FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Registrant Title of Each Class on Which Registered
NORTHEAST UTILITIES Common Shares, $5.00 par value New York Stock
Exchange, Inc.
THE CONNECTICUT LIGHT 9.3% Cumulative Monthly Income New York Stock
AND POWER COMPANY Preferred Securities Series A(1) Exchange, Inc.
(1)Issued by CL&P Capital, L.P., a wholly owned subsidiary of The Connecticut
Light and Power Company ("CL&P"), and guaranteed by CL&P.
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Each Class
THE CONNECTICUT LIGHT Preferred Stock, par value $50.00 per share, issuable in
AMD POWER COMPANY series, of which the following series are outstanding:
$1.90 Series of 1947 4.96% Series of 1958
$2.00 Series of 1947 4.50% Series of 1963
$2.04 Series of 1949 5.28% Series of 1967
$2.20 Series of 1949 6.56% Series of 1968
3.90% Series of 1949 $3.24 Series G of 1968
$2.06 Series E of 1954 7.23% Series of 1992
$2.09 Series F of 1955 5.30% Series of 1993
4.50% Series of 1956
PUBLIC SERVICE COMPANY Preferred Stock, par value $25.00 per share,issuable in
OF NEW HAMPSHIRE series, of which the following series are outstanding:
10.60% Series A of 1991
WESTERN MASSACHUSETTS Preferred Stock, par value $100.00 per share,issuable
ELECTRIC COMPANY in series, of which the following series is
outstanding:
7.72% Series B of 1971
Class A Preferred Stock, par value $25.00 per share,
issuable in series, of which the following series
are outstanding:
7.60% Series of 1987
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of NORTHEAST UTILITIES' Common Shares, $5.00 Par
Value, held by nonaffiliates, was $1,702,506,591 based on a closing sales price
of $12.44 per share for the 136,857,443 common shares outstanding on February
27, 1998. NORTHEAST UTILITIES holds all of the 12,222,930 shares, 1,000 shares,
1,072,471 shares and 1,000 shares of the outstanding common stock of THE
CONNECTICUT LIGHT AND POWER COMPANY, PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE,
WESTERN MASSACHUSETTS ELECTRIC COMPANY, and NORTH ATLANTIC ENERGY CORPORATION,
respectively.
Documents Incorporated by Reference:
Part of Form 10-K
into Which Document
Description is Incorporated
Portions of Annual Reports to Shareholders of the following
companies for the year ended December 31, 1997:
Northeast Utilities Part II
The Connecticut Light and Power Company Part II
Public Service Company of New Hampshire Part II
Western Massachusetts Electric Company Part II
North Atlantic Energy Corporation Part II
Portions of the Northeast Utilities Proxy Statement dated
March 31, 1998. Part III
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 of 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
the System......................The Northeast Utilities System
CYAPC...........................Connecticut Yankee Atomic Power Company
MYAPC...........................Maine Yankee Atomic Power Company
VYNPC...........................Vermont Yankee Nuclear Power Corporation
YAEC............................Yankee Atomic Electric Company
the Yankee Companies............CYAPC, MYAPC, VYNPC, and YAEC
GENERATING UNITS
Millstone 1.....................Millstone Unit No. 1, a 660-MW nuclear
generating unit completed in 1970
Millstone 2.....................Millstone Unit No. 2, an 870-MW nuclear electric
generating unit completed in 1975
Millstone 3.....................Millstone Unit No. 3, a 1,154-MW nuclear
electric generating unit completed in 1986
Seabrook or Seabrook 1..........Seabrook Unit No. 1, a 1,148-MW nuclear electric
generating unit completed in 1986. Seabrook 1
went into service in 1990.
REGULATORS
DOE.............................U.S. Department of Energy
DTE.............................Massachusetts Department of Telecommunications
and Energy, formerly the Massachusetts
Department of Public Utilities (DPU)
DPUC............................Connecticut Department of Public Utility
Control
MDEP............................Massachusetts Department of Environmental
Protection
GLOSSARY OF TERMS
REGULATORS (Continued)
CDEP.......................... Connecticut Department of Environmental
Protection
EPA........................... U.S. Environmental Protection Agency
FERC.......................... Federal Energy Regulatory Commission
NHDES......................... New Hampshire Department of
Environmental Services
NHPUC......................... New Hampshire Public Utilities Commission
NRC........................... Nuclear Regulatory Commission
SEC........................... Securities and Exchange Commission
OTHER
1935 Act...................... Public Utility Holding Company Act of 1935
CAAA.......................... Clean Air Act Amendments of 1990
DSM........................... Demand-Side Management
Energy Act.................... Energy Policy Act of 1992
EWG........................... Exempt wholesale generator
EAC........................... Energy Adjustment Clause (CL&P)
FAC........................... Fuel Adjustment Clause (WMECO)
FPPAC......................... Fuel and purchased power adjustment clause
(PSNH)
FUCO.......................... Foreign utility company
kWh........................... Kilowatt-hour
MW............................ Megawatt
NBFT.......................... Niantic Bay Fuel Trust, lessor of nuclear fuel
used by CL&P and WMECO
ISO........................... Independent System Operator, successor to the
New England Power Pool(NEPOOL)
NUGs.......................... Nonutility generators
NUG&T......................... Northeast Utilities Generation and
Transmission Agreement
NORTHEAST UTILITIES
THE CONNECTICUT LIGHT AND POWER COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NORTH ATLANTIC ENERGY CORPORATION
1997 Form 10-K Annual Report
Table of Contents
PART I
Page
Item 1. Business............................................... 1
The Northeast Utilities System.............................. 1
Safe Harbor Statement....................................... 2
Nuclear Plant Outages and Liquidity......................... 3
Electric Industry Restructuring............................. 4
General................................................ 4
Massachusetts Restructuring............................ 5
New Hampshire Restructuring............................ 7
Connecticut Restructuring.............................. 8
Rates....................................................... 8
Connecticut Retail Rates............................... 8
New Hampshire Retail Rates............................. 11
Massachusetts Retail Rates............................. 14
Financing Program........................................... 15
1997 Financings........................................ 15
1998 Financing Requirements............................ 17
1998 Financing Plans................................... 17
Financing Limitations.................................. 19
Electric Operations......................................... 23
Distribution and Load.................................. 23
Regional and System Coordination....................... 25
Transmission Access and FERC Regulatory Changes........ 26
Fossil Fuels........................................... 27
Nuclear Generation..................................... 28
Nuclear Plant Performance and Regulatory Oversight..... 29
Resource Plans.............................................. 38
Construction........................................... 38
Future Needs........................................... 39
Energy-Related Businesses................................... 39
Energy Products and Services........................... 39
Private Power Development.............................. 39
Energy Management Services............................. 40
Other Regulatory and Environmental Matters.................. 40
Environmental Regulation............................... 40
Electric and Magnetic Fields........................... 44
FERC Hydro Project Licensing................................ 44
Employees................................................... 45
Item 2. Properties............................................. 47
Item 3. Legal Proceedings...................................... 52
Item 4. Submission of Matters to a Vote of Security Holders.... 59
PART II
Item 5. Market for Registrants' Common Equity and Related
Shareholder Matters.................................... 59
Item 6. Selected Financial Data................................ 60
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 60
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk............................................ 60
Item 8. Financial Statements and Supplementary Data............ 61
Item 9. Changes in Disagreements with Accountants on
Accounting and Financial Disclosure.................... 61
PART III
Item 10. Directors and Executive Officers of the Registrants.... 62
Item 11. Executive Compensation................................. 67
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 80
Item 13. Certain Relationships and Related Transactions......... 83
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.................................... 84
NORTHEAST UTILITIES
THE CONNECTICUT LIGHT AND POWER COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NORTH ATLANTIC ENERGY CORPORATION
PART I
ITEM 1. BUSINESS
THE NORTHEAST UTILITIES SYSTEM
Northeast Utilities (NU) is the parent of a number of companies comprising
the Northeast Utilities system (the System) and is not itself an operating
company. The System has traditionally furnished franchised retail electric
service in Connecticut, New Hampshire and western Massachusetts through four of
NU's wholly owned subsidiaries (The Connecticut Light and Power Company [CL&P],
Public Service Company of New Hampshire [PSNH], Western Massachusetts Electric
Company [WMECO] and Holyoke Water Power Company [HWP]). In addition to their
franchised retail electric service, CL&P, PSNH, WMECO and HWP (including its
wholly owned subsidiary, Holyoke Power and Electric Company) (the System
companies) together furnish wholesale electric service to various municipalities
and other utilities and participate in limited retail access programs, providing
off-system retail service. The System serves about 30 percent of New England's
electric needs and is one of the 25 largest electric utility systems in the
country as measured by revenues.
North Atlantic Energy Corporation (NAEC) is a special-purpose operating
subsidiary of NU that owns a 35.98 percent interest in the Seabrook nuclear
generating facility (Seabrook) in Seabrook, New Hampshire, and sells its share
of the capacity and output from Seabrook to PSNH under two life-of-unit, full-
cost recovery contracts.
Several wholly owned subsidiaries of NU provide support services for the
System companies and, in some cases, for other New England utilities. Northeast
Utilities Service Company (NUSCO) provides centralized accounting,
administrative, information resources, engineering, financial, legal,
operational, planning, purchasing and other services to the System companies.
North Atlantic Energy Service Corporation (NAESCO) has operational
responsibility for Seabrook. Northeast Nuclear Energy Company (NNECO) acts as
agent for the System companies and other New England utilities in operating the
Millstone nuclear generating facilities (Millstone) in Waterford, Connecticut.
Three other subsidiaries construct, acquire or lease some of the property and
facilities used by the System companies.
NU has three subsidiaries, Charter Oak Energy, Inc. (Charter Oak), HEC Inc.
(HEC) and Select Energy, Inc. (Select Energy), which engage, either directly or
indirectly through subsidiaries, in a variety of energy-related activities. For
information regarding the energy-related activities of these subsidiaries and
the ongoing sale of Charter Oak's assets, see "Energy-Related Businesses."
The System is regulated in virtually all aspects of its business by various
federal and state agencies, including the Securities and Exchange Commission
(SEC), the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory
Commission (NRC) and various state and/or local regulatory authorities with
jurisdiction over the industry and the service areas in which each company
operates, including the Connecticut Department of Public Utility Control (DPUC),
the New Hampshire Public Utility Commission (NHPUC) and the Massachusetts
Department of Telecommunications and Energy, formerly the Massachusetts
Department of Public Utilities (collectively, the DTE). In recent years, there
has been significant activity at both the legislative and regulatory levels,
particularly in New England, to change the nature of regulation of the industry.
For more information regarding recent restructuring initiatives, see "Electric
Utility Restructuring," "Rates," and "Electric Operations."
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (Reform Act), NU and its subsidiaries are hereby
filing cautionary statements identifying important factors that could cause NU
or its subsidiaries' actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) of NU and
its subsidiaries made by or on behalf of NU or its subsidiaries which are made
in this combined Form 10-K, in presentations, in response to questions or
otherwise. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such as
will likely result, are expected to, will continue, is anticipated, estimated,
projection, outlook) are not statements of historical facts and may be forward-
looking. Forward-looking statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially from those
expressed in the forward-looking statements. Accordingly, any such statements
are qualified in their entirety by reference to, and are accompanied by, the
following important factors that could cause NU or its subsidiaries' actual
results to differ materially from those contained in forward-looking statements
of NU or its subsidiaries made by or on behalf of NU or its subsidiaries.
Any forward-looking statement speaks only as of the date on which such
statement is made, and NU and its subsidiaries undertake no obligation to update
any forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors may cause actual results to differ materially from those
contained in any forward-looking statements.
Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements include
prevailing governmental policies and regulatory actions, including those of the
SEC, the NRC, the FERC and state regulatory agencies, with respect to allowed
rates of return, industry and rate structure, operation of nuclear power
facilities, acquisition and disposal of assets and facilities, operation and
construction of plant facilities, recovery of purchased power costs, strandable
costs, decommissioning costs and present or prospective wholesale and retail
competition (including but not limited to retail wheeling and transmission
costs).
The business and profitability of NU and its subsidiaries are also
influenced by economic and geographic factors including political and economic
risks, changes in compliance with environmental and safety laws and policies,
weather conditions (including natural disasters), population growth rates and
demographic patterns, competition for retail and wholesale customers, pricing
and transportation of commodities, market demand for energy from plants or
facilities, changes in tax rates or policies or in rates of inflation, changes
in project costs, unanticipated changes in certain expenses and capital
expenditures, capital market conditions, competition for new energy development
opportunities, and legal and administrative proceedings (whether, civil, such as
environmental, or criminal) and settlements.
