FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
1-5324 NORTHEAST UTILITIES 04-2147929
(a Massachusetts voluntary association)
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-2010
Telephone: (413) 785-5871
0-11419 THE CONNECTICUT LIGHT AND POWER COMPANY 06-0303850
(a Connecticut corporation)
107 Selden Street
Berlin, Connecticut 06037-1616
Telephone: (860) 665-5000
1-6392 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE 02-0181050
(a New Hampshire corporation)
1000 Elm Street
Manchester, New Hampshire 03105-0330
Telephone: (603) 669-4000
0-7624 WESTERN MASSACHUSETTS ELECTRIC COMPANY 04-1961130
(a Massachusetts corporation)
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-2010
Telephone: (413) 785-5871
33-43508 NORTH ATLANTIC ENERGY CORPORATION 06-1339460
(a New Hampshire corporation)
1000 Elm Street
Manchester, New Hampshire 03105-0330
Telephone: (603) 669-4000
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date:
Company - Class of Stock Outstanding at October 31, 1998
Northeast Utilities
Common shares, $5.00 par value 136,899,722 shares
The Connecticut Light and Power Company
Common stock, $10.00 par value 12,222,930 shares
Public Service Company of New Hampshire
Common stock, $10.00 par value 1,000 shares
Western Massachusetts Electric Company
Common stock, $25.00 par value 1,072,471 shares
North Atlantic Energy Corporation
Common stock, $10.00 par value 1,000 share
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms
that are found throughout this report:
COMPANIES
NU............................ Northeast Utilities
CL&P.......................... The Connecticut Light and Power Company
Charter Oak or COE............ 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
Select Energy................. Select Energy, Inc., formerly NUSCO
Energy Partners, Inc.
Mode 1........................ Mode 1 Communications, Inc.
HEC........................... HEC, Inc.
Quinnehtuk.................... The Quinnehtuk Company
NU system..................... The Northeast Utilities system companies,
including NU and its wholly-owned
operating subsidiaries: CL&P, PSNH, WMECO
and NAEC
CYAPC......................... Connecticut Yankee Atomic Power Company
MYAPC......................... Maine Yankee Atomic Power Company
VYNPC......................... Vermont Yankee Nuclear Power Corporation
YAEC.......................... Yankee Atomic Electric Company
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
DTE........................... Massachusetts Department of Telecommunications
and Energy, formerly the Massachusetts
Department of Public Utilities (DPU)
DPUC.......................... Connecticut Department of Public Utility Control
FERC.......................... Federal Energy Regulatory Commission
NHPUC......................... New Hampshire Public Utilities Commission
NRC........................... Nuclear Regulatory Commission
SEC........................... Securities and Exchange Commission
OTHER
kWh........................... Kilowatt hour
MW............................ Megawatt
NU 1997 Form 10-K............. The NU system combined 1997 Form 10-K as filed
with the SEC and as amended on Form 10-K/A for
NU, CL&P, PSNH and WMECO.
NU 1996 Form 10-K............. The NU system combined 1996 Form 10-K as filed
with the SEC and as amended on Form 10-K/A for
NU, CL&P, PSNH and WMECO.
Northeast Utilities and Subsidiaries
The Connecticut Light and Power Company and Subsidiaries
Public Service Company of New Hampshire
Western Massachusetts Electric Company and Subsidiary
North Atlantic Energy Corporation
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
and
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
For the following companies:
Northeast Utilities and Subsidiaries
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997............... 2
Consolidated Statements of Income - Three Months
and Nine Months Ended September 30, 1998 and 1997...... 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997.......... 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 6
Report of Independent Public Accountants............... 14
The Connecticut Light and Power Company and
Subsidiaries
Consolidated Balance Sheets - September 30, 1998
and December 31, 1997.................................. 16
Consolidated Statements of Income - Three
Months and Nine Months Ended September 30,
1998 and 1997.......................................... 18
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997.......... 19
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 20
Public Service Company of New Hampshire
Balance Sheets - September 30, 1998
and December 31, 1997.................................. 24
Statements of Income - Three Months and Nine
Months Ended September 30, 1998 and 1997............... 26
Statements of Cash Flows - Nine Months Ended
September 30, 1998 and 1997............................ 27
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 28
Western Massachusetts Electric Company and Subsidiary
Consolidated Balance Sheets - September 30, 1998
and December 31, 1997.................................. 32
Consolidated Statements of Income - Three
Months and Nine Months Ended September 30,
1998 and 1997.......................................... 34
Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1998 and 1997............... 35
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 36
North Atlantic Energy Corporation
Balance Sheets - September 30, 1998 and
December 31, 1997...................................... 40
Statements of Income - Three Months and Nine
Months Ended September 30, 1998 and 1997............... 42
Statements of Cash Flows - Nine Months Ended
September 30, 1998 and 1997............................ 43
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 44
Notes to Financial Statements (unaudited -
all companies).............................................. 47
Part II. Other Information
Item 1. Legal Proceedings........................................ 56
Item 5. Other Information........................................ 57
Item 6. Exhibits and Reports on Form 8-K......................... 57
Signatures................................................................. 59
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 9,495,645 $ 9,869,561
Other................................................... 190,691 186,130
------------- -------------
9,686,336 10,055,691
Less: Accumulated provision for depreciation......... 4,113,635 4,330,599
------------- -------------
5,572,701 5,725,092
Unamortized PSNH acquisition costs...................... 359,959 402,285
Construction work in progress........................... 150,880 141,077
Nuclear fuel, net....................................... 139,701 194,704
------------- -------------
Total net utility plant............................. 6,223,241 6,463,158
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 561,200 502,749
Investments in regional nuclear generating
companies, at equity................................... 84,511 86,955
Investments in transmission companies, at equity........ 18,736 19,635
Other, at cost.......................................... 117,774 95,362
------------- -------------
782,221 704,701
------------- -------------
Current Assets:
Cash and cash equivalents............................... 160,853 143,403
Special deposits........................................ 1,104 -
Investments in securitizable assets..................... 99,244 230,905
Receivables, net........................................ 193,986 214,914
Accrued utility revenues................................ 32,731 36,885
Fuel, materials, and supplies, at average cost.......... 209,305 212,721
Recoverable energy costs, net--current portion.......... 67,726 59,959
Investments in Charter Oak Energy, Inc.
held for sale.......................................... 14,266 33,391
Prepayments and other................................... 85,372 38,495
------------- -------------
864,587 970,673
------------- -------------
Deferred Charges:
Regulatory assets (Note 2B):
Income taxes,net...................................... 846,552 938,564
Deferred costs--nuclear plants........................ 205,010 208,129
Unrecovered contractual obligations................... 459,364 515,076
Recoverable energy costs, net......................... 288,728 324,809
Deferred demand side management costs................. 7,532 52,100
Cogeneration costs.................................... 12,900 33,505
Other................................................. 86,609 101,095
Unrecovered costs--Millstone 1 (Note 8A)................ 675,601 -
Unamortized debt expense................................ 39,309 38,758
Other .................................................. 63,979 63,844
------------ ------------
2,685,584 2,275,880
------------ ------------
Total Assets.............................................. $ 10,555,633 $ 10,414,412
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common shareholders' equity:
Common shares, $5 par value--authorized
225,000,000 shares; 136,901,266 shares issued and
130,671,513 shares outstanding in 1998 and
136,842,170 shares issued and 130,182,736 shares
outstanding in 1997.................................. $ 684,506 $ 684,211
Capital surplus, paid in.............................. 933,894 932,493
Deferred contribution plan--employee stock
ownership plan...................................... (144,166) (154,141)
Retained earnings (Note 1)............................ 700,822 707,522
------------- -------------
Total common shareholders' equity.............. 2,175,056 2,170,085
Preferred stock not subject to mandatory redemption..... 136,200 136,200
Preferred stock subject to mandatory redemption......... 197,072 245,750
Long-term debt.......................................... 3,292,237 3,645,659
------------- -------------
Total capitalization........................... 5,800,565 6,197,694
------------- -------------
Minority Interest in Consolidated Subsidiaries............ 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 170,351 30,427
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 40,000 50,000
Long-term debt and preferred stock--current
portion................................................ 379,134 274,810
Obligations under capital leases--current
portion................................................ 38,587 177,304
Accounts payable........................................ 256,821 402,870
Accrued taxes........................................... 59,447 46,016
Accrued interest........................................ 64,646 30,786
Accrued pension benefits................................ 44,069 77,186
Other................................................... 89,763 88,396
------------- ------------
972,467 1,147,368
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,957,020 1,984,513
Accumulated deferred investment tax credits............. 151,313 158,837
Unrecovered decommissioning obligation--
Millstone 1 (Note 8A).................................. 375,744 -
Decommissioning funds--Millstone 1 (Note 8A)............ 266,356 -
Deferred contractual obligations........................ 470,198 525,076
Other................................................... 291,619 270,497
------------- ------------
3,512,250 2,938,923
------------- ------------
Commitments and Contingencies (Note 7)
Total Capitalization and Liabilities........... $ 10,555,633 $ 10,414,412
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
(Restated) (Restated)
------------- ------------- ------------- -------------
(Thousands of Dollars, except share information)
<S> <C> <C> <C> <C>
Operating Revenues............................. $ 974,382 $ 977,127 $ 2,808,096 $ 2,855,818
------------- ------------- ------------- -------------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power.... 334,564 332,265 994,218 954,789
Other........................................ 242,967 279,515 699,014 825,230
Maintenance................................... 85,552 131,245 282,548 373,967
Depreciation.................................. 80,475 89,682 254,260 266,276
Amortization of regulatory assets, net........ 52,767 30,079 119,795 92,491
Federal and state income taxes................ 35,843 4,534 70,231 12,701
Taxes other than income taxes................. 65,175 63,446 194,207 191,084
------------- ------------- ------------- -------------
Total operating expenses............... 897,343 930,766 2,614,273 2,716,538
------------- ------------- ------------- -------------
Operating Income............................... 77,039 46,361 193,823 139,280
------------- ------------- ------------- -------------
Other Income:
Deferred nuclear plants return--other
funds...................................... 1,679 1,818 5,335 5,420
Equity in earnings of regional nuclear
generating and transmission companies...... 3,041 3,108 10,132 9,285
Gain on equity investment (Note 9)........... 13,687 - 13,687 -
Millstone 1--unrecoverable costs (Note 8B)... (25,053) - (26,722) -
Other, net................................... (7,927) (6,173) (1,396) 309
Minority interest in income of subsidiary.... (2,325) (2,325) (6,975) (6,975)
Income taxes................................. 15,559 3,588 25,887 4,795
------------- ------------- ------------- -------------
Other (loss) income, net............... (1,339) 16 19,948 12,834
------------- ------------- ------------- -------------
Income before interest charges......... 75,700 46,377 213,771 152,114
------------- ------------- ------------- -------------
Interest Charges:
Interest on long-term debt................... 66,303 70,612 205,776 209,037
Other interest............................... 1,284 2,791 4,203 7,166
Deferred nuclear plants return--borrowed
funds..................................... (3,011) (3,434) (9,789) (10,162)
------------- ------------- ------------- -------------
Interest charges, net.................. 64,576 69,969 200,190 206,041
------------- ------------- ------------- -------------
Income (Loss) after interest charges... 11,124 (23,592) 13,581 (53,927)
Preferred Dividends of Subsidiaries............ 6,148 7,240 20,281 23,046
------------- ------------- ------------- -------------
Net Income (Loss).............................. $ 4,976 $ (30,832) $ (6,700) $ (76,973)
============= ============= ============= =============
Earnings (Loss) Per Common Share............... $ 0.04 $ (0.24) $ (0.05) $ (0.60)
============= ============= ============= =============
Common Shares Outstanding (average)............ 130,629,535 129,913,835 130,462,708 129,381,841
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1998 1997
(Restated)
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Income/(Loss) before preferred dividends of subsidiaries.. $ 13,581 $ (53,927)
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 254,260 266,276
Deferred income taxes and investment tax credits, net... 44,880 10,806
Deferred nuclear plants return, net of amortization..... 49,658 (15,582)
Amortization of demand-side-management costs, net....... 44,568 44,477
Recoverable energy costs, net of amortization........... 28,314 (33,646)
Amortization of PSNH acquisition costs, net............. 23,496 42,423
Amortization of deferred cogeneration costs, net ....... 20,605 23,936
Deferred nuclear refueling outage, net of amortization.. 2,059 (29,589)
Deferred Seabrook capital costs, net.................... (35,769) -
Millstone 1--unrecoverable costs (Note 8B).............. 26,722 -
Other sources of cash................................... 119,519 88,663
Other uses of cash...................................... (687) (24,772)
Changes in working capital:
Receivables and accrued utility revenues, net........... (11,918) 103,892
Fuel, materials, and supplies........................... 3,416 (2,143)
Accounts payable........................................ (146,049) (184,932)
Accrued taxes........................................... 13,431 34,606
Sale of receivables and accrued utility revenues........ 37,000 28,000
Investment in securitizable assets...................... 131,661 (14,933)
Other working capital (excludes cash)................... (45,871) (9,307)
----------- -----------
Net cash flows from operating activities.................... 572,876 274,248
----------- -----------
Financing Activities:
Issuance of common shares................................. 402 3,743
Issuance of long-term debt................................ 275 260,000
Net (decrease)/increase in short-term debt................ (10,000) 111,250
Reacquisitions and retirements of long-term debt.......... (258,341) (273,228)
Reacquisitions and retirements of preferred stock......... (48,678) (25,000)
Cash dividends on preferred stock......................... (20,281) (23,046)
Cash dividends on common shares........................... - (32,134)
----------- -----------
Net cash flows (used for)/from financing activities......... (336,623) 21,585
----------- -----------
Investment Activities:
Investment in plant:
Electric and other utility plant........................ (143,642) (174,088)
Nuclear fuel............................................ (17,832) (6,285)
----------- -----------
Net cash flows used for investments in plant.............. (161,474) (180,373)
Investments in nuclear decommissioning trusts............. (57,385) (44,343)
Gain on investment (Note 9)............................... (15,357) -
Investments in Charter Oak Energy, Inc. held for sale..... 19,125 (21,229)
Other investment activities, net.......................... (3,712) (45,934)
----------- -----------
Net cash flows used for investments......................... (218,803) (291,879)
----------- -----------
Net Increase In Cash For The Period......................... 17,450 3,954
ash and cash equivalents - beginning of period.............. 143,403 194,197
----------- -----------
Cash and cash equivalents - end of period................... $ 160,853 $ 198,151
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This discussion should be read in conjunction with the consolidated financial
statements and footnotes in this Form 10-Q, the First and Second Quarter 1998
Form 10-Qs and the NU 1997 Form 10-K and Form 8-K dated September 22, 1998.
