG&T ENTITLEMENT
(1)
1994
Updated, Restated 1994
Calculation of BA Change Costs Using Act. (2) Updated, Restated
for Effect of the VEG&T NAEC Capital Adjust for Reflecting
Seabrook Entitlement Structure VEG&T VEG&T
- -----------------------------------------------------------------------------
- -
Energy costs for own
generating units,
purchases and sales of
energy in Accounts 501,
518, 547 and 555 103,285 103,285
Small power producer
costs net of
amortizations 109,767 109,767
Seabrook Power Contract,
non energy 133,419 1,352 134,771
NHEC buyback agreement
costs, non energy 7,864 7,864
NU to NUNH slice transfer
of capacity - 0
Costs of Sharing Agreement
and NEPOOL (24,937) (24,937)
- ----------------------------------------------------------------------------
Total Amount - ENf 329,398 1,352 330,750
Total Amount - PCf - - -
Total Amount - EA - - -
- ----------------------------------------------------------------------------
Total Costs 329,398 1,352 330,750
============================================================================
Total system requirements -
kWh Req. 8,511,000 8,511,000
Delivery Efficiency
- DE .930233 .930233
- ----------------------------------------------------------------------------
Net system sales 7,917,213 7,917,213
============================================================================
Base Factor - BA ($/KWh) $ .04161 $ .04178
============================================================================
(1) As filed in Docket DR 92-165
(2) Reflects the impact of the VEG&T entitlement on Joint Dispatch Savings
and the prospective level of Seabrook Nuclear Property Tax approved by
the State in House Bill 53 on April 16, 1993.
SCHEDULE A
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
RESTATEMENT OF THE FPPAC BA FACTOR
REFLECTING EFFECT OF VEG&T ENTITLEMENT
(1)
1995
Updated, Restated 1995
Calculation of BA Change Costs Using Act. (2) Updated, Restated
for Effect of the VEG&T NAEC Capital Adjust Reflecting
Seabrook Entitlement Structure for VEG&T VEG&T
- -----------------------------------------------------------------------------
Energy costs for own
generating units,
purchases and sales of
energy in Accounts 501,
518, 547 and 555 124,292 124,292
Small power producer
costs net of amortizations 116,190 116,190
Seabrook Power Contract,
non energy 147,284 1,268 148,552
NHEC buyback agreement
costs, non energy 8,625 8,625
NU to NUNH slice transfer
of capacity - 0
Costs of Sharing Agreement
and NEPOOL (20,301) (20,301)
Total Amount - ENf 376,090 1,268 377,358
Total Amount - PCf - - -
Total Amount - EA - - -
- -----------------------------------------------------------------------------
Total Costs 376,090 1,268 377,358
=============================================================================
Total system requirements -
kWh Req. 8,751,000 8,751,000
Delivery Efficiency - DE .930233 .930233
- -----------------------------------------------------------------------------
Net system sales 8,140,469 8,140,469
=============================================================================
Base Factor - BA ($/KWh) $ .04620 $ .04636
=============================================================================
(1) As filed in Docket DR 92-165
(2) Reflects the impact of the VEG&T entitlement on Joint Dispatch Savings
and the prospective level of Seabrook Nuclear Property Tax approved by
the State in House Bill 53 on April 16, 1993.
SCHEDULE A
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
RESTATEMENT OF THE FPPAC BA FACTOR
REFLECTING EFFECT OF VEG&T ENTITLEMENT
(1)
1996
Updated, Restated 1996
Calculation of BA Change Costs Using Act. (2) Updated, Restated
for Effect of the VEG&T NAEC Capital Adjust for Reflecting
Seabrook Entitlement Structure VEG&T VEG&T
- ---------------------------------------------------------------------------
Energy costs for own
generating units,
purchases and sales of
energy in Accounts 501,
518, 547 and 555 145,862 145,862
Small power producer
costs net of amortizations 122,602 122,602
Seabrook Power Contract,
non energy 154,211 1,119 155,330
NHEC buyback agreement
costs, non energy 10,019 10,019
NU to NUNH slice transfer
of capacity - 0
Costs of Sharing Agreement
and NEPOOL (20,204) (20,204)
- --------------------------------------------------------------------------
Total Amount - ENf 412,490 1,119 413,609
Total Amount - PCf - - -
Total Amount - EA - - -
- --------------------------------------------------------------------------
Total Costs 412,490 1,119 413,609
==========================================================================
Total system requirements -
kWh Req. 8,974,000 8,974,000
Delivery Efficiency - DE .930233 .930233
- --------------------------------------------------------------------------
Net system sales 8,347,911 8,347,911
=========================================================================
Base Factor - BA ($/KWh) $ .04941 $ .04955
=========================================================================
(1) As filed in Docket DR 92-165
(2) Reflects the impact of the VEG&T entitlement on Joint Dispatch Savings
and the prospective level of Seabrook Nuclear Property Tax approved by
the State in House Bill 53 on April 16, 1993.
EXHIBIT 10.16.5
FIFTH AMENDMENT TO RATE AGREEMENT
This Fifth Amendment to Rate Agreement ("Amendment"), dated as of the date
last written below, is entered into by and between Northeast Utilities
Service Company ("NUSCO"), acting on behalf of its parent Northeast Utilities
("NU"), and the Attorney General of the State of New Hampshire, acting on
behalf of the State of New Hampshire.
WITNESSETH:
WHEREAS, the parties hereto are parties to that certain "Agreement"
identified at RSA 362-C:2(I) (the "Rate Agreement"), as subsequently amended;
and
WHEREAS, pursuant to Section 17 of the Rate Agreement, NUSCO and the
Attorney General may enter into modifications of the Rate Agreement as
necessary, and in circumstances when the New Hampshire Public Utilities
Commission ("Commission") is not designated to act; and
WHEREAS, Section 12 of the Rate Agreement provides for the renegotiation
of, among other things, power sales arrangements between Public Service
Company of New Hampshire ("PSNH") and several small power producers
identified at Exhibit D of the Rate Agreement; and
WHEREAS, on August 4, 1994 (supplemented by an addendum dated August 17,
1994), PSNH and several other parties filed a "Joint Settlement" in New
Hampshire Public Utilities Commission Docket No. DR 93-179, resolving all
issues with respect to the implementation of two "Settlement Agreements"
between PSNH and two of the small power producers identified in Exhibit D of
the Rate Agreement; and
WHEREAS, the parties to this Amendment desire to ensure consistency
between the terms of the Joint Settlement and the Rate Agreement;
NOW THEREFORE, the parties hereto agree as follows:
1. Condition to Effectiveness. This Amendment shall become effective only
on the condition that the Joint Settlement and this Amendment are approved by
the Commission.
2. Amendment to Rate Agreement Re: Wood Plants. The Rate Agreement is
hereby amended to the limited extent necessary to allow for the
implementation of the Joint Settlement according to its terms, as such terms
may be approved, modified or implemented by order of the Commission;
PROVIDED, that this Amendment shall not: (i) apply to, and may not be
construed as authorizing or implementing, or as precedent with respect to,
any other past or future transactions with any small power producers
identified in the Rate Agreement. Without limiting the foregoing, the Rate
Agreement is amended as follows:
A. PSNH will provide a total of $2.5 million during the "fixed rate
period under the Rate Agreement as guaranteed savings from the two Settlement
Agreements. These guaranteed savings will be applied to the IPP deferral
account and FPPAC as per the Joint Settlement.
B. Of this amount of guaranteed savings, PSNH shall be allocated a
total of $550,000 as its share of savings under the Joint Settlement.
C. PSNH costs associated with the "mitigation funds" created under the
Settlement Agreements, and issuance costs and increased business profits tax
liabilities associated with closing on Settlement Agreement transactions will
be set up in separate accounts to be amortized at a rate of 10% per year and
recovered through FPPAC during the remainder of the fixed rate period. After
the fixed rate period the remaining unamortized balances of these accounts
will be recovered through rates in a manner determined in the Commission.
D. The "Payment Amounts" under the Settlement Agreements will be added
to the IPP deferral account, and made subject to 10-year amortization
schedules. During the fixed rate period of 100% of the savings associated
with the Settlement Agreements will be applied to the IPP deferral account.
After the fixed rate period, 50% of the savings provided by the Settlement
Agreements will be applied to the IPP deferral accounts, and 50% flowed to
PSNH wholesale and retail customers through FPPAC or any successor clause
designated by the Commission.
This Fifth Amendment is executed by the parties subject to the approval
of PSNH creditors and the New Hampshire Public Utilities Commission.
IN WITNESS WHEREOF, each of the parties has duly executed this Fifth
Amendment to Rate Agreement pursuant to Section 17 of the Rate Agreement.
NORTHEAST UTILITIES SERVICE COMPANY
By: /s/ John J. Roman
Date: 9-9-94
THE STATE OF NEW HAMPSHIRE
By its attorneys,
Jeffrey R. Howard
Attorney General
/s/ Wynn E. Arnold
Assistant Attorney General
Civil Bureau
33 Capitol Street
Concord, N.H. 03301-6397
(603) 271-3658
EXHIBIT 10.23.5
THIRTY-SECOND AGREEMENT AMENDING
NEW ENGLAND POWER POOL AGREEMENT
THIS THIRTY-SECOND AGREEMENT, dated as of the 1st day of September, 1995, is
entered into by the signatory Participants for the amendment by them of the
New England Power Pool Agreement dated as of September 1, 1971 (the "NEPOOL
Agreement"), as previously amended by twenty-nine (29) amendments, the most
recent of which was dated as of May 1, 1993; as previously proposed to be
amended by a thirtieth amendment dated as of June 1, 1993 which has been
withdrawn; and as proposed to be amended by a pending thirty-first amendment
dated as of July 1, 1995.
WHEREAS, the NEPOOL Review Committee has been reconstituted, in response to a
general invitation issued in early 1995 by the NEPOOL Participants, to
include representatives of independent power producers ("IPPs"), power
marketers, power brokers, utility regulators, environmental groups and
others, and the Committee is currently discussing a restructuring of NEPOOL
in light of the emerging changes in the electric utility industry;
WHEREAS, the NEPOOL Review Committee's January 1995 Phase One Report
concluded as part of the NEPOOL restructuring that "NEPOOL membership should
be open to a broad spectrum of entities";
WHEREAS, IPPs are permitted to become Participants under current NEPOOL
provisions and the Participants are willing, consistent with the NEPOOL
Review Committee's Phase One Report, to amend the NEPOOL Agreement also to
permit power marketers and power brokers to become Participants;
WHEREAS, as an interim step in the restructuring of NEPOOL the
Participants are willing to amend the NEPOOL Agreement to permit power
marketers and power brokers to become Participants now, even before the
completion of the restructuring of NEPOOL, to facilitate their participation
in bulk power transactions in New England and more directly in the day-to-day
activities of NEPOOL;
WHEREAS, certain New England utilities that have chosen so far not to
become Participants have expressed their interest in amending language to the
NEPOOL Agreement in order to make membership in NEPOOL more desirable to
them;
WHEREAS, the amendments proposed herein do not change the voting and
governance provisions of the NEPOOL Agreement;
WHEREAS, representatives of certain of the IPPs and power marketers have
expressed in NEPOOL Review Committee discussions (1) the belief that any
amendments to the NEPOOL Agreement designed to effect the restructuring of
NEPOOL should be preceded by an amendment to the NEPOOL voting and governance
structure so that IPPs and power marketers can participate fully and have a
separate vote on all restructuring matters placed before the NEPOOL Executive
Committee, (2) the concern that the interests of IPPs and power marketers may
not be adequately addressed in the restructuring discussions in the NEPOOL
Executive Committee during the interim period when the terms of NEPOOL
restructuring are being discussed, and (3) the position that the issue of
whether and, if so, how to amend the definition of the term "Entity" under
Section 15.14 of the NEPOOL Agreement to include end-users should be
addressed and resolved during the NEPOOL restructuring process;
WHEREAS, during NEPOOL Review Committee discussions, various NEPOOL
Participants have expressed (1) their belief that the NEPOOL voting and
governance structure (a) should be fair, (b) should take into account the
interests of all members and reflect votes that are appropriately weighted in
relationship to each member's responsibilities and obligations (i.e.
transmission, generation and/or load), and (c) should minimize the
opportunities for gridlock, (2) their desire to involve substantively the
IPPs, power marketers, power brokers, Federal and state regulators, and any
other interested entities in the restructuring effort, but not to impede the
operations of NEPOOL during the restructuring process, and (3) the desire
first to assure the opportunity for broader membership by all entities
transacting business in the wholesale bulk power market in New England before
addressing whether and, if so, how to involve end- users in the Pool;
WHEREAS, in order to address the IPPs' and power marketers' beliefs,
concerns, positions, desires, and interests, the Participants have invited
IPPs, power marketers, and power brokers that elect to become Participants
after this Thirty- Second Agreement is effective to select a common
representative to receive notice of all meetings of the NEPOOL Executive
Committee, NEPOOL Operations Committee, and NEPOOL Policy Planning Committee
and to attend those meetings and act as their common spokesperson at such
meetings;
WHEREAS, those IPPs and power marketers involved in the NEPOOL Review
Committee effort which are listed in Attachment 1 to this Thirty-Second
Agreement have provided the Participants assurances that these IPPs and power
marketers support or do not oppose acceptance of this Thirty-Second Agreement
by the Federal Energy Regulatory Commission (the "Commission");
WHEREAS, in reliance on and subject to the assurances of the IPPs and
power marketers described in the preceding paragraph, the Participants, IPPs
and power marketers participating in the NEPOOL Review Committee effort have
agreed that governance and voting issues relative to IPPs and power marketers
are among the priority issues identified in the NEPOOL Review Committee's
Phase One Report and that they will continue to use their best efforts to
resolve these issues expeditiously through the NEPOOL Review Committee; and
WHEREAS, Participants, IPPs and power marketers have also agreed that
the issue of whether and, if so, how to amend the NEPOOL Agreement to permit
membership by those not eligible for NEPOOL membership after this
Thirty-Second Agreement becomes effective should be addressed before
completion of the NEPOOL restructuring process;
NOW THEREFORE, the signatory Participants hereby agree as follows:
SECTION 1
AMENDMENTS TO NEPOOL AGREEMENT
1. The definition of "Entity" in Section 15.14 of the NEPOOL
Agreement, as heretofore amended, is amended to read as follows:
Entity is any person or organization engaged in the electric utility
business (the generation and/or transmission and/or distribution of
electricity for consumption by the public, or the purchase, as principal or
broker, of electric energy and/or capacity for resale at wholesale), whether
the United States of America or Canada or a state or province or a political
subdivision thereof or a duly established agency of any of them, a private
corporation, a partnership, an individual, an electric cooperative or any
other person or organization recognized in law as capable of owning property
and contracting with respect thereto. No person or organization shall be
deemed to be an Entity if the generation, transmission, or distribution of
electricity by such person or organization is primarily conducted to provide
electricity for consumption by such person or organization or an affiliated
person or organization.
2. Section 5.15 of the NEPOOL Agreement, as heretofore amended, is
amended to re-letter paragraph (h) as paragraph (i) and by inserting the
following new paragraph (h) after present paragraph (g):
(h) The Management Committee shall have the authority, at the time that
it acts on an Entity's application pursuant to Section 1.2 to become a
Participant, to waive, conditionally or unconditionally, compliance by such
Entity with one or more of the obligations imposed by this Agreement if the
Committee determines that such compliance would be unnecessary or
inappropriate for such Entity and the waiver for such Entity will not impose
an additional burden on other Participants.
3. Section 5.16 of the NEPOOL Agreement, as heretofore amended, is
hereby amended to read as follows:
Each member of the Management Committee or that member's designee shall
be entitled to attend any meeting of the Executive Committee, Operations
Committee, and Policy planning Committee and shall have a reasonable
opportunity to express views on any matter to be acted upon at the meeting.
SECTION II
PARTICIPATION ON NEPOOL COMMITTEES
The Participants that are the signatories to this Thirty-Second
Agreement agree that they will cause their representatives to take action in
the NEPOOL Executive Committee, the NEPOOL Operations Committee and the
NEPOOL Policy Planning Committee to authorize the IPPs, power marketers and
power brokers that become Participants (collectively, such IPPs, power
marketers, and power brokers are hereinafter referred to as "non-utility
Participants") to designate as a group after this Thirty-Second Agreement
becomes effective, a non-voting representative for each of the NEPOOL
Executive Committee, NEPOOL Operations Committee, and NEPOOL Policy Planning
Committee. The right to designate such representatives to the NEPOOL
Executive Committee, NEPOOL Operations Committee, and NEPOOL Policy Planning
Committee shall be in addition to, and not in lieu of, such non-utility
Participants' rights under the existing provisions of the NEPOOL Agreement to
be represented by members on the NEPOOL Operations Committee and NEPOOL
Policy Planning Committee. If the non- utility Participants designate a
representative for the NEPOOL Executive Committee, NEPOOL Operations
Committee or NEPOOL Policy Planning Committee, that representative shall be
treated as if he or she were a member of that Committee for purposes of
notice of and participation in Committee meetings, but shall not be entitled
to vote, and shall not be deemed a member of the Committee for purposes of
determining the number of votes required for Committee action.
SECTION III
EFFECTIVENESS OF THE THIRTY-SECOND AGREEMENT
This Thirty-Second Agreement, and the amendments provided for above,
shall become effective on November 15, 1995, or on such other date as the
Federal Energy Regulatory Commission shall provide that such amendments shall
become effective.
SECTION IV
USAGE OF DEFINED TERMS
The usage in this Thirty-Second Agreement of terms which are defined in
the NEPOOL Agreement shall be deemed to be in accordance with the definitions
thereof in the NEPOOL Agreement.
SECTION V
COUNTERPARTS
This Thirty-Second Agreement may be executed in any number of
counterparts and each executed counterpart shall have the same force and
effect as an original instrument and as if all the parties to all the
counterparts had signed the same instrument. Any signature page of this
Thirty-Second Agreement may be detached from any counterpart of this
Thirty-Second Agreement without impairing the legal effect of any signatures
thereof, and may be attached to another counterpart of this Thirty-Second
Agreement identical in form thereto but having attached to it one or more
signature pages.
IN WITNESS WHEREOF, each of the signatories has caused a counterpart
signature page to be executed by its duly authorized representative, as of
the 1st day of September, 1995.
COUNTERPART SIGNATURE PAGE
TO THIRTY-SECOND AGREEMENT AMENDING
NEW ENGLAND POWER POOL AGREEMENT
DATED AS OF SEPTEMBER 1, 1995
The NEPOOL Agreement, being dated as of September 1, 1971, and being
previously amended by twenty-nine (29) amendments the most recent of which
was dated as of May 1, 1995, and as proposed to be amended by a pending
amendment dated as of July 1, 1995
(Participant)
By:
Name:
Title:
Address:
APPENDIX 1
The following independent power producers and power marketers who are
participating in the work of the NEPOOL Review Committee have provided the
Participants assurances that they support or do not oppose acceptance of the
foregoing Agreement by the Federal Energy Regulatory Commission:
Enron Power Marketing, Inc.
Coastal Electric Services Corp.
North American Energy Conservation, Inc.
KCS Power Marketing, Inc.
Electric Clearing House, Inc.
EXHIBIT 10.36.3
AMENDMENT NO. 3 TO
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN FOR
OFFICERS OF NORTHEAST UTILITIES SYSTEM COMPANIES
The first sentence of the definition of "Compensation" in Section II of the
Supplemental Executive Retirement Plan for Officers of Northeast Utilities
System Companies is hereby amended to read as follows, effective as of
January 1, 1996:
"Compensation" shall have the same meaning as provided
in the Retirement Plan, but shall also include amounts
disregarded pursuant to Section 401(a)(17) of the Code,
amounts (included in Compensation as earned) receipt of
which is deferred by a Participant pursuant to a plan
or agreement that is not qualified under the Code, and,
for any period in question, awards under the EICP and
the Incentive Plan to the extent made with respect to
performance during such period, each such award to be
allocated on a pro rata basis to each of the calendar
months in the period to which it relates.
EXHIBIT 10.39
NORTHEAST UTILITIES
DEFERRED COMPENSATION PLAN FOR TRUSTEES
AMENDED AND RESTATED DECEMBER 13, 1994
Each Trustee of Northeast Utilities (NU) who is not an employee of NU or any
of its affiliated companies may elect to defer payment to him or her of
compensation for his or her services as a member of the NU Board of Trustees
and committees thereof during any calendar year (excluding from the term
"compensation" reimbursement of travel and other incidental expenses incurred
for the benefit of, and in the course of rendering services to, NU) on the
following basis:
l. An election by a Trustee to defer payment of compensation shall apply to
all or any portion of cash and/or NU common share compensation earned during
a calendar year and shall be made in writing to the Secretary of NU prior to
the beginning of each calendar year, provided, that each newly elected
Trustee may make an election to defer payment of compensation for services to
be rendered during the year of his or her election as a Trustee at the time
of, or following his or her election but prior to the date of the rendering
of the first services for which compensation is to be deferred. Such
election, once made, shall be irrevocable for the period for which it is
made.
2. NU shall establish for each Trustee who elects to defer cash
compensation a "Deferred Cash Compensation Account" (which shall be solely a
book account) to which NU shall credit on the last day of each calendar
quarter (a) an amount equal to the cash compensation which would otherwise
have been paid to such Trustee during that calendar quarter and (b) interest
at the rate set forth in Section 37-l of the Connecticut General Statutes (as
amended from time to time) on the amount standing in such Trustee's Deferred
Cash Compensation Account as of the beginning of such quarter reduced by the
amount of any payments made during the first six weeks of that quarter under
paragraphs 3 and 4 of this plan. NU shall establish for each Trustee who
elects to defer NU common share compensation a "Deferred Stock Compensation
Account" (which shall be solely a book account) to which NU shall credit (a)
on each date such shares would otherwise have been paid to such Trustee, an
amount equal to the number of shares which would otherwise have been paid to
such Trustee on such date and (b) on each date on which a dividend, stock
split, split up, stock dividend, or dividend in kind or similar payment is
made or corporate change resulting in a payment to NU common shareholders
becomes effective ("accretions"), an amount equal to the number of NU common
shares that could have been purchased with such accretions with respect to
the shares in such Deferred Stock Compensation Account, assuming that each
such accretion was reinvested in additional NU common shares on the date
paid, at a rate equal to the closing price of an NU common share on the New
York Stock Exchange on such date. Within thirty days following the end of
each calendar year NU shall provide each Trustee for whom a Deferred Cash
and/or Deferred Stock Compensation Account has been established with a
statement of the amount standing to his or her credit as of the end of that
year.
3. At the time of each election to defer payment of compensation, a Trustee
shall also elect to receive distribution of the amounts credited to his or
her Deferred Cash and/or Deferred Stock Compensation Account, as the case may
be, during the period for which such election is made, together with the
interest and/or accretions thereon, as the case may be, upon, or commencing
with, the occurrence of one of the following events: termination of service
on the Board for any reason or a specified date which is after the period for
which the election is made. Such election, once made, shall be irrevocable
as to amounts credited with respect to the period for which the election is
made.
4. At the time of each election to defer payment of compensation, a Trustee
shall designate whether, upon or commencing with the occurrence of one of the
events set forth in paragraph 3, the amounts credited to his or her Deferred
Cash and/or Deferred Stock Compensation Account, as the case may be, during
the period for which such election is made, together with the interest and/or
accretions thereon, as the case may be, shall be paid to him or her in a lump
sum or in not more than five approximately equal annual installments. Such
election, once made, shall be irrevocable as to amounts credited with respect
to the period for which the election is made.
5. In the event that a Trustee shall die prior to the payment to him or her
of all amounts credited to his or her Deferred Cash and Deferred Stock
Compensation Accounts, the balance credited to such accounts at the time of
his or her death shall be paid to such beneficiaries as he or she shall have
designated in writing to the Secretary of NU (which designation may be
changed from time to time) or, in the absence of such a designation, to the
estate of such Trustee.
6. The amounts standing in Deferred Cash or Deferred Stock Compensation
Accounts shall be unfunded obligations of NU payable only under the terms
stated herein, and Trustees shall have no right or claim against any
specified assets of NU and shall have only a contractual right against NU
hereunder. Any payment to a Trustee from a Deferred Stock Compensation
Account shall be made in NU common shares purchased in the open market,
except as otherwise may be provided from time to time by the Board of
Trustees.
7. No Deferred Cash or Deferred Stock Compensation Account shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge
or encumbrance by a Trustee or any person claiming under or through him or
her, nor shall it be subject to the debts, contracts, liabilities,
engagements or torts of a Trustee or anyone else prior to actual payment
thereof.
8.This Plan may be amended or terminated by the Board of Trustees at any
time; provided, no such amendment or termination shall serve to diminish the
rights of a Trustee with respect to amounts credited to his or her Deferred
Cash and/or Deferred Stock Compensation Accounts or accelerate payment of
such amounts.
9.Nothing contained in this Plan shall be construed as an obligation of NU to
secure the re-election of any person as a Trustee of NU, or as an obligation
of any person to stand for re-election as a Trustee of NU or as a prohibition
against the resignation of any person as a Trustee.
EXHIBIT 10.40
DEFERRED COMPENSATION PLAN FOR OFFICERS OF NORTHEAST UTILITIES SYSTEM
COMPANIES ADOPTED SEPTEMBER 23, 1986
Each Officer of Northeast Utilities and/or its subsidiary companies
(hereinafter "the Company") may elect to defer payment to him or her of up to
75 percent of compensation for his or her services as an employee of a
Northeast Utilities system company on the following basis:
1. "Compensation" shall mean an officer's base salary, less any pre-tax
deductions (e.g., pre-tax deductions under the 401(k) Plan or the Flexible
Benefits Program). An election by an Officer to defer payment of compensation
shall apply to a selected percentage, but not more than 75 percent, of
compensation earned during a calendar year. An election to defer compensation
shall be made in writing to the Vice President and Controller of Northeast
Utilities Service Company (NUSCO) prior to the beginning of each calendar
year, provided, an election to defer payment of compensation for services to
be rendered during the calendar year 1986 shall be made no later than
September 30, 1986 and shall be applicable only to compensation earned after
that date. In addition, each newly elected Officer may make an election to
defer payment of compensation for services to be rendered during the year of
his or her election as an Officer, provided that such election to defer
payment of compensation shall be made within 30 days after his or her
election as an Officer and shall be made prior to the date of the rendering
of the first services for which compensation is to be deferred. Such
election, once made, shall be irrevocable for the period for which it is
made.
2. NUSCO shall establish for each Officer who elects to defer compensation
a "Deferred Compensation Account" (which shall be solely a book account) to
which NUSCO shall credit on the last day of each month (a) an amount equal to
the selected percentage of compensation which would otherwise have been paid
to such Officer during that calendar month and (b) interest at the rate set
forth in Section 37-1 of the Connecticut General Statutes (as amended from
time to time) on the amount standing in such Officer's Deferred Compensation
Account as of the beginning of such month reduced by the amount of any
payments made during the first two weeks of that month under paragraphs 3 and
4 of this Plan. Within sixty days following the end of each calendar year,
NUSCO shall provide each Officer for whom a Deferred Compensation Account has
been established with a statement of the amount standing to his or her credit
as of the end of that year.
3. At the time of each election to defer payment of compensation, an
Officer shall also elect when such deferred compensation, together with the
interest accrued thereon, shall be distributed to him or her. Such
distribution must occur upon or commence with (i) termination of employment
with a Northeast Utilities system company for any reason or (ii) a specified
date which is after the period for which the election is made. Such election,
once made, shall be irrevocable as to amounts credited with respect to the
period for which the election is made.
4. At the time of each election to defer payment of compensation, an
Officer shall designate whether, upon or commencing with the occurrence of
one of the events set forth in paragraph 3, the amounts credited to his or
her Deferred Compensation Account during the period for which such election
is made, together with the interest thereon, shall be paid to him or her in a
lump sum or in not more than five approximately equal annual installments
which shall be paid during the first thirty days of each year. Such election,
once made, shall be irrevocable as to amounts credited with respect to the
period for which the election is made.
5. In the event that an Officer shall die prior to the payment to him or
her of all amounts credited to his or her Deferred Compensation Account, the
balance credited to such account at the time of his or her death shall be
paid to such beneficiaries as he or she shall have designated in writing to
the Vice President and Controller of NUSCO; (which designation may be changed
from time to time) or, in the absence of such a designation, to the estate of
such Officer.
6. The amounts standing in Deferred Compensation Accounts shall be unfunded
obligations of the Northeast Utilities system company employing each officer
and shall be payable only under the terms stated herein. Officers shall have
no right or claim against any specified assets of the Company and shall have
only a contractual right against the Northeast Utilities system company
employing him or her.
7. No Deferred Compensation Account shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge or encumbrance
by an Officer or any person claiming under or through him or her, nor shall
it be subject to the debts, contracts, liabilities, engagements or torts of
an Officer or any one else prior to actual payment thereof.
8. This Plan may be amended or terminated by the Board of Trustees of
Northeast Utilities at any time, provided, no such amendment or termination
shall serve to diminish the rights of an Officer with respect to amounts
credited to his or her Deferred Compensation Account or accelerate payment of
such amounts.
9. Nothing contained in this Plan shall be construed as an assurance by the
Company of reelection of any person as an Officer of the Company, as an
obligation of any person to stand for reelection as an Officer of the
Company, or as a prohibition against the resignation of any person as an
Officer of the Company.
EXHIBIT 10.41
EXECUTION COPY
RECIPROCAL SUPPORT AGREEMENT AMONG
NORTHEAST NUCLEAR ENERGY COMPANY,
NORTH ATLANTIC ENERGY SERVICE CORPORATION,
CONNECTICUT YANKEE ATOMIC POWER COMPANY,
YANKEE ATOMIC ELECTRIC COMPANY AND
NORTHEAST UTILITIES SERVICE COMPANY
This Reciprocal Support Agreement is made as of January 1, 1996, by and
among Northeast Nuclear Energy Company ("NNECO"), a Connecticut corporation,
North Atlantic Energy Service Corporation ("NAESCO"), a New Hampshire
corporation, Connecticut Yankee Atomic Power Company ("CYAPC"), a Connecticut
corporation, Yankee Atomic Electric Company ("YAEC"), a Massachusetts
corporation, acting by and through its Nuclear Services Division ("NSD"), and
Northeast Utilities Service Company ("NUSCO"), a Connecticut corporation.
WHEREAS, NNECO is a wholly owned service company subsidiary of Northeast
Utilities ("NU") that operates and manages Millstone Units 1, 2, and 3
(individually a "Millstone Unit" and collectively the "Millstone Units"); and
WHEREAS, NAESCO is a wholly owned service company subsidiary of NU that
operates and manages Seabrook Station (Seabrook); and
WHEREAS, CYAPC is an electric utility affiliate of NU and New England
Electric System ("NEES") that owns and operates the Connecticut Yankee Atomic
Power Plant ("Connecticut Yankee"); and
WHEREAS, YAEC is an electric utility affiliate of NU and NEES that owns
the Yankee Nuclear Power Station ("Yankee Nuclear Power Station") and, acting
through NSD, provides technical services to Yankee Nuclear Power Station and
other nuclear facilities (each of the Millstone Units, Seabrook, Connecticut
Yankee and Yankee Nuclear Power Station being referred to herein as a
"Nuclear Plant" and collectively as the "Nuclear Plants"); and
WHEREAS, NUSCO is a wholly owned service company subsidiary of NU that
provides legal, accounting and other administrative services to companies in
the NU system; and
WHEREAS, NNECO, NAESCO, CYAPC AND YAEC (each an "Operator" and
collectively the "Operators") each has employees with specialized knowledge
and expertise regarding nuclear plant procurement, engineering, licensing,
construction, operations, maintenance, decommissioning, design, inspection,
testing, planning and other relevant and related skills that they wish to
make available to each other in a mutually cooperative fashion; and
WHEREAS, each of the Operators has certain equipment, tools, and
components that are used in connection with plant operation or maintenance
(excluding specifically equipment, spare parts and consumables held in
inventory) (collectively "Equipment"), on hand for use in its Nuclear Plant
that may be required by another Operator from time to time in the course of
operating and maintaining its Nuclear Plant, and the Operators are willing to
make Equipment available to each other in a mutually cooperative fashion to
meet their respective needs; and
WHEREAS, increased economies and efficiencies and improved plant
reliability will result from the sharing of expertise, technical resources,
personnel and Equipment by and among the Operators;
NOW THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged, the Operators and NUSCO (each a "party" and
collectively the "Parties") agree as follows:
ARTICLE I - SERVICES AND EQUIPMENT
Section 1.1 - Any Operator may request another Operator to make
available, on a temporary basis, specified personnel, or personnel having
specified expertise, to assist the requesting Operator in any aspect of the
requesting Operator's procurement, engineering, licensing, construction,
operation, maintenance, decommissioning, design, inspection, testing or
planning activities or other relevant and related skills (collectively
"Operator Services"). Additionally, any Operator may request another
Operator to furnish, for temporary use and not for permanent transfer or
installation, a specified article, kind, or quality of Equipment to meet the
requesting Operator's needs. It is not intended that this Agreement be used
as a vehicle for the permanent acquisition or use of Equipment by any Nuclear
Plant. Prior to making a request for Operator Services or Equipment, an
Operator shall give appropriate consideration to whether it would be more
advantageous to obtain such services or equipment from a third party vendor
(instead of from another Operator) in light of relevant factors, such as
cost, delivery schedule, design, quality, warranty protection and assurance
of supply.
Section 1.2 - Any Operator receiving a request for Operator Services or
Equipment shall make reasonable efforts to accommodate such request, subject
to the receiving Operator's own needs and requirements and the availability
of appropriate personnel or Equipment, as the case may be. No Operator shall
be required to comply with a request for Operator Services or Equipment, but
each Operator shall cooperate in good faith with the other Operators to
maximize the potential benefits of this Agreement to all Operators by making
requested personnel available on a temporary basis or providing available
Equipment on a temporary basis when it is reasonably possible to do so. All
Operator Services and Equipment will be furnished on a mutually agreeable
schedule pursuant to a master purchase order or service request issued by the
Operator requesting the Operator Services or Equipment that refers to this
Agreement and incorporates its terms by reference. A copy of such master
purchase order or service request shall be sent to NUSCO at the time Operator
Services are requested. Any Equipment that is furnished in a decontaminated
condition shall be returned to the furnishing Operator in the same condition.
Any Equipment that is furnished in a contaminated condition may be returned
to the furnishing Operator in the same condition.
Section 1.3 - Personnel of an Operator who are made available to another
Operator to provide Operator Services shall at all times remain the employees
of the Operator who makes them available and shall not become employees of
the requesting Operator, but such personnel shall be subject to the
supervision and control of the requesting Operator while Operator Services
are being provided at the requesting Operator's Nuclear Plant. Except as
explicitly provided in this Agreement, no Operator who receives Operator
Services shall become responsible for any wages, salary, benefits, expenses
or other costs associated with the personnel providing such Operator
Services, all of which shall remain the responsibility of the Operator who is
furnishing such Operator Services.
ARTICLE II - PAYMENT FOR SERVICES
Section 2.1 - Any Operator that furnishes Operator Services or Equipment
to another Operator shall provide a report to NUSCO or through the Northeast
Utilities financial system (currently the "Management Information and
Budgeting System") (with a copy to the Operator who received the Operator
Services or the Equipment) no later than the twentieth (20th) day after the
end of each calendar month in which Operator Services or Equipment are
provided containing a statement of cost reflecting the following factors or
information for such calendar month: (A) in the case of Operator Services,
(1) the name and cost control center of each employee who furnished Operator
Services; (2) a description of the Operator Services furnished by each
employee; (3) the direct labor costs for the period; and (4) a statement of
any out-of-pocket costs reasonably incurred at each cost control center; and
(B) in the case of Equipment, (1) a description of the Equipment furnished;
(2) the operating cost of such equipment; and (3) the cost of any shipping,
handling, insurance, storage or other operating costs associated with its
delivery to the requesting Operator.
Section 2.2 - Within ten (10) days after receipt of such report, the
Operator who received such Operator Services or Equipment will be invoiced by
the furnishing Operator or through the Northeast Utilities financial system
for all direct costs reflected in such report (including, but not limited to,
wages, salaries and out-of-pocket costs in the case of Operator Services, and
operating costs, plus the cost of shipping, handling, insurance and other
costs in the case of Equipment), which will be payable directly to the
Operator who furnished the Operator Services or Equipment within 30 days
after receipt of such invoice. NUSCO may take such actions as it deems
appropriate to verify the information contained in any cost report or invoice
furnished hereunder.
Section 2.3 - All amounts invoiced for Operator Services or Equipment
provided under this Agreement shall be billed "at cost", as defined in the
Public Utility Holding Company Act of 1935 (the "Act") and the rules and
regulations promulgated thereunder. The indirect and overhead costs
associated with Operator Services (including without limitation costs of
capital) shall be calculated and allocated on a reasonable and equitable
basis in accordance with the requirements of the Act, and shall be invoiced
periodically by the Operator furnishing such Operator Services or Equipment,
by NUSCO or through the Northeast Utilities financial system to each Operator
who received Operator Services hereunder, but in no event later than January
31 of each calendar year for the preceding calendar year. All such invoices
shall be payable in the amounts and to the Operators specified therein within
thirty (30) days after receipt.
Section 2.4 - It is the intention of the Parties that NUSCO's role under
this Agreement shall be limited to the billing, accounting and facilitating
activities specifically described herein ("NUSCO Services"), and NUSCO shall
not provide any other services, unless NUSCO is requested to provide Operator
Services by another Operator. Furthermore, to the extent possible, all NUSCO
Services shall be accomplished automatically through the NU financial system.
All NUSCO Services provided hereunder and not otherwise provided under any
other agreement shall be billed "at cost" to the Operators who receive
Operator Services or Equipment hereunder during each calendar year. Direct
charges will be made for NUSCO Services where a direct assignment of cost is
possible. Charges for NUSCO Services not directly assignable (including
without limitation costs of capital) shall be calculated and allocated on a
periodic basis (but no less frequently than annually) by NUSCO on a
reasonable and equitable basis in accordance with the requirements of the
Act. NUSCO shall allocate costs for NUSCO Services not directly assignable
among the Operators in proportion to the direct charges made for NUSCO
Services received by each Operator during the relevant period. Each Operator
that received Operator Services or Equipment during a calendar year shall be
invoiced for the cost of NUSCO Services no later than January 31 of the
following year, and all such invoices shall be payable within thirty (30)
days after receipt.
Section 2.5 - In order to permit each of the Operators to make informed
decisions about possible requests for Operator Services and Equipment
hereunder, on or before November 1 of each calendar year (or in the case of
the calendar year in which this Agreement becomes effective, within thirty
(30) days after the effective date of this Agreement), each Operator and
NUSCO shall provide a written notice to each other Operator and to NUSCO of
the categories of expense that will be included in indirect and overhead
costs for the next calendar year (or for the remainder of the calendar year
in the case of the calendar year in which this Agreement becomes effective)
identified by cost control center or other appropriate means. Billings for
indirect and overhead costs during the next calendar year (or for the
remainder of the calendar year in the case of the calendar year in which this
Agreement becomes effective) shall be made in a manner consistent with such
notices. Billings for indirect and overhead costs may be based upon
reasonable estimates, subject to true-up no later than March 1 of the
following calendar year.
Section 2.6 - Each of the Operators and NUSCO shall keep complete and
accurate accounts of all receipts and expenditures hereunder in respect of
Operator Services, NUSCO Services (collectively with Operator Services, the
"Services") and Equipment in accordance with the regulations of the
Securities and Exchange Commission ("SEC") and the Uniform System of Accounts
prescribed for Public Utilities and Licensees subject to the provisions of
the Federal Power Act, as amended from time to time.
Section 2.7 - All sales, use, excise, gross receipts, franchise or other
similar taxes which may be applicable to the Services or Equipment provided
by any Party to another Party shall be borne by the recipient of such
Services or Equipment. In no event shall any Party be responsible for any
federal, state or local income tax of any other Party incurred with respect
to Services or Equipment.
Section 2.8 - Any joint owner, participant or shareholder in a Unit that
has received Operator Services or Equipment may, at its expense, perform or
cause to be performed an audit of the accounts and records of the furnishing
Operator and/or NUSCO relating solely to the performance of such Operator's
or NUSCO's obligations under this Agreement at such Operator's or NUSCO's
offices, at reasonable times, by an independent public accountant or other
representative; provided that any such audit shall not include the right to
examine any accounts or records of such Operator or NUSCO which are not
related to such Operator's or NUSCO's billings to such Nuclear Plant under
this Agreement.
ARTICLE III - STANDARD OF PERFORMANCE
Section 3.1 - Each Operator and NUSCO shall, at all times during the
term of this Agreement perform Services and furnish Equipment in accordance
with the standard of "Prudent Utility Practice." As used herein, the term
"Prudent Utility Practice" shall, at a particular time, mean any of the
practices, methods or acts which, in the exercise of reasonable judgment in
the light of the facts known to an Operator or NUSCO at the time the decision
was made, could have been expected to accomplish the desired result at a
reasonable cost and consistent with federal and state legal, licensing and
regulatory requirements, environmental considerations, reliability, safety
and expedition and taking into account the interests of all affected Parties.
In determining whether any practice, method or act is in accordance with
Prudent Utility Practice, due consideration shall be given to the fact that
the design and other aspects of the operation of nuclear electric generating
units involve the application of advancing technology and are subject to
changing regulatory and environmental limitations. Prudent Utility Practice
is not intended to be limited to the optimum practice, method or act to the
exclusion of all others but rather to encompass a spectrum of possible
practices, methods of acts, including those involving the use of new concepts
or technology.
Section 3.2 - ALL OPERATOR SERVICES AND EQUIPMENT FURNISHED HEREUNDER
SHALL BE FURNISHED "AS IS, WHERE IS" WITHOUT REPRESENTATION OR WARRANTY OF
ANY KIND WITH RESPECT TO QUALITY, MERCHANTABILITY, FITNESS FOR INTENDED
PURPOSE, ABSENCE OF DEFECTS, OR OTHERWISE. Any Operator providing Equipment
to another Operator shall assign to the receiving Operator any
manufacturer's, vendor's or supplier's warranty that is assignable and assist
the receiving Operator in the enforcement of such warranty.
ARTICLE IV - EFFECTIVE DATE, TERM AND MODIFICATIONS
Section 4.1 - The term of this Agreement shall commence as of the date
hereof, and, unless earlier terminated in accordance with the provisions of
this Article, shall continue in effect until the last to expire of the NRC
operating licenses for the Nuclear Plants. Any Party to this Agreement may
terminate its participation hereunder, with or without cause, upon written
notice given not less than ninety (90) days prior to the effective date of
such termination.
Section 4.2 - This Agreement shall also be subject to termination and
shall terminate, without any action by any Party, to the extent and from the
time that performance may conflict with the Act or with any rule, regulation
or order of the SEC adopted before or after the making hereof.
Notwithstanding the foregoing, the Parties will use reasonable efforts to
negotiate any amendments to this Agreement which are necessary for this
Agreement to comply with the Act or any rule, regulation or order thereunder.
Section 4.3 - Modifications to the terms of this Agreement may be made
at any time only by written agreement among the Parties.
ARTICLE V - LIMITATION OF LIABILITY AND SET-OFF
Section 5.1 - Notwithstanding any provision of this Agreement to the
contrary, for and in consideration of the fact that each of the Parties is
undertaking its responsibility for the Services or Equipment provided
hereunder without compensation or charge other than recovery of its costs for
those Services or Equipment, no Party, nor any shareholder or joint owner on
its behalf, shall be entitled to recover from any other Party, or the
directors, trustees, officers, employees, agents or affiliates of such other
Party (or the directors, trustees, officers, employees or agents of such
affiliates) (collectively, the "Protected Parties") any damages resulting
from the performance or non-performance of its responsibilities hereunder or
for any damage to any Nuclear Plant, any curtailment of power, or any other
damages of any kind, including direct, incidental, consequential, special,
indirect or punitive damages, whether occurring during the course of the
provision of Services or Equipment hereunder or otherwise or arising out of
the performance or non-performance of this Agreement, unless such damages
shall have resulted directly from the willful misconduct of such other Party,
or, to the extent legally attributable to such Party, directly from the
willful misconduct of a Protected Party.
Section 5.2 - Notwithstanding any provision of this Agreement to the
contrary, all provisions of this Agreement providing for limitation of, or
protection against, liability shall apply to the full extent permitted by
law, regardless of fault, and shall survive either termination pursuant to
this Agreement or expiration.
ARTICLE VI - ASSIGNMENT AND THIRD PARTY BENEFICIARIES
Section 6.1 - This Agreement shall be binding upon and inure to the
benefit of each of the Parties and their successors and permitted assigns.
None of the Parties shall assign its rights or obligations hereunder without
the prior written consent of the other Parties, and any attempted assignment
in violation of this provision shall be null and void.
Section 6.2 - The provisions of this Agreement are solely for the
benefit of the Parties and are not intended to benefit or create rights in
any third parties, except for the benefits accruing to Protected Parties
under Section 5.1.
ARTICLE VII - MISCELLANEOUS
Section 7.1 - This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut regardless of any
conflicts of laws provision to the contrary.
Section 7.2 - EXCEPT AS SET FORTH IN SECTION 3.1, NO WARRANTIES OF ANY
KIND, WHETHER STATUTORY, EXPRESS, WRITTEN, ORAL OR IMPLIED (INCLUDING,
WITHOUT LIMITATION, WARRANTIES OF QUALITY, ABSENCE OF DEFECTS,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE) SHALL APPLY TO THE
SERVICES OR EQUIPMENT FURNISHED HEREUNDER. The foregoing shall not be deemed
to affect in any manner any warranties provided by manufacturers, vendors or
suppliers.
Section 7.3 - This Agreement constitutes the entire agreement of the
Parties with respect to the furnishing of Services or Equipment hereunder.
Section 7.4 - This Agreement shall be subject to the approval of any
federal or state regulatory body whose approval is a legal prerequisite to
its execution, delivery, and performance.
Section 7.5 - Notices and other communications required or permitted to
be given or made under this Agreement shall be in writing, and shall be
deemed to have been duly made or given when delivered personally or when made
or given by telex, telegraph or telecopier, or certified or first class mail,
prepaid, at the address shown for each Party in Exhibit A hereto, or at such
other address as a Party may from time to time designate by a written notice
that complies with this Section 7.5.
Section 7.6 - In the event that any clause or provision of this
Agreement, or any part thereof, shall be declared invalid or unenforceable by
any regulatory body or court having jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remaining portions of this Agreement.
Section 7.7 - Any number of counterparts of this Agreement may be
executed and each shall have the same force and effect as the original.
Section 7.8 - Nothing contained herein shall evidence any intent to
effect a change in control of any of the Nuclear Plants operated by the
Parties.
Section 7.9 - Nothing contained herein shall be deemed to abrogate,
modify or amend the provision of any existing agreement by or among any of
the Parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, by their respective officers thereunto duly authorized,
all as of the day and year first above written.
NORTHEAST NUCLEAR ENERGY COMPANY
By /s/ Donald B. Miller, Jr.
Senior Vice President - Nuclear Safety and
Oversight
NORTH ATLANTIC ENERGY SERVICE CORPORATION
By /s/ Ted C. Feigenbaum
Executive Vice President and Chief
Nuclear Officer
CONNECTICUT YANKEE ATOMIC POWER COMPANY
By /s/ Fred R. Dacimo
Vice President - Haddam Neck Station
YANKEE ATOMIC ELECTRIC COMPANY
By /s/ Andrew C. Kadak
President and Chief Executive Officer
NORTHEAST UTILITIES SERVICE COMPANY
By /s/ Eric A. DeBarba
Vice President - Nuclear Technical Services
EXHIBIT A
Northeast Nuclear Energy Company
P.O. Box 270
Hartford, CT 06141-0270
Attention:
With a copy to:
North Atlantic Energy Service Corporation
P.O. Box 300
Seabrook, NH 03874
Attention:
With a copy to:
Connecticut Yankee Atomic Power Company
P.O. Box 270
Hartford, CT 06141-0270
Attention:
With a copy to:
Yankee Atomic Electric Company
580 Main Street
Bolton, MA 01742
Attention:
With a copy to:
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141-0270
Attention:
With a copy to:
EXHIBIT 13.1
TABLE OF CONTENTS
FINANCIAL AND STATISTICAL SECTION
Pages 15-21
- -----------
MANAGEMENT'S DISCUSSION AND ANALYSIS
Page 22
- -----------
COMPANY REPORT
Page 23
- -----------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Page 24
- -----------
CONSOLIDATED STATEMENTS OF INCOME
Page 25
- -----------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Pages 26-27
- -----------
CONSOLIDATED BALANCE SHEETS
Pages 28-29
- -----------
CONSOLIDATED STATEMENTS OF CAPITALIZATION
Page 30
- -----------
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Page 31
- -----------
CONSOLIDATED STATEMENTS OF INCOME TAXES
Pages 32-43
- -----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 44
- -----------
CONSOLIDATED STATEMENTS OF QUARTERLY FINANCIAL DATA (UNAUDITED)
Page 44
- -----------
CONSOLIDATED GENERATION STATISTICS
Page 45
- -----------
SELECTED CONSOLIDATED FINANCIAL DATA
Page 46
- -----------
CONSOLIDATED SALES STATISTICS
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
OVERVIEW
Earnings per common share were $2.24 in 1995, a decrease of $0.06, from
$2.30 in 1994. The 1995 earnings were lower as a result of higher operation
expenses, lower wholesale revenues, and higher fuel and purchased-power costs.
These decreases were partially offset by higher fuel revenues, higher revenues
from the final step of The Connecticut Light and Power Company's (CL&P)
three-year rate plan and the sixth step of the Public Service Company of New
Hampshire (PSNH) rate agreement, higher deferral of cogeneration expenses in
Connecticut, lower income tax expenses, and a reduction in maintenance costs.
Retail kilowatt-hour sales fell by 0.1 percent in 1995, as a result of a
flat economy in southern New England and mild weather in the first quarter of
1995. Retail kilowatt-hour sales were down 0.3 percent for CL&P, and 0.1 percent
for Western Massachusetts Electric Company (WMECO), but sales rose 0.4 percent
for PSNH. With the southern New England economy not forecasted to grow
substantially during 1996, sales levels are expected to remain flat.
NU's operating companies act as both buyers and sellers of electricity in
the highly competitive wholesale electricity market in the Northeast. Increased
competition has made the renegotiation of expiring wholesale contracts, as well
as the signing of new contracts, financially challenging. As a result, wholesale
power revenues fell to approximately $303 million in 1995, from approximately
$331 million in 1994. NU's efforts to enhance its wholesale revenues resulted in
several new contracts in 1995.
During 1995, the Federal Energy Regulatory Commission issued a proposal for
restructuring the electric-power industry, which calls for open access to
transmission facilities, a standard formula for calculating rates, and full
recovery of stranded investments. The impact on NU of this proposal, which is
expected to be finalized in 1996, is not known at this time.
During 1995, a Massachusetts Senate Committee and the Coalition of
Northeastern Governors released reports addressing the restructuring of the
electric-power industry and its resulting impact on customers and states. Both
of these reports presented the future as one in which there would be some form
of continued regulation for transmission and distribution with fully competitive
generation.
In 1995, the New Hampshire Legislature created a committee to review the
industry's structure and called for the New Hampshire Public Utilities
Commission (NHPUC) to initiate a retail wheeling pilot program. Under the
current NHPUC proposal, the program, which is expected to begin in 1996, will
initially impact 3 percent of PSNH's peak retail electric load, but only
allows for a 50-percent recovery of PSNH's potentially strandable costs. PSNH
and the NHPUC staff have entered into a joint recommendation that, if approved
by the NHPUC, would govern PSNH's participation in the retail wheeling pilot
program. Under this settlement, PSNH would provide competing electric suppliers
access to 3 percent of its retail customers. PSNH would recover 100 percent of
its potentially strandable costs via a delivery charge, but would provide a
10-percent incentive credit off its traditional rates to encourage customer
participation in the two-year experiment.
Also in 1995, Connecticut and Massachusetts regulatory commissions concluded
that while increased competition is in the public interest, electric utilities
should have the opportunity to recover "net, nonmitigatable stranded costs"
during a transition period to full competition. While such a conclusion is
encouraging, there is uncertainty with regard to the final regulatory and
legislative definitions of terms such as "net, nonmitigatable" and "stranded
costs."
NU is taking a proactive role in the electric-power industry's movement
toward competition. In its "Path To A Competitive Future" (the plan), NU
outlined a comprehensive approach to enhancing customer satisfaction and market
efficiency while moving toward full competition in the electricity marketplace.
The plan calls for several significant changes in electricity pricing, the
ability to introduce new products and services, the method of rate-setting, and
the operation of the New England Power Pool. The plan also calls for the
phase-in of supplier choices through the use of pilot programs. Management
believes that a fully competitive market for electricity should begin once all
issues relating to the transition from traditional utility regulation have been
thoroughly addressed.
[REGULATORY ASSETS CHART as follows]
REGULATORY ASSETS
(in millions)
ACTUAL
1993 - $2,032
1994 - $2,045
1995 - $2,034
-------------
PROJECTED
1996 - $2,000
1998 - $1,500
2000 - $1,000
-------------
As our industry becomes more
competitive, significant
reductions of the deferred
costs known as "regulatory
assets" over the next five
years is one of NU's key
financial strategies.
[END CHART]
In addition to the formulation of this plan and ongoing meetings with
legislators, regulators, and others in the industry, NU is moving ahead in other
areas, including revenue enhancement initiatives and cost reductions, to better
position itself for an increasingly competitive environment.
A comprehensive companywide effort, which started in 1994, to reengineer
NU's business and operating processes continued throughout 1995. NU expects that
this effort will have significant positive effects on operating costs and
customer service. Many of the organizational changes in the operating and
service functions announced in 1995 and early 1996 are consistent with the
initial recommendations of the reengineering teams. While NU's reengineering
efforts will be reduced in 1996, implementation costs relating to the previous
reengineering efforts are expected to increase.