All such factors are difficult to predict, contain uncertainties which may
materially affect actual results and are beyond the control of NU or its
subsidiaries.
NUCLEAR PLANT OUTAGES AND LIQUIDITY
The length of the ongoing outages at Millstone and the high costs of the
recovery efforts weakened the System companies' 1997 earnings, balance sheets
and cash flows and will continue to have an adverse impact on the System
companies' financial conditions until the units are returned to service. The
System companies also continue to face numerous civil lawsuits, criminal
investigations and regulatory proceedings related to the outages, and they
expect to incur significantly increased expenditures for replacement power and
operation and maintenance (O&M) expensed at Millstone. CL&P, PSNH and WMECO have
been expensing and will continue to expense all of these costs until the
Millstone units return to service. For more information regarding the costs
associated with the ongoing outages at Millstone, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Millstone 1, 2 and 3 have been out of service since November 4, 1995,
February 21, 1996 and March 30, 1996, respectively. Millstone 1, a 660-MW
boiling water reactor, and Millstone 2, an 870-MW pressurized water reactor,
are each owned 81 percent by CL&P and 19 percent by WMECO. Millstone 3, a
1154-MW pressurized water reactor, is jointly owned by CL&P (52.93 percent),
WMECO (12.24 percent), PSNH (2.85 percent) and other New England utilities.
Subject to various requirements discussed more fully under "Electric
Operations--Nuclear Generation" in this report, management hopes to return
Millstone 3 to service in early Spring of 1998 and Millstone 2 three to four
months after Millstone 3. As part of the System's efforts to reduce spending
in 1998, Millstone 1 has been placed in extended maintenance status in which
all restart-related projects have been suspended and activities at Millstone 1
are limited to those necessary to maintain the plant in a safe condition.
Management will review its options with respect to Millstone 1 in 1998,
including restart, early retirement and other options.
The System has arranged a variety of financing facilities to fund its cash
requirements, including the nuclear recovery efforts. The System companies'
ability to borrow under their financing arrangements is dependent on their
satisfaction of contractual borrowing conditions, which under certain agreements
became more restrictive in 1998. Spending levels in 1998, particularly for the
first half of 1998 while Millstone 3 and 2 are expected to be out of service,
have been, and will be, constrained to levels intended to assure that all
financial covenants are satisfied. However, there is no assurance that these
financial covenants will be met as the System companies may encounter additional
unexpected costs from storms, reduced revenues from regulatory actions or the
effect of weather on sales levels. See "Financing Program--Financing
Limitations," for more information regarding specific financial covenants under
the System companies' financing agreements.
If the return to service of Millstone 3 or Millstone 2 is delayed
substantially beyond the present restart estimates, if some financing facilities
become unavailable because of difficulties in meeting borrowing conditions or
renegotiating extensions, if CL&P and WMECO encounter additional significant
costs or if any other significant deviations from management's assumptions
occur, including materially adverse regulatory decisions, NU, CL&P and WMECO
could be unable to meet their cash requirements. In those circumstances,
management would take even more stringent actions to reduce costs and cash
outflows and attempt to obtain additional sources of funds. The availability of
these funds would be dependent upon general market conditions and NU's, CL&P's
and WMECO's credit and financial conditions at the time.
For more information, see "Rates," "Financing Program--Financing
Limitations," "Electric Operations--Nuclear Generation--Nuclear Plant
Performance and Regulatory Oversight," "Item 3. Legal Proceedings" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ELECTRIC INDUSTRY RESTRUCTURING
GENERAL
Competition in the energy industry continues to grow as a result of
legislative and regulatory action, technological advances, relatively high
electric rates in certain regions of the country, including New England, surplus
generating capacity and the increased availability of natural gas. These
competitive pressures are particularly strong in the System's service
territories, where legislators and regulatory agencies have been at the
forefront of restructuring. Changes in the industry are expected to place
downward pressure on prices and to increase customer choice through competition.
Restructuring initiatives in the System companies' service territories have
created uncertainty with respect to future rates and the recovery of "strandable
costs." Strandable costs are expenditures incurred, or commitments for future
expenditures made, on behalf of customers with the expectation such expenditures
would continue to be recoverable in the future through rates. However, under
certain circumstances these costs might not be recoverable from customers in a
fully competitive electric utility industry (i.e., the costs may result in
above-market energy prices). The System is particularly vulnerable to
strandable costs because of (i) the System's relatively high investment in
nuclear generating capacity, which has a high cost to build and maintain, (ii)
state and federal government mandated purchased power contracts priced above
market, and (iii) significant regulatory assets, which are those costs that have
been deferred by state regulators for future collection from customers. As of
December 31, 1997, the System companies' net investment in nuclear generating
capacity, excluding its investment in certain regional nuclear companies, was
approximately $3.5 billion and its regulatory assets were approximately $2.2
billion. In addition, based on current market prices, the System companies have
above-market purchase power obligations, the combined net present value of which
is in excess of $1 billion.
The System's exposure to strandable costs and above-market purchased power
obligations exceeds its shareholders' equity. The System's financial strength
and resulting ability to compete in a restructured environment will be
negatively affected if the System companies were unable to recover their past
investments and commitments. Even if the System companies are given the
opportunity to recover a large portion of their strandable costs, earnings
prospects in a restructured environment will be affected in ways that cannot now
be estimated.
Massachusetts and New Hampshire have been at the forefront of restructuring
in New England as discussed more fully below. Connecticut has not implemented
restructuring legislation to date, but legislators have proposed broad
restructuring legislation, which will be considered in the Spring of 1998.
Both PSNH and WMECO have proposed auctioning off their nonnuclear
generating assets, which have a net book value of approximately $190 million and
$60 million, respectively. If CL&P takes the same approach, it has nonnuclear
generating assets, which have a net book value of approximately $200 million,
that could be sold. These auctions must be approved by state and federal
regulators. The System intends to participate in the auctions.
Additionally, the System companies are actively seeking and/or supporting
legislation permitting securitization of strandable costs recoveries after
mitigation through various required measures. Securitization is the refinancing
of strandable costs through the sale of debt securities by an independent
entity, collateralized by the System companies' interests in their strandable
cost recoveries.
Management expects that the proceeds from securitization and nonnuclear
generating plant auctions could be used to pay off significant amounts of
subsidiary debt and preferred securities, as well as reducing much of the common
equity investment NU has made in CL&P, PSNH, WMECO and NAEC. If approved by
regulators, this would have the effect of reducing retail rates and
significantly shrinking the capitalization of each of these companies.
Management currently expects CL&P, PSNH and WMECO would continue to operate
electric distribution and transmission systems, and that CL&P, WMECO, PSNH and
NAEC would continue to hold their current ownership interests in the region's
nuclear generating facilities.
MASSACHUSETTS RESTRUCTURING
On November 25, 1997, Massachusetts enacted comprehensive electric utility
industry restructuring legislation. The bill provides that each Massachusetts
electric company, including WMECO, will decrease its rates by 10 percent and
allow all its customers to choose a retail supplier on March 1, 1998. The
statute requires a further five percent rate reduction, adjusted for inflation,
by September 1, 1999.
In addition, the legislation provides, among other things, for: (i)
recovery of strandable costs through a "transition charge" to customers, subject
to review by the DTE, (ii) a possible limitation on WMECO's return on equity
should its strandable cost charge go above a certain level, (iii) securitization
of allowed strandable costs; and (iv) divestiture of nonnuclear generation.
The statute also provides that an electric company must transfer or
separate ownership of generation, transmission and distribution facilities into
independent affiliates or "functionally separate such facilities within 30
business days of federal approval." Additionally, marketing companies formed by
an electric company are to be separate from the electric company and separate
from generation, transmission or distribution affiliates.
On December 31, 1997, WMECO filed its restructuring plan with the DTE
consistent with the Massachusetts restructuring legislation. The plan sets out
the process by which WMECO initiated a 10 percent rate reduction for all
customer rate classes and allowed customers to choose their energy supplier as
of March 1, 1998. WMECO intends to mitigate its stranded costs through several
steps, including divesting WMECO's nonnuclear generating plants at an auction
and securitization of approximately $500 million of strandable costs. WMECO
hopes that it will be able to complete securitization in late 1998. NU expects
that a new generation subsidiary will participate in the competitive bid process
for WMECO's generation resources. As required by the legislation, WMECO will
continue to operate and maintain WMECO's transmission and local distribution
network and deliver electricity to all customers. On February 20, 1998, the DTE
issued an order approving in all material respects WMECO's restructuring plan on
an interim basis, including a 10 percent rate reduction and customer choice of
supplier effective March 1, 1998. WMECO's plan will be subject to extensive
additional review, with evidentiary hearings likely to begin in March or April
1998. A final decision on the plan is expected in 1998.
Because WMECO reduced rates on March 1, 1998 before the means of financing
restructuring were completed, WMECO's cash flows and financial condition will be
negatively affected. These impacts would become significant if there are
material delays in the schedule for, or lower than estimated proceeds from, the
divestiture of nonnuclear generation and securitization, or if there are further
delays or cost increases in returning the Millstone units to service. Under the
legislation, if a distribution company claims that it is unable to meet a price
reduction of 10 percent initially and 15 percent by September 1, 1999, the
distribution company may so state to the DTE and the DTE has the authority to
explore other options to achieve the mandated rate reductions.
Since the restructuring legislation was passed in November 1997, a
citizens group has been organized that is expected to challenge the legislation
by placing a repeal petition on the ballot for voter approval in November 1998.
If Massachusetts' voters should approve the petition, the legislation would be
immediately repealed.
NEW HAMPSHIRE RESTRUCTURING
On February 28, 1997, in accordance with earlier legislation, the NHPUC
issued orders related to restructuring the state's electric utility industry and
setting interim strandable cost charges for PSNH. In the orders, the NHPUC
announced a departure from cost-based ratemaking and instead adopted a market-
priced approach to strandable cost recovery. If PSNH had not received a stay of
these orders, as discussed below, PSNH would have been required to discontinue
accounting under Statement of Financial Accounting Standard No. 71 (SFAS 71),
"Accounting for the Effects of Certain Types of Regulation" and would have had
to remove over $400 million (after taxes) of its regulatory assets from its
balance sheet as early as the quarter ending March 31, 1997.
In March 1997, PSNH, NU, NAEC and NUSCO filed for a temporary restraining
order, preliminary and permanent injunctive relief and for a declaratory
judgment in the United States District Court for New Hampshire. The case was
subsequently transferred to the United States District Court for Rhode Island
(District Court). Also, in March 1997, the District Court issued a temporary
restraining order, staying the enforcement of the NHPUC's restructuring orders
as they affected PSNH. The District Court had suspended the procedural schedule
associated with this court proceeding pending the resolution of appeals of
certain preliminary rulings by the U.S. Circuit Court of Appeals for the First
Circuit (Appeals Court). On February 3, 1998, the Appeals Court upheld the
District Court's earlier ruling excluding certain intervenors from the case,
which effectively resolved the other matters on appeal. The case has been
remanded to the District Court for further proceedings. On February 17, 1998,
the commissioners of the NHPUC filed a petition for rehearing with the Appeals
Court. The March 1997 temporary restraining order will remain in effect until
further order of either court.
If the District Court's stay or another appropriate court action does not
remain in effect or a settlement is not reached by the parties, the write-off
triggered by the NHPUC's orders would result in defaults which, if not waived or
renegotiated, would give investors and lenders the right to accelerate the
repayment of approximately $686 million of PSNH indebtedness and $495 million of
NAEC indebtedness. These circumstances could force PSNH and NAEC to seek
protection under Chapter 11 of the bankruptcy laws.
In May 1997, the NHPUC reopened its proceeding to reconsider various
matters in its restructuring orders. In testimony filed with the NHPUC on
November 7, 1997, PSNH proposed a new methodology to quantify its strandable
costs. Under this proposal, PSNH would divest all owned generation and
purchased-power obligations through an auction. To the extent that the auction
fails to produce sufficient revenues to cover the net book value of owned
generation and contractual purchased-power payment obligations, the difference
would be recovered from customers through a non-bypassable transition charge.
The proposal also relies upon securitization to reduce rates.