FINANCIAL CONDITION
Overview
NU had earnings of $5.0 million, or 4 cents a share, for the third quarter of
1998, compared with a restated loss of $30.8 million, or 24 cents a share,
for the same period of 1997. For the first nine months of 1998, NU reported
a loss of $6.7 million, or 5 cents a share, compared with a restated loss of
$77.0 million, or 60 cents a share, for the same period of 1997.
The improvement in third-quarter results was due primarily to an $82 million
reduction in other operation and maintenance (O&M) costs and stronger sales,
due in large part to a return to more seasonable summer weather in 1998.
Nuclear-related O&M spending declined $62 million for the third quarter
compared to the prior year resulting from the return to service of Millstone
3 and the retirement of Millstone 1. Non-nuclear O&M spending declined $20
million for the third quarter.
Revenues were approximately the same in the third quarters of 1998 and 1997
as increased kilowatt-hour sales offset rate reductions in each of the NU
system's three retail jurisdictions. Retail sales were up 4.3 percent for the
third quarter of 1998 compared with the same period of 1997.
The 1998 third-quarter financial results included two significant
nonrecurring items. CL&P expensed $25 million representing decommissioning,
plant and related assets associated with the Millstone 1 entitlement formerly
held by the Connecticut Municipal Electric Energy Cooperative (CMEEC) as a
result of the unit's retirement. Also, NU's Mode 1 Communications, Inc.
subsidiary recorded a gain of $15 million associated with its investment in
NorthEast Optic Network, Inc. (NEON).
Millstone
CL&P and WMECO have ownership interests of 81 percent and 19 percent,
respectively, in Millstone 2. CL&P, WMECO and PSNH have joint ownership
interests in Millstone 3 that total 68.02 percent (52.93 percent for CL&P,
12.24 percent for WMECO and 2.85 percent for PSNH). NNECO, a wholly owned
subsidiary of NU, acts as an agent for certain NU system companies and other
New England utilities in operating the Millstone units.
Management currently projects to restart Millstone 2 in March of 1999.
Replacement energy and capacity costs for Millstone 2 are projected to cost
CL&P and WMECO approximately $11 million and $3 million per month,
respectively. In addition, CL&P is reserving revenues of approximately $3
million per month while the unit is not operating for the removal of
Millstone 2 from rate base. See below for further explanation regarding
restart costs.
For the nine months ended September 30, 1998, the NU system's share of
non-fuel O&M costs for Millstone was approximately $296 million, compared to
$407 million for the same period in 1997. CL&P's, WMECO's and PSNH's share
of Millstone non-fuel O&M costs for 1998 were approximately $238 million, $55
million, and $3 million, respectively, compared to $325 million, $76 million,
and $6 million, respectively, for the same period in 1997.
Replacement power costs for the Millstone units were approximately $221
million for the nine months ended September 30, 1998 compared to $292 million
for the same period in 1997. CL&P's and WMECO's share of Millstone
replacement power costs for 1998 were approximately $189 million and $31
million, respectively, compared to $246 million and $43 million,
respectively, for 1997. PSNH's share of Millstone 3 replacement power costs
was approximately $1 million in 1998 and $3 million in 1997.
WMECO and PSNH have been expensing all of the costs to restart the units,
including replacement power and non-fuel O&M expenses. As a result of out-of-
rate base decisions in Connecticut, CL&P was permitted to recover, through
its energy adjustment clause, replacement power costs for Millstone 2
effective May 1, 1998. As of that date Millstone 2 was removed from CL&P's
rate base, thereby preventing CL&P from receiving a return on its investment
or from recovery of O&M or depreciation until the unit returns to full power.
For further information on Millstone, see the 1997 Form 10-K, the First
Quarter 1998 Form 10-Q, the Second Quarter 1998 Form 10-Q, and the Form 8-K
dated September 22, 1998.
Millstone 1
CL&P and WMECO have ownership interests of 81 percent and 19 percent,
respectively, in Millstone 1. Based on a continued unit operation study filed
with the Connecticut DPUC in July 1998, CL&P and WMECO decided to cease
restart activities at Millstone 1 and instead prepare for final
decommissioning.
At September 30, 1998, CL&P and WMECO have net unrecovered plant and related
assets for Millstone 1 of $252 million and $61 million, respectively, and
unrecovered decommissioning costs of $306 million and $70 million,
respectively. Approximately $676 million ($545 million for CL&P and $131
million for WMECO) of the total unrecovered costs are expected to be
recovered from retail customers. Costs which are not expected to be recovered
have been written off. CL&P and WMECO have recorded these costs as a
deferred asset with associated liabilities on their balance sheets.
For further information on Millstone 1, see the Second Quarter 1998 Form 10-Q
and "Notes to Financial Statements" Note 8.
Liquidity and Capital Resources
Cash provided by operating activities increased approximately $299 million in
the first nine months of 1998, compared to the same period in 1997, primarily
due to increased cash from the accounts receivable financing program and
reduced expenditures for the Millstone units. Net cash from financing
activities decreased approximately $358 million, primarily due to lower
issuance of long-term debt and a decrease in short-term borrowings. In 1997
funds received under CL&P's accounts receivable financing program were
reflected as short-term debt, while in 1998 it is being reflected in cash
from operating activities. Net cash flows used for investments decreased
approximately $73 million, primarily due to a 1997 capital contribution to
Charter Oak Energy projects and a decrease in investment in plant.
For additional information on changes in capitalization, see "Notes to
Financial Statements" Note 4.
CL&P and WMECO established facilities under which they may sell from time to
time up to $200 million and $40 million, respectively, of their accounts
receivable and accrued utility revenues from third party purchasers. As of
September 30, 1998, CL&P and WMECO had sold approximately $145 million and
$20 million of accounts receivable, respectively, to third party purchasers.
For additional information on the sales of accounts receivable, see "Notes to
Financial Statements" Note 6.
The NU system companies' ability to make new, and maintain existing,
borrowings under their financing arrangements is dependent on their
satisfaction of contractual borrowing conditions. NU, CL&P and WMECO are
parties to a three-year $313.75 million revolving credit agreement (the
Credit Agreement), and NU is separately party to another one-year revolving
credit agreement with similar borrowing conditions. On September 11, 1998,
CL&P and WMECO successfully renegotiated key financial covenants in their
credit agreement to enable the companies to continue to meet certain
financial tests. Under the new terms, both CL&P and WMECO will have to
maintain at least a 31-percent ratio of common equity when compared to total
capitalization. Under the previous terms, CL&P and WMECO needed to maintain
a common equity ratio of at least 32 percent. The new interest coverage
ratios for CL&P and WMECO are 1.25 for the third quarter of 1998, 1.35 for
the fourth quarter of 1998, 1.75 for the first quarter of 1999 and 2.0 for
the remaining term of the loan agreement which will end in the fourth quarter
of 1999. At September 30, 1998, CL&P and WMECO had $10 million and $20
million, respectively, outstanding under the Credit Agreement. PSNH had $10
million outstanding at that time under a separate credit agreement.
In October 1998, CL&P and WMECO completed the conversion of $415.7 million of
tax-exempt pollution control revenue bonds from floating to fixed interest
rates. CL&P converted $315.5 million of 30-year bonds, which will carry
interest rates ranging from 5.85 percent to 5.95 percent. CL&P also converted
$21 million of such bonds, at an interest rate of 5.85 percent and will
mature December 1, 2022, as well as $25.4 million of 5.9 percent bonds, some
of which will mature November 1, 2016 and others on August 1, 2018. WMECO
converted $53.8 million of tax-exempt pollution control bonds at 5.85 percent
that will mature September 1, 2028. All of the bonds had been issued
previously on behalf of CL&P and WMECO by the Connecticut Development
Authority and the Business Finance Authority of the State of New Hampshire.
The proceeds primarily helped finance pollution control equipment at
Millstone 3 and Seabrook.
CL&P is party to an operating lease with General Electric Capital Corporation
related to the use of four turbine generators having an installed cost of
approximately $70 million. Based on present estimates, it will be difficult
for CL&P to meet certain of the lease covenant provisions after the third
quarter of 1998. CL&P hopes to be able to meet the existing lease provisions
through continued management of its operating and capital costs. However,
there is no assurance that the lease covenants will be met. In those
circumstances, CL&P would seek an amendment to the covenant restrictions in
this lease and expects that satisfactory new terms could be reached.
For additional information on leases, see "Notes to Financial Statements"
Note 5.
Restructuring
Connecticut
On October 1, 1998, CL&P filed its corporate restructuring and divestiture
plan with the DPUC as required by the Connecticut restructuring legislation.
The filing describes the company's proposals to separate its generation
assets from its transmission and distribution assets and to divest itself of
the generation assets in a series of steps.
The sale of the non-nuclear generating plants and the purchased-power
contracts is expected to close by January 1, 2000, the date when CL&P's
customer bills will be unbundled and a segment of its customers will be able
to choose alternative suppliers for generation services and CL&P's rates will
reflect a 10 percent rate reduction from December 1996 levels.
New Hampshire
On September 11, 1998, the New Hampshire Governor filed a brief with the U.S.
Court of Appeals for the First Circuit supporting the NHPUC Commissioners'
appeal of the U.S. District Court in Rhode Island's preliminary injunction
preventing implementation of the NHPUC's February 28, 1997 restructuring
order. PSNH moved that the brief be rejected because it was not filed in a
timely manner. Oral arguments were heard on October 6, 1998 on whether to
allow New Hampshire to put its electric deregulation plan into effect and
whether the case belongs in federal court. Assuming the appeal is resolved
favorably to PSNH a trial in federal court is expected to begin in the first
quarter of 1999.
Massachusetts
In accordance with WMECO's modified restructuring plan which was filed with
the DTE during 1998, preliminary bids for the first phase of WMECO's
generating plant auction were received on October 5, 1998. Final bids are due
on December 7, 1998 with the winning bidder expected to be notified by the
end of 1998. The first phase includes the auction of WMECO's older fossil
generation and a small amount of hydroelectric generation. The second phase
would offer WMECO's 19 percent share of the Northfield Mountain pumped storage
generating facility and be combined with CL&P's fossil/hydro auction which is
expected to occur in 1999.
Rate Matters
Connecticut
Hearings relating to CL&P's application filed with the DPUC on June 1, 1998
proposing a rate reduction of approximately 1 percent ended in October 1998.
A draft decision is expected in early December and a final decision by year end.
For further information on Connecticut rate matters, see NU's First and
Second Quarter 1998 Form 10-Qs.
Year 2000 Issue
NU has established an action plan by which certain processes must be
completed by certain dates in order to ensure its operating and reporting
systems, including nuclear systems, are able to properly recognize the year
2000. This action plan has three phases: the inventory phase, the detailed
assessment phase, and the remediation phase. The inventory phase, which has
been completed, identified all operating and reporting systems which may
need to be fixed. During the detailed assessment phase, tests are performed
to determine exactly what needs to be done in order to ensure that the
systems identified during the inventory phase are able to properly recognize
and process the year 2000. The detailed assessment for the majority of the
systems, including nuclear, is scheduled to be completed by the end of 1998.