With retail electric revenues accounting for approximately 90 percent of its
1995 revenues, NU has continued to develop a number of initiatives to retain and
serve its existing customers and to expand its retail customer base. The most
visible result of these efforts is the expansion of the Retail Marketing
organization. Retail Marketing's mission is to better understand the needs and
concerns of NU's retail customer and to develop innovative approaches to address
these issues. These initiatives include providing discounts to certain customers
for signing economic development and competitive generation-based contracts,
offering demand-side-management services, and providing additional products and
services.
WORKFORCE REDUCTIONS
In January 1996, NU completed its nuclear workforce reduction plan.
Approximately 220 positions were eliminated through a combination of early
retirements, attrition, and layoffs. The total pretax cost of the workforce
reduction, which was recognized in 1995, was approximately $9 million.
RATE MATTERS
NU follows accounting principles in accordance with Statement of Financial
Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain Types of
Regulation" that allows the economic effects of rate regulation to be reflected.
Under these principles, regulators may permit incurred costs for certain events
or transactions, which would be treated as expenses by nonregulated enterprises,
to be deferred as regulatory assets and recovered in revenues at a later date.
The creation of these regulatory assets has kept down electric rates in past
years, at the expense of having higher rates in the future. At December 31,
1995, NU's regulatory assets totaled approximately $2.0 billion. The largest
regulatory asset, nearly $1.2 billion, is related to the future recovery of
income taxes. The substantial costs of amortizing these regulatory assets would
hinder NU from competing effectively in an openly competitive electric market if
customers are not required to pay such costs. Given the increasingly competitive
nature of the industry and increased activity in the regulatory environment, NU
has made the recovery of regulatory assets one of its central financial
strategies, while balancing the customer's pricing needs with shareholder's
earnings requirements. Under its existing rate agreements, NU is allowed to
recover a significant portion of its regulatory assets during the next five
years. However, maintaining or increasing the present recovery level is
dependent upon the outcome of negotiations between NU and its regulatory
agencies when its current rate agreements expire in each of its jurisdictions.
The chart on this page illustrates the levels of regulatory assets from 1993
to 1995, and the projected levels for 1996, 1998, and 2000 under existing rate
agreements.
Given that NU's current rate agreements expire during 1996 and 1997, NU will
actively pursue early negotiations with its regulatory agencies to determine
whether, or to what extent, rates should be adjusted going forward. NU's
strategy during these negotiations will be to maintain stable rates, applying
any available earnings that may result to reduce the balance of its regulatory
assets. Management is unable to predict the ultimate outcome of these
negotiations, which will be subject to regulatory approvals.
This strategy will require NU to maintain its strong cash flow from
operations, as measured by approximately a 4:1 cash coverage of the common
dividend in 1995. At its January meeting, the NU Board of Trustees (the Board)
decided to continue the current $0.44 per quarter common dividend. Although NU
has a strong cash coverage of the current dividend, the Board decided against
increasing the dividend at this time, given regulatory uncertainties, continued
weakness in the economy, and the need for improvement of the Millstone nuclear
operations.
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." SFAS 121, which was effective January 1, 1996,
requires assets, including regulatory assets, that are no longer probable of
recovery through future revenues be charged to earnings.
If future competition or regulatory actions cause any portion of its
operations to no longer be subject to SFAS 71, NU would be required to determine
the fair value of the related regulatory assets and liabilities and record any
necessary write-downs. Additionally, if events create uncertainty about the
recoverability of any of NU's remaining long-lived assets, a similar analysis
would be required for those assets in accordance with SFAS 121. Under its
current regulatory environment, NU believes that its use of SFAS 71 remains
appropriate and that the adoption of SFAS 121 will not have a material impact on
its financial position or results of operations.
See the "Notes to Consolidated Financial Statements," Note 1G, for further
details on regulatory accounting.
CONNECTICUT
CL&P's retail rates increased by approximately $48 million, or 2.06 percent,
in July 1995, representing the final step of a three-year rate plan approved by
the Department of Public Utility Control (DPUC). CL&P's 1993 rate decision has
been appealed; however, management believes it is unlikely that the appeal will
prevail.
CL&P recovers from, or refunds to, customers certain fuel costs if its
nuclear units do not operate at a predetermined capacity factor (currently 72
percent) through a Generation Utilization Adjustment Clause (GUAC). CL&P is
currently recovering approximately $80 million of fuel costs for the 1994-1995
GUAC period (net of $19 million of asserted fuel overrecoveries for the period)
over 18 months. CL&P has appealed the $19 million that was set aside from its
allowed recovery and will seek to join this appeal to appeals currently pending
from previous GUAC periods.
NEW HAMPSHIRE
In June 1995, PSNH's base rates increased by 5.5 percent under the sixth
step of a seven-year 1989 rate agreement approved by the NHPUC. In November
1995, the NHPUC authorized a PSNH request to reduce its Fuel and Purchased Power
Adjustment Clause (FPPAC) rate, which took effect on December 1, 1995, and will
continue through May 31, 1996. The decision reduced PSNH's overall rates by
approximately 2.6 percent.
In 1995, PSNH completed installation of equipment to comply with the Clean
Air Act Amendments of 1990. The capitalized cost of the installation was
approximately $25 million, and will cause PSNH to spend approximately $4 million
annually for additional operation and maintenance costs. In April 1995, the
NHPUC began proceedings to determine whether these costs are recoverable from
customers. The NHPUC is allowing PSNH to recover these costs through the FPPAC,
subject to refund, pending a final decision.
The costs associated with purchases by PSNH from certain nonutility
generators (NUGs) over the level assumed in rates are deferred for recovery
over ten-year periods through the FPPAC. PSNH is attempting to renegotiate
these arrangements with the NUGs. At December 31, 1995, the unrecovered
deferral was approximately $192 million, including buyout payments of
approximately $34 million for two of PSNH's eight wood-fired NUGs. By December
31, 1995, PSNH had reached agreements with the owners of the remaining six
wood-fired NUGs. If consummated, these agreements could result in net savings of
approximately $430 million to PSNH's customers over a period of 20 years
following guaranteed payments of approximately $250 million. Management will
reevaluate whether to proceed with these agreements if the NHPUC fails to
provide for full recovery of stranded costs.
MASSACHUSETTS
In February 1996, WMECO and the Massachusetts Attorney General proposed a
settlement with the Department of Public Utilities (DPU), which, if approved,
would continue the 2.4-percent rate reduction instituted in June 1994. The
reduction would remain in effect through February 1998. Additionally, the
settlement would terminate WMECO's pending reviews of its generating plant
performance, any potential reviews associated with Millstone 2's 1994-1995
extended outage, and accelerate its recovery of generation assets by
approximately $6 million and $10 million in 1996 and 1997, respectively.
NUCLEAR PERFORMANCE
On January 31, 1996, the Nuclear Regulatory Commission (NRC) placed
Millstone 1, 2, and 3 (Millstone) on its "watch list." The NRC's action was in
response to a number of performance concerns which have arisen since 1990 and a
failure to resolve employee safety concerns. The NRC's action will result in
close monitoring of programs and performance at Millstone to assure the
development and implementation of effective corrective actions.
Management plans to continue its extensive efforts already under way to
address these concerns. Concurrent with the NRC's action, NU provided the NRC
with the results of a comprehensive self-assessment review of the employee
concern program at Millstone. Additionally, in January 1996, NU announced a
reorganization of its nuclear operations, which included the creation of a new
office of Nuclear Safety and Oversight.
Although the start-up of Millstone 1, which is currently in outage, will be
affected by its placement on the NRC's "watch list," operations at Millstone 2
and 3 have not been restricted. Management expects that the increased NRC
attention will inevitably have effects and costs that are not known at this
time.
In November 1995, Millstone 1 began a planned refueling and maintenance
outage. The outage has been extended to allow NU to complete reviews required by
the NRC. In response to a request by the NRC, NU is conducting a detailed review
of Millstone 1's Final Safety Analysis Report and an assessment of the plant's
readiness to ensure that the future operation of the plant will be conducted in
accordance with the terms and conditions of its operating license and the NRC's
regulations. The outage schedule is currently under review, but the unit is not
expected to return to service before the mid-to-late part of the second quarter
of 1996. Total replacement-power costs attributable to the Millstone 1 outage
extension for CL&P and WMECO are expected to be approximately $6.5 million per
month. In addition, operation and maintenance (O&M) costs to be incurred as a
result of the extension are estimated to be approximately $20 million.
Replacement-power costs are deferred and amortized through rates for CL&P and
are recovered currently through rates for WMECO. Nuclear outage O&M costs are
deferred and amortized through rates for both companies. The recovery, or
refund, of outage costs is subject to prudence reviews in both Connecticut and
Massachusetts.
The composite capacity factor of the five nuclear generating units that NU
operates--including the Connecticut Yankee nuclear unit--was 69.9 percent in
1995, compared with 67.5 percent for 1994, and a 1995 national average of 77.6
percent. The 1995 capacity factor was impacted by an extended refueling and
maintenance outage for Millstone 2.
See the "Notes to Consolidated Financial Statements," Note 6B, for further
information on outage deferrals and recoveries.
ENVIRONMENTAL MATTERS
NU devotes substantial resources to identify and comply with the multitude
of environmental requirements it faces. NU has active auditing programs
addressing a variety of regulatory requirements, including an environmental
auditing program to detect and remedy noncompliance with environmental laws or
regulations.
NU is potentially liable for environmental cleanup costs at a number of
sites both inside and outside its service territories. To date, the future
estimated environmental remediation liability has not been material with
respect to the earnings or financial position of NU. At December 31, 1995, NU
had recorded an environmental reserve amounting to approximately $15 million,
the minimum amount required under SFAS 5, "Accounting for Contingencies." These
costs could be significantly higher if alternate remedies become necessary.
In October 1995, the Connecticut Department of Environmental Protection
(CDEP) issued a consent order to CL&P and the Long Island Lighting Company
(LILCO) requiring those companies to address leaks from the Long Island cable,
which is jointly owned by CL&P and LILCO. NU will incur additional costs to meet
the requirements of the order and to meet any subsequent CDEP requirements
resulting from the studies under the consent order, which cannot be estimated at
this time. Management also cannot determine at this time whether long-term
future operation of the cable will remain cost effective subsequent to any
additional CDEP requirements.
NUCLEAR DECOMMISSIONING
NU's estimated cost to decommission its shares of Millstone 1, 2, and 3 and
Seabrook 1 is approximately $1.2 billion in year-end 1995 dollars. These costs
are being recognized over the lives of the respective units and a portion is
being recovered through rates.
The FASB is currently reviewing the accounting for closure and removal
costs, including decommissioning and similar costs for long-lived assets. If
current electric-power industry accounting practices for such decommissioning
costs were changed, annual provisions for decommissioning would increase and the
estimated costs for decommissioning would be recorded as a liability rather than
as a component of accumulated depreciation.
See the "Notes to Consolidated Financial Statements," Note 3, for further
information on nuclear decommissioning, including NU's share of costs to
decommission the regional nuclear generating units.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $49 million in 1995,
from 1994, primarily due to higher cash operating expenses and lower working
capital, partially offset by higher revenues from rate recoveries. Cash used for
financing activities decreased approximately $51 million in 1995, from 1994,
primarily due to lower net reacquisitions and retirements of long-term debt and
the issuance of additional common shares in 1995 for use in NU's Dividend
Reinvestment Plan and the allocation of shares through the Employee Stock
Ownership Plan, partially offset by a net decrease in short-term debt. Cash
used for investments increased approximately $8 million in 1995, from 1994,
primarily due to higher investments in the nuclear decommissioning trust in
1995, partially offset by lower construction expenditures.
In October 1995, Moody's Investors Service lowered its ratings of PSNH and
North Atlantic Energy Corporation (NAEC) securities, bringing the rating for
PSNH's First Mortgage Bonds below investment grade. Standard & Poor's had
previously downgraded PSNH to below investment grade. NAEC securities had not
been previously rated at investment grade. These downgrades could adversely
affect the future availability and cost of funds for these companies.
Over the past three years, NU paid off approximately $1 billion of debt and
reduced outstanding levels of preferred securities by approximately $75 million.
Cash generated by improved earnings and higher levels of noncash expenses more
than offset the cash needs of a modest construction program. NU projects further
reductions of its long-term debt levels by $250 to $350 million during 1996
despite construction expenditures, which are budgeted to be approximately $35
million higher in 1996 than the $230 million program in 1995, since strong cash
generation should continue. Short-term debt is expected to remain at
approximately the same level as 1995.
PSNH may be required to issue a significant amount of new debt in 1996,
since it must fund the maturity of its $172.5 million first mortgage bond issue
at the same time that it may need to finance more than $100 million for payments
to its wood-fired NUGs. NU debt levels could drop by even more than the $250 to
$350 million projected above if PSNH does not make any upfront payments to the
NUGs.
CL&P, PSNH, NAEC, and WMECO have entered into interest-rate-cap,
interest-rate-swap, or fossil-fuel-swap contracts to reduce a portion of NU's
interest-rate and fuel-price risks.
CHANGE IN OPERATING REVENUES
Increase/(Decrease)
- -----------------------------------------------------------------
1995 vs. 1994 1994 vs. 1993
- -----------------------------------------------------------------
(Millions of Dollars)
Regulatory decisions $79 $53
Fuel, purchased power, and
FPPAC cost recoveries 63 (3)
Sales volume (6) 48
Wholesale revenues (19) (67)
Other revenues (11) (17)
---- ---
Total revenue change $106 $14
==== ===
- -----------------------------------------------------------------
See the "Notes to Consolidated Financial Statements," Note 7, for further
information on derivative financial instruments and the "Consolidated Statements
of Capitalization," for information on construction and long-term debt funding
requirements.
RESULTS OF OPERATIONS
The relative magnitude of how revenues received in 1995 were used by NU's
continuing operations in 1995 is illustrated in the chart on the next page.
OPERATING REVENUES
The components of the change in operating revenues for the past two years
are provided in the table above.
Operating revenues increased approximately $106 million in 1995, from 1994.
Regulatory revenues increased primarily because of retail-rate increases for
PSNH and CL&P and higher recoveries for demand-side-management costs. Fuel,
purchased power, and FPPAC cost recoveries increased, primarily due to higher
energy costs and the recovery of GUAC costs for CL&P. Wholesale revenues
decreased, primarily due to capacity sales contracts that expired in 1994.
Operating revenues increased approximately $14 million in 1994, from 1993.
Revenues related to regulatory decisions increased, primarily because of the
effects of changes in retail rates for CL&P and PSNH, and the July 1993
retail-rate increase for WMECO, partially offset by the June 1994 retail-rate
reduction for WMECO and lower recoveries for demand-side-management costs. Sales
volume increased as a result of higher retail sales from an improved economy.
Retail sales increased 2.9 percent in 1994, from 1993 sales levels. Wholesale
revenues decreased, primarily due to the expiration, in late 1993 and 1994, of
some significant capacity sales contracts.
FUEL, PURCHASED AND NET INTERCHANGE POWER
Fuel, purchased and net interchange power expense increased approximately
$77 million in 1995, from 1994, primarily due to higher fossil generation,
higher priced outside energy purchases from other utilities in 1995, and higher
amortization, in 1995, of previously deferred FPPAC expenses.
Fuel, purchased and net interchange power decreased approximately $86
million in 1994, from 1993, primarily due to the lower recognition of CL&P
replacement-power fuel costs in 1994, partially offset by a higher level of
outside energy purchases from other utilities in 1994.
OTHER OPERATION AND MAINTENANCE EXPENSES
Other operation and maintenance expenses, net increased approximately $29
million in 1995, from 1994. Operation expenses increased approximately $46
million, primarily due to higher demand-side-management costs, higher rate
recovery of postretirement benefit costs, and higher capacity charges from the
regional nuclear generating units, partially offset by higher nuclear reserves
for excess/obsolete inventory in 1994. Maintenance expenses decreased
approximately $17 million, primarily due to lower maintenance costs at the
fossil units and fossil reserves for excess/obsolete inventory in 1994.
Other operation and maintenance expenses decreased approximately $20 million
in 1994, from 1993, primarily due to higher costs in 1993 associated with early-
retirement programs, lower 1994 payroll and benefit costs, lower fossil-unit
costs, and lower capacity charges from the regional nuclear generating units,
partially offset by higher 1994 costs associated with the operation and
maintenance activities of the nuclear units (approximately $23 million), higher
reserves for excess/obsolete inventory at the nuclear and fossil units in 1994,
and higher outside services primarily related to the companywide process
reengineering efforts.
DEPRECIATION EXPENSES
Depreciation expenses increased approximately $19 million in 1995, from
1994, and approximately $14 million in 1994, from 1993, primarily as a result of
higher plant balances and higher decommissioning levels.
AMORTIZATION OF REGULATORY ASSETS, NET
Amortization of regulatory assets, net decreased approximately $32 million
in 1995, from 1994, primarily because of the higher CL&P cogeneration deferrals
in 1995 (approximately $18 million), the completion, during 1994, of the
amortization of a 1993 cogeneration buyout, and the completion of WMECO's
amortization of Millstone 3 phase-in costs in June 1995.
Amortization of regulatory assets, net decreased approximately $48 million
in 1994, from 1993, primarily because of the deferral of CL&P cogeneration
expenses beginning in July 1994 as allowed under CL&P's 1993 retail-rate
decision, the higher amortization in 1994 of PSNH's regulatory liability as
allowed under a 1993 global settlement, and lower expenses associated with the
recovery of Hydro-Quebec support payments, partially offset by higher
amortization of Millstone 3 and Seabrook 1 phase-in costs.
FEDERAL AND STATE INCOME TAXES
Federal and state income taxes decreased approximately $18 million in 1995,
from 1994, primarily because of tax benefits from a favorable tax ruling and the
expiration of the federal statute of limitations for 1991.
Federal and state income taxes increased approximately $66 million in 1994,
from 1993, primarily because of higher taxable income.
TAXES OTHER THAN INCOME TAXES
Although the change in 1995, from 1994, was not significant, taxes other
than income taxes increased approximately $7 million in 1994, from 1993,
primarily due to higher Connecticut sales tax expense.
DEFERRED NUCLEAR PLANTS RETURN
Deferred nuclear plants return decreased approximately $31 million in 1995,
from 1994, and approximately $25 million in 1994, from 1993, primarily because
additional Millstone 3 and Seabrook 1 investments were phased into rates.
INTEREST CHARGES
Although the change in 1995, from 1994, was not significant, interest on
long-term debt decreased approximately $19 million in 1994, from 1993, primarily
because of lower average interest rates as a result of refinancing activities
and lower 1994 debt levels.
[PIE CHART as follows]
1995 USE OF REVENUE
- -------------------
24.3% - Energy Costs
20.8% - Other Operation
and Maintenance
Expenses
13.6% - Taxes
13.0% - Nonfuel Operating
Expenses and
Other Income, Net
12.7% - Wages and Benefits
8.6% - Interest Charges
7.0% - Common and Preferred
Dividends
[END CHART]
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
The cumulative effect of the accounting change of approximately $52 million
in 1993 represents the one-time change in the method of accounting for
Connecticut municipal property tax expense recognized in the first quarter of
1993.
COMPANY REPORT
The consolidated financial statements of Northeast Utilities and
subsidiaries and other sections of this Annual Report were prepared by the
company. These financial statements, which were audited by Arthur Andersen LLP,
were prepared in accordance with generally accepted accounting principles using
estimates and judgment, where required, and giving consideration to materiality.
The company has endeavored to establish a control environment that
encourages the maintenance of high standards of conduct in all of its business
activities. The company maintains a system of internal controls over financial
reporting, which is designed to provide reasonable assurance to the company's
management and Board of Trustees regarding the preparation of reliable,
published financial statements. The system is supported by an organization of
trained management personnel, policies and procedures, and a comprehensive
program of internal audits. Through established programs, the company regularly
communicates to its management employees their internal control responsibilities
and policies prohibiting conflicts of interest.
The Audit Committee of the Board of Trustees is composed entirely of
outside trustees. This committee meets periodically with management, the
internal auditors, and the independent auditors to review the activities of each
and to discuss audit matters, financial reporting, and the adequacy of internal
controls.
Because of inherent limitations in any system of internal controls,
errors or irregularities may occur and not be detected. The company believes,
however, that its system of internal accounting controls and control environment
provide reasonable assurance that its assets are safeguarded from loss or
unauthorized use and that its financial records, which are the basis for the
preparation of all financial statements, are reliable.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
OF NORTHEAST UTILITIES:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Northeast Utilities (a
Massachusetts trust) and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, common shareholders' equity, cash
flows, and income taxes for each of the three years in the period ended December
31, 1995. 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 Northeast Utilities
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As explained in Note 1A to the financial statements, effective January
1, 1993, Northeast Utilities and subsidiaries changed their method of accounting
for property taxes.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1996
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars, except share information)
<S> <C> <C> <C>
OPERATING REVENUES .................................................. $ 3,748,991 $ 3,642,742 $ 3,629,093
------------ ------------ ------------
OPERATING EXPENSES:
Operation--
Fuel, purchased and net interchange power........................ 909,244 832,420 917,957
Other............................................................ 965,443 919,044 979,403
Maintenance........................................................ 288,927 306,429 265,926
Depreciation....................................................... 354,293 335,019 321,359
Amortization of regulatory assets, net............................. 128,413 160,909 208,506
Federal and state income taxes (See Consolidated
Statements of Income Taxes)...................................... 261,228 287,951 222,832
Taxes other than income taxes...................................... 249,463 247,045 240,413
------------ ------------ ------------
Total operating expenses....................................... 3,157,011 3,088,817 3,156,396
------------ ------------ ------------
OPERATING INCOME..................................................... 591,980 553,925 472,697
------------ ------------ ------------
OTHER INCOME:
Deferred nuclear plants return--other funds........................ 14,196 27,085 38,373
Equity in earnings of regional nuclear generating
and transmission companies....................................... 13,208 14,426 12,980
Other, net......................................................... 2,389 7,745 4,747
Income taxes....................................................... (742) 7,825 8,926
------------ ------------ ------------
Other income, net................................................ 29,051 57,081 65,026
------------ ------------ ------------
Income before interest charges................................... 621,031 611,006 537,723
------------ ------------ ------------
INTEREST CHARGES:
Interest on long-term debt......................................... 315,862 314,191 333,163
Other interest..................................................... 6,666 8,037 13,059
Deferred nuclear plants return--borrowed funds..................... (23,310) (41,138) (54,462)
------------ ------------ ------------
Interest charges, net............................................ 299,218 281,090 291,760
------------ ------------ ------------
Income before cumulative effect of accounting change............. 321,813 329,916 245,963
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 1A)..................... -- -- 51,681
------------ ------------ ------------
Income before preferred dividends of subsidiaries................ 321,813 329,916 297,644
PREFERRED DIVIDENDS OF SUBSIDIARIES.................................. 39,379 43,042 47,691
------------ ------------ ------------
NET INCOME........................................................... $ 282,434 $ 286,874 $ 249,953
============ ============ ============
EARNINGS PER COMMON SHARE:
Before cumulative effect of accounting change...................... $2.24 $2.30 $1.60
Cumulative effect of accounting change (Note 1A)................... -- -- .42
------------ ------------ ------------
TOTAL EARNINGS PER COMMON SHARE...................................... $2.24 $2.30 $2.02
============ ============ ============
COMMON SHARES OUTSTANDING (AVERAGE).................................. 126,083,645 124,678,192 123,947,631
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income before preferred dividends of subsidiaries....................... $ 321,813 $ 329,916 $ 297,644
Adjustments to reconcile to net cash from operating activities:
Depreciation.......................................................... 354,293 335,019 321,359
Deferred income taxes and investment tax credits, net ................ 164,208 146,560 63,506
Deferred nuclear plants return........................................ (37,506) (68,223) (92,835)
Amortization of deferred nuclear plants return........................ 109,294 118,217 111,024
Recoverable energy costs, net of amortization......................... (51,474) (85,573) 93,302
Amortization of PSNH acquisition costs................................ 55,547 55,319 67,379
Deferred cogeneration costs--CL&P..................................... (55,341) (36,821) --
Other sources of cash................................................. 101,334 69,888 132,662
Other uses of cash.................................................... (43,972) (36,596) (24,186)
Changes in working capital:
Receivables and accrued utility revenues.............................. (72,081) 8,133 2,797
Fuel, materials, and supplies......................................... (10,518) 4,906 10,126
Accounts payable...................................................... 38,096 51,824 (678)
Accrued taxes......................................................... 17,686 17,031 (97,789)
Other working capital (excludes cash)................................. (8,045) 22,329 30,010
---------- ---------- ----------
Net cash flows from operating activities.................................. 883,334 931,929 914,321
---------- ---------- ----------
FINANCING ACTIVITIES:
Issuance of common shares............................................... 47,218 14,551 22,252
Issuance of long-term debt.............................................. 225,100 625,000 924,650
Issuance of preferred stock............................................. -- -- 80,000
Issuance of Monthly Income
Preferred Securities (Note 9)......................................... 100,000 -- --
Net (decrease) increase in short-term debt.............................. (91,000) 16,500 (179,240)
Reacquisitions and retirements of long-term debt........................ (425,500) (982,920) (1,051,501)
Reacquisitions and retirements of preferred stock....................... (140,675) (7,325) (116,496)
Cash dividends on preferred stock....................................... (39,379) (43,042) (47,691)
Cash dividends on common shares......................................... (221,701) (219,317) (218,179)
---------- ---------- ----------
Net cash flows used for financing activities.............................. (545,937) (596,553) (586,205)
---------- ---------- ----------
INVESTMENT ACTIVITIES:
Investment in plant:
Electric and other utility plant...................................... (231,408) (259,904) (275,741)
Nuclear fuel.......................................................... (18,261) (28,308) (33,202)
---------- ---------- ----------
Net cash flows used for investments in plant............................ (249,669) (288,212) (308,943)
Other investment activities, net........................................ (91,399) (44,593) (32,811)
---------- ---------- ----------
Net cash flows used for investments....................................... (341,068) (332,805) (341,754)
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH FOR THE PERIOD............................ (3,671) 2,571 (13,638)
Cash--beginning of period................................................. 34,579 32,008 45,646
---------- ---------- ----------
Cash--end of period....................................................... $ 30,908 $ 34,579 $ 32,008
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized.................................... $ 321,148 $ 306,224 $ 325,552
========== ========== ==========
Income taxes............................................................ $ 108,928 $ 134,727 $ 142,669
========== ========== ==========
Increase in obligations:
Niantic Bay Fuel Trust and other capital leases......................... $ 41,388 $ 65,932 $ 54,205
========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31, 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
UTILITY PLANT, AT COST:
Electric................................................................ $ 9,490,142 $ 9,334,912
Other................................................................... 187,389 157,632
----------- -----------
9,677,531 9,492,544
Less: Accumulated provision for depreciation......................... 3,629,559 3,293,660
----------- -----------
6,047,972 6,198,884
Unamortized PSNH acquisition costs (Note 1I)............................ 588,910 678,974
Construction work in progress........................................... 165,111 179,724
Nuclear fuel, net....................................................... 198,844 224,839
----------- -----------
Total net utility plant............................................... 7,000,837 7,282,421
----------- -----------
OTHER PROPERTY AND INVESTMENTS:
Nuclear decommissioning trusts, at market............................... 325,674 240,229
Investments in regional nuclear generating companies, at equity......... 81,996 82,464
Investments in transmission companies, at equity........................ 23,558 26,106
Investments in Charter Oak Energy, Inc. projects........................ 41,221 11,137
Other, at cost.......................................................... 33,448 29,759
----------- -----------
505,897 389,695
----------- -----------
CURRENT ASSETS:
Cash.................................................................... 30,908 34,579
Receivables, less accumulated provision for uncollectible
accounts of $14,378,000 in 1995 and $16,826,000 in 1994............... 435,931 357,322
Accrued utility revenues................................................ 136,260 142,788
Fuel, materials, and supplies, at average cost.......................... 200,580 190,062
Recoverable energy costs, net--current portion.......................... 79,300 19,522
Prepayments and other................................................... 34,430 35,364
----------- -----------
917,409 779,637
----------- -----------
DEFERRED CHARGES:
Regulatory assets (Note 1G)............................................. 2,034,351 2,045,390
Unamortized debt expense................................................ 37,645 33,517
Other................................................................... 48,827 54,220
----------- -----------
2,120,823 2,133,127
----------- -----------
TOTAL ASSETS.......................................................... $10,544,966 $10,584,880
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
At December 31, 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION: (See Consolidated Statements of Capitalization)
Common shareholders' equity (See Note (a)--Consolidated
Statements of Common Shareholders' Equity):
Common shares, $5 par value--authorized 225,000,000 shares; 135,611,166
shares issued and 127,050,647 shares outstanding in 1995 and 134,210,226
shares issued and 124,994,322 shares outstanding in 1994............ $ 678,056 $ 671,051
Capital surplus, paid in.............................................. 936,308 904,371
Deferred benefit plan--employee stock ownership plan (Note 5D)........ (198,152) (213,324)
Retained earnings..................................................... 1,007,340 946,988
----------- -----------
Total common shareholders' equity................................... 2,423,552 2,309,086
Preferred stock not subject to mandatory redemption................... 169,700 234,700
Preferred stock subject to mandatory redemption....................... 302,500 375,250
Long-term debt........................................................ 3,705,215 3,942,005
----------- -----------
Total capitalization................................................ 6,600,967 6,861,041
----------- -----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES (NOTE 9)................... 99,935 --
----------- -----------
OBLIGATIONS UNDER CAPITAL LEASES.......................................... 147,372 166,018
----------- -----------
CURRENT LIABILITIES:
Notes payable to banks.................................................. 99,000 180,000
Commercial paper........................................................ -- 10,000
Long-term debt and preferred stock--current portion..................... 219,657 174,948
Obligations under capital leases--current portion....................... 83,110 73,103
Accounts payable........................................................ 319,038 280,942
Accrued taxes........................................................... 75,218 57,532
Accrued interest........................................................ 53,699 70,639
Accrued pension benefits................................................ 90,630 90,194
Other................................................................... 105,821 98,296
----------- -----------
1,046,173 1,035,654
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes (Note 1H)............................. 2,135,852 1,968,230
Accumulated deferred investment tax credits............................. 178,060 188,005
Deferred contractual obligation......................................... 103,475 157,147
Other................................................................... 233,132 208,785
----------- -----------
2,650,519 2,522,167
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 6)
TOTAL CAPITALIZATION AND LIABILITIES.................................. $10,544,966 $10,584,880
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY (See Consolidated Balance Sheets) ............ $ 2,423,552 $ 2,309,086
----------- -----------
CUMULATIVE PREFERRED STOCK OF SUBSIDIARIES:
$25 par value--authorized 36,600,000 shares at December 31, 1995 and 1994;
7,300,000 shares outstanding in 1995 and 12,927,000 shares in 1994;
$50 par value--authorized 9,000,000 shares at December 31, 1995 and 1994;
5,424,000 shares outstanding in 1995 and 1994;
$100 par value--authorized 1,000,000 shares at December 31, 1995 and 1994;
200,000 shares outstanding in 1995 and 1994
<CAPTION>
Current Redemption Current Shares
Dividend Rates Prices (a) Outstanding
-------------- ---------- -----------
<S> <C> <C> <C> <C>
NOT SUBJECT TO MANDATORY REDEMPTION:
$25 par value--Adjustable Rate $25.00 1,340,000... 33,500 98,500
$50 par value--$1.90 to $3.28 $50.50 to $54.00 2,324,000... 116,200 116,200
$100 par value--$7.72 $103.51 200,000... 20,000 20,000
----------- -----------
Total Preferred Stock Not Subject to Mandatory Redemption................ 169,700 234,700
----------- -----------
SUBJECT TO MANDATORY REDEMPTION: (b)
$25 par value--$1.90 to $2.65 $25.00 to $25.89 5,960,000... 149,000 224,675
$50 par value--$2.65 to $3.615 $51.00 to $52.41 3,100,000... 155,000 155,000
----------- -----------
Total Preferred Stock Subject to Mandatory Redemption.................... 304,000 379,675
Less: Preferred Stock to be redeemed within one year.................... 1,500 4,425
----------- -----------
Preferred Stock Subject to Mandatory Redemption, net..................... 302,500 375,250
----------- -----------
LONG-TERM DEBT: (c)
<CAPTION>
First Mortgage Bonds--
<S> <C> <C> <C> <C>
Maturity Interest Rates
-------- --------------
1995 9.25%............................................ -- 34,300
1996 8.875%........................................... 172,500 172,500
1997 5.75% to 7.625%.................................. 211,945 214,850
1998 6.50% to 9.17%................................... 199,800 199,900
1999 5.50% to 7.25%................................... 280,000 280,000
2000 5.75% to 6.875%.................................. 260,000 260,000
2002 7.75% to 9.05%................................... 420,000 440,000
2004 6.125%........................................... 140,000 140,000
2019-2023 7.375% to 7.50%.................................. 120,000 120,000
2024-2025 7.375% to 8.50%.................................. 430,000 430,000
----------- -----------
Total First Mortgage Bonds.......................................... 2,234,245 2,291,550
----------- -----------
Other Long-Term Debt-- (d)
Pollution Control Notes and Other Notes--
1996 Adjustable Rate.................................. -- 141,000
2000 Adjustable Rate (e) and 15.23%................... 225,000 205,000
2005-2006 8.38% to 8.58%................................... 224,000 236,000
2013-2016 Adjustable Rate.................................. 23,400 23,400
2018-2020 7.17% and Adjustable Rate........................ 49,874 50,191
2021-2022 7.50% to 7.65% and Adjustable Rate............... 552,485 552,485
2028 Adjustable Rate.................................. 369,300 369,300
----------- -----------
Total Pollution Control Notes and Other Notes....................... 1,444,059 1,577,376
Fees and interest due for spent nuclear fuel disposal costs (Note 1N). 185,158 174,934
Other................................................................. 68,312 78,090
----------- -----------
Total Other Long-Term Debt.......................................... 1,697,529 1,830,400
----------- -----------
Unamortized premium and discount, net................................... (8,402) (9,422)
----------- -----------
Total Long-Term Debt.................................................. 3,923,372 4,112,528
Less amounts due within one year...................................... 218,157 170,523
----------- -----------
Long-Term Debt, net................................................... 3,705,215 3,942,005
----------- -----------
TOTAL CAPITALIZATION................................................ $ 6,600,967 $ 6,861,041
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED STATEMENTS OF CAPITALIZATION
(a) Each of these series is subject to certain refunding limitations for the
first five years after issuance. Redemption prices reduce in future years.
(b) Changes in Preferred Stock Subject to Mandatory
Redemption:
(Thousands of Dollars)
Balance at January 1, 1993................ $353,500
Issues.................................. 80,000
Reacquisitions and Retirements.......... (51,500)
--------
Balance at December 31, 1993.............. 382,000
Reacquisitions and Retirements.......... (2,325)
--------
Balance at December 31, 1994.............. 379,675
Reacquisitions and Retirements.......... (75,675)
--------
Balance at December 31, 1995.............. $304,000
========
The minimum sinking-fund requirements of the series subject to
mandatory redemption aggregate approximately $1.5 million in 1996, $26.5
million in 1997, $30.3 million in 1998, and $46.3 million in 1999 and 2000.
In case of default on sinking-fund payments, no payments may be made on any
junior stock by way of dividends or otherwise (other than in shares of
junior stock) so long as the default continues. If a subsidiary is in
arrears in the payment of dividends on any outstanding shares of preferred
stock, the subsidiary is prohibited from redeeming or purchasing less than
all of the outstanding preferred stock.
(c) Long-term debt maturities and cash sinking-fund requirements, excluding
fees and interest due for spent nuclear fuel disposal costs, on debt
outstanding at December 31, 1995 for the years 1996 through 2000 are
approximately $218.2 million, $261.3 million, $239.5 million, $371.9
million, and $578.2 million, respectively. In addition, there are annual 1
percent sinking- and improvement-fund requirements of approximately $15.6
million for 1996 and 1997, $13.5 million for 1998, $13.2 million for 1999,
and $10.4 million for 2000. Such sinking- and improvement-fund requirements
may be satisfied by the deposit of cash or bonds or by certification of
property additions. Essentially all utility plant of The Connecticut Light
and Power Company (CL&P), Public Service Company of New Hampshire (PSNH),
Western Massachusetts Electric Company (WMECO), and North Atlantic Energy
Corporation (NAEC), wholly owned subsidiaries of NU, is subject to the
liens of each company's respective first mortgage bond indenture.
NAEC's first mortgage bonds are also secured by payments made to NAEC by
PSNH under the terms of the Seabrook Power Contracts.
In addition, CL&P and WMECO have secured $369.3 million of
pollution-control notes with second mortgage liens on Millstone 1, junior
to the liens of their respective first mortgage bond indentures. PSNH's
Revolving Credit Facility has a second lien, junior to the lien of its
first mortgage bond indenture, on all PSNH property located in New
Hampshire, which will expire in May 1996. At December 31, 1995, there were
no borrowings under the Revolving Credit Facility.
Concurrent with the issuance of PSNH's Series A and B First Mortgage Bonds,
PSNH entered into financing arrangements with the Business Finance
Authority (BFA) of the state of New Hampshire. Pursuant to these
arrangements, the BFA issued seven series of Pollution Control Revenue
Bonds (PCRBs) and loaned the proceeds to PSNH. At December 31, 1995, $516.5
million of the PCRBs were outstanding. PSNH's obligation to repay each
series of PCRBs is secured by a series of First Mortgage Bonds that was
issued under its indenture. Each such series of First Mortgage Bonds
contains terms and provisions with respect to maturity, principal payment,
interest rate, and redemption that correspond to those of the applicable
series of PCRBs. For financial reporting purposes, these bonds would not be
considered outstanding unless PSNH fails to meet its obligations under the
PCRBs.
(d) The average effective interest rates on the variable-rate pollution-control
notes ranged from 3.6 percent to 6.1 percent for 1995 and 2.5 percent to
4.3 percent for 1994. The average effective interest rates for the PSNH
Term Loan for 1995 and 1994 were approximately 7.1 percent and 5.2 percent,
respectively.
(e) Interest-rate-swap agreements with financial institutions effectively fix
the interest rate of NAEC's $225 million variable-rate bank note at 7.05
percent. For further information on NAEC's interest-rate swaps, see Note 7,
"Derivative Financial Instruments."
<TABLE>
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<CAPTION>
DEFERRED
BENEFIT
CAPITAL PLAN--
COMMON SURPLUS, ESOP RETAINED
SHARES (a) PAID IN (NOTE 5D) EARNINGS (b) TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993.............. $669,315 $897,317 $(240,399) $847,744 $2,173,977
Net income for 1993................... 249,953 249,953
Cash dividends on common shares--
$1.76 per share..................... (218,179) (218,179)
Issuance of 344,106 common shares,
$5 par value........................ 1,720 6,538 8,258
Allocation of benefits--ESOP.......... 1,800 12,194 13,994
Capital stock expenses, net........... (3,915) (3,915)
-------- -------- --------- ---------- ----------
BALANCE AT DECEMBER 31, 1993............ 671,035 901,740 (228,205) 879,518 2,224,088
Net income for 1994................... 286,874 286,874
Cash dividends on common shares--
$1.76 per share..................... (219,317) (219,317)
Loss on retirement of preferred stock (87) (87)
Issuance of 3,201 common shares,
$5 par value........................ 16 61 77
Allocation of benefits--ESOP.......... (406) 14,881 14,475
Capital stock expenses, net........... 2,976 2,976
-------- -------- --------- ---------- ----------
BALANCE AT DECEMBER 31, 1994............ 671,051 904,371 (213,324) 946,988 2,309,086
Net income for 1995................... 282,434 282,434
Cash dividends on common shares--
$1.76 per share..................... (221,701) (221,701)
Loss on retirement of preferred stock (381) (381)
Issuance of 1,400,940 common shares,
$5 par value........................ 7,005 24,971 31,976
Allocation of benefits--ESOP.......... 70 15,172 15,242
Capital stock expenses, net........... 6,896 6,896
-------- -------- --------- ---------- ----------
BALANCE AT DECEMBER 31, 1995............ $678,056 $936,308 $(198,152) $1,007,340 $2,423,552
======== ======== ========= ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------
(a) As part of its acquisition of PSNH, NU issued 8,430,910 warrants to former
PSNH equity security holders. Each warrant, which expires on June 5, 1997,
entitles the holder to purchase one share of NU common stock at an exercise
price of $24 per share. As of December 31, 1995, 462,224 shares had been
purchased through the exercise of warrants.
(b) Certain consolidated subsidiaries have dividend restrictions imposed by
their long-term debt agreements. These restrictions also limit the amount
of retained earnings available for NU common dividends. At December 31,
1995, these restrictions totaled approximately $559.6 million.
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME TAXES
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
The components of the federal and state income tax provisions
charged to operations are:
Current income taxes:
Federal............................................................ $ 53,862 $ 88,483 $ 99,591
State.............................................................. 43,900 45,083 50,809
-------- -------- --------
Total current.................................................... 97,762 133,566 150,400
-------- -------- --------
Deferred income taxes, net:
Federal............................................................ 167,091 149,391 87,105
State.............................................................. 7,224 6,988 (10,058)
-------- -------- --------
Total deferred................................................... 174,315 156,379 77,047
-------- -------- --------
Investment tax credits, net........................................... (10,107) (9,819) (13,541)
-------- -------- --------
Total income tax expense................................................. $261,970 $280,126 $213,906
======== ======== ========
The components of total income tax expense are classified as follows:
Income taxes charged to operating expenses............................. $261,228 $287,951 $222,832
Other income taxes..................................................... 742 (7,825) (8,926)
-------- -------- --------
Total income tax expense................................................. $261,970 $280,126 $213,906
======== ======== ========
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
Depreciation, leased nuclear fuel, settlement credits,
and disposal costs................................................. $ 82,318 $ 72,078 $ 79,288
Energy adjustment clauses............................................ 26,851 49,017 (39,660)
Nuclear plant deferrals.............................................. 2,666 (10,542) (1,773)
Contractual settlements.............................................. (9,496) 109 (308)
Bond redemptions..................................................... 9,224 8,325 8,508
Amortization of New Hampshire regulatory settlement.................. 11,501 11,501 7,667
Deferred tax asset associated with net operating losses.............. 57,543 23,611 25,438
Other................................................................ (6,292) 2,280 (2,113)
-------- -------- --------
Deferred income taxes, net............................................... $174,315 $156,379 $ 77,047
======== ======== ========
A reconciliation between income tax expense and the expected tax
expense at 35 percent of pretax income:
Expected federal income tax............................................ $204,324 $213,515 $179,043
Tax effect of differences:
Depreciation......................................................... 25,639 20,003 21,319
Deferred nuclear plants return....................................... (4,969) (9,480) (13,486)
Amortization of deferred nuclear plants return....................... 21,883 23,103 21,988
Amortization of PSNH acquisition costs............................... 31,522 31,508 31,432
Seabrook intercompany loss........................................... (13,048) (19,637) (19,176)
Investment tax credit amortization................................... (10,107) (9,819) (13,541)
State income taxes, net of federal benefit........................... 33,231 33,847 26,488
Property tax......................................................... (159) 5,824 (13,514)
Adjustment for prior years' taxes.................................... (20,312) (4,588) (4,134)
Other, net........................................................... (6,034) (4,150) (2,513)
-------- -------- --------
Total income tax expense................................................. $261,970 $280,126 $213,906
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRESENTATION
Northeast Utilities (NU or the company) 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, PSNH, WMECO, and Holyoke Water Power Company (HWP). A fifth
wholly owned subsidiary, NAEC, sells all of its capacity to PSNH. In addition to
its retail 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 consolidated financial statements of the company include the accounts of all
wholly owned subsidiaries. Significant intercompany transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent 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.
Certain reclassifications of prior years' data have been made to conform with
the current year's presentation.
PROPERTY TAXES: Certain subsidiaries of NU, including CL&P and WMECO, changed
their method of accounting for municipal property tax expense for their
respective Connecticut properties during 1993. This one-time change increased
1993 net income and earnings per common share by approximately $51.7 million and
$0.42, respectively.
B. FUTURE ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) 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, in March 1995. SFAS 121
became effective January 1, 1996 and establishes accounting standards for
evaluating and recording asset impairment. SFAS 121 requires the evaluation of
long-lived assets for impairment when certain events occur or conditions exist
that indicate the carrying amounts of assets may not be recoverable. Refer to
Note 1G, "Regulatory Accounting," for further information on the regulatory
impacts of the company's adoption of SFAS 121.
C. INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
REGIONAL NUCLEAR GENERATING COMPANIES: CL&P, PSNH, and WMECO own common
stock of four regional nuclear generating companies (Yankee companies). The
system holds a 49.0 percent ownership interest in Connecticut Yankee Atomic
Power Company (CY), a 38.5 percent ownership interest in Yankee Atomic Electric
Company (YAEC), a 20.0 percent ownership interest in Maine Yankee Atomic Power
Company (MY), and a 16.0 percent ownership interest in Vermont Yankee Nuclear
Power Corporation (VY). The system's investments in the Yankee companies are
accounted for on the equity basis due to NU's ability to exercise significant
influence over their operating and financial policies. The electricity produced
by the facilities that are operating is committed substantially on the basis of
ownership interests and is billed pursuant to contractual agreements. Under
ownership agreements with the Yankee companies, CL&P, PSNH, and WMECO may be
asked to provide direct or indirect financial support for one or more of the
companies. For more information on these agreements, see Note 6E, "Commitments
and Contingencies--Long-term Contractual Arrangements."
YAEC's nuclear power plant was shut down permanently on February 26, 1992. For
more information on the Yankee companies, see Note 3, "Nuclear Decommissioning."
MILLSTONE 3: CL&P, PSNH, and WMECO have a 68.02 percent joint-ownership interest
in Millstone 3, a 1,154-megawatt (MW) nuclear generating unit. As of December
31, 1995 and 1994, plant-in-service included approximately $2.4 billion and the
accumulated provision for depreciation included approximately $572.3 million and
$525.9 million, respectively, for the system's share of Millstone 3. The
system's share of Millstone 3 expenses is included in the corresponding
operating expenses on the accompanying Consolidated Statements of Income.
SEABROOK 1: CL&P and NAEC have a 40.04 percent joint-ownership interest in
Seabrook 1, a 1,148-MW nuclear generating unit. NAEC sells all of its share of
the power generated by Seabrook 1 to PSNH under two long-term contracts. As of
December 31, 1995 and 1994, plant-in-service included approximately $889.0
million and $887.4 million, respectively, and the accumulated provision for
depreciation included approximately $107.0 million and $83.2 million,
respectively, for the system's share of Seabrook 1. The system's share of
Seabrook 1 expenses is included in the corresponding operating expenses on the
accompanying Consolidated Statements of Income.
HYDRO-QUEBEC: NU has a 22.66 percent equity-ownership interest, totaling
approximately $23.6 million, in two companies that transmit electricity imported
from the Hydro-Quebec system in Canada. The two companies own and
operate transmission and terminal facilities, which have the capability of
importing up to 2,000 MW from the Hydro-Quebec system. See Note 6E,
"Commitments and Contingencies--Long-term Contractual Arrangements," for
additional information.
CHARTER OAK ENERGY, INC. (COE): COE owns and/or participates through special
purpose subsidiaries in various nonutility generation projects as permitted
under the Public Utility Holding Company Act of 1935. These investments may
be accounted for on either a cost or equity basis based upon COE's level of
participation.
D. DEPRECIATION
The provision for depreciation is calculated using the straight-line method
based on estimated remaining lives of depreciable utility plant-in-service,
adjusted for salvage value and removal costs, as approved by the appropriate
regulatory agency. Except for major facilities, depreciation factors are applied
to the average plant-in-service during the period. Major facilities are
depreciated from the time they are placed in service. When plant is retired from
service, the original cost of plant, including costs of removal, less salvage,
is charged to the accumulated provision for depreciation. The depreciation rates
for the several classes of electric plant-in-service are equivalent to a
composite rate of 3.8 percent in 1995, 3.7 percent in 1994, and 3.6 percent in
1993. See Note 3, "Nuclear Decommissioning," for information on nuclear plant
decommissioning.
E. PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as a holding
company under the Public Utility Holding Company Act of 1935 (1935 Act), and it
and its subsidiaries are subject to the provisions of the 1935 Act. Arrangements
among the system companies, outside agencies, and other utilities covering
interconnections, interchange of electric power, and sales of utility property
are subject to regulation by the Federal Energy Regulatory Commission (FERC)
and/or the SEC. The operating subsidiaries are subject to further regulation for
rates, accounting, and other matters by the FERC and/or applicable state
regulatory commissions.
F. REVENUES
Other than revenues under fixed-rate agreements negotiated with certain
wholesale, industrial, and commercial customers, utility revenues are based on
authorized rates applied to each customer's use of electricity. In general,
rates can be changed only through a formal proceeding before the appropriate
regulatory commission. At the end of each accounting period, CL&P, PSNH, and
WMECO accrue an estimate for the amount of energy delivered but unbilled.
G. REGULATORY ACCOUNTING
The accounting policies of the operating companies and the accompanying
consolidated financial statements conform to generally accepted accounting
principles applicable to rate-regulated enterprises and reflect the effects of
the ratemaking process in accordance with SFAS 71, ACCOUNTING FOR THE EFFECTS OF
CERTAIN TYPES OF REGULATION. Assuming a cost-of-service based regulatory
structure, regulators may permit incurred costs, normally treated as expenses,
to be deferred and recovered in future revenues. Through their actions,
regulators may also reduce or eliminate the value of an asset, or create a
liability. If any portion of the company's operations were no longer subject to
the provisions of SFAS 71, as a result of a change in the cost-of-service based
regulatory structure or the effects of competition, the company would be
required to write off related regulatory assets and liabilities. The company
would also be required to determine any impairment to other assets and write
down these assets to fair value. Based on current regulation and recent
regulatory decisions and initiatives relating to competition in the system's
markets, the company believes that its use of regulatory accounting remains
appropriate.
SFAS 121 requires that any assets, including regulatory assets, which are no
longer probable of recovery through future revenues, be revalued based on
estimated future cash flows. If the revaluation is less than the book value of
the asset, an impairment loss would be charged to earnings. As noted above,
based on the current regulatory environment in the company's service areas, it
is not expected that SFAS 121 will have a material impact on the company's
financial position or results of operations upon adoption. 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 on the company's
regulatory environment, refer to Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A).
The components of regulatory assets are as follows:
- --------------------------------------------------------------------
At December 31, 1995 1994
- --------------------------------------------------------------------
(Thousands of Dollars)
Income taxes, net (Note 1H). $1,176,356 $1,124,119
Recoverable energy costs,
net (Note 1J). . . . . . . . . . . 260,678 268,982
Deferred costs--nuclear
plants (Note 1K) . . . . . . . . . 168,600 233,145
Unrecovered contractual
obligation (Note 3). . . . . . . . 103,475 157,147
Deferred demand-side
management costs (Note 1L) . . . . . 117,070 116,133
Cogeneration costs--
CL&P (Note 1M) . . . . . . . . . . 92,162 36,821
Other. . . . . . . . . . . . . . . . . 116,010 109,043
---------- ----------
$2,034,351 $2,045,390
========== ==========
- --------------------------------------------------------------------
H. INCOME TAXES
The tax effect of temporary differences (differences between the periods in
which transactions affect income in the financial statements and the periods in
which they affect the determination of income subject to tax) is accounted for
in accordance with the ratemaking treatment of the applicable regulatory
commissions. The adoption of SFAS 109, ACCOUNTING FOR INCOME TAXES, in 1993
increased the company's net deferred tax obligation. As it is probable that the
increase in deferred tax liabilities will be recovered from customers through
rates, NU established a regulatory asset. See Consolidated Statements of Income
Taxes for the components of income tax expense.
The tax effect of temporary differences, including timing differences accrued
under previously approved accounting standards, which give rise to the
accumulated deferred tax obligation is as follows:
- ----------------------------------------------------------------------
At December 31, 1995 1994
- ----------------------------------------------------------------------
(Thousands of Dollars)
Accelerated depreciation and
other plant-related differences. . . $1,703,680 $1,470,372
Net operating loss carryforwards . . . (191,873) (247,440)
Regulatory assets--income tax
gross up . . . . . . . . . . . . . . 477,959 473,399
Other. . . . . . . . . . . . . . . . . 146,086 271,899
---------- ----------
$2,135,852 $1,968,230
========== ==========
- ----------------------------------------------------------------------
At December 31, 1995, PSNH had a net operating loss (NOL) carryforward of
approximately $572 million to be used against PSNH's federal taxable income and
to expire between the years 2000 and 2006. PSNH also had Investment Tax Credit
(ITC) carryforwards of $52 million, which expire between the years 1996 and
2004. For a portion of the carryforward amounts indicated above, the
reorganization of PSNH under Chapter 11 of the United States Bankruptcy Code
limits the annual amount of NOL and ITC carryforwards that may be used.
Approximately $95 million of the NOL and $21 million of the ITC carryforwards
are subject to this limitation.
I. UNAMORTIZED PSNH ACQUISITION COSTS
The unamortized PSNH acquisition costs represent the aggregate value placed by
the 1989 rate agreement with the state of New Hampshire (Rate Agreement) on
PSNH's assets in excess of the net book value of PSNH's non-Seabrook assets plus
the $700-million value assigned to Seabrook by the Rate Agreement, as part of
the bankruptcy resolution on June 5, 1992 (Acquisition Date). The Rate Agreement
provides for the recovery, through rates, with a return, of the amortization of
the unamortized PSNH acquisition costs. The Rate Agreement provides that $425
million of the unamortized PSNH acquisition costs be amortized over the first
seven years after PSNH's May 16, 1991 reorganization from bankruptcy
(Reorganization Date), with the remaining amount to be amortized over the
20-year period after the Reorganization Date. As of December 31, 1995,
approximately $411.8 million of acquisition costs have been collected through
rates.
J. RECOVERABLE ENERGY COSTS
Under the Energy Policy Act of 1992 (Energy Act), CL&P, PSNH, WMECO, and NAEC
are assessed for their proportionate shares of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States Department
of Energy (D&D assessment). The Energy Act requires that regulators treat D&D
assessments as a reasonable and necessary current cost of fuel, to be fully
recovered in rates, like any other fuel cost. CL&P, PSNH, WMECO, and NAEC are
currently recovering these costs through rates. As of December 31, 1995, the
company's total D&D deferrals were approximately $62.4 million.