On December 15, 1997, the NHPUC officially announced that industry
restructuring would not take place on January 1, 1998. On December 24, 1997, the
Governor's office filed a motion with the NHPUC formally requesting that certain
issues concerning the rate agreement (Rate Agreement) between NU, PSNH and the
state of New Hampshire, entered into in 1989 in connection with NU's
reorganization plan to resolve PSNH's bankruptcy, be transferred to the New
Hampshire Supreme Court for decision. The motion recommends that the NHPUC not
issue any new rulings concerning the Rate Agreement pending such Supreme Court
decision. On February 20, 1998, the NHPUC petitioned the New Hampshire Supreme
Court to review two issues regarding the Rate Agreement: (i) whether the Rate
Agreement creates private rights which would allow PSNH to seek damages under a
contract theory if PSNH receives less than the full amount it claims as
strandable costs under the Rate Agreement, and (ii) if yes, against whom and
under what conditions would such rights be enforceable. The Supreme Court first
must determine whether to accept the NHPUC's petition.
On November 12, 1997, PSNH received an unsolicited offer from New Hampshire
Electric Cooperative (NHEC) to purchase PSNH's transmission and distribution
facilities, as well as PSNH's claims for recovery of strandable costs, for $1.4
billion. After a meeting between representatives of PSNH and NHEC and further
review of the proposal, PSNH responded on November 25, 1997 to NHEC that the
lack of certain information in the proposal made it impossible for PSNH to
respond in a definitive manner at this time. No response has been received from
NHEC.
On February 20, 1998, PSNH forwarded a settlement offer to representatives
from the State of New Hampshire that was consistent with PSNH's proposal in the
restructuring rehearing proceedings discussed above, including among other
things, a 20-percent rate reduction at the beginning of 1999, an auction of
PSNH's nonnuclear generating units and securitization of approximately $1.15
billion of PSNH's strandable costs.
CONNECTICUT RESTRUCTURING
Proposed restructuring legislation is currently being considered by the
Connecticut General Assembly, which provides, among other things, for retail
choice to be phased in over a period of time, mandatory rate reductions,
auctioning of generation assets, including nuclear units, and securitization of
a portion of strandable costs.
For more information regarding restructuring in the wholesale electric
market, see "Electric Operations-Transmission Access and FERC Regulatory
Changes."
RATES
CONNECTICUT RETAIL RATES
GENERAL
Approximately 64% of System revenues is derived from CL&P, and 58% of the
book value of the System's electric utility assets is owned by CL&P.
CL&P's retail rates are subject to the jurisdiction of the DPUC. In July
1996, the DPUC approved a rate settlement agreement with CL&P (the Settlement).
Under the Settlement, CL&P froze base rates until at least December 31, 1997 and
agreed to accelerate the amortization of regulatory assets during the period
that the rate freeze remains in effect. The Settlement provided that CL&P's
target return on equity (ROE) would be 10.7 percent but did not alter CL&P's
allowed ROE of 11.7 percent. If CL&P's actual ROE for a calendar year exceeds
the 10.7 percent target after the target regulatory asset amortization ($68
million in 1997) and after adjustment for any incremental NRC billings and any
rate disallowances for nuclear operations, then CL&P shall retain two-thirds of
any surplus and use the remaining one-third to provide a reduction in bills.
CL&P's actual ROE, as adjusted, fell below the target ROE for 1996 and 1997 and,
therefore, the accelerated amortization of regulatory assets was reduced to the
minimum amounts allowed under the Settlement ($73 million in 1996 and $54
million in 1997). For each full year that the rate freeze remains in effect,
CL&P agreed to amortize an additional $44 million of regulatory assets. As of
December 31, 1997, CL&P's regulatory assets totaled approximately $1.3 billion.
The DPUC is required to review a utility's rates every four years if there
has not been a rate proceeding during such period. The DPUC conducted such a
review of CL&P's rates in 1997, including an analysis of the possibility of
removing one or more of the Millstone nuclear units from CL&P's rate base. On
December 31, 1997, the DPUC issued its ruling in this matter. The decision did
not change CL&P's rates, but set forth findings and conclusions that could be
used to do so in additional proceedings. The most significant conclusion was
that Millstone 1 should be removed from CL&P's rate base, which could cause an
annual revenue reduction of approximately $30.5 million. The decision stated
that the DPUC would open an interim rate case immediately to remove Millstone 1
from CL&P's rates and simultaneously to remove an additional $110.5 million of
other expenses from rates related to perceived overearnings. The decision also
provided that the DPUC will schedule hearings for April 1, 1998 and June 1, 1998
to determine the status of Millstone 3 and Millstone 2, respectively. If the
units are not operating by those dates, the DPUC will consider their removal
from rates. Finally, CL&P was directed to file a full rate case on April 1,
1998, later extended to June 1, 1998, to address potential overearnings
amounting to an additional $150 million in 1998. The effective date of any rate
order will be September 28, 1998.
On February 25 1998, the DPUC issued a decision in CL&P's interim rate
case, which was consistent with the December 31, 1997 four year rate decision.
The decision required a $30.5 million credit to customer bills (1.39 percent
rate decrease) to reflect the removal of Millstone 1 from rates. The reduction
reflects the removal from rates of O&M, depreciation and investment return
related to Millstone 1, but allows CL&P to recover the replacement power costs
associated with Millstone 1. In addition, the decision requires CL&P to
accelerate the amortization of regulatory assets by approximately $110.5
million, which includes the $44 million from the 1996 Settlement. These rates
were effective as of March 1, 1998.
On July 1, 1997, CL&P submitted continued unit operation studies to the
DPUC showing that, under base case assumptions, Millstone 1 had a net present
value to System customers (as compared to the cost of shutting down the unit and
incurring replacement power costs) of approximately $70 million during the
remaining thirteen years of its operating license and Millstone 2 had a net
present value to System customers (on assumptions consistent with those used
with Millstone 1) of approximately $500 million during the remaining eighteen
years of its operating license. Two other cases submitted to the DPUC based on
higher assumed O&M costs, which CL&P considered less likely, indicated that
Millstone 1 would be uneconomic in varying degrees. The DPUC has stated it will
consider these analyses in the context of CL&P's next integrated resource
planning proceeding which begins in April 1998.
However, in light of the delay in restarting Millstone 1, management will
continue to review its options with respect to this unit, including restart,
early retirement and other options. Among the various matters that management
must consider with respect to Millstone 1 are certain Connecticut state law
issues. In the four-year rate review proceeding, the DPUC noted that CL&P may
not be able to recover its remaining investment in Millstone 1 if it were to
determine that the unit had been prematurely shut down due to management
imprudence. Additionally, there is a Connecticut statute that may limit CL&P's
ability to collect decommissioning charges if Millstone 1 were to be retired
before the end of its expected life. The net unrecovered Millstone 1 plant cost
and unrecovered decommissioning cost at December 31, 1997 were approximately
$216 million and $212 million, respectively. For more information regarding
decommissioning matters, see "Electric Operations--Nuclear Generation---
Decommissioning."
PRUDENCE AND ENERGY ADJUSTMENT CLAUSE
On July 30, 1997, the DPUC issued a decision disallowing CL&P's recovery of
all of the replacement power costs associated with the ongoing outages at
Millstone. CL&P has expensed, and will continue to expense, the these costs as
they are incurred.
In October 1996, the DPUC issued its final order establishing an Energy
Adjustment Clause (EAC), which became effective on January 1, 1997. The EAC is
designed to reconcile and adjust every six months the difference between actual
fuel costs and the fuel revenue collected through base rates. The Connecticut
Office of Consumer Counsel (OCC) appealed the DPUC's EAC order, and the trial
court upheld the DPUC's final order. The OCC subsequently appealed the trial
court's decision, and the matter is pending before the Connecticut Supreme
Court.
CL&P agreed to a zero EAC rate for the period January 1, 1997 through June
30, 1997. On December 31, 1997, the DPUC approved an EAC rate of $.00112 for
the period July 1, 1997 to December 31, 1997, which recovered approximately
$11.5 million of additional fuel costs over this period. The decision upheld an
earlier procedural order that excluded replacement power costs following the
early retirement of the Connecticut Yankee nuclear unit (CY) (approximately $18
million for the July - December 1997 period, and approximately $4 million per
month in the upcoming period January - June 1998) until a final decision in the
pending CY FERC proceeding. CL&P has appealed the DPUC's ruling related to CY
replacement power costs. For more information regarding the early retirement of
CY and the FERC proceeding related thereto, see "Electric Operations - Nuclear
Generation."
On December 23, 1997, the DPUC approved an EAC rate of $.00273/per kWh for
the period January 1, 1998 to June 30, 1998, which will recover approximately
$27.9 million of additional fuel costs over this period.
DEMAND-SIDE MANAGEMENT
CL&P provides demand side management (DSM) programs for its residential,
commercial and industrial customers. CL&P is allowed to recover DSM costs in
excess of costs reflected in base rates over periods ranging from approximately
four to ten years.
On April 16, 1997, the DPUC approved CL&P's DSM budget of $36 million for
1997. On October 15, 1997, CL&P and other interested parties filed a stipulation
with the DPUC requesting that the DPUC approve certain programs and establish a
budget level of $32.7 million for 1998 and $28.8 million for 1999. The DPUC is
expected to issue a decision on CL&P's DSM filing in March 1998. CL&P's
unamortized DSM costs at December 31, 1997, excluding carrying costs, which are
collected currently, were approximately $52.1 million.
NEW HAMPSHIRE RETAIL RATES
GENERAL
Approximately 24% of System revenues is derived from PSNH, and 18% of the
book value of the System's electric utility assets is owned by PSNH.
PSNH's Rate Agreement provided for seven base rate increases of 5.5 percent
per year beginning in 1990 and a comprehensive fuel and purchased power
adjustment clause (FPPAC). The final base rate increase went into effect on
June 1, 1996. The Rate Agreement provides that PSNH's rates are subject to
traditional rate regulation after the fixed rate period, which expired on May
31, 1997. The FPPAC, however, would continue through May 31, 2001 and other Rate
Agreement requirements would continue in accordance with the terms of the
agreement.
On May 2, 1997, PSNH made a rate filing with the NHPUC requesting that
base rates remain at their current level after May 31, 1997. By order dated
November 6, 1997, the NHPUC ordered a temporary rate reduction for PSNH at a
revenue level 6.87 percent lower than then-current rates. The NHPUC also set an
interim return on equity of 11 percent. The temporary rates became effective
December 1, 1997. A final decision, which will be reconciled to July 1, 1997, is
not expected to be issued until September 1998. A portion of this reduction was
offset by an increase to rates through the FPPAC described below.
FPPAC AND PRUDENCE
The FPPAC provides for the recovery or refund by PSNH, for the ten-year
period beginning on May 16, 1991, of the difference between its actual prudently
incurred energy and purchased power costs and the estimated amounts of such
costs included in base rates established by the Rate Agreement. The FPPAC
amount is calculated for a six-month period based on forecasted data and is
reconciled to actual data in subsequent FPPAC billing periods.
On June 3, 1996, the NHPUC ordered PSNH to refund $41.5 million, which
includes $5 million of interest related to nonutility generation (NUG) costs
which had been previously collected through the FPPAC. The refund, which was
made by crediting customer bills through May 31, 1997, was implemented on June
1, 1996. When actual fuel and purchased power costs are less than the estimated
costs in base rates, PSNH is permitted to retain revenues to offset previously
deferred charges, including the $41.5 million refund. By this method PSNH fully
recovered the $41.5 million by May 1, 1997.
On December 3, 1996, the NHPUC approved PSNH's FPPAC rate for December 1,
1996 through May 31, 1997, representing an overall rate decrease of 1.0 percent.
On May 27, 1997, the NHPUC suspended the FPPAC proceeding related to the
June 1, 1997 to November 30, 1997 FPPAC period and ordered a credit FPPAC rate
of $.00481/per kWh, which resulted in PSNH refunding approximately $15 million
of fuel costs over the period. On September 11, 1997, the NHPUC consolidated
this FPPAC proceeding with the December 1, 1997 through May 31, 1998 FPPAC
proceeding.
On February 10, 1998, the NHPUC issued its written decision confirming its
order on December 1, 1997 of an FPPAC rate of $.00266 per/kWh to be charged for
December 1, 1997 through May 31, 1998, which will allow PSNH to collect
approximately $9 million of additional fuel costs over the period. The new FPPAC
rate increased customer bills by approximately six percent, which was offset in
great part by the 6.87 percent temporary base rate decrease described above. The
new rate also continues to defer a substantial portion of costs. In addition,
recovery of the Seabrook deferred return (approximately $127 million annually)
is scheduled to begin in June 1998. For more information regarding the Seabrook
deferred return, see "Seabrook Power Contracts" below.