The final phase is the remediation phase; by the end of this phase, all
mission critical systems will be Year 2000 ready. Management anticipates the
remediation phase for mission critical systems to be finalized by mid-1999.
The NU system utilizes both internal and external resources to test and
reprogram or replace the software for Year 2000 modifications. The total
estimated remaining cost of the Year 2000 project is $32 million which is
being funded through operating cash flows. The majority of these costs will
be expensed as incurred in 1998 and 1999. Since 1996, the company has
incurred and expensed approximately $9 million related to the inventory and
assessment phases, and preliminary efforts in connection with its Year 2000
project.
The costs of the project and the date on which the company plans to complete
the Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third-party modification plans
and other factors. However, there can be no guarantee that these estimates
will be achieved, and actual results could differ materially from those
plans. If the NU system's remediation plans or those of third parties are
not successful, there could be a significant disruption of the NU system's
operations. As a precautionary measure, NU is developing a contingency plan
which will evaluate alternatives that could be implemented if our remediation
plans are not successful. The contingency plan is expected to be available
by July 1, 1999.
The company is committed to assuring that adequate resources are available in
order to implement any changes necessary for its nuclear and other operations
to be compatible with the new millennium.
Risk-Management Instruments
The NU system uses swaps, collars, puts, and calls to manage the market risk
exposures associated with changes in fuel prices and variable interest rates.
The NU system uses these instruments to reduce risk by essentially creating
offsetting market exposures but does not use these risk-management instruments
for speculative purposes. For more information on NU system's use of risk-
management instruments, see the "Notes to Financial Statements" Note 5.
CL&P employs fuel price risk-management instruments to hedge risks associated
with fuel prices created by long-term, fixed-price electricity contracts with
wholesale customers. At September 30, 1998, CL&P had outstanding agreements
with a total notional value of approximately $348 million and a negative mark-
to-market position of approximately $21 million.
NAEC has entered into various interest rate swap agreements related to its
$200 million variable rate note, which essentially fixes the interest on it
at 7.823 percent.
There have been no material changes in the reported market risks for either
CL&P or NAEC since the 1997 Form 10-K. For further information on CL&P's and
NAEC's respective market risk exposures, see the MD&A in the 1997 Form 10-K
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Third Nine
Quarter Percent Months Percent
Operating revenues $(3) -% $(48) (2)%
Other operation (36) (13) (126) (15)
Maintenance (46) (35) (91) (24)
Depreciation (9) (10) (12) (5)
Amortization of
regulatory assets, net 23 75 27 30
Federal and state income taxes 31 (a) 58 (a)
Gain on equity investment 14 100 14 100
Millstone 1 - unrecoverable
costs (25) (a) (27) (a)
Interest charges (6) (8) (6) (3)
Net income/(loss) 36 (a) 70 (91)
(a) Percentage greater than 100
Comparison of the Third Quarter of 1998 to the Third Quarter of 1997
Total operating revenues decreased in 1998, primarily due to retail rate
decreases for CL&P, PSNH and WMECO and the accounting for the impact of
Millstone 2 and Millstone 3 being removed from CL&P's rates, partially offset
by higher retail sales and higher fuel recoveries. Retail kilowatt hour sales
were 4.3 percent higher in 1998 than in the third quarter of 1997.
Other O&M expenses decreased in 1998, primarily due to lower costs at the
Millstone nuclear unit ($62 million) and lower pensions, post-retirement
benefits, insurance and information technology costs ($19 million).
Depreciation expense decreased in 1998 primarily due to the retirement of
Millstone 1.
Amortization of regulatory assets, net increased in 1998, primarily due to
higher amortization as a result of the 1998 CL&P interim rate decision ($13
million) and the amortization in 1998 of Seabrook phase-in costs ($22
million). These increases were partially offset by the completion of the
amortization of a portion of the PSNH acquisition premium ($15 million).
Federal and state income taxes increased in 1998, primarily due to higher
book taxable income.
The gain on equity investment in 1998 is primarily due to the recognition of
a gain on NU's investment in NEON resulting from NEON's initial public
offering.
Millstone 1-unrecoverable costs represents the write-off of the Millstone 1
entitlement formerly held by CMEEC.
Interest charges decreased in 1998 primarily due to lower borrowings.
Comparison of the First Nine Months of 1998 to the First Nine Months of 1997
Total operating revenues decreased in 1998, primarily due to retail rate
decreases for CL&P, PSNH and WMECO and the accounting for the impact of
Millstone 2 and Millstone 3 being removed from CL&P's rates, partially offset
by higher fuel recoveries and higher retail sales. Retail kilowatt hour
sales were 2.0 percent higher in 1998 than in the first nine months of 1997.
Other O&M expenses decreased in 1998, primarily due to lower costs at the
Millstone and Yankee nuclear units ($144 million), lower pensions, post-
retirement benefits, insurance and information technology costs ($47 million),
the recognition of environmental insurance proceeds ($27 million), Charter
Oak Energy 1997 losses on the sale of various projects ($14 million),
and lower costs at Seabrook as a result of the refueling outage in 1997
($11 million). These decreases were partially offset by higher recognition
of nuclear refueling outage costs primarily as a result of the 1996 CL&P
Rate Settlement ($24 million).
Depreciation expense decreased in 1998 primarily due to the retirement of
Millstone 1.
Amortization of regulatory assets, net increased in 1998, primarily due to
higher amortization as a result of the 1998 CL&P interim rate decision
($23 million) and the amortization in 1998 of Seabrook phase-in costs
($35 million). These increases were partially offset by the completion of
the amortization of a portion of the PSNH acquisition premium ($25 million).
Federal and state income taxes increased in 1998, primarily due to higher
book taxable income.
The gain on equity investment in 1998 is primarily due to the recognition
of a gain on NU's investment in NEON resulting from Neon's initial public
offering.
Millstone 1-unrecoverable costs represents the write-off of the Millstone 1
entitlement formerly held by CMEEC.
Interest charges decreased in 1998 primarily due to lower borrowings.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Northeast Utilities:
We have reviewed the accompanying consolidated balance sheet of Northeast
Utilities (a Massachusetts trust) and subsidiaries as of September 30, 1998,
and the related consolidated statements of income for the three and nine-
month periods ended September 30, 1998 and restated three and nine-month
periods ended September 30, 1997, and the consolidated statements of cash
flows for the nine-month periods ended September 30, 1998 and restated
September 30, 1997. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Northeast Utilities as of
December 31, 1997, and in our report dated February 20, 1998, we expressed an
unqualified opinion on that statement. As discussed in footnote 1, the
December 31, 1997 balance sheet was restated to reflect an adjustment in the
Company's accounting for nuclear compliance costs. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1997, is fairly stated, in all material respects, in relation to
the consolidated balance sheet, as restated, from which it has been derived.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Hartford, Connecticut
November 9, 199
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 6,127,976 $ 6,411,018
Less: Accumulated provision for depreciation......... 2,688,705 2,902,673
------------- -------------
3,439,271 3,508,345
Construction work in progress........................... 81,440 93,692
Nuclear fuel, net....................................... 85,816 135,076
------------- -------------
Total net utility plant............................. 3,606,527 3,737,113
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 412,979 369,162
Investments in regional nuclear generating
companies, at equity................................... 56,177 58,061
Other, at cost.......................................... 70,843 66,625
------------- -------------
539,999 493,848
------------- -------------
Current Assets:
Cash.................................................... 364 459
Investment in securitizable assets...................... 81,741 205,625
Notes receivable from affiliated companies.............. 41,250 -
Receivables, net........................................ 25,598 50,671
Accounts receivable from affiliated companies........... 16,212 3,150
Taxes receivable........................................ 25,851 70,311
Fuel, materials, and supplies, at average cost.......... 78,574 81,878
Recoverable energy costs, net--current portion.......... 722 28,073
Prepayments and other................................... 127,996 79,632
------------- -------------
398,308 519,799
------------- -------------
Deferred Charges:
Regulatory assets (Note 2B):
Income taxes,net...................................... 624,678 709,896
Unrecovered contractual obligations................... 301,590 338,406
Deferred demand side management costs................. 7,532 52,100
Recoverable energy costs, net......................... 90,735 104,796
Cogeneration costs.................................... 12,900 33,505
Other................................................. 48,632 54,115
Unrecovered costs--Millstone 1 (Note 8A)................ 545,075 -
Unamortized debt expense................................ 17,802 19,286
Other................................................... 15,379 18,359
------------- -------------
1,664,323 1,330,463
------------- -------------
Total Assets........................................ $ 6,209,157 $ 6,081,223
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$10 par value. Authorized
24,500,000 shares; outstanding 12,222,930
shares................................................. $ 122,229 $ 122,229
Capital surplus, paid in................................ 664,529 641,333
Retained earnings (Note 1).............................. 331,503 419,972
------------- -------------
Total common stockholder's equity.............. 1,118,261 1,183,534
Preferred stock not subject to mandatory
redemption............................................. 116,200 116,200
Preferred stock subject to mandatory redemption......... 129,072 151,250
Long-term debt.......................................... 1,791,639 2,023,316
------------- -------------
Total capitalization........................... 3,155,172 3,474,300
------------- -------------
Minority Interest in Consolidated Subsidiary.............. 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 134,126 18,042
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 10,000 35,000
Notes payable to affiliated company..................... - 61,300
Long-term debt and preferred stock--current
portion................................................ 217,755 23,761
Obligations under capital leases--current
portion................................................ 27,671 140,076
Accounts payable........................................ 79,793 124,427
Accounts payable to affiliated companies................ 33,630 92,963
Accrued taxes........................................... 22,298 33,017
Accrued interest........................................ 32,133 14,650
Other................................................... 30,892 23,495
------------- -------------
454,172 548,689
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,284,164 1,348,617
Accumulated deferred investment tax credits............. 121,849 127,713
Unrecovered decommissioning obligation--
Millstone 1 (Note 8A).................................. 306,218 -
Decommissioning funds--Millstone 1 (Note 8A)............ 213,882 -
Deferred contractual obligations........................ 312,424 348,406
Other................................................... 127,150 115,456
------------- -------------
2,365,687 1,940,192
------------- -------------
Commitments and Contingencies (Note 7)
Total Capitalization and Liabilities........... $ 6,209,157 $ 6,081,223
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------------
1998 1997 1998 1997
(Restated) (Restated)
--------- --------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues................................. $628,148 $627,712 $1,798,333 $1,827,461
--------- --------- ----------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power..... 235,905 241,073 699,221 723,698
Other......................................... 171,874 185,632 512,957 536,364
Maintenance...................................... 60,217 92,193 189,708 260,567
Depreciation..................................... 52,313 60,231 167,886 179,200
Amortization of regulatory assets, net........... 25,537 14,568 62,547 45,929
Federal and state income taxes................... 8,868 (10,045) (11,991) (38,334)
Taxes other than income taxes.................... 43,489 42,695 130,733 128,388
--------- --------- ----------- -----------
Total operating expenses................... 598,203 626,347 1,751,061 1,835,812
--------- --------- ----------- -----------
Operating Income (Loss)............................ 29,945 1,365 47,272 (8,351)
--------- --------- ----------- -----------
Other Income:
Equity in earnings of regional nuclear
generating companies........................... 1,453 1,568 5,165 4,717
Millstone 1--unrecoverable costs (Note 8B)....... (25,053) - (26,722) -
Other, net....................................... (3,668) 231 (15,775) 8,337
Minority interest in income of subsidiary........ (2,325) (2,325) (6,975) (6,975)
Income taxes..................................... 11,799 2,001 20,682 2,415
--------- --------- ----------- -----------
Other (loss) income, net................... (17,794) 1,475 (23,625) 8,494
--------- --------- ----------- -----------
Income before interest charges............. 12,151 2,840 23,647 143
--------- --------- ----------- -----------
Interest Charges:
Interest on long-term debt....................... 32,047 34,033 98,792 97,915
Other interest................................... 509 1,967 2,600 5,185
--------- --------- ----------- -----------
Interest charges, net...................... 32,556 36,000 101,392 103,100
--------- --------- ----------- -----------
Net Loss........................................... $(20,405) $(33,160) $ (77,745) $ (102,957)
========= ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1998 1997
(Restated)
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Loss ................................................... $ (77,745) $ (102,957)
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 167,886 179,200
Deferred income taxes and investment tax credits, net..... (30,014) (10,573)
Amortization of deferred demand-side-management costs, net 44,568 44,477
Recoverable energy costs, net of amortization............. 41,412 583
Amortization of deferred cogeneration costs, net ......... 20,605 23,936
Deferred nuclear refueling outage, net of amortization.... - (34,000)
Millstone 1--unrecoverable costs (Note 8B)................ 26,722 -
Other sources of cash..................................... 85,411 49,060
Other uses of cash........................................ (3,218) (35,887)
Changes in working capital:
Receivables and accrued utility revenues.................. (32,989) 1,707
Fuel, materials, and supplies............................. 3,304 (1,748)
Accounts payable.......................................... (103,967) (37,918)
Accrued taxes............................................. (10,719) (2,145)
Sale of receivables and accrued utility revenues.......... 45,000 -
Investment in securitizable assets........................ 123,884 -
Other working capital (excludes cash)..................... 20,976 (77,098)
----------- -----------
Net cash flows from/(used for) operating activities........... 321,116 (3,363)
----------- -----------
Financing Activities:
Net (decrease)/increase in short-term debt.................. (86,300) 135,000
Issuance of long-term debt.................................. - 200,000
Reacquisitions and retirements of long-term debt............ (45,006) (198,512)
Reacquisitions and retirements of preferred stock........... (22,178) -
Cash dividends on preferred stock........................... (10,724) (11,416)
Cash dividends on common stock.............................. - (5,990)
----------- -----------
Net cash flows (used for)/from financing activities........... (164,208) 119,082
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (88,590) (117,953)
Nuclear fuel.............................................. (3,572) (666)
----------- -----------
Net cash flows used for investments in plant................ (92,162) (118,619)
NU System Money Pool........................................ (41,250) 76,450
Investments in nuclear decommissioning trusts............... (41,257) (32,707)
Other investment activities, net............................ (2,334) (40,852)
Capital contributions ...................................... 20,000 -
----------- -----------
Net cash flows used for investments........................... (157,003) (115,728)
----------- -----------
Net Decrease In Cash For The Period........................... (95) (9)
Cash - beginning of period.................................... 459 404
----------- -----------
Cash - end of period.......................................... $ 364 $ 395
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations
CL&P (the company) is a wholly-owned subsidiary of NU. This discussion
should be read in conjunction with NU's MD&A and the company's consolidated
financial statements and footnotes in this Form 10-Q, the First and Second
Quarter 1998 Form 10-Q's, the 1997 Form 10-K and the Form 8-K dated
September 10, 1998.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Third Nine
Quarter Percent Months Percent
Operating revenues $- -% $(29) (2)%
Fuel, purchased and net
interchange power (5) (2) (24) (3)
Other operation (14) (7) (23) (4)
Maintenance (32) (35) (71) (27)
Depreciation (8) (13) (11) (6)
Amortization of
regulatory assets, net 11 75 17 36
Federal and state income taxes 9 (76) 8 (20)
Millstone 1-
unrecoverable costs (25) 100 (27) 100
Other income, net (4) (a) (24) (a)
Net income/(loss) 13 38 25 24
(a) Percentage greater than 100
Comparison of the Third Quarter of 1998 to the Third Quarter of 1997
CL&P had a net loss for the third quarter of 1998 of approximately $20
million, compared to a restated net loss of approximately $33 million for the
third quarter of 1997. Improved third quarter results were primarily due to
a $46 million reduction in other operation and maintenance costs.