CL&P: Retail electric rates include a fuel adjustment clause (FAC) under which
fossil-fuel prices above or below base-rate levels are charged or credited to
customers. Monthly FAC rates are also subject to quarterly retroactive
regulatory review and appropriate adjustments. CL&P also utilizes a generation
utilization adjustment clause (GUAC), which defers the effect on fuel costs
caused by variations from a specified composite nuclear generation capacity
factor embedded in base rates.
CL&P is currently recovering $80 million of its GUAC balance over 18 months.
CL&P set aside $19 million of its 1994-1995 GUAC year request pending the
resolution of CL&P's appeals associated with the two prior GUAC periods.
At December 31, 1995, CL&P's net recoverable energy costs, excluding current
recoverable energy costs, were approximately $27.3 million. For additional
information, see Note 6B, "Commitments and Contingencies--Nuclear
Performance."
PSNH: The Rate Agreement includes a comprehensive fuel and purchased-power
adjustment clause (FPPAC) permitting PSNH to pass through to retail customers,
for a ten-year period, the retail portion of differences between the fuel and
purchased-power costs assumed in the Rate Agreement and PSNH's actual costs,
which include the costs related to the Seabrook Power Contracts and the Clean
Air Act Amendment. The cost components of the FPPAC are subject to a prudence
review by the New Hampshire Public Utilities Commission (NHPUC).
The costs associated with purchases from certain nonutility generators (NUGs)
over the level assumed in the Rate Agreement are deferred and recovered through
the FPPAC. PSNH has been renegotiating the rate orders mandating the purchase of
high-cost NUG power. The NHPUC has approved an amendment to the Rate Agreement
allowing settlement agreements to be implemented with two wood-fired NUGs. In
1994, the two NUGs that were settled gave up their rights to sell their output
to PSNH in exchange for lump-sum cash payments totaling approximately $40
million. The deferred buyout payments are included as part of PSNH's recoverable
energy costs. During the Rate Agreement's fixed-rate period, all of the savings
from the buyout will be used to reduce PSNH's recoverable energy costs. At the
end of the fixed-rate period, 50 percent of the savings will be used to reduce
the recoverable energy costs, with the remainder reducing current rates. PSNH
has also reached tentative agreements with the six remaining wood-fired NUGs.
These agreements are subject to NHPUC approval.
At December 31, 1995, PSNH's net recoverable energy costs were approximately
$220 million, including purchased-power deferrals of $185.6 million and the NUGs
deferred buyout payments of $34.2 million.
K. DEFERRED COSTS--NUCLEAR PLANTS
As prescribed by the Rate Agreement, NAEC is phasing into rates the recoverable
portion of its investment in Seabrook 1 and is deferring certain costs for
future collection. This plan is in compliance with SFAS 92, REGULATED
ENTERPRISES--ACCOUNTING FOR PHASE-IN PLANS.
As of December 31, 1995, the portion of the investment on which NAEC is entitled
to earn a cash return was 85 percent. he investment will be fully phased into
NAEC's rate base as of May 1, 1996. From the Acquisition Date through December
31, 1995, NAEC recorded $162.4 million of deferred return on the excluded
portion of its investment in Seabrook 1. The deferred return on the excluded
portion of NAEC's investment in Seabrook 1 will be recovered with carrying
charges beginning six months after the end of PSNH's fixed-rate period (which
continues through May 1997) and will be fully recovered by May 2001.
L. DEMAND-SIDE MANAGEMENT (DSM)
CL&P's DSM costs are recovered in base rates through a Conservation Adjustment
Mechanism (CAM). As of December 31, 1995, these costs will be fully recovered by
2000. During October 1995, CL&P filed its 1996 DSM program and forecasted CAM
for 1996 with the Connecticut Department of Public Utility Control (DPUC). The
filing proposes expenditures of $37.1 million in 1996, with recovery over 2.4
years and a zero CAM rate.
M. CL&P COGENERATION COSTS
In accordance with its three-year rate plan that began in July 1993, CL&P was
required to defer approximately $72 million and $36 million of cogeneration
expense in years two and three, respectively, of the rate plan. CL&P is allowed
to defer these costs with carrying charges and will begin amortization of these
costs over a five-year period beginning July 1, 1996.
On June 30, 1995, CL&P terminated its existing agreement to purchase power from
the O'Brien EPA cogeneration facility and entered into an agreement to purchase
an equivalent amount of power from Citizens Lehman Power LP, at a cost below the
O'Brien EPA rates. CL&P has applied the resulting savings to the amortization of
the cogeneration deferral.
N. SPENT NUCLEAR FUEL DISPOSAL COSTS
Under the Nuclear Waste Policy Act of 1982, CL&P, PSNH, WMECO, and NAEC must pay
the United States Department of Energy (DOE) for the disposal of spent nuclear
fuel and high-level radioactive waste. Fees for nuclear fuel burned on or after
April 7, 1983 are billed currently to customers and paid to the DOE on a
quarterly basis. For nuclear fuel used to generate electricity prior to April 7,
1983 (prior-period fuel), payment may be made anytime prior to the first
delivery of spent fuel to the DOE, which may be as early as 1998. Until such
payment is made, the outstanding balance will continue to accrue interest at
the three-month Treasury Bill Yield Rate. At December 31, 1995, fees due to the
DOE for the disposal of prior-period fuel were approximately $185.2 million,
including interest costs of $103.1 million. As of December 31, 1995, all fees
have been collected through rates.
O. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes interest-rate caps, interest-rate swaps, and fuel swaps to
manage well-defined interest-rate and fuel-price risks. Premiums paid for
purchased interest-rate-cap agreements are amortized to interest expense over
the terms of the caps. Unamortized premiums are included in deferred charges.
Amounts receivable under cap agreements and amounts receivable or payable under
interest-rate-swap agreements are accrued and offset against interest expense.
Amounts receivable or payable under fuel-swap agreements are recognized in
income when realized. Any material unrealized gains or losses on interest-rate
swaps, fuel swaps or interest-rate caps will be deferred until realized. For
further information on derivatives, see Note 7, "Derivative Financial
Instruments."
2. LEASES
CL&P and WMECO finance up to $475 million of nuclear fuel for Millstone 1 and 2
and their respective shares of the nuclear fuel for Millstone 3 under the
Niantic Bay Fuel Trust (NBFT) capital lease agreement. CL&P and WMECO make
quarterly lease payments for the cost of nuclear fuel consumed in the reactors,
based on a units-of-production method at rates which reflect estimated
kilowatt-hours of energy provided, plus financing costs associated with the fuel
in the reactors. Upon permanent discharge from the reactors, ownership of the
nuclear fuel transfers to CL&P and WMECO. The system companies have also entered
into lease agreements, some of which are capital leases, for the use of data
processing and office equipment, vehicles, nuclear control room simulators, and
office space. The provisions of these lease agreements generally provide for
renewal options.
Capital lease rental payments charged to operating expense were $75,894,000 in
1995, $81,952,000 in 1994, and $100,911,000 in 1993. Interest included in
capital lease rental payments was $15,025,000 in 1995, $14,881,000 in 1994, and
$16,525,000 in 1993. Operating lease rental payments charged to operating
expense were $20,859,000 in 1995, $20,118,000 in 1994, and $22,630,000 in 1993.
Substantially all of the capital lease rental payments were made pursuant to the
nuclear fuel lease agreement. Future minimum lease payments under the nuclear
fuel capital lease cannot be reasonably estimated on an annual basis due to
variations in the usage of nuclear fuel.
Future minimum rental payments, excluding annual nuclear fuel lease payments and
executory costs, such as property taxes, state use taxes, insurance, and
maintenance, under long-term noncancelable leases, as of December 31, 1995, are:
- -----------------------------------------------------------------
Capital Operating
Year Leases Leases
- -----------------------------------------------------------------
(Thousands of Dollars)
1996. . . . . . . . . . . . . . . . . . $ 9,000 $21,500
1997. . . . . . . . . . . . . . . . . . 8,400 18,900
1998. . . . . . . . . . . . . . . . . . 8,000 11,200
1999. . . . . . . . . . . . . . . . . . 7,500 8,500
2000. . . . . . . . . . . . . . . . . . 6,900 7,100
After 2000. . . . . . . . . . . . . . . 42,500 13,600
-------- -------
Future minimum lease payments . . . . . 82,300 $80,800
=======
Less amount representing
interest . . . . . . . . . . . . . . 40,500
--------
Present value of future
minimum lease payments
for other than nuclear fuel. . . . . 41,800
Present value of future nuclear
fuel lease payments. . . . . . . . . 188,700
--------
Total . . . . . . . . . . . . $230,500
========
- -----------------------------------------------------------------
3. NUCLEAR DECOMMISSIONING
The NU system's nuclear power plants have service lives that are expected to end
during the years 2010 through 2026. Upon retirement, these units must be
decommissioned. The company's 1992 decommissioning study concluded that complete
and immediate dismantlement at retirement continues to be the most viable and
economic method of decommissioning the three Millstone units. A 1994 Seabrook
decommissioning study also confirmed that complete and immediate dismantlement
at retirement is the most viable and economic method of decommissioning Seabrook
1. Decommissioning studies are reviewed and updated periodically to reflect
changes in decommissioning requirements, costs, technology, and inflation.
The estimated cost of decommissioning Millstone 1 and 2, in year-end 1995
dollars, is $370.7 million and $328.1 million, respectively. The system's
ownership share of the estimated cost of decommissioning Millstone 3 and
Seabrook 1 in year-end 1995 dollars, is $298.2 million and $169.7 million,
respectively. These estimated costs assumed levelized collections for the
Millstone units and escalated collections for Seabrook 1, and after-tax earnings
on the Millstone and Seabrook decommissioning funds of 6.5 percent
and 6.1 percent, respectively. The Millstone units and Seabrook 1
decommissioning costs will be increased annually by their respective escalation
rates. Nuclear decommissioning costs are accrued over the expected service life
of the units and are included in depreciation expense on the Consolidated
Statements of Income. Nuclear decommissioning costs amounted to $38.9 million in
1995, $33.5 million in 1994, and $29.4 million in 1993. Nuclear decommissioning,
as a cost of removal, is included in the accumulated provision for depreciation
on the Consolidated Balance Sheets. At December 31, 1995, the balance in the
accumulated reserve for decommissioning amounted to $357.7 million. See "Nuclear
Decommissioning" in the MD&A for a discussion of changes being considered by the
FASB relating to accounting for closure and removal of long-lived assets
(including nuclear decommissioning)
CL&P and WMECO have established external decommissioning trusts through a
trustee for their portions of the costs of decommissioning Millstone 1, 2, and
3. PSNH makes payments to an independent decommissioning trust for its portion
of the costs of decommissioning Millstone 3. CL&P's and NAEC's portions of the
cost of decommissioning Seabrook 1 are paid to an independent decommissioning
financing fund managed by the state of New Hampshire.
As of December 31, 1995, CL&P, PSNH, and WMECO collected, through rates, $203.5
million, $1.8 million, and $47.4 million, respectively, toward the future
decommissioning costs of their share of the Millstone units, of which $220.6
million has been transferred to external decommissioning trusts. As of December
31, 1995, CL&P and NAEC (including payments made prior to the Acquisition Date
by PSNH) paid approximately $1.9 million and $13.1 million, respectively, into
Seabrook 1's decommissioning financing fund. Earnings on the decommissioning
trusts and financing fund increase the decommissioning trust balance and the
accumulated reserve for decommissioning. Unrealized gains and losses associated
with the decommissioning trusts also impact the balance of the trusts and the
accumulated reserve for decommissioning.
Changes in requirements or technology, the timing of funding or dismantling, or
adoption of a decommissioning method other than immediate dismantlement would
change decommissioning cost estimates and the amounts required to be recovered.
CL&P, PSNH, and WMECO attempt to recover sufficient amounts through their
allowed rates to cover their expected decommissioning costs. Only the portion of
currently estimated total decommissioning costs that has been accepted by
regulatory agencies is reflected in rates of the system companies. Based on
present estimates and assuming its nuclear units operate to the end of their
respective license periods, the system expects that the decommissioning trusts
and financing fund will be substantially funded when the units are retired from
service.
CL&P, PSNH, and WMECO, along with other New England utilities, have equity
investments in the four Yankee companies. Each Yankee company owns a single
nuclear generating unit with service lives that are expected to end during the
years 2007 through 2012. The system's ownership share of estimated costs, in
year-end 1995 dollars, of decommissioning the units owned and operated by CY,
MY, and VY are $188.9 million, $70.7 million, and $55.6 million, respectively.
Under the terms of the contracts with the Yankee companies, the
shareholders-sponsors are responsible for their proportionate share of the
operating costs of each unit, including decommissioning. The nuclear
decommissioning costs of the Yankee companies are included as part of the cost
of power purchased by CL&P, PSNH, and WMECO.
YAEC is in the process of dismantling its nuclear facility. Accelerated
decommissioning of that unit has been delayed because of litigation over the
Nuclear Regulatory Commission's (NRC) approval of YAEC's decommissioning plan.
Effective November 1995, YAEC began billing its sponsors, including the NU
system companies, amounts based on a revised estimate approved by the FERC that
assumes decommissioning of the plant by the year 2000. This revised
decommissioning estimate was based on access to the Barnwell, South Carolina,
low-level radioactive waste facility, changes in assumptions about earnings in
decommissioning trust investments, and changes in other decommissioning cost
assumptions. At December 31, 1995, the estimated remaining costs, including
decommissioning, amounted to $268.8 million of which the NU system's share was
approximately $103.5 million. Management expects that CL&P, PSNH, and WMECO will
continue to be allowed to recover such FERC-approved costs from their customers.
Accordingly, NU has recognized these costs as regulatory assets, with
corresponding obligations, on its Consolidated Balance Sheets.
4. SHORT-TERM DEBT
The system companies have various revolving credit lines, totaling $468 million.
NU, CL&P, WMECO, HWP, Northeast Nuclear Energy Company (NNECO), and The Rocky
River Realty Company (RRR) have established a revolving-credit facility with a
group of 15 banks. Under this facility, the participating companies may borrow
up to an aggregate of $343 million. Individual borrowing limits as of January 1,
1996 were $150 million for NU, $325 million for CL&P, $60 million for WMECO, $5
million for HWP, $50 million for NNECO, and $22 million for RRR. The system
companies may borrow funds on a short-term revolving basis, using either
fixed-rate loans or standby loans. Fixed rates are set using competitive
bidding. Standby-loan rates are based upon several alternative variable rates.
The system companies are obligated to pay a facility fee of 0.15 percent per
annum of each bank's total commitment under the three-year portion of the
facility, representing 75 percent of the total facility, plus 0.10 percent per
annum of each bank's total commitment under the 364-day portion of the
facility, representing 25 percent of the total facility. At December 31, 1995
and 1994, there were $42.5 million and $30 million in borrowings, respectively,
under the facility.
PSNH has credit lines totaling $125 million available through a revolving-credit
agreement with a group of 19 banks. PSNH may borrow funds on a short-term
revolving basis using either fixed-rate or standby loans. Fixed rates are set
using competitive bidding. Standby loan rates are based upon several alternative
variable rates. PSNH is obligated to pay a facility fee of 0.25 percent per
annum on the total commitment. At December 31, 1995 and 1994, there were no
borrowings under the agreement. These credit lines expire in May 1996. PSNH is
in the process of negotiating an increase and extension to the revolving
credit agreement.
The weighted average interest rate on notes payable to banks outstanding on
December 31, 1995 was 6.0 percent. The weighted average interest rates on notes
payable to banks and commercial paper outstanding on December 31, 1994 were 6.2
and 6.4 percent, respectively. Maturities of the short-term debt obligations
were for periods of three months or less.
The amount of short-term borrowings that may be incurred by the system's utility
companies is subject to periodic approval by the SEC under the 1935 Act. In
addition, the charters of CL&P and WMECO contain provisions restricting the
amount of short-term borrowings. Under the SEC and/or charter restrictions,
CL&P, PSNH, WMECO, and NAEC were authorized, as of January 1, 1995, to incur
short-term borrowings up to a maximum of $325 million, $175 million, $60
million, and $50 million, respectively. PSNH is see king approval from the NHPUC
to increase its short-term debt limit to $225 million.
5. EMPLOYEE BENEFITS
A. PENSION BENEFITS
The system's subsidiaries participate in a uniform noncontributory-defined
benefit retirement plan covering all regular system employees. Benefits are
based on years of service and employees' highest eligible compensation during
five consecutive years of employment. Total pension cost, part of which was
charged to utility plant, approximated $0.4 million in 1995, $7.7 million in
1994, and $29.2 million in 1993. Pension costs for 1995, 1994, and 1993 included
approximately $6.8 million, $9.2 million, and $27.7 million, respectively,
related to workforce-reduction programs.
Currently, the subsidiaries fund annually an amount at least equal to that which
will satisfy the requirements of the Employee Retirement Income Security Act and
the Internal Revenue Code. Pension costs are determined using market-related
values of pension assets. Pension assets are invested primarily in domestic and
international equity securities and bonds.
The components of net pension cost are:
- ------------------------------------------------------------------------------
For the Years Ended
December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
(Thousands of Dollars)
Service cost . . . . . . . . . . . . $ 35,771 $ 39,317 $ 59,068
Interest cost. . . . . . . . . . . . 89,351 84,284 81,456
Return on plan assets. . . . . . . . (310,997) 2,268 (176,798)
Net amortization . . . . . . . . . . 186,310 (118,188) 65,447
--------- --------- ---------
Net pension cost . . . . . . . . . . $ 435 $ 7,681 $ 29,173
========= ========= =========
- ------------------------------------------------------------------------------
For calculating pension cost, the following assumptions were used:
- ------------------------------------------------------------------------------
For the Years Ended
December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
Discount rate. . . . . . . . . . . . 8.25% 7.75% 8.00%
Expected long-term rate
of return. . . . . . . . . . . . 8.50 8.50 8.50
Compensation/progression
rate . . . . . . . . . . . . . . 5.00 4.75 5.00
- ------------------------------------------------------------------------------
The following table represents the plan's funded status reconciled to the
Consolidated Balance Sheets:
- ------------------------------------------------------------------------------
At December 31, 1995 1994
- ------------------------------------------------------------------------------
(Thousands of Dollars)
Accumulated benefit obligation,
including vested benefits at
December 31, 1995 and 1994
of $913,269,000 and
$815,646,000, respectively . . . $ 998,614 $ 893,653
========== ==========
Projected benefit obligation . . . . $1,278,434 $1,112,993
Market value of plan assets. . . . . 1,503,597 1,266,239
---------- ----------
Market value in excess of
projected benefit obligation . . . 225,163 153,246
Unrecognized transition amount . . . (13,648) (15,191)
Unrecognized prior service costs . . 9,710 10,373
Unrecognized net gain. . . . . . . . (311,855) (238,622)
--------- -----------
Accrued pension liability. . . . . . $ (90,630) $ (90,194)
========= ==========
- ------------------------------------------------------------------------------
The following actuarial assumptions were used in calculating the plan's year-end
funded status:
- ------------------------------------------------------------------------------
At December 31, 1995 1994
- ------------------------------------------------------------------------------
Discount rate. . . . . . . . . . . . 7.50% 8.25%
Compensation/progression rate. . . . 4.75 5.00
- ------------------------------------------------------------------------------
B. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The system's subsidiaries provide certain health care benefits, primarily
medical and dental, and life insurance benefits through a benefit plan to
retired employees (referred to as SFAS 106 benefits). These benefits are
available for employees retiring from the system who have met specified service
requirements. For current employees and certain retirees, the total SFAS 106
benefit is limited to two times the 1993 per-retiree health care costs. The SFAS
106 obligation has been calculated based on this assumption. Total SFAS 106
benefits, part of which were deferred or charged to utility plant, approximated
$44.1 million in 1995, $47.6 million in 1994, and $50.1 million in 1993. All of
the subsidiaries of NU are funding SFAS 106 postretirement costs through
external trusts. The subsidiaries are funding, on an annual basis, amounts that
have been rate-recovered and which also are tax-deductible under the Internal
Revenue Code. The trust assets are invested primarily in equity securities and
bonds.
The components of health care and life insurance costs are:
- ------------------------------------------------------------------------------
For the Years Ended
December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
(Thousands of Dollars)
Service cost . . . . . . . . . . . . . $ 7,137 $ 7,418 $ 9,175
Interest cost. . . . . . . . . . . . . 24,693 25,319 25,330
Return on plan assets. . . . . . . . . (7,812) 236 (220)
Amortization of unrecognized
transition obligation. . . . . . . . 15,134 15,134 15,961
Other amortization, net. . . . . . . . 4,924 (553) (106)
------- ------- -------
Net health care and life
insurance costs. . . . . . . . . . . $44,076 $47,554 $50,140
======= ======= =======
- ------------------------------------------------------------------------------
For calculating SFAS 106 benefits cost, the following assumptions were used:
- ------------------------------------------------------------------------------
For the Years Ended
December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
Discount rate. . . . . . . . . . . . . 8.00% 7.75% 7.75%
Long-term rate of return--
Health assets, net of tax. . . . . . 5.00 5.00 5.00
Life assets. . . . . . . . . . . . . 8.50 8.50 8.50
- ------------------------------------------------------------------------------
The following table represents the plan's funded status reconciled to the
Consolidated Balance Sheets:
- ------------------------------------------------------------------------------
At December 31, 1995 1994
- ------------------------------------------------------------------------------
(Thousands of Dollars)
Accumulated postretirement
benefit obligation of:
Retirees . . . . . . . . . . . . . $ 253,993 $ 251,448
Fully eligible active employees. . 354 416
Active employees not eligible
to retire. . . . . . . . . . . . 84,056 69,556
--------- ---------
Total accumulated postretirement
benefit obligation . . . . . . . . . 338,403 321,420
Market value of plan assets. . . . . . 56,791 26,406
--------- ---------
Accumulated postretirement benefit
obligation in excess of plan assets. (281,612) (295,014)
Unrecognized transition
amount . . . . . . . . . . . . . . . 257,283 272,417
Unrecognized net loss (gain) . . . . . 96 (4,772)
--------- ---------
Accrued postretirement
benefit liability. . . . . . . . . . $ (24,233) $ (27,369)
========= =========
- ------------------------------------------------------------------------------
The following actuarial assumptions were used in calculating the plan's year-end
funded status:
- ------------------------------------------------------------------------------
At December 31, 1995 1994
- ------------------------------------------------------------------------------
Discount rate. . . . . . . . . . . . . 7.50% 8.00%
Health care cost trend rate (a) . . . 8.40 10.20
- ------------------------------------------------------------------------------
(a) The annual growth in per capita cost of covered health care benefits was
assumed to decrease to 5.4 percent by 2001.
The effect of increasing the assumed health-care-cost trend rate by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1995 by $18.3 million and the aggregate of
the service and interest-cost components of net periodic postretirement benefit
cost for the year then ended by $1.6 million. The trust holding the plan assets
is subject to federal income taxes at a 35 percent tax rate.
CL&P, PSNH, and WMECO are currently recovering SFAS 106 costs, including amounts
previously deferred.
C. 401(K) SAVINGS PLAN
NU maintains a 401(k) Savings Plan for substantially all employees. This savings
plan provides for employee contributions up to specified limits. The company
matches employee contributions up to a maximum of 3 percent of eligible
compensation. The matching contributions for the company were $12.1 million for
1995 and 1994, and $12.2 million for 1993.
D. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
NU maintains an ESOP for purposes of allocating shares to employees
participating in the system's 401(k) plan. Under this arrangement, NU issued
unsecured notes during 1991 and 1992 totaling $250 million, the proceeds of
which were lent to the ESOP trust for purchase of approximately 10.8 million
newly issued NU common shares. NU makes principal and interest payments on the
ESOP notes at the same rate that ESOP shares are allocated to employees.
In 1995 and 1994, the ESOP trust issued approximately 655,000 and 664,000 of NU
common shares, respectively, totaling approximately $15.2 million and $15.5
million, respectively. These costs were charged to the 401(k) plan. As of
December 31, 1995 and 1994, the total allocated ESOP shares were 2,239,666 and
1,585,281, respectively, and total unallocated ESOP shares were 8,560,519 and
9,215,904, respectively. The fair market value of unallocated ESOP shares as of
December 31, 1995 and 1994 was approximately $207.6 million and $199.3 million,
respectively.
During 1995, the ESOP trust used approximately $22.7 million in dividends paid
on NU common shares and $13.2 million in contributions from NU to meet principal
and interest payments on ESOP notes.
6. COMMITMENTS AND CONTINGENCIES
A. CONSTRUCTION PROGRAM
The construction program is subject to periodic review and revision. The system
companies currently forecast construction expenditures of approximately $1.2
billion for the years 1996-2000, including $265.1 million for 1996. In addition,
the system companies estimate that nuclear fuel requirements, including nuclear
fuel financed through the NBFT, will be $344.9 million for the years 1996-2000,
including $45.7 million for 1996. See Note 2, "Leases," for additional
information about the financing of nuclear fuel.
B. NUCLEAR PERFORMANCE
Outages that occurred over the period October 1990 through February 1992 at the
Millstone nuclear units have been the subject of five ongoing prudence reviews
in Connecticut. CL&P has received final decisions on each of the reviews. Three
of these prudence reviews are either on appeal or still pending at the DPUC. The
exposure under these three dockets is approximately $92 million.
On April 10, 1995, the DPUC initiated a proceeding to investigate the prudence
of a Millstone 2 extended outage, which ended June 1994.
Approximately $13 million of costs are at issue.
In October 1994, Millstone 2 began a planned refueling and maintenance outage
that was originally scheduled for 63 days. The outage encountered several
unexpected difficulties which extended the duration of the outage until August
4, 1995. Total replacement-power costs attributable to the extension of the
outage for CL&P and WMECO were approximately $85 million. Operation and
maintenance (O&M) costs incurred during the outage were approximately $70
million, an increase of $24 million as a result of the outage extension. O&M
costs associated with the refueling outage are deferred and amortized through
rates for CL&P and WMECO. The recovery of replacement-power and O&M costs is
subject to refund pending prudence reviews in both Connecticut and
Massachusetts.
Management does not believe the outcome of the prudence reviews discussed above
will have a material adverse impact on the system's financial position and
results of operations.
In November 1995, Millstone 1 began a planned refueling and maintenance outage
that was originally scheduled for 49 days. The outage has encountered several
unexpected difficulties, which have lengthened the duration of the outage. The
impact of the outage extension is currently under review, but the unit is not
expected to return to service until the mid-to-late part of the second quarter
of 1996. The estimated costs attributable to the outage extension are
replacement-power costs of $6.5 million per month and O&M costs of approximately
$20 million. Recovery of the costs related to this outage is subject to prudence
reviews by the DPUC and the Massachusetts Department of Public Utilities.
On January 31, 1996, the NRC announced that the three Millstone nuclear power
plants had been placed on its "watch list" because of long-standing performance
concerns. The NRC cited a number of operational problems, which have arisen
since 1990 at the Millstone plants.
The NRC recognized that there are significant current variations in the
performance of the three units. The performance concerns cited by the NRC,
combined with NU's failure to maintain previous performance improvements, have
resulted in the NRC requiring close monitoring of Millstone unit operations and
the implementation of a corrective action program. While the NRC has not
specifically restricted operations at the Millstone site, the company expects
that there will be costs associated with the NRC's actions that cannot
accurately be estimated at this time.
C. ENVIRONMENTAL MATTERS
The system is subject to regulation by federal, state, and local authorities
with respect to air and water quality, handling the disposal of toxic substances
and hazardous and solid wastes, and the handling and use of chemical products.
The system has an active environmental auditing and training program and
believes that it is in substantial compliance with current environmental laws
and regulations.
Environmental requirements could hinder the construction of new generating
units, transmission and distribution lines, substations, and other facilities.
The cumulative long-term, cost impact of increasingly stringent environmental
requirements cannot accurately be estimated. Changing environmental requirements
could also require extensive and costly modifications to the system's existing
generating units, and transmission and distribution systems, and could raise
operating costs significantly. As a result, the system may incur significant
additional environmental costs, greater than amounts included in cost of removal
and other reserves, in connection with the generation and transmission of
electricity and the storage, transportation, and disposal of by-products and
wastes. The system may also encounter significantly increased costs to remedy
the environmental effects of prior waste handling activities.
The system has recorded a liability for what it believes, based upon information
currently available, are its estimated environmental remediation costs for waste
disposal sites that the system's subsidiaries expect to incur. In most cases,
additional future environmental cleanup costs are not reasonably estimable due
to a number of factors, including the unknown magnitude of possible
contamination, the appropriate remediation methods, the possible effects of
future legislation or regulation, and the possible effects of technological
changes. At December 31, 1995, the net liability recorded by the system for its
estimated environmental remediation costs, excluding any possible insurance
recoveries or recoveries from third parties, amounted to approximately $15
million, which management has determined to be the most probable amount within
the range of $15 million to $19 million.
The system cannot estimate the potential liability for future claims, including
environmental remediation costs, that may be brought against it. However,
considering known facts, existing laws, and regulatory practices, management
does not believe the matters disclosed above will have a material effect on the
system's financial position or future results of operations.
D. NUCLEAR INSURANCE CONTINGENCIES
Under certain circumstances, in the event of a nuclear incident at one of the
nuclear facilities covered by the federal government's third-party liability
indemnification program, the system could be assessed in proportion to its
ownership interest in each nuclear unit up to $75.5 million not to exceed $10
million per nuclear unit in any one year. The maximum assessment is to be
adjusted at least every five years for inflationary changes. Based on the
ownership interests in Millstone 1, 2, and 3 and in Seabrook 1, the system's
maximum liability, including any additional potential assessments, would be
$244.2 million per incident. In addition, through power-purchase contracts with
the three operating Yankee regional nuclear generating companies, the system
would be responsible for up to an additional $67.4 million per incident.
Payments for the system's ownership interest in nuclear generating facilities
would be limited to a maximum of $39.3 million per incident per year.
Insurance was purchased to cover the primary cost of repair, replacement, or
decontamination of utility property resulting from insured occurrences. The
system is subject to retroactive assessments if losses exceed the accumulated
funds available to the insurer. The maximum potential assessment against the
system with respect to losses arising during the current policy year is
approximately $15.6 million under the primary property insurance program.
Insurance has been purchased to cover certain extra costs incurred in obtaining
replacement power during prolonged accidental outages and the excess cost of
repair, replacement, or decontamination or premature decommissioning of utility
property resulting from insured occurrences. The system is subject to
retroactive assessments if losses exceed the accumulated funds available to the
insurer. The maximum potential assessments against the system with respect to
losses arising during current policy years are approximately $12.3 million under
the replacement-power policies and $50.6 million under the excess property
damage, decontamination, and decommissioning policies. The cost of a nuclear
incident could exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on an industry basis for
coverage of worker claims. All participating reactor operators insured under
this coverage are subject to retrospective assessments of $3.0 million per
reactor. The maximum potential assessment against the system with respect to
losses arising during the current policy period is approximately $13.1 million.
E. LONG-TERM CONTRACTUAL ARRANGEMENTS
YANKEE COMPANIES: CL&P, PSNH, and WMECO purchased approximately 6.7 percent of
their electricity requirements pursuant to long-term contracts with the Yankee
companies. Under the terms of their agreements, the companies pay their
ownership (or entitlement) shares of generating costs, which include
depreciation, O&M expenses, taxes, the estimated cost of decommissioning, and a
return on invested capital. These costs are recorded as purchased-power expense
and recovered through the companies' rates. The total cost of purchases under
these contracts for the units that are operating amounted to $161.1 million in
1995, $154.3 million in 1994, and $169.0 million in 1993.
See Note 1C, "Summary of Significant Accounting Policies--Investments and
Jointly Owned Electric Utility Plant," and Note 3, "Nuclear Decommissioning,"
for more information on the Yankee companies.
NONUTILITY GENERATORS: CL&P, PSNH, and WMECO have entered into various
arrangements for the purchase of capacity and energy from NUGs. Some of these
arrangements have terms from 10 to 30 years, currently expiring in the years
1998 through 2026, and require the companies to purchase the energy at specified
prices or formula rates. For the 12 months ended December 31, 1995,
approximately 13 percent of system electricity requirements was met by NUGs. The
total cost of purchases under these arrangements amounted to $440.4 million in
1995, $435.0 million in 1994, and $426.8 million in 1993. These costs are
eventually recovered through the companies' rates. For additional information,
see Note 1J, "Summary of Significant Accounting Policies--Recoverable Energy
Costs--PSNH."
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. (NHEC): PSNH entered into a buy-back
agreement to purchase the capacity and energy of NHEC's share of Seabrook 1 and
to pay all of NHEC's Seabrook 1 costs for a ten-year period, which began July 1,
1990. The total cost of purchases under this agreement was $15.8 million in
1995, $14.6 million in 1994, and $14.4 million in 1993. A portion of these costs
is collected currently through the FPPAC and the remaining costs are deferred
for future collection in accordance with the Rate Agreement. In connection with
the agreement, NHEC agreed to continue as a firm-requirements customer of PSNH
for 15 years.
HYDRO-QUEBEC: Along with other New England utilities, CL&P, PSNH, WMECO, and HWP
entered into agreements to support transmission and terminal facilities to
import electricity from the Hydro-Quebec system in Canada. CL&P, PSNH, WMECO,
and HWP, in the aggregate, are obligated to pay, over a 30-year period ending in
2020, their proportionate shares of the annual O&M and capital costs of these
facilities.
The estimated annual costs of the system's significant long-term contractual
arrangements are as follows:
- --------------------------------------------------------------------------
1996 1997 1998 1999 2000
- --------------------------------------------------------------------------
(Millions of Dollars)
Yankee
Companies . . . . . $160.1 $156.8 $169.0 $171.3 $182.9
Nonutility
Generators. . . . . 430.2 440.5 452.1 467.3 474.8
NHEC. . . . . . . . 14.6 22.5 29.5 29.7 14.6
Hydro-Quebec. . . . 35.8 34.0 32.9 32.1 31.6
- --------------------------------------------------------------------------
7. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes derivative financial instruments to manage well-defined
interest-rate and fuel-price risks. The company does not use them for trading
purposes.
INTEREST-RATE CAP CONTRACTS: CL&P, PSNH, and WMECO have entered into
interest-rate cap contracts with financial institutions in order to reduce a
portion of the interest-rate risk associated with certain variable-rate
tax-exempt pollution control revenue bonds. During 1995, there were three
outstanding contracts held by CL&P, PSNH, and WMECO covering $467 million of
variable-rate debt, all of which expired in January 1996. The contracts entitled
CL&P, PSNH, and WMECO to receive from counterparties the amounts, if any, by
which the interest payments on a portion of its variable-rate tax-exempt
pollution control revenue bonds exceed the J.J. Kenny High Grade Index. Due to
their upcoming expiration, as of December 31, 1995, the total fair market value
of these caps was $0.
FUEL SWAPS: CL&P also uses fuel-swap agreements with financial institutions
to hedge against some of the fuel-price risk created by long-term negotiated
energy contracts. These fuel swaps minimize exposure associated with rising fuel
prices and effectively fix most of CL&P's cost of fuel 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 December 31, 1995, CL&P had outstanding agreements with a total
notional value of approximately $249 million, and a negative mark-to-market
position of approximately $19 million. When the mark-to-market position for the
swap agreements is negative, the profitability of the long-term negotiated
energy contracts whose fuel exposure has been hedged increases by a
corresponding amount.
INTEREST-RATE SWAPS: NAEC uses interest-rate swap agreements with financial
institutions to hedge against interest-rate risk associated with its $225
million variable-rate bank note. The interest-rate swaps minimize exposure
associated with rising interest rates, and effectively fix the interest rate for
this borrowing arrangement. Under the swap agreement, NAEC exchanges quarterly
payments based on a differential between a fixed contractual interest rate and
the three-month LIBOR rate at a given time. As of December 31, 1995, NAEC had
outstanding agreements with a total notional value of approximately $225 million
and a negative mark-to-market position of approximately $3.8 million.
These swap agreements have been made with various financial institutions, each
of which are rated "A" or better by Standard & Poor's rating group. The system
companies are exposed to credit risk on fuel swaps, and interest-rate
swaps if the counterparties fail to perform their obligations. However, the
system companies anticipate that the counterparties will be able to fully
satisfy their obligations under the contracts.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each of the following financial instruments:
CASH AND NUCLEAR DECOMMISSIONING TRUSTS: The carrying amounts approximate
fair value.
SFAS 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES,
requires investments in debt and equity securities to be presented at fair
value, and was adopted by the company on a prospective basis as of January 1,
1994. During 1995, the investments held in the company's nuclear decommissioning
trusts increased by approximately $19.3 million as of December 31, 1995 and
decreased by approximately $5.5 million as of December 31, 1994, with a
corresponding offset to the accumulated provision for depreciation. The $19.3
million increase in 1995 represents cumulative gross unrealized holding gains.
The cumulative gross unrealized holding losses were immaterial for 1995. The
$5.5 million decrease in 1994 represents cumulative gross unrealized holding
gains of $1.9 million, offset by cumulative gross unrealized holding losses of
$7.4 million. There was no change in funding requirements of the trusts nor any
impact on earnings as a result of the adoption of SFAS 115.
PREFERRED STOCK AND LONG-TERM DEBT: The fair value of the system's fixed-rate
securities is based upon the quoted market price for those issues or similar
issues. Adjustable rate securities are assumed to have a fair value equal to
their carrying value. The carrying amounts of the system's financial instruments
and the estimated fair values are as follows:
- ------------------------------------------------------------------------------
Carrying Fair
At December 31, 1995 Amount Value
- ------------------------------------------------------------------------------
(Thousands of Dollars)
Preferred stock not subject to
mandatory redemption. . . . . . . . $ 169,700 $ 136,148
Preferred stock subject to
mandatory redemption. . . . . . . . 304,000 313,910
Long-term debt --
First Mortgage Bonds. . . . . . . . 2,234,245 2,283,920
Other long-term debt. . . . . . . . 1,697,529 1,733,816
Monthly Income
Preferred Securities. . . . . . . . 100,000 108,520
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Carrying Fair
At December 31, 1995 Amount Value
- ------------------------------------------------------------------------------
(Thousands of Dollars)
Preferred stock not subject to
mandatory redemption . . . . . . . . $ 234,700 $ 179,875
Preferred stock subject to
mandatory redemption . . . . . . . . 379,675 370,250
Long-term debt --
First Mortgage Bonds . . . . . . . . 2,291,550 22,151,744
Other long-term debt . . . . . . . . 1,830,400 1,811,627
- ------------------------------------------------------------------------------
The fair values shown above have been reported to meet disclosure requirements
and do not purport to represent the amounts at which those obligations would be
settled.
9. MONTHLY INCOME PREFERRED SECURITIES OF SUBSIDIARY
In January 1995, CL&P Capital, L.P. (CL&P LP) issued $100 million of cumulative
9.3 percent Monthly Income Preferred Securities (MIPS), Series A. CL&P has the
sole ownership interest in CL&P LP, as a general partner, and is the guarantor
of the MIPS securities. Subsequent to the MIPS issuance, CL&P LP loaned the
proceeds of the MIPS issuance, along with CL&P's $3.1 million capital
contribution, back to CL&P in the form of an unsecured debenture. CL&P
consolidates CL&P LP for financial reporting purposes. Upon consolidation, the
unsecured debenture is eliminated, and the MIPS securities are accounted for as
a minority interest.
<TABLE>
CONSOLIDATED STATEMENTS OF QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
QUARTER ENDED (a)
1995 March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars, except per share data)
<S> <C> <C> <C> <C>
Operating Revenues .................................. $944,705 $840,333 $985,092 $978,861
======== ======== ======== ========
Operating Income..................................... $167,327 $118,410 $162,298 $143,945
======== ======== ======== ========
Net Income .......................................... $ 86,284 $ 42,398 $ 89,526 $64,226
======== ======== ======== ========
Earnings Per Common Share............................ $0.69 $0.34 $0.71 $0.50
======== ======== ======== ========
1994
- -------------------------------------------------------------------------------------------------------------------------------
Operating Revenues .................................. $966,174 $854,627 $923,708 $898,233
======== ======== ======== ========
Operating Income..................................... $161,290 $124,988 $137,254 $130,393
======== ======== ======== ========
Net Income .......................................... $ 95,888 $ 61,145 $ 65,029 $ 64,812
======== ======== ======== ========
Earnings Per Common Share............................ $0.77 $0.49 $0.52 $0.52
======== ======== ======== ========
</TABLE>
<TABLE>
CONSOLIDATED GENERATION STATISTICS
<CAPTION>
1995 1994 1993 1992(b) 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SOURCE OF ELECTRIC ENERGY: (KWH--MILLIONS)
Nuclear--Steam (c)................................ 18,235 19,443 22,965 15,520 11,062
Fossil--Steam..................................... 9,162 8,292 7,676 6,784 6,179
Hydro--Conventional............................... 1,099 1,239 1,140 1,076 994
Hydro--Pumped Storage............................. 1,209 1,195 1,269 1,221 1,173
Internal Combustion............................... 37 13 8 9 25
Energy Used for Pumping........................... (1,674) (1,629) (1,749) (1,671) (1,605)
------ ------ ------ ------ ------
Net Generation.................................. 28,068 28,553 31,309 22,939 17,828
Purchased and Net Interchange..................... 14,256 14,028 10,499 14,165 13,430
Company Use and Unaccounted for .................. (2,706) (2,535) (2,591) (2,028) (1,958)
------ ------ ------ ------ ------
Net Energy Sold................................. 39,618 40,046 39,217 35,076 29,300
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------------------------------------------------------
System Capability-MW (c).............................. 8,394.8 8,494.8 7,795.3 7,823.2 5,916.2
System Peak Demand-MW................................. 6,358.2 6,338.5 6,191.0 5,781.0 4,999.8
Nuclear Capacity-MW (c)............................... 3,239.6 3,272.6 3,110.0 2,981.1 2,380.0
Nuclear Contribution to Total
Energy Requirements (%) (c)......................... 52.0 54.0 62.1 48.5 43.5
Nuclear Capacity Factor (%) (d)....................... 69.9 67.5 80.8 63.7 50.6
- -------------------------------------------------------------------------------------------------------------------------------
(a) Reclassifications of prior data have been made to conform with the current
presentation.
(b) Effective with the June 5, 1992 acquisition of PSNH, the consolidated
financial and statistical information of NU includes, on a prospective
basis, the operations of PSNH and NAEC.
(c) Includes the system's entitlements in regional nuclear generating
companies, net of capacity sales and purchases.
(d) Represents the average capacity factor for the nuclear units operated by
the NU system.
</TABLE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
1995 1994 1993 1992(a) 1991
- ----------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars, except percentages and share data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net Utility Plant (b)................. $ 7,000,837 $ 7,282,421 $ 7,439,159 $ 7,588,368 $ 5,257,567
Total Assets.......................... 10,544,966 10,584,880 10,668,164 9,724,340 6,781,746
Total Capitalization (c).............. 6,820,624 7,035,989 7,309,898 7,421,592 5,138,426
Obligations Under Capital Leases (c).. 230,482 239,121 243,760 266,100 279,729
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME DATA:
Operating Revenues.................... $ 3,748,991 $ 3,642,742 $ 3,629,093 $ 3,216,874 $ 2,753,803
Net Income ........................ 282,434 286,874 249,953(d) 256,054 236,709
Earnings per Common Share............. $2.24 $2.30 $2.02(d) $2.02 $2.12
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA:
Earnings per Share.................... $2.24 $2.30 $2.02(d) $2.02 $2.12
Dividends per Share................... $1.76 $1.76 $1.76 $1.76 $1.76
Payout Ratio (%)...................... 78.6 76.5 87.1 87.1 83.0
Number of Shares
Outstanding--Average................ 126,083,645 124,678,192 123,947,631(e) 130,403,488 111,453,550
Market Price--High.................... $25 3/8 $25 3/4 $28 7/8 $26 3/4 $24 3/8
Market Price--Low..................... $21 $20 3/8 $22 $22 1/2 $19
Market Price--Closing Price...........
(end of year)....................... $24 1/4 $21 5/8 $23 3/4 $26 1/2 $23 5/8
Book Value per Share (end of year)... $19.08 $18.47 $17.89 $16.24 $15.73
Rate of Return Earned on Average
Common Equity (%)................. 12.0 12.7 11.4 12.7 13.0
Dividend Yield (end of year) (%)...... 7.3 8.1 7.4 6.6 7.4
Cash Coverage of Common Dividends..... 4.2 4.0 3.3 2.6 2.4
Market-to-Book Ratio (end of year).... 1.3 1.2 1.3 1.6 1.5
Price-Earnings Ratio (end of year).... 10.8 9.4 11.8 13.1 11.1
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION:
Common Shareholders' Equity........... 36% 33% 30% 29% 37%
Preferred Stock (c)(f)................ 7 9 9 9 11
Long-term Debt (c).................... 57 58 61 62 52
---------- ----------- ----------- ----------- -----------
Total Capitalization.................. 100% 100% 100% 100% 100%
========== =========== =========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Effective with the June 5, 1992 acquisition of PSNH, the consolidated
financial and statistical information of NU includes, on a prospective
basis, the operations of PSNH and NAEC.
(b) Includes reclassification of the unamortized PSNH acquisition costs to
net utility plant.
(c) Includes portions due within one year.
(d) Includes the cumulative effect of change in accounting for municipal
property tax expense, which increased earnings for common shares and
earnings per common share by $51.7 million and $0.42, respectively.
(e) Decrease in the number of shares results from a change in accounting for
ESOP shares.
(f) Excludes $100 million of Monthly Income Preferred Securities.
</TABLE>
<TABLE>
CONSOLIDATED SALES STATISTICS
<CAPTION>
1995 1994(a) 1993 1992(b) 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES: (THOUSANDS)
Residential....................... $1,469,988 $1,430,239 $1,385,818 $1,213,140 $995,098
Commercial........................ 1,230,608 1,173,808(c) 1,043,125 943,832 828,117
Industrial........................ 583,204 559,801(c) 649,876 554,587 419,003
Other Utilities................... 303,004 330,801 383,129 346,791 366,231
Streetlighting and Railroads...... 47,510 45,943 45,480 43,296 38,656
Miscellaneous..................... 48,784 44,140 60,008 59,465 49,539
---------- ---------- ---------- ---------- ----------
Total Electric.................. 3,683,098 3,584,732 3,567,436 3,161,111 2,696,644
Other............................. 65,893 58,010 61,657 55,763 57,159
---------- ---------- ---------- ---------- ----------
Total........................... $3,748,991 $3,642,742 $3,629,093 $3,216,874 $2,753,803
========== ========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------
SALES: (KWH--MILLIONS)
Residential....................... 12,005 12,231 11,988 10,839 9,518
Commercial........................ 11,737 11,649(c) 10,304 9,608 8,900
Industrial........................ 6,842 6,729(c) 7,572 6,593 5,208
Other Utilities................... 8,718 9,123 9,046 7,733 5,388
Streetlighting and Railroads...... 316 314 307 303 286
---------- ---------- ---------- ---------- ----------
Total........................... 39,618 40,046 39,217 35,076 29,300
========== ========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------
CUSTOMERS: (AVERAGE)
Residential....................... 1,526,127 1,513,987 1,503,182 1,351,019 1,150,357
Commercial........................ 156,652 154,703(c) 155,487 132,680 102,867
Industrial........................ 7,861 7,813(c) 6,272 5,774 5,067
Other............................. 3,878 3,818 3,793 3,581 3,305
---------- ---------- ---------- ---------- ----------
Total......................... 1,694,518 1,680,321 1,668,734 1,493,054 1,261,596
========== ========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL USE PER RESIDENTIAL
CUSTOMER (KWH)................. 7,917 8,152 7,987 8,129 8,285
- ------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL BILL PER RESIDENTIAL
CUSTOMER....................... $969.41 $953.23 $923.32 $909.80 $866.20
- ------------------------------------------------------------------------------------------------------------------------------
AVERAGE REVENUE PER KWH:(in cents)
Residential....................... 12.24 11.69 11.56 11.19 10.45
Commercial........................ 10.49 10.08 10.12 9.82 9.30
Industrial........................ 8.52 8.32 8.58 8.41 8.05
- ------------------------------------------------------------------------------------------------------------------------------
(a) Effective January 1, 1994, the accounting for unbilled revenues was revised
to report unbilled revenues by customer class.
(b) Effective with the June 5, 1992 acquisition of PSNH, the consolidated
financial and statistical information of NU includes, on a prospective
basis, the operations of PSNH and NAEC.
(c) Effective January 1, 1994, approximately 1,300 customers previously
classified as commercial customers were reclassified to industrial
customers.
</TABLE>
EXHIBIT 13.2
1995 Annual Report
The Connecticut Light and Power Company and Subsidiaries
Index
Contents Page
- -------- ----
Consolidated Balance Sheets................................. 2-3
Consolidated Statements of Income........................... 4
Consolidated Statements of Cash Flows....................... 5
Consolidated Statements of Common Stockholder's Equity...... 6
Notes to Consolidated Financial Statements.................. 7
Report of Independent Public Accountants.................... 28
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 29
Selected Financial Data..................................... 35
Statements of Quarterly Financial Data...................... 35
Statistics.................................................. 36
Preferred Stockholder and Bondholder Information............ Back Cover
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
At December 31, 1995 1994
- ------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $6,147,961 $6,063,179
Less: Accumulated provision for depreciation......... 2,418,557 2,194,314
----------- -----------
3,729,404 3,868,865
Construction work in progress........................... 103,026 99,993
Nuclear fuel, net....................................... 138,203 164,795
----------- -----------
Total net utility plant............................. 3,970,633 4,133,653
----------- -----------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 238,023 171,950
Investments in regional nuclear generating
companies, at equity................................... 54,624 54,952
Other, at cost.......................................... 14,821 14,742
----------- -----------
307,468 241,644
----------- -----------
Current Assets:
Cash and special deposits (Note 1N)<F1N>................ 1,757 2,017
Receivables, less accumulated provision for
uncollectible accounts of $10,567,000 in 1995
and $12,778,000 in 1994................................ 231,574 192,926
Accounts receivable from affiliated companies........... 3,069 9,367
Accrued utility revenues................................ 91,157 90,475
Fuel, materials, and supplies, at average cost.......... 68,482 64,003
Recoverable energy costs, net--current portion.......... 78,108 10,561
Prepayments and other................................... 42,894 43,654
----------- -----------
517,041 413,003
----------- -----------
Deferred Charges:
Regulatory assets (Note 1G)<F1G>........................ 1,210,384 1,410,334
Unamortized debt expense................................ 14,977 8,396
Other................................................... 10,232 10,427
----------- -----------
1,235,593 1,429,157
----------- -----------
Total Assets........................................ $6,030,735 $6,217,457
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
At December 31, 1995 1994
- ----------------------------------------------------------------------------------
(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 in 1995 and 1994.............................. $ 122,229 $ 122,229
Capital surplus, paid in.............................. 637,981 632,117
Retained earnings..................................... 785,476 765,724
----------- -----------
Total common stockholder's equity............ 1,545,686 1,520,070
Cumulative preferred stock--
$50 par value - authorized 9,000,000 shares;
outstanding 5,424,000 shares in 1995 and 1994
$25 par value - authorized 8,000,000 shares;
outstanding no shares in 1995 and
5,000,000 shares in 1994
Not subject to mandatory redemption................. 116,200 166,200
Subject to mandatory redemption..................... 155,000 226,250
Long-term debt........................................ 1,812,646 1,815,579
----------- -----------
Total capitalization......................... 3,629,532 3,728,099
----------- -----------
Minority Interest in Consolidated
Subsidiary (Note 13)<F13>............................. 100,000 -
----------- -----------
Obligations Under Capital Leases........................ 108,408 120,268
----------- -----------
Current Liabilities:
Notes payable to banks................................ 41,500 76,000
Notes payable to affiliated company................... 10,250 92,750
Commercial paper...................................... - 10,000
Long-term debt and preferred stock--current
portion.............................................. 9,372 11,861
Obligations under capital leases--current
portion.............................................. 63,856 55,701
Accounts payable...................................... 110,798 102,837
Accounts payable to affiliated companies.............. 44,677 43,033
Accrued taxes......................................... 52,268 26,413
Accrued interest...................................... 30,854 30,682
Other................................................. 20,027 22,828
----------- -----------
383,602 472,105
----------- -----------
Deferred Credits:
Accumulated deferred income taxes (Note 1H)<F1H>...... 1,486,873 1,544,021
Accumulated deferred investment tax credits........... 142,447 150,087
Deferred contractual obligation....................... 65,847 100,003
Other................................................. 114,026 102,874
----------- -----------
1,809,193 1,896,985
----------- -----------
Commitments and Contingencies (Note 10)<F10>
Total Capitalization and Liabilities......... $6,030,735 $6,217,457
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues................................ $2,386,107 $2,328,052 $2,366,050
----------- ----------- ----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power.... 608,600 568,394 657,121
Other........................................ 613,420 593,851 641,402
Maintenance..................................... 192,607 207,003 180,403
Depreciation.................................... 242,496 231,155 219,776
Amortization of regulatory assets, net.......... 54,217 77,384 112,353
Federal and state income taxes (Note 8)<F8>..... 178,346 190,249 142,987
Taxes other than income taxes................... 172,395 173,068 170,353
----------- ----------- ----------
Total operating expenses.................. 2,062,081 2,041,104 2,124,395
----------- ----------- ----------
Operating Income.................................. 324,026 286,948 241,655
----------- ----------- ----------
Other Income:
Deferred nuclear plants return--other funds..... 4,683 13,373 23,537
Equity in earnings of regional nuclear
generating companies.......................... 6,545 7,453 6,193
Other, net...................................... 1,170 5,136 (1,044)
Income taxes.................................... (2,978) 4,248 3,299
----------- ----------- ----------
Other income, net......................... 9,420 30,210 31,985
----------- ----------- ----------
Income before interest charges............ 333,446 317,158 273,640
----------- ----------- ----------
Interest Charges:
Interest on long-term debt...................... 124,350 119,927 134,263
Other interest.................................. 5,596 6,378 9,654
Deferred nuclear plants return--borrowed funds.. (1,716) (7,435) (13,979)
----------- ----------- ----------
Interest charges, net..................... 128,230 118,870 129,938
----------- ----------- ----------
Income before cumulative effect of
accounting change............................... 205,216 198,288 143,702
Cumulative effect of accounting change
(Note 1A)<F1A>.................................. - - 47,747
----------- ----------- ----------
Net Income........................................ $ 205,216 $ 198,288 $ 191,449
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities:
Net Income.................................................. $ 205,216 $ 198,288 $ 191,449
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 242,496 231,155 219,776
Deferred income taxes and investment tax credits, net..... 49,520 37,664 (20,188)
Deferred nuclear plants return............................ (6,399) (20,808) (37,516)
Amortization of deferred nuclear plants return............ 101,958 103,459 96,256
Recoverable energy costs, net of amortization............. (33,769) 3,975 125,579
Deferred cogeneration costs............................... (55,341) (36,821) -
Other sources of cash..................................... 65,597 43,138 80,831
Other uses of cash........................................ (36,435) (9,388) (47,499)
Changes in working capital:
Receivables and accrued utility revenues.................. (33,032) 45,386 (9,370)
Fuel, materials, and supplies............................. (4,479) (3,756) 11,951
Accounts payable.......................................... 9,605 (24,167) 5,433
Accrued taxes............................................. 25,855 (9,726) (82,018)
Other working capital (excludes cash)..................... (1,869) (18,403) 9,754
----------- ----------- -----------
Net cash flows from operating activities...................... 528,923 539,996 544,438
----------- ----------- -----------
Financing Activities:
Issuance of long-term debt.................................. - 535,000 740,500
Issuance of preferred stock................................. - - 80,000
Issuance of Monthly Income
Preferred Securities (Note 13)<F13>........................ 100,000 - -
Net (decrease) increase in short-term debt.................. (127,000) 82,500 (109,490)
Reacquisitions and retirements of long-term debt............ (10,866) (774,020) (771,973)
Reacquisitions and retirements of preferred stock........... (125,000) - (114,996)
Cash dividends on preferred stock........................... (21,185) (23,895) (29,182)
Cash dividends on common stock.............................. (164,154) (159,388) (160,365)
----------- ----------- -----------
Net cash flows used for financing activities.................. (348,205) (339,803) (365,506)
----------- ----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (131,858) (149,889) (149,308)
Nuclear fuel.............................................. (1,543) (20,905) (13,658)
----------- ----------- -----------
Net cash flows used for investments in plant................ (133,401) (170,794) (162,966)
Other investment activities, net............................ (47,577) (29,722) (25,787)
----------- ----------- -----------
Net cash flows used for investments........................... (180,978) (200,516) (188,753)
----------- ----------- -----------
Net Decrease In Cash For The Period........................... (260) (323) (9,821)
Cash and special deposits - beginning of period............... 2,017 2,340 12,161
----------- ----------- -----------
Cash and special deposits - end of period..................... $ 1,757 $ 2,017 $ 2,340
=========== =========== ===========
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest, net of amounts capitalized........................ $ 117,074 $ 115,120 $ 130,592
=========== =========== ===========
Income taxes................................................ $ 137,706 $ 161,513 $ 149,056
=========== =========== ===========
Increase in obligations:
Niantic Bay Fuel Trust...................................... $ 33,537 $ 52,353 $ 40,140
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Capital Retained
Common Surplus, Earnings
Stock Paid In (a) Total
- ------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Balance at January 1, 1993.......... $122,229 $634,851 $ 748,817 $1,505,897
Net income for 1993............. 191,449 191,449
Cash dividends on preferred
stock......................... (29,182) (29,182)
Cash dividends on common stock.. (160,365) (160,365)
Capital stock expenses, net..... (4,580) (4,580)
--------- --------- ---------- -----------
Balance at December 31, 1993........ 122,229 630,271 750,719 1,503,219
Net income for 1994............. 198,288 198,288
Cash dividends on preferred
stock......................... (23,895) (23,895)
Cash dividends on common stock.. (159,388) (159,388)
Capital stock expenses, net..... 1,846 1,846
--------- --------- ---------- -----------
Balance at December 31, 1994........ 122,229 632,117 765,724 1,520,070
Net income for 1995............. 205,216 205,216
Cash dividends on preferred
stock......................... (21,185) (21,185)
Cash dividends on common stock.. (164,154) (164,154)
Loss on the retirement of
preferred stock............... (125) (125)
Capital stock expenses, net..... 5,864 5,864
--------- --------- ---------- -----------
Balance at December 31, 1995........ $122,229 $637,981 $ 785,476 $1,545,686
========= ========= ========== ===========
</TABLE>
(a) The company has dividend restrictions imposed by its long-term debt
agreements.