The NHPUC also confirmed in its February 10, 1998, FPPAC decision that it
would disallow approximately $3 million in replacement power costs and require
PSNH to set aside $10 million as a reserve for potential overpayments due to the
fact that PSNH has not required small power producers to reduce deliveries
during so-called "light-loading" periods, pending the NHPUC's review of this
matter. The decision also alleged various breaches of the Rate Agreement and
ordered PSNH to meet with the State to discuss these matters. Finally, the
decision indicated that the NHPUC would open a proceeding to review whether the
proceeds of the sale of steam generators (approximately $ 20.9 million for
NAEC's share) related to the canceled Unit 2 at Seabrook station should flow
through rates to reduce customers bills.
PURCHASE POWER CONTRACTS
The costs associated with purchases by PSNH from certain NUGs at prices
above the level assumed in rates are deferred and recovered through the FPPAC.
As of December 31, 1997, NUG deferrals, including previously approved buy-out
costs, totaled approximately $191.7 million.
Under the Rate Agreement, PSNH and the State of New Hampshire have an
obligation to use their best efforts to renegotiate burdensome purchased power
arrangements with certain specified hydroelectric and wood-burning NUGs that
were selling their output to PSNH under long-term NHPUC rate orders. If
approved, PSNH will exchange near-term cash payments for partial relief from
high-cost purchased power obligations to the NUGs, with such payments and an
associated return on the unamortized portion being recoverable from customers in
a future amortization period.
PSNH reached agreements requiring NHPUC approval with the six remaining
wood-fired NUGs. The six agreements could result in net savings of approximately
$440 million to PSNH's customers over a period of 20 years in exchange for
upfront payments of approximately $250 million recoverable in future charges to
customers.
In early 1996, the NHPUC began a proceeding to decide whether to approve
these settlement agreements. Despite a determination by the New Hampshire
Attorney General finding that PSNH had used its best efforts to renegotiate the
13 agreements, in March 1996, the NHPUC decided to open a docket, which is
ongoing, to independently review that issue.
In January 1997, the NHPUC issued an order approving one of the six NUG
settlements. However, the order expressly indicated that PSNH is not assured of
recovering all of the payments PSNH must make pursuant to the agreement. In
addition, the order required PSNH and the NUG owner to contribute an undisclosed
amount to create a fund designed to mitigate the impact of the buydown agreement
on the wood-fuel industry. On February 14, 1997, PSNH filed a response with the
NHPUC stating that the uncertainties of recovery stated in the order made it
impossible to finance the upfront payments for the agreement. The NHPUC has
initiated a proceeding requiring PSNH to show cause why it has not been
imprudent in failing to close on this agreement. On January 12, 1998, the NHPUC
indicated that it would reject the five remaining wood settlement agreements.
The New Hampshire Legislature is considering a number of proposals that
could impact PSNH's ability to renegotiate and refinance NUGs rate orders.
UNAMORTIZED PSNH ACQUISITION COSTS
The Rate Agreement also provides for the recovery by PSNH through rates of
unamortized PSNH acquisition costs, which are the aggregate value placed by
PSNH's reorganization plan on PSNH's assets in excess of the net book value of
its non-Seabrook assets and the value assigned to Seabrook. The unrecovered
balance of PSNH acquisition costs at December 31, 1997 was approximately $402.3
million. In accordance with the Rate Agreement, approximately $32.9 million of
this amount will be recovered through rates by June 1, 1998, and the remaining
amount, approximately $369.4 million, will be recovered through rates by 2011.
PSNH earns a return each year on the unamortized portion of the costs. For more
information regarding PSNH's recovery of these costs, see "Unamortized PSNH
Acquisition Costs" in the notes to NU's financial statements and "Unamortized
Acquisition Costs" in the notes to PSNH's financial statements.
SEABROOK POWER CONTRACTS
PSNH and NAEC have entered into two power contracts that collectively
obligate PSNH to purchase NAEC's 35.98 percent ownership of the capacity and
output of Seabrook for the term of Seabrook's NRC operating license and to pay
NAEC's "cost of service" during this period, whether or not Seabrook continues
to operate. NAEC's cost of service includes all of its prudently incurred
Seabrook-related costs, including O&M expenses, cost of fuel, depreciation of
NAEC's recoverable investment in Seabrook and a phased-in return on that
investment. The payments by PSNH to NAEC under these contracts constitute
purchased power costs for purposes of the FPPAC and are recovered from PSNH
customers under the Rate Agreement. Decommissioning costs are separately
collected by PSNH in its base rates. See "Rates--New Hampshire Retail Rates---
General" and--"FPPAC and Prudence" for information relating to the Rate
Agreement. At December 31, 1997, NAEC's net utility plant investment in
Seabrook, including fuel, was approximately $667.4 million.
If Seabrook were retired before the expiration of its NRC operating license
term, NAEC would continue to be entitled under the power contracts to recover
its remaining Seabrook investment and a return on that investment and its other
Seabrook-related costs over a 39-year period, less the period during which
Seabrook has operated.
The power contracts provide that NAEC's return on its "allowed investment"
in Seabrook (its investment in working capital, fuel, capital additions after
the date of commercial operation and a portion of the initial investment) is
calculated based on NAEC's actual capitalization over the term of the contracts,
its actual debt and preferred equity costs and a common equity cost of 12.53
percent for the first ten years of the contracts, and thereafter at an equity
rate of return to be fixed in a filing with FERC.
As of May 1, 1996, NAEC had completed phasing into rates 100 percent of the
recoverable portion of its investment in Seabrook. From the date of acquisition
through November 1997, NAEC recorded $203.9 million of deferred return on its
investment in Seabrook. At November 30, 1997, NAEC's utility plant includes
$84.1 million of deferred return that was transferred by PSNH as part of the
Seabrook assets to NAEC on the acquisition date. Beginning on December 1, 1997,
the deferred return, including the portion transferred to NAEC, is currently
being billed through the Seabrook power contracts to PSNH and in accordance with
the Rate Agreement is to be fully recovered from customers by May 2001.
MASSACHUSETTS RETAIL RATES
GENERAL
Approximately 11% of System revenues is derived from WMECO, and 11% of the
book value of the System's electric utility assets is owned by WMECO.
WMECO's retail rates are subject to the jurisdiction of the DTE. The rates
charged under HWP's contracts with its industrial customers are not subject to
the ratemaking jurisdiction of any state or federal regulatory agency.
In April 1996, the DTE approved a settlement proposed by WMECO and the
Massachusetts Attorney General (the Agreement). The Agreement continued,
through February 1998, a 2.4-percent rate reduction instituted in June 1994.
The Agreement terminated pending reviews of WMECO's generating plant performance
and any potential reviews associated with Millstone 2's 1994-1995 extended
outage. The Agreement also accelerated WMECO's amortization of strandable
assets by approximately $6 million in 1996 and $10 million in 1997.
The Massachusetts restructuring legislation requires the DTE to issue rules
instituting performance-based regulation for the distribution and transmission
companies. No regulations have yet been promulgated.
WMECO FUEL ADJUSTMENT CLAUSE AND GENERATING UNIT OPERATING PERFORMANCE
Before the restructuring legislation, fuel costs were collected by
Massachusetts utilities on a current basis by means of a forecasted quarterly
fuel clause. In addition to energy costs, the fuel adjustment clause (FAC)
includes capacity and transmission charges and credits that result from short-
term transactions with other utilities and from certain FERC-approved contracts
among the System operating companies. The Massachusetts restructuring
legislation effectively eliminates the FAC, effective March 1, 1998.
On February 28, 1997, the DTE approved a settlement agreement between WMECO
and the Massachusetts Attorney General to maintain WMECO's FAC at its August
1996 level through August 1997. The settlement also provided that WMECO would
not seek carrying charges on any deferred fuel costs incurred as a result of
maintaining the FAC at the agreed-upon level. In accepting the settlement, the
DTE deferred any inquiry into WMECO's fuel expenses, including replacement power
fuel expenses related to the current Millstone outages.
On August 20, 1997, WMECO filed with the DTE a joint motion for approval of
a settlement agreement with the Massachusetts Attorney General which would apply
an FAC of $.0080/per kWh, thereby allowing WMECO to recover approximately $15.3
million of additional fuel costs for the period September 1997 through February
1998. Under the terms of the settlement, WMECO would not seek to recover the
replacement power costs associated with the Millstone outages that accrue during
the same six month period. WMECO indicated in its restructuring filing on
December 31, 1997 that it would not seek recovery of any of the replacement
power costs associated with the ongoing Millstone outages. WMECO has been
expensing and will continue to expense these costs.
FINANCING PROGRAM
1997 FINANCINGS
On November 21, 1996, NU, CL&P and WMECO entered into a new three-year
Revolving Credit Agreement (the Revolving Credit Agreement) with a group of
banks. On May 30, 1997, the Revolving Credit Agreement was amended to reflect
(i) the provision by CL&P of first mortgage bonds in the principal amount of
$225,000,000 and by WMECO of first mortgage bonds in the principal amount of
$90,000,000 as collateral for their respective obligations under the Revolving
Credit Agreement, (ii) revised financial covenants consistent with NU's, CL&P's
and WMECO's financial forecasts and (iii) an upfront payment to the lenders in
order to maintain commitments under the Revolving Credit Agreement. Under the
Revolving Credit Agreement, as amended, CL&P and WMECO are able to borrow up to
approximately $225,000,000 and $90,000,000, respectively, subject to a total
borrowing limit of $313,750,000 for all three borrowers. NU will not be able to
borrow under the Revolving Credit Agreement until NU, CL&P and WMECO have
maintained a consolidated operating income to consolidated interest expense
ratio of at least 2.50 to 1 for two consecutive fiscal quarters. NU, CL&P and
WMECO currently cannot meet this requirement. At December 31, 1997, CL&P and
WMECO had $35 million and $15 million, respectively, outstanding under the
Revolving Credit Agreement. For more information regarding other covenant
requirements under this agreement, see "Financing Limitations" below.
On June 26, 1997, CL&P issued $200 million of First and Refunding Mortgage
Bonds, 1997 Series B (CL&P Series B Bonds). The net proceeds of the sale of the
CL&P Series B Bonds were used for repayment of short-term debt incurred for
general working capital purposes, including costs associated with the current
outages at the Millstone units. Pursuant to an agreement between CL&P and the
purchasers of the CL&P 1997 Series B Bonds, such purchasers were granted certain
registration rights. On October 9, 1997, CL&P issued $200 million of First and
Refunding Mortgage Bonds, 1997 Series C (CL&P Series C Bonds) in an exchange
offer to the holders of the CL&P Series B Bonds. No CL&P Series B Bonds
remained outstanding subsequent to the exchange of CL&P Series C Bonds for CL&P
Series B Bonds. The CL&P Series C Bonds bear interest at an annual rate of 7.75
percent and mature on June 1, 2002.
On July 31, 1997, WMECO issued $60 million of First Mortgage Bonds, 1997
Series B (WMECO 1997 Series B Bonds). The net proceeds of the sale of the WMECO
1997 Series B Bonds were used to repay short-term debt that was incurred to
refinance or refund debt and preferred stock and for general working capital
purposes, including costs associated with the ongoing outages at the Millstone
units. The WMECO 1997 Series B Bonds bear interest at an annual rate of 7.375
percent and will mature on July 1, 2001.
CL&P and WMECO established facilities in 1996 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.
In October 1997, CL&P completed the process of restructuring its accounts
receivable sales agreement to comply with the requirements of Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," so that the
transactions occurring under the agreement are accounted for as sales and not
secured borrowings. As part of meeting these requirements, CL&P established a
single-purpose, wholly owned subsidiary, CL&P Receivables Corporation (CRC).
CRC's sole purpose is to purchase receivables from CL&P and periodically resell
undivided ownership interests in those receivables to a third-party purchaser.
As collections reduce previously sold undivided interests, new receivables may
be sold. All receivables transferred to CRC become assets owned by CRC.
In 1997, WMECO also restructured its accounts receivable sales agreement to
permit it to treat transactions occurring under the agreement as sales. Like
CL&P, WMECO established a single-purpose, wholly owned subsidiary, WMECO
Receivables Corporation (WRC). WRC operates in substantially the same manner as
does CRC. As of December 31, 1997, approximately $70 million and $20 million of
receivables had been sold by CRC and WRC, respectively, to third party
purchasers. For information regarding the effect of downgrades of the credit
ratings of CL&P and WMECO on the availability of these facilities, see
"Financing Limitations" below. As of December 31, 1997, approximately $70
million and $20 million of receivables had been sold to third party purchasers
under CL&P's and WMECO's respective agreements.