Rate reductions in 1998 and the accounting for the impact of Millstone 2 and
Millstone 3 being removed from rates offset higher retail sales for the
quarter. Retail kilowatt hour sales were 4.9 percent higher in 1998 than in
the first nine months of 1997.
Other operation and maintenance expense decreased in 1998, primarily due to
the return to service of Millstone 3 and the retirement of Millstone 1.
Depreciation decreased in 1998 primarily due to the retirement of Millstone 1.
Amortization of regulatory assets, net increased in 1998, primarily due to
higher amortizations as a result of the 1998 interim rate decision.
Federal and state income taxes increased in 1998, primarily due to higher
book taxable income.
Millstone 1-unrecoverable costs represents the write-off of the Millstone 1
entitlement formerly held by CMEEC.
Comparison of the First Nine Months of 1998 to the First Nine Months of 1997
For the first nine months of 1998, CL&P lost $78 million, compared to a
restated loss of $103 million for the first nine months of 1997. Improved
results for the first nine months were primarily due to a $94 million
reduction in operation and maintenance costs.
Total operating revenues decreased in 1998, primarily due to the retail rate
reduction in 1998 and the accounting for the impact of Millstone 2 being
removed from CL&P's rates. These decreases were partially offset by higher
retail sales. Retail kilowatt hour sales were 2.4 percent higher in 1998
than in the first nine months of 1997.
Fuel, purchased and net interchange power expense decreased in 1998,
primarily due to lower replacement power costs due to the return to service
of Millstone 3 and lower fuel prices. These decreases were partially offset
by the timing in the recognition of costs under the company's fuel clause.
Other operation and maintenance expense decreased in 1998, primarily due to
lower costs at the Millstone and Yankee nuclear units ($106 million), lower
fossil, distribution and customer expenditures in 1998 ($27 million), lower
administrative and general expenses ($17 million), and the recognition of
the environmental insurance proceeds ($9 million). These decreases were
partially offset by higher capacity purchases ($44 million) and higher
recognition of nuclear refueling outage costs as a result of the 1996 Rate
Settlement ($24 million).
Depreciation decreased in 1998 primarily due to the retirement of
Millstone 1.
Amortization of regulatory assets, net increased in 1998, primarily due to
higher amortizations as a result of the 1998 interim rate decision.
Federal and state income taxes increased in 1998, primarily due to higher
book taxable income.
Millstone 1-unrecoverable costs represents the write-off of the Millstone 1
entitlement formerly held by CMEEC.
Other income, net decreased in 1998, primarily due to costs associated with
the accounts receivable facility.
Liquidity and Capital Resources
Cash provided from operations increased approximately $324 million in the
first nine months of 1998, from 1997, primarily due to cash available through
the company's accounts receivable financing and reduced expenditures for the
Millstone outages. Net cash from financing activities decreased approximately
$283 million, primarily due to a decrease in short-term borrowings and the
retirement of long-term debt and preferred stock without any debt issuances,
partially offset by no cash dividends on common stock. In 1997 CL&P's accounts
receivable financing program was reflected as short-term debt, while in 1998
it is being reflected in cash from operating activities due to the adoption
of FAS 125. Net cash flows used for investments increased approximately $41
million, primarily due to higher investments in the NU System Money Pool,
partially offset by a capital contribution from NU Parent and lower investment
in utility plant.
See NU's MD&A for additional information on Liquidity and Capital
Resources.
For information relating to the following items, refer to NU's MD&A included
in this Form 10-Q:
Millstone
Millstone 1
Restructuring
Rate Matters
Year 2000 Issues
Risk-Management Instruments
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 1,902,275 $ 1,898,319
Less: Accumulated provision for depreciation......... 621,512 590,056
------------- -------------
1,280,763 1,308,263
Unamortized acquisition costs........................... 359,959 402,285
Construction work in progress........................... 26,533 10,716
Nuclear fuel, net....................................... 1,150 1,308
------------- -------------
Total net utility plant............................. 1,668,405 1,722,572
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 4,747 4,332
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 19,224 19,169
Other, at cost.......................................... 3,483 3,773
------------- -------------
27,454 27,274
------------- -------------
Current Assets:
Cash and cash equivalents............................... 43,092 94,459
Receivables, net........................................ 80,318 89,338
Accounts receivable from affiliated companies........... 14,264 38,520
Accrued utility revenues................................ 32,731 36,885
Fuel, materials, and supplies, at average cost.......... 34,515 40,161
Recoverable energy costs--current portion............... 67,005 31,886
Prepayments and other................................... 41,690 11,271
------------- -------------
313,615 342,520
------------- -------------
Deferred Charges:
Regulatory assets (Note 2B):
Recoverable energy costs............................... 165,106 191,686
Income taxes, net...................................... 131,335 128,244
Deferred costs, nuclear plant.......................... 224,491 281,856
Unrecovered contractual obligations.................... 73,961 83,042
Seabrook deferral...................................... 44,145 8,376
Other.................................................. 2,181 2,214
Deferred receivable from affiliated company............. 25,164 32,472
Unamortized debt expense................................ 15,186 11,749
Other................................................... 6,574 5,154
------------- -------------
688,143 744,793
------------- -------------
Total Assets........................................ $ 2,697,617 $ 2,837,159
============= =============
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$1 par value.
Authorized and outstanding 1,000 shares................ $ 1 $ 1
Capital surplus, paid in................................ 424,364 423,713
Retained earnings (Note 1).............................. 231,498 170,501
------------- -------------
Total common stockholder's equity.............. 655,863 594,215
Preferred stock subject to mandatory redemption......... 50,000 75,000
Long-term debt.......................................... 516,485 516,485
------------- -------------
Total capitalization........................... 1,222,348 1,185,700
------------- -------------
Obligations Under Seabrook Power Contracts
and Other Capital Leases................................. 724,318 799,450
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 10,000 -
Long-term debt and preferred stock--current portion..... 25,000 195,000
Obligations under Seabrook Power Contracts and other
capital leases--current portion........................ 135,255 122,363
Accounts payable........................................ 27,786 21,231
Accounts payable to affiliated companies................ 24,908 32,677
Accrued taxes........................................... 92,195 69,445
Accrued interest........................................ 13,107 7,197
Accrued pension benefits................................ 46,018 46,061
Other................................................... 7,171 9,417
------------- -------------
381,440 503,391
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 232,521 204,406
Accumulated deferred investment tax credits............. 3,588 3,972
Deferred contractual obligations........................ 73,961 83,042
Deferred revenue from affiliated company................ 25,164 32,472
Other................................................... 34,277 24,726
------------- -------------
369,511 348,618
------------- -------------
Commitments and Contingencies (Note 7)
------------- -------------
Total Capitalization and Liabilities........... $ 2,697,617 $ 2,837,159
============= =============
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1998 1997 1998 1997
(Restated) (Restated)
---------- ---------- ---------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues................................. $ 286,614 $ 285,390 $ 799,143 $ 820,809
---------- ---------- ---------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power..... 88,141 96,484 233,955 233,085
Other......................................... 108,598 91,315 282,390 272,464
Maintenance...................................... 8,977 9,855 38,921 27,305
Depreciation..................................... 11,434 11,145 34,162 33,252
Amortization of regulatory assets, net........... 3,258 14,134 23,496 42,416
Federal and state income taxes................... 16,954 18,738 54,023 67,802
Taxes other than income taxes.................... 11,818 11,553 33,587 33,353
---------- ---------- ---------- -----------
Total operating expenses................... 249,180 253,224 700,534 709,677
---------- ---------- ---------- -----------
Operating Income................................... 37,434 32,166 98,609 111,132
---------- ---------- ---------- -----------
Other Income:
Equity in earnings of regional nuclear
generating companies and subsidary company..... 501 508 1,967 1,363
Other, net....................................... 2,573 (190) 9,052 (320)
Income taxes..................................... (494) (375) (6,890) (1,222)
---------- ---------- ---------- -----------
Other income(loss), net.................... 2,580 (57) 4,129 (179)
---------- ---------- ---------- -----------
Income before interest charges............. 40,014 32,109 102,738 110,953
---------- ---------- ---------- -----------
Interest Charges:
Interest on long-term debt....................... 9,730 12,827 33,683 38,371
Other interest................................... 392 382 771 98
---------- ---------- ---------- -----------
Interest charges, net...................... 10,122 13,209 34,454 38,469
---------- ---------- ---------- -----------
Net Income......................................... $ 29,892 $ 18,900 $ 68,284 $ 72,484
========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1998 1997
(Restated)
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 68,284 $ 72,484
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 34,162 33,252
Deferred income taxes and investment tax credits, net... 61,758 14,116
Recoverable energy costs, net of amortization........... (8,539) (13,029)
Amortization of acquisition costs, net.................. 23,496 42,423
Deferred Seabrook capital costs, net.................... (35,769) -
Other sources of cash................................... 86,597 18,411
Other uses of cash...................................... (98,888) (34,330)
Changes in working capital:
Receivables and accrued utility revenues................ 37,430 18,712
Fuel, materials, and supplies........................... 5,646 5,786
Accounts payable........................................ (1,214) (26,786)
Accrued taxes........................................... 22,750 71,297
Other working capital (excludes cash)................... (26,798) (13,290)
----------- -----------
Net cash flows from operating activities.................... 168,915 189,046
----------- -----------
Financing Activities:
Net increase in short term debt........................... 10,000 -
Reacquisitions and retirements of long-term debt.......... (170,000) -
Reacquisition and retirements of preferred stock.......... (25,000) (25,000)
Cash dividends on preferred stock......................... (7,287) (9,275)
Cash dividends on common stock............................ - (85,000)
----------- -----------
Net cash flows used for financing activities................ (192,287) (119,275)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................. (27,808) (22,511)
Nuclear fuel............................................ 2 3
----------- -----------
Net cash flows used for investments in plant.............. (27,806) (22,508)
NU System Money Pool...................................... - (44,600)
Other investment activities, net.......................... (189) (3,090)
----------- -----------
Net cash flows used for investments......................... (27,995) (70,198)
----------- -----------
Net Decrease In Cash For The Period......................... (51,367) (427)
Cash and cash equivalents - beginning of period............. 94,459 1,015
----------- -----------
Cash and cash equivalents - end of period................... $ 43,092 $ 588
=========== ===========
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PSNH (the company) is a wholly-owned subsidiary of NU. This discussion
should be read in conjunction with NU's MD&A and the company's consolidated
financial statements and footnotes in this Form 10-Q, the First and Second
Quarter 1998 Form 10-Qs and the 1997 Form 10-K.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Third Nine
Quarter Percent Months Percent
Operating revenues $1 -% $(22) (3)%
Fuel, purchased and net
interchange power (8) (9) 1 -
Other operation 17 19 10 4
Maintenance (1) (9) 12 43
Amortization of
regulatory assets, net (11) (77) (19) (45)
Federal and state income taxes (2) (9) (8) (12)
Other income, net 3 15 9 (29)
Interest on long-term debt (3) (24) (5) (12)
Net income/(loss) 11 58 (4) (6)
Comparison of the Third Quarter of 1998 to the Third Quarter of 1997
PSNH's net income was approximately $30 million for the third quarter of 1998
compared to $19 million, as restated, for the third quarter of 1997. The
increase in net income for the third quarter was primarily due to higher
retail sales.