At December 31, 1995, these restrictions totaled approximately $540 million.
The accompanying notes are an integral part of these financial statements.
The Connecticut Light and Power Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRESENTATION
The consolidated financial statements of The Connecticut Light and Power
Company and Subsidiaries (the company or CL&P) include the accounts of
all wholly owned subsidiaries. Significant intercompany transactions
have been eliminated in consolidation.
CL&P, Western Massachusetts Electric Company (WMECO), Holyoke Water
Power Company (HWP), Public Service Company of New Hampshire (PSNH), and
North Atlantic Energy Corporation (NAEC) are the operating subsidiaries
comprising the Northeast Utilities system (the system) and are wholly
owned by Northeast Utilities (NU).
The system furnishes retail electric service in Connecticut, New
Hampshire, and western Massachusetts through CL&P, PSNH, WMECO, and HWP.
A fifth subsidiary, NAEC, sells all of its capacity to PSNH. In
addition to its retail 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.
Other wholly owned subsidiaries of NU provide substantial support
services to the system. Northeast Utilities Service Company (NUSCO)
supplies centralized accounting, administrative, data processing,
engineering, financial, legal, operational, planning, purchasing, and
other services to the system companies. Northeast Nuclear Energy
Company (NNECO) acts as agent for system companies in operating the
Millstone nuclear generating facilities. North Atlantic Energy Service
Corporation (NAESCO) acts as agent for CL&P and NAEC in operating the
Seabrook 1 nuclear facility.
All transactions among affiliated companies are on a recovery of cost
basis which may include amounts representing a return on equity, and are
subject to approval by various federal and state regulatory agencies.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent 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.
Certain reclassifications of prior years' data have been made to conform
with the current year's presentation.
Property Taxes: CL&P changed its method of accounting for municipal
property tax expense for its respective Connecticut properties during
1993. This one-time change increased 1993 net income by approximately
$47.7 million.
B. FUTURE ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) 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, in
March 1995. SFAS 121 became effective January 1, 1996, and establishes
accounting standards for evaluating and recording asset impairment.
SFAS 121 requires the evaluation of long-lived assets for impairment
when certain events occur or conditions exist that indicate the carrying
amounts of assets may not be recoverable. Refer to Note 1G,
"Regulatory Accounting," for further information on the regulatory
impacts of the company's adoption of SFAS 121.
C. INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
Regional Nuclear Generating Companies: CL&P owns common stock of four
regional nuclear generating companies (Yankee companies). The Yankee
companies, with the company's ownership interests, are:
Connecticut Yankee Atomic Power Company (CY) ...... 34.5%
Yankee Atomic Electric Company (YAEC) ............. 24.5
Maine Yankee Atomic Power Company (MY) ............ 12.0
Vermont Yankee Nuclear Power Corporation (VY) ..... 9.5
CL&P's investments in the Yankee companies are accounted for on the
equity basis due to the company's ability to exercise significant
influence over their operating and financial policies. The electricity
produced by the facilities that are operating is committed substantially
on the basis of ownership interests and is billed pursuant to
contractual agreements. Under ownership agreements with the Yankee
companies, CL&P may be asked to provide direct or indirect financial
support for one or more of the companies. For more information on these
agreements, see Note 10E, "Commitments and Contingencies - Long-Term
Contractual Arrangements."
YAEC's nuclear power plant was shut down permanently on February 26,
1992. For more information on the Yankee companies, see Note 3,
``Nuclear Decommissioning.''
Millstone 1: CL&P has an 81.0 percent joint-ownership interest in
Millstone 1, a 660-megawatt (MW) nuclear generating unit. As of
December 31, 1995 and 1994, plant-in-service included approximately
$372.6 million and $370.9 million, respectively, and the accumulated
provision for depreciation included approximately $148.4 million and
$135.0 million, respectively, for CL&P's share of Millstone 1. CL&P's
share of Millstone 1 expenses is included in the corresponding operating
expenses on the accompanying Consolidated Statements of Income.
Millstone 2: CL&P has an 81.0 percent joint-ownership interest in
Millstone 2, an 870-MW nuclear generating unit. As of December 31, 1995
and 1994, plant-in-service included approximately $684.5 million and
$680.5 million, respectively, and the accumulated provision for
depreciation included approximately $198.5 million and $175.2 million,
respectively, for CL&P's share of Millstone 2. CL&P's share of
Millstone 2 expenses is included in the corresponding operating expenses
on the accompanying Consolidated Statements of Income.
Millstone 3: CL&P has a 52.93 percent joint-ownership interest in
Millstone 3, a 1,154-MW nuclear generating unit. As of December 31,
1995 and 1994, plant-in-service included approximately $1.9 billion, and
the accumulated provision for depreciation included approximately $455.1
million and $418.5 million, respectively, for CL&P's share of Millstone
3. CL&P's share of Millstone 3 expenses is included in the
corresponding operating expenses on the accompanying Consolidated
Statements of Income.
Seabrook 1: CL&P has a 4.06 percent joint-ownership interest in
Seabrook 1, a 1,148-MW nuclear generating unit. As of December 31, 1995
and 1994, plant-in-service included approximately $173.3 million and
$173.2 million, respectively, and the accumulated provision for
depreciation included approximately $24.8 million and $20.1 million,
respectively, for CL&P's share of Seabrook 1. CL&P's share of Seabrook
1 expenses is included in the corresponding operating expenses on the
accompanying Consolidated Statements of Income.
D. DEPRECIATION
The provision for depreciation is calculated using the straight-line
method based on estimated remaining lives of depreciable utility plant-
in-service, adjusted for salvage value and removal costs, as approved by
the appropriate regulatory agency. Except for major facilities,
depreciation factors are applied to the average plant-in-service during
the period. Major facilities are depreciated from the time they are
placed in service. When plant is retired from service, the original
cost of plant, including costs of removal, less salvage, is charged to
the accumulated provision for depreciation. The depreciation rates for
the several classes of electric plant-in-service are equivalent to a
composite rate of 4.0 percent in 1995, 3.9 percent in 1994, and 3.8
percent in 1993. See Note 3, ``Nuclear Decommissioning,'' for
information on nuclear plant decommissioning.
E. PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as a
holding company under the Public Utility Holding Company Act of 1935
(1935 Act), and it and its subsidiaries, including the company, are
subject to the provisions of the 1935 Act. Arrangements among the
system companies, outside agencies, and other utilities covering
interconnections, interchange of electric power, and sales of utility
property are subject to regulation by the Federal Energy Regulatory
Commission (FERC) and/or the SEC. The company is subject to further
regulation for rates, accounting, and other matters by the FERC and/or
the Connecticut Department of Public Utility Control (DPUC).
F. REVENUES
Other than revenues under fixed-rate agreements negotiated with certain
wholesale, industrial, and commercial customers, utility revenues are
based on authorized rates applied to each customer's use of electricity.
In general, rates can be changed only through a formal proceeding
before the appropriate regulatory commission. At the end of each
accounting period, CL&P accrues an estimate for the amount of energy
delivered but unbilled.
G. REGULATORY ACCOUNTING
The accounting policies of CL&P and the accompanying consolidated
financial statements conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of the
ratemaking process in accordance with SFAS 71, Accounting for the
Effects of Certain Types of Regulation. Assuming a cost-of-service
based regulatory structure, regulators may permit incurred costs,
normally treated as expenses, to be deferred and recovered in future
revenues. Through their actions, regulators may also reduce or
eliminate the value of an asset, or create a liability. If any portion
of the company's operations were no longer subject to the provisions of
SFAS 71 as a result of a change in the cost-of-service based regulatory
structure or the effects of competition, the company would be required
to write off related regulatory assets and liabilities. The company
would also be required to determine any impairment to other assets, and
write down these assets to fair value. Based on current regulation and
recent regulatory decisions, and initiatives relating to competition in
the system's markets, the company believes that its use of regulatory
accounting remains appropriate.
SFAS 121 requires that any assets, including regulatory assets, which
are no longer probable of recovery through future revenues, be revalued
based on estimated future cash flows. If the revaluation is less than
the book value of the asset, an impairment loss would be charged to
earnings. As noted above, based on the current regulatory environment
in the company's service area, it is not expected that SFAS 121 will
have a material impact on the company's financial position or results of
operations upon adoption. 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 on the company's
regulatory environment, refer to Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A).
The components of regulatory assets are as follows:
At December 31, 1995 1994
----------------------------------------------------------------------
(Thousands of Dollars)
Income taxes, net (Note 1H) ........... $ 863,521 $ 949,134
Deferred demand-side management costs (Note 1I) 117,070 116,133
Cogeneration costs (Note 1J) .......... 92,162 36,821
Unrecovered contractual obligation (Note 3) 65,847 100,003
Recoverable energy costs, net (Note 1K) 27,262 61,040
Deferred costs-nuclear plants ........ 6,170 101,632
Other ................................. 38,352 45,571
-----------------------
$1,210,384 $1,410,334
=======================
H. INCOME TAXES
The tax effect of temporary differences (differences between the periods
in which transactions affect income in the financial statements and the
periods in which they affect the determination of income subject to tax)
is accounted for in accordance with the ratemaking treatment of the
applicable regulatory commissions. The adoption of SFAS 109, Accounting
for Income Taxes, in 1993 increased the company's net deferred tax
obligation. As it is probable that the increase in deferred tax
liabilities will be recovered from customers through rates, CL&P
established a regulatory asset. See Note 8, "Income Tax Expense" for
the components of income tax expense.
The tax effect of temporary differences, including timing differences
accrued under previously approved accounting standards, which give rise
to the accumulated deferred tax obligation is as follows:
At December 31, 1995 1994
--------------------------------------------------------------------
(Thousands of Dollars)
Accelerated depreciation and other
plant-related differences ............ $1,074,242 $1,063,823
Regulatory assets - income tax gross up 347,673 402,685
Other .................................. 64,958 77,513
------------- -----------
$1,486,873 $1,544,021
========== ==========
I. DEMAND-SIDE MANAGEMENT (DSM)
CL&P's DSM costs are recovered in base rates through a Conservation
Adjustment Mechanism (CAM). As of December 31, 1995, these costs will
be recovered by 2000. During October 1995, CL&P filed its 1996 DSM
program and forecasted CAM for 1996 with the DPUC. The filing proposes
expenditures of $37.1 million in 1996, with recovery over 2.4 years and
a zero CAM rate.
J. COGENERATION COSTS
In accordance with its three-year rate plan that began in July 1993,
CL&P was required to defer approximately $72 million and $36 million of
cogeneration expense in years two and three, respectively, of the rate
plan. CL&P is allowed to defer these costs with carrying charges, and
will begin amortization of these costs over a five-year period beginning
July 1, 1996.
On June 30, 1995, CL&P terminated its existing agreement to purchase
power from the O'Brien EPA cogeneration facility and entered into an
agreement to purchase an equivalent amount of power from Citizens Lehman
Power LP, at a cost below the O'Brien EPA rates. CL&P has applied the
resulting savings to the amortization of the cogeneration deferral.
K. RECOVERABLE ENERGY COSTS
Under the Energy Policy Act of 1992 (Energy Act), CL&P is assessed for
its proportionate share of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (D&D assessment). The Energy Act requires that
regulators treat D&D assessments as a reasonable and necessary current
cost of fuel, to be fully recovered in rates, like any other fuel cost.
CL&P is currently recovering these costs through rates. As of December
31, 1995, the company's total D&D deferrals were approximately $48.8
million.
Retail electric rates include a fuel adjustment clause (FAC) under which
fossil-fuel prices above or below base-rate levels are charged or
credited to customers. Monthly FAC rates are also subject to quarterly
retroactive regulatory review and appropriate adjustments. CL&P also
utilizes a generation utilization adjustment clause (GUAC), which defers
the effect on fuel costs caused by variations from a specified composite
nuclear generation capacity factor embedded in base rates.
The company is currently recovering $80 million of its GUAC balance over
18 months. The company set aside $19 million of its 1994-1995 GUAC year
request pending the resolution of the company's appeals associated with
the two prior GUAC periods.
At December 31, 1995, CL&P's net recoverable energy costs, excluding
current recoverable energy costs, were approximately $27.3 million.
For additional information, see Note 10B, "Commitments and Contingencies
- Nuclear Performance."
L. SPENT NUCLEAR FUEL DISPOSAL COSTS
Under the Nuclear Waste Policy Act of 1982, CL&P must pay the United
States Department of Energy (DOE) for the disposal of spent nuclear fuel
and high-level radioactive waste. Fees for nuclear fuel burned on or
after April 7, 1983 are billed currently to customers and paid to the
DOE on a quarterly basis. For nuclear fuel used to generate electricity
prior to April 7, 1983 (prior-period fuel), payment may be made anytime
prior to the first delivery of spent fuel to the DOE, which may be as
early as 1998. Until such payment is made, the outstanding balance will
continue to accrue interest at the three-month Treasury Bill Yield Rate.
At December 31, 1995, fees due to the DOE for the disposal of prior-
period fuel were approximately $150.0 million, including interest costs
of $83.5 million. As of December 31, 1995, all fees have been collected
through rates.
M. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes interest-rate caps and fuel swaps to manage well-
defined interest-rate and fuel-price risks. Premiums paid for purchased
interest-rate cap agreements are amortized to interest expense over the
terms of the caps. Unamortized premiums are included in deferred
charges. Amounts receivable under cap agreements are accrued and offset
against interest expense. Amounts receivable or payable under fuel-swap
agreements are recognized in income when realized. Any material
unrealized gains or losses on fuel swaps and interest-rate caps will be
deferred until realized. For further information on derivatives, see
Note 11, ``Derivative Financial Instruments.''
N. CASH AND SPECIAL DEPOSITS
Cash and special deposits at December 31, 1995, include $1.4 million of
special deposits. These funds, which are held by a trustee, represent
the proceeds from the sale of the company's land or property, which was
subject to the lien of its First Mortgage Bond indenture. The proceeds
are held in trust pursuant to the terms of the company's First Mortgage
Bond indentures.
2. LEASES
CL&P and WMECO finance up to $475 million of nuclear fuel for Millstone 1
and 2 and their respective shares of the nuclear fuel for Millstone 3 under
the Niantic Bay Fuel Trust (NBFT) capital lease agreement. CL&P and WMECO
make quarterly lease payments for the cost of nuclear fuel consumed in the
reactors, based on a units-of-production method at rates which reflect
estimated kilowatt-hours of energy provided, plus financing costs
associated with the fuel in the reactors. Upon permanent discharge from
the reactors, ownership of the nuclear fuel transfers to CL&P and WMECO.
CL&P has also entered into lease agreements, some of which are capital
leases, for the use of data processing and office equipment, vehicles,
nuclear control room simulators, and office space. The provisions of these
lease agreements generally provide for renewal options. The following
rental payments have been charged to operating expense:
Year Capital Leases Operating Leases
---- -------------- ----------------
1995...................... $56,307,000 $23,793,000
1994...................... 60,975,000 24,192,000
1993...................... 76,606,000 24,355,000
Interest included in capital lease rental payments was $10,587,000 in 1995,
$10,228,000 in 1994, and $11,298,000 in 1993.
Substantially all of the capital lease rental payments were made pursuant
to the nuclear fuel lease agreement. Future minimum lease payments under
the nuclear fuel capital lease cannot be reasonably estimated on an annual
basis due to variations in the usage of nuclear fuel.
Future minimum rental payments, excluding annual nuclear fuel lease
payments and executory costs, such as property taxes, state use taxes,
insurance, and maintenance, under long-term noncancelable leases, as of
December 31, 1995 are:
Year Capital Leases Operating Leases
---- -------------- ----------------
(Thousands of Dollars)
1996...................... $ 2,800 $ 19,000
1997...................... 2,700 17,500
1998...................... 2,700 12,600
1999...................... 2,700 10,900
2000...................... 2,500 9,900
After 2000................ 39,600 53,700
-------- ----------
Future minimum lease payments 53,000 $123,600
========
Less amount representing interest 33,600
--------
Present value of future minimum lease
payments for other than nuclear fuel 19,400
Present value of future nuclear fuel
lease payments............ 152,900
--------
Total..................... $172,300
========
3. NUCLEAR DECOMMISSIONING
CL&P's nuclear power plants have service lives that are expected to end
during the years 2010 through 2026. Upon retirement, these units must be
decommissioned. The company's 1992 decommissioning study concluded that
complete and immediate dismantlement at retirement continues to be the most
viable and economic method of decommissioning the three Millstone units. A
1994 Seabrook decommissioning study also confirmed that complete and
immediate dismantlement at retirement is the most viable and economic
method of decommissioning Seabrook 1. Decommissioning studies are reviewed
and updated periodically to reflect changes in decommissioning
requirements, costs, technology, and inflation.
The estimated cost of decommissioning CL&P's ownership share of Millstone 1
and 2, in year-end 1995 dollars, is $300.3 million and $265.8 million,
respectively. CL&P's ownership share of the estimated cost of
decommissioning Millstone 3 and Seabrook 1 in year-end 1995 dollars, is
$232.1 million and $17.2 million, respectively. These estimated costs
assume levelized collections for the Millstone units and escalated
collections for Seabrook, and after-tax earnings on the Millstone and
Seabrook decommissioning funds of 6.5 percent and 6.1 percent,
respectively. The Millstone units and Seabrook 1 decommissioning costs
will be increased annually by their respective escalation rates. Nuclear
decommissioning costs are accrued over the expected service life of the
units and are included in depreciation expense on the Consolidated
Statements of Income. Nuclear decommissioning costs amounted to $30.5
million in 1995, $25.6 million in 1994, and $21.9 million in 1993. Nuclear
decommissioning, as a cost of removal, is included in the accumulated
provision for depreciation on the Consolidated Balance Sheets. At December
31, 1995, the balance in the accumulated reserve for decommissioning
amounted to $270.0 million. See `Nuclear Decommissioning'' in the MD&A
for a discussion of changes being considered by the FASB related to
accounting for closure and removal of long-lived assets (including nuclear
decommissioning).
CL&P has established external decommissioning trusts through a trustee for
its portion of the costs of decommissioning Millstone 1, 2, and 3. CL&P's
portion of the cost of decommissioning Seabrook 1 is paid to an independent
decommissioning financing fund managed by the state of New Hampshire.
As of December 31, 1995, CL&P has collected, through rates, $203.5 million,
toward the future decommissioning costs of its share of the Millstone
units, of which $171.8 million has been transferred to external
decommissioning trusts. As of December 31, 1995, CL&P has paid
approximately $1.9 million into Seabrook 1's decommissioning financing
fund. Earnings on the decommissioning trusts and financing fund increase
the decommissioning trust balance and the accumulated reserve for
decommissioning. Unrealized gains and losses associated with the
decommissioning trusts and financing fund also impact the balance of the
trusts and financing fund and the accumulated reserve for decommissioning.
Changes in requirements or technology, the timing of funding or
dismantling, or adoption of a decommissioning method other than immediate
dismantlement would change decommissioning cost estimates and the amounts
required to be recovered. CL&P attempts to recover sufficient amounts
through its allowed rates to cover its expected decommissioning costs.
Only the portion of currently estimated total decommissioning costs that
has been accepted by the regulatory agencies is reflected in CL&P's rates.
Based on present estimates and assuming its nuclear units operate to the
end of their respective license periods, CL&P expects that the
decommissioning trusts and financing fund will be substantially funded when
the units are retired from service.
CL&P, along with other New England utilities, has equity investments in the
four Yankee companies. Each Yankee company owns a single nuclear
generating unit with service lives that are expected to end during the
years 2007 through 2012. The estimated cost, in year-end 1995 dollars, of
decommissioning CL&P's ownership share of units owned and operated by CY,
MY, and VY is $133.0 million, $42.4 million, and $33.0 million,
respectively. Under the terms of the contracts with the Yankee companies,
the shareholders-sponsors are responsible for their proportionate share of
the operating costs of each unit, including decommissioning. The nuclear
decommissioning costs of the Yankee companies are included as part of the
cost of power purchased by CL&P.
YAEC is in the process of dismantling its nuclear facility. Accelerated
decommissioning of that unit has been delayed because of litigation over
the Nuclear Regulatory Commission's (NRC) approval of YAEC's
decommissioning plan. Effective November 1995, YAEC began billing its
sponsors, including CL&P, amounts based on a revised estimate approved by
the FERC that assumes decommissioning of the plant by the year 2000. This
revised decommissioning estimate was based on access to the Barnwell, South
Carolina low-level radioactive waste facility, changes in assumptions about
earnings in decommissioning trust investments, and changes in other
decommissioning cost assumptions. At December 31, 1995, the estimated
remaining costs, including decommissioning, amounted to $268.8 million of
which CL&P's share was approximately $65.8 million. Management expects
that CL&P will continue to be allowed to recover such FERC-approved costs
from its customers. Accordingly, CL&P has recognized these costs as a
regulatory asset, with the corresponding obligation, on its Consolidated
Balance Sheets.
4. SHORT-TERM DEBT
NU, CL&P, WMECO, HWP, NNECO, and The Rocky River Realty Company (RRR) have
established a revolving-credit facility with a group of 15 banks. Under
this facility, the participating companies may borrow up to an aggregate of
$343 million. Individual borrowing limits as of January 1, 1996 were $150
million for NU parent, $325 million for CL&P, $60 million for WMECO, $5
million for HWP, $50 million for NNECO, and $22 million for RRR. The
system companies may borrow funds on a short-term revolving basis using
either fixed-rate loans or standby loans. Fixed rates are set using
competitive bidding. Standby-loan rates are based upon several alternative
variable rates. The system companies are obligated to pay a facility fee
of 0.15 percent per annum of each bank's total commitment under the three-
year portion of the facility, representing 75 percent of the total
facility, plus 0.10 percent per annum of each bank's total commitment under
the 364-day portion of the facility, representing 25 percent of the total
facility. At December 31, 1995 and 1994, there were $42.5 million and $30
million of borrowings, respectively, under the facility. At December 31,
1995, CL&P had $10 million in borrowings outstanding under the facility.
The weighted average interest rate on notes payable to banks outstanding at
December 31, 1995 was 6.0 percent. The weighted average interest rates on
notes payable to banks and commercial paper outstanding at December 31,
1994 were 6.2 percent and 6.4 percent, respectively.
Certain subsidiaries of NU, including CL&P, are members of the Northeast
Utilities System Money Pool (Pool). The Pool provides a more efficient use
of the cash resources of the system, and reduces outside short-term
borrowings. NUSCO administers the Pool as agent for the member companies.
Short-term borrowing needs of the member companies are first met with
available funds of other member companies, including funds borrowed by NU
parent. NU parent may lend to the Pool but may not borrow. Funds may be
withdrawn from or repaid to the Pool at any time without prior notice.
Investing and borrowing subsidiaries receive or pay interest based on the
average daily Federal Funds rate. However, borrowings based on loans from
NU parent bear interest at NU parent's cost and must be repaid based upon
the terms of NU parent's original borrowing. At December 31, 1995 and
1994, CL&P had $10.3 million and $92.8 million, respectively, of borrowings
outstanding from the Pool. The interest rates on borrowings from the Pool
at December 31, 1995 and 1994 were 4.7 percent and 4.9 percent,
respectively.
Maturities of CL&P's short-term debt obligations are for periods of three
months or less.
The amount of short-term borrowings that may be incurred by CL&P is subject
to periodic approval by the SEC under the 1935 Act. In addition, the
charter of CL&P contains provisions restricting the amount of short-term
borrowings. Under the SEC and/or charter restrictions, the company was
authorized, as of January 1, 1995, to incur short-term borrowings up to a
maximum of $325 million.
5. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock not subject to mandatory redemption are:
December 31, Shares
1995 Outstanding
Redemption December 31, December 31,
-------------------------
Description Price 1995 1995 1994 1993
- ----------------------------------------------------------------------------
(Thousands of Dollars)
$1.90 Series of 1947 $52.50 163,912 $ 8,196 $ 8,196 $ 8,196
$2.00 Series of 1947 54.00 336,088 16,804 16,804 16,804
$2.04 Series of 1949 52.00 100,000 5,000 5,000 5,000
$2.06 Series E of 1954 51.00 200,000 10,000 10,000 10,000
$2.09 Series F of 1955 51.00 100,000 5,000 5,000 5,000
$2.20 Series of 1949 52.50 200,000 10,000 10,000 10,000
$3.24 Series G of 1968 51.84 300,000 15,000 15,000 15,000
3.90% Series of 1949 50.50 160,000 8,000 8,000 8,000
4.50% Series of 1956 50.75 104,000 5,200 5,200 5,200
4.50% Series of 1963 50.50 160,000 8,000 8,000 8,000
4.96% Series of 1958 50.50 100,000 5,000 5,000 5,000
5.28% Series of 1967 51.43 200,000 10,000 10,000 10,000
6.56% Series of 1968 51.44 200,000 10,000 10,000 10,000
1989 Adjustable Rate DARTS - - - 50,000 50,000
------- -------- --------
Total preferred stock not subject
to mandatory redemption $116,200 $166,200 $166,200
=============================
All or any part of each outstanding series of such preferred stock may be
redeemed by the company at any time at established redemption prices plus
accrued dividend to the date of redemption.
6. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock subject to mandatory redemption are:
December 31, Shares
1995 Outstanding
Redemption December 31, December 31,
---------------------------
Description Price* 1995 1995 1994 1993
- ----------------------------------------------------------------------------
(Thousands of Dollars)
9.00% Series of 1989 - - $ - $ 75,000 $ 75,000
7.23% Series of 1992 $52.41 1,500,000 75,000 75,000 75,000
5.30% Series of 1993 $51.00 1,600,000 80,000 80,000 80,000
--------- --------- --------
155,000 230,000 230,000
Less preferred stock to be redeemed
within one year.... - 3,750 -
--------- --------- --------
Total preferred stock subject to
mandatory redemption $ 155,000 $ 226,250 $ 230,000
========= ========= =========
*Each of these series is subject to certain refunding limitations for the
first five years after they were issued. Redemption prices reduce in
future years.
The following table details redemption and sinking fund activity for
preferred stock subject to mandatory redemption:
Minimum
Annual
Sinking-Fund Shares Reacquired
Series Requirement 1995 1994 1993
-------------------------------------------------------------------
(Thousands of Dollars)
9.10% Series of 1987 $ - - - 2,000,000
9.00% Series of 1989 - 3,000,000 - -
7.23% Series of 1992 (1) 3,750 - - -
5.30% Series of 1993 (2) 16,000 - - -
(1) Sinking fund requirements commence September 1, 1998.
(2) Sinking fund requirements commence October 1, 1999.
The minimum sinking-fund provisions of the series subject to mandatory
redemption, for the years 1996 through 2000, aggregate approximately $0 in
1996 and 1997, $3.8 million in 1998, and $19.8 million in 1999 and 2000.
In case of default on sinking-fund payments or the payment of dividends, no
payments may be made on any junior stock by way of dividends or otherwise
(other than in shares of junior stock) so long as the default continues.
If the company is in arrears in the payment of dividends on any outstanding
shares of preferred stock, the company would be prohibited from redemption
or purchase of less than all of the preferred stock outstanding. All or
part of each of the series named above may be redeemed by the company at
any time at established redemption prices plus accrued dividends to the
date of redemption, subject to certain refunding limitations.
7. LONG-TERM DEBT
Details of long-term debt outstanding are:
December 31,
----------------------
1995 1994
-------------------------------------------------------------------
(Thousands of Dollars)
First Mortgage Bonds:
7 5/8% Series UU ............due 1997 $ 197,245 $ 200,000
6 1/2% Series T .............due 1998 20,000 20,000
7 1/4% Series VV ............due 1999 100,000 100,000
5 1/2% Series A .............due 1999 140,000 140,000
5 3/4% Series XX ............due 2000 200,000 200,000
6 1/8% Series B .............due 2004 140,000 140,000
7 3/8% Series TT ............due 2019 20,000 20,000
7 1/2% Series YY ............due 2023 100,000 100,000
8 1/2% Series C .............due 2024 115,000 115,000
7 7/8% Series D .............due 2024 140,000 140,000
7 3/8% Series ZZ ............due 2025 125,000 125,000
--------- ---------
Total First Mortgage Bonds ........ 1,297,245 1,300,000
Pollution Control Notes:
Variable rate, due 2016-2022.......... 46,400 46,400
Tax exempt, due 2028.................. 315,500 315,500
Fees and interest due for spent fuel
disposal costs (Note 1L) .... 149,978 141,694
Other................................. 20,286 28,398
Less amounts due within one year...... 9,372 8,111
Unamortized premium and discount, net. (7,391) (8,302)
----------- ----------
Long-term debt, net.................. $1,812,646 $1,815,579
=========== ==========
Long-term debt and cash sinking-fund requirements on debt outstanding at
December 31, 1995 for the years 1996 through 2000 are approximately $9.4
million, $208.1 million, $20.0 million, $240.0 million, and $200.0 million,
respectively. In addition, there are annual one-percent sinking- and
improvement-fund requirements, currently amounting to $13.0 million for
1996 and 1997, $11.0 million for 1998, $10.8 million for 1999, and $8.4
million for 2000. Such sinking- and improvement-fund requirements may be
satisfied by the deposit of cash or bonds or by certification of property
additions.
All or any part of each outstanding series of first mortgage bonds may be
redeemed by the company at any time at established redemption prices plus
accrued interest to the date of redemption, except certain series which
are subject to certain refunding limitations during their respective
initial five-year redemption periods.
Essentially all of the company's utility plant is subject to the lien of
its first mortgage bond indenture. As of December 31, 1995 and 1994, the
company has secured $315.5 million of pollution control notes with second
mortgage liens on Millstone 1, junior to the lien of its first mortgage
bond indenture. The average effective interest rate on the variable-rate
pollution control notes ranged from 3.8 percent to 4.0 percent for 1995 and
from 2.7 percent to 3.3 percent for 1994.
8. INCOME TAX EXPENSE
The components of the federal and state income tax provisions are:
For the Years Ended December 31, 1995 1994 1993
-------------------------------------------------------------------------
(Thousands of Dollars)
Current income taxes:
Federal..................... $ 93,906 $108,371 $115,403
State....................... 37,898 39,966 44,473
--------- -------- --------
Total current............. 131,804 148,337 159,876
--------- -------- --------
Deferred income taxes, net:
Federal..................... 52,075 44,180 3,808
State...................... 5,085 842 (12,987)
--------- -------- ---------
Total deferred............ 57,160 45,022 ( 9,179)
Investment tax credits ....... (7,640) (7,358) (11,009)
--------- -------- ---------
Total income tax expense.. $181,324 $186,001 $139,688
======== ======== ========
The components of total income tax expense are classified as follows:
Income taxes charged to operating
expenses $178,346 $190,249 $142,987
Other income taxes............ 2,978 (4,248) (3,299)
-------- --------- ----------
Total income tax expense...... $181,324 $186,001 $139,688
======== ======== ========
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
For the Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
(Thousands of Dollars)
Depreciation, leased nuclear fuel,
settlement credits,and disposal costs $44,278 $ 38,874 $ 43,663
Energy adjustment clauses............ 23,302 14,465 (52,189)
Demand-side management............... 1,310 203 9,156
Nuclear plant deferrals.............. (8,055) (20,452) (13,979)
Bond redemptions..................... (2,255) 6,826 6,935
Contractual settlements.............. (9,496) 109 (308)
Other................................ 8,076 4,997 (2,457)
-------- --------- ---------
Deferred income taxes, net........... $57,160 $ 45,022 $ (9,179)
======== ========= =========
A reconciliation between income tax expense and the expected tax expense at
the applicable statutory rate is as follows:
For the Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
(Thousands of Dollars)
Expected federal income tax at
35 percent of pretax income........ $135,289 $134,501 $115,898
Tax effect of differences:
State income taxes, net of federal
benefit 27,939 26,526 20,466
Depreciation....................... 23,517 18,602 19,264
Deferred nuclear plants return..... (1,639) (4,681) (8,294)
Amortization of deferred nuclear
plants return 20,218 19,755 18,648
Property tax....................... (159) 5,286 (12,320)
Investment tax credit amortization. (7,640) (7,358) (11,009)
Adjustment for prior years' taxes.. (10,442) (2,706) (2,330)
Other, net......................... (5,759) (3,924) (635)
--------- --------- ---------
Total income tax expense............. $181,324 $186,001 $139,688
========= ========= =========
9. EMPLOYEE BENEFITS
A. PENSION BENEFITS
The company participates in a uniform noncontributory-defined benefit
retirement plan covering all regular system employees. Benefits are
based on years of service and employees' highest eligible compensation
during five consecutive years of employment. The company's direct
portion of the system's pension (income)/cost, part of which was
(credited)/charged to utility plant, approximated $(10.4) million in
1995, $(2.3) million in 1994, and $7.6 million in 1993. The company's
pension costs for 1995, 1994, and 1993 include approximately $0.1
million, $4.8 million, and $13.1 million, respectively, related to
workforce-reduction programs.
Currently, the company funds annually an amount at least equal to that
which will satisfy the requirements of the Employee Retirement Income
Security Act and the Internal Revenue Code. Pension costs are
determined using market-related values of pension assets. Pension
assets are invested primarily in domestic and international equity
securities and bonds.
The components of net pension cost for CL&P are:
For the Years Ended December 31, 1995 1994 1993
------------------------------------------------------------------
(Thousands of Dollars)
Service cost.................. $ 7,543 $ 13,072 $ 21,907
Interest cost................. 37,110 36,103 35,055
Return on plan assets......... (138,582) 1,020 (80,615)
Net amortization.............. 83,516 (52,536) 31,254
---------- --------- ---------
Net pension (income)/cost..... $(10,413) $ (2,341) $ 7,601
========== ========= =========
For calculating pension cost, the following assumptions were used:
For the Years Ended December 31, 1995 1994 1993
-------------------------------------------------------------------
Discount rate................. 8.25% 7.75% 8.00%
Expected long-term rate of return 8.50 8.50 8.50
Compensation/progression rate. 5.00 4.75 5.00
The following table represents the plan's funded status reconciled to
the Consolidated Balance Sheets:
At December 31, 1995 1994
-----------------------------------------------------------------
(Thousands of Dollars)
Accumulated benefit obligation, including
vested benefits at December 31, 1995 and
1994 of $404,540,000 and $374,109,000,
respectively $432,987 $401,889
======== ========
Projected benefit obligation............. $515,121 $471,079
Market value of plan assets.............. 668,929 568,294
--------- --------
Market value in excess of projected benefit
obligation 153,808 97,215
Unrecognized transition amount........... (8,285) (9,204)
Unrecognized prior service costs......... 1,293 1,420
Unrecognized net gain.................... (135,817) (88,845)
--------- ---------
Prepaid pension asset.................... $ 10,999 $ 586
========== =========
------------------------------------------------------------------
The following actuarial assumptions were used in calculating the
plan's year-end funded status:
At December 31, 1995 1994
------------------------------------------------------------------
Discount rate............................ 7.50% 8.25%
Compensation/progression rate............ 4.75 5.00
B. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company provides certain health care benefits, primarily medical and
dental, and life insurance benefits through a benefit plan to retired
employees (referred to as SFAS 106 benefits). These benefits are
available for employees retiring from the company who have met specified
service requirements. For current employees and certain retirees, the
total SFAS 106 benefit is limited to two times the 1993 per-retiree
health care costs. The SFAS 106 obligation has been calculated based on
this assumption. CL&P's direct portion of SFAS 106 health care and life
insurance costs, part of which were deferred or charged to utility
plant, approximated $20.7 million in 1995, $22.3 million in 1994, and
$23.2 million in 1993.
During 1995 and 1994, the company funded SFAS 106 postretirement costs
through external trusts. During 1993, the company did not fund SFAS 106
postretirement costs through external trusts. The company is funding,
on an annual basis, amounts that have been rate-recovered and which also
are tax-deductible under the Internal Revenue Code. The trust assets
are invested primarily in equity securities and bonds.
The components of health care and life insurance cost are:
For the Years Ended December 31, 1995 1994 1993
-------------------------------------------------------------------------
(Thousands of Dollars)
Service cost .................... $ 2,248 $ 2,371 $ 3,397
Interest cost ................... 11,510 12,157 12,091
Return on plan assets ........... (1,015) 2 -
Amortization of unrecognized transition
obligation 7,344 7,344 7,682
Other amortization, net ......... 602 430 -
-------- -------- -------
Net health care and life insurance costs $20,689 $22,304 $23,170
======= ======= =======
-------------------------------------------------------------------------
For calculating SFAS 106 benefits cost, the following assumptions were
used:
For the Years Ended December 31, 1995 1994 1993
-------------------------------------------------------------------------
Discount rate ................... 8.00% 7.75% 7.75%
Long-term rate of return:
Health assets, net of tax ..... 5.00 5.00 5.00
Life assets ................... 8.50 8.50 8.50
The following table represents the plan's funded status reconciled to
the Consolidated Balance Sheets:
At December 31, 1995 1994
---------------------------------------------------------------------
(Thousands of Dollars)
Accumulated postretirement benefit obligation of:
Retirees .................................. $126,624 $129,111
Fully eligible active employees ........... 198 241
Active employees not eligible to retire ... 29,798 25,203
-------- --------
Total accumulated postretirement benefit obligation 156,620 154,555
Market value of plan assets ................ 11,378 167
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets ................. (145,242) (154,388)
Unrecognized transition amount ............. 124,850 132,194
Unrecognized net loss ...................... 1,260 192
-------- --------
Accrued postretirement benefit liability ... $(19,132) $(22,002)
======== =========
The following actuarial assumptions were used in calculating the plan's
year-end funded status:
At December 31, 1995 1994
--------------------------------------------------------------------
Discount rate .............................. 7.50% 8.00%
Health care cost trend rate (a) ............ 8.40 10.20
(a) The annual growth in per capita cost of covered health care
benefits was assumed to decrease to 5.4 percent by 2001.
The effect of increasing the assumed health-care-cost trend rate by one
percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1995 by $8.5
million and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year then ended by $0.7
million. The trust holding the plan assets is subject to federal income
taxes at a 35 percent tax rate.
CL&P is currently recovering SFAS 106 costs, including amounts
previously deferred.
10.COMMITMENTS AND CONTINGENCIES
A. CONSTRUCTION PROGRAM
The construction program is subject to periodic review and revision.
CL&P currently forecasts construction expenditures of approximately
$776.3 million for the years 1996-2000, including $154.6 million for
1996. In addition, the company estimates that nuclear fuel
requirements, including nuclear fuel financed through the NBFT, will be
approximately $240.4 million for the years 1996-2000, including $35.1
million for 1996. See Note 2, ``Leases,'' for additional information
about the financing of nuclear fuel.
B. NUCLEAR PERFORMANCE
Outages that occurred over the period October 1990 through February 1992
at the Millstone nuclear units have been the subject of five ongoing
prudence reviews in Connecticut. CL&P has received final decisions on
each of the reviews. Three of these prudence reviews are either on
appeal or still pending at the DPUC. The exposure under these three
dockets is approximately $92 million.
On April 10, 1995, the DPUC initiated a proceeding to investigate the
prudence of a Millstone 2 extended outage, which ended June 1994.
Approximately $13 million of costs are at issue.
In October 1994, Millstone 2 began a planned refueling and maintenance
outage that was originally scheduled for 63 days. The outage
encountered several unexpected difficulties which extended the duration
of the outage until August 4, 1995. Total replacement power costs
attributable to the extension of the outage for CL&P were approximately
$69 million. Operation and maintenance (O&M) costs incurred during the
outage were approximately $57 million, an increase of $30 million as a
result of the outage extension. O&M costs associated with the refueling
outage are deferred and amortized through rates. The recovery of
replacement power and O&M costs is subject to refund pending a prudence
review in Connecticut.
Management does not believe the outcome of the prudence reviews
discussed above will have a material adverse impact on the company's
financial position and results of operations.
In November 1995, Millstone 1 began a planned refueling and maintenance
outage that was originally scheduled for 49 days. The outage has
encountered several unexpected difficulties which has lengthened the
duration of the outage. The impact of the outage extension is currently
under review, but the unit is not expected to return to service until
the mid-to-late part of the second quarter of 1996. The estimated costs
attributable to this outage extension are replacement-power costs of
$5.2 million per month and O&M costs of approximately $16.2 million.
Recovery of the costs related to this outage is subject to prudence
reviews by the DPUC.
On January 31, 1996, the NRC announced that the three Millstone nuclear
power plants operated by NNECO have been placed on its "watch list"
because of long standing performance concerns. The NRC cited a number
of operational problems which have arisen since 1990 at the Millstone
plants.
The NRC recognized that there are significant current variations in the
performance of the three units. The performance concerns cited by the
NRC, combined with NU's failure to maintain previous performance
improvements, have resulted in the NRC requiring close monitoring of
Millstone unit operations and the implementation of a corrective action
program. While the NRC has not specifically restricted operations at
the Millstone site, the company expects that there will be costs
associated with the NRC's actions that cannot be accurately estimated at
this time.
C. ENVIRONMENTAL MATTERS
CL&P is subject to regulation by federal, state, and local authorities
with respect to air and water quality, handling the disposal of toxic
substances and hazardous and solid wastes, and the handling and use of
chemical products. CL&P has an active environmental auditing and
training program and believes that it is in substantial compliance with
current environmental laws and regulations.
Environmental requirements could hinder the construction of new
generating units, transmission and distribution lines, substations, and
other facilities. The cumulative long-term, cost impact of increasingly
stringent environmental requirements cannot accurately be estimated.
Changing environmental requirements could also require extensive and
costly modifications to CL&P's existing generating units, and
transmission and distribution systems, and could raise operating costs
significantly. As a result, CL&P may incur significant additional
environmental costs, greater than amounts included in cost of removal
and other reserves, in connection with the generation and transmission
of electricity and the storage, transportation, and disposal of by-
products and wastes. CL&P may also encounter significantly increased
costs to remedy the environmental effects of prior waste handling
activities.
CL&P has recorded a liability for what it believes, based upon
information currently available, are its estimated environmental
remediation costs for waste disposal sites. In most cases, additional
future environmental cleanup costs are not reasonably estimable due to a
number of factors, including the unknown magnitude of possible
contamination, the appropriate remediation methods, the possible effects
of future legislation or regulation, and the possible effects of
technological changes. At December 31, 1995, the net liability recorded
by CL&P for its estimated environmental remediation costs, excluding any
possible insurance recoveries or recoveries from third parties, amounted
to approximately $7.4 million, which management has determined to be the
most probable amount within the range of $7.4 million to $9.8 million.
CL&P cannot estimate the potential liability for future claims,
including environmental remediation costs, that may be brought against
it. However, considering known facts, existing laws, and regulatory
practices, management does not believe the matters disclosed above will
have a material effect on CL&P's financial position or future results of
operations.
D. NUCLEAR INSURANCE CONTINGENCIES
Under certain circumstances, in the event of a nuclear incident at one
of the nuclear facilities covered by the federal government's third-
party liability indemnification program, the company could be assessed
in proportion to its ownership interest in each nuclear unit up to $75.5
million not to exceed $10 million per nuclear unit in any one year. The
maximum assessment is to be adjusted at least every five years for
inflationary changes. Based on the ownership interest in Millstone 1,
2, and 3 and in Seabrook 1, CL&P's maximum liability, including any
additional potential assessments, would be $173.6 million per incident.
In addition, through power purchase contracts with the three operating
Yankee regional nuclear generating companies, CL&P would be responsible
for up to an additional $44.4 million per incident. Payments for CL&P's
ownership interest in nuclear generating facilities would be limited to
a maximum of $27.5 million per incident per year.
Insurance has been purchased to cover the primary cost of repair,
replacement, or decontamination of utility property resulting from
insured occurrences. CL&P is subject to retroactive assessments if
losses exceed the accumulated funds available to the insurer. The
maximum potential assessment against CL&P with respect to losses arising
during the current policy year is approximately $12.2 million under the
primary property insurance program.
Insurance has been purchased to cover certain extra costs incurred in
obtaining replacement power during prolonged accidental outages and the
excess cost of repair, replacement, or decontamination or premature
decommissioning of utility property resulting from insured occurrences.
CL&P is subject to retroactive assessments if losses exceed the
accumulated funds available to the insurer. The maximum potential
assessments against the company with respect to losses arising during
current policy years are approximately $8.6 million under the
replacement power policies and $31.6 million under the excess property
damage, decontamination, and decommissioning policies. The cost of a
nuclear incident could exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on a industry
basis for coverage of worker claims. All participating reactor
operators insured under this coverage are subject to retrospective
assessments of $3.0 million per reactor. The maximum potential
assessment against CL&P with respect to losses arising during the
current policy period is approximately $9.1 million.
E. LONG-TERM CONTRACTUAL ARRANGEMENTS
Yankee Companies: CL&P, along with PSNH and WMECO, purchased
approximately 6.7 percent of their electricity requirements pursuant to
long-term contracts with the Yankee companies. Under the terms of their
agreements, the companies pay their ownership (or entitlement) shares of
generating costs, which include depreciation, O&M expenses, taxes, the
estimated cost of decommissioning, and a return on invested capital.
These costs are recorded as purchased-power expense and recovered
through the companies' rates. CL&P's total cost of purchases under
these contracts for the units that are operating amounted to $105.8
million in 1995, $102.1 million in 1994, and $112.3 million in 1993.
See Note 1C, ``Summary of Significant Accounting Policies-Investments
and Jointly Owned Electric Utility Plant,'' and Note 3, ``Nuclear
Decommissioning,'' for more information on the Yankee companies.
Nonutility Generators: CL&P has entered into various arrangements for
the purchase of capacity and energy from nonutility generators. These
arrangements have terms from 10 to 30 years, currently expiring in the
years 2001 through 2026, and requires the company to purchase the energy
at specified prices or formula rates. For the twelve months ended
December 31, 1995, approximately 13 percent of system electricity
requirements was met by nonutility generators. CL&P's total cost of
purchases under these arrangements amounted to $282.2 million in 1995,
$277.4 million in 1994, and $279.8 million in 1993. These costs are
eventually recovered through the company's rates.
Hydro-Quebec: Along with other New England utilities, CL&P, PSNH,
WMECO, and HWP entered into agreements to support transmission and
terminal facilities to import electricity from the Hydro-Quebec system
in Canada. CL&P is obligated to pay, over a 30-year period ending in
2020, its proportionate share of the annual O&M and capital costs of
these facilities.
The estimated annual costs of CL&P's significant long-term contractual
arrangements are as follows:
1996 1997 1998 1999 2000
----------------------------------------------------------------------
(Millions of Dollars)
Yankee companies $105.8 $103.1 $111.0 $112.9 $120.5
Nonutility generators 269.0 273.5 280.1 290.1 290.9
Hydro-Quebec .. 20.3 19.4 18.7 18.3 18.0
11. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes derivative financial instruments to manage well-
defined interest-rate and fuel-price risks. The company does not use
them for trading purposes.
Interest-Rate Cap Contracts: CL&P has entered into interest-rate cap
contracts with financial institutions in order to reduce a portion of
the interest-rate risk associated with certain variable-rate tax-exempt
pollution control revenue bonds. During 1995, there was one outstanding
contract held by CL&P covering $340 million of variable-rate debt, which
expired in January 1996. The contract entitled CL&P to receive from a
counterparty the amounts, if any, by which the interest payments on a
portion of its variable-rate tax-exempt pollution control revenue bonds
exceed the J. J. Kenny High Grade Index. Due to its upcoming
expiration, as of December 31, 1995, the total fair market value of the
cap was $0.
Fuel Swaps: CL&P also uses fuel-swap agreements with financial
institutions to hedge against fuel-price risk created by long-term
negotiated energy contracts. These fuel swaps minimize exposure
associated with rising fuel prices, and effectively fix CL&P's cost of
fuel 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 December 31,
1995, CL&P had outstanding agreements with a total notional value of
approximately $249 million, and a negative mark-to-market position of
approximately $19 million. When the mark-to-market position for the
swap agreements is negative, the profitability of the long-term
negotiated energy contracts whose fuel exposure has been hedged
increases by a corresponding amount.
These swap agreements have been made with various financial
institutions, each of which are rated "A" or better by Standard & Poor's
rating group. CL&P is exposed to credit risk on the 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.
12.FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each of the following financial instruments:
Cash, special deposits, and nuclear decommissioning trusts: The carrying
amounts approximate fair value.
SFAS 115, Accounting for Certain Investments in Debt and Equity Security,
requires investments in debt and equity securities to be presented at fair
value and was adopted by the company on a prospective basis as of January 1,
1994. During 1995, the investments held in the company's nuclear
decommissioning trusts increased by $14.4 million as of December 31, 1995
and decreased by approximately $3.8 million as of December 31, 1994, with a
corresponding offset to the accumulated provision for depreciation. The
$14.4 million increase in 1995 represents cumulative gross unrealized
holding gains. The cumulative gross unrealized holding losses were
immaterial for 1995. The $3.8 million decrease in 1994 represents
cumulative gross unrealized holding gains of $1.6 million, offset by
cumulative gross unrealized holding losses of $5.4 million. There was no
change in funding requirements of the trusts nor any impact on earnings as a
result of the adoption of SFAS 115.
Preferred stock and long-term debt: The fair value of CL&P's fixed rate
securities is based upon the quoted market price for those issues or similar
issues. Adjustable rate securities are assumed to have a fair value equal
to their carrying value.