Total System debt, including short-term and capitalized lease obligations,
was $4.15 billion as of December 31, 1997, compared with $4.15 billion as of
December 31, 1996 and $4.25 billion as of December 31, 1995. For more
information regarding System financing, see "Notes to Consolidated Statements of
Capitalization" in NU's financial statements and other footnotes related to
long-term debt, short-term debt and the sale of accounts receivables, as
applicable, in the notes to NU's, CL&P's, PSNH's, WMECO's and NAEC's financial
statements and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
1998 FINANCING REQUIREMENTS
The System's aggregate capital requirements for 1998, including
requirements under the Niantic Bay Fuel Trust (NBFT) (discussed under "1998
Financing Plans") and excluding a one percent improvement fund* for certain
WMECO First Mortgage Bonds, are approximately as follows:
CL&P PSNH WMECO NAEC Other System
(Millions)
Construction $164.9 $ 41.9 $26.5 $ 8.9 $24.9 $267.1
Nuclear Fuel 37.6 1.7 8.4 12.9 - 60.6
Maturities 20.0 170.0 9.8 - - 199.8
Cash Sinking Funds 3.8 25.0 1.5 20.0 24.7 75.0
Total $226.3 $238.6 $46.2 $41.8 $49.6 $602.5
*With the issuance of the CL&P Series B Bonds, the one percent sinking fund
for CL&P was eliminated under the provisions of the sixty-seventh supplemental
indenture.
For further information on NBFT, see "Leases" in the notes to NU's, CL&P's
and WMECO's financial statements. For further information on the System's 1998
and five-year financing requirements, see "Notes to Consolidated Statements of
Capitalization" in NU's financial statements, "Long-Term Debt" in the notes to
CL&P's, PSNH's, WMECO's and NAEC's financial statements and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
1998 FINANCING PLANS
The System companies generally propose to finance their 1998 requirements
through internally generated funds and short-term borrowings.
In February 1998, because of borrowing restrictions on NU under the
Revolving Credit Agreement, NU entered into a separate $25 million 364-day
revolving credit agreement with one bank. See "Financing Program - 1997
Financings."
In 1982, CL&P and WMECO entered into arrangements under which NBFT owns and
finances the nuclear fuel for Millstone 1 and 2 and CL&P's and WMECO's share of
the nuclear fuel for Millstone 3. NBFT obtains funds from bank loans and the
sale of intermediate term notes. The fuel is leased to CL&P and WMECO by the
trust while it is used in the reactors, and ownership of the fuel is transferred
to CL&P and WMECO when it is permanently discharged from the reactors. CL&P and
WMECO are severally obligated to make quarterly lease payments, to pay all
expenses incurred by NBFT in connection with the fuel and the financing
arrangements, to purchase the fuel under certain circumstances and to indemnify
all the parties to the transactions.
The NBFT arrangements with the banks were recently extended from February
19, 1998 to July 31, 1998, with the amount available under a credit agreement
relating to the trust decreasing from $150 million to $100 million. The
extension is contingent upon CL&P and WMECO issuing approximately $72 million
and $18 million, respectively, of first mortgage bonds on or before May 1, 1998
to secure both the $100 million of bank credit and $80 million of Series F
intermediate term NBFT notes. These notes mature on June 1, 1998, and CL&P and
WMECO intend to cause the trust to refinance them at such time.
CL&P, WMECO, PSNH and HWP have outstanding variable rate pollution control
bonds backed by Letters of Credit (LOCs) from various banks. All of the
outstanding LOCs are scheduled to expire in 1998. For each LOC, the company
must either obtain an extension of the current LOC, obtain a replacement LOC,
convert the outstanding variable rate security to a fixed rate security or
retire the security. The total principal amounts of the pollution control bonds
affected are approximately $362 million for CL&P, $229 million for PSNH, $54
million for WMECO and $38 million for HWP.
The companies' ability to extend such LOCs will be dependent upon a number
of factors at the time of such transaction, including their own financial
condition, the availability of bank credit generally, receipt of necessary
regulatory approvals and other factors. A portion of the debt secured in such
fashion may be able to be remarketed as fixed rate debt without LOC support, but
there is no assurance this could be done were there to be a shortfall in LOC
support. Failure to obtain LOC extensions and to remarket such debt in fixed
mode could lead to a request by the LOC banks for payment upon the expiration of
the LOC arrangements. Generally speaking, such debt is payable on a demand
basis. At this time the companies believe they will be able to negotiate LOC
extensions and/or fix the interest rates of unsupported bonds so as to avoid
such a situation.
PSNH has a first mortgage bond maturity of $170 million, plus accrued
interest, on May 14, 1998. PSNH expects to meet that maturity with cash on hand
and a borrowing under a revolving credit agreement. PSNH is negotiating with
banks the terms under which PSNH's current $125 million revolving credit
agreement will be restructured, in part by the provision of first mortgage bonds
and accounts receivables as collateral, in part by reducing the amount of
commitments to $75 million from $100 million, and in part by adjusting the
pricing terms. In addition, $229 million of PSNH LOCs mature on May 1, 1998.
PSNH proposes to convert approximately half of the pollution control bonds to
which those LOCs relate from floating rate mode to fixed rate mode, thereby
eliminating the need for LOCS on that portion. PSNH is negotiating with banks
the terms under which LOCs for the balance will be renewed, expected to be in
part by adding accounts receivables as collateral and in part by adjusting the
pricing terms.
In December 1997 and January 1998, Moody's Investors Service (Moody's) and
Standard & Poor's (S&P) downgraded the senior secured debt of CL&P, WMECO and
NU, as well as the preferred stock of CL&P and WMECO. All NU System securities
remain under review for further downgrade. This was the fourth time Moody's and
S&P have downgraded CL&P and WMECO securities since the Millstone units went on
the NRC watch list in 1996. All of the System's securities are rated below
investment grade. Rating agency downgrades generally increase the future cost of
borrowing funds because lenders will want to be compensated for increased risk
and also affect the terms and ability of the System companies to extend existing
agreements. See "Financing Limitations" regarding the effect of downgrades on
specific System financing arrangements.
FINANCING LIMITATIONS
Many of the System companies' charters and borrowing facilities contain
financial limitations that must be satisfied before borrowings can be made and
for outstanding borrowings to remain outstanding. To date, CL&P, PSNH, WMECO
and NAEC have satisfied all financial covenants required under their respective
borrowing facilities, but NU, CL&P and WMECO needed and obtained waivers of
interest coverage covenants and renegotiated covenant levels for certain
agreements, as described below.
Under the Revolving Credit Agreement, CL&P and WMECO are prohibited from
incurring additional debt unless they are able to demonstrate, on a pro forma
basis for the prior quarter and going forward, that their equity ratios will be
at least 31 percent of their total capitalization through December 31, 1997 and
32 percent thereafter. At December 31, 1997, CL&P'S and WMECO's common equity
ratios were 31.4 percent and 33.1 percent, respectively.
The Revolving Credit Agreement also requires, beginning in the fourth
quarter of 1997, each of CL&P and WMECO to demonstrate that its quarterly ratio
of operating income to interest expense will be at least 1.25 to 1 through
December 31, 1997; 1.50 to 1 for the quarters ended March 31, 1998 and June 30,
1998; 2.00 to 1 for the quarter ended September 30, 1998; and 2.50 to 1 at the
end of each quarter thereafter. For the quarter ended December 31, 1997, CL&P's
and WMECO's interest coverage ratios were 1.79 to 1 and 1.39 to 1, respectively.
PSNH and NAEC are parties to a variety of financing agreements providing
that the credit thereunder can be terminated or accelerated if they do not
maintain specified minimum ratios of common equity to capitalization (as defined
in each agreement). For PSNH, the minimum common equity ratio in a letter of
credit agreement and in a revolving credit agreement is not less than 30
percent. At December 31, 1997, PSNH's common equity ratio was 43.0 percent.
For NAEC, the minimum common equity ratio required under its term loan agreement
is 25 percent; at December 31, 1997, NAEC's common equity ratio was 30.7
percent.
In addition, PSNH's revolving credit agreement requires that for PSNH to
obtain and maintain borrowings thereunder, it must demonstrate that its ratio of
operating income to interest expense will be at least 1.75 to 1 at the end of
each fiscal quarter for the remaining term of the agreement. The NAEC term loan
agreement requires a ratio of adjusted net income to interest expense of 1.35 to
1 through December 31, 1997 and 1.50 to 1 thereafter. For the 12-month period
ended December 31, 1997 the corresponding ratios for PSNH and NAEC,
respectively, were 4.38 to 1 and 1.79 to 1, respectively.
In addition, PSNH and NAEC are parties to a variety of financing agreements
providing in effect that the credit thereunder can be terminated or accelerated
if there are actions taken, either by PSNH or NAEC or by the State of New
Hampshire, that deprive PSNH and/or NAEC of the benefits of the Rate Agreement
and/or the Seabrook Power Contracts.
The amounts of short-term borrowings that may be incurred by NU, CL&P,
PSNH, WMECO, HWP and NAEC are also subject to periodic approval by the SEC under
the 1935 Act. The following table shows the amount of short-term borrowings
authorized by the SEC for each company as of January 1, 1998 and the net amounts
of outstanding short-term debt and cash investments of those companies at the
end of 1997 and as of February 28, 1998:
Short-Term Debt
Maximum Authorized Outstanding
Short-Term Debt and (Cash Investments)*
12/31/97 2/28/98
(Millions)
NU.................. $200 $ (34) $ (28)
CL&P ............... 375 96 123
PSNH ............... 125 (94) (131)
WMECO............... 150 29 38
HWP................. 5 (9) (9)
NAEC................ 60 10 (14)
OTHER............... n/a (77) (81)
Total $ (79) $(101)
* These columns include borrowings of or cash investments by various System
companies from NU and other System companies. Total System short-term
indebtedness to unaffiliated lenders was $50 million at December 31, 1997 and
$125 million at February 28, 1998.
The supplemental indentures under which NU issued $175 million in
principal amount of 8.58 percent amortizing notes in December 1991 and $75
million in principal amount of 8.38 percent amortizing notes in March 1992
contain restrictions on dispositions of certain System companies' stock,
limitations of liens on NU assets and restrictions on distributions on and
acquisitions of NU stock. Under these provisions, NU, CL&P, PSNH and WMECO may
not dispose of voting stock of CL&P, PSNH or WMECO other than to NU or another
System company, except that CL&P may sell voting stock for cash to third persons
if so ordered by a regulatory agency so long as the amount sold is not more than
19 percent of CL&P's voting stock after the sale. The restrictions also
generally prohibit NU from pledging voting stock of CL&P, PSNH or WMECO or
granting liens on its other assets in amounts greater than five percent of the
total common equity of NU. As of December 31, 1997, no NU debt was secured by
liens on NU assets. Finally, NU may not declare or make distributions on its
capital stock, acquire its capital stock (or rights thereto), or permit a System
company to do the same, at times when there is an event of default under the
supplemental indentures under which the amortizing notes were issued.
The charters of CL&P and WMECO contain preferred stock provisions
restricting the amount of unsecured debt those companies may incur. As of
December 31, 1997, CL&P's and WMECO's charters permit CL&P and WMECO to incur an
additional $450 million and $114 million, respectively, of unsecured debt.
In connection with NU's acquisition of PSNH, the DPUC imposed certain
financial conditions intended to prevent NU from relying on CL&P resources if
the PSNH acquisition strained NU's financial condition. The principal
conditions provide for a DPUC review if CL&P's common equity falls to 36 percent
or below, require NU to obtain DPUC approval to secure NU financings with CL&P
stock or assets and obligate NU to use its best efforts to sell CL&P preferred
or common stock to the public if NU cannot meet CL&P's need for equity capital.
If, at any time, CL&P projects that its common equity ratio as of the end of the
next fiscal quarter will be below 36%, or plans to take any action that will
result or can reasonably be expected to result in reducing the above ratio below
36%, then CL&P is required to notify the DPUC in writing at least 45 days before
such action is taken or event is anticipated to occur. The DPUC may conduct a
proceeding after its receipt of CL&P's notice. CL&P did not meet this condition
as of June 30, 1997, and notified the DPUC in accordance with the foregoing
requirement. The DPUC acknowledged receipt of the notice and has taken no
further action.
While not directly restricting the amount of short-term debt that CL&P,
WMECO, HWP, RRR and NU may incur, the revolving credit agreements to which CL&P,
WMECO, HWP, RRR and NU are parties provide that the lenders are not required to
make additional loans, and that the maturity of indebtedness can be accelerated,
if NU (on a consolidated basis) does not meet a common equity ratio test that
requires, in effect, that NU's consolidated common equity (as defined) be not
less than 30 percent for any three consecutive fiscal quarters. At December 31,
1997, NU's common equity ratio was 33.4 percent.