Total operating revenues increased in 1998, primarily due to higher revenues
under the company's fuel clause and higher retail sales, partially offset by
a 1997 retail rate decrease. Retail kilowatt hour sales were 5.6 percent
higher in 1998 than from the same period in 1997.
Fuel, purchased and net interchange power expense decreased in 1998,
primarily due to lower purchased power costs.
Other operation and maintenance expense increased in 1998, primarily due
to higher costs associated with the Seabrook Power Contract as a result of
the amortization of the Seabrook phase-in costs that began in June 1998
($24 million), partially offset by lower administrative and general expenses
($4 million), the recognition of environmental insurance proceeds ($2 million),
and lower costs at Millstone 3 and the Maine Yankee nuclear unit ($2 million).
Amortization of regulatory assets decreased ($15 million) in 1998, primarily
due to completion of the amortization of a portion of the company's
acquisition premium, partially offset by the additional Seabrook deferred
return ($4 million).
Federal and state income taxes decreased in 1998 primarily due to lower book
taxable income.
Other income, net increased in 1998, primarily due to the amortization of the
Seabrook deferred charges associated with the taxes on the purchased return
which began in December 1997.
Interest on long-term debt decreased due to the maturity of bonds ($170
million) in May 1998.
Comparison of the First Nine Months of 1998 to the First Nine Months of 1997
Net income for the nine months ended September 30, 1998 was $68 million,
compared to $72 million, as restated, for the nine months ended September 30,
1997. The decrease in net income for the nine month period was primarily due
to lower operating revenues and higher other operation and maintenance expenses,
partially offset by the lower amortization of the regulatory asset.
Total operating revenues decreased in 1998, primarily due to the 1997 retail
rate decrease partially offset by higher revenues under the company's fuel
clause and higher retail sales. Retail kilowatt hour sales increased 2.1
percent for the nine months 1998.
Other operation and maintenance expense increased in 1998, primarily due to
higher costs associated with the Seabrook Power Contract as a result of the
amortization of Seabrook phase-in costs that began in June 1998 ($35 million),
higher costs related to the January ice storm, net of insurance proceeds,
($10 million); partially offset by the recognition of the environmental
insurance proceeds ($12 million) and lower costs at Millstone 3 and the
Maine Yankee nuclear unit ($9 million).
Amortization of regulatory assets decreased in 1998, primarily due to the
completion of the amortization of a portion of the company's acquisition
premium ($25 million), partially offset by the additional Seabrook deferred
return ($6 million).
Federal and state income taxes decreased in 1998, primarily due to lower book
taxable income.
Other income, net increased in 1998, primarily due to the amortization of the
Seabrook deferred charges associated with the taxes on the purchased return
which began in December 1997.
Interest on long-term debt decreased due to the maturity of bonds ($170
million) in May 1998.
Liquidity and Capital Resources
Cash provided from operations decreased approximately $20 million in the
first nine months of 1998, compared to the same period in 1997, primarily due
to the billing from NAEC of the Seabrook phase-in costs which were not being
recovered from customers. Net cash used for financing activities increased
approximately $73 million, primarily due to the company's $170 million bond
maturity in May 1998, partially offset by lower cash dividends on common
shares and an increase in short-term debt. Net cash flows used for
investments decreased approximately $42 million, primarily due to a 1997
increase in investments in the NU System Money Pool.
See NU's MD&A in this Form 10-Q for further information regarding Liquidity
and Capital Resources.
For information relating to the following items, refer to NU's MD&A included
in this Form 10-Q:
Millstone
Restructuring
Rate Matters
Year 2000 Issue
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 1,210,994 $ 1,284,288
Less: Accumulated provision for depreciation......... 499,592 559,119
------------- ------------
711,402 725,169
Construction work in progress........................... 17,260 19,038
Nuclear fuel, net....................................... 19,197 30,907
------------- ------------
Total net utility plant............................. 747,859 775,114
------------- ------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 111,984 102,708
Investments in regional nuclear generating
companies, at equity................................... 15,195 15,741
Other, at cost.......................................... 6,939 4,900
------------- ------------
134,118 123,349
------------- ------------
Current Assets:
Cash.................................................... 252 105
Investments in securitizable assets..................... 17,503 25,280
Receivables, net........................................ 2,647 2,739
Accounts receivable from affiliated companies........... 3,867 3,933
Taxes receivable........................................ 13,563 10,768
Fuel, materials, and supplies, at average cost.......... 4,962 5,860
Prepayments and other................................... 23,770 14,945
------------- ------------
66,564 63,630
------------- ------------
Deferred Charges:
Regulatory assets (Note 2B):
Income taxes, net...................................... 55,484 63,716
Unrecovered contractual obligations.................... 83,813 93,628
Recoverable energy costs............................... 30,986 26,270
Other.................................................. 24,766 27,763
Unrecovered costs--Millstone 1 (Note 8A)................ 130,526 -
Unamortized debt expense................................ 2,194 2,695
Other................................................... 3,676 2,963
------------- ------------
331,445 217,035
------------- ------------
Total Assets........................................ $ 1,279,986 $ 1,179,128
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Restated)
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$25 par value.
Authorized and outstanding 1,072,471 shares............ $ 26,812 $ 26,812
Capital surplus, paid in................................ 151,602 151,171
Retained earnings (Note 1).............................. 53,421 58,608
------------- ------------
Total common stockholder's equity.............. 231,835 236,591
Preferred stock not subject to mandatory redemption..... 20,000 20,000
Preferred stock subject to mandatory redemption......... 18,000 19,500
Long-term debt.......................................... 348,492 386,849
------------- ------------
Total capitalization........................... 618,327 662,940
------------- ------------
Obligations Under Capital Leases.......................... 27,488 217
------------- ------------
Current Liabilities:
Notes payable to banks.................................. 20,000 15,000
Notes payable to affiliated company..................... 27,700 14,350
Long-term debt and preferred stock--current
portion................................................ 41,500 11,300
Obligations under capital leases--current
portion................................................ 6,332 32,670
Accounts payable........................................ 13,814 30,571
Accounts payable to affiliated companies................ 8,635 21,209
Accrued taxes........................................... 1,156 522
Accrued interest........................................ 5,319 3,318
Other................................................... 9,201 2,446
------------- ------------
133,657 131,386
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 248,700 246,453
Accumulated deferred investment tax credits............. 22,262 23,364
Unrecovered decommissioning obligation--
Millstone 1 (Note 8A).................................. 69,525 -
Decommissioning funds--Millstone 1 (Note 8A)............ 52,475 -
Deferred contractual obligations........................ 83,813 93,628
Other................................................... 23,739 21,140
------------- ------------
500,514 384,585
------------- ------------
Commitments and Contingencies (Note 7)
Total Capitalization and Liabilities........... $ 1,279,986 $ 1,179,128
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
1998 1997 1998 1997
(Restated) (Restated)
--------- --------- --------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues............................. $ 93,839 $111,166 $291,677 $ 321,350
--------- --------- --------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power. 30,683 34,533 87,689 110,868
Other..................................... 30,219 36,669 94,195 109,240
Maintenance.................................. 12,834 23,070 40,288 64,423
Depreciation................................. 9,087 10,179 29,581 30,008
Amortization of regulatory assets............ 2,605 1,605 5,644 4,830
Federal and state income taxes............... (925) (1,342) 116 (10,586)
Taxes other than income taxes................ 5,035 4,577 15,411 14,811
--------- --------- --------- -----------
Total operating expenses............... 89,538 109,291 272,924 323,594
--------- --------- --------- -----------
Operating Income(Loss)......................... 4,301 1,875 18,753 (2,244)
--------- --------- --------- -----------
Other Income:
Equity in earnings of regional nuclear
generating companies....................... 395 425 1,411 1,277
Other, net................................... (299) (946) (208) (589)
Income taxes................................. 209 173 423 875
--------- --------- --------- -----------
Other income(loss), net................ 305 (348) 1,626 1,563
--------- --------- --------- -----------
Income(loss) before interest charges... 4,606 1,527 20,379 (681)
--------- --------- --------- -----------
Interest Charges:
Interest on long-term debt................... 7,449 6,089 21,134 18,063
Other interest............................... 703 741 2,162 3,084
--------- --------- --------- -----------
Interest charges, net.................. 8,152 6,830 23,296 21,147
--------- --------- --------- -----------
Net Loss....................................... $ (3,546) $ (5,303) $ (2,917) $ (21,828)
========= ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1998 1997
(Restated)
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Loss.................................................... $ (2,917) $ (21,828)
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 29,581 30,008
Deferred income taxes and investment tax credits, net..... 5,287 (5,238)
Recoverable energy costs, net of amortization............. (4,716) 2,855
Amortization of nuclear refueling outage, net of deferrals 2,059 4,411
Other sources of cash..................................... 14,648 17,994
Other uses of cash........................................ (733) (10,041)
Changes in working capital:
Receivables and accrued utility revenues.................. 8,158 22,016
Fuel, materials, and supplies............................. 898 (763)
Accounts payable.......................................... (29,331) (6,285)
Accrued taxes............................................. 634 (1,616)
Sale of receivables and accrued utility revenues.......... (8,000) 28,000
Investments in securitizable assets....................... 7,777 (14,933)
Other working capital (excludes cash)..................... (2,864) (12,155)
----------- -----------
Net cash flows from operating activities...................... 20,481 32,425
----------- -----------
Financing Activities:
Net increase/(decrease) in short-term debt.................. 18,350 (30,050)
Issuance of long-term debt.................................. - 60,000
Reacquisitions and retirements of long-term debt............ (9,800) (14,700)
Reacquisitions and retirements of preferred stock........... (1,500) -
Cash dividends on preferred stock........................... (2,270) (2,355)
Cash dividends on common stock.............................. - (15,004)
----------- -----------
Net cash flows from/(used for) financing activities........... 4,780 (2,109)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (12,853) (21,395)
Nuclear fuel.............................................. (481) (15)
----------- -----------
Net cash flows used for investments in plant................ (13,334) (21,410)
Investments in nuclear decommissioning trusts............... (10,287) (7,282)
Other investment activities, net............................ (1,493) (1,576)
----------- -----------
Net cash flows used for investments........................... (25,114) (30,268)
----------- -----------
Net Increase In Cash For The Period........................... 147 48
Cash - beginning of period.................................... 105 67
----------- -----------
Cash - end of period.......................................... $ 252 $ 115
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations
WMECO (the company) is a wholly-owned subsidiary of NU. This discussion
should be read in conjunction with NU's MD&A and the company's consolidated
financial statements and footnotes in this Form 10-Q, the First and Second
Quarter 1998 Form 10-Q's, the 1997 Form 10-K and the Form 8-K dated
September 10, 1998.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Third Nine
Quarter Percent Months Percent
Operating revenues $(17) (16)% $(30) (9)%
Fuel, purchased and net
interchange power (4) (11) (23) (21)
Other operation (6) (18) (15) (14)
Maintenance (10) (44) (24) (37)
Federal and state income taxes - - 11 (97)
Net income/(loss) 2 (33) 19 (87)
Comparison of the Third Quarter of 1998 to the Third Quarter of 1997
WMECO had a net loss for the third quarter of 1998 of approximately $3.5
million compared to a restated net loss of approximately $5.3 million for the
third quarter of 1997. Improved third quarter results were primarily due to a
$16 million reduction in non-fuel operation and maintenance costs, partially
offset by a reduction in operating revenues.
Total operating revenues decreased in 1998, primarily due to a 10% retail
rate decrease in 1998 and lower retail sales. Retail kilowatt hour sales
were 2.0 percent lower in 1998 than in the third quarter of 1997.