The carrying amounts of CL&P's financial instruments and the estimated fair
values are as follows:
Carrying Fair
At December 31, 1995 Amount Value
--------------------------------------------------------------------------
(Thousands of Dollars)
Preferred stock not subject to mandatory redemption $ 116,200 $ 82,448
Preferred stock subject to mandatory redemption 155,000 157,575
Long-term debt - First Mortgage Bonds .... 1,297,245 1,329,549
Other long-term debt ..................... 532,164 532,164
Monthly Income Preferred Securities ...... 100,000 108,520
--------------------------------------------------------------------------
Carrying Fair
At December 31, 1994 Amount Value
--------------------------------------------------------------------------
(Thousands of Dollars)
Preferred stock not subject to mandatory redemption $ 166,200 $ 113,825
Preferred stock subject to mandatory redemption 230,000 218,075
Long-term debt - First Mortgage Bonds .... 1,300,000 1,182,894
Other long-term debt ..................... 531,992 531,992
The fair values shown above have been reported to meet disclosure
requirements and do not purport to represent the amounts at which those
obligations would be settled.
13.MONTHLY INCOME PREFERRED SECURITIES OF SUBSIDIARY
In January 1995, CL&P Capital, LP (CL&P LP) issued $100 million of
cumulative 9.3 percent Monthly Income Preferred Securities (MIPS), Series A.
CL&P has the sole ownership interest in CL&P LP, as a general partner, and
is the guarantor of the MIPS securities. Subsequent to the MIPS issuance,
CL&P LP loaned the proceeds of the MIPS issuance, along with CL&P's $3.1
million capital contribution, back to CL&P in the form of an unsecured
debenture. CL&P consolidates CL&P LP for financial reporting purposes.
Upon consolidation, the unsecured debenture is eliminated, and the MIPS
securities are accounted for as a minority interest.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------------------------------------
To the Board of Directors
of The Connecticut Light and Power Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The
Connecticut Light and Power Company and Subsidiaries (a Connecticut
corporation and a wholly owned subsidiary of Northeast Utilities) as of
December 31, 1995 and 1994, and the related consolidated statements of
income, common stockholder's equity, and cash flows for each of the three
years in the period ended December 31, 1995. 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 of 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Connecticut Light and Power Company and Subsidiaries as of December 31,
1995 and 1994, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 1A to the Financial Statements, effective January
1, 1993, The Connecticut Light and Power Company and Subsidiaries changed
its method of accounting for property taxes.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1996
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 the company's
financial statements and footnotes.
FINANCIAL CONDITION
OVERVIEW
Net income was approximately $205 million in 1995, an increase of approximately
$7 million, from approximately $198 million in 1994. The 1995 net income was
higher primarily due to higher revenues from the final step of the company's
three-year rate plan, lower income tax expenses, higher 1995 cogeneration
deferrals, and a reduction in maintenance costs. These increases were partially
offset by lower wholesale revenues, higher operation costs, and higher fuel and
purchased-power costs.
Retail kilowatt-hour sales fell by 0.3 percent in 1995, as a result of a flat
economy in southern New England and mild weather in the first quarter of 1995.
With the southern New England economy not forecasted to grow substantially
during 1996, sales levels are expected to remain flat.
CL&P acts as both a buyer and a seller of electricity in the highly competitive
wholesale electricity market in the Northeast. Increased competition has made
the renegotiation of expiring wholesale contracts, as well as the signing of new
contracts, financially challenging. As a result, wholesale power revenues fell
to approximately $188 million in 1995, from approximately $215 million in 1994.
CL&P's efforts to enhance its wholesale revenues resulted in several new
contracts in 1995.
During 1995, the Federal Energy Regulatory Commission issued a proposal for
restructuring the electric-power industry, which calls for open access to
transmission facilities, a standard formula for calculating rates, and full
recovery of stranded investments. The impact on CL&P of this proposal, which is
expected to be finalized in 1996, is not known at this time.
During 1995, the Coalition of Northeastern Governors released its report
addressing the restructuring of the electric-power industry and its resulting
impact on customers and states. The report presented the future as one in which
there would be some form of continued regulation for transmission and
distribution with fully competitive generation.
Also in 1995, the Department of Public Utility Control (DPUC) concluded that
while increased competition is in the public interest, electric utilities should
have the opportunity to recover "net, nonmitigatable stranded costs" during a
transition period to full competition. While such a conclusion is encouraging
there is uncertainty with regard to the final regulatory and legislative
definitions of terms such as "net, nonmitigatable" and "stranded costs."
CL&P is taking a proactive role in the electric-power industry's movement toward
competition. In its "Path To A Competitive Future" (the plan), CL&P outlined a
comprehensive approach to enhancing customer satisfaction and market efficiency
while moving toward full competition in the electricity marketplace. The plan
also calls for several significant changes in electricity pricing, the ability
to introduce new products and services, the method of rate-setting, and the
operation of the New England Power Pool. The plan also calls for the phase-in of
supplier choices through the use of pilot programs. Management believes that a
fully competitive market for electricity should begin once all issues relating
to the transition from traditional utility regulation have been thoroughly
addressed.
In addition to the formulation of this plan and ongoing meetings with
legislators, regulators, and others in the industry, CL&P is moving ahead in
other areas, including revenue enhancement initiatives and cost reductions, to
better position itself for an increasingly competitive environment.
A comprehensive companywide effort, which started in 1994, to reengineer CL&P's
business and operating processes continued throughout 1995. CL&P expects that
this effort will have significant positive effects on operating costs and
customer service. Many of the organizational changes in the operating and
service functions announced in 1995 and early 1996 are consistent with the
initial recommendations of the reengineering teams. While CL&P's reengineering
efforts will be reduced in 1996, implementation costs relating to the previous
reengineering efforts are expected to increase.
With retail electric revenues accounting for approximately 90 percent of its
1995 revenues, CL&P has continued to develop a number of initiatives to retain
and serve its existing customers and to expand its retail customer base. The
most visible result of these efforts is the expansion of the Retail Marketing
organization. Retail Marketing's mission is to better understand the needs and
concerns of CL&P's retail customer and to develop innovative approaches to
addressing these issues. These initiatives include providing discounts to
certain customers for signing economic development and competitive generation-
based contracts, offering demand-side-management services, and providing
additional products and services.
WORKFORCE REDUCTIONS
In January 1996, NU completed its nuclear workforce reduction plan.
Approximately 220 positions were eliminated through a combination of early
retirements, attrition, and layoffs. The total pretax cost of the workforce
reduction to the NU system, which was recognized in 1995, was approximately $9
million.
RATE MATTERS
CL&P follows accounting principles in accordance with Statement of Financial
Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain Types of
Regulation" that allows the economic effects of rate regulation to be
reflected. Under these principles, regulators may permit incurred costs for
certain events or transactions, which would be treated as expenses by
nonregulated enterprises, to be deferred as regulatory assets and recovered in
revenues at a later date.
The creation of these regulatory assets has kept down electric rates in past
years, at the expense of having higher rates in the future. At December 31,
1995, CL&P's regulatory assets totaled approximately $1.2 billion. The largest
regulatory asset, nearly $864 million, is related to the future recovery of
income taxes. The substantial costs of amortizing these regulatory assets would
hinder CL&P from competing effectively in an openly competitive electric market
if customers are not required to pay such costs. Given the increasingly
competitive nature of the industry and increased activity in the regulatory
environment, CL&P has made the recovery of regulatory assets one of its central
financial strategies, while balancing the customer's pricing needs with NU's
shareholder's earnings requirements. Under its existing rate agreement, CL&P is
allowed to recover a significant portion of its regulatory assets during the
next five years. However, maintaining or increasing the present recovery level
is dependent upon the outcome of negotiations between CL&P and the DPUC when its
current rate agreement expires.
Given that CL&P's current rate agreement expires during 1996, CL&P will actively
pursue early negotiations with the DPUC to determine whether, or to what extent,
rates should be adjusted going forward. CL&P's strategy during these
negotiations will be to maintain stable rates, applying any available earnings
that may result to reduce the balance of its regulatory assets. Management is
unable to predict the ultimate outcome of these negotiations, which will be
subject to DPUC approval.
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." SFAS 121, which was effective January 1, 1996, requires
assets, including regulatory assets, that are no longer probable of recovery
through future revenues be charged to earnings.
If future competition or regulatory actions cause any portion of its operations
to no longer be subject to SFAS 71, CL&P would be required to determine the fair
value of the related regulatory assets and liabilities and record any necessary
write-downs. Additionally, if events create uncertainty about the
recoverability of any of CL&P's remaining long-lived assets, a similar analysis
would be required for those assets in accordance with SFAS 121. Under its
current regulatory environment, CL&P believes that its use of SFAS 71 remains
appropriate and that the adoption of SFAS 121 will not have a material impact on
its financial position or results of operations.
See the Notes to Consolidated Financial Statements," Note 1G, for further
details on regulatory accounting.
CL&P's retail rates increased by approximately $48 million, or 2.06 percent, in
July 1995, representing the final step of a three-year rate plan approved by the
DPUC. The 1993 rate decision has been appealed. If this appeal prevails there
may be revenues subject to refund, however, management believes it is unlikely
that the appeal will prevail.
CL&P recovers from, or refunds to, customers certain fuel costs if its nuclear
units do not operate at a predetermined capacity factor (currently 72 percent)
through a Generation Utilization Adjustment Clause (GUAC). CL&P is currently
recovering approximately $80 million of fuel costs for the 1994-1995 GUAC period
(net of $19 million of asserted fuel overrecoveries for the period) over 18
months. CL&P has appealed the $19 million that was set aside from its allowed
recovery and will seek to join this appeal to appeals currently pending from
previous GUAC periods.
See the "Notes to Consolidated Financial Statements," Note 10B, for further
details on outage deferrals and recoveries.
NUCLEAR PERFORMANCE
On January 31, 1996, the Nuclear Regulatory Commission (NRC) placed Millstone 1,
2, and 3 (Millstone) on its "watch list." The NRC's action was in response to
a number of performance concerns which have arisen since 1990 and a failure to
resolve employee safety concerns. The NRC's action will result in close
monitoring of programs and performance at Millstone to assure the development
and implementation of effective corrective actions.
NU's management plans to continue its extensive efforts already under way to
address these concerns. Concurrent with the NRC's action, NU provided the NRC
with the results of a comprehensive self-assessment review of the employee
concern program at Millstone. Additionally, in January 1996, NU announced a
reorganization of its nuclear operations which included the creation of a new
office of Nuclear Safety and Oversight.
Although the start-up of Millstone 1, which is currently in outage, will be
affected by its placement on the NRC's "watch list," operations at Millstone 2
and 3 have not been restricted. NU's management expects that the increased NRC
attention will inevitably have effects and costs that are not known at this
time.
In November 1995, Millstone 1 began a planned refueling and maintenance outage.
The outage has been extended to allow NU to complete reviews required by the
NRC. In response to a request by the NRC, NU is conducting a detailed review of
Millstone 1's Final Safety Analysis Report and an assessment of the plant's
readiness to ensure that the future operation of the plant will be conducted in
accordance with the terms and conditions of its operating license and the NRC's
regulations. The outage schedule is currently under review, but the unit is not
expected to return to service before the mid-to-late part of the second quarter
of 1996. Total replacement-power costs attributable to the Millstone 1 outage
extension for CL&P are expected to be approximately $6 million per month. In
addition, operation and maintenance costs to be incurred as a result of the
extension are estimated to be approximately $16 million. Outage costs are
deferred and amortized through rates. The recovery, or refund, of outage costs
is subject to prudence reviews.
The composite capacity factor of the five nuclear generating units that NU
operates-including the Connecticut Yankee nuclear unit-was 69.9 percent in 1995,
compared with 67.5 percent for 1994, and a 1995 national average of 77.6
percent. The 1995 capacity factor was impacted by an extended refueling and
maintenance outage for Millstone 2.
See the "Notes to Consolidated Financial Statements," Note 10B, for further
information on outage deferrals and recoveries.
ENVIRONMENTAL MATTERS
NU devotes substantial resources to identify and comply with the multitude of
environmental requirements it faces. NU has active auditing programs addressing
a variety of regulatory requirements, including an environmental auditing
program to detect and remedy noncompliance with environmental laws or
regulations.
CL&P is potentially liable for environmental cleanup costs at a number of sites
both inside and outside its service territory. To date, the future estimated
environmental remediation liability has not been material with respect to the
earnings or financial position of CL&P. At December 31, 1995, CL&P had recorded
an environmental reserve amounting to approximately $7 million, the minimum
amount required under SFAS 5, "Accounting for Contingencies." These costs
could be significantly higher if alternative remedies become necessary.
In October 1995, the Connecticut Department of Environmental Protection (CDEP)
issued a consent order to CL&P and the Long Island Lighting Company (LILCO)
requiring those companies to address leaks from the Long Island cable, which is
jointly owned by CL&P and LILCO. CL&P will incur additional costs to meet the
requirements of the order and to meet any subsequent CDEP requirements resulting
from the studies under the consent order, which cannot be estimated at this
time. Management also cannot determine at this time whether long-term future
operation of the cable will remain cost effective subsequent to any additional
CDEP requirements.
NUCLEAR DECOMMISSIONING
CL&P's estimated cost to decommission its shares of Millstone 1, 2, and 3 and
Seabrook 1 is approximately $815 million in year-end 1995 dollars. These costs
are being recognized over the lives of the respective units and a portion is
being recovered through rates.
The FASB is currently reviewing the accounting for closure and removal costs,
including decommissioning and similar costs, for long-lived assets. If current
electric-power industry accounting practices for such decommissioning costs were
changed, annual provisions for decommissioning would increase and the estimated
costs for decommissioning would be recorded as a liability rather than as a
component of accumulated depreciation.
See the "Notes to Consolidated Financial Statements," Note 3, for further
information on nuclear decommissioning, including CL&P's share of costs to
decommission the regional nuclear generating units.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $11 million in 1995, from
1994, primarily due to higher cash operating expenses, partially offset by
higher revenues from retail-rate increases and recoveries. Cash used for
financing activities increased approximately $8 million in 1995, from 1994,
primarily due to a net decrease in short-term debt, partially offset by lower
net reacquisitions and retirements of long-term debt. Cash used for investments
decreased approximately $20 million in 1995, from 1994, primarily due to lower
construction and nuclear fuel expenditures, partially offset by higher
investment in the nuclear decommissioning trusts.
In 1995, CL&P applied the bulk of its excess cash to reduce debt and preferred
stock levels. Although CL&P's long-term debt levels changed little, its short-
term debt levels fell from $179 million at the beginning of 1995 to $52 million
at the end of the year. CL&P's preferred stock levels were reduced by
approximately $121 million. CL&P has entered into interest-rate-cap and fossil-
fuel-swap contracts to reduce a portion of its interest-rate and fuel-price
risks.
See the "Notes to Consolidated Financial Statements," Note 11, for further
information on derivative financial instruments and the "Notes to Consolidated
Financial Statements," Notes 6, 7, and 10A, for further information on
construction and long-term debt funding requirements.
RESULTS OF OPERATIONS
OPERATING REVENUES
The components of the change in operating revenues for the past two years are
provided in the table below.
Change In Operating Revenues
Increase/(Decrease)
1995 vs. 1994 1994 vs. 1993
- --------------------------------------------------------------------------
(Millions of Dollars)
Regulatory decisions $61 $38
Fuel and purchased power
cost recoveries 25 (45)
Sales volume (5) 40
Wholesale revenues (16) (63)
Other revenues (7) (8)
---- -----
Total revenue change $58 $(38)
==== =====
Revenues related to regulatory decisions increased, primarily due to the effects
of the July 1994 and 1995 retail-rate increases and higher recoveries for
demand-side-management costs. Fuel and purchased-power-cost recoveries
increased primarily due to higher energy costs and the recovery of GUAC costs.
Wholesale revenues decreased primarily due to capacity sales contracts that
expired in 1994.
Operating revenues decreased approximately $38 million in 1994, from 1993.
Revenues related to regulatory decisions increased, primarily due to the effects
of the July 1993 and 1994 retail-rate increases, partially offset by lower
recoveries for demand-side-management costs. Fuel and purchased-power-cost
recoveries decreased primarily due to lower GUAC recoveries. Sales volume
increased as a result of higher retail sales from an improved economy. Retail
sales increased 3.4 percent in 1994, from 1993 sales levels. Wholesale revenues
decreased primarily due to the expiration in late 1994 and 1993 of some
significant capacity sales contracts.
FUEL, PURCHASED AND NET INTERCHANGE POWER
Fuel, purchased and net interchange power expense increased approximately $40
million in 1995, from 1994, primarily due to higher fossil generation and higher
priced outside energy purchases from other utilities in 1995.
Fuel, purchased and net interchange power decreased approximately $89 million in
1994, from 1993, primarily due to lower recognition of replacement-power fuel
costs in 1994, partially offset by a higher level of outside energy purchases
from other utilities in 1994.
OTHER OPERATION AND MAINTENANCE EXPENSES
Other operation and maintenance expenses, net increased approximately $5 million
in 1995, from 1994. Operation expenses increased approximately $19 million,
primarily due to higher demand-side-management costs, higher rate recovery of
postretirement benefit costs, and higher capacity charges from regional nuclear
generating units, partially offset by higher nuclear reserves for
excess/obsolete inventory in 1994. Maintenance expenses decreased approximately
$14 million, primarily due to lower maintenance costs at the fossil units and
fossil reserves for excess/obsolete inventory in 1994.
Other operation and maintenance expenses, net decreased approximately $21
million in 1994, from 1993, primarily due to higher costs in 1993 associated
with early-retirement programs, lower 1994 payroll and benefit costs, lower
fossil-unit costs and lower capacity charges from the regional nuclear
generating units, partially offset by higher 1994 costs associated with the
operation and maintenance activities of the nuclear units and higher reserves
for excess/obsolete inventory at the nuclear and fossil units in 1994.
DEPRECIATION EXPENSES
Depreciation expenses increased approximately $11 million both in 1995, from
1994, and in 1994, from 1993, primarily as a result of higher plant balances and
higher decommissioning levels.
AMORTIZATION OF REGULATORY ASSETS, NET
Amortization of regulatory assets, net decreased approximately $23 million in
1995, from 1994, primarily due to the higher CL&P cogeneration deferrals in
1995, (approximately $18 million), and the completion, during 1994, of the
amortization of a 1993 cogeneration buyout, partially offset by higher 1995
amortization of Millstone 3 and Seabrook 1 phase-in costs.
Amortization of regulatory assets, net decreased approximately $35 million in
1994, from 1993, primarily due to the deferral of cogeneration expenses
beginning in July 1994 as allowed under the 1993 retail-rate decision and lower
1994 expenses associated with the recovery of Hydro-Quebec support payments,
partially offset by higher 1994 amortization of Millstone 3 and Seabrook 1
phase-in costs.
FEDERAL AND STATE INCOME TAXES
Federal and state income taxes decreased approximately $5 million in 1995, from
1994, primarily due to tax benefits from a favorable tax ruling, partially
offset by higher taxable income.
Federal and state income taxes increased approximately $46 million in 1994, from
1993, primarily due to higher taxable income.
DEFERRED NUCLEAR PLANTS RETURN
Deferred nuclear plants return decreased approximately $14 million in 1995, from
1994, and approximately $17 million in 1994, from 1993, primarily because
additional Millstone 3 investments were phased into rates.
OTHER INCOME, NET
Other income, net decreased approximately $4 million in 1995, from 1994, and
increased approximately $6 million in 1994, from 1993, primarily due to the 1993
property tax accounting change as ordered in the 1993 CL&P rate decision. The
allocation of this change to customers occurred in 1994, and amortization began
in 1995.
INTEREST CHARGES
Although the change in 1995, from 1994, was not significant, interest on long-
term debt decreased approximately $14 million in 1994, from 1993, primarily due
to lower average interest rates as a result of refinancing activities and lower
1994 debt levels.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
The cumulative effect of the accounting change of approximately $48 million in
1993 represents the one-time change in the method of accounting for Connecticut
municipal property tax expense recognized in the first quarter of 1993.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA (A)
- ------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------
(Thousands of Dollars)
Operating Revenues... $2,386,107 $2,328,052 $2,366,050 $2,316,451 $2,275,737
Operating Income..... 324,026 286,948 241,655 288,088 324,428
Net Income........... 205,216 198,288 191,449(b) 206,714 240,818
Cash Dividends on
Common Stock 164,154 159,388 160,365 164,277 172,587
Total Assets......... 6,030,735 6,217,457 6,397,405 5,582,831 5,338,466
Long-Term Debt....... 1,822,018 1,823,690 2,057,280 2,087,936 2,023,268
Preferred Stock Not
Subject to Mandatory
Redemption.... 116,200 166,200 166,200 231,196 306,195
Preferred Stock Subject to
Mandatory Redemption(c) 155,000 230,000 230,000 200,000 141,892
Obligations Under Capital
Leases(c) 172,264 175,969 177,418 197,404 208,924
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
- --------------------------------------------------------------------------------
Quarter Ended(a)
--------------------------------------------------
1995 March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------
Operating Revenues...... $601,194 $525,147 $638,392 $621,374
======== ======== ======== ========
Operating Income........ $ 96,191 $ 65,867 $ 88,012 $ 73,956
======== ======== ======== ========
Net Income.............. $ 65,877 $ 38,089 $ 60,462 $ 40,788
======== ======== ======== ========
1994
- --------------------------------------------------------------------------------
Operating Revenues...... $619,815 $551,135 $598,706 $558,396
======== ======== ======== ========
Operating Income........ $ 90,259 $ 59,289 $ 74,771 $ 62,629
======== ======== ======== ========
Net Income.............. $ 68,590 $ 39,162 $ 50,191 $ 40,345
======== ======== ======== ========
(a)Reclassifications of prior data have been made to conform with the current
presentation.
(b)Includes the cumulative effect of change in accounting for municipal
property tax expense, which increased earnings for common shares by $47.7
million.
(c)Includes portion due within one year.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
STATISTICS
- -------------------------------------------------------------------------
Gross Electric Average
Utility Plant Annual
December 31, Use Per Electric
(Thousands of kWh Sales Residential Customers Employees
Dollars) (Millions) Customer (kWh) (Average) (December 31)
- -------------------------------------------------------------------------
1995 $6,389,190 26,366 8,519 1,094,527 2,270
1994 6,327,967 26,975 8,775 1,086,400 2,587
1993 6,214,401 26,107 8,519 1,078,925 2,676
1992 6,100,682 25,809 8,501 1,075,425 3,028
1991 5,986,271 24,992 8,435 1,069,912 3,364
EXHIBIT 13.3
1995 Annual Report
Western Massachusetts Electric Company
Index
Contents Page
- -------- ----
Balance Sheets....................................................... 2-3
Statements of Income................................................. 4
Statements of Cash Flows............................................. 5
Statements of Common Stockholder's Equity............................ 6
Notes to Financial Statements........................................ 7
Report of Independent Public Accountants............................. 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 27
Selected Financial Data.............................................. 33
Statements of Quarterly Financial Data............................... 33
Statistics........................................................... 34
Preferred Stockholder and Bondholder Information..................... Back Cover
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
At December 31, 1995 1994
- ------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $1,234,738 $1,214,326
Less: Accumulated provision for depreciation......... 462,872 425,019
----------- -----------
771,866 789,307
Construction work in progress........................... 18,957 19,187
Nuclear fuel, net....................................... 31,574 38,000
----------- -----------
Total net utility plant............................. 822,397 846,494
----------- -----------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 69,903 56,123
Investments in regional nuclear generating
companies, at equity................................... 14,820 14,927
Other, at cost.......................................... 3,979 3,941
----------- -----------
88,702 74,991
----------- -----------
Current Assets:
Cash.................................................... 241 105
Notes receivable from affiliated companies.............. - 8,750
Receivables, less accumulated provision for
uncollectible accounts of $2,230,000 in 1995
and $2,032,000 in 1994................................ 42,164 35,427
Accounts receivable from affiliated companies........... 951 1,108
Accrued utility revenues................................ 11,119 15,766
Fuel, materials, and supplies, at average cost.......... 5,114 4,829
Prepayments and other................................... 9,176 9,215
----------- -----------
68,765 75,200
----------- -----------
Deferred Charges:
Regulatory assets (Note 1G)<F1G>........................ 160,986 184,226
Unamortized debt expense................................ 1,496 1,733
Other................................................... - 974
----------- -----------
162,482 186,933
----------- -----------
Total Assets........................................ $1,142,346 $1,183,618
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
At December 31, 1995 1994
- ------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock,$25 par value--authorized and
outstanding 1,072,471 shares in 1995 and 1994........ $ 26,812 $ 26,812
Capital surplus, paid in................................ 150,182 149,683
Retained earnings....................................... 115,296 111,586
----------- -----------
Total common stockholder's equity.............. 292,290 288,081
Cumulative preferred stock--
$100 par value--authorized 1,000,000 shares;
outstanding 200,000 shares in 1995 and 1994;
$25 par value--authorized 3,600,000 shares;
outstanding 2,300,000 shares in 1995
2,927,000 shares in 1994
Preferred stock not subject to mandatory redemption..... 53,500 68,500
Preferred stock subject to mandatory redemption......... 22,500 24,000
Long-term debt.......................................... 347,470 345,669
----------- -----------
Total capitalization........................... 715,760 726,250
----------- -----------
Obligations Under Capital Leases.......................... 20,855 23,852
----------- -----------
Current Liabilities:
Notes payable to affiliated company..................... 24,050 -
Long-term debt and preferred stock--current
portion................................................ 1,500 34,975
Obligations under capital leases--current
portion................................................ 15,156 12,945
Accounts payable........................................ 14,475 20,396
Accounts payable to affiliated companies................ 11,604 17,352
Accrued taxes........................................... 1,686 5,160
Accrued interest........................................ 5,670 6,702
Other................................................... 7,768 7,584
----------- -----------
81,909 105,114
<
1995 Annual Report
Western Massachusetts Electric Company
Index
Contents Page
- -------- ----
Balance Sheets....................................................... 2-3
Statements of Income................................................. 4
Statements of Cash Flows............................................. 5
Statements of Common Stockholder's Equity............................ 6
Notes to Financial Statements........................................ 7
Report of Independent Public Accountants............................. 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 27
Selected Financial Data.............................................. 33
Statements of Quarterly Financial Data............................... 33
Statistics........................................................... 34
Preferred Stockholder and Bondholder Information..................... Back Cover
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
At December 31, 1995 1994
- ------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $1,234,738 $1,214,326
Less: Accumulated provision for depreciation......... 462,872 425,019
----------- -----------
771,866 789,307
Construction work in progress........................... 18,957 19,187
Nuclear fuel, net....................................... 31,574 38,000
----------- -----------
Total net utility plant............................. 822,397 846,494
----------- -----------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 69,903 56,123
Investments in regional nuclear generating
companies, at equity................................... 14,820 14,927
Other, at cost.......................................... 3,979 3,941
----------- -----------
88,702 74,991
----------- -----------
Current Assets:
Cash.................................................... 241 105
Notes receivable from affiliated companies.............. - 8,750
Receivables, less accumulated provision for
uncollectible accounts of $2,230,000 in 1995
and $2,032,000 in 1994................................ 42,164 35,427
Accounts receivable from affiliated companies........... 951 1,108
Accrued utility revenues................................ 11,119 15,766
Fuel, materials, and supplies, at average cost.......... 5,114 4,829
Prepayments and other................................... 9,176 9,215
----------- -----------
68,765 75,200
----------- -----------
Deferred Charges:
Regulatory assets (Note 1G)<F1G>........................ 160,986 184,226
Unamortized debt expense................................ 1,496 1,733
Other................................................... - 974
----------- -----------
162,482 186,933
----------- -----------
Total Assets........................................ $1,142,346 $1,183,618
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
At December 31, 1995 1994
- ------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock,$25 par value--authorized and
outstanding 1,072,471 shares in 1995 and 1994........ $ 26,812 $ 26,812
Capital surplus, paid in................................ 150,182 149,683
Retained earnings....................................... 115,296 111,586
----------- -----------
Total common stockholder's equity.............. 292,290 288,081
Cumulative preferred stock--
$100 par value--authorized 1,000,000 shares;
outstanding 200,000 shares in 1995 and 1994;
$25 par value--authorized 3,600,000 shares;
outstanding 2,300,000 shares in 1995
2,927,000 shares in 1994
Preferred stock not subject to mandatory redemption..... 53,500 68,500
Preferred stock subject to mandatory redemption......... 22,500 24,000
Long-term debt.......................................... 347,470 345,669
----------- -----------
Total capitalization........................... 715,760 726,250
----------- -----------
Obligations Under Capital Leases.......................... 20,855 23,852
----------- -----------
Current Liabilities:
Notes payable to affiliated company..................... 24,050 -
Long-term debt and preferred stock--current
portion................................................ 1,500 34,975
Obligations under capital leases--current
portion................................................ 15,156 12,945
Accounts payable........................................ 14,475 20,396
Accounts payable to affiliated companies................ 11,604 17,352
Accrued taxes........................................... 1,686 5,160
Accrued interest........................................ 5,670 6,702
Other................................................... 7,768 7,584
----------- -----------
81,909 105,114
----------- -----------
Deferred Credits:
Accumulated deferred income taxes (Note 1H)<F1H>........ 259,595 253,821
Accumulated deferred investment tax credits............. 26,302 27,822
Deferred contractual obligation......................... 18,814 28,572
Other................................................... 19,111 18,187
----------- -----------
323,822 328,402
----------- -----------
Commitments and Contingencies (Note 10)<F10>
Total Capitalization and Liabilities........... $1,142,346 $1,183,618
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues.............................. $420,208 $421,477 $415,055
--------- --------- ---------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power.. 86,738 67,365 67,781
Other...................................... 142,774 130,683 142,273
Maintenance................................... 37,447 35,430 34,259
Depreciation.................................. 37,924 36,885 35,751
Amortization of regulatory assets............. 19,562 29,118 29,700
Federal and state income taxes (Note 8)<F8>... 14,060 32,653 27,892
Taxes other than income taxes................. 18,639 18,403 17,051
--------- --------- ---------
Total operating expenses................ 357,144 350,537 354,707
--------- --------- ---------
Operating Income................................ 63,064 70,940 60,348
--------- --------- ---------
Other Income:
Equity in earnings of regional nuclear
generating companies........................ 1,771 2,031 1,680
Other, net.................................... 1,232 3,687 4,405
Income taxes.................................. 262 (71) 23
--------- --------- ---------
Other income, net....................... 3,265 5,647 6,108
--------- --------- ---------
Income before interest charges.......... 66,329 76,587 66,456
--------- --------- ---------
Interest Charges:
Interest on long-term debt.................... 26,840 27,678 29,979
Other interest................................ 356 (548) (195)
--------- --------- ---------
Interest charges, net................... 27,196 27,130 29,784
--------- --------- ---------
Income before cumulative effect of
accounting change............................. 39,133 49,457 36,672
Cumulative effect of accounting change
(Note 1A)<F1A>................................ - - 3,922
--------- --------- ---------
Net Income...................................... $ 39,133 $ 49,457 $ 40,594
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities:
Net Income.................................................. $ 39,133 $ 49,457 $ 40,594
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 37,924 36,885 35,751
Deferred income taxes and investment tax credits, net..... 3,418 10,256 918
Deferred Millstone 3 return............................... (190) (1,331) (2,516)
Amortization of deferred Millstone 3 return............... 7,336 14,758 14,768
Recoverable energy costs, net of amortization............. (4,715) (8,622) 7,316
Other sources of cash..................................... 29,409 27,553 26,765
Other uses of cash........................................ (8,039) (23,701) (2,698)
Changes in working capital:
Receivables and accrued utility revenues.................. (1,933) 6,470 (3,728)
Fuel, materials, and supplies............................. (285) 2,228 1,944
Accounts payable.......................................... (11,669) 8,239 (2,078)
Accrued taxes............................................. (3,474) (1,862) (3,248)
Other working capital (excludes cash)..................... 1,256 (2,991) 2,433
----------- ----------- -----------
Net cash flows from operating activities...................... 88,171 117,339 116,221
----------- ----------- -----------
Financing Activities:
Issuance of long-term debt.................................. - 90,000 113,800
Net increase (decrease) in short-term debt.................. 24,050 (6,000) (35,500)
Reacquisitions and retirements of long-term debt............ (34,550) (104,169) (114,270)
Reacquisitions and retirements of preferred stock........... (15,675) (7,325) (1,500)
Cash dividends on preferred stock........................... (4,944) (5,897) (5,259)
Cash dividends on common stock.............................. (30,223) (29,514) (28,785)
----------- ----------- -----------
Net cash flows used for financing activities.................. (61,342) (62,905) (71,514)
----------- ----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (27,084) (32,680) (34,592)
Nuclear fuel.............................................. 75 (4,928) (2,926)
----------- ----------- -----------
Net cash flows used for investments in plant................ (27,009) (37,608) (37,518)
NU System Money Pool........................................ 8,750 (8,750) -
Other investment activities, net............................ (8,434) (8,156) (7,169)
----------- ----------- -----------
Net cash flows used for investments........................... (26,693) (54,514) (44,687)
----------- ----------- -----------
Net Increase (Decrease) In Cash For The Period................ 136 (80) 20
Cash - beginning of period.................................... 105 185 165
----------- ----------- -----------
Cash - end of period.......................................... $ 241 $ 105 $ 185
=========== =========== ===========
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest, net of amounts capitalized........................ $ 25,551 $ 25,174 $ 27,277
=========== =========== ===========
Income taxes................................................ $ 14,385 $ 30,040 $ 21,200
=========== =========== ===========
Increase in obligations:
Niantic Bay Fuel Trust...................................... $ 7,851 $ 12,237 $ 9,369
=========== =========== ===========
/Table>
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Capital Retained
Common Surplus, Earnings
Stock Paid In (a) Total
- ---------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Balance at January 1, 1993............... $26,812 $149,026 $ 91,077 $266,915
Net income for 1993.................. 40,594 40,594
Cash dividends on preferred
stock.............................. (5,259) (5,259)
Cash dividends on common stock....... (28,785) (28,785)
Capital stock expenses, net.......... 293 293
-------- --------- --------- ---------
Balance at December 31, 1993............. 26,812 149,319 97,627 273,758
Net income for 1994.................. 49,457 49,457
Cash dividends on preferred
stock.............................. (5,897) (5,897)
Cash dividends on common stock....... (29,514) (29,514)
Loss on the retirement of preferred
stock.............................. (87) (87)
Capital stock expenses, net.......... 364 364
-------- --------- --------- ---------
Balance at December 31, 1994............. 26,812 149,683 111,586 288,081
Net income for 1995.................. 39,133 39,133
Cash dividends on preferred
stock.............................. (4,944) (4,944)
Cash dividends on common stock....... (30,223) (30,223)
Loss on retirement of preferred
stock.............................. (256) (256)
Capital stock expenses, net.......... 499 499
-------- --------- --------- ---------
Balance at December 31, 1995............. $26,812 $150,182 $115,296 $292,290
======== ========= ========= =========
</TABLE>
(a) The company has dividend restrictions imposed by its long-term debt
agreements. At December 31, 1995, these restrictions totaled
approximately $21.5 million.
The accompanying notes are an integral part of these financial statements.
Western Massachusetts Electric Company
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRESENTATION
Western Massachusetts Electric Company (WMECO or the company), The
Connecticut Light and Power Company (CL&P), Holyoke Water Power Company
(HWP), Public Service Company of New Hampshire (PSNH), and North
Atlantic Energy Corporation (NAEC) are the operating subsidiaries
comprising the Northeast Utilities system (the system) and are wholly
owned by Northeast Utilities (NU).
The system furnishes retail electric service in Connecticut, New
Hampshire, and western Massachusetts through CL&P, PSNH, WMECO, and HWP.
A fifth subsidiary, NAEC, sells all of its capacity to PSNH. In
addition to its retail 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.
Other wholly owned subsidiaries of NU provide substantial support
services to the system. Northeast Utilities Service Company (NUSCO)
supplies centralized accounting, administrative, data processing,
engineering, financial, legal, operational, planning, purchasing, and
other services to the system companies. Northeast Nuclear Energy
Company (NNECO) acts as agent for system companies in operating the
Millstone nuclear generating facilities.
All transactions among affiliated companies are on a recovery of cost
basis which may include amounts representing a return on equity, and are
subject to approval by various federal and state regulatory agencies.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent 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.
Certain reclassifications of prior years' data have been made to conform
with the current year's presentation.
Property Taxes: WMECO changed its method of accounting for municipal
property tax expense for its respective Connecticut properties during
1993. This one-time change increased 1993 net income by approximately
$3.9 million.
B. FUTURE ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) 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, in
March 1995. SFAS 121 became effective January 1, 1996, and establishes
accounting standards for evaluating and recording asset impairment.
SFAS 121 requires the evaluation of long-lived assets for impairment
when certain events occur or conditions exist that indicate the carrying
amounts of assets may not be recoverable. Refer to Note 1G, "Regulatory
Accounting," for further information on the regulatory impacts of the
company's adoption of SFAS 121.
C. INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
Regional Nuclear Generating Companies: WMECO owns common stock of four
regional nuclear generating companies (Yankee companies). The Yankee
companies, with the company's ownership interests, are:
Connecticut Yankee Atomic Power Company (CY) ........ 9.5%
Yankee Atomic Electric Company (YAEC) ............... 7.0
Maine Yankee Atomic Power Company (MY) .............. 3.0
Vermont Yankee Nuclear Power Corporation (VY) ....... 2.5
WMECO's investments in the Yankee companies are accounted for on the
equity basis due to the company's ability to exercise significant
influence over their operating and financial policies. The electricity
produced by the facilities that are operating is committed substantially
on the basis of ownership interests and is billed pursuant to
contractual agreements. Under ownership agreements with the Yankee
companies, WMECO may be asked to provide direct or indirect financial
support for one or more of the companies. For more information on these
agreements, see Note 10E, "Commitments and Contingencies - Long-Term
Contractual Arrangements."
YAEC's nuclear power plant was shut down permanently on February 26,
1992. For more information on the Yankee companies, see Note 3,
"Nuclear Decommissioning."
Millstone 1: WMECO has a 19 percent joint-ownership interest in
Millstone 1, a 660-megawatt (MW) nuclear generating unit. As of
December 31, 1995 and 1994, plant-in-service included approximately
$87.4 million and $87.0 million, respectively, and the accumulated
provision for depreciation included approximately $34.5 million and
$31.4 million, respectively, for WMECO's share of Millstone 1. WMECO's
share of Millstone 1 expenses is included in the corresponding operating
expenses on the accompanying Statements of Income.
Millstone 2: WMECO has a 19 percent joint-ownership interest in
Millstone 2, an 870-MW nuclear generating unit. As of December 31, 1995
and 1994, plant-in-service included approximately $160.0 million and
$159.2 million, respectively, and the accumulated provision for
depreciation included approximately $45.8 million and $40.4 million,
respectively, for WMECO's share of Millstone 2. WMECO's share of
Millstone 2 expenses is included in the corresponding operating expenses
on the accompanying Statements of Income.
Millstone 3: WMECO has a 12.24 percent joint-ownership interest in
Millstone 3, a 1,154-MW nuclear generating unit. As of December 31,
1995 and 1994, plant-in-service included approximately $377.7 million
and $376.1 million, respectively, and the accumulated provision for
depreciation included approximately $90.6 million and $83.2 million,
respectively, for WMECO's share of Millstone 3. WMECO's share of
Millstone 3 expenses is included in the corresponding operating expenses
on the accompanying Statements of Income.
D. DEPRECIATION
The provision for depreciation is calculated using the straight-line
method based on estimated remaining lives of depreciable utility
plant-in-service, adjusted for salvage value and removal costs, as
approved by the appropriate regulatory agency. Except for major
facilities, depreciation factors are applied to the average
plant-in-service during the period. Major facilities are depreciated
from the time they are placed in service. When plant is retired from
service, the original cost of plant, including costs of removal, less
salvage, is charged to the accumulated provision for depreciation. The
depreciation rates for the several classes of electric plant-in-service
are equivalent to a composite rate of 3.1 percent in 1995, 1994, and
1993. See Note 3, "Nuclear Decommissioning," for information on nuclear
plant decommissioning.
E. PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as a
holding company under the Public Utility Holding Company Act of 1935
(1935 Act), and it and its subsidiaries, including the company, are
subject to the provisions of the 1935 Act. Arrangements among the
system companies, outside agencies, and other utilities covering inter-
connections, interchange of electric power, and sales of utility
property are subject to regulation by the Federal Energy Regulatory
Commission (FERC) and/or the SEC. The company is subject to further
regulation for rates, accounting, and other matters by the FERC and/or
the Massachusetts Department of Public Utilities (DPU).
F. REVENUES
Other than revenues under fixed-rate agreements negotiated with certain
wholesale, industrial, and commercial customers, utility revenues are
based on authorized rates applied to each customer's use of electricity.
In general, rates can be changed only through a formal proceeding
before the appropriate regulatory commission. At the end of each
accounting period, WMECO accrues an estimate for the amount of energy
delivered but unbilled.
G. REGULATORY ACCOUNTING
The accounting policies of WMECO and the accompanying financial
statements conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of the
ratemaking process in accordance with SFAS 71, Accounting for the
Effects of Certain Types of Regulation. Assuming a cost-of-service
based regulatory structure, regulators may permit incurred costs,
normally treated as expenses, to be deferred and recovered in future
revenues. Through their actions, regulators may also reduce or
eliminate the value of an asset, or create a liability. If any portion
of the company's operations were no longer subject to the provisions of
SFAS 71, as a result of a change in the cost-of-service based regulatory
structure or the effects of competition, the company would be required
to write off related regulatory assets and liabilities. The company
would also be required to determine any impairment to other assets and
write down these assets to fair value. Based on current regulation and
recent regulatory decisions, and initiatives relating to competition in
the system's market, the company believes that its use of regulatory
accounting remains appropriate.
SFAS 121 requires that any assets, including regulatory assets, which
are no longer probable of recovery through future revenues, be revalued
based on estimated future cash flows. If the revaluation is less than
the book value of the asset, an impairment loss would be charged to
earnings. As noted above, based on the current regulatory environment
in the company's service area, it is not expected that SFAS 121 will
have a material impact on the company's financial position or results of
operations upon adoption. 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 on the company's
regulatory environment, refer to Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A).
The components of regulatory assets are as follows:
At December 31, 1995 1994
-----------------------------------------------------------------------
(Thousands of Dollars)
Income taxes, net (Note 1H) ..................... $ 87,829 $ 86,357
Unrecovered contractual obligation (Note 3) ... 18,814 28,572
Amortizable property investment - Millstone 3 ... 5,600 16,800
Recoverable energy costs (Note 1I) .............. 10,974 8,324
Deferred costs - Millstone 3 .................... - 7,836
Other ........................................... 37,769 36,337
--------- ---------
$ 160,986 $ 184,226
========= =========
H. INCOME TAXES
The tax effect of temporary differences (differences between the periods
in which transactions affect income in the financial statements and the
periods in which they affect the determination of income subject to tax)
is accounted for in accordance with the ratemaking treatment of the
applicable regulatory commissions. The adoption of SFAS 109, Accounting
for Income Taxes, in 1993 increased the company's net deferred tax
obligation. As it is probable that the increase in deferred tax
liabilities will be recovered from customers through rates, WMECO
established a regulatory asset. See Note 8, "Income Tax Expense" for
the components of income tax expense.
The tax effect of temporary differences, including timing differences
accrued under previously approved accounting standards, which give rise
to the accumulated deferred tax obligation are as follows:
At December 31, 1995 1994
--------------------------------------------------------------------
(Thousands of Dollars)
Accelerated depreciation and other
plant-related differences ........... $222,520 $214,485
Regulatory assets - income tax gross up 34,540 34,084
Other ................................. 2,535 5,252
---------- ----------
$259,595 $253,821
======== ========
I. RECOVERABLE ENERGY COSTS
Under the Energy Policy Act of 1992 (Energy Act), WMECO is assessed for
its proportionate share of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (D&D assessment). The Energy Act requires that
regulators treat D&D assessments as a reasonable and necessary current
cost of fuel, to be fully recovered in rates, like any other fuel cost.
WMECO is currently recovering these costs through rates. As of
December 31, 1995, the company's total D&D deferrals were approximately
$11.0 million.
J. SPENT NUCLEAR FUEL DISPOSAL COSTS
Under the Nuclear Waste Policy Act of 1982, WMECO must pay the United
States Department of Energy (DOE) for the disposal of spent nuclear fuel
and high-level radioactive waste. Fees for nuclear fuel burned on or
after April 7, 1983 are billed currently to customers and paid to the
DOE on a quarterly basis. For nuclear fuel used to generate electricity
prior to April 7, 1983 (prior-period fuel), payment may be made anytime
prior to the first delivery of spent fuel to the DOE, which may be as
early as 1998. Until such payment is made, the outstanding balance will
continue to accrue interest at the three-month Treasury Bill Yield Rate.
At December 31, 1995, fees due to the DOE for the disposal of prior-
period fuel were approximately $35.2 million, including interest costs
of $19.6 million. As of December 31, 1995, all fees have been collected
through rates.
K. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes an interest-rate cap to manage well-defined
interest-rate risk. Premiums paid for purchased interest-rate cap
agreements are amortized to interest expense over the terms of the cap.
Unamortized premiums are included in deferred charges. Amounts
receivable under cap agreements are accrued and offset against interest
expense. Any material unrealized gains or losses on interest-rate caps
will be deferred until realized. For further information on
derivatives, see Note 11, "Derivative Financial Instruments."
2. LEASES
WMECO and CL&P finance up to $475 million of nuclear fuel for Millstone 1
and 2 and their respective shares of the nuclear fuel for Millstone 3 under
the Niantic Bay Fuel Trust (NBFT) capital lease agreement. WMECO and CL&P
make quarterly lease payments for the cost of nuclear fuel consumed in the
reactors (based on a units-of-production method at rates which reflect
estimated kilowatt-hours of energy provided) plus financing costs associated
with the fuel in the reactors. Upon permanent discharge from the reactors,
ownership of the nuclear fuel transfers to WMECO and CL&P.
WMECO has also entered into lease agreements for the use of data processing
and office equipment, vehicles, nuclear control room simulators, and office
space. The provisions of these lease agreements generally provide for
renewal options. The following rental payments have been charged to
operating expense:
Year Capital Leases Operating Leases
---- -------------- ----------------
1995...................... $12,553,000 $6,398,000
1994...................... 13,594,000 6,485,000
1993...................... 17,280,000 6,367,000
Interest included in capital lease rental payments was $1,954,000 in 1995,
$1,845,000 in 1994, and $2,090,000 in 1993.
Substantially all of the capital lease rental payments were made pursuant to
the nuclear fuel lease agreement. Future minimum lease payments under the
nuclear fuel capital lease cannot be reasonably estimated on an annual basis
due to variations in the usage of nuclear fuel.
Future minimum rental payments, excluding annual nuclear fuel lease payments
and executory costs, such as property taxes, state use taxes, insurance, and
maintenance, under long-term noncancelable leases, as of December 31, 1995
are:
Year Operating Leases
---- ----------------
(Thousands of Dollars)
1996 ............................ $ 4,600
1997 ............................ 4,300
1998 ............................ 3,300
1999 ............................ 3,100
2000 ............................ 2,900
After 2000 ...................... 12,200
-------
Future minimum lease payments ... $30,400
=======
3. NUCLEAR DECOMMISSIONING
WMECO's nuclear power plants have service lives that are expected to end
during the years 2010 through 2025. Upon retirement, these units must be
decommissioned. The company's 1992 decommissioning study concluded that
complete and immediate dismantlement at retirement continues to be the most
viable and economic method of decommissioning the three Millstone units.
Decommissioning studies are reviewed and updated periodically to reflect
changes in decommissioning requirements, costs, technology, and inflation.
The estimated cost of decommissioning WMECO's ownership share of
Millstone 1, 2, and 3, in year-end 1995 dollars, is $70.4 million, $62.3
million, and $53.7 million, respectively. These estimated costs assumed
levelized collections and after-tax earnings on the Millstone
decommissioning funds of 6.5 percent. The Millstone units decommissioning
costs will be increased annually by escalation rates. Nuclear
decommissioning costs are accrued over the expected service life of the
units and are included in depreciation expense on the Statements of Income.
Nuclear decommissioning costs amounted to $5.0 million in 1995, $4.8
million in 1994, and $4.6 million in 1993. Nuclear decommissioning, as a
cost of removal, is included in the accumulated provision for depreciation
on the Balance Sheets. At December 31, 1995, the balance in the accumulated
reserve for decommissioning amounted to $69.9 million. See "Nuclear
Decommissioning" in the MD&A for a discussion of changes being considered by
the FASB relating to accounting for closure and removal of long-lived assets
(including nuclear decommissioning).
WMECO has established external decommissioning trusts through a trustee for
its portion of the costs of decommissioning Millstone 1, 2, and 3. As of
December 31, 1995, WMECO has collected, through rates, $47.4 million toward
the future decommissioning costs of its share of the Millstone units, all of
which has been transferred to external decommissioning trusts. Earnings on
the decommissioning trusts increase the decommissioning trust balance and
the accumulated reserve for decommissioning. Unrealized gains and losses
associated with the decommissioning trusts also impact the balance of the
trusts and the accumulated reserve for decommissioning.
Changes in requirements or technology, the timing of funding or dismantling,
or adoption of a decommissioning method other than immediate dismantlement
would change decommissioning cost estimates and the amounts required to be
recovered. WMECO attempts to recover sufficient amounts through its allowed
rates to cover its expected decommissioning costs. Only the portion of
currently estimated total decommissioning costs that has been accepted by
regulatory agencies is reflected in rates of the company. Based on present
estimates and assuming its nuclear units operate to the end of their
respective license periods, the company expects that the decommissioning
trusts will be substantially funded when the units are retired from service.
WMECO, along with other New England utilities, has equity investments in the
four Yankee companies. Each Yankee company owns a single nuclear generating
unit with service lives that are expected to end during the years 2007
through 2012. The estimated cost, in year-end 1995 dollars, of
decommissioning WMECO's ownership share of units owned and operated by CY,
MY, and VY is $36.6 million, $10.6 million, and $8.7 million, respectively.
Under the terms of the contracts with the Yankee companies, the
shareholders-sponsors are responsible for their proportionate share of the
operating costs of each unit, including decommissioning. The nuclear
decommissioning costs of the Yankee companies are included as part of the
cost of power purchased by WMECO.
YAEC is in the process of dismantling its nuclear facility. Accelerated
decommissioning of that unit has been delayed because of litigation over the
Nuclear Regulatory Commission's (NRC) approval of YAEC's decommissioning
plan. Effective November 1995, YAEC began billing its sponsors, including
WMECO, amounts based on a revised estimate approved by the FERC that assumes
decommissioning of the plant by the year 2000. This revised decommissioning
estimate was based on access to the Barnwell, South Carolina low-level
radioactive waste facility, changes in assumptions about earnings in
decommissioning trust investments, and changes in other decommissioning cost
assumptions. At December 31, 1995, the estimated remaining costs, including
decommissioning, amounted to $268.8 million of which WMECO's share was
approximately $18.8 million. Management expects that WMECO will continue to
be allowed to recover such FERC-approved costs from its customers.
Accordingly, WMECO has recognized these costs as regulatory assets, with
corresponding obligations, on its Balance Sheets.
4. SHORT-TERM DEBT
NU, CL&P, WMECO, HWP, NNECO, and The Rocky River Realty Company (RRR) have
established a revolving-credit facility with a group of 15 banks. Under
this facility, the participating companies may borrow up to an aggregate of
$343 million. Individual borrowing limits as of January 1, 1996 were
$150 million for NU parent, $325 million for CL&P, $60 million for WMECO,
$5 million for HWP, $50 million for NNECO, and $22 million for RRR. The
system companies may borrow funds on a short-term revolving basis using
either fixed-rate loans or standby loans. Fixed rates are set using
competitive bidding. Standby-loan rates are based upon several alternative
variable rates. The system companies are obligated to pay a facility fee of
0.15 percent per annum of each bank's total commitment under the three-year
portion of the facility, representing 75 percent of the total facility, plus
0.10 percent per annum of each bank's total commitment under the 364-day
portion of the facility, representing 25 percent of the total facility. At
December 31, 1995 and 1994, there were $42.5 million and $30 million of
borrowings, respectively, under the facility, all of which had been borrowed
by other system companies.
Certain subsidiaries of NU, including WMECO, are members of the Northeast
Utilities System Money Pool (Pool). The Pool provides a more efficient use
of the cash resources of the system, and reduces outside short-term
borrowings. NUSCO administers the Pool as agent for the member companies.
Short-term borrowing needs of the member companies are first met with
available funds of other member companies, including funds borrowed by NU
parent. NU parent may lend to the Pool but may not borrow. Funds may be
withdrawn from or repaid to the Pool at any time without prior notice.
Investing and borrowing subsidiaries receive or pay interest based on the
average daily Federal Funds rate. However, borrowings based on loans from
NU parent bear interest at NU parent's cost and must be repaid based upon
the terms of NU parent's original borrowing. At December 31, 1995, WMECO
had $24.1 million of borrowings outstanding from the Pool. At December 31,
1994, WMECO had no borrowings from the Pool. The interest rate on
borrowings from the Pool at December 31, 1995 was 4.7 percent.
Maturities of WMECO's short-term debt obligations are for periods of three
months or less.
The amount of short-term borrowings that may be incurred by WMECO is subject
to periodic approval by the SEC under the 1935 Act. In addition, the
charter of WMECO contains provisions restricting the amount of short-term
borrowings. Under the SEC and/or charter restrictions, the company was
authorized, as of January 1, 1995, to incur short-term borrowings up to a
maximum of $60 million.
5. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock not subject to mandatory redemptions are:
December 31, Shares
1995 Outstanding
Redemption December 31, December 31,
-------------------------
Description Price 1995 1995 1994 1993
------------------------------------------------------------------------
(Thousands of Dollars)
7.72% Series B of 1971 $103.51 200,000 $20,000 $20,000 $20,000
1988 Adjustable
Rate DARTS .... 25.00 1,340,000 33,500 48,500 53,500
------- ------- -------
Total preferred stock not
subject to mandatory
redemption .... $53,500 $68,500 $73,500
======= ======= =======
All or any part of each outstanding series of preferred stock may be
redeemed by the company at any time at established redemption prices plus
accrued dividends to the date of redemption.
6. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock subject to mandatory redemption are:
December 31 Shares
1995 Outstanding
Redemption December 31, December 31,
-------------------------
Description Price* 1995 1995 1994 1993
------------------------------------------------------------------------
(Thousands of Dollars)
7.60% Series of 1987 $25.89 960,000 $24,000 $24,675 $27,000
Less preferred stock to be
redeemed within one
year, net of reacquired
stock .......... 60,000 1,500 675 1,500
------- ------- ------
Total preferred stock
subject to mandatory
redemption ..... $22,500 $24,000 $25,500
======= ======= =======
*Redemption price reduces in future years.
The minimum sinking-fund provisions of the 1987 Series subject to mandatory
redemption at December 31, 1995, for the years 1996 through 2000, are $1.5
million per year. In case of default on sinking-fund payments, no payments
may be made on any junior stock by way of dividends or otherwise (other than
in shares of junior stock) so long as the default continues. If the company
is in arrears in the payment of dividends on any outstanding shares of
preferred stock, the company would be prohibited from redemption or purchase
of less than all of the preferred stock outstanding. All or part of the
7.60% Series of 1987 may be redeemed by the company at any time at an
established redemption price plus accrued dividends to the date of
redemption subject to certain refunding limitations.
7. LONG-TERM DEBT
Details of long-term debt outstanding are:
December 31,
--------------------
1995 1994
-----------------------------------------------------------------
(Thousands of Dollars)
First Mortgage Bonds:
9 1/4% Series U, due 1995 $ - $ 34,300
5 3/4% Series F, due 1997 14,700 14,850
6 3/4% Series G, due 1998 9,800 9,900
6 1/4% Series X, due 1999 40,000 40,000
6 7/8% Series W, due 2000 60,000 60,000
7 3/4% Series V, due 2002 85,000 85,000
7 3/4% Series Y, due 2024 50,000 50,000
------ ------
Total First Mortgage Bonds 259,500 294,050
Pollution Control Notes:
Tax Exempt Series A, due 2028 53,800 53,800
Fees and interest due for spent
fuel disposal costs (Note 1J) 35,180 33,239
Less: Amounts due within one year - 34,300
Unamortized premium and discount, net (1,010) (1,120)
-------- ----------
Long-term debt, net $347,470 $345,669
======== ========
Long-term debt maturities and cash sinking-fund requirements on debt
outstanding at December 31, 1995 for the years 1996 through 2000 are
approximately $0.0, $14.7 million, $9.8 million, $40.0 million and $60.0
million, respectively. In addition, there are annual one-percent sinking-
and improvement-fund requirements, currently amounting to $2.6 million for
1996 and 1997, $2.4 million for 1998 and 1999, and $2.0 million for 2000.
Such sinking- and improvement-fund requirements may be satisfied by the
deposit of cash or bonds by certification of property additions.
All or any part of each outstanding series of first mortgage bonds may be
redeemed by the company at any time at established redemption prices plus
accrued interest to the date of redemption, except certain series which are
subject to certain refunding limitations during their respective initial
five-year redemption periods.
Essentially all of the company's utility plant is subject to the lien of
its first mortgage bond indenture. As of December 31, 1995 and 1994, the
company has secured $53.8 million of pollution control notes with second
mortgage liens on Millstone 1, junior to the liens of its first mortgage
bond indenture. The average effective interest rate on the variable-rate
pollution control notes was 3.7 percent for 1995 and 2.7 percent for 1994.
8. INCOME TAX EXPENSE
The components of the federal and state income tax provisions are:
For the Years Ended December 31, 1995 1994 1993
---------------------------------------------------------------
(Thousands of Dollars)
Current income taxes:
Federal..................... $ 7,419 $18,358 $22,239
State....................... 2,961 4,110 4,712
-------- ------- --------
Total current............. 10,380 22,468 26,951
------- ------- -------
Deferred income taxes, net:
Federal..................... 4,130 9,697 1,683
State...................... 1,003 2,267 664
-------- --------- ---------
Total deferred............ 5,133 11,964 2,347
-------- ------- --------
Investment tax credits, net... (1,715) (1,708) (1,429)
-------- -------- --------
Total income tax expense...... $13,798 $32,724 $27,869
======= ======= =======
The components of total income tax expense are classified as follows:
Income taxes charged to
operating expenses......... $14,060 $32,653 $27,892
Other income taxes ........... (262) 71 (23)
------- ------- -------
Total income tax expense...... $13,798 $32,724 $27,869
======= ======= =======
Deferred income taxes are comprised of the tax effects of temporary differences
as follows:
For the Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------
(Thousands of Dollars)
Depreciation, leased nuclear fuel,
settlement credits and disposal costs $9,066 $7,016 $6,852
Energy adjustment clause............. (1,549) 3,598 (2,627)
Nuclear plant deferrals.............. 2,468 (1,802) (1,778)
Bond redemptions..................... (572) 1,535 1,200
Other................................ (4,280) 1,617 (1,300)
------ ------ --------
Deferred income taxes, net........... $5,133 $11,964 $ 2,347
====== ======= =======
A reconciliation between income tax expense and the expected tax expense at the
applicable statutory rate is as follows:
For the Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------
(Thousands of Dollars)
Expected federal income tax at 35 percent
of pretaxincome for................. $18,526 $28,763 $23,962
Tax effect of differences:
Depreciation....................... 2,173 1,740 1,784
Amortization of deferred
Millstone 3 return............... 1,665 3,347 3,341
Investment tax credit amortization. (1,715) (1,708) (1,429)
State income taxes, net of
federal benefit.................. 2,577 4,144 3,494
Adjustment for prior years' taxes.. (7,702) (825) -
Other, net......................... (1,726) (2,737) (3,283)
-------- -------- -------
Total income tax expense............. $13,798 $32,724 $27,869
======= ======= =======
9. EMPLOYEE BENEFITS
A. PENSION BENEFITS
The company participates in a uniform noncontributory-defined benefit
retirement plan covering all regular system employees. Benefits are
based on years of service and employees' highest eligible compensation
during five consecutive years of employment. The company's direct
portion of the system's pension (income)/cost, part of which was
charged to utility plant, approximated $(2.7) million in 1995, $(1.0)
million in 1994, and $1.2 million in 1993. The company's pension
costs for 1994 and 1993 included approximately $0.8 million and $2.7
million, respectively, related to workforce-reduction programs.
Currently, the company funds annually an amount at least equal to that
which will satisfy the requirements of the Employee Retirement Income
Security Act and the Internal Revenue Code. Pension costs are
determined using market-related values of pension assets. Pension
assets are invested primarily in domestic and international equity
securities and bonds.
The components of net pension cost for WMECO are:
For the Years Ended December 31, 1995 1994 1993
-----------------------------------------------------------
(Thousand of Dollars)
Service cost................... $ 1,645 $ 2,720 $ 4,702
Interest cost.................. 7,757 7,655 7,527
Return on plan assets.......... (29,798) 221 (17,272)
Net amortization............... 17,669 (11,635) 6,246
------ -------- ---------
Net pension (income)/cost...... $(2,727)$ (1,039) $ 1,203
======= ======== ========
-----------------------------------------------------------
For calculating pension cost, the following assumptions were used:
For the Years Ended December 31, 1995 1994 1993
------------------------------------------------------------------
Discount rate.................. 8.25% 7.75% 8.00%
Expected long-term rate of return 8.50 8.50 8.50
Compensation/progression rate.. 5.00 4.75 5.00
The following table represents the plan's funded status reconciled to
the Balance Sheets:
At December 31, 1995 1994
-----------------------------------------------------------------
(Thousands of Dollars)
Accumulated benefit obligation,
including vested benefits at
December 31, 1995 and 1994 of
$84,943,000 and $80,159,000,
respectively................... $ 90,154 $ 85,193
======== ========
Projected benefit obligation..... $107,527 $ 99,667
Market value of plan assets...... 143,632 122,813
-------- --------
Market value in excess of projected
benefit obligation............. 36,105 23,146
Unrecognized transition amount... (2,198) (2,433)
Unrecognized prior service costs. (525) (560)
Unrecognized net gain............ (32,570) (22,068)
-------- ---------
Prepaid/(Accrued) pension liability $ 812 $ (1,915)
========== ======
The following actuarial assumptions were used in calculating the
plan's year-end funded status:
At December 31, 1995 1994
-----------------------------------------------------------------
Discount rate............................ 7.50% 8.25%
Compensation/progression rate............ 4.75 5.00
B. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company provides certain health care benefits, primarily medical
and dental, and life insurance benefits through a benefit plan to
retired employees (referred to as SFAS 106 benefits). These benefits
are available for employees retiring from the company who have met
specified service requirements. For current employees and certain
retirees, the total SFAS 106 benefit is limited to two times the 1993
per-retiree health care costs. The SFAS 106 obligation has been
calculated based on this assumption. WMECO's direct portion of health
care and life insurance costs, part of which were deferred or charged
to utility plant, approximated $4.4 million in 1995 and $5.0 million
in both 1994 and 1993.
During 1994, the company began funding SFAS 106 postretirement costs
through external trusts. The company, is funding on an annual basis,
amounts that have been rate recovered and which also are tax-
deductible under the Internal Revenue Code. The trust assets are
invested primarily in equity securities and bonds.
The components of health care and life insurance costs are:
For the Years Ended December 31, 1995 1994 1993
--------------------------------------------------------------
(Thousands of Dollars)
Service cost................... $ 490 $ 519 $ 659
Interest cost.................. 2,544 2,703 2,676
Return on plan assets.......... (718) 19 -
Amortization of unrecognized
transition obligation........ 1,641 1,641 1,703
Other amortization, net........ 473 76 -
------ ------- -------
Net health care and life
insurance costs.............. $4,430 $4,958 $5,038
====== ====== ======
------------------------------------------------------------
For calculating WMECO's SFAS 106 benefits cost, the following
assumptions were used:
For the Years Ended December 31, 1995 1994 1993
------------------------------------------------------------
Discount rate.................. 8.00% 7.75% 7.75%
Long-term rate of return -
Health assets, net of tax.... 5.00 5.00 5.00
Life assets.................. 8.50 8.50 8.50
The following table represents the plan's funded status reconciled to
the Balance Sheets:
At December 31, 1995 1994
------------------------------------------------------------
(Thousands of Dollars)
Accumulated postretirement benefit obligation of:
Retirees................................$28,787 $29,619
Fully eligible active employees......... 28 28
Active employees not eligible to retire. 5,847 4,823
------- -------
Total accumulated postretirement
benefit obligation..................... 34,662 34,470
======= =======
Market value of plan assets.............. 5,339 2,026
-------- -------
Accumulated postretirement benefit
obligation in excess of plan assets... (29,323) (32,444)
Unrecognized transition amount........... 27,901 29,542
Unrecognized net gain.................... (1,399) (477)
------- -------
Accrued postretirement benefit liability.$(2,821) $(3,379)
======= =======
The following actuarial assumptions were used in calculating the
plan's year-end funded status:
At December 31, 1995 1994
-----------------------------------------------------------------
Discount rate............................ 7.50% 8.00%
Health care cost trend rate (a).......... 8.40 10.20
(a)The annual growth in per capita cost of covered health care
benefits was assumed to decrease to 5.4 percent by 2001.
The effect of increasing the assumed health-care-cost trend rates by
one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1995 by $2.0
million and the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year then ended by
$0.2 million. The trust holding the plan assets is subject to federal
income taxes at a 35 percent tax rate.
WMECO is currently recovering SFAS 106 costs, including amounts
previously deferred.
10. COMMITMENTS AND CONTINGENCIES
A. CONSTRUCTION PROGRAM
The construction program is subject to periodic review and revision.
WMECO currently forecasts construction expenditures of approximately
$184.7 million for the years 1996-2000, including $30.4 million for
1996. In addition, the company estimates that nuclear fuel
requirements, including nuclear fuel financed through the NBFT, will
be approximately $54.9 million for the years 1996-2000, including $8.1
million for 1996. See Note 2, "Leases" for additional information
about the financing of nuclear fuel.
B. NUCLEAR PERFORMANCE
In October 1994, Millstone 2 began a planned refueling and maintenance
outage that was originally scheduled for 63 days. The outage
encountered several unexpected difficulties which extended the
duration of the outage until August 4, 1995. Total replacement power
costs attributable to the extension of the outage for WMECO were
approximately $16 million. Operation and maintenance (O&M) costs
incurred during the outage were approximately $13 million, an increase
of $5 million as a result of the outage extension. O&M costs
associated with the refueling outage are deferred and amortized
through rates for WMECO. The recovery of replacement power and O&M
costs is subject to refund pending a prudence review in Massachusetts.
Management does not believe the outcome of the prudence review will
have a material adverse impact on the company's financial position and
results of operations.
In November 1995, Millstone 1 began a planned refueling and
maintenance outage that was originally scheduled for 49 days. The
outage has encountered several unexpected difficulties which has
lengthened the duration of the outage. The impact of the outage
extension is currently under review, but the unit is not expected to
return to service until the mid to late part of the second quarter of
1996. The estimated costs attributable to this outage extension are
replacement-power costs of $1.3 million per month and O&M costs of
approximately $3.8 million. Recovery of the costs related to this
outage is subject to prudence reviews by the DPU.
On January 31, 1996, the NRC announced that the three Millstone
nuclear power plants operated by NNECO had been placed on its "watch
list" because of long-standing performance concerns. The NRC cited a
number of operational problems which have arisen since 1990 at the
Millstone plants.
The NRC recognized that there are significant current variations in
the performance of the three units. The performance concerns cited by
the NRC, combined with NU's failure to maintain previous performance
improvements, have resulted in the NRC requiring close monitoring of
Millstone unit operations and the implementation of a corrective
action program. While the NRC has not specifically restricted
operations at the Millstone site, the company expects that there will
be costs associated with the NRC's actions that cannot accurately be
estimated at this time.
C. ENVIRONMENTAL MATTERS
WMECO is subject to regulation by federal, state, and local
authorities with respect to air and water quality, handling the
disposal of toxic substances and hazardous and solid wastes, and the
handling and use of chemical products. WMECO has an active
environmental auditing and training program and believes that it is in
substantial compliance with current environmental laws and
regulations.
Environmental requirements could hinder the construction of new
generating units, transmission and distribution lines, substations,
and other facilities. The cumulative long-term cost impact of
increasingly stringent environmental requirements cannot accurately be
estimated. Changing environmental requirements could also require
extensive and costly modifications to WMECO's existing generating
units, and transmission and distribution systems, and could raise
operating costs significantly. As a result, WMECO may incur
significant additional environmental costs, greater than amounts
included in cost of removal and other reserves, in connection with the
generation and transmission of electricity and the storage,
transportation, and disposal of by-products and wastes. WMECO may
also encounter significantly increased costs to remedy the
environmental effects of prior waste handling activities.
WMECO has recorded a liability for what it believes, based upon
information currently available, are its estimated environmental
remediation costs for waste disposal sites. In most cases, additional
future environmental cleanup costs are not reasonably estimable due to
a number of factors, including the unknown magnitude of possible
contamination, the appropriate remediation methods, the possible
effects of future legislation or regulation, and the possible effects
of technological changes. At December 31, 1995, the liability
recorded by WMECO for its estimated environmental remediation costs,
excluding any possible insurance recoveries or recoveries from third
parties, amounted to approximately $1.1 million, which management has
determined to be the most probable amount within the range of $1.1
million to $2.9 million.
WMECO cannot estimate the potential liability for future claims,
including environmental remediation costs, that may be brought against
it. However, considering known facts, existing laws, and regulatory
practices, management does not believe the matters disclosed above
will have a material effect on WMECO's financial position or future
results of operations.
D. NUCLEAR INSURANCE CONTINGENCIES
Under certain circumstances, in the event of a nuclear incident at one
of the nuclear facilities covered by the federal government's third-
party liability indemnification program, the company could be assessed
in proportion to its ownership interest in each nuclear unit up to
$75.5 million not to exceed $10 million per nuclear unit in any one
year. The maximum assessment is to be adjusted at least every five
years for inflationary changes. Based on the ownership interest in
Millstone 1, 2, and 3, WMECO's maximum liability, including any
additional potential assessments, would be $39.8 million per incident.
In addition, through power purchase contracts with the three
operating Yankee regional nuclear generating companies, WMECO would be
responsible for up to an additional $11.9 million per incident.
Payments for WMECO's ownership interest in nuclear generating
facilities would be limited to a maximum of $6.5 million per incident
per year.
Insurance has been purchased to cover the primary cost of repair,
replacement, or decontamination of utility property resulting from
insured occurrences. WMECO is subject to retroactive assessments if
losses exceed the accumulated funds available to the insurer. The
maximum potential assessment against WMECO with respect to losses
arising during the current policy year is approximately $2.9 million
under the primary property insurance program.
Insurance has been purchased to cover certain extra costs incurred in
obtaining replacement power during prolonged accidental outages and
the excess cost of repair, replacement, or decontamination or
premature decommissioning of utility property resulting from insured
occurrences. WMECO is subject to retroactive assessments if losses
exceed the accumulated funds available to the insurer. The maximum
potential assessments against the system with respect to losses
arising during current policy years are approximately $2.0 million
under the replacement power policies and $7.6 million under the excess
property damage, decontamination, and decommissioning policies. The
cost of a nuclear incident could exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on a industry
basis for coverage of worker claims. All participating reactor
operators insured under this coverage are subject to retrospective
assessments of $3.0 million per reactor. The maximum potential
assessment against WMECO with respect to losses arising during the
current policy period is approximately $2.2 million.
E. LONG-TERM CONTRACTUAL ARRANGEMENTS
Yankee Companies: WMECO, along with CL&P and PSNH, purchased
approximately 6.7 percent of their electricity requirements pursuant
to long-term contracts with the Yankee companies. Under the terms of
their agreements, the companies pay their ownership (or entitlement)
shares of generating costs, which include depreciation, O&M expenses,
taxes, the estimated cost of decommissioning, and a return on invested
capital. These costs are recorded as purchased-power expense and
recovered through the companies' rates. WMECO's total cost of
purchases under these contracts for the units that are operating
amounted to $28.9 million in 1995, $28.8 million in 1994, and $30.2
million in 1993. See Note 1C, "Summary of Significant Accounting
Policies-Investments and Jointly Owned Electric Utility Plant," and
Note 3, "Nuclear Decommissioning," for more information on the
Yankee companies.
Nonutility Generators: WMECO has entered into two arrangements for
the purchase of capacity and energy from nonutility generators. These
arrangements have terms of 15 and 25 years, currently expiring in the
years 2008 and 2013, and require WMECO to purchase the energy at
specified prices or formula rates. For the twelve months ended
December 31, 1995, approximately 13 percent of system electricity
requirements was met by nonutility generators. WMECO's total cost of
purchases under these arrangements amounted to $28.6 million in 1995,
$27.5 million in 1994, and $13.6 million in 1993. These costs are
eventually recovered through the company's rates. For additional
information, see Note 1I, "Summary of Significant Accounting
Policies-Recoverable Energy Costs."
Hydro-Quebec: Along with other New England utilities, WMECO, CL&P,
PSNH, and HWP entered into agreements to support transmission and
terminal facilities to import electricity from the Hydro-Quebec system
in Canada. WMECO is obligated to pay, over a 30-year period ending in
2020, its proportionate share of the annual O&M and capital costs of
these facilities.
The estimated annual costs of the WMECO's significant long-term
contractual arrangements are as follows:
1996 1997 1998 1999 2000
------------------------------------------------------------
(Millions of Dollars)
Yankee companies..... $28.8 $27.9 $30.2 $30.7 $32.8
Nonutility generators 30.9 32.5 34.1 35.8 38.5
Hydro-Quebec......... 4.1 3.9 3.8 3.7 3.7
11. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes derivative financial instruments to manage well-
defined interest-rate risk. The company does not use them for trading
purposes.
WMECO has entered into an interest-rate cap contract with a financial
institution in order to reduce a portion of the interest-rate risk
associated with its variable-rate tax-exempt pollution control revenue
bond. During 1995, there was one outstanding contract held by WMECO,
covering $52 million of its pollution control bond, which expired in
January 1996. The contract entitled WMECO to receive from its counterparty
the amount, if any by which the interest payments on a portion of its
variable-rate tax-exempt pollution control revenue bond exceeds the J. J.
Kenny High Grade Index. Due to its upcoming expiration, as of December 31,
1995, the total fair market value of this cap was zero.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each of the following financial instruments:
Cash and nuclear decommissioning trusts: The carrying amounts approximate
fair value.
SFAS 115, Accounting for Certain Investments in Debt and Equity Securities,
requires investments in debt and equity securities to be presented at fair
value and was adopted by the company on a prospective basis as of January
1, 1994. During 1995, the investments held in the company's nuclear
decommissioning trusts increased by $4.5 million as of December 31, 1995
and decreased by approximately $0.8 million as of December 31, 1994, with a
corresponding offset to the accumulated provision for depreciation. The
$4.5 million increase in 1995 represents cumulative gross unrealized
holding gains. The cumulative gross unrealized holding losses were
immaterial for 1995. The $0.8 million decrease for 1994 represents
cumulative gross unrealized holding gains of $0.3 million, offset by
cumulative gross unrealized holding losses of $1.1 million. There was no
change in funding requirements of the trusts nor any impact on earnings as
a result of the adoption of SFAS 115.
Preferred stock and long-term debt: The fair value of WMECO's fixed-rate
securities is based upon the quoted market price for those issues or
similar issues. WMECO's adjustable rate preferred stock is assumed to have
a fair value equal to its carrying value.
The carrying amount of WMECO's financial instruments and the estimated fair
values are as follows:
Carrying Fair
At December 31, 1995 Amount Value
--------------------------------------------------------------
(Thousands of Dollars)
Preferred stock not subject to
mandatory redemption.................. $ 53,500 $ 53,700
Preferred stock subject to mandatory
redemption............................ 24,000 25,085
Long-term debt - First Mortgage Bonds... 259,500 265,280
Other long-term debt.................... 88,980 88,980
- -------------------------------------------------------------------
Carrying Fair
At December 31, 1994 Amount Value
--------------------------------------------------------------
(Thousands of Dollars)
Preferred stock not subject to
mandatory redemption.................. $ 68,500 $ 66,050
Preferred stock subject to mandatory
redemption............................ 24,675 24,675
Long-term debt - First Mortgage Bonds... 294,050 274,469
Other long-term debt.................... 87,039 87,039
The fair values shown above have been reported to meet the disclosure
requirements and do not purport to represent the amounts at which those
obligations would be settled.
To the Board of Directors
of Western Massachusetts Electric Company
We have audited the accompanying balance sheets of Western Massachusetts
Electric Company (a Massachusetts corporation and a wholly owned subsidiary of
Northeast Utilities) as of December 31, 1995 and 1994, and the related
statements of income, common stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 1995. 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 Western Massachusetts
Electric Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1A to the Financial Statements, effective January 1,
1993, Western Massachusetts Electric Company changed its method of accounting
for property taxes.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1996
WESTERN MASSACHUSETTS ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------------
This section contains management's assessment of WMECO's (the company) financial
condition and the principal factors having an impact on the results of opera-
tions. The company is a wholly owned subsidiary of Northeast Utilities (NU).
This discussion should be read in conjunction with the company's financial
statements and footnotes.
FINANCIAL CONDITION
OVERVIEW
Net income was approximately $39 million in 1995, a decrease of approximately
$10 million, from approximately $49 million in 1994. The 1995 net income was
lower as a result of higher fuel and purchased power costs and higher operation
expenses, partially offset by lower income tax expense and lower amortization of
regulatory assets due to the completion of the Millstone 3 phase-in costs.
Retail kilowatt-hour sales fell by 0.1 percent in 1995 as a result of a flat
economy in New England and mild weather in the first quarter of 1995. With the
New England economy not forecasted to grow substantially during 1996, sales
levels are expected to remain flat.
WMECO acts as both a buyer and a seller of electricity in the highly competitive
wholesale electricity market in the Northeast. Increased competition has made
the renegotiation of expiring wholesale contracts, as well as the signing of new
contracts, financially challenging. In the last few years WMECO has entered
into several smaller long-term sales contracts which will continue through
approximately the year 2005.
During 1995, the Federal Energy Regulatory Commission issued a proposal for
restructuring the electric-power industry, which calls for open access to
transmission facilities, a standard formula for calculating rates, and full
recovery of stranded investments. The impact on WMECO of this proposal, which
is expected to be finalized in 1996, is not known at this time.
During 1995, a Massachusetts Senate Committee and the Coalition of Northeastern
Governors released their reports addressing the restructuring of the electric-
power industry and its resulting impact on customers and states. Both of these
reports presented the future as one in which there would be some form of
continued regulation for transmission and distribution with fully competitive
generation.
Also in 1995, the Massachusetts Department of Public Utilities (DPU) concluded
that while increased competition is in the public interest, electric utilities
should have the opportunity to recover "net, nonmitigatable stranded costs"
during a transition period to full competition. While such a conclusion is
encouraging, there is uncertainty with regard to the final regulatory and
legislative definitions of terms such as "net, nonmitigatable" and "stranded
costs."
WMECO is taking a proactive role in the electric-power industry's movement
toward competition. In its "Customers First" plan (the plan), which was filed
with the DPU in February 1996, WMECO outlined a comprehensive approach to
enhancing customer satisfaction and market efficiency while moving toward full
competition in the electricity marketplace. The plan calls for several
significant changes in electricity pricing, the ability to introduce new
products and services, the method of rate-setting, and the operation of
the New England Power Pool. The plan also calls for the phase-in of supplier
choices through the use of pilot programs. Management believes that a fully
competitive market for electricity should begin once all issues relating to
the transition from traditional utility regulation have been thoroughly
addressed.
In addition to the formulation of this plan and ongoing meetings with
legislators, regulators and others in the industry, WMECO is moving ahead in
other areas, including revenue enhancement initiatives and cost reductions,
to better position itself for an increasingly competitive environment.
A comprehensive companywide effort, which started in 1994, to reengineer WMECO's
business and operating processes continued throughout 1995. WMECO expects that
this effort will have significant positive effects on operating costs and
customer service. Many of the organizational changes in the operating and
service functions announced in 1995 and early 1996 are consistent with the
initial recommendations of the reengineering teams. While WMECO's reengineering
efforts will be reduced in 1996, implementation costs relating to the previous
reengineering efforts are expected to increase.
With retail electric revenues accounting for approximately 90 percent of its
1995 revenues, WMECO has continued to develop a number of initiatives to retain
and serve its existing customers and to expand its retail customer base. The
most visible result of these efforts is the expansion of the Retail Marketing
organization. Retail Marketing's mission is to better understand the needs and
concerns of WMECO's retail customer and to develop innovative approaches to
addressing these issues. These initiatives include providing discounts to
certain customers for signing economic development and competitive generation-
based contracts, offering demand-side-management services, and providing
additional products and services.
WORKFORCE REDUCTIONS
In January 1996, NU completed its nuclear workforce reduction plan.
Approximately 220 positions were eliminated through a combination of early
retirements, attrition, and layoffs. The total pretax cost of the workforce
reduction to the NU system, which was recognized in 1995, was approximately $9
million.
RATE MATTERS
WMECO follows accounting principles in accordance with Statement of Financial
Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain Types
of Regulation" that allows the economic effects of rate regulation to be
reflected. Under these principles, regulators may permit incurred costs for
certain events or transactions, which would be treated as expenses by
nonregulated enterprises, to be deferred as regulatory assets and recovered in
revenues at a later date.
The creation of these regulatory assets has kept down electric rates in past
years, at the expense of having higher rates in the future. At December 31,
1995, WMECO's regulatory assets totaled approximately $161 million. The largest
regulatory assets are related to the future recovery of income taxes, nearly $88
million, and payments to the United States Department of Energy for fuel
disposal, approximately $35 million. The substantial costs of amortizing these
regulatory assets would hinder WMECO from competing effectively in an openly
competitive electric market if customers are not required to pay such costs.
Given the increasingly competitive nature of the industry and increased activity
in the regulatory environment, WMECO has made the recovery of regulatory assets
one of its central financial strategies, while balancing the customer's pricing
needs with NU's shareholder's earnings requirements. Under its proposed
settlement with the DPU (see discussion below), WMECO will be allowed to recover
a significant portion of its regulatory assets during the next five years.
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." SFAS 121, which was effective January 1, 1996, requires
assets, including regulatory assets, that are no longer probable of
recovery through future revenues be charged to earnings.
If future competition or regulatory actions cause any portion of its operations
to no longer be subject to SFAS 71, WMECO would be required to determine the
fair value of the related regulatory assets and liabilities and record any
necessary write-downs. Additionally, if events create uncertainty about the
recoverability of any of WMECO's remaining long-lived assets, a similar analysis
would be required for those assets in accordance with SFAS 121. Under its
current regulatory environment, WMECO believes that its use of SFAS 71 remains
appropriate and that the adoption of SFAS 121 will not have a material impact on
its financial position or results of operations.
See the "Notes to Financial Statements," Note 1G, for further details on
regulatory accounting.
In February 1996, WMECO and the Massachusetts Attorney General proposed a
settlement with the DPU, which, if approved, would continue the 2.4-percent rate
reduction instituted in June 1994. The reduction would remain in effect through
February 1998. Additionally, the settlement would terminate WMECO's pending
reviews of its generating plant performance, any potential reviews associated
with Millstone 2's 1994-1995 extended outage, and accelerate its recovery of
generation assets by approximately $6 million and $10 million in 1996 and 1997,
respectively. The settlement does not address the issues discussed above
related to the restructuring of the electric-power industry.
NUCLEAR PERFORMANCE
On January 31, 1996, the Nuclear Regulatory Commission (NRC) placed Millstone 1,
2, and 3 (Millstone) on its "watch list." The NRC's action was in response to
a number of performance concerns which have arisen since 1990 and a failure to
resolve employee safety concerns. The NRC's action will result in close
monitoring of programs and performance at Millstone to assure the development
and implementation of effective corrective actions.
NU's management plans to continue its extensive efforts already under way to
address these concerns. Concurrent with the NRC's action, NU provided the NRC
with the results of a comprehensive self-assessment review of the employee
concern program at Millstone. Additionally, in January 1996, NU announced a
reorganization of its nuclear operations which included the creation of a new
office of Nuclear Safety and Oversight.
Although the start-up of Millstone 1, which is currently in outage, will be
affected by its placement on the NRC's "watch list," operations at Millstone 2
and 3 have not been restricted. NU's management expects that the increased NRC
attention will inevitably have effects and costs that are not known at this
time.
In November 1995, Millstone 1 began a planned refueling and maintenance outage.
The outage has been extended to allow NU to complete reviews required by the
NRC. In response to a request by the NRC, NU is conducting a detailed review of
Millstone 1's Final Safety Analysis Report and an assessment of the plant's
readiness to ensure that the future operation of the plant will be conducted in
accordance with the terms and conditions of its operating license and the NRC's
regulations. The outage schedule is currently under review, but the unit is not
expected to return to service before the mid-to-late part of the second quarter
of 1996. Total replacement-power costs attributable to the Millstone 1 outage
extension for WMECO are expected to be approximately $1 million per month. In
addition, operation and maintenance (O&M) costs to be incurred as a result of
the extension are estimated to be approximately $4 million. Replacement-power
costs are recovered currently through rates. Nuclear outage O&M costs are
deferred and amortized through rates. The recovery, or refund, of outage costs
is subject to prudence reviews.
The composite capacity factor of the five nuclear generating units that NU
operates-including the Connecticut Yankee nuclear unit-was 69.9 percent in 1995,
compared with 67.5 percent for 1994, and a 1995 national average of 77.6
percent. The 1995 capacity factor was impacted by an extended refueling and
maintenance outage for Millstone 2.
See the "Notes to Financial Statements," Note 10B, for further information on
outage deferrals and recoveries.
ENVIRONMENTAL MATTERS
NU devotes substantial resources to identify and comply with the multitude of
environmental requirements it faces. NU has active auditing programs addressing
a variety of regulatory requirements, including an environmental auditing
program to detect and remedy noncompliance with environmental laws or
regulations.
WMECO is potentially liable for environmental cleanup costs at a number of sites
both inside and outside its service territory. To date, the future estimated
environmental remediation liability has not been material with respect to the
earnings or financial position of WMECO. At December 31, 1995, WMECO had
recorded an environmental reserve amounting to approximately $1 million, the
minimum amount required under SFAS 5, "Accounting for Contingencies." These
costs could be significantly higher if alternative remedies become necessary.
NUCLEAR DECOMMISSIONING
WMECO's estimated cost to decommission its shares of Millstone 1, 2, and 3 is
approximately $186 million in year-end 1995 dollars. These costs are being
recognized over the lives of the respective units and a portion is being
recovered through rates.
The FASB is currently reviewing the accounting for closure and removal costs,
including decommissioning and similar costs, for long-lived assets. If current
electric-power industry accounting practices for such decommissioning costs were
changed, annual provisions for decommissioning would increase and the estimated
costs for decommissioning would be recorded as a liability rather than as a
component of accumulated depreciation.
See the "Notes to Financial Statements," Note 3, for further information on
nuclear decommissioning, including WMECO's share of costs to decommission the
regional nuclear generating units.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $29 million in 1995, from
1994, primarily due to higher cash payments for energy, operation, and
maintenance costs, and lower working capital. Cash used for financing
activities was relatively flat in 1995, from 1994. Cash used for investments
decreased approximately $28 million in 1995, from 1994, primarily due to a
decrease in loans to other system companies under the NU system Money Pool,
lower construction expenditures, and lower nuclear fuel expenditures.
WMECO has entered into interest-rate-cap contracts to reduce a portion of its
interest-rate risk
See the "Notes to Financial Statements," Note 11, for further information on
derivative financial instruments and the "Notes to Financial Statements,"
Notes 6, 7 and 10A, for further information on construction and long-term debt
funding requirements.
RESULTS OF OPERATIONS
OPERATING REVENUES
The components of the change in operating revenues for the past two years are
provided in the table below.
Change In Operating Revenues
Increase/(Decrease)
1995 vs. 1994 1994 vs. 1993
- --------------------------------------------------------------------
(Millions of Dollars)
Regulatory decisions $(2) $(4)
Fuel and purchased power
cost recoveries 7 13
Sales volume (1) (2)
Other revenues (5) (1)
--- ---
Total revenue change $(1) $6
==== ==
Revenues related to regulatory decisions decreased, primarily due to the effects
of the June 1994 retail-rate reduction, partially offset by higher recoveries
for demand-side-management costs. Fuel and purchased-power cost recoveries
increased primarily due to higher energy costs, partially offset by lower
interchange revenues. Other includes higher price discounts to customers in
1995.
Operating revenues increased approximately $6 million in 1994, from 1993.
Revenues related to regulatory decisions decreased, primarily due to the effects
of the June 1994 retail-rate reduction, and lower recoveries for demand-side
management-costs, partially offset by the July 1993 retail-rate increase. Fuel
and purchased-power cost recoveries increased primarily due to higher energy
interchange revenues in 1994.
FUEL, PURCHASED AND NET INTERCHANGE POWER
Fuel, purchased and net interchange power expense increased approximately $19
million in 1995, from 1994, primarily due to a one-time benefit in May 1994 from
a rate case settlement agreement and higher energy costs in 1995 as a result of
the extended Millstone 2 outage.
The change in 1994, from 1993, was not significant.
OTHER OPERATION AND MAINTENANCE EXPENSES
Other operation and maintenance expense increased approximately $14 million in
1995, from 1994, primarily due to higher capacity charges from the regional
nuclear units primarily due to Maine Yankee which was in an extended refueling
outage throughout 1995, higher benefit costs, higher demand-side-management
costs, higher 1995 storm costs, higher costs associated with a work stoppage,
and higher outside services employed, partially offset by lower reserves for
excess/obsolete inventory in 1995, and lower maintenance costs at the company's
fossil units.
Other operation and maintenance expenses decreased approximately $10 million in
1994, from 1993, primarily due to higher costs in 1993 associated with early-
retirement programs, lower 1994 payroll and benefit costs, lower fossil-unit
costs, and lower capacity charges from the regional nuclear generating units,
partially offset by higher 1994 costs associated with the operation and
maintenance activities of the nuclear units, higher reserves for excess/obsolete
inventory at the nuclear and fossil units in 1994, and higher outside services
primarily related to companywide process reengineering.
AMORTIZATION OF REGULATORY ASSETS, NET
Amortization of regulatory assets, net decreased approximately $10 million in
1995, from 1994, primarily due to the completion of the company's amortization
of Millstone 3 phase-in costs in 1995.
The change in 1994, from 1993, was not significant.
FEDERAL AND STATE INCOME TAXES
Federal and state income taxes decreased approximately $19 million in 1995, from
1994, primarily due to tax benefits from a favorable tax ruling, the expiration
of the federal statute of limitations for 1991, and lower taxable income.
Federal and state income taxes increased approximately $5 million in 1994, from
1993, primarily due to higher taxable income.
OTHER INCOME, NET
Other income, net decreased by approximately $2 million in 1995, from 1994,
primarily because additional Millstone 3 investments were phased into rates.
The change in 1994, from 1993, was not significant.
INTEREST CHARGES
Although the change in 1995, from 1994, was not significant, interest on long-
term debt decreased approximately $2 million in 1994, from 1993, primarily due
to lower average interest rates as a result of refinancing activities and lower
1994 debt levels.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
The cumulative effect of the accounting change of approximately $4 million in
1993 represents the one-time change in the method of accounting for Connecticut
municipal property tax expense recognized in the first quarter of 1993.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
SELECTED FINANCIAL DATA (a) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
(Thousands of Dollars)
Operating Revenues........ $ 420,208 $ 421,477 $ 415,055 $ 410,720 $ 409,840
Operating Income.......... 63,064 70,940 60,348 60,563 59,833
Net Income................ 39,133 49,457 40,594(b) 37,022 34,637
Cash Dividends on
Common Stock............ 30,223 29,514 28,785 29,536 31,499
Total Assets.............. 1,142,346 1,183,618 1,204,642 1,130,684 1,119,593
Long-Term Debt*........... 347,470 379,969 393,232 392,976 401,095
Preferred Stock Not Subject
to Mandatory Redemption.... 53,500 68,500 73,500 73,500 88,500
Preferred Stock Subject to
Mandatory Redemption(c). 24,000 24,675 27,000 28,500 28,502
Obligations Under Capital
Leases(c)............... 36,011 36,797 36,902 41,509 44,134
(a) Reclassifications of prior years' data have been made to conform with the
current year's presentation.
(b) Includes the cumulative effect of change in accounting for municipal
property tax expense, which increased earnings for common shares by $3.9
million.
(c)Includes portion due within one year.
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
- --------------------------------------------------
Quarter Ended (a)
--------------------------------------------
1995 March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------
Operating Revenues........ $106,684 $100,593 $107,960 $104,971
======== ======== ======== ========
Operating Income.......... $ 18,085 $ 8,977 $ 19,799 $ 16,203
======== ======== ======== ========
Net Income................ $ 12,076 $ 3,289 $ 14,141 $ 9,627
======== ======== ======== ========
1994
- ---------------------------------------------------------------------------
Operating Revenues........ $112,984 $101,188 $102,597 $104,708
======== ======== ======== ========
Operating Income.......... $ 19,732 $ 21,466 $ 11,596 $ 18,146
======== ======== ======== ========
Net Income................ $ 13,961 $ 16,035 $ 6,395 $ 13,066
======== ======== ======== ========
(a)Reclassifications of prior period data have been made to conform with
the current presentation.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATISTICS
- -------------------------------------------------------------------------
Gross Electric Average
Utility Plant Annual
December 31, Use Per Electric
(Thousands of kWh Sales Residential Customers Employees
Dollars) (Millions) Customer (kWh) (Average) (December 31)
- -------------------------------------------------------------------------
1995 $1,285,269 4,846 7,243 193,964 527
1994 1,271,513 4,978 7,433 193,187 617
1993 1,242,927 4,715 7,351 192,542 657
1992 1,214,386 4,155 7,433 191,920 739
1991 1,199,362 3,780 7,494 191,692 797
EXHIBIT 13.4
1995 Annual Report
Public Service Company of New Hampshire
Index
Contents Page
- -------- ----
Balance Sheets.............................................. 2-3
Statements of Income........................................ 4
Statements of Cash Flows.................................... 5
Statements of Common Stockholder's Equity................... 6
Notes to Financial Statements............................... 7
Report of Independent Public Accountants.................... 25
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 26
Selected Financial Data..................................... 32
Statistics.................................................. 34
Statements of Quarterly Financial Data...................... 34
Preferred Stockholder and Bondholder Information............ Back Cover
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
At December 31, 1995 1994
- -------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $2,109,590 $2,038,625
Less: Accumulated provision for depreciation......... 513,244 474,129
----------- -----------
1,596,346 1,564,496
Unamortized acquisition costs (Note 1H)<F1H>............ 588,910 678,974
Construction work in progress........................... 15,975 17,781
Nuclear fuel, net....................................... 1,585 2,248
----------- -----------
Total net utility plant............................. 2,202,816 2,263,499
----------- -----------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 2,436 1,815
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 19,300 19,551
Other, at cost.......................................... 764 394
----------- -----------
22,500 21,760
----------- -----------
Current Assets:
Cash.................................................... 456 322
Notes receivable from affiliated companies.............. 19,100 35,000
Receivables, less accumulated provision for
uncollectible accounts of $1,582,000 in 1995
and of $2,015,000 in 1994............................. 91,535 76,173
Accounts receivable from affiliated companies........... 1,486 3,779
Accrued utility revenues................................ 33,984 36,547
Fuel, materials, and supplies, at average cost.......... 41,717 37,453
Prepayments and other................................... 11,196 20,829
----------- -----------
199,474 210,103
----------- -----------
Deferred Charges:
Regulatory assets (Note 1G)<F1G>........................ 434,001 292,531
Deferred receivable from affiliated company............. 33,284 33,284
Unamortized debt expense................................ 14,165 17,064
Other................................................... 3,396 7,726
----------- -----------
484,846 350,605
----------- -----------
Total Assets........................................ $2,909,636 $2,845,967
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
At December 31, 1995 1994
- --------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock, $1 par value--authorized
and outstanding 1,000 shares in 1995 and 1994........... $ 1 $ 1
Capital surplus, paid in................................. 422,385 421,784
Retained earnings........................................ 143,039 125,034
----------- -----------
Total common stockholder's equity............... 565,425 546,819
Cumulative preferred stock subject to mandatory
redemption--
$25 par value--authorized 25,000,000 shares;
outstanding 5,000,000 shares in 1995 and 1994...... 125,000 125,000
Long-term debt........................................... 686,485 905,985
----------- -----------
Total capitalization............................ 1,376,910 1,577,804
----------- -----------
Obligations Under Seabrook Power Contracts
and Other Capital Leases.................................. 874,292 849,776
----------- -----------
Current Liabilities:
Long-term debt--current portion.......................... 172,500 94,000
Obligations under Seabrook Power Contracts and other
capital leases--current portion......................... 40,996 38,191
Accounts payable......................................... 39,012 45,984
Accounts payable to affiliated companies................. 26,656 17,309
Accrued taxes............................................ 798 4,304
Accrued interest......................................... 9,648 10,496
Accrued pension benefits................................. 38,606 36,269
Other.................................................... 19,077 20,350
----------- -----------
347,293 266,903
----------- -----------
Deferred Credits:
Accumulated deferred income taxes (Note 1J)<F1J>......... 229,057 62,080
Accumulated deferred investment tax credits.............. 5,060 5,614
Deferred contractual obligation.......................... 18,814 28,572
Deferred revenue from affiliated company................. 33,284 33,284
Other.................................................... 24,926 21,934
----------- -----------
311,141 151,484
----------- -----------
Commitments and Contingencies (Note 10)<F10>
Total Capitalization and Liabilities............ $2,909,636 $2,845,967
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues.............................. $ 979,590 $ 922,039 $ 864,415
---------- ---------- ----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power.. 257,008 222,801 208,023
Other...................................... 313,390 303,271 301,534
Maintenance................................... 42,244 43,725 35,427
Depreciation.................................. 44,337 38,703 38,580
Amortization of regulatory assets, net........ 55,547 55,319 67,379
Federal and state income taxes (Note 8)<F8>... 69,758 68,088 54,087
Taxes other than income taxes................. 41,786 38,046 34,675
---------- ---------- ----------
Total operating expenses................ 824,070 769,953 739,705
---------- ---------- ----------
Operating Income................................ 155,520 152,086 124,710
---------- ---------- ----------
Other Income:
Equity in earnings of regional nuclear
generating companies and subsidiary company.. 1,645 2,079 1,777
Other, net.................................... 3,329 629 635
Income taxes.................................. (829) (546) 3,868
---------- ---------- ----------
Other income, net....................... 4,145 2,162 6,280
---------- ---------- ----------
Income before interest charges.......... 159,665 154,248 130,990
---------- ---------- ----------
Interest Charges:
Interest on long-term debt.................... 76,320 76,410 77,842
Other interest................................ 90 394 911
---------- ---------- ----------
Interest charges, net................... 76,410 76,804 78,753
---------- ---------- ----------
Net Income...................................... $ 83,255 $ 77,444 $ 52,237
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities:
Net Income.................................................. $ 83,255 $ 77,444 $ 52,237
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 44,337 38,703 38,580
Deferred income taxes and investment tax credits, net..... 69,986 67,047 50,027
Recoverable energy costs, net of amortization............. (15,266) (81,206) (39,654)
Amortization of acquisition costs......................... 55,547 55,319 67,379
Other sources of cash..................................... 15,973 3,213 30,001
Other uses of cash........................................ - (4,456) (4,394)
Changes in working capital:
Receivables and accrued utility revenues.................. (10,506) (3,205) (3,161)
Fuel, materials, and supplies............................. (4,264) 3,734 3,936
Accounts payable.......................................... 2,375 18,598 (2,894)
Accrued taxes............................................. (3,506) 4,182 (1,602)
Other working capital (excludes cash)..................... 16 742 (2,224)
----------- ----------- -----------
Net cash flows from operating activities...................... 237,947 180,115 188,231
----------- ----------- -----------
Financing Activities:
Issuance of long-term debt.................................. - - 44,800
Net decrease in short-term debt............................. - (2,500) (41,000)
Reacquisitions and retirements of long-term debt............ (141,000) (94,000) (138,800)
Cash dividends on preferred stock........................... (13,250) (13,250) (13,250)
Cash dividends on common stock.............................. (52,000) - -
----------- ----------- -----------
Net cash flows used for financing activities.................. (206,250) (109,750) (148,250)
----------- ----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (46,672) (39,721) (35,360)
Nuclear fuel.............................................. (184) (1,249) (614)
----------- ----------- -----------
Net cash flows used for investments in plant................ (46,856) (40,970) (35,974)
NU System Money Pool........................................ 15,900 (35,000) -
Other investment activities, net............................ (607) (68) (340)
----------- ----------- -----------
Net cash flows used for investments........................... (31,563) (76,038) (36,314)
----------- ----------- -----------
Net Increase (Decrease) in Cash For The Period................ 134 (5,673) 3,667
Cash - beginning of period.................................... 322 5,995 2,328
----------- ----------- -----------
Cash - end of period.......................................... $ 456 $ 322 $ 5,995
=========== =========== ===========
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest, net of amounts capitalized........................ $ 74,543 $ 74,507 $ 75,609
=========== =========== ===========
Income taxes................................................ $ 1,369 $ 167 $ 2,390
=========== =========== ===========
Increase in obligations:
Seabrook Power Contracts and other capital leases........... $ 28,028 $ 53,266 $ 89,492
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Capital
Common Surplus, Retained
Stock Paid In Earnings Total
- ---------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Balance at January 1, 1993............... $ 1 $420,762 $ 21,853 $442,616
Net income for 1993.................. 52,237 52,237
Cash dividends on preferred stock.... (13,250) (13,250)
Capital stock expenses, net.......... 483 483
-------- --------- --------- ---------
Balance at December 31, 1993............. 1 421,245 60,840 482,086
Net income for 1994.................. 77,444 77,444
Cash dividends on preferred stock.... (13,250) (13,250)
Capital stock expenses, net.......... 539 539
-------- --------- --------- ---------
Balance at December 31, 1994............. 1 421,784 125,034 546,819
Net income for 1995.................. 83,255 83,255
Cash dividends on preferred stock.... (13,250) (13,250)
Cash dividends on common stock....... (52,000) (52,000)
Capital stock expenses, net.......... 601 601
-------- --------- --------- ---------
Balance at December 31, 1995............. $ 1 $422,385 $143,039 $565,425
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Public Service Company of New Hampshire
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRESENTATION
Public Service Company of New Hampshire (PSNH or the company), The
Connecticut Light and Power Company (CL&P), Western Massachusetts
Electric Company (WMECO), North Atlantic Energy Corporation (NAEC), and
Holyoke Water Power Company (HWP) are the operating subsidiaries
comprising the Northeast Utilities (NU) system (the system) and are
wholly owned by NU.
The system furnishes retail electric service in Connecticut, New
Hampshire, and western Massachusetts through CL&P, PSNH, WMECO, and HWP.
A fifth subsidiary, NAEC, sells all of its capacity to PSNH. In
addition to its retail 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.
Other wholly owned subsidiaries of NU provide substantial support
services to the system. Northeast Utilities Service Company (NUSCO)
supplies centralized accounting, administrative, data processing,
engineering, financial, legal, operational, planning, purchasing, and
other services to the system companies. North Atlantic Energy Service
Corporation acts as agent for CL&P and NAEC in operating the Seabrook 1
nuclear facility. Northeast Nuclear Energy Company (NNECO) acts as
agent for the system companies in operating the Millstone nuclear
generating facilities.
All transactions among affiliated companies are on a recovery of cost
basis which may include amounts representing a return on equity, and are
subject to approval by various federal and state regulatory agencies.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent 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.
Certain reclassifications of prior years' data have been made to conform
with the current year's presentation.
B. FUTURE ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) 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, in
March 1995. SFAS 121 became effective January 1, 1996, and establishes
accounting standards for evaluating and recording asset impairment.
SFAS 121 requires the evaluation of long-lived assets for impairment
when certain events occur or conditions exist that indicate the carrying
amounts of assets may not be recoverable. Refer to Note 1G, "Regulatory
Accounting," for further information on the regulatory impacts of the
company's adoption of SFAS 121.
C. INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
Regional Nuclear Generating Companies: PSNH owns common stock of four
regional nuclear generating companies (Yankee companies). The Yankee
companies, with PSNH's ownership interests, are:
Connecticut Yankee Atomic Power Company (CY) ........ 5.0%
Yankee Atomic Electric Company (YAEC) ............... 7.0
Maine Yankee Atomic Power Company (MY) .............. 5.0
Vermont Yankee Nuclear Power Corporation (VY) ....... 4.0
PSNH's investments in the Yankee companies are accounted for on the
equity basis due to the company's ability to exercise significant
influence over their operating and financial policies. The electricity
produced by the facilities that are operating is committed substantially
on the basis of ownership interests and is billed pursuant to
contractual agreements. Under ownership agreements with the Yankee
companies, PSNH may be asked to provide direct or indirect financial
support for one or more of the companies. For more information on these
agreements, see Note 10E, "Commitments and Contingencies - Long-term
Contractual Arrangements."
YAEC's nuclear power plant was shut down permanently on February 26,
1992. For more information on the Yankee companies, see Note 4,
"Nuclear Decommissioning."
Millstone 3: PSNH has a 2.85 percent joint-ownership interest in
Millstone 3, a 1,154-megawatt (MW) nuclear generating unit. As of
December 31, 1995 and 1994, plant-in-service included approximately
$118.6 million and $118.3 million, respectively, and the accumulated
provision for depreciation included approximately $26.5 million and
$24.2 million, respectively, for PSNH's share of Millstone 3. PSNH's
share of Millstone 3 expenses is included in the corresponding operating
expenses on the accompanying Statements of Income.
Wyman Unit 4: PSNH has a 3.14 percent ownership-interest in Wyman
Unit 4 (Wyman), a 632-MW oil-fired generating unit. At December 31,
1995 and 1994, plant-in-service included approximately $6.0 million and
the accumulated provision for depreciation included approximately $3.5
million and $3.3 million, respectively, for PSNH's share of Wyman.
PSNH's share of Wyman expenses is included in the corresponding
operating expenses on the accompanying Statements of Income.
D. DEPRECIATION
The provision for depreciation is calculated using the straight-line
method based on estimated remaining lives of depreciable utility
plant-in-service, adjusted for salvage value and removal costs, as
approved by the New Hampshire Public Utilities Commission (NHPUC).
Except for major facilities, depreciation factors are applied to the
average plant-in-service during the period. Major facilities are
depreciated from the time they are placed in service. When plant is
retired from service, the original cost of plant, including costs of
removal, less salvage, is charged to the accumulated provision for
depreciation. The depreciation rates for the several classes of
electric plant-in-service are equivalent to a composite rate of 3.8
percent for the year ended December 31, 1995 and 3.6 percent for the
years ended December 31, 1994 and 1993. See Note 4, "Nuclear
Decommissioning," for information on nuclear plant decommissioning.
E. PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as a
holding company under the Public Utility Holding Company Act of 1935
(1935 Act), and it and its subsidiaries, including the company, are
subject to the provisions of the 1935 Act. Arrangements among the
system companies, outside agencies, and other utilities covering inter-
connections, interchange of electric power, and sales of utility
property are subject to regulation by the Federal Energy Regulatory
Commission (FERC) and/or the SEC. The company is subject to further
regulation for rates, accounting, and other matters by the FERC and/or
the NHPUC.
F. REVENUES
Other than recovery under fixed-rate agreements negotiated with certain
wholesale, industrial, and commercial customers, utility revenues are
based on authorized rates applied to each customer's use of electricity.
In general, rates can be changed only through a formal proceeding
before the appropriate regulatory commission. At the end of each
accounting period, PSNH accrues an estimate for the amount of energy
delivered but unbilled.
G. REGULATORY ACCOUNTING
The accounting policies of PSNH and the accompanying financial
statements conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of the
ratemaking process in accordance with SFAS 71, Accounting for the
Effects of Certain Types of Regulation. Assuming a cost-of-service based
regulatory structure, regulators may permit incurred costs, normally
treated as expenses, to be deferred and recovered in future revenues.
Through their actions, regulators may also reduce or eliminate the value
of an asset, or create a liability. If any portion of the company's
operations were no longer subject to the provisions of SFAS 71, as a
result of a change in the cost-of-service based regulatory structure or
the effects of competition, the company would be required to write off
related regulatory assets and liabilities. The company would also be
required to determine any impairment to other assets and write down
these assets to fair value. Based on current regulation and recent
regulatory decisions and initiatives relating to competition in the
system's markets, the company believes that its use of regulatory
accounting remains appropriate.