The indentures securing the outstanding first mortgage bonds of CL&P, PSNH,
WMECO and NAEC provide that additional bonds may not be issued, except for
certain refunding purposes, unless earnings (as defined in each indenture and
before income taxes, and, in the case of PSNH, without deducting the
amortization of PSNH's regulatory asset), are at least twice the pro forma
annual interest charges on outstanding bonds and certain prior lien obligations
and the bonds to be issued. CL&P and WMECO's 1997 earnings do not permit them
to meet those earnings coverage tests, but as of February 28, 1998, CL&P and
WMECO would be able to issue up to $145 million and $4 million of additional
first mortgage bonds, respectively, on the basis of previously issued but
refunded bonds, without having to meet the earnings coverage test. These amounts
will decrease after CL&P and WMECO have issued additional first mortgage bonds
to secure borrowings under the NBFT discussed above under "1998 Financing
Plans." Because WMECO has limited available bonding capacity to secure its
obligations under the NBFT, WMECO will reduce its borrowing limit by
approximately $5 million under the Revolving Credit Agreement, which will result
in the release of an equivalent amount of collateral bonds that secure the
Revolving Credit Agreement.
The preferred stock provisions of CL&P's, PSNH's and WMECO's charters also
prohibit the issuance of additional preferred stock (except for refinancing
purposes) unless income before interest charges (as defined and after income
taxes and depreciation) is at least 1.5 times the pro forma annual interest
charges on indebtedness and the annual dividend requirements on preferred stock
that will be outstanding after the additional stock is issued. CL&P and WMECO
are currently unable to issue additional preferred stock under these provisions.
SEC rules under the 1935 Act require that dividends on NU's shares be based
on the amount of dividends received from subsidiaries, not on the undistributed
retained earnings of subsidiaries. NU suspended the payment of dividends
beginning with the quarter ended June 30, 1997.
The supplemental indentures under which CL&P's and WMECO's first mortgage
bonds and the indenture under which PSNH's first mortgage bonds have been issued
limit the amount of cash dividends and other distributions these subsidiaries
can make to NU out of their retained earnings. As of December 31, 1997, WMECO
had $28.7 million and PSNH had $170.1 million of unrestricted retained earnings.
As of the same date, CL&P had an accumulated deficit of approximately $154
million that must be made up before it is able to pay dividends to NU. The
indenture under which NAEC's Series A Bonds have been issued also limits the
amount of cash dividends or distributions NAEC can make to NU to retained
earnings plus $10 million. At December 31, 1997, approximately $68.7 million
was available to be paid under this provision.
PSNH's revolving credit agreement prohibits it from declaring or paying any
cash dividends or distributions on any of its capital stock, except for
dividends on the preferred stock, unless minimum interest coverage and common
equity ratio tests are satisfied. PSNH's preferred stock provisions also limit
the amount of cash dividends and other distributions PSNH can make to NU if
after taking the dividend or other distribution into account, PSNH's common
stock equity is less than 25 percent of total capitalization. At December 31,
1997, approximately $170.1 million was available to be paid under these
provisions. If NAEC could not meet the common equity covenant referred to
above, it would also be unable to pay common dividends. At December 31, 1997,
$68.7 million was available to be paid under this provision.
Certain System financing agreements also have covenants or trigger events
tied to credit ratings of certain System companies.
The downgrade by Moody's of WMECO's first mortgage bonds to Ba2 in December
1997 brought those ratings to a level at which the sponsor of WMECO's accounts
receivable program can take various actions, in its discretion, which would have
the practical effect of limiting WMECO's ability to utilize the facility. The
WMECO accounts receivable program could be terminated if WMECO's first mortgage
bond credit ratings experience one more level of downgrade. CL&P's accounts
receivables program could be terminated if its senior secured debt is downgraded
two more steps from its current ratings.
As the result of the downgrades of CL&P's and WMECO's senior secured debt
to below investment grade in the Spring of 1997, NNECO is required under the
terms of its note agreement relating to $24.1 million of notes to make a series
of four equal annual prepayments to the noteholder that effectively result in
the notes being fully repaid by May 2000. NNECO made its first prepayment in
May 1997. At December 31, 1997, there were approximately $18 million of these
notes outstanding.
RRR is the obligor under financing arrangements for office facilities at
the System's Berlin (Connecticut) headquarters. Under those financing
arrangements, the holders of $38 million of notes requested the repurchase of
the notes in April 1997. Of the $38 million, RRR reacquired and retired $26
million of the notes and the remaining $12 million of the notes were sold to
alternate purchasers during the second and third quarters of 1997. Under the
repurchase agreements, the new noteholders are entitled to request repurchase of
the notes if the senior secured debt of a major subsidiary (as defined) is rated
below B1 by Moody's and B+ by S&P. The notes are secured by real estate leases
between RRR and NUSCO, which provide for the acceleration of rent equal to RRR's
note obligations if RRR is unable to pay, and NU has guaranteed the notes. Rent
was accelerated for the $26 million of repurchased notes.
For information regarding the effect of downgrades on certain fossil-fuel
hedging agreements of CL&P, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ELECTRIC OPERATIONS
DISTRIBUTION AND LOAD
The System companies traditionally have owned and operated a fully
integrated electric utility business. Restructuring legislation in
Massachusetts, however, requires WMECO to separate the distribution,
transmission and generation functions of its business. Similar initiatives have
been proposed in New Hampshire and Connecticut.
The System companies' retail service territories cover approximately 11,335
square miles (4,400 in CL&P's service area, 5,445 in PSNH's service area and
1,490 in WMECO's service area) and have an estimated total population of
approximately 4.1 million (2.5 million in Connecticut, 1 million in New
Hampshire and 600,000 in Massachusetts). The companies furnish retail franchise
service in 149, 198 and 59 cities and towns in Connecticut, New Hampshire and
Massachusetts, respectively. In December 1997, CL&P furnished retail franchise
service to approximately 1.1 million customers in Connecticut, PSNH provided
retail service to approximately 400,000 customers in New Hampshire and WMECO
served approximately 195,000 retail franchise customers in Massachusetts. HWP
serves 33 retail customers in Holyoke, Massachusetts.
The following table shows the sources of 1997 electric revenues based on
categories of customers:
CL&P PSNH** WMECO NAEC Total System
Residential................ 41.8% 30.8% 37.6% - 38.3%
Commercial................. 35.9 25.5 33.0 - 32.8
Industrial................. 12.7 15.6 19.4 - 14.2
Wholesale*................. 8.1 27.5 8.7 100.0% 13.5
Other...................... 1.5 .6 1.3 - 1.2
Total......................100.0% 100.0% 100.0% 100.0% 100.0%
* Includes capacity sales and sales from PSNH to CL&P and WMECO.
** Excludes sales related to the retail pilot program in New Hampshire.
NAEC's 1997 electric revenues were derived entirely from sales to PSNH
under the Seabrook power contracts. See "Rates--New Hampshire Retail Rates---
Seabrook Power Contracts" for a discussion of the contracts.
Through December 31, 1997, the all-time peak demand on the System was 6,456
MW, which occurred on July 15, 1997. At the time of the peak, the System's
generating capacity, including capacity purchases, was 8,570 MW.
System energy requirements were met in 1997 and 1996 as set forth below:
Source 1997 1996
Nuclear .................................... 13% 28%
Oil ...................................... 28 12
Coal ....................................... 13 11
Hydroelectric .............................. 4 5
Natural gas ............................... 7 3
NUGs .................................... 14 13
Purchased-power........................ 21 28
100% 100%
The actual changes in retail kWh sales for the last two years and the
forecasted sales growth estimates for the ten-year period 1997 through 2007, in
each case exclusive of wholesale sales, non-franchised retail sales and sales
related to the retail pilot program in New Hampshire, for the System, CL&P, PSNH
and WMECO are set forth below:
1997 over 1996 over Forecast 1997-2007
1996 1995 Compound Rate of Growth
System....... (.3)% 1.6% 1.4%
CL&P........... .0 % 1.8% 1.2%
PSNH........... (.1)% .4% 2.0%
WMECO.......... (1.0)% 2.7% .7%
Retail sales fell by .3 percent in 1997 compared with 1996 primarily due
to mild weather. The warmer than normal weather in the first quarter of 1997
had the greatest impact on residential electric sales, which were down by 1.1
percent. Commercial sales were up by .7 percent for the year and industrial
sales decreased by .3 percent. Retail sales at CL&P were essentially flat in
1997, while WMECO retail sales decreased by 1 percent. PSNH's retail sales
decreased by .1 percent in 1997, partly due to a retail pilot program in New
Hampshire.
The System also acts as both a buyer and a seller of electricity in the
highly competitive wholesale electricity market in the Northeastern United
States (Northeast). Although revenues from long-term contracts have been
declining, wholesale revenues of $319 million in 1997 were approximately the
same as 1996 as a result of new contracts entered into in recent years and are
expected to be remain constant in 1998. The System's most important wholesale
market at this time remains New England. The opportunity for any significant new
wholesale market opportunities remain limited due to continuing uncertainty
associated with electric industry restructuring.
With the System's generating capacity of 7,861 MW as of January 1, 1998
(including the net of capacity sales to and purchases from other utilities, and
approximately 640 MW of capacity purchased from NUGs under existing contracts),
the System expects to have a sufficient amount of capacity to meet its projected
1998 peak load obligations.
The System companies operate and dispatch their generation as provided in
the NEPOOL Agreement. In 1997, the peak demand on the NEPOOL system was 20,569
MW in July, which was 1062 MW above the 1996 peak load of 19,507 MW in August of
that year. NEPOOL has projected that there will be an increase in demand in
1998 and estimates that the summer 1998 peak load could reach 22,080 MW.
While management expects Millstone 3 to be operating during the summer of
1998, even if Millstone 3 is not operational at any time during the 1998 summer
season, management expects that the System and NEPOOL will have sufficient
capacity to meet peak load demands for New England, so long as the remaining
generating units and transmission systems in Connecticut and the New England
region have normal operability. If high levels of unplanned outages in New
England were to occur, or if any of the System's transmission lines used to
import power from other states were unavailable, or any significant amount of
imported generating resources are not available at times of peak load demand, NU
and the other New England utilities may have to resort to operating procedures
designed to reduce load. During 1997, the System spent approximately $58
million to ensure adequate capacity availability, of which $40 million was
expensed. In 1998, the System companies do not anticipate needing to take
additional measures to ensure adequate generating capacity. In addition to
these costs, CL&P and WMECO incurred, and will incur, additional costs in 1997
and 1998 as a result of the capacity deficiency under the NEPOOL Agreement,
which is discussed more fully below under "Regional and System Coordination."
REGIONAL AND SYSTEM COORDINATION
The System companies and most other New England utilities are parties to
an agreement (NEPOOL Agreement), which provides for coordinated planning and
operation of the region's generation and transmission facilities. The NEPOOL
Agreement was restated and revised as of March 1, 1997 to provide for a pool-
wide open access transmission tariff and for the creation of an Independent
System Operator (ISO). Under these new arrangements: (i) the ISO, a non-profit
corporation whose board of directors and staff is not controlled by or
affiliated with market participants, ensures the reliability of the NEPOOL
transmission system, administers the NEPOOL tariff and oversees the efficient
and competitive functioning of the regional power market; (ii) the NEPOOL tariff
provides for non-discriminatory open access to the regional transmission network
at one rate regardless of transmitting distance for all transactions; and (iii)
a broader governance structure for NEPOOL and a more open, competitive market
structure are established.
On June 25, 1997, FERC issued an order that conditionally approved the
formation of the ISO to succeed NEPOOL as the operator of the bulk electric
power supply system in New England and the transfer of control over FERC-
jurisdictional facilities to the ISO by NEPOOL's public utility members. On
September 18, 1997, NEPOOL filed an agreement effecting compliance with FERC's
ISO order.
On October 31, 1997, NEPOOL filed the Fourth Supplement to the NEPOOL
Agreement with FERC. The major intent of the filing was to address internal
NEPOOL congestion and the use of the external transmission tie lines between New
York and New Brunswick, and to provide a transition towards restructuring. This
filing would allow NU to retain its current 72 percent use of the New York tie
lines on a priority basis through April 1998. In May 1998, NU's priority use at
any given time would be reduced from approximately 1000 MW to approximately 600
MW. This priority of 600 MW is gradually reduced to zero by January 2000. If NU
requires use of the New York ties above the level discussed above, it would be
available from the ISO on a first come, first serve basis at no additional cost
as long as the amount requested is actually utilized. Management does not expect
the change in its priority arrangements under the NEPOOL Agreement to limit the
System's ability to meet its capacity requirements.