Fuel, purchased and net interchange power expense decreased in 1998 primarily
due to lower replacement power costs as a result of the return to service of
Millstone 3 and lower fuel prices.
Other operation and maintenance expense decreased in 1998, primarily due to
lower costs at the Millstone units ($11 million), lower capacity charges
($3 million) and lower administrative and general expenses ($2 million).
Comparison of the First Nine Months of 1998 to the First Nine Months of 1997
For the first nine months of 1998, WMECO had a net loss of approximately
$2.9 million compared to a restated net loss of approximately $21.8 million
for the first nine months of 1997. Improved results for the nine months were
primarily due to a $39 million reduction in non-fuel operation and maintenance
costs, partially offset by a reduction in operating revenues.
Total operating revenues decreased in 1998, primarily due to a 10% retail
rate decrease in 1998. Retail kilowatt hour sales were 1.0 percent higher
than those in the first nine months of 1997.
Fuel, purchased and net interchange power expense decreased in 1998,
primarily due to lower replacement power costs as a result of the return to
service of Millstone 3, lower fuel prices and the deferral of costs as
allowed by the company's restructuring plan.
Other operation and maintenance expense decreased in 1998, primarily due to
lower costs at the Millstone units ($21 million), lower capacity charges from
CY and MY ($7 million), lower fossil maintenance costs ($4 million), lower
administrative and general expenses ($3 million) and the recognition of the
environmental insurance proceeds ($2 million).
Federal and state income taxes increased in 1998, primarily due to higher
book taxable income.
Liquidity and Capital Resources
Cash provided from operations decreased approximately $12 million in the
first nine months of 1998, from 1997, primarily due to a decrease in cash
from the use of an accounts receivable facility, partially offset by lower
cash expenditures related to the Millstone units. Net cash from financing
activities increased approximately $7 million, primarily due to higher short
term borrowings and lower payment of cash dividends, partially offset by
lower long term debt issuances and lower preferred stock reacquisitions and
retirements. Net cash flows used for investments decreased approximately
$5 million due to lower investment in utility plant.
See NU's MD&A in this Form 10-Q for further detail regarding Liquidity and
Capital Resources.
For information relating to the following items, refer to NU's MD&A included
in this form 10-Q:
Millstone
Millstone 1
Restructuring
Year 2000 Issue
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1998 December 31,
(Unaudited) 1997
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 756,346 $ 779,111
Less: Accumulated provision for depreciation......... 156,346 143,778
------------- -------------
600,000 635,333
Construction work in progress........................... 7,016 4,616
Nuclear fuel, net....................................... 33,539 27,413
------------- -------------
Total net utility plant............................. 640,555 667,362
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 31,490 26,547
------------- -------------
31,490 26,547
------------- -------------
Current Assets:
Cash.................................................... - 13
Special deposits........................................ 1,104 -
Notes receivable from affiliated companies.............. 35,100 -
Receivables from affiliated companies................... 23,654 25,695
Taxes receivable........................................ 9,307 4,613
Materials and supplies, at average cost................. 13,249 13,003
Prepayments and other................................... 200 4,220
------------- -------------
82,614 47,544
------------- -------------
Deferred Charges:
Regulatory assets (Note 2B):
Deferred costs--Seabrook............................... 160,865 199,753
Income taxes, net...................................... 47,061 48,736
Recoverable energy costs............................... 1,900 2,057
Unamortized loss on reacquired debt.................... 13,256 18,938
Unamortized debt expense................................ 2,982 3,702
------------- -------------
226,064 273,186
------------- -------------
Total Assets........................................ $ 980,723 $ 1,014,639
============= =============
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1998 December 31,
(Unaudited) 1997
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$1 par value. Authorized
and outstanding 1,000 shares.......................... $ 1 $ 1
Capital surplus, paid in................................ 160,999 160,999
Retained earnings....................................... 56,084 58,702
------------- -------------
Total common stockholder's equity.............. 217,084 219,702
Long-term debt.......................................... 405,000 475,000
------------- -------------
Total capitalization........................... 622,084 694,702
------------- -------------
Current Liabilities:
Notes payable to affiliated company..................... - 9,950
Long-term debt--current portion......................... 70,000 20,000
Accounts payable........................................ 10,843 7,912
Accounts payable to affiliated companies................ 934 6,040
Accrued interest........................................ 9,198 3,025
Accrued taxes........................................... 597 -
Other................................................... 221 1,055
------------- -------------
91,793 47,982
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 218,891 216,701
Deferred obligation to affiliated company............... 25,164 32,472
Other................................................... 22,791 22,782
------------- -------------
266,846 271,955
------------- -------------
Commitments and Contingencies (Note 7)
------------- -------------
Total Capitalization and Liabilities........... $ 980,723 $ 1,014,639
============= =============
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues................................. $ 69,087 $ 45,943 $ 206,883 $ 138,047
---------- ---------- ---------- ----------
Operating Expenses:
Operation --
Fuel.......................................... 3,580 4,984 9,942 10,509
Other......................................... 9,118 9,145 26,887 27,879
Maintenance...................................... 3,158 5,029 9,980 18,685
Depreciation..................................... 6,360 6,309 18,965 18,822
Amortization of regulatory assets, net........... 21,366 - 64,098 -
Federal and state income taxes................... 8,981 3,276 27,075 9,793
Taxes other than income taxes.................... 3,365 3,076 9,764 9,646
---------- ---------- ---------- ----------
Total operating expenses................... 55,928 31,819 166,711 95,334
---------- ---------- ---------- ----------
Operating Income................................... 13,159 14,124 40,172 42,713
---------- ---------- ---------- ----------
Other Income:
Deferred Seabrook return--other funds............ 1,620 1,812 5,244 5,365
Other, net....................................... (2,176) (65) (6,562) 71
Income taxes..................................... 3,815 1,684 11,489 2,554
---------- ---------- ---------- ----------
Other income, net.......................... 3,259 3,431 10,171 7,990
---------- ---------- ---------- ----------
Income before interest charges............. 16,418 17,555 50,343 50,703
---------- ---------- ---------- ----------
Interest Charges:
Interest on long-term debt....................... 12,321 12,449 37,760 37,852
Other interest................................... (145) 380 (318) 562
Deferred Seabrook return--borrowed funds......... (2,928) (3,360) (9,481) (9,995)
---------- ---------- ---------- ----------
Interest charges, net...................... 9,248 9,469 27,961 28,419
---------- ---------- ---------- ----------
Net Income......................................... $ 7,170 $ 8,086 $ 22,382 $ 22,284
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1998 1997
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 22,382 $ 22,284
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 18,965 18,823
Deferred income taxes and investment tax credits, net... 3,941 17,209
Deferred nuclear plant return, net of amortization...... 50,057 (15,360)
Deferred obligation to affiliated company, net.......... (7,308) -
Other sources of cash................................... 33,733 14,799
Other uses of cash...................................... (11,245) (638)
Changes in working capital:
Receivables............................................. 2,041 860
Materials and supplies.................................. (246) (768)
Accounts payable........................................ (2,175) (14,725)
Accrued taxes........................................... 597 (3,171)
Other working capital (excludes cash)................... 3,561 7,393
----------- -----------
Net cash flows from operating activities.................... 114,303 46,706
----------- -----------
Financing Activities:
Net (decrease)/increase in short-term debt................ (9,950) 15,000
Reacquisitions and retirements of long-term debt.......... (20,000) (20,000)
Cash dividends on common stock............................ (25,000) (25,000)
----------- -----------
Net cash flows used for financing activities................ (54,950) (30,000)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................. (5,069) (7,409)
Nuclear fuel............................................ (13,780) (5,607)
----------- -----------
Net cash flows used for investments in plant.............. (18,849) (13,016)
NU System Money Pool...................................... (35,100) -
Investments in nuclear decommissioning trusts............. (5,417) (3,989)
----------- -----------
Net cash flows used for investments......................... (59,366) (17,005)
----------- -----------
Net Decrease In Cash For The Period......................... (13) (299)
Cash - beginning of period.................................. 13 299
----------- -----------
Cash - end of period........................................ $ - $ -
=========== ===========
</TABLE>
See accompanying notes to financial statements.
North Atlantic Energy Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
NAEC (the company) is a wholly-owned subsidiary of NU. This discussion
should be read in conjunction with NU's MD&A in this Form 10-Q, the company's
financial statements and footnotes in this Form 10-Q, the 1998 First and
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Third Nine
Quarter Percent Months Percent
Operating revenues $23 50% $69 50%
Other operation - - (1) (4)
Maintenance (2) (37) (9) (47)
Amortization of
regulatory assets, net 21 (a) 64 (a)
Federal and state income taxes 4 (a) 8 (a)
Other income, net (2) (a) (7) (a)
Net earnings/(loss) (1) (11) - -
(a) Percent greater than 100
Comparison of the Third Quarter of 1998 to the Third Quarter of 1997
NAEC's third quarter earnings were $7 million in 1998 compared to $8 million
in 1997.
Operating revenues increased primarily due to amounts billed to PSNH for the
amortization of the Seabrook deferred return which began in December 1997.
Amortization of regulatory assets, net increased in the third quarter of 1998
primarily due to the amortization of the Seabrook deferred return which began
in December 1997.
Federal and state income taxes increased in the third quarter of 1998 primarily
due in part to higher book taxable income.
Other, net income decreased in the third quarter of 1998 primarily due to the
amortization of the Seabrook deferred charges associated with the taxes on
the purchased return which began in December 1997.
Comparison of the First Nine Months of 1998 to the First Nine Months of 1997
Operating revenues increased primarily due to amounts billed to PSNH under
the terms of the Power Contracts as a result of the amortization of the
Seabrook deferred return which began in December 1997.
Other operation and maintenance expense decreased in 1998 primarily due to
higher costs in 1997 relating to the Seabrook refueling outage.
Amortization of regulatory assets, net increased in 1998 primarily due to the
amortization of the Seabrook deferred return which began in December 1997.
Federal and state income taxes increased in 1998 primarily in part due to
higher book taxable income.
Other, net income decreased in 1998 primarily due to the amortization of the
Seabrook deferred charges associated with the taxes on the purchased return
which began in December 1997.
Liquidity and Capital Resources
Cash provided from operations increased by approximately $68 million in the
first nine months of 1998, from 1997, as a result of the beginning of the
amortization of the Seabrook deferred return in December 1997, which is
billed through the Seabrook Power Contract to PSNH. Cash used for financing
activities increased by approximately $25 million in the first nine months of
1998, from 1997, primarily due to the repayment of short-term debt. Cash used
for investments increased by approximately $42 million in the first nine
months of 1998, from 1997, primarily due to higher expenditures related to
electric utility plant and nuclear fuel and investments made into the NU
System Money Pool and nuclear decommissioning trusts.
See NU's MD&A in this Form 10-Q for further information on liquidity and
capital resources.
Seabrook Performance
Seabrook operated at a capacity factor of 82.6 percent through September 1998,
compared to 80.7 percent for the same period in 1997. The higher 1998 capacity
factor is due primarily to a refueling outage in 1997.
Risk-Management Instruments
NAEC uses swaps to manage the market risk exposures associated with variable
interest rates. The company uses these instruments to reduce risk by
essentially creating offsetting market exposures but does not use these risk-
management instruments for speculative purposes. For further information on
risk-management instruments, see the "Notes to Financial Statements," Note 6.
For additional information relating to risk-management instruments, see NU's
MD&A in this Form 10-Q and the MD&A in the 1997 10-K.
For information relating to the following items, refer to NU's MD&A in this
Form 10-Q:
PSNH Restructuring
Year 2000 Issue
Northeast Utilities and Subsidiaries
The Connecticut Light and Power Company and Subsidiaries
Public Service Company of New Hampshire
Western Massachusetts Electric Company and Subsidiary
North Atlantic Energy Corporation
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SECURITIES AND EXCHANGE COMMISSION INQUIRY AND RESTATEMENT
(NU, CL&P, PSNH, WMECO)
During the first quarter of 1998, the SEC advised NU, CL&P, PSNH and
WMECO to reflect their nuclear compliance costs as incurred, rather than
reserving for them. NU, CL&P, PSNH and WMECO and their independent
auditors, Arthur Andersen LLP, believed the accounting they followed was
required by, and was in accordance with, generally accepted accounting
principles. NU, CL&P, PSNH and WMECO agreed to adjust their accounting
as requested by the SEC beginning with the first quarter 1998 financial
statements. NU, CL&P, PSNH and WMECO also restated their 1997 and 1996
financial statements and amended their 1997 and 1996 Form 10-Ks.