SFAS 121 requires that any assets, including regulatory assets, which
are no longer probable of recovery through future revenues, be revalued
based on estimated future cash flows. If the revaluation is less than
the book value of the asset, an impairment loss would be charged to
earnings. As noted above, based on the current regulatory environment
in the company's service area, it is not expected that SFAS 121 will
have material impact on the company's financial position or results of
operations upon adoption. 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 on the company's
regulatory environment, refer to Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A).
The components of regulatory assets are as follows:
At December 31, 1995 1994
---------------------------------------------------------------
(Thousands of Dollars)
Recoverable energy costs (Note 1I) ... $220,093 $194,994
Income taxes, net (Note 1J) .......... 192,690 66,466
Unrecovered contractual obligation (Note 4) 18,814 28,572
Other ................................ 2,404 2,499
---------- ----------
$434,001 $292,531
======== ========
H. UNAMORTIZED ACQUISITION COSTS
The unamortized acquisition costs represent the aggregate value placed
by the 1989 rate agreement with the state of New Hampshire (Rate
Agreement) on PSNH's assets in excess of the net book value of PSNH's
non-Seabrook assets plus the $700-million value assigned to Seabrook by
the Rate Agreement, as part of the bankruptcy resolution, on June 5,
1992 (Acquisition Date). The Rate Agreement provides for the recovery,
through rates, with a return, of the amortization of the unamortized
acquisition costs. The Rate Agreement provides that $425 million of the
unamortized acquisition costs be amortized over the first seven years
after PSNH's May 16, 1991 reorganization from bankruptcy (Reorganization
Date), with the remaining amount to be amortized over the 20-year period
after the Reorganization Date. As of December 31, 1995, approximately
$411.8 million of acquisition costs have been collected through rates.
I. RECOVERABLE ENERGY COSTS
Under the Energy Policy Act of 1992 (Energy Act), PSNH is assessed for
its proportionate share of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (D&D assessment). The Energy Act requires that
regulators treat D&D assessments as a reasonable and necessary current
cost of fuel, to be fully recovered in rates, like any other fuel cost.
PSNH is currently recovering these costs through rates.
The Rate Agreement includes a comprehensive fuel and purchased power
adjustment clause (FPPAC) permitting PSNH to pass through to retail
customers, for a ten-year period, the retail portion of differences
between the fuel and purchased power costs assumed in the Rate Agreement
and PSNH's actual costs, which include the costs related to the Seabrook
Power Contracts and the Clean Air Act Amendment. The cost components of
the FPPAC are subject to a prudence review by the NHPUC.
The costs associated with purchases from certain nonutility generators
(NUGs) over the level assumed in the Rate Agreement are deferred and
recovered through the FPPAC. PSNH has been renegotiating the rate
orders mandating the purchase of high-cost NUG power. The NHPUC has
approved an amendment to the Rate Agreement allowing settlement
agreements to be implemented with two wood-fired NUGs. In 1994, the two
NUGs that were settled gave up their rights to sell their output to PSNH
in exchange for lump-sum cash payments totaling approximately $40
million. The deferred buyout payments are included as part of PSNH's
recoverable energy costs. During the Rate Agreement's fixed-rate
period, all of the savings from the buyout will be used to reduce PSNH's
recoverable energy costs. At the end of the fixed-rate period, 50
percent of the savings will be used to reduce the recoverable energy
costs, with the remainder reducing current rates. PSNH has also reached
tentative agreements with the six remaining wood-fired NUGs. These
agreements are subject to NHPUC approval.
At December 31, 1995, PSNH's net recoverable energy costs were
approximately $220 million, including purchased power deferrals of
$185.6 million and the NUGs deferred buyout payments of $34.2 million.
J. INCOME TAXES
The tax effect of temporary differences (differences between the periods
in which transactions affect income in the financial statements and the
periods in which they affect the determination of income subject to tax)
is accounted for in accordance with the ratemaking treatment of the
applicable regulatory commissions. The adoption of SFAS 109, Accounting
for Income Taxes, in 1993 increased the company's deferred tax asset for
net operating losses (NOLs) previously not recognized. As the potential
benefit is being given to customers through rates, PSNH established an
associated regulatory liability. The adoption of SFAS 109 also
increased deferred tax liabilities and as it is probable that the
increase in deferred tax liabilities will be recovered from customers
through rates, PSNH established a regulatory asset.
The tax effect of temporary differences, including timing differences
accrued under previously approved accounting standards, which give rise
to the accumulated deferred tax obligation is as follows:
<TABLE>
<CAPTION>
At December 31, 1995 1994
--------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Accelerated depreciation and other plant-related differences... $ 231,126 $ 81,732
NOL carryforwards ............................................ (191,873) (247,440)
Regulatory assets - income tax gross up ...................... 85,192 33,837
Other ........................................................ 104,612 193,951
---------- ----------
$ 229,057 $ 62,080
========= ==========
</TABLE>
At December 31, 1995, PSNH had a NOL carryforward of approximately $572
million, to be used against PSNH's federal taxable income, and to expire
between the years 2000 and 2006. PSNH also had Investment Tax Credit
(ITC) carryforwards of $52 million, which expire between the years 1996
and 2004. For a portion of the carryforward amounts indicated above,
the reorganization of PSNH under Chapter 11 of the United States
Bankruptcy Code limits the annual amount of NOL and ITC carryforwards
that may be used. Approximately $95 million of the NOL and $21 million
of the ITC carryforwards are subject to this limitation.
K. DERIVATIVE FINANCIAL INSTRUMENTS
PSNH utilizes an interest-rate cap to manage well-defined interest-rate
risk. The premium paid for the purchased interest-rate-cap agreement is
amortized to interest expense over the term of the cap. Unamortized
premiums are included in deferred charges. Amounts receivable under the
cap agreement are accrued and offset against interest expense. Any
material unrealized gains or losses on the interest-rate cap will be
deferred until realized. For further information on derivatives, see
Note 11, "Derivative Financial Instruments."
2. SEABROOK POWER CONTRACTS
PSNH and NAEC have entered into two power contracts that obligate PSNH to
purchase NAEC's 35.98 percent ownership of the capacity and output of
Seabrook for the term of Seabrook's Nuclear Regulatory Commission (NRC)
operating license. Under these power contracts, PSNH is obligated to pay
NAEC's cost of service during this period, regardless of whether Seabrook 1
is operating. NAEC's cost of service includes all of its Seabrook-related
costs, including operation and maintenance (O&M) expenses, fuel expense,
income and property tax expense, depreciation expense, and certain overhead
and other costs, and a return on its allowed investment.
PSNH has included its right to buy power from NAEC on its Balance Sheets as
part of utility plant with a corresponding obligation. At December 31,
1995, this right was valued at approximately $910.8 million.
The contracts established the value of the initial investment in Seabrook
(initial investment) at $700 million. As of December 31, 1995, the portion
of the initial investment on which NAEC is entitled to earn a cash return
was 85 percent. The initial investment will be fully phased into NAEC's
rate base as of May 1, 1996. From the Acquisition Date through December 31,
1995, NAEC recorded $162.4 million of deferred return on the excluded
portion of its investment in Seabrook 1. The deferred return on the
excluded portion of NAEC's investment in Seabrook 1 will be recovered from
PSNH with carrying charges beginning December 1, 1997, and will be fully
recovered by May 2001. NAEC is depreciating its initial investment over the
term of Seabrook 1's operating license (39 years), and any subsequent plant
additions are depreciated on a straight-line basis over the remaining term
of the power contracts at the time the subsequent additions are placed in
service.
If Seabrook 1 is shut down prior to the expiration of the NRC operating
license, PSNH will be unconditionally required to pay NAEC termination costs
for 39 years, less the period during which Seabrook 1 has operated. These
termination costs will reimburse NAEC for its share of Seabrook 1 shut-down
and decommissioning costs, and will pay NAEC a return of and on any
undepreciated balance of its initial investment over the remaining term of
the power contracts, and the return of and on any capital additions to the
plant made after the Acquisition Date over a period of five years after shut
down (net of any tax benefits to NAEC attributable the cancellation).
Contract payments charged to operating expenses are approximately:
Year Contract Payments
---- -----------------
(Thousands of Dollars)
1995 ....................... $154,000
1994 ....................... 143,000
1993 ....................... 123,000
Interest included in the contract payments was $51 million in 1995, $43
million in 1994, and $33 million in 1993.
Future minimum payments, excluding executory costs, such as property taxes,
state use taxes, insurance, and maintenance, under the terms of the
contracts, as of December 31, 1995, are approximately:
Year Seabrook Power Contracts
---- ------------------------
(Thousands of Dollars)
1996 ........................ $ 79,900
1997 ........................ 86,000
1998 ........................ 143,800
1999 ........................ 142,100
2000 ........................ 140,300
After 2000 .................. 1,195,800
----------
Future minimum payments ..... 1,787,900
Less amount representing interest 877,100
-----------
Present value of Seabrook Power
Contracts ................. $ 910,800
===========
3. LEASES
PSNH has entered into lease agreements, some of which are capital leases,
for the use of data processing and office equipment, vehicles, and office
space. The provisions of these lease agreements generally provide for
renewal options. The following rental payments have been charged to
operating expense:
Year Capital Leases Operating Leases
---- -------------- ----------------
1995 ........................ $1,103,000 $5,291,000
1994 ........................ 1,061,000 4,255,000
1993 ........................ 701,000 6,197,000
Interest included in capital leases was $351,000 in 1995, $394,000 in 1994,
and $403,000 in 1993.
Future minimum rental payments, excluding executory costs, such as property
taxes, state use taxes, insurance, and maintenance, under long-term
noncancellable leases, as of December 31, 1995, are:
Year Capital Leases Operating Leases
---- -------------- ----------------
(Thousands of Dollars)
1996 ........................ $1,100 $7,200
1997 ........................ 1,100 6,100
1998 ........................ 1,000 4,800
1999 ........................ 700 4,100
2000 ........................ 500 3,600
After 2000 .................. 1,200 11,500
------- --------
Future minimum lease payments $5,600 $37,300
=======
Less amount representing interest 1,100
-----
Present value of future minimum lease
payments .................. $4,500
======
4. NUCLEAR DECOMMISSIONING
Millstone 3 and Seabrook 1 have service lives that are expected to end
during the years 2025 and 2026, respectively. Upon retirement, these units
must be decommissioned. A 1992 decommissioning study concluded that
complete and immediate dismantlement at retirement continues to be the most
viable and economic method of decommissioning Millstone 3. A 1994 Seabrook
decommissioning study confirmed that complete and immediate dismantlement at
retirement is the most viable and economic method of decommissioning
Seabrook 1. Decommissioning studies are reviewed and updated periodically
to reflect changes in decommissioning requirements, costs, technology, and
inflation.
The estimated cost of decommissioning PSNH's 2.85 percent ownership share of
Millstone 3 and NAEC's 35.98 percent share of Seabrook 1, in year-end 1995
dollars, is $12.5 million and $152.5 million, respectively. These estimated
costs assume levelized collections for Millstone 3 and escalated collections
for Seabrook 1, and after-tax earnings on the Millstone and Seabrook
decommissioning funds of 6.5 percent and 6.1 percent, respectively.
Millstone 3 and Seabrook 1 decommissioning costs will be increased annually
by their respective escalation rates. PSNH's Millstone 3 decommissioning
costs are accrued over the expected service life of the unit and are
included in depreciation expense on its Statements of Income. Nuclear
decommissioning related to PSNH's share of Millstone 3 amounted to $0.3
million in 1995, 1994, and 1993. Nuclear decommissioning, as a cost of
removal, is included in the accumulated provision for depreciation on PSNH's
Balance Sheets. At December 31, 1995, the balance in the accumulated
reserve for decommissioning amounted to $2.4 million. See "Nuclear
Decommissioning" in the MD&A for a discussion of changes being considered by
the FASB related to accounting for closure and removal of long-lived assets
(including nuclear decommissioning).
PSNH makes payments to an independent decommissioning trust for its portion
of the costs of decommissioning Millstone 3. Under the terms of the Rate
Agreement, PSNH is obligated to pay NAEC's share of Seabrook 1's
decommissioning costs, even if the unit is shut down prior to the expiration
of its operating license. Accordingly, NAEC bills PSNH directly for its
share of the costs of decommissioning Seabrook 1. PSNH records its Seabrook
decommissioning costs as a component of purchased power expense on its
Statements of Income. Under the Rate Agreement, PSNH's Seabrook
decommissioning costs are recovered through base rates.
As of December 31, 1995, PSNH collected through rates approximately $1.8
million toward the future decommissioning costs of its share of Millstone 3,
which has been transferred to the external decommissioning trust. Earnings
on the decommissioning trust increase the decommissioning trust balance and
the accumulated reserve for decommissioning. Unrealized gains and losses
associated with the decommissioning trust also impact the balance of the
trust and the accumulated reserve for decommissioning.
As of December 31, 1995, NAEC (including payments made prior to the
Acquisition Date by PSNH) has paid approximately $13.1 million, into
Seabrook 1's decommissioning financing fund.
Changes in requirements or technology, the timing of funding or dismantling,
or adoption of a decommissioning method other than immediate dismantlement
would change decommissioning cost estimates and the amounts required to be
recovered. PSNH attempts to recover sufficient amounts through its allowed
rates to cover its expected decommissioning costs. Only the portion of
currently estimated total decommissioning costs that has been accepted by
regulatory agencies is reflected in rates of PSNH. Based on present
estimates and assuming its nuclear units operate to the end of their
licensing period, PSNH expects that the decommissioning trust and financing
fund will be substantially funded when the units are retired from service.
PSNH, along with other New England utilities, has equity investments in the
four Yankee companies. Each Yankee company owns a single nuclear generating
unit with service lives that are expected to end during the years 2007
through 2012. PSNH's ownership share of estimated costs, in year-end 1995
dollars, of decommissioning the units owned and operated by CY, MY, and VY
is $19.3 million, $17.7 million, and $13.9 million, respectively. Under the
terms of the contracts with the Yankee companies, the shareholders-sponsors
are responsible for their proportionate share of the operating costs of each
unit, including decommissioning. The nuclear decommissioning costs of the
Yankee companies are included as part of the cost of power purchased by
PSNH.
YAEC is in the process of dismantling its nuclear facility. Accelerated
decommissioning of that unit has been delayed because of litigation over the
NRC's approval of YAEC's decommissioning plan. Effective November 1995,
YAEC began billing its sponsors, including PSNH, amounts based on a revised
estimate approved by the FERC that assumes decommissioning of the plant by
the year 2000. This revised decommissioning estimate was based on access to
the Barnwell, South Carolina low-level radioactive waste facility, changes
in assumptions about earnings in decommissioning trust investments, and
changes in other decommissioning cost assumptions. At December 31, 1995,
the estimated remaining costs, including decommissioning, amounted to $268.8
million, of which PSNH's share was approximately $18.8 million. Management
expects that PSNH will continue to be allowed to recover such FERC-approved
costs from its customers. Accordingly, PSNH has recognized these costs as a
regulatory asset, with corresponding obligations, on its Balance Sheets.
5. SHORT-TERM DEBT
PSNH has credit lines totaling $125 million available through a revolving-
credit agreement with a group of 19 banks. PSNH may borrow funds on a
short-term revolving basis using either fixed-rate or standby loans. Fixed
rates are set using competitive bidding. Standby loan rates are based upon
several alternative variable rates. PSNH is obligated to pay a facility fee
of 0.25 percent per annum on the total commitment. At December 31, 1995 and
1994, there were no borrowings under the agreement. These credit lines will
expire in May 1996. PSNH is in the process of negotiating an increase and
extension to the revolving credit agreement.
Certain subsidiaries of NU, including PSNH, are members of the Northeast
Utilities System Money Pool (Pool). The Pool provides a more efficient use
of the cash resources of the system, and reduces outside short-term
borrowings. NUSCO administers the Pool as agent for the member companies.
Short-term borrowing needs of the member companies are first met with
available funds of other member companies, including funds borrowed by NU
parent. NU parent may lend to the Pool but may not borrow. Funds may be
withdrawn from or repaid to the Pool at any time without prior notice.
Investing and borrowing subsidiaries receive or pay interest based on the
average daily Federal Funds rate. However, borrowings based on loans from
NU parent bear interest at NU parent's cost and must be repaid based upon
the terms of NU parent's original borrowing. At December 31, 1995 and 1994,
PSNH had no outstanding borrowings from the Pool.
Maturities of PSNH's short-term debt obligations were for periods of three
months or less.
The amount of short-term borrowings that may be incurred by PSNH is subject
to periodic approval by the SEC under the 1935 Act. Under the SEC
restrictions, PSNH was authorized, as of January 1, 1995 to incur short-term
borrowings up to a maximum of $175 million. PSNH is seeking approval from
the NHPUC to increase its short-term debt limit to $225 million.
6. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock subject to mandatory redemption are:
Shares Outstanding December 31,
----------------------------
Description December 31, 1995 1995 1994 1993
------------------------------------------------------------------------
(Thousands of Dollars)
10.60% Series A of 1991 5,000,000 $125,000 $125,000 $125,000
======== ======== ========
In case of default on dividends or sinking-fund payments, no payments may be
made on any junior stock by way of dividends or otherwise (other than in
shares of junior stock) so long as the default continues. If PSNH is in
arrears in the payment of dividends on any outstanding shares of preferred
stock, PSNH would be prohibited from redemption or purchase of less than all
of the preferred stock outstanding. The Series A Preferred Stock is not
subject to optional redemption by PSNH. It is subject to an annual sinking
fund requirement of $25 million, beginning on June 30, 1997, sufficient to
retire annually 1,000,000 shares at $25 per share.
7. LONG-TERM DEBT
Details of long-term debt outstanding are:
December 31,
------------
1995 1994
-----------------------------------------------------------------------
(Thousands of Dollars)
First Mortgage Bonds:
8 7/8% Series A, due 1996............ $172,500 $172,500
9.17% Series B, due 1998............ 170,000 170,000
-------- ---------
Total First Mortgage Bonds.... 342,500 342,500
Term Loan/Notes:
Variable Rate due 1996 .............. - 141,000
Pollution Control Revenue Bonds:
7.65% Tax-Exempt Series A, due 2021. 66,000 66,000
7.50% Tax-Exempt Series B, due 2021. 108,985 108,985
7.65% Tax-Exempt Series C, due 2021. 112,500 112,500
Adjustable Rate, Taxable, Series D, due 2021 39,500 39,500
Adjustable Rate, Taxable, Series E, due 2021 69,700 69,700
Adjustable Rate, Tax-Exempt, Series D, due 2021 75,000 75,000
Adjustable Rate, Tax-Exempt, Series E, due 2021 44,800 44,800
Less: Amounts due within one year .. 172,500 94,000
---------- ---------
Long-term debt, net ....... $686,485 $905,985
======== ========
Long-term debt maturities and cash sinking-fund requirements on debt
outstanding at December 31, 1995 for the years 1996 through 2000 are
approximately $172.5 million for 1996, $0 for 1997, $170 million for 1998,
and $0 for 1999 and 2000. Also, there are annual renewal and replacement
fund requirements equal to 2.25 percent of the average of net depreciable
property owned by PSNH at the reorganization date, plus cumulative gross
property additions thereafter. PSNH expects to meet these future fund
requirements by certifying property additions. Any deficiency would need to
be satisfied by the deposit of cash or bonds.
Essentially, all utility plant of PSNH is subject to the lien of its first
mortgage bond indenture. PSNH's Revolving Credit Facility is secured by a
second lien, junior to the lien of its first mortgage bond indenture, on all
PSNH property located in New Hampshire. At December 31, 1995 and 1994,
there were no borrowings under the Revolving Credit Facility.
Concurrent with the issuance of PSNH's Series A and B First Mortgage Bonds,
PSNH entered into financing arrangements with the Industrial Development
Authority of the state of New Hampshire (IDA). Pursuant to these
arrangements, the IDA originally issued seven series of Pollution Control
Revenue Bonds (PCRBs), and loaned the proceeds to PSNH. In 1992 and 1993,
the Business Finance Authority, formerly the IDA, issued $75 million and
$44.8 million, respectively, of tax-exempt PCRBs to replace outstanding
taxable PCRBs of the same amount. At December 31, 1995 and 1994, $516.5
million of PCRBs were outstanding. The average effective interest rates on
the variable-rate pollution control notes ranged from 3.9 percent to 6.1
percent for 1995, and 2.9 percent to 4.3 percent for 1994. PSNH's
obligation to repay each series of PCRBs is secured by a series of First
Mortgage Bonds that were issued under its indenture. Each such series of
First Mortgage Bonds contains terms and provisions with respect to maturity,
principal payment, interest rate, and redemption that correspond to those of
the applicable series of PCRBs. For financial reporting purposes, these
bonds would not be considered outstanding unless PSNH fails to meet its
obligations under the PCRBs.
The Series A and B First Mortgage Bonds are not redeemable prior to their
maturity except in limited circumstances. The PCRBs, except for Series D
and E, are redeemable on or after May 1, 2001, at the option of the company
with accrued interest and at specified premiums. Under current interest
rate elections by PSNH, the Series D and E PCRBs are redeemable, at par plus
accrued interest at the end of each interest-rate period. Future interest-
rate elections by PSNH could significantly defer or eliminate the
availability of optional redemptions by PSNH, and could affect costs as
well.
8. INCOME TAX EXPENSE
The components of federal and state income tax provisions are:
For the Years Ended December 31, 1995 1994 1993
-------------------------------------------------------------------------
(Thousands of Dollars)
Current income taxes:
Federal ............................ $(1,166) $ 368 $ (937)
State .............................. 1,767 1,219 1,183
------- -------- --------
Total current .................... 601 1,587 246
------- -------- --------
Deferred income taxes, net:
Federal ............................ 72,147 63,941 47,407
State .............................. (1,606) 3,666 3,131
------- -------- --------
Total deferred .................. 70,541 67,607 50,538
Investment tax credits, net .......... (555) (560) (565)
--------- --------- ---------
Total income tax expense ............. $70,587 $68,634 $50,219
======= ======= =======
The components of total income tax expense are classified as follows:
Income taxes charged to operating expenses $69,758 $68,088 $54,087
Other income taxes ................... 829 546 (3,868)
-------- -------- --------
Total income tax expense ............. $70,587 $68,634 $50,219
======= ======= =======
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
For the Years Ended December 31, 1995 1994 1993
--------------------------------------------------------------------------
(Thousands of Dollars)
Depreciation ......................... $ 1,294 $ 2,701 $ 4,549
Deferred tax asset associated with NOL 57,543 23,611 25,438
Energy adjustment clauses ............ 5,098 30,954 15,155
Amortization of regulatory settlement 11,501 11,501 7,667
Other ................................ (4,895) (1,160) (2,271)
-------- -------- --------
Deferred income taxes, net ........... $70,541 $67,607 $50,538
======= ======= =======
A reconciliation between income tax expense and the expected tax expense at
the applicable statutory rate is as follows:
For the Years Ended December 31, 1995 1994 1993
--------------------------------------------------------------------------
(Thousands of Dollars)
Expected federal income tax at 35 percent
of pretax income ................... $53,845 $51,127 $35,860
Tax effect of differences:
Depreciation ....................... 1,868 1,407 1,593
Amortization of acquisition costs .. 31,522 31,508 31,432
Seabrook intercompany loss ......... (13,048) (19,637) (19,176)
Investment tax credit amortization . (555) (560) (565)
State income taxes, net of federal benefit 105 3,175 2,804
Other, net ......................... (3,150) 1,614 (1,729)
-------- -------- --------
Total income tax expense ............. $70,587 $68,634 $50,219
======= ======= =======
9. EMPLOYEE BENEFITS
A. PENSION BENEFITS
PSNH participates in a uniform noncontributory-defined benefit
retirement plan covering all regular system employees. Benefits are
based on years of service and employees' highest eligible compensation
during five consecutive years of employment. The company's direct
portion of the system's pension cost, part of which was charged to
utility plant, approximated $2.3 million in 1995, $4.4 million in 1994,
and $6.6 million in 1993. Pension costs for 1994 and 1993 included
approximately $1.9 million and $3.4 million, respectively, related to
workforce-reduction programs.
Currently, PSNH funds annually an amount at least equal to that which
will satisfy the requirements of the Employee Retirement Income Security
Act and the Internal Revenue Code. Pension costs are determined using
market-related values of pension assets. Pension assets are invested
primarily in domestic and international equity securities and bonds.
The components of net pension cost for PSNH are:
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
---------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Service cost ...................... $ 3,462 $ 5,531 $ 7,539
Interest cost ..................... 11,923 11,129 11,180
Return on plan assets ............. (33,156) 246 (19,308)
Net amortization .................. 20,108 (12,526) 7,215
-------- -------- ---------
Net pension cost .................. $ 2,337 $ 4,380 $ 6,626
======== ======== ========
---------------------------------------------------------------
</TABLE>
For calculating pension cost, the following assumptions were used:
For the Years Ended December 31, 1995 1994 1993
-------------------------------------------------------------------
Discount rate ..................... 8.25% 7.75% 8.00%
Expected long-term rate of return . 8.50 8.50 8.50
Compensation/progression rate ..... 5.00 4.75 5.00
The following table represents the plan's funded status reconciled to the
Balance Sheets:
At December 31, 1995 1994
-----------------------------------------------------------------------
(Thousands of Dollars)
Accumulated benefit obligation, including vested
benefits at December 31, 1995 and 1994 of
$123,475,000 and $111,198,000, respectively $133,840 $121,202
======== ========
Projected benefit obligation (PBO) .... $169,040 $146,972
Market value of plan assets ........... 159,094 136,104
-------- --------
PBO in excess of plan assets .......... (9,946) (10,868)
Unrecognized transition amount ........ 4,671 5,004
Unrecognized prior service costs ...... 5,428 5,775
Unrecognized net gain ................. (38,759) (36,180)
--------- ---------
Accrued pension liability ............. $(38,606) $(36,269)
======== ========
-------------------------------------------------------------------------
The following actuarial assumptions were used in calculating the plan's
year-end funded status:
For the Years Ended December 31, 1995 1994
---------------------------------------------------------------
Discount rate ......................... 7.50% 8.25%
Compensation/progression rate ......... 4.75 5.00
B. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
PSNH provides certain health care benefits, primarily medical and
dental, and life insurance benefits through a benefit plan to retired
employees (referred to as SFAS 106 benefits). These benefits are
available for employees retiring from the company who have met specified
service requirements. For current employees and certain retirees, the
total SFAS 106 benefit is limited to two times the 1993 per-retiree
health care costs. The SFAS 106 obligation has been calculated based on
this assumption. PSNH's direct portion of SFAS 106 benefits, part of
which were deferred or charged to utility plant, approximated $7.2
million in 1995, $7.6 million in 1994, and $9.1 million in 1993.
PSNH is funding SFAS 106 postretirement costs through external trusts.
The company is funding, on an annual basis, amounts that have been rate-
recovered and which also are tax-deductible under the Internal Revenue
Code. The trust assets are invested primarily in equity securities and
bonds.
The components of health care and life insurance costs are:
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993
---------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Service cost .................. $ 933 $ 971 $1,260
Interest cost ................. 4,063 3,844 4,800
Return on plan assets ......... (1,694) 37 -
Amortization of unrecognized transition
obligation .................. 2,941 2,941 3,046
Other amortization, net ....... 998 (206) -
------- -------- ---------
Net health care and life insurance costs $7,241 $7,587 $9,106
====== ====== ======
---------------------------------------------------------------
</TABLE>
For calculating PSNH's SFAS 106 benefits cost, the following assumptions
were used:
For the Years Ended December 31, 1995 1994 1993
------------------------------------------------------------------
Discount rate ................. 8.00% 7.75% 7.75%
Long-term rate of return:
Health assets, net of tax .. 5.00 5.00 5.00
Life assets ................ 8.50 8.50 8.50
The following table represents the plan's funded status reconciled to the
Balance Sheet:
At December 31, 1995 1994
-------------------------------------------------------------------------
(Thousands of Dollars)
Accumulated postretirement benefit obligation of:
Retirees ................... $ 44,985 $ 39,881
Fully eligible active employees 27 52
Active employees not eligible to retire 10,627 9,065
-------- ----------
Total accumulated postretirement benefit obligation 55,639 48,998
Market value of plan assets ... 11,743 6,606
--------- ----------
Accumulated postretirement benefit obligation
in excess of plan assets .............. (43,896) (42,392)
Unrecognized transition amount 49,989 52,930
Unrecognized net gain ........ (8,373) (13,204)
-------- --------
Accrued postretirement benefit liability $ (2,280) $ (2,666)
========= ========
------------------------------------------------------------------------
The following actuarial assumptions were used in calculating the plan's
year-end funded status:
At December 31, 1995 1994
--------------------------------------------------------------------
Discount rate ......................... 7.50% 8.00%
Health care cost trend rate (a) ....... 8.40 10.20
(a) The annual growth in per capita cost of covered health care
benefits was assumed to decrease to 5.4 percent by 2001.
The effect of increasing the assumed health-care-cost trend rate by one
percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1995 by $3.7
million and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year then ended by $0.3
million. The trust holding the plan assets is subject to federal income
taxes at a 35 percent tax rate.
PSNH is currently recovering SFAS 106 costs, including amounts
previously deferred.
10. COMMITMENTS AND CONTINGENCIES
A. CONSTRUCTION PROGRAM
The construction program is subject to periodic review and revision.
PSNH currently forecasts construction expenditures of $200.9 million for
the years 1996-2000, including $51.5 million for 1996. In addition, the
company estimates that nuclear fuel requirements, for its share of
Millstone 3, will be $4.8 million for the years 1996-2000, including
$1.8 million for 1996.
B. NUCLEAR PERFORMANCE
On January 31, 1996, the NRC announced that the three Millstone nuclear
power plants operated by NNECO had been placed on its "watch list"
because of long-standing performance concerns. The NRC cited a number
of operational problems which have arisen since 1990 at the Millstone
plants.
The NRC recognized that there are significant current variations in the
performance of the three units. The performance concerns cited by the
NRC, combined with NU's failure to maintain previous performance
improvements, have resulted in the NRC requiring close monitoring of
Millstone unit operations and the implementation of a corrective action
program. While the NRC has not specifically restricted operations at
the Millstone site, the company expects that there will be costs
associated with the NRC's actions that cannot accurately be estimated at
this time.
C. ENVIRONMENTAL MATTERS
PSNH is subject to regulation by federal, state, and local authorities
with respect to air and water quality, handling the disposal of toxic
substances and hazardous and solid wastes, and the handling and use of
chemical products. PSNH has an active environmental auditing and
training program and believes that it is in substantial compliance with
current environmental laws and regulations.
Environmental requirements could hinder the construction of new
generating units, transmission and distribution lines, substations, and
other facilities. The cumulative long-term, cost impact of increasingly
stringent environmental requirements cannot accurately be estimated.
Changing environmental requirements could also require extensive and
costly modifications to PSNH's existing generating units, and
transmission and distribution systems, and could raise operating costs
significantly. As a result, PSNH may incur significant additional
environmental costs, greater than amounts included in cost of removal
and other reserves, in connection with the generation and transmission
of electricity and the storage, transportation, and disposal of by-
products and wastes. PSNH may also encounter significantly increased
costs to remedy the environmental effects of prior waste handling
activities.
PSNH has recorded a liability for what it believes, based upon
information currently available, are its estimated environmental
remediation costs for waste disposal sites. In most cases, additional
future environmental cleanup costs are not reasonably estimable due to a
number of factors, including the unknown magnitude of possible
contamination, the appropriate remediation methods, the possible effects
of future legislation or regulation, and the possible effects of
technological changes. At December 31, 1995, the liability recorded by
PSNH for its estimated environmental remediation costs, excluding any
possible insurance recoveries or recoveries from third parties, amounted
to approximately $5.0 million.
PSNH cannot estimate the potential liability for future claims,
including environmental remediation costs, that may be brought against
it. However, considering known facts, existing laws, and regulatory
practices, management does not believe the matters disclosed above will
have a material effect on PSNH's financial position or future results of
operations.
D. NUCLEAR INSURANCE CONTINGENCIES
Under certain circumstances, in the event of a nuclear incident at one
of the nuclear facilities covered by the federal government's third-
party liability indemnification program, the company could be assessed
in proportion to its ownership interest in each nuclear unit up to $75.5
million, not to exceed $10 million per nuclear unit in any one year.
The maximum assessment is to be adjusted at least every five years for
inflationary changes. Under the terms of the power contracts with NAEC,
PSNH could be obligated to pay for any assessment charged to NAEC as a
"cost of service." Based on the ownership interest in Millstone 3 and
NAEC's ownership interest in Seabrook 1, PSNH's maximum liability,
including any additional potential assessments, would be $30.8 million
per incident. In addition, through power purchase contracts with the
three operating Yankee regional nuclear generating companies, PSNH would
be responsible for up to an additional $11.1 million per incident.
Payments for PSNH's ownership interest in nuclear generating facilities
would be limited to a maximum of $5.3 million per incident per year.
Insurance has been purchased to cover the primary cost of repair,
replacement, or decontamination of utility property resulting from
insured occurrences at Millstone 3. PSNH is subject to retroactive
assessments if losses exceed the accumulated funds available to the
insurer. The maximum potential assessment against PSNH with respect to
losses arising during the current policy year is approximately $0.5
million under the primary property insurance program.
Insurance has been purchased to cover certain extra costs incurred in
obtaining replacement power during prolonged accidental outages and the
excess cost of repair, replacement, or decontamination or premature
decommissioning of utility property resulting from insured occurrences.
PSNH is subject to retroactive assessments if losses exceed the
accumulated funds available to the insurer. The maximum potential
assessments against PSNH (including costs resulting from PSNH's
contracts with NAEC), with respect to losses arising during current
policy years are approximately $1.6 million under the replacement power
policies and $11.1 million under the excess property damage,
decontamination, and decommissioning policies. Although PSNH has
purchased the limits of coverage currently available from the
conventional nuclear insurance pools, the cost of a nuclear incident
could exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on an industry
basis for coverage of worker claims. All participating reactor
operators insured under this coverage are subject to retrospective
assessments of $3.0 million per reactor. The maximum potential
assessment against PSNH (including costs resulting from the Seabrook
power contracts with NAEC), with respect to losses arising during the
current policy period is approximately $1.8 million.
E. LONG-TERM CONTRACTUAL ARRANGEMENTS
Yankee Companies: PSNH, along with CL&P and WMECO, purchased
approximately 6.7 percent of their electricity requirements pursuant to
long-term contracts with the Yankee companies. Under the terms of their
agreements, the companies pay their ownership (or entitlement) shares of
generating costs, which include depreciation, O&M expenses, taxes, the
estimated cost of decommissioning, and a return on invested capital.
These costs are recorded as purchased-power expense and recovered
through the companies' rates. PSNH's total cost of purchases under
these contracts for the units that are operating amounted to $26.4
million in 1995, $23.4 million in 1994, and $26.5 million in 1993. See
Note 1C, "Summary of Significant Accounting Policies-Investments and
Jointly Owned Electric Utility Plant," and Note 4, "Nuclear
Decommissioning," for more information on the Yankee companies.
Nonutility Generators: PSNH has entered into various arrangements for
the purchase of capacity and energy from NUGs. These arrangements have
terms from 20 to 30 years, currently expiring in the years 1998 through
2023, and require PSNH to purchase the energy at specified prices or
formula rates. For the 12 months ended December 31, 1995, approximately
13 percent of system electricity requirements was met by NUGs. PSNH's
total cost of purchases under these arrangements amounted to $129.6
million in 1995, $130.0 million in 1994, and $133.4 million in 1993.
These costs are eventually recovered through the company's rates. For
additional information, see Note 1I, "Summary of Significant Accounting
Policies-Recoverable Energy Costs."
New Hampshire Electric Cooperative: PSNH entered into a buy-back
agreement to purchase the capacity and energy of the New Hampshire
Electric Cooperative, Inc.'s (NHEC) share of Seabrook 1 and to pay all
of NHEC's Seabrook 1 costs for a ten-year period, which began July 1,
1990. The total cost of purchases under this agreement was $15.8
million in 1995, $14.6 million in 1994, and $14.4 million in 1993. A
portion of these costs is collected currently through the FPPAC and the
remaining costs are deferred for future collection in accordance with
the Rate Agreement. In connection with the agreement, NHEC agreed to
continue as a firm-requirements customer of PSNH for 15 years.
Hydro-Quebec: Along with other New England utilities, PSNH, CL&P,
WMECO, and HWP entered into agreements to support transmission and
terminal facilities to import electricity from the Hydro-Quebec system
in Canada. PSNH is obligated to pay, over a 30-year period ending in
2020, its proportionate share of the annual O&M and capital costs of
these facilities.
The estimated annual costs of PSNH's significant long-term contractual
arrangements are as follows:
1996 1997 1998 1999 2000
--------------------------------------------------------------------
(Millions of Dollars)
Yankee Companies $25.4 $25.8 $27.7 $27.6 $29.6
Nonutility Generators 130.3 134.5 137.9 141.4 145.4
NHEC .......... 14.6 22.5 29.5 29.7 14.6
Hydro-Quebec .. 11.2 10.6 10.3 10.0 9.9
F. DEFERRED RECEIVABLE FROM AFFILIATED COMPANY
At the time PSNH emerged from bankruptcy on May 16, 1991, in accordance
with the phase-in under the Rate Agreement, it began accruing a deferred
return on a portion of its Seabrook investment. From May 16, 1991 to the
Acquisition Date, PSNH accrued a deferred return of $50.9 million. On
the Acquisition Date, PSNH sold the $50.9 million deferred return to
NAEC as part of the Seabrook-related assets.
At the time PSNH transferred the deferred return to NAEC, it realized,
for income tax purposes, a gain that is deferred under the consolidated
income tax rules. This gain will be restored for income tax purposes
when the deferred return of $50.9 million, and the associated income
taxes of $32.9 million, are collected by NAEC through the Seabrook power
contracts. When NAEC recovers the $32.9 million in years eight through
ten of the Rate Agreement, it is obligated to make corresponding
payments to PSNH.
On the Acquisition Date, PSNH recorded the $32.9 million of income taxes
associated with the deferred return as a deferred receivable from NAEC,
with a corresponding entry to deferred revenue, on its Balance Sheet.
In 1993, due to changes in tax rates, this amount was adjusted to $33.3
million.
11. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes derivative financial instruments to manage well-defined
interest-rate risks. The company does not use them for trading purposes.
PSNH has entered into an interest-rate cap contract with a financial
institution in order to reduce a portion of the interest-rate risk
associated with certain variable-rate tax-exempt pollution control revenue
bonds, as well as a portion of the PSNH Variable-Rate Term Loan. During
1995, there was one outstanding contract held by PSNH, covering $75 million
of its variable rate debt, which expired in January 1996. The contract
entitled PSNH to receive from its counterparties the amount, if any, by
which the interest payments on its variable-rate tax-exempt pollution
control revenue bond exceeds the J. J. Kenny High Grade Index and the PSNH
Variable-Rate Term Loan exceeds the three-month LIBOR rate. Due to its
upcoming expiration, as of December 31, 1995, the total fair market value of
this cap was $0.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each of the following financial instruments:
Cash and nuclear decommissioning trusts: The carrying amounts approximate
fair value.
SFAS 115, Accounting for Certain Investments in Debt and Equity Securities,
requires investments in debt and equity securities to be presented at fair
value and was adopted by PSNH on a prospective basis as of January 1, 1994.
Unrealized gains and losses resulting from the adoption of SFAS 115 have
not been material. There was no change in funding requirements of the
trusts nor any impact on earnings as a result of the adoption of SFAS 115.
Preferred stock and long-term debt: The fair value of PSNH's securities is
based upon the quoted market price for those issues or similar issues.
Adjustable rate securities are assumed to have a fair value equal to their
carrying value.
The carrying amounts of PSNH's financial instruments and the estimated fair
values are as follows:
Carrying Fair
At December 31, 1995 Amount Value
------------------------------------------------------------------------
(Thousands of Dollars)
Preferred stock subject to mandatory redemption $125,000 $131,250
Long-term debt - First Mortgage Bonds .... 342,500 352,517
Other long-term debt ..................... 516,485 532,190
------------------------------------------------------------------------
Carrying Fair
At December 31, 1994 Amount Value
------------------------------------------------------------------------
(Thousands of Dollars)
Preferred stock subject to mandatory redemption $125,000 $127,500
Long-term debt - First Mortgage Bonds .... 342,500 342,931
Other long-term debt ..................... 657,485 641,673
The fair values shown above have been reported to meet the disclosure
requirements and do not purport to represent the amounts at which those
obligations would be settled.
To the Board of Directors
of Public Service Company of New Hampshire:
We have audited the accompanying balance sheets of Public Service Company
of New Hampshire (a New Hampshire corporation and a wholly owned subsidiary of
Northeast Utilities) as of December 31, 1995 and 1994, and the related
statements of income, common stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 1995. 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 Public Service Company of
New Hampshire as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1996
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------------
This section contains management's assessment of PSNH'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 the company's
financial statements and footnotes.
FINANCIAL CONDITION
OVERVIEW
Net income was approximately $83 million in 1995, an increase of approximately
$6 million, from approximately $77 million in 1994. The 1995 net income was
higher primarily due to higher revenues from the sixth step of PSNH's Rate
Agreement and higher base fuel recoveries, partially offset by higher capacity
charges under the Seabrook Power Contract, higher purchased power, and higher
income taxes.
Retail kilowatt-hour sales rose by only 0.4 percent in 1995 as a result of a
flat economy in New England. With the New England economy not forecasted to
grow substantially during 1996, sales levels are expected to remain flat.
PSNH acts as both a buyer and a seller of electricity in the highly competitive
wholesale electricity market in the Northeast. Increased competition has made
the renegotiation of expiring wholesale contracts, as well as the signing of new
contracts, financially challenging.
During 1995, the Federal Energy Regulatory Commission issued a proposal for
restructuring the electric-power industry which calls for open access to
transmission facilities, a standard formula for calculating rates, and full
recovery of stranded investments. The impact on PSNH of this proposal, which is
expected to be finalized in 1996, is not known at this time.
During 1995, the Coalition of Northeastern Governors released its report
addressing the restructuring of the electric-power industry and its resulting
impact on customers and states. The report presented the future as one in which
there would be some form of continued regulation for transmission and
distribution with fully competitive generation.
In 1995, the New Hampshire Legislature created a committee to review the
industry's structure and called for the New Hampshire Public Utilities
Commission (NHPUC) to initiate a retail wheeling pilot program. Under the
current NHPUC proposal, the program, which is expected to begin in 1996, will
initially impact 3 percent of PSNH's peak retail electric load, but only allows
for a 50-percent recovery of PSNH's potentially strandable costs. PSNH and the
NHPUC Staff have entered into a joint recommendation that, if approved by the
NHPUC, would govern PSNH's participation in the retail wheeling pilot program.
Under this settlement, PSNH would provide competing electric suppliers access to
3 percent of its retail customers. PSNH would recover 100 percent of its
potentially strandable costs via a delivery charge, but would provide a 10-
percent incentive credit off its traditional rates to encourage customer
participation in the two-year program.
PSNH is taking a proactive role in the electric-power industry's movement toward
competition. PSNH has outlined a comprehensive approach to enhancing customer
satisfaction and market efficiency while moving toward full competition in the
electricity marketplace. The approach calls for several significant changes in
electricity pricing, the ability to introduce new products and services, the
method of rate-setting, and the operation of the New England Power Pool. The
plan also calls for the phase-in of supplier choices through the use of pilot
programs. Management believes that a fully competitive market for electricity
should begin once all issues relating to the transition from traditional utility
regulation have been thoroughly addressed.
In addition to the formulation of this approach and ongoing meetings with
legislators, regulators, and others in the industry, PSNH is moving ahead in
other areas, including revenue enhancement initiatives, and cost reductions, to
better position itself for an increasingly competitive environment.
A comprehensive companywide effort, which started in 1994, to reengineer PSNH's
business and operating processes continued throughout 1995. PSNH expects that
this effort will have significant positive effects on operating costs and
customer service. Many of the organizational changes in the operating and
service functions announced in 1995 and early 1996 are consistent with the
initial recommendations of the reengineering teams. While PSNH's reengineering
efforts will be reduced in 1996, implementation costs relating to the previous
reengineering efforts are expected to increase.
With retail electric revenues accounting for approximately 80 percent of its
1995 revenues, PSNH has continued to develop a number of initiatives to retain
and serve its existing customers and to expand its retail customer base. The
most visible result of these efforts is the expansion of the Retail Marketing
organization. Retail Marketing's mission is to better understand the needs and
concerns of PSNH's retail customer and to develop innovative approaches to
addressing these issues. These initiatives include providing discounts to
certain customers for signing economic development and competitive generation-
based contracts, offering demand-side-management services, and providing
additional products and services.
WORKFORCE REDUCTIONS
In January 1996, NU completed its nuclear workforce reduction plan.
Approximately 220 positions were eliminated through a combination of early
retirements, attrition and layoffs. The total pretax cost of the workforce
reduction, to the NU system, which was recognized in 1995, was approximately $9
million.
RATE MATTERS
PSNH follows accounting principles in accordance with Statement of Financial
Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain Types
of Regulation" that allows the economic effects of rate regulation to be
reflected. Under these principles, regulators may permit incurred costs for
certain events or transactions, which would be treated as expenses by
nonregulated enterprises, to be deferred as regulatory assets and recovered in
revenues at a later date.
The creation of these regulatory assets has kept down electric rates in past
years, at the expense of having higher rates in the future. At December 31,
1995, PSNH's regulatory assets totaled approximately $430 million. The largest
regulatory assets are related to the future recovery of energy cots,
approximately $220 million, and income taxes, approximately $193 million. The
substantial costs of amortizing these regulatory assets would hinder PSNH from
competing effectively in an openly competitive electric market if customers are
not required to pay such costs. Given the increasingly competitive nature of
the industry and increased activity in the regulatory environment, PSNH has made
the recovery of regulatory assets one of its central financial strategies, while
balancing the customer's pricing needs with NU's shareholder's earnings
requirements. Under its existing rate agreement, PSNH is allowed to recover a
significant portion of its regulatory assets during the next five years.
However, maintaining the present recovery level is dependent upon the outcome of
negotiations between PSNH and the NHPUC when its current rate agreement expires.
As the expiration of PSNH's current rate agreement approaches, negotiations will
be held between PSNH and the NHPUC to determine whether, or to what extent,
rates should be adjusted going forward. PSNH's strategy during these
negotiations will be to maintain stable rates, applying any available earnings
that may result to reduce the balance of its regulatory assets. Management is
unable to predict the ultimate outcome of these negotiations, which will be
subject to NHPUC approval.
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." SFAS 121, which was effective January 1, 1996, requires
assets, including regulatory assets, that are no longer probable of recovery
through future revenues be charged to earnings.
If future competition or regulatory actions cause any portion of its operations
to no longer be subject to SFAS 71, PSNH would be required to determine the fair
value of the related regulatory assets and liabilities and record any necessary
write-downs. Additionally, if events create uncertainty about the
recoverability of any of PSNH'S remaining long-lived assets, a similar analysis
would be required for those assets in accordance with SFAS 121. Under its
current regulatory environment, PSNH believes that its use of SFAS 71 remains
appropriate and that the adoption of SFAS 121 will not have a material impact on
its financial position or results of operations.
See the "Notes to Financial Statements," Note 1G, for further details on
regulatory accounting.
In June 1995, PSNH's base rates increased by 5.5 percent under the sixth step of
a seven-year 1989 rate agreement approved by the NHPUC.
In November 1995, the NHPUC authorized a PSNH request to reduce its Fuel and
Purchased Power Adjustment Clause (FPPAC) rate, which took effect on December 1,
1995, and will continue through May 31, 1996. The decision reduced PSNH's
overall rates by approximately 2.6 percent.
In 1995, PSNH completed installation of equipment to comply with the Clean Air
Act Amendments of 1990. The capitalized cost of the installation was
approximately $25 million, and will cause PSNH to spend approximately $4 million
annually for additional operation and maintenance costs. In April 1995, the
NHPUC began proceedings to determine whether these costs are recoverable from
customers. The NHPUC is allowing PSNH to recover these costs through the FPPAC,
subject to refund, pending a final decision.
The costs associated with purchases by PSNH from certain nonutility generators
(NUGs) over the level assumed in rates are deferred for recovery over ten-year
periods through the FPPAC. PSNH is attempting to renegotiate these arrangements
with the NUGs. At December 31, 1995, the unrecovered deferral was approximately
$192 million, including buyout payments of approximately $34 million for two of
PSNH's eight wood-fired NUGs. By December 31, 1995, PSNH had reached
agreements with the owners of the remaining six wood-fired NUGs. If
consummated, these agreements could result in net savings of approximately $430
million to PSNH's customers over a period of 20 years following guaranteed
payments of approximately $250 million. Management will reevaluate whether to
proceed with these agreements if the NHPUC fails to provide for full recovery of
stranded costs.
NUCLEAR PERFORMANCE
On January 31, 1996, the Nuclear Regulatory Commission (NRC) placed Millstone 1,
2, and 3 (Millstone) on its "watch list." The NRC's action was in response to
a number of performance concerns which have arisen since 1990 and a failure to
resolve employee safety concerns. The NRC's action will result in close
monitoring of programs and performance at Millstone to assure the development
and implementation of effective corrective actions.
NU's management plans to continue its extensive efforts already underway to
address these concerns. Concurrent with the NRC's action, NU provided the NRC
with the results of a comprehensive self-assessment review of the employee
concern program at Millstone. Additionally, in January 1996, NU announced a
reorganization of its nuclear operations which included the creation of a new
office of Nuclear Safety and Oversight.
Operations at Millstone 3 have not been restricted by its placement on the
"watch list". NU's management expects that the increased NRC attention will
inevitably have effects and costs that are not known at this time.
The Seabrook plant operated at 83.2 percent of capacity for the year ended
December 31, 1995, compared with 61.6 percent in 1994 and a 1995 national
average of 77.6 percent. The higher 1995 capacity factor was primarily the
result of unplanned and extended outages in 1994 compared to only a 37.5-day
planned refueling and maintenance outage in 1995, the unit's shortest to date.
ENVIRONMENTAL MATTERS
NU devotes substantial resources to identify and comply with the multitude of
environmental requirements it faces. NU has active auditing programs addressing
a variety of regulatory requirements, including an environmental auditing
program to detect and remedy noncompliance with environmental laws or
regulations.
PSNH is potentially liable for environmental cleanup costs at a number of sites
both inside and outside its service territory. To date, the future estimated
environmental remediation liability has not been material with respect to the
earnings or financial position of PSNH. At December 31, 1995, the company had
recorded an environmental reserve amounting to approximately $5 million, as
required under SFAS 5, ``ccounting for Contingencies.'' These costs could be
significantly higher if alternative remedies become necessary.
NUCLEAR DECOMMISSIONING
PSNH's estimated cost to decommission its 2.85 percent share of Millstone 3 and
NAEC's 35.98 percent share of Seabrook 1 is approximately $13 million and $153
million, respectively, in year-end 1995 dollars. These costs are being
recognized over the lives of the respective units and a portion is being
recovered through rates. Under the terms of the Rate Agreement, the company is
obligated to pay NAEC's share of Seabrook's decommissioning costs, even if the
unit is shut down prior to the expiration of its operating license.
The FASB is currently reviewing the accounting for closure and removal costs,
including decommissioning and similar costs, for long-lived assets. If current
electric-power industry accounting practices for such decommissioning costs were
changed, annual provisions for decommissioning would increase and the estimated
costs for decommissioning would be recorded as a liability rather than as a
component of accumulated depreciation.
See the "Notes to Financial Statements," Note 4, for further information on
nuclear decommissioning, including PSNH's share of costs to decommission the
regional nuclear generating units .
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations increased approximately $58 million in 1995, from
1994, primarily due to the 1994 payments to the NUGs. Cash used for financing
activities increased approximately $97 million in 1995, from 1994, primarily due
to the repayment of the Term Loan and the payment of its first common stock
dividends in 1995. Cash used for investments decreased approximately $44 million
in 1995, from 1994, primarily due to an increase in short-term loans to other NU
system companies under the NU system Money Pool.
The company has a more leveraged capital structure than most other investor-
owned public utilities and is required to make substantial interest payments.
The company's indebtedness under the Revolving Credit Facility, and some of the
company's pollution control revenue bonds bear interest at floating rates to be
set periodically, causing the company to be sensitive to fluctuating interest
rates.
PSNH has entered into an interest-rate-cap contract to reduce a portion of its
interest-rate risk.
In October 1995, Moody's Investors Service lowered its rating for PSNH and NAEC
securities, bringing the rating for PSNH's First Mortgage Bonds below investment
grade. Standard & Poor's had previously downgraded PSNH to below investment
grade. NAEC securities had not been previously rated at investment grade. These
downgrades could adversely affect the future availability and cost of funds for
these companies.
PSNH may be required to issue a significant amount of new debt in 1996, since it
must fund the maturity of its $172.5 million first mortgage bond issue at the
same time that it may need to finance more than $100 million for payments to its
wood-fired NUG's.
See the "Notes to Financial Statements," Note 7, for further information on
derivative financial instruments and Notes 6, 7, and 10A, for information on
construction and long-term debt funding requirements.
RESULTS OF OPERATIONS
OPERATING REVENUES
The components of the change in operating revenues for the past two years are
provided in the table below.
Change In Operating Revenues
Increase/(Decrease)
1995 vs. 1994 1994 vs. 1993
- ----------------------------------------------------------------------
(Millions of Dollars)
Regulatory decisions $20 $20
Fuel, purchased power
and FPPAC cost recoveries 49 32
Sales volume (11) 6
--- ---
Total revenue change $58 $58
=== ===
Revenues related to regulatory decisions increased, primarily due to the effects
of the June 1995 and 1994 retail-rate increases. Fuel, purchased-power and FPPAC
cost recoveries increased primarily due to higher fuel and purchased-power
costs. Sales volume decreased as a result of price discounts, milder weather,
and lower wholesale sales.