Pursuant to the NEPOOL Agreement, if a participant is unable to meet its
capacity responsibility obligations, the participant is required to purchase
capacity through the ISO at a market clearing price as set forth in the NEPOOL
Agreement. Management is currently meeting its capacity responsibility while the
Millstone units remain shut down through purchased power contracts with other
utilities. The cost of these arrangements is approximately $16 million for
November 1997 to April 1998. If Millstone 3 and Millstone 2 return to service
within their currently estimated restart schedules, the cost of these
arrangements from May 1998 to October 1998 are estimated to be approximately
$7.5 million. If neither unit returns to service prior to October 1998, the
System's costs to meet their capacity responsibility obligations within such
period are estimated to be approximately $30 million.
There are two agreements that determine the manner in which costs and
savings are allocated among the System companies. Under an agreement (NUG&T)
among CL&P, WMECO and HWP (Initial System Companies), these companies pool their
electric production costs and the costs of their principal transmission
facilities. Pursuant to the merger agreement between NU and PSNH, the Initial
System Companies and PSNH entered into a ten-year sharing agreement (Sharing
Agreement), expiring in June 2002, that provides, among other things, for the
allocation of the capability responsibility savings and energy expense savings
resulting from a single-system dispatch through NEPOOL.
In WMECO's restructuring filing with the DTE on December 31, 1997, WMECO
indicated that it expects to withdraw from the NUG&T with FERC's approval in the
summer of 1998. This withdrawal is necessary as a result of retail competition
in Massachusetts and the divestiture of WMECO's nonnuclear generating plants. It
is likely that as retail competition occurs in other states, further changes in
the NUG&T will be necessary. The Sharing Agreement will remain in effect
pending restructuring changes in Connecticut and New Hampshire.
TRANSMISSION ACCESS AND FERC REGULATORY CHANGES
In April 1996, FERC issued its final open access rule (Order 888) to
promote competition in the electric industry. Order 888 requires, among other
things, all public utilities that own, control or operate facilities used for
transmitting electric energy in interstate commerce to file an open-access,
nondiscriminatory transmission tariff and to take transmission service for their
own new wholesale sales and purchases under the open access tariffs. Order 888
also supports full recovery of legitimate, prudent and verifiable wholesale
strandable costs, but indicates that FERC will not interfere with state
determinations of retail strandable costs.
On May 2, 1997, the System companies, along with other parties, filed with
the U.S. Court of Appeals an appeal of Order 888, challenging FERC's abdication
of its responsibility to ensure uniform recovery of full strandable costs at the
wholesale and retail level, including FERC's refusal to endorse strandable costs
payments (e.g., exit fees) for customers physically bypassing their former
supplier, as well as FERC's imposition of an ordinary negligence standard of
liability on transmission providers.
In a companion order to Order 888 (Order 889), FERC also required electric
utilities to develop and maintain a same-time information system that will give
existing and potential transmission users the same access to transmission
information that the electric utility enjoys, and required electric utilities to
separate transmission from generation marketing functions pursuant to standards
of conduct. The System companies are complying with the requirements of Order
889.
In 1997, the System companies collected approximately $35 million in
incremental transmission revenues from other electric utility generators.
FOSSIL FUELS
In 1997, 47.4 percent and 38.9 percent of the System's generation was oil
and coal-derived, respectively. The System's residual oil-fired generation
stations used approximately 11 million barrels of oil in 1997. The System
obtained the majority of its oil requirements in 1997 through contracts with
several large, independent oil companies. Those contracts allow for some spot
purchases when market conditions warrant. Spot purchases represented
approximately 35 percent of the System's fuel oil purchases in 1997. The
System currently does not anticipate any difficulties in obtaining necessary
fuel oil supplies on economic terms.
The System has nine generating stations, aggregating approximately 2,800
MW, which can fully or partially burn residual oil, natural gas or coal, as
economics, environmental concerns or other factors dictate. Natural gas for
CL&P's Devon, Middletown and Montville generating stations is being purchased
directly from producers and traders on an interruptible basis and transported
through the interstate pipeline system and the local gas distribution companies.
Gas for WMECO's and PSNH's stations is being purchased from the respective local
distribution companies. The System expects that interruptible natural gas will
continue to be available for its dual-fuel electric generating units on economic
terms and will continue to economically supplement fuel oil requirements.
The System companies obtain their coal through long-term supply contracts
and spot purchases. The System companies currently have an adequate supply of
coal. Because of changes in federal and state air quality requirements, the
System may be required to use lower sulfur coal in its plants in the future. See
"Other Regulatory and Environmental Matters--Environmental Regulation Air
Quality Requirements."
WMECO is not a party to any fuel arrangements that will have a material
effect on its ability to auction its nonnuclear generating units. For more
information regarding WMECO's restructuring plan, see "Electric Utility
Restructuring--Massachusetts Restructuring."
NUCLEAR GENERATION
GENERAL
Certain System companies have ownership interests in four nuclear units,
Millstone 1, 2 and 3 and Seabrook 1, and equity interests in four regional
nuclear companies (the Yankee Companies) that separately own CY, MY, Vermont
Yankee (VY) and Yankee Rowe. System companies operate the three Millstone units
and Seabrook 1. Yankee Rowe was permanently removed from service in 1992; CY was
permanently removed from service on December 4, 1996, and MY was permanently
removed from service on August 6, 1997.
CL&P and WMECO own 100 percent of Millstone 1 and 2 as tenants in common.
Their respective ownership interests in each unit are 81 percent and 19 percent.
CL&P, PSNH and WMECO have agreements with other New England utilities
covering their joint ownership as tenants in common of Millstone 3. CL&P's
ownership interest in the unit is 52.93 percent, PSNH's ownership interest in
the unit is 2.85 percent and WMECO's interest is 12.24 percent. NAEC and CL&P
have 35.98 percent and 4.06 percent ownership interests, respectively, in
Seabrook.
In 1996, one of the joint owners of Millstone 3, Vermont Electric
Generation and Transmission Cooperative, Inc. (VEG&T), filed for bankruptcy.
The subsequent liquidation resulted in the offering of VEG&T's .035 percent
share of Millstone 3 for sale to the joint owners of Millstone 3. None of the
non-NU joint owners accepted the offer. CL&P expects to make the necessary
regulatory filings to acquire ownership of the VEG&T share in 1998.
The Millstone 3 and Seabrook joint ownership agreements provide for pro-
rata sharing by the owners of each unit of the construction and operating costs,
the electrical output and the associated transmission costs. CL&P and WMECO,
through NNECO as agent, operate Millstone 3 at cost, and without profit, under a
sharing agreement that obligates them to utilize good utility operating practice
and requires the joint owners to share the risk of employee negligence and other
risks pro rata in accordance with their ownership shares. The sharing agreement
provides that CL&P and WMECO would only be liable for damages to the non-NU
owners for a deliberate breach of the agreement pursuant to authorized corporate
action.
For information regarding lawsuits filed against NU by the non-NU owners of
Millstone 3 regarding the sharing agreement and certain arbitration proceedings
related to the ongoing Millstone outages, see "Item 3 - Legal Proceedings."
CL&P, PSNH, WMECO and other New England electric utilities are the
stockholders of the Yankee companies. Each Yankee company owns a single nuclear
generating unit. The stockholder-sponsors of each Yankee company are
responsible for proportional shares of the operating and decommissioning costs
of the respective Yankee company and are entitled to proportional shares of the
electrical output in the case of Vermont Yankee (VY), which is the only
operating unit of the four Yankee companies set forth below. The relative rights
and obligations with respect to the Yankee companies are approximately
proportional to the stockholders' percentage stock holdings, but vary slightly
to reflect arrangements under which nonstockholder electric utilities have
contractual rights to some of the output of particular units. The Yankee
companies and CL&P's, PSNH's and WMECO's stock ownership percentages in the
Yankee companies are set forth below:
CL&P PSNH WMECO System
Connecticut Yankee Atomic
Power Company (CYAPC) ...... 34.5% 5.0% 9.5% 49.0%
Maine Yankee Atomic Power
Company (MYAPC) ............ 12.0% 5.0% 3.0% 20.0%
Vermont Yankee Nuclear
Power Corporation (VYNPC)... 9.5% 4.0% 2.5% 16.0%
Yankee Atomic Electric
Company (YAEC) ............ 24.5% 7.0% 7.0% 38.5%
CL&P, PSNH and WMECO are obligated to provide their percentages of any
additional equity capital necessary for VY, but do not expect to need to
contribute additional equity capital in the future. CL&P, PSNH and WMECO
believe that VY could require additional external financing in the next several
years to finance construction expenditures, nuclear fuel and for other purposes.
Although the way in which VYAPC would attempt to finance these expenditures, if
they are needed, has not been determined, CL&P, PSNH and WMECO could be asked to
provide further direct or indirect financial support. CYPAC, YAEC and MYAPC
could also request their sponsors to provide future financial support necessary
in connection with the decommissioning of their respective units, the level of
which support cannot be estimated at this time, but could be material.
The operators of Millstone 1, 2 and 3, VY and Seabrook 1 hold full term
operating licenses from the NRC and are subject to the jurisdiction of the NRC.
The NRC has broad jurisdiction over the design, construction and operation of
nuclear generating stations, including matters of public health and safety,
financial qualifications, antitrust considerations and environmental impact.
The NRC issues 40-year initial operating licenses to nuclear units and NRC
regulations permit renewal of licenses for an additional 20-year period. The
NRC also has jurisdiction over the decommissioning activities at Yankee Atomic,
CY and MY.
The NRC also regularly conducts generic reviews of technical and other
issues, a number of which may affect the nuclear plants in which System
companies have interests. The cost of complying with any new requirements that
may result from these reviews cannot be estimated at this time, but such costs
could be substantial. For more information regarding recent actions taken by
the NRC with respect to the System's nuclear units, see "Electric Operations---
Nuclear Generation--Nuclear Plant Performance and Regulatory Oversight."
NUCLEAR PLANT PERFORMANCE AND REGULATORY OVERSIGHT
MILLSTONE UNITS
Millstone 1, 2 and 3 are located in Waterford, Connecticut, and have
license expirations of October 6, 2010, July 31, 2015 and November 25, 2025,
respectively, and are currently out of service. These units are presently on
the NRC's watch list as Category 3 plants. Plants in this category are required
to receive formal NRC commissioners' approval to resume operations.
Millstone 1 began a planned refueling and maintenance outage on November 4,
1995. Millstone 2 was shut down on February 21, 1996 as a result of an
engineering evaluation that determined that some valves could be inoperable in
certain emergency scenarios. On March 30, 1996, Millstone 3 was shut down by
NNECO following an engineering evaluation which determined that four safety-
related valves would not be able to perform their design function during certain
postulated events.
Each of these outages has been extended in order to respond to various NRC
requests to describe actions taken, including the resolution of specific
technical issues and to ensure that future operation of the units will be
conducted in accordance with the terms and conditions of their operating
licenses, NRC regulations and their Updated Final Safety Analysis Reports. The
System also must demonstrate that it maintains an effective corrective action
program for Millstone, as required by NRC regulations, to identify and resolve
conditions that are adverse to safety or quality.
On January 8, 1998, management declared Millstone 3 physically ready for
restart, which means that almost all of the restart-required physical work had
been completed in the plant. The NRC is currently conducting a series of
inspections to determine, among other things, whether the plant has effective
leadership and corrective action and employee concerns programs. The Independent
Corrective Action Verification Program (ICAVP) (discussed more fully below) must
also be completed prior to restart. Management cannot predict when the NRC will
allow any of the units to restart, but hopes to return Millstone 3 to service
early in the Spring of 1998 and Millstone 2 three to four months after Millstone
3. Millstone 1 is in an extended maintenance status and various options
regarding the future of the unit are being considered. Management estimates that
it will take approximately six weeks for a unit to reach full power after NRC
approval to restart.
On August 14, 1996, the NRC issued a confirmatory order establishing the
requirement for NNECO to conduct the ICAVP prior to the restart of each of the
Millstone units. The confirmatory order requires that an independent, third
party team, whose appointment is subject to NRC approval, verify the results of
the corrective actions taken to resolve identified design and configuration
management issues. ICAVP contractors have been selected for all three units and
approved by the NRC. The ICAVP contractor for Millstone 3 is expected to issue a
final report in March 1998. The ICAVP contractor for Millstone 2 is estimating
that their final report will be available in July. By letter dated January 30,
1998, the NRC described additional criteria that it would use to evaluate the
ICAVP and to determine whether the scope of the ICAVP needs to be expanded.