For additional information regarding the SEC inquiry and restatement,
see the Form 10-Q for the quarter ended March 31, 1998, the Form 8-K
dated March 9, 1998 for NU and PSNH, the Form 8-K dated March 25, 1998
for CL&P and WMECO, and the 1997 Form 10-K.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Presentation (All Companies)
The accompanying unaudited consolidated financial statements should
be read in conjunction with the MD&A in this Form 10-Q, and the
Amended Annual Reports of NU, CL&P, PSNH and WMECO and the Annual
Report of NAEC, which were filed as part of the Form 10-K for the
year ended December 31, 1997. The accompanying financial statements
contain, in the opinion of management, all adjustments necessary to
present fairly NU's, and each NU system company's, financial position
as of September 30, 1998, the results of operations for the three-
month and nine-month periods ended September 30, 1998 and 1997,
and the statements of cash flows for the nine-month periods ended
September 30, 1998 and 1997. All adjustments are of a normal,
recurring nature except those described in Notes 8 and 9. The
results of operations for the three-month and nine-month periods
ended September 30, 1998 and 1997 are not indicative of the results
expected for a full year.
The consolidated financial statements of NU 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 disclosures of contingent liabilities at the date
of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Certain reclassifications of prior period data have been made to
conform with the current period presentation.
B. Regulatory Accounting and Assets (All Companies)
Regulatory Accounting: The accounting policies of CL&P, PSNH,
WMECO and NAEC conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of
the ratemaking process in accordance with Statement of Financial
Accounting Standards (SFAS) 71, "Accounting for the Effects of
Certain Types of Regulation." The restructuring of the electric
utility industry is currently underway, or the focus of regulatory
proceedings, in each state in which NU operates.
CL&P, PSNH and WMECO each expect that their respective transmission
and distribution business will continue to be rate regulated on a
cost-of-service basis and, accordingly, these companies will each
continue to apply SFAS 71 to this portion of their business. In a
restructured electric utility environment, each system company's
generation business will be deregulated and each company will
discontinue the application of SFAS 71 to this portion of their
business at the time deregulation occurs.
Connecticut: Management believes that CL&P's use of regulatory
accounting for its generation business remains appropriate pending
final approval of CL&P's restructuring plan in 1999.
New Hampshire: Restructuring the electric utility industry in New
Hampshire is currently the focus of proceedings within the federal
and state court systems. Management believes that PSNH's use of
regulatory accounting for its generation business remains appropriate
while this issue remains in litigation.
Massachusetts: Electric utility industry restructuring in
Massachusetts became effective March 1, 1998. On February 20, 1998,
the DTE issued an order approving on an interim basis, in all
material aspects, WMECO's restructuring plan filed on December 31,
1997. Modifications to WMECO's original restructuring plan were
subsequently filed with the DTE in May 1998, June 1998 and September
1998. A final decision on WMECO's restructuring plan, including all
modifications, is expected in the beginning of 1999. Management
believes that WMECO's use of regulatory accounting for its generation
business remains appropriate within this jurisdiction, pending a final
decision on the modified restructuring plan by the DTE.
Once the DTE completes its review of WMECO's modified restructuring
plan and issues its final approval, WMECO will discontinue the
application of SFAS 71 to the generation portion of its business.
The restructuring legislation enacted by Massachusetts specifically
provides for future deferrals and cost recovery of generation-
related strandable assets as contemplated under the restructuring
plan. WMECO is not expected to write off either its generation-
related strandable investments or related regulatory assets. WMECO's
generation-related regulatory assets had a book value of approximately
$176 million at September 30, 1998.
For further information on the NU system companies' regulatory
environments and the potential impacts of restructuring, see the
MD&A and Note 7A in this Form 10-Q.
Millstone 1: For information on the closure of Millstone 1, see the
MD&A and Notes 7B and 8 in this Form 10-Q.
3. SHORT-TERM DEBT (NU, CL&P, PSNH, WMECO)
NU, CL&P and WMECO are parties to a three-year revolving credit agreement.
Their ability to make new, and maintain existing, borrowings under this
financing arrangement is dependent on their satisfaction of contractual
borrowing conditions. On September 11, 1998, these companies entered
into a Second Amendment and Waiver, amending the interest coverage and
common equity ratio covenants of this credit agreement to enable the
companies to meet certain financial tests.
For further information related to this matter, see the MD&A in this
Form 10-Q.
PSNH is party to a separate $75 million revolving credit agreement
expiring in April 1999. At September 30, 1998, PSNH had $10 million
outstanding under this financing arrangement, all of which may be
securitized by first mortgage bonds and/or designated accounts receivable.
4. CAPITALIZATION
CL&P: On September 30, 1998, the interest rate on $15.4 million
principal amount of pollution control revenue bond (PCRB), 1986 Series,
due November 1, 2016, which was issued by the New Hampshire Business
Finance Authority (BFA) on CL&P's behalf as a variable rate bond, was
converted to a fixed rate of 5.90 percent per annum.
Similarly, on October 1, 1998, the interest rate on $10.0 million
principal amount PCRB 1988 Series, due August 1, 2018, and the interest
rate on $21.0 million principal amount PCRB, 1992 A Series, due December 1,
2022, which were issued by the BFA on CL&P's behalf as variable rate bonds,
were converted to fixed rates of 5.90 percent and 5.85 percent per annum,
respectively.
On the same date, the interest rate on $245.5 million principal amount
PCRB 1993 A Series and the interest rate on $70.0 million principal
amount PCRB 1993 B Series, both due September 1, 2028 and which were
issued by the Connecticut Development Authority (CDA) on CL&P's behalf
as variable rate bonds, were converted to a fixed rate of 5.85 percent
and 5.95 percent per annum, respectively.
WMECO: On October 1, 1998, the interest rate on $53.8 million principal
amount PCRB, 1993 A Series, due September 1, 2028 which was issued by
the CDA on WMECO's behalf as a variable rate bond, was converted to a
fixed rate of 5.85 percent per annum.
5. INTEREST RATE AND FUEL PRICE RISK MANAGEMENT (NU, CL&P, NAEC)
Fuel Price Risk Management: As of September 30, 1998, CL&P had outstanding
derivative instruments used for fuel-price risk management with a total
notional value of approximately $348 million and a negative mark-to-market
position of approximately $21 million.
The terms of CL&P's fuel-price risk management agreements require CL&P
to post cash collateral with its counterparties in the event of negative
mark-to-market positions and lowered credit ratings. The amount of
collateral is to be returned to CL&P when the mark-to-market position
becomes positive, when CL&P meets specified credit ratings or when an
agreement ends and all open positions are properly settled. At September
30, 1998, cash collateral in the amount of approximately $24.7 million
was posted under these terms.
Interest Rate Risk Management: As of September 30, 1998, NAEC had
outstanding derivative instruments used for interest-rate risk management
with a total notional value of approximately $200 million and a negative
mark-to-market position of approximately $3.2 million.
Credit Risk: These fuel-price and interest-rate risk management
agreements have been made with various financial institutions, each of
which is rated "A3" or better by Moody's rating agency. Each respective
company is exposed to credit risk on their respective risk management
instruments if the counterparties fail to perform their obligations.
However, management anticipates that the counterparties will be able to
fully satisfy their obligations under the agreements.
For further information on fuel-price and interest-rate risk management
instruments, see the MD&A in this Form 10-Q.
6. SALE OF ACCOUNTS RECEIVABLE AND ACCRUED UTILITY REVENUES (CL&P, WMECO)
CL&P and WMECO have each established a special purpose, wholly owned
subsidiary, CL&P Receivables Corporation (CRC) and WMECO Receivables
Corporation (WRC), respectively, whose business consists of the purchase
and resale of eligible customer receivables and accrued utility revenues
(receivables). At September 30, 1998, approximately $145 million and
$20 million of receivables had been sold to third party purchasers by
CL&P and WMECO, respectively, through CRC and WRC.
For CRC's and WRC's respective sales agreements with the third party
purchasers, the receivables were sold with limited recourse. Both CRC's
and WRC's respective sales agreements provide for a formula based loss
reserve in which additional receivables may be assigned to the third
party purchasers for costs such as bad debt. The third party purchasers
absorb the excess amount in the event that actual loss experience
exceeds the loss reserve. At September 30, 1998, approximately $15.5
million and $3.1 million of assets had been designated as collateral by
CRC and WRC, respectively. These amounts represent the formula-based
amount of credit exposure at September 30, 1998. Historical losses for
bad debt for both CL&P and WMECO have been substantially less.
For further information on the NU system companies' sale of receivables,
see the MD&A in this Form 10-Q.
7. COMMITMENTS AND CONTINGENCIES (All Companies)
A. Restructuring and Rate Matters (All Companies)
Connecticut: During April 1998, the utility restructuring bill was
signed into law by the governor of the State of Connecticut. The
legislation provides for electric utilities, including CL&P, to
recover strandable costs when certain conditions are met.
In accordance with the requirements of the legislation, on October 1,
1998, CL&P filed its plans with the DPUC to sell its non-nuclear
generating assets and purchased-power contracts with nonutility
generators through public auction. In this filing, CL&P also requested
the DPUC's approval to consolidate and transfer its ownership interests
in Millstone Units 2 and 3 and Seabrook to a corporate affiliate,
subject to prior federal regulatory approvals, which would assume
CL&P's responsibilities related to the plants for the period prior to
offering them for sale. Under the legislation, the offer for sale is
required to occur by January 1, 2004.
In the plans filed, after the auction CL&P will become solely an
electric transmission and distribution company which will continue
to provide transmission and distribution services.
For further information regarding this and other matters related to
the utility restructuring environment in Connecticut, see Note 2B and
the MD&A in this Form 10-Q.
For information on the June 1, 1998 Connecticut rate filings, refer
to the MD&A in this Form 10-Q.
New Hampshire: Restructuring the electric utility industry in New
Hampshire is currently the focus of proceedings within the federal
and state court systems. PSNH and lawyers for the state have both
asked a federal judge to delay the federal trial. Assuming the appeal
is resolved favorably to PSNH, it is expected that the trial will not
begin until the first quarter of 1999.
For information regarding electric utility restructuring and rate
matters in the New Hampshire jurisdiction, see the MD&A in this
Form 10-Q.
Massachusetts: The DTE is currently reviewing WMECO's restructuring
plan as filed in December 1997 and as modified in May 1998, June 1998
and September 1998. A final decision from the DTE is expected in 1999.
For information on electric utility restructuring and rate matters
in Massachusetts, see Note 2B and the MD&A in this Form 10-Q.
B. Nuclear Performance (All Companies)
Millstone: Millstone 1 has been out of service since November 4,
1995, and in July 1998, NU decided to cease restart activities and
permanently decommission the plant. Millstone 1 has been removed
from the NRC's watch list. Millstone 2 has been out of service
since February 21, 1996, and is currently on the NRC's watch list
as a Category 3 facility. Millstone 3 had been out of service
since March 30, 1996, before NNECO received permission from the NRC
to restart the plant in June 1998. Millstone 3 is on the NRC's
watch list as a Category 2 facility.
For further information regarding the decision to permanently
decommission Millstone 1, see Note 8 and the MD&A in this Form 10-Q.
Management has stated that NU expects Millstone 2 to be ready to
restart in March 1999. This timetable will require those involved
in restart activities at the plant to complete the design and
licensing bases reviews, and any resulting corrective actions, in a
timely manner. Management cannot be certain as to when the NRC
will permit Millstone 2 to return to service and cannot estimate
the remaining replacement power costs CL&P and WMECO will ultimately
incur. Replacement energy and capacity costs for Millstone 2 are
projected to cost CL&P and WMECO approximately $11 million and $3
million per month, respectively.
Replacement power costs incurred by NU attributable to the Millstone
outages at all three plants were approximately $221 million for the
nine months ended September 30, 1998. CL&P's and WMECO's share of
those costs for the same period were approximately $189 million and
$31 million, respectively.
For information regarding Millstone rate issues, see the MD&A in
this Form 10-Q.
For information regarding Millstone-related litigation matters, see
Part II of this Form 10-Q.
C. Environmental Matters (All Companies)
At September 30, 1998, the NU system's net liability for its
estimated remediation costs, excluding recoveries from insurance
companies and other third parties, was approximately $19 million,
which management has determined to be the most probable amount
within a range of $19 million to $32 million.
These amounts by operating company are as follows (in millions):
Net Liability Range
CL&P $6.6 $6.6 to $16.5
PSNH $6.9 $6.9 to $7.4
WMECO $1.9 $1.9 to $3.1
HWP $3.7 $3.7 to $5.1
The NU system companies have received proceeds from several insurance
carriers for the settlement with certain insurance companies of all
past, present and future environmental matters. As a result of these
settlements, the NU system companies will retain the risk loss, in
part, for some environmental remediation costs.