Operating revenues increased approximately $58 million in 1994, from 1993.
Revenues related to regulatory decisions increased primarily, due to the effects
of the June 1994 and 1993 retail-rate increases. Fuel, purchased-power and
FPPAC cost recoveries increased, primarily due to higher fuel and purchased-
power costs. Sales volume increased as a result of higher retail sales from an
improved economy and colder winter weather. Retail sales increased 2.0 percent
in 1994 from 1993 sales levels.
FUEL, PURCHASED AND NET INTERCHANGE POWER
Fuel, purchased and net interchange power expense increased approximately $34
million in 1995, from 1994, primarily due to the timing in the recognition of
fuel expenses under the FPPAC.
Fuel, purchased and net interchange power increased approximately $15 million in
1994, from 1993, primarily due to an increase in purchased power.
OTHER OPERATION AND MAINTENANCE EXPENSES
Other operation and maintenance expenses increased by approximately $9 million
in 1995, from 1994, primarily due to higher capacity charges under the Seabrook
Power Contracts due to the 1995 refueling and maintenance outage at the Seabrook
nuclear plant in 1995.
Other operation and maintenance expenses increased by approximately $10 million
in 1994, from 1993, primarily due to maintenance work during the two outages at
the Seabrook nuclear plant in 1994 and higher storm-related expenses in 1994,
partially offset by lower 1994 payroll and benefit costs and the cost of an
employee-reduction program in 1993.
See the "Notes to Financial Statements," Note 2, for further information on the
Seabrook Power Contracts.
DEPRECIATION EXPENSES
Depreciation expenses increased by $6 million in 1995, from 1994, primarily due
to the additional depreciation allowed from the savings from burning gas at
Newington Station and an increase in plant additions.
The change in depreciation expense in 1994, from 1993, was not significant.
AMORTIZATION OF REGULATORY ASSETS, NET
Although the change in 1995, from 1994, was not significant, amortization of
regulatory assets net, decreased approximately $12 million in 1994, from 1993,
primarily due to the higher amortization in 1994 of the regulatory liability
recognized under a global settlement approved at the end of 1993. Approximately
$128 million of pre-acquisition losses are being amortized over six years as a
credit to amortization expense. 1994 included a full year of amortization as
compared to only eight months of amortization in 1993.
FEDERAL AND STATE INCOME TAXES
Federal and state income taxes increased approximately $2 million in 1995, from
1994, primarily due to higher taxable income.
Federal and state income taxes increased approximately $18 million in 1994, from
1993, primarily due to higher taxable income.
<TABLE>
<CAPTION>
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
SELECTED FINANCIAL DATA
======================================================================================
Jan. 1, 1995 Jan. 1, 1994 Jan. 1, 1993 June 5, 1992(a)
to to to to
For the Periods Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
- ---------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues... $ 979,590 $ 922,039 $ 864,415 $ 492,559
Operating Income..... 155,520 152,086 124,710 61,206
Net Income (Loss).... 83,255 77,444 52,237 29,398
At Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
- --------------------------------------------------------------------------------------
Total Assets......... $2,909,636 $2,845,967 $2,774,511 $2,793,768
Long-Term Debt (c)... 858,985 999,985 1,093,985 1,187,985
Liabilities Subject to
Settlement(c)...... - - - -
Preferred Stock Subject to
Mandatory Redemption(c) 125,000 125,000 125,000 125,000
Preferred Stock Not Subject to
Mandatory Redemption - - - -
Obligations Under Seabrook
Power Contract and Other
Capital Lease(c)... 915,288 887,967 856,559 787,826
(a) PSNH was acquired by NU on June 5, 1992.
(b) PSNH was reorganized on May 16, 1991.
(c) Includes portions due within one year.
</TABLE>
SELECTED FINANCIAL DATA
- -------------------------------------------------------
Jan. 1, 1992 May 16, 1991(b) January 1, 1991
to to to
June 4, 1992 Dec. 31, 1991 May 15, 1991
- -------------------------------------------------------
(Thousands of Dollars)
$ 381,769 $ 539,827 $ 246,281
34,250 82,755 21,616
12,778 52,694 (100,791)
June 4, 1992 Dec. 31, 1991 May 15, 1991**
- -------------------------------------------------------
(Thousands of Dollars)
$2,693,414 $2,636,525 $2,502,237
1,488,985 1,515,985 -
- - 1,901,803
125,000 125,000 -
- - -
- - -
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATISTICS
- ------------------------------------------------------------------------------
Gross Electric Average
Utility Plant Annual
December 31, Use Per Electric
(Thousands of kWh Sales Residential Customers Employees
Dollars)(a) (Millions) Customer (kWh) (Average) (December 31)
- ------------------------------------------------------------------------------
1995 $2,716,060 11,001 6,576 406,077 1,325
1994 2,737,628 11,008 6,768 400,775 1,374
1993 2,760,228 11,146 6,817 397,277 1,426
1992(b) 2,763,075 12,294 6,874 394,046 1,680
1991 2,647,866 11,377 7,184 390,793 2,639
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
- -----------------------------------------------------------------------------
Quarter Ended (c)
-------------------------------------------------
1995 March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------
Operating Revenues.......... $252,337 $232,849 $249,626 $244,778
======== ======== ======== ========
Operating Income............ $ 41,858 $ 31,480 $ 40,333 $ 41,849
========= ========= ========= =========
Net Income (Loss)........... $ 21,823 $ 13,892 $ 23,195 $ 24,345
========= ========= ========= =========
1994
- ---------------------------------------------------------------------------
Operating Revenues.......... $249,279 $210,875 $227,976 $233,909
======== ======== ======== ========
Operating Income............ $ 43,441 $ 32,388 $ 38,713 $ 37,544
========= ========= ========= =========
Net Income.................. $ 24,278 $ 14,001 $ 19,262 $ 19,903
========= ========= ========= =========
- ---------------------------------------------------------------------------
(a) Includes reclassification of the unamortized acquisition costs to gross
utility plant.
(b) PSNH was acquired by NU on June 5, 1992.
(c) Reclassifications of quarterly data have been made to conform with the
current presentation.
EXHIBIT 13.5
1995 Annual Report
North Atlantic Energy Corporation
Index
Contents Page
- -------- ----
Balance Sheets.............................................. 2-3
Statements of Income........................................ 4
Statements of Cash Flows.................................... 5
Statements of Common Stockholder's Equity................... 6
Notes to Financial Statements............................... 7
Report of Independent Public Accountants.................... 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 17
Selected Financial Data..................................... 21
Statistics.................................................. 21
Statements of Quarterly Financial Data...................... 21
Bondholder Information...................................... Back Cover
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
At December 31, 1995 1994
- ----------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 771,794 $769,379
Less: Accumulated provision for depreciation......... 99,772 75,176
----------- ---------
672,022 694,203
Construction work in progress........................... 7,616 3,704
Nuclear fuel, net....................................... 27,482 19,797
----------- ---------
Total net utility plant............................. 707,120 717,704
----------- ---------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 15,312 10,342
Other, at cost.......................................... 222 222
----------- ---------
15,534 10,564
----------- ---------
Current Assets:
Cash.................................................... 8,384 8,166
Notes receivable from affiliated companies.............. 2,500 28,750
Receivables from affiliated companies................... 18,692 13,983
Materials and supplies, at average cost................. 12,269 10,036
Prepayments and other................................... 4,157 2,149
----------- ---------
46,002 63,084
----------- ---------
Deferred Charges:
Regulatory assets (Note 1G)<F1G>........................ 239,896 166,598
Unamortized debt expense................................ 5,619 4,834
Other................................................... 478 795
----------- ---------
245,993 172,227
----------- ---------
Total Assets........................................ $1,014,649 $963,579
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
At December 31, 1995 1994
- -----------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$1 par value--authorized
and outstanding 1,000 shares in 1995 and 1994........... $ 1 $ 1
Capital surplus, paid in................................. 160,999 160,999
Retained earnings........................................ 59,677 59,236
----------- ---------
Total common stockholder's equity............... 220,677 220,236
Long-term debt........................................... 540,000 540,000
----------- ---------
Total capitalization............................ 760,677 760,236
----------- ---------
Current Liabilities:
Notes payable to affiliated company...................... 8,000 -
Long-term debt--current portion.......................... 20,000 20,000
Accounts payable......................................... 6,135 4,073
Accounts payable to affiliated companies................. 143 38
Accrued interest......................................... 3,452 18,288
Accrued taxes............................................ 1,346 1,439
Other.................................................... 270 1,174
----------- ---------
39,346 45,012
----------- ---------
Deferred Credits:
Accumulated deferred income taxes (Note 1I)<F1I>......... 179,135 120,250
Deferred obligation to affiliated company................ 33,284 33,284
Other.................................................... 2,207 4,797
----------- ---------
214,626 158,331
----------- ---------
Commitments and Contingencies (Note 7)<F7>
Total Capitalization and Liabilities............ $1,014,649 $963,579
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues............................. $ 157,183 $ 145,751 $ 125,408
---------- ---------- ----------
Operating Expenses:
Operation --
Fuel...................................... 12,030 7,144 7,067
Other..................................... 36,737 37,929 35,656
Maintenance.................................. 12,442 14,951 7,858
Depreciation................................. 23,406 22,959 22,642
Federal and state income taxes (Note 5)<F5>.. 10,187 8,027 5,673
Taxes other than income taxes................ 10,987 11,791 12,794
---------- ---------- ----------
Total operating expenses............... 105,789 102,801 91,690
---------- ---------- ----------
Operating Income............................... 51,394 42,950 33,718
---------- ---------- ----------
Other Income:
Deferred Seabrook return--other
funds (Note 1H)<F1H>....................... 9,405 12,951 13,397
Other, net................................... 1,556 1,272 1,891
Income taxes--credit......................... 2,776 3,970 1,653
---------- ---------- ----------
Other income, net...................... 13,737 18,193 16,941
---------- ---------- ----------
Income before interest charges......... 65,131 61,143 50,659
---------- ---------- ----------
Interest Charges:
Interest on long-term debt................... 62,721 64,022 64,022
Other interest............................... (519) (280) 45
Deferred Seabrook return--borrowed funds
funds (Note 1H)<F1H>....................... (21,512) (33,134) (39,406)
---------- ---------- ----------
Interest charges, net.................. 40,690 30,608 24,661
---------- ---------- ----------
Net Income..................................... $ 24,441 $ 30,535 $ 25,998
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities:
Net Income.................................................. $ 24,441 $ 30,535 $ 25,998
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 23,406 22,959 22,642
Deferred income taxes and investment tax credits, net..... 46,114 34,449 37,121
Deferred return - Seabrook................................ (30,917) (46,085) (52,803)
Other sources of cash..................................... 12,140 6,803 9,050
Other uses of cash........................................ (35,261) (2,842) (1,028)
Changes in working capital:
Receivables............................................... (4,709) 9,998 (790)
Materials and supplies.................................... (2,233) (2,683) (1,990)
Accounts payable.......................................... 2,167 (2,277) 5,026
Accrued taxes............................................. (93) 1,312 126
Other working capital (excludes cash)..................... (17,748) 2,363 822
----------- ----------- -----------
Net cash flows from operating activities...................... 17,307 54,532 44,174
----------- ----------- -----------
Financing Activities:
Issuance of long-term debt.................................. 225,000 - -
Net increase (decrease) in short-term debt.................. 8,000 - (18,500)
Reacquisitions and retirements of long-term debt............ (225,000) - -
Cash dividends on common stock.............................. (24,000) (10,000) -
----------- ----------- -----------
Net cash flows used for financing activities.................. (16,000) (10,000) (18,500)
----------- ----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (6,906) (11,256) (6,707)
Nuclear fuel.............................................. (16,609) (1,227) (13,983)
----------- ----------- -----------
Net cash flows used for investments in plant................ (23,515) (12,483) (20,690)
NU System Money Pool........................................ 26,250 (28,750) -
Other investment activities, net............................ (3,824) (3,537) (2,844)
----------- ----------- -----------
Net cash flows used for investments........................... (1,089) (44,770) (23,534)
----------- ----------- -----------
Net Increase (Decrease) In Cash For The Period................ 218 (238) 2,140
Cash - beginning of period.................................... 8,166 8,404 6,264
----------- ----------- -----------
Cash - end of period.......................................... $ 8,384 $ 8,166 $ 8,404
=========== =========== ===========
Supplemental Cash Flow Information:
Cash paid (received) during the year for:
Interest, net of amounts capitalized........................ $ 73,923 $ 64,056 $ 63,393
=========== =========== ===========
Income taxes................................................ $ (36,679) $ (34,988) $ (32,350)
=========== =========== ===========
</TABLE>
TThe accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Capital Retained
Common Surplus, Earnings
Stock Paid In (a) Total
- -----------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Balance at January 1, 1993 ............. $ 1 $ 160,999 $ 12,703 $ 173,703
Net income for 1993................. 25,998 25,998
---------- ---------- --------- ----------
Balance at December 31, 1993............ 1 160,999 38,701 199,701
Net income for 1994................. 30,535 30,535
Cash dividends on common stock...... (10,000) (10,000)
---------- ---------- --------- ----------
Balance at December 31, 1994............ 1 160,999 59,236 220,236
Net income for 1995................. 24,441 24,441
Cash dividends on common stock...... (24,000) (24,000)
---------- ---------- --------- ----------
Balance at December 31, 1995............ $ 1 $ 160,999 $ 59,677 $ 220,677
========== ========== ========= ==========
</TABLE>
(a) The company had dividend restrictions imposed by its long-term debt
agreement and was effectively prohibited by the agreement from the
distribution of any dividends through May 1993. After that time, all
retained earnings are available plus an allowance of $10 million.
The accompanying notes are an integral part of these financial statements.
North Atlantic Energy Corporation
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRESENTATION
North Atlantic Energy Corporation (NAEC or the company), The Connecticut
Light and Power Company (CL&P), Public Service Company of New Hampshire
(PSNH), Western Massachusetts Electric Company (WMECO), and Holyoke
Water Power Company (HWP), are the operating subsidiaries comprising the
Northeast Utilities system (the system) and are wholly-owned by
Northeast Utilities (NU).
The system furnishes retail electric service in Connecticut, New
Hampshire, and western Massachusetts through CL&P, PSNH, WMECO, and HWP.
NAEC sells all of its capacity to PSNH. In addition to its retail
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.
Other wholly owned subsidiaries of NU provide substantial support
services to the system. Northeast Utilities Service Company (NUSCO)
supplies centralized accounting, administrative, data processing,
engineering, financial, legal, operational, planning, purchasing, and
other services to the system companies. North Atlantic Energy Service
Corporation acts as agent for NAEC and CL&P in operating the Seabrook
nuclear generating facility. Northeast Nuclear Energy Company (NNECO)
acts as agent for CL&P, PSNH, and WMECO in operating the Millstone
nuclear generating facilities.
All transactions among affiliated companies are on a recovery of cost
basis which may include amounts representing a return on equity, and are
subject to approval by various federal and state regulatory agencies.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent 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.
Certain reclassifications of prior years' data have been made to conform
with the current year's presentation.
B. FUTURE ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) 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 in
March 1995. SFAS 121 became effective January 1, 1996, and establishes
accounting standards for evaluating and recording asset impairment.
SFAS 121 requires the evaluation of long-lived assets for impairment
when certain events occur or conditions exist that indicate the carrying
amounts of assets may not be recoverable. Refer to Note 1G, "Regulatory
Accounting" for further information on the regulatory impacts of the
company's adoption of SFAS 121.
C. JOINTLY OWNED ELECTRIC UTILITY PLANT
NAEC has a 35.98 percent joint-ownership interest in Seabrook 1, a
1,148-megawatt (MW) nuclear generating unit, including the 0.4 percent
ownership interest in Seabrook 1 which NAEC acquired from Vermont
Electric Generation and Transmission Cooperative in February 1994. NAEC
sells all of its share of the power generated by Seabrook 1 to PSNH. As
of December 31, 1995 and 1994, plant-in-service included approximately
$715.7 million and $714.2 million, respectively, and the accumulated
provision for depreciation included approximately $82.2 million and
$63.1 million, respectively, for NAEC's share of Seabrook 1. NAEC's
share of Seabrook 1 expenses is included in the operating expenses on
the accompanying Statements of Income.
D. DEPRECIATION
The provision for depreciation is calculated using the straight-line
method based on estimated remaining lives of depreciable utility plant-
in-service, adjusted for salvage value and removal costs, as approved by
the Federal Energy Regulatory Commission (FERC). Except for major
facilities, depreciation factors are applied to the average plant-in-
service during the period. Major facilities are depreciated from the
time they are placed in service. When plant is retired from service,
the original cost of plant, including costs of removal, less salvage, is
charged to the accumulated provision for depreciation. The depreciation
rates for the several classes of electric plant-in-service are
equivalent to a composite rate of 3.3 percent in 1995 and 1994, and
3.2 percent in 1993. See Note 2, "Nuclear Decommissioning," for
additional information on nuclear plant decommissioning.
E. PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as a
holding company under the Public Utility Holding Company Act of 1935
(1935 Act), and it and its subsidiaries, including the company, are
subject to the provisions of the 1935 Act. Arrangements among the
system companies, outside agencies, and other utilities covering
interconnections, interchange of electric power, and sales of utility
property are subject to regulation by the FERC and/or the SEC. The
company is subject to further regulation for rates, accounting, and
other matters by the FERC and the New Hampshire Public Utilities
Commission (NHPUC).
F. SEABROOK POWER CONTRACTS
PSNH and NAEC have entered into two power contracts that obligate PSNH
to purchase NAEC's 35.98 percent ownership of the capacity and output of
Seabrook 1 for the term of Seabrook 1's Nuclear Regulatory Commission
(NRC) operating license. Under these contracts, PSNH is obligated to
pay NAEC's cost of service during this period, regardless if Seabrook 1
is operating. NAEC's cost of service includes all of its Seabrook-
related costs, including operation and maintenance expense, fuel
expense, income and property tax expense, depreciation expense, certain
overhead and other costs, and a return on its allowed investment.
The Seabrook power contracts established the value of the initial
investment in Seabrook (initial investment) at $700-million. As of
December 31, 1995, the portion of the initial investment on which NAEC
is entitled to earn a cash return was 85 percent. The initial
investment will be fully phased into NAEC's rate base as of May 1, 1996.
From June 5, 1992 (the date NU acquired PSNH and NAEC acquired Seabrook
1 from PSNH - the Acquisition Date) through December 31, 1995, NAEC
recorded $162.4 million of deferred return on the excluded portion of
its investment in Seabrook 1. The deferred return on the excluded
portion of NAEC's investment in Seabrook 1 will be recovered from PSNH
with carrying charges beginning December 1, 1997, and will be fully
recovered by May 2001. NAEC is depreciating its initial investment over
the term of Seabrook 1's operating license (39 years), and any
subsequent plant additions are depreciated on a straight-line basis over
the remaining term of the Seabrook power contracts at the time the
subsequent additions are placed in service.
If Seabrook 1 is shut down prior to the expiration of the NRC operating
license, PSNH will be unconditionally required to pay NAEC termination
costs for 39 years, less the period during which Seabrook 1 has
operated. These termination costs will reimburse NAEC for its share of
Seabrook 1 shut-down and decommissioning costs, and will pay NAEC a
return of and on any undepreciated balance of its initial investment
over the remaining term of the Seabrook power contracts, and the return
of and on any capital additions to the plant made after the Acquisition
Date over a period of five years after shut down (net of any tax
benefits to NAEC attributable to the cancellation).
G. REGULATORY ACCOUNTING
The accounting policies of the company and the accompanying financial
statements conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of the
ratemaking process in accordance with SFAS 71, Accounting for the
Effects of Certain Types of Regulation. Assuming a cost-of-service
based regulatory structure, regulators may permit incurred costs,
normally treated as expenses, to be deferred and recovered in future
revenues. Through their actions, regulators may also reduce or
eliminate the value of an asset, or create a liability. If any portion
of the company's operations were no longer subject to the provisions of
SFAS 71, as a result of a change in the cost-of-service based regulatory
structure or the effects of competition, the company would be required
to write off related regulatory assets and liabilities. The company
would also be required to determine any impairment to other assets, and
write down these assets to fair value. Based on current regulation and
recent regulatory decisions and initiatives relating to competition in
the company's markets, the company believes that its use of regulatory
accounting remains appropriate.
SFAS 121 requires that any assets, including regulatory assets, which
are no longer probable of recovery through future revenues be revalued
based on estimated future cash flows. If the revaluation is less than
the book value of the asset, an impairment loss would be charged to
earnings. As noted above, based on the current regulatory environment,
it is not expected that SFAS 121 will have a material impact on the
company's financial position or results of operations upon adoption.
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 on the company's regulatory environment, refer
to Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A).
The components of regulatory assets are as follows:
At December 31, 1995 1994
-------------------------------------------------------------------
(Thousands of Dollars)
Deferred costs-Seabrook 1 (Note 1H) .. $162,430 $131,513
Income taxes, net (Note 1I) .......... 43,231 30,461
Recoverable energy costs (Note 1J) ... 2,349 4,624
Unamortized loss on reacquired debt (Note 1K) 31,886 -
--------- ---------
$239,896 $166,598
======== ========
H. DEFERRED COST - SEABROOK 1
As prescribed by the Rate Agreement, NAEC is phasing into rates the
recoverable portions of its investment in Seabrook 1 and is deferring
certain costs for future collection. This plan is in compliance with
SFAS 92, Regulated Enterprises - Accounting for Phase-In Plans. See
Note 1F for terms of Seabrook 1's phase-in.
I. INCOME TAXES
The tax effect of temporary differences (differences between the periods
in which transactions affect income in the financial statements and the
periods in which they affect the determination of income subject to tax)
is accounted for in accordance with the ratemaking treatment of the
FERC. The adoption of SFAS 109, Accounting for Income Taxes, in 1993
increased the company's net deferred tax obligation. As it is probable
that the increase in deferred tax liabilities will be recovered through
the Seabrook power contracts, NAEC established a regulatory asset.
The tax effect of temporary differences, including timing differences
accrued under previously approved accounting standards, which give rise
to the accumulated deferred tax obligation is as follows:
At December 31, 1995 1994
-----------------------------------------------------------------
(Thousands of Dollars)
Accelerated depreciation and other
plant-related differences $156,448 $ 93,486
Regulatory assets - income tax gross up 15,131 7,223
Other ................................. 7,556 19,541
---------- ---------
$179,135 $120,250
======== ========
J. RECOVERABLE ENERGY COSTS
Under the Energy Policy Act of 1992 (Energy Act), NAEC is assessed for
its proportionate shares of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (D&D assessment). The Energy Act requires that
regulators treat D&D assessments as a reasonable and necessary current
cost of fuel, to be fully recovered in rates, like any other fuel cost.
NAEC is currently recovering these costs through rates. As of December
31, 1995, the company's total D&D deferral was approximately $2.3
million.
K. UNAMORTIZED LOSS ON REACQUIRED DEBT
In December 1995, NAEC called its $205 million principal amount, 15.23
percent notes due in 2000, and replaced the issue with funding from the
proceeds of a $225 million, five-year term, variable-rate facility. As
a result of this refinancing, redemption premiums of approximately $32
million were incurred. These redemption premiums have been deferred as
a regulatory asset, and are being amortized over the five-year term of
the new variable-rate facility, until 2000. For further information on
the NAEC refinancing, refer to Note 4, "Long-Term Debt."
L. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes interest-rate swaps to manage a well-defined
interest-rate risk. Amounts receivable or payable under interest-rate
swap agreements are accrued and offset against interest expense. Any
material unrealized gains or losses on interest-rate swaps will be
deferred until realized. For further information on derivatives, see
Note 8, "Derivative Financial Instruments."
2. NUCLEAR DECOMMISSIONING
The Seabrook 1 nuclear power plant has a service life that is expected to
end in 2026. Upon retirement, this unit must be decommissioned. A 1994
Seabrook decommissioning study confirmed that complete and immediate
dismantlement at retirement is the most viable and economic method of
decommissioning Seabrook 1. Decommissioning studies are reviewed and
updated periodically to reflect changes in decommissioning requirements,
costs, technology, and inflation.
NAEC's 35.98 percent ownership of the estimated costs of decommissioning
Seabrook 1, in year-end 1995 dollars, is $152.5 million. This estimated
cost assumes escalated collections and after-tax earnings on the Seabrook
decommissioning funds of 6.1 percent. Seabrook 1 decommissioning costs will
be increased annually by an escalation rate. Nuclear decommissioning costs
are accrued over the expected service life of the unit and are included in
depreciation expense on the Statements of Income. Nuclear decommissioning
costs amounted to $3.0 million in 1995, $2.7 million in 1994, and $2.6
million in 1993. Nuclear decommissioning, as a cost of removal, is included
in the accumulated provision for depreciation on the Balance Sheets. At
December 31, 1995, the balance in the accumulated reserve for
decommissioning amounted to $15.3 million. See "Nuclear Decommissioning" in
the MD&A for a discussion of changes being considered by the FASB related to
accounting for decommissioning costs.
Under the terms of the Rate Agreement, PSNH is obligated to pay NAEC's share
of Seabrook 1's decommissioning costs, even if the unit is shut down prior
to the expiration of its operating license. NAEC's portion of the cost of
decommissioning Seabrook 1 is paid to an independent decommissioning
financing fund managed by the state of New Hampshire.
As of December 31, 1995, NAEC (including pre-Acquisition Date payments made
by PSNH) had paid approximately $13.1 million into Seabrook 1's
decommissioning financing fund. Earnings on the decommissioning financing
fund increase the decommissioning financing fund balance and the accumulated
reserve for decommissioning. Unrealized gains and losses associated with
the decommissioning financing fund also impact the balance of the fund and
the accumulated reserve for decommissioning.
Changes in fund requirements or technology, the timing of funding or
dismantling, or adoption of a decommissioning method other than immediate
dismantlement would change decommissioning cost estimates and the amounts
required to be recovered. PSNH attempts to recover sufficient amounts
through its allowed rates to cover NAEC's expected decommissioning costs.
Only the portion of currently estimated total decommissioning cost that has
been accepted by the NHPUC and the FERC is reflected in PSNH's rates. Based
on present estimates and assuming Seabrook 1 operates to the end of its
licensing period, NAEC expects that the decommissioning financing fund will
be substantially funded when Seabrook 1 is retired from service.
3. SHORT-TERM DEBT
NAEC is a limited participant in the Northeast Utilities System Money Pool
(Pool). As a limited participant, NAEC is limited to borrowing funds
provided by NU parent. The Pool provides a more efficient use of the cash
resources of the system, and reduces outside short-term borrowings. NUSCO
administers the Pool as agent for the member companies. Borrowings based on
loans from NU parent bear interest at NU parent's cost and must be repaid
based upon the terms of NU parent's original borrowing. At December 31,
1995, NAEC had $8.0 million of borrowings outstanding from the Pool. At
December 31, 1994, NAEC had no outstanding borrowings from the Pool. The
interest rate on borrowings from the Pool at December 31, 1995 was 4.7
percent.
Maturities of NAEC's short-term debt obligations were for periods of three
months or less.
The amount of short-term borrowings that may be incurred by NAEC is subject
to periodic approval by the SEC under the 1935 Act. Under the SEC
restrictions, NAEC was authorized, as of January 1, 1995, to incur short-
term borrowings up to a maximum of $50 million.
4. LONG-TERM DEBT
Details of long-term debt outstanding are:
December 31,
------------
1995 1994
----------------------------------------------------------------
(Thousands of Dollars)
First Mortgage Bonds:
9.05% Series A, due 2002 ........... $335,000 $355,000
Notes:
15.23% due 2000 .................... - 205,000
Variable rate, due 2000 ............. 225,000 -
Less: Amounts due within one year .. 20,000 20,000
--------- --------
Long-term debt, net ....... $540,000 $540,000
======== ========
Long-term debt maturities and cash sinking-fund requirements on debt
outstanding at December 31, 1995 for the years 1996 through 2000 are $20
million annually for 1996-1998, $70 million in 1999, and $295 million in
2000.
On December 11, 1995, NAEC redeemed, at a special redemption price, its $205
million, 15.23 percent notes which were due in 2000. This transaction was
executed to coincide with the funding date of NAEC's new $225 million
variable-rate bank note. The $225 million note will mature in 2000 with
quarterly interest payments scheduled to be made through maturity. In order
to mitigate the interest-rate risk inherent with the variable rate issue,
NAEC has executed a $225 million interest-rate swap agreements with four
counterparty banks. The $225 million swap effectively fixes the interest
rate on the variable-rate agreement at 7.05 percent. For more information
on the interest-rate swap, see Note 8, "Derivative Financial Instruments."
The Series A Bonds are not redeemable prior to maturity except out of
proceeds of sales of property subject to the lien of the Series A First
Mortgage Bond Indenture (Indenture), at general redemption prices
established by the Indenture, and out of condemnation or insurance proceeds
and through the operation of the sinking fund.
Essentially all of NAEC's utility plant is subject to the lien of its
Indenture.
5. INCOME TAX EXPENSE
The components of the federal and state income tax provisions are:
For the Years Ended December 31, 1995 1994 1993 (Note 1I)
---------------------------------------------------------------------
(Thousands of Dollars)
Current income taxes:
Federal ...................... $(38,703) $(30,553) $(33,225)
State ........................ - 161 124
--------- --------- ----------
Total current .............. (38,703) (30,392) (33,101)
--------- --------- ---------
Deferred income taxes, net:
Federal ....................... 41,885 34,449 37,199
State ......................... 4,229 - (78)
----------- -------- ----------
Total deferred ............. 46,114 34,449 37,121
--------- --------- --------
Total income tax expense ... $ 7,411 $ 4,057 $ 4,020
========== ======== ========
The components of total income tax expense are classified as follows:
For the Years Ended December 31, 1995 1994 1993 (Note 1I)
---------------------------------------------------------------------
(Thousands of Dollars)
Income taxes charged to operating
expenses ..................... $ 10,187 $ 8,027 $ 5,673
Other income taxes ............. (2,776) (3,970) (1,653)
--------- --------- --------
Total income tax expense $ 7,411 $ 4,057 $ 4,020
======== ========= ========
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
For the Years Ended December 31, 1995 1994 1993 (Note 1I)
---------------------------------------------------------------------
(Thousands of Dollars)
Depreciation ................... $24,444 $22,783 $23,000
Alternative minimum tax ........ - 73 1,250
Bond redemptions ............... 12,087 - -
Seabrook 1 return .............. 8,109 11,597 13,792
Property taxes ................. - - (1,003)
Other .......................... 1,474 (4) 82
-------- --------- ----------
Deferred income taxes, net $46,114 $34,449 $37,121
======= ======= =======
A reconciliation between income tax expense and the expected tax expense at
the applicable statutory rate is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993 (Note 1I)
-----------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Expected federal income tax
at 35 percent of pretax income $11,148 $12,107 $10,506
Tax effect of differences:
Depreciation ................. (2,159) (2,087) (1,481)
Deferred Seabrook 1 return ... (3,292) (4,533) (4,689)
State income taxes, net of federal benefit 2,749 104 30
Other, net ..................... (1,035) (1,534) (346)
-------- -------- -------
Total income tax expense ....... $ 7,411 $ 4,057 $ 4,020
======= ======= =======
6. DEFERRED OBLIGATION TO AFFILIATED COMPANY
At the time PSNH emerged from bankruptcy on May 16, 1991, in accordance with
the phase-in under the contracts, it began accruing a deferred return on the
unphased-in portion of its Seabrook 1 investment. From May 16, 1991 to the
Acquisition Date, PSNH accrued a deferred return of $50.9 million. On the
Acquisition Date, PSNH transferred the $50.9 million deferred return to NAEC
as part of the Seabrook-related assets.
At the time PSNH transferred the deferred return to NAEC, it realized, for
income tax purposes, a gain that is deferred under the consolidated income
tax rules. This gain will be restored for income tax purposes when the
deferred return of $50.9 million, and the associated income taxes of
$33.3 million, are collected by NAEC through the Seabrook power contracts.
When NAEC recovers the $33.3 million in years eight through ten of the Rate
Agreement, it is obligated to make corresponding payments to PSNH.
7. COMMITMENTS AND CONTINGENCIES
A. SEABROOK 1 CONSTRUCTION PROGRAM
The construction program for Seabrook 1 is subject to periodic review
and revision. NAEC currently forecasts construction expenditures for
its share of Seabrook 1 to be $34.1 million for the years 1996-2000,
including $6.0 million for 1996. In addition, NAEC estimates that its
share of Seabrook 1 nuclear fuel requirements will be $44.7 million for
the years 1996-2000, including $0.6 million for 1996.
B. ENVIRONMENTAL MATTERS
NAEC is subject to regulation by federal, state, and local authorities
with respect to air and water quality, handling the disposal of toxic
substances and hazardous and solid wastes, and the handling and use of
chemical products. NAEC has an active environmental auditing and
training program and believes that it is in substantial compliance with
current environmental laws and regulations.
Environmental requirements could hinder future construction. The
cumulative long-term, cost impact of increasingly stringent
environmental requirements cannot accurately be estimated. Changing
environmental requirements could also require extensive and costly
modifications to NAEC's existing investment in Seabrook 1 and could
raise operating costs significantly. As a result, NAEC may incur
significant additional environmental costs, greater than amounts
included in cost of removal and other reserves, in connection with the
generation of electricity and the storage, transportation, and disposal
of by-products and wastes. NAEC may also encounter significantly
increased costs to remedy the environmental effects of prior waste
handling activities.
NAEC cannot estimate the potential liability for future claims,
including environmental remediation costs, that may be brought against
it. However, considering known facts, existing laws, and regulatory
practices, management does not believe the matters disclosed above will
have a material effect on NAEC's financial position or future results of
operations.
C. NUCLEAR INSURANCE CONTINGENCIES
Under certain circumstances, in the event of a nuclear incident at one
of the nuclear facilities covered by the federal government's third-
party liability indemnification program, the company could be assessed
in proportion to its ownership interest in a nuclear unit up to $75.5
million not to exceed $10 million per nuclear unit in any one year. The
maximum assessment is to be adjusted at least every five years for
inflationary changes. Based on the ownership interest in Seabrook 1,
NAEC's maximum liability, including any additional potential assessments
would be $28.5 million per incident. Payments for NAEC's ownership
interest would be limited to a maximum of $3.6 million per incident per
year.
Insurance has been purchased to cover certain extra costs incurred in
obtaining replacement power during prolonged accidental outages and the
excess cost of repair, replacement, or decontamination or premature
decommissioning of utility property resulting from insured occurrences.
NAEC is subject to retroactive assessments if losses exceed the
accumulated funds available to the insurer. The maximum potential
assessments against NAEC with respect to losses arising during current
policy years are approximately $8.1 million under the replacement power
policies. The cost of a nuclear incident could exceed available
insurance proceeds.
Insurance has been purchased aggregating $200 million on an industry
basis for coverage of worker claims. All participating reactor
operators insured under this coverage are subject to retrospective
assessments of $3.0 million per reactor. The maximum potential
assessment against NAEC with respect to losses arising during the
current policy period is approximately $1.1 million.
Under the terms of the Seabrook power contracts, any nuclear insurance
assessments described above would be passed on to PSNH as a "cost of
service."
8. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes derivative financial instruments to manage well-defined
interest-rate rates. The company does not use them for trading purposes.
NAEC uses interest-rate swap agreements with financial institutions to hedge
against interest-rate risk associated with its $225 million variable-rate
bank note. The interest-rate swaps minimize exposure associated with rising
interest rates, and effectively fix the interest rate for this borrowing
arrangement. Under the swap agreements, NAEC exchanges quarterly payments
based on a differential between a fixed contractual interest rate and the
three-month LIBOR rate at a given time. As of December 31, 1995, NAEC had
outstanding agreements with a total notional value of approximately $225
million, and a negative mark-to-market position of approximately $3.8
million.
These swap agreements have been made with various financial institutions,
each of which are rated "A" or better by Standard & Poor's rating group.
NAEC is exposed to credit risk on the interest-rate swaps if the
counterparties fail to perform their obligations. However, NAEC anticipates
that the counterparties will be able to fully satisfy their obligations
under the contracts.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each of the following financial instruments:
Cash and nuclear decommissioning trust: The carrying amounts approximate
fair value.
SFAS 115, Accounting for Certain Investments in Debt and Equity Securities,
requires investment in debt and equity securities to be presented at fair
value and was adopted by the company on a prospective basis as of January 1,
1994. During 1995, the investments held by the company's decommissioning
trust increased by approximately $0.3 million as of December 31, 1995, and
decreased by approximately $0.9 million as of December 31, 1994, with a
corresponding offset to the accumulated provision for depreciation. The $0.3
million increase in 1995 represents cumulative gross unrealized holding
gains. The cumulative gross unrealized holding losses were immaterial for
1995. The $0.9 million decrease in 1994 represents cumulative gross holding
losses of $0.9 million. There were no material cumulative gross unrealized
holding gains in 1994. There was no change in the funding requirements of
the trust nor any impact on earnings as a result of the adoption of SFAS
115.
Long-term debt: The fair value of NAEC's long-term debt is based upon the
quoted market price for those issues or similar issues.
The carrying amounts of NAEC's financial instruments and the estimated fair
values are as follows:
Carrying Fair
At December 31, 1995 Amount Value
------------------------------------------------------------------------
(Thousands of Dollars)
First Mortgage Bonds ..................... $335,000 $336,575
Other long-term debt ..................... $225,000 $225,000
-------------------------------------------------------------------
Carrying Fair
At December 31, 1994 Amount Value
------------------------------------------------------------------------
(Thousands of Dollars)
First Mortgage Bonds ..................... $355,000 $351,450
Other long-term debt ..................... $205,000 $242,925
The fair values shown above have been reported to meet the disclosure
requirements and do not purport to represent the amounts at which those
obligations would be settled.
10. NUCLEAR PERFORMANCE
On January 31, 1996, the NRC announced that the three Millstone nuclear
power plants, operated by NNECO, had been placed on its "watch list" because
of long-standing performance concerns. The NRC cited a number of
operational problems which have arisen since 1990 at the Millstone plants.
The NRC recognized that there are significant current variations in the
performance of the three units. The performance concerns cited by the NRC,
combined with NU's failure to maintain previous performance improvements,
have resulted in the NRC requiring close monitoring of Millstone unit
operations and the implementation of a corrective action program.
North Atlantic Energy Corporation
Report of Independent Public Accountants
- ---------------------------------------------------------------------------
To the Board of Directors
of North Atlantic Energy Corporation:
We have audited the accompanying balance sheets of North Atlantic Energy
Corporation (a New Hampshire corporation and a wholly owned subsidiary of
Northeast Utilities) as of December 31, 1995 and 1994, and the related
statements of income, common stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 1995. 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 North Atlantic Energy
Corporation as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1996
NORTH ATLANTIC ENERGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------------
This section contains management's assessment of NAEC's (the company) financial
condition and the principal factors having an impact on the results of opera-
tions. The company is a wholly owned subsidiary of Northeast Utilities (NU).
This discussion should be read in conjunction with NAEC's financial statements
and footnotes.
FINANCIAL CONDITION
OVERVIEW
On June 5, 1992 (the Acquisition Date), NU acquired Public Service Company of
New Hampshire (PSNH), and PSNH's 35.58 percent share of the Seabrook 1 nuclear
power plant (Seabrook 1) and other Seabrook-related assets were transferred to
the company. At the Acquisition Date, PSNH and the company entered into the
Seabrook Power Contract (the Contract), under which PSNH is obligated to buy
from the company, and the company is obligated to sell to PSNH, all of the
company's capacity and output of Seabrook 1 for a period equal to the length of
the Nuclear Regulatory Commission (NRC) full-power operating license for
Seabrook (through 2026). Under the Contract, PSNH is unconditionally obligated
to pay the company's "cost of service" during the period whether or not Seabrook
1 is operating and without regard to the cost of alternative sources of power.
In addition, PSNH will be obligated to pay decommissioning and project
cancellation costs after the termination of the operating license. NAEC does
not have any employees of its own and does not operate Seabrook 1. North
Atlantic Energy Service Corporation (NAESCO) is the managing agent and
represents the Seabrook 1 joint owners, including NAEC, in the operation of
Seabrook 1.
On February 15, 1994, NAEC acquired Vermont Electric Generation and Transmission
Cooperative's (VEG&T) 0.4 percent ownership interest of Seabrook 1 for
approximately $6.4 million, giving NAEC a total joint-ownership interest in
Seabrook 1 of 35.98 percent. NAEC sells the output from the Seabrook interest
purchased from VEG&T to PSNH under an agreement which is substantially similar
to the Seabrook Power Contract discussed above (the Contracts).
The company's "cost of service" includes all of its prudently incurred Seabrook
1-related costs, including operation and maintenance expense, fuel expense,
property tax expense, depreciation expense, certain overhead and other costs,
and a phased-in return on its Seabrook 1 investment. The Contract established
the initial recoverable investment in Seabrook 1 at $700 million (Initial
Investment), plus any capital additions, net of depreciation.
The company's only assets are Seabrook 1 and other Seabrook 1-related assets and
its only source of revenue are the Contracts. PSNH's obligations under the
Contracts are solely its own and have not been guaranteed by NU. The Contracts
contain no provisions entitling PSNH to terminate its obligations. If, however,
PSNH were to fail to perform its obligations under the Contracts, the company
would be required to find other purchasers for Seabrook power.
The electric-power industry is continuing to move toward a more competitive
environment. The New Hampshire Public Utilities Commission (NHPUC) is reviewing
the rates charged by its electric-power suppliers. Although the NHPUC has some
limited authority over the company's Contracts with PSNH, its rates are subject
to regulation by the Federal Energy Regulatory Commission (FERC). During 1995,
FERC issued a proposal for restructuring the electric-power industry, which
calls for open access to transmission facilities, a standard formula for
calculating rates, and full recovery of stranded investments. The impact of
this proposal, which is expected to be finalized in 1996, is not expected to
have a material impact on NAEC's financial position or results of operations.
NAEC's net income was approximately $24 million in 1995, a decrease of
approximately $7 million, from approximately $31 million in 1994. The 1995 net
income was lower primarily due to a one-time adjustment to correct the deferred
Seabrook 1 return balance and lower state income taxes.
WORKFORCE REDUCTIONS
In January 1996, NU and NAESCO completed their nuclear workforce reduction plan.
Approximately 36 positions were eliminated at Seabrook 1, through a combination
of early retirements, attrition, and layoffs. The total pretax cost of the
workforce reduction, which was recognized in 1995, was approximately $2 million.
RATE MATTERS
NAEC follows accounting principles in accordance with Statement of Financial
Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain Types of
Regulation" that allows the economic effects of rate regulation to be
reflected. Under these principles, regulators may permit incurred costs for
certain events or transactions, which would be treated as expenses by
nonregulated enterprises, to be deferred as regulatory assets and recovered in
revenues at a later date.
The creation of these regulatory assets has kept down electric rates in past
years, at the expense of having higher rates in the future. At December 31,
1995, NAEC's regulatory assets totaled approximately $240 million. The largest
regulatory asset, nearly $162 million, is related to the deferred return
associated with the amount of the Seabrook 1 investment that has not been
included in rates. As of December 31, 1995, NAEC has included in rates $595
million of its Seabrook 1 investment. The remaining investment ($105 million)
will be phased into rates in May 1996. An additional amount of deferred
Seabrook 1 return of approximately $51 million is recorded as utility plant. The
deferred amounts associated with the Seabrook 1 phase-in will be recovered under
NAEC's Contracts with PSNH over the period December 1997 through May 2001.
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." SFAS 121, which was effective January 1, 1996, requires
assets, including regulatory assets, that are no longer probable of recovery
through future revenues be charged to earnings.
If future competition or regulatory actions in New Hampshire cause any portion
of its operations to no longer be subject to SFAS 71, NAEC would be required to
determine the fair value of the related regulatory assets and liabilities and
record any necessary write-downs. Additionally, if events create uncertainty
about the recoverability of any of NAEC's remaining long-lived assets, a similar
analysis would be required for those assets in accordance with SFAS 121. Under
its current regulatory environment, NAEC believes that its use of SFAS 71
remains appropriate and that the adoption of SFAS 121 will not have a material
impact on its financial position or results of operations.
See the "Notes to Financial Statements," Note 1G, for further details on
regulatory accounting.
NUCLEAR PERFORMANCE
On January 31, 1996, the NRC placed Millstone 1, 2, and 3 (Millstone) on its
"watch list." The NRC's action was in response to a number of performance
concerns which have arisen since 1990 and a failure to resolve employee safety
concerns. The NRC's action will result in close monitoring of programs and
performance at Millstone to assure the development and implementation of
effective corrective actions.
NU's management plans to continue its extensive efforts already under way to
address these concerns. Concurrent with the NRC's action, NU provided the NRC
with the results of a comprehensive self-assessment review of the employee
concern program at Millstone. Additionally, in January 1996, NU announced a
reorganization of its nuclear operations which included the creation of a new
office of Nuclear Safety and Oversight.
Although the start-up of Millstone 1, which is currently in outage, will be
affected by its placement on the NRC's "watch list," operations at Millstone 2
and 3 have not been restricted. NU's management expects that the increased NRC
attention will inevitably have effects and costs that are not known at this
time.
The Seabrook plant operated at 83.2 percent of capacity for the year ended
December 31, 1995, compared with 61.6 percent in 1994 and a 1995 national
average of 77.6 percent. The higher 1995 capacity factor was primarily the
result of unplanned and extended outages in 1994. The unit had a 37.5-day
planned refueling and maintenance outage in 1995, the unit's shortest to date.
ENVIRONMENTAL MATTERS
NU devotes substantial resources to identify and comply with the multitude of
environmental requirements it faces. NU has active auditing programs addressing
a variety of regulatory requirements, including an environmental auditing
program to detect and remedy noncompliance with environmental laws or
regulations.
See the "Notes to Financial Statements," Note 7B, for further information
regarding other environmental matters.
NUCLEAR DECOMMISSIONING
NAEC's estimated cost to decommission its share of Seabrook 1 is approximately
$153 million in year-end 1995 dollars. These costs are being recognized over the
life of the unit and a portion is being recovered through PSNH's rates. PSNH is
obligated to pay NAEC's share of Seabrook's decommissioning costs even if the
unit is shut down prior to the expiration of its license.
The FASB is currently reviewing the accounting for closure and removal costs,
including decommissioning and similar costs, for long-lived assets. If current
electric-power industry accounting practices for such decommissioning costs were
changed, annual provisions for decommissioning would increase and the estimated
costs for decommissioning would be recorded as a liability rather than as a
component of accumulated depreciation.
See the "Notes to Financial Statements," Note 2, for further information
regarding nuclear decommissioning.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $37 million in 1995, from
1994, primarily due to the payment of accrued interest and debt expense
associated with the note refinancing discussed below. Cash used for financing
activities increased approximately $6 million in 1995, from 1994, primarily due
to an increase in the payment of cash dividends on common stock, partially
offset by an increase in short-term debt. Cash used for investments decreased
approximately $43 million in 1995, from 1994, primarily due to the repayment of
short-term loans by other NU system companies under the NU system Money Pool,
partially offset by higher nuclear fuel expenditures due to the 1995 Seabrook
refueling outage.
In October 1995, Moody's Investors Service lowered its ratings of PSNH and NAEC
securities, bringing the rating for PSNH's First Mortgage Bonds below investment
grade. Standard & Poor's had previously downgraded PSNH to below investment
grade. NAEC securities had not been previously rated at investment grade.
These downgrades could adversely affect the future availability and cost of
funds for these companies.
In December 1995, NAEC refinanced its $205-million, 15.23-percent note with a
$225 million five-year variable rate bank loan. The refinancing is expected to
save PSNH customers approximately $4 million annually for 5 years. In order to
mitigate the interest-rate risk inherent with the variable rate issue, NAEC
executed a $225 million interest-rate swap. The swap effectively fixes the
interest cost on the variable-rate loan at 7.05 percent.
See the "Notes to Financial Statements," Notes 4 and 8, for further
information on the refinancing and interest-rate swap, Note 11, for further
information on derivative financial instruments, and Notes 4 and 7A, for further
information on construction and long-term debt funding requirements.
RESULTS OF OPERATIONS
OPERATING REVENUES
Operating revenues represent amounts billed to PSNH under the terms of the
Contracts and billings to PSNH for decommissioning expense.
Operating revenues increased approximately $11 million in 1995, from 1994,
primarily due to the increased return associated with the phase-in of an
additional 15 percent of Seabrook plant's initial investment in May 1995 and May
1994, respectively.
Operating revenues increased approximately $20 million in 1994, from 1993,
primarily due to the higher operation and maintenance expenses and the increased
return associated with the phase-in of additional Seabrook plant in May 1994.
FUEL EXPENSES
Fuel expenses increased approximately $5 million in 1995, from 1994, primarily
due to the better performance of Seabrook in 1995.
The change in 1994, from 1993, was not significant.
OTHER OPERATION AND MAINTENANCE EXPENSES
Other operation and maintenance expenses, net decreased approximately $4 million
in 1995, from 1994, and increased approximately $9 million in 1994, from 1993,
primarily due to the unplanned and extended Seabrook outages in 1994.
FEDERAL AND STATE INCOME TAXES
Federal and state income taxes increased approximately $3 million in 1995, from
1994, despite a decrease in income due primarily to higher state taxes as a
result of a one-time adjustment to the deferred income tax provision.
The change in 1994, from 1993, was not significant.
DEFERRED SEABROOK RETURN
Deferred Seabrook return - other and borrowed funds decreased approximately $15
million in 1995, from 1994, primarily because additional Seabrook investment was
phased into rates in May 1995 and May 1994 and because of a one-time adjustment
of approximately $5 million made in June 1995 to correct the deferred Seabrook
return balance.
Deferred Seabrook return - other and borrowed funds decreased approximately $6
million in 1994, from 1993, primarily because additional Seabrook investment was
phased into rates in May 1994.
NORTH ATLANTIC ENERGY CORPORATION
SELECTED FINANCIAL DATA 1995 1994 1993 1992*
- ---------------------------------------------------------------------------
(Thousands of Dollars)
Operating Revenues........... $ 157,183 $145,751 $125,408 $ 78,444
========== ======== ======== =========
Operating Income............. $ 51,394 $ 42,950 $ 33,718 $ 16,122
========== ======== ======== =========
Net Income................... $ 24,441 $ 30,535 $ 25,998 $ 12,703
========== ======== ======== =========
Cash Dividends on Common Stock $ 24,000 $ 10,000 $ - $ -
========== ========= ======== =========
Total Assets................. $1,014,649 $963,579 $900,821 $818,123
========== ======== ======== ========
Long-Term Debt (a)........... $ 560,000 $560,000 $560,000 $560,000
========== ======== ======== ========
(a) Includes portion due within one year.
</TABLE>
<TABLE>
<CAPTION>
STATISTICS 1995 1994 1993 1992*
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Electric Utility Plant at December 31,
(Thousands of Dollars)....... $ 806,892 $792,880 $789,127 $774,920
========= ======== ======== ========
kWh Sales (Millions) for the twelve month
period ending December 31,. 3,016 2,229 3,218 1,268
========= ======== ======== ========
</TABLE>
- ----------------------------------------------------------------------
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
- -------------------------------------------------------
Quarter Ended
------------------------------------------------
1995 March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------
Operating Revenues.......... $33,984 $36,362 $39,696 $47,141
======= ======= ======= =======
Operating Income............ $10,974 $12,752 $13,795 $13,873
======= ======= ======= =======
Net Income.................. $ 7,501 $ 3,280 $ 6,914 $ 6,746
======= ======= ======= =======
1994
- ----------------------------------------------------------------------------
Operating Revenues.......... $32,211 $40,011 $37,603 $35,926
======= ======= ======= =======
Operating Income............ $ 8,594 $10,718 $11,851 $11,787
======= ======= ======= =======
Net Income.................. $ 6,643 $ 6,725 $ 8,161 $ 9,006
======= ======= ======== =======
*The company began commercial operations on June 5, 1992. Information presented
for 1992 covers the period June 5, 1992 through December 31, 1992.
NORTHEAST UTILITIES SYSTEM Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Northeast Utilities
The Connecticut Light and Power Company (100%)
- CL&P Capital, L.P. (3%)
- Research Park, Inc. (100%)
- The City and Suburban Electric and Gas Company (100%)
- Electric Power Incorporated (100%)
- The Connecticut Transmission Corporation (100%)
- The Nutmeg Power Company (100%)
- The Connecticut Steam Company (100%)
- Connecticut Yankee Atomic Power Company (34.5%)
- Yankee Atomic Electric Company (24.5%)
- Maine Yankee Atomic Power Company (12%)
- Vermont Yankee Nuclear Power Corporation (9.5%)
Public Service Company of New Hampshire (100%)
- Properties, Inc. (100%)
- New Hampshire Electric Company (100%)
- Connecticut Yankee Atomic Power Company (5%)
- Yankee Atomic Electric Company (7%)
- Maine Yankee Atomic Power Company (5%)
- Vermont Yankee Nuclear Power Corporation (4%)
North Atlantic Energy Corporation (100%)
North Atlantic Energy Service Corporation (100%)
Western Massachusetts Electric Company (100%)
- Connecticut Yankee Atomic Power Company (9.5%)
- Yankee Atomic Electric Company (7%)
- Maine Yankee Atomic Power Company (3%)
- Vermont Yankee Nuclear Power Corporation (2.5%)
Holyoke Water Power Company (100%)
- Holyoke Power and Electric Company (100%)
Charter Oak Energy, Inc. (100%)
- Charter Oak Paris, Inc. (100%)
- COE Development Corporation (100%)
- COE (UK) Corp. (79.9%)
- COE (Gencoe) Corp. (49%)
-COE (UK) Corp. (20.1%)
- COE (Argentina I Corp.) (100%)
- COE (Argentina II Corp.) (100%)
- COE Tejona Corporation (100%)
- COE Ave Fenix Corporation (100%)
Northeast Nuclear Energy Company (100%)
Northeast Utilities Service Company (100%)
The Quinnehtuk Company (100%)
The Rocky River Realty Company (100%)
HEC, Inc. (100%)
- HEC International Corporation (100%)
- HEC Energy Consulting Canada, Inc. (100%)
- Southwest HEC Energy Services, L.L.C. (100%)
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