D. Nuclear Insurance Contingencies (All Companies)
Insurance has been purchased to cover the primary cost of repair,
replacement or decontamination of utility property resulting from
insured occurrences. The NU system is subject to retroactive
assessments if losses exceed the accumulated funds available to the
insurer. Due to the closure of CY and Millstone 1 and a general
trend of decreasing nuclear insurance premiums, the maximum potential
assessment against the NU system with respect to losses arising during
the current policy year has decreased to approximately $13.6 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. These costs have decreased due to the closure of CY and
Millstone 1, as well as the restart of Millstone 3. The NU system is
subject to retroactive assessments if losses exceed the accumulated
funds available to the insurer. The maximum potential assessments
against the NU system with respect to losses arising during current
policy years have decreased to approximately $6.9 million under the
replacement power policies and $21.3 million under the excess property
damage, decontamination and decommissioning policies. The cost of a
nuclear incident could exceed available insurance proceeds.
E. Construction Program (All Companies)
For information regarding the NU system's construction program, see
the NU 1997 Form 10-K.
F. Long-Term Contractual Arrangements (NU, CL&P, PSNH, WMECO)
CYAPC: The NU system companies have a 49 percent ownership interest
in CYAPC which owns the Connecticut Yankee nuclear generating facility
(CY). On December 4, 1996, the board of directors of CYAPC voted
unanimously to cease permanently the production of power at the plant.
In late December 1996, CYAPC filed necessary amendments to its power
contracts with the FERC to clarify obligations of its purchasing
utilities, including CL&P, PSNH and WMECO (collectively, the NU
Owners). At September 30, 1998, the NU system's share of the CY
unrecovered contractual obligation, which has been recorded as a
regulatory asset and corresponding liability, was approximately
$275.8 million.
On August 31, 1998, the FERC Administrative Law Judge (ALJ) released
an initial decision regarding the December 1996 filing. The decision
contained provisions which would allow for the recovery, through rates,
of the balance of the NU system companies' net unamortized investment
in CY, which was approximately $50.9 million as of September 30, 1998.
The decision also called for the disallowance of the recovery of a
portion of the return on the CY investment. The ALJ's decision also
stated that decommissioning collections should continue to be based on
the previously approved estimate of $309.1 million (in 1992 dollars),
with an inflation adjustment of 3.8 percent per year, until a new,
more reliable estimate has been prepared and tested.
During October 1998, both CYAPC and the NU Owners filed briefs on
exceptions to the ALJ decision. If the initial ALJ decision is
upheld, CYAPC could be required to write off a portion of the
regulatory asset associated with the plant closing.
If upheld, CYAPC's management has estimated the effect of the ALJ
decision to be approximately $36.6 million, of which the NU Owners'
share would be approximately $18.0 million. NU management cannot
predict the outcome of the hearing at this time, however, NU will
continue to support CYAPC's efforts to contest this initial decision.
8. MILLSTONE 1
A. Nuclear Decommissioning (NU, CL&P, WMECO)
CL&P and WMECO have ownership interests of 81 percent and 19 percent,
respectively, in Millstone 1. Based on a continued unit operation
study filed with the DPUC in 1998, CL&P and WMECO decided to cease
restart activities at Millstone 1 and instead prepare for final
decommissioning. CL&P, WMECO and NNECO will undertake a number of
regulatory filings intended to implement the decommissioning and
recovery of the remaining assets of Millstone 1. Both CL&P and WMECO
are seeking recovery of the remaining assets of Millstone 1 as part
of their restructuring regulatory proceedings.
At September 30, 1998, CL&P and WMECO had net unrecovered plant and
related assets for Millstone 1 of approximately $313.2 million
($252.2 million and $61.0 million, respectively) and unrecovered
decommissioning obligation of approximately $375.7 million ($306.2
million and $69.5 million, respectively). Approximately $675.6
million of the total unrecovered costs are expected to be recovered
from retail customers ($545.1 million for CL&P and $130.5 million
for WMECO). Costs which are not expected to be recovered have been
written off (see Note 8B). Included in the net unrecovered plant
and related assets are net plant of approximately $235.8 million,
fuel of approximately $62.3 million and materials and supplies of
approximately $15.1 million.
The total estimated decommissioning costs, which have been updated
to reflect the early shutdown of the unit, are approximately $642.1
million in mid-1997 dollars ($520.1 million for CL&P and $122.0
million for WMECO). CL&P and WMECO use external trusts to fund the
estimated decommissioning costs of Millstone 1. At September 30, 1998,
the fair market value of the balance in the trusts was approximately
$246.5 million ($194.0 million for CL&P and $52.5 million for WMECO).
In addition, CL&P had previously established a decommissioning reserve
on its books which represents amounts which have been collected by
CL&P but not funded to the external decommissioning trust, and will
also be used to fund the total estimated decommissioning obligation
of Millstone 1. At September 30, 1998, the balance of this account
was approximately $19.8 million.
Both CL&P and WMECO are seeking recovery of decommissioning related
costs as part of their restructuring regulatory proceedings. Based
upon the restructuring law in Connecticut and Massachusetts, management
believes it is probable that CL&P and WMECO will each be allowed to
recover from customers the estimated remaining costs associated with
Millstone 1 which have been recorded on their balance sheets as a
deferred asset, including decommissioning, unrecovered plant and
related assets, and other expenditures. Each company has recorded
associated liabilities on their balance sheets for the total estimated
obligation to decommission the plant.
B. Millstone 1 - Unrecoverable Costs (NU, CL&P)
During the third quarter, CL&P wrote off approximately $25 million
related to a 4.3131 percent entitlement in CL&P's share of Millstone 1,
formerly held by the Connecticut Municipal Electric Energy Cooperative
(CMEEC). Due to the decision to permanently shut down the plant and
the termination of the CMEEC contract, the cash flows from the
contract will no longer be available to offset the remaining costs
associated with Millstone 1 that related to this entitlement.
For more information on the Millstone 1 closure, see the MD&A and
Note 7B in this Form 10-Q.
9. MODE 1 COMMUNICATIONS, INC. (NU)
Mode 1 Communications, Inc. is a wholly owned subsidiary of NU. In July
1998, Mode 1's equity investments, FiveCom LLC and NECOM LLC, reorganized
along with other related companies to form a new company, NorthEast Optic
Network, Inc. (NEON). Mode 1's ownership interest of 40.78 percent in the
new company was equal to its combined ownership interest in FiveCom LLC
and NECOM LLC.
In August 1998, NEON issued 4,000,000 new common shares on the open market
in an initial public offering (IPO). NEON's IPO had the effect of
decreasing Mode 1's ownership interest from 40.78 percent to 30.74 percent.
The shares were issued at an amount greater than Mode 1's investment,
resulting in a gain to Mode 1 of $13.7 million.
In conjunction with the IPO, Mode 1 sold 217,977 NEON shares, resulting
in a gain of $1.7 million and further reducing its ownership interest to
29.4 percent of the outstanding common shares.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. (NU, CL&P) On October 14, 1998, the plaintiffs withdrew the lawsuit
pending in Connecticut Superior Court alleging physical and emotional
damages from exposure to "electromagnetic radiation" (EMF) in which NU
and CL&P were defendants, thus ending all litigation against NU and CL&P
relating to EMF.
For more information regarding this matter, see "Item 3 - Legal
Proceedings" in NU's 1997 Annual Report on Form 10-K.
2. (NU, CL&P) In the Fall of 1997, CL&P was sued in bankruptcy court for
the Southern District of Texas - Houston Division by Triple C Power,
Inc., the successor of the bankrupt Texas-Ohio Power, Inc. (TOP). This
lawsuit stemmed from a CL&P request for declaratory rulings from the
DPUC concerning a proposed retail sale of electricity by TOP, in which
request CL&P ultimately prevailed. On September 3, 1998, the bankruptcy
court granted a Joint Motion to Dismiss filed by the parties to this
lawsuit. This matter is now resolved.
For additional information regarding this matter, see "Item 3 - Legal
Proceedings" in NU's 1997 Annual Report on Form 10-K.
3. (NU, CL&P, PSNH, WMECO) On October 5, 1998, the Connecticut Superior
Court approved a settlement which resolves a civil lawsuit which had
been filed by the Connecticut Attorney General in November 1997 on behalf
of the Connecticut Department of Environmental Protection (CDEP) against
NNECO and NUSCO for violations of the Millstone Station water permit and
Connecticut water discharge regulations. The settlement requires NNECO
to pay a $700,000 civil penalty and expend $500,000 to fund three
supplemental environmental projects. NNECO is also required to perform
and have third-party review of two environmental audits of its water
compliance program and to inform the CDEP of major changes to its
environmental management system.
For more information regarding this matter, see "Item 3 - Legal
Proceedings" in NU's 1997 Annual Report on Form 10-K.
4. (NU, CL&P, PSNH, WMECO) On October 2, 1998, the Company was informed
that the U.S. Attorney's Office for the District of Connecticut, which
had been reviewing a matter relating to full core off-load procedures
and related matters at Millstone referred to it by the Nuclear Regulatory
Commission's (NRC) Office of Investigation declined prosecution of this
matter. In addition, in July 1998, the Company was informed that the U.S.
Attorney's Office had declined prosecution of issues arising from the 1996
nuclear workforce reduction.
For more information regarding this matter, see "Item 3 - Legal
Proceedings" in NU's 1997 Annual Report on Form 10-K.
5. (NU, CL&P, PSNH, WMECO) On June 1, 1998, the NRC Director of the Office
of Nuclear Reactor Regulation issued a decision which denied in its
entirety a Section 2.206 petition filed by the Citizens Regulatory
Commission in February 1998 which requested that the NRC revoke the
operating licenses of the Millstone units as a result of NNECO's
harassment and intimidation of the nuclear workforce for raising safety
issues.
For more information regarding this matter, see "Item 3 - Legal
Proceedings" in NU's 1997 Annual Report on Form 10-K.
ITEM 5. OTHER INFORMATION
1. (NU, PSNH) On October 6, 1998, FERC issued a final decision rejecting a
PSNH request for clarification and rehearing of FERC's May 29, 1998 order
responding to a PSNH complaint that The New Hampshire Electric Cooperative,
Inc. (NHEC) was attempting to avoid wholesale requirements purchase
obligations it has to PSNH under an Amended Partial Requirements Agreement
(APRA) by soliciting bids from qualifying facilities (QFs). FERC had ruled
in May that NHEC's purchase obligations under the APRA expressly allow
it to purchase QF power and that the price for such purchases may be
determined by negotiation between NHEC and the individual QF. Additionally,
the decision ordered PSNH to refund to NHEC any overcollections with
interest. Refunds for July to September of 1998 amounted to approximately
$170,000. The financial impact of this decision in the future will vary
depending upon the level of purchases from the QFs made by NHEC. In 1997,
PSNH had sales of approximately $47 million to NHEC.
In a separate proceeding, on October 26, 1998, a FERC Administrative Law
Judge issued his interim decision concerning a dispute between PSNH and
NHEC over the requirements of the APRA after the initiation of competition
within NHEC's service territory. The ALJ held that the APRA requires NHEC
to pay PSNH for all capacity metered at the delivery points, but that NHEC
is not required to pay PSNH for energy purchased by its members from
competitive sources. In addition, he ruled that there was no need to
amend the billing provisions of the APRA. A final FERC decision will be
issued by late February 1999.
For additional information, see "Item 1 - Business - Competition and
Marketing - Wholesale Marketing" in NU's 1995 Annual Report on Form 10-K
and "Item 5 - Other Information" in NU's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
Exhibit No. Description
15 Letter regarding unaudited financial information
27.1 NU Financial Data Schedule
27.2 CL&P Financial Data Schedule
27.3 PSNH Financial Data Schedule
27.4 WMECO Financial Data Schedule
27.5 NAEC Financial Data Schedule
(b) Reports on Form 8-K:
NU, CL&P, and WMECO filed Form 8-Ks dated September 10, 1998 disclosing:
Testimony was presented to the DPUC regarding the recovery schedule
for Millstone 2 is in process and it indicates a Millstone 2
restart in March 1999.
CL&P and WMECO renegotiated key financial covenants in their
revolving credit agreement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTHEAST UTILITIES
Registrant
Date: November 9, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President
and Chief Financial Officer
Date: November 9, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE CONNECTICUT LIGHT AND POWER COMPANY
Registrant
Date: November 9, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: November 9, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Registrant
Date: November 9, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: November 9, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Registrant
Date: November 9, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: November 9, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTH ATLANTIC ENERGY CORPORATION
Registrant
Date: November 9, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President and
Chief Financial Officer and
Director
Date: November 9, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
Exhibit 15
November 9, 1998
To Northeast Utilities:
We are aware that Northeast Utilities has incorporated by reference in its
Registration Statements No. 33-34622, No. 33-40156, No. 33-44814, No. 33-
63023, No. 33-55279, No. 33-56537, No. 333-52413, and No. 333-52415, its Form
10-Q for the quarter ended September 30, 1998, which includes our report
dated November 9, 1998 covering the unaudited interim financial information
contained therein. Pursuant to Regulation C of the Securities Act of 1933,
that report is not considered a part of the registration statement prepared
or certified by our firm or a report prepared or certified by our firm within
the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
Arthur Andersen LLP
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