On December 10, 1997, the NRC issued NNECO a notice of violation and
proposed imposition of civil penalties in the amount of $2.1 million for past
violations of NRC requirements at Millstone. Many of these violations were the
subject of an enforcement conference in December 1996. The violations date back
over a number of years, with the majority occurring before the end of 1996.
NNECO has paid the fine. An NRC enforcement conference took place on January 13,
1998 to discuss findings arising from an NRC inspection (safety system
functional inspection) conducted in the fall of 1997. The results of this
conference are not expected to have a material impact on the System.
In addition to the various technical and design basis issues at Millstone,
the NRC continues to focus on the System's response to employee concerns at the
units. On October 24, 1996, the NRC issued an order that requires NNECO to
develop and implement a comprehensive plan for handling safety concerns raised
by Millstone employees and for assuring an environment free from retaliation and
discrimination. The NRC also ordered NNECO to contract for an independent third
party to oversee the implementation of the comprehensive plan. The members of
the independent third-party organization must not have had any direct previous
involvement with activities at Millstone and must be approved by the NRC.
Oversight by the third-party group will continue until NNECO demonstrates, by
performance, that the conditions leading to this order have been corrected. This
oversight role will continue after the units have been restarted. NNECO
submitted to the NRC its comprehensive employee concerns plan (ECP) and its
selection of the third-party oversight organization, which was subsequently
approved by the NRC during 1997. The third party organization developed and
submitted an oversight plan to the NRC. The third party organization provides a
public report on its findings at least quarterly, consistent with the provisions
of the order and has reported that while NNECO has shown improvement in this
area, there still needs to be more progress. The NRC has indicated similar
findings at the conclusion of a two week onsite review of NNECO's ECP and safety
conscious work environment.
On March 7, 1997, the NRC issued a letter to NNECO confirming NNECO's
commitment to evaluate and correct problems identified within its licensed
operator training programs at Millstone and CY. On June 27, 1997, NNECO
temporarily suspended all nuclear training programs at Millstone to address
programmatic deficiencies identified by NNECO and NRC inspectors during reviews
of the System's licensed operator training programs at Millstone and CY. On
October 31, 1997, NNECO indicated in writing to the NRC that its commitments
under this letter were complete.
For information regarding criminal investigations by the NRC's Office of
Investigations (OI) and the Office of the U. S. Attorney for the District of
Connecticut related to various matters at Millstone and CY, certain citizens'
petitions related to NU's nuclear operations and potential joint owner
litigation related to the extended outages, see "Item 3. Legal Proceedings."
SEABROOK
Seabrook 1, a 1148-MW pressurized-water reactor, has a license expiration
date of October 17, 2026. The Seabrook operating license expires 40 years from
the date of issuance of authorization to load fuel, which was about three and
one-half years before Seabrook's full-power operating license was issued. The
System will determine at the appropriate time whether to seek recapture of some
or all of this period from the NRC and thus add up to an additional three and
one-half years to the operating term for Seabrook. On June 28, 1997, Seabrook
completed a 50-day planned refueling and maintenance outage. In 1997, Seabrook
operated at a capacity factor of 78.3 percent. On December 5, 1997, Seabrook was
shut down to repair leaks in a three inch stainless steel pipe in the residual
heat removal system. The pipe was replaced, but problems were subsequently
discovered in the control building air conditioning system. Design changes were
implemented and the plant returned to service on January 16, 1998.
YANKEE UNITS
CONNECTICUT YANKEE
CY, a 582-MW pressurized-water reactor, had a full term operating license,
which would have expired on June 29, 2007. On December 4, 1996, the Board of
Directors of CYAPC voted unanimously to retire CY. The decision to shut down CY
was based on economic analyses that showed that shutting down the unit
prematurely and incurring replacement power costs could produce potential
savings to its purchasers compared to the costs of operating it over the
remaining period of the unit's operating license.
CYAPC has undertaken a number of regulatory filings intended to implement
the decommissioning. Based upon FERC regulatory precedent, CYAPC believes it
will be allowed to continue to collect from its power purchasers, including
CL&P, WMECO and PSNH, CYAPC's decommissioning costs, the owners' unrecovered
investments in CYAPC, and other costs associated with the permanent closure of
the plant over the remaining period of its NRC operating license. Management in
turn expects that CL&P, WMECO and PSNH will continue to be allowed to recover
such FERC-approved costs from their customers.
The current estimate of the sum of remaining future payments for the
closing, decommissioning and recovery of the remaining investment in CY is
approximately $619.9 million. The System's share of these remaining estimated
costs is approximately $303.7 million. For more information regarding CYAPC's
revised decommissioning estimate that was submitted to FERC in December 1996 and
the proceedings related thereto, see "Decommissioning" below.
As confirmed by the NRC in a letter dated March 4, 1997, CYAPC has agreed
to take various steps to resolve deficiencies and weaknesses in the radiation
protection program at CY. The NRC is continuing to monitor this issue at CY. It
is expected that dismantlement at the unit will not begin until CYAPC has met
its obligations under this letter.
MAINE YANKEE
MY, a 870-MW pressurized-water reactor, had an operating license, which
would have expired on October 21, 2008. On August 6, 1997, the board of
directors of MYAPC voted unanimously to retire MY. On January 14, FERC released
an order on the MYAPC application to amend its power contracts with the
owner/purchasers in order to revise its decommissioning and other charges. FERC
has accepted the proposed application for filing, and made the amendments and
the proposed charges under the contracts effective on January 15, 1998 subject
to refund after hearings. At December 31, 1997, the estimated remaining
obligation, including decommissioning, amounted to approximately $867.2 million,
of which the NU system's share was approximately $173.4 million. Under the
terms of the contracts with MYAPC, the shareholders-sponsor companies, including
CL&P, PSNH and WMECO, are responsible for their proportionate share of the costs
of the unit, including decommissioning. Based on FERC precedent, management
expects that CL&P, PSNH and WMECO will be allowed to recover these costs from
their customers. For more information regarding MYAPC's revised decommissioning
estimate and the FERC proceedings related thereto, see "Decommissioning" below.
VERMONT YANKEE
VY, a 514-MW boiling water reactor, has a license expiration date of March
21, 2012. In 1997, VY operated at a capacity factor of 91.7 percent. VY is
scheduled to begin a 56-day planned refueling and maintenance outage on
September 28, 1998.
YANKEE ROWE
In 1992, YAEC's owners voted to shut down Yankee Rowe permanently based on
an economic evaluation of the cost of a proposed safety review, the reduced
demand for electricity in New England, the price of alternative energy sources
and uncertainty about certain regulatory requirements. The power contracts
between CL&P, PSNH, WMECO and other owners, and YAEC, permit YAEC to recover
from each its proportional share of the Yankee Rowe shutdown and decommissioning
costs. For more information regarding the decommissioning of Yankee Rowe, see
"Decommissioning" below.
NUCLEAR INSURANCE
Nuclear plant licensees are required to maintain a minimum of $1.06 billion
in nuclear property and decontamination insurance coverage. The NRC requires
that proceeds from the policy following an accident that exceed $100 million
will first be applied to pay stabilization and decontamination expenses. The
insurance carried by the licensees of the Millstone units, Seabrook 1, CY, MY
and VY meets the NRC's requirements. YAEC has obtained an exemption for Yankee
Rowe from the $1.06 billion requirement and currently carries $25 million of
insurance that otherwise meets the requirements of the rule. CYAPC has applied
for a similar exemption, and MYAPC is expected to do the same. For more
information regarding nuclear insurance, see "Commitments and Contingencies---
Nuclear Insurance Contingencies" in the notes to NU's, CL&P's, PSNH's, WMECO's
and NAEC's financial statements.
NUCLEAR FUEL
The supply of nuclear fuel for the System's existing units requires the
procurement of uranium concentrates, followed by the conversion, enrichment and
fabrication of the uranium into fuel assemblies suitable for use in the System's
units. Fuel may also be purchased at a point after any of the above processes
are completed. The majority of the System companies' uranium enrichment services
requirements is provided under a long-term contract with the United States
Enrichment Corporation (USEC), a wholly owned United States government
corporation. The majority of Seabrook's uranium enrichment services
requirements is furnished through a Russian trading company (Global Nuclear
Services and Supply). The System expects that uranium concentrates and related
services for the units operated by the System and for the other units in which
the System companies are participating, that are not covered by existing
contracts, will be available for the foreseeable future on reasonable terms and
prices.
In August 1995, NAESCO filed a complaint in the United States Court of
Federal Claims challenging the propriety of the prices charged by the USEC for
uranium enrichment services procured for Seabrook Station in 1993. The
complaint is an appeal of the final decision rendered by the USEC contracting
officer denying NAESCO's claims, which range from $2.5 million to $5.8 million.
On December 17, 1997, the court granted the government's motion to dismiss
NAESCO's claims.
As a result of the Energy Policy Act, the United States commercial nuclear
power industry is required to pay the United States Department of Energy (DOE),
through a special assessment, for the costs of the decontamination and
decommissioning of uranium enrichment plants owned by the United States
government, no more than $150 million per annum for 15 years beginning in 1993.
Each domestic nuclear utility's payment is based on its pro rata share of all
enrichment services received by the United States commercial nuclear power
industry from the United States government through October 1992. Each year, the
DOE adjusts the annual assessment using the Consumer Price Index. The Energy
Policy Act provides that the assessments are to be treated as reasonable and
necessary current costs of fuel, which costs shall be fully recoverable in rates
in all jurisdictions. The System's remaining share to be recovered, assuming no
escalation, is approximately $63.7 million as of December 31, 1997. Management
believes that the DOE assessments against CL&P, WMECO, PSNH and NAEC will be
recoverable in future rates. Accordingly, each of these companies has
recognized these costs as a regulatory asset, with a corresponding obligation on
its balance sheet.
In June 1995, the United States Court of Federal Claims held that, as
applied to YAEC, the Uranium Enrichment Decontamination and Decommissioning Fund
is an unlawful add-on to the bargained-for contract price for enriched uranium.
As a result, the federal government must refund the approximately $3.0 million
that YAEC has paid into the fund since its inception. On May 6, 1997, the
United States Court of Appeals for the Federal Circuit issued a 2-1 panel
decision reversing the Court of Federal Claims' decision. YAEC filed a motion
for rehearing with the Appeals Court, which was denied, and subsequently filed a
petition with the U.S. Supreme Court to consider its appeal. NU is evaluating
the applicability of this decision to the $25.2 million that the System
companies have already paid into the fund and whether this alters the System
companies' obligation to pay such special assessments in the future.
Nuclear fuel costs associated with nuclear plant operations include amounts
for disposal of spent nuclear fuel. The System companies include in their
nuclear fuel expense spent fuel disposal costs accepted by the DPUC, NHPUC and
DTE in rate case or fuel adjustment decisions. Spent fuel disposal costs also
are reflected in FERC-approved wholesale charges.
HIGH-LEVEL RADIOACTIVE WASTE
The Nuclear Waste Policy Act of 1982 (NWPA) provides that the federal
government is responsible for the permanent disposal of spent nuclear reactor
fuel (SNF) and high-level waste. As required by the NWPA, electric utilities
generating SNF and high-level waste are obligated to pay fees into a fund which
would be used to cover the cost of siting, constructing, developing and
operating a permanent disposal facility for this waste. The System companies
have been paying for such services for fuel burned on or after April 7, 1983 on
a quarterly basis since July 1983. The DPUC, NHPUC and DTE permit the fee to be
recovered through rates. For nuclear fuel used to generate electricity prior to
April 7, 1983 (prior-period fuel), payment must be made prior to the first
delivery of spent fuel to the DOE. The DOE's current estimate for an available
site is 2010. For more information regarding payments related to the prior-
period fuel, see "Spent Nuclear Fuel Disposal Costs" in the notes to NU's,
CL&P's, PSNH's, WMECO's and NAEC's financial statements.
In return for payment of the fees prescribed by the NWPA, the federal
government is to take title to and dispose of the utilities' high-level wastes
and SNF. On March 3, 1997, CYAPC, NAESCO and NUSCO intervened as parties in a
lawsuit brought by 35 nuclear utilities in the U.S. Court of Appeals for the
District of Columbia Circuit on January 31, 1997, seeking additional action
based on the DOE's assertion that it expects to be unable to begin acceptance of
SNF for disposal by January 31, 1998 as specified under the NWPA. On May 8,
1997, pursuant to a court order, the petitioners and intervenors requested that
the court compel DOE to begin accepting spent fuel on or before January 31, 1998
or to implement various other remedies. On November 14, 1997, the court issued
its decision on the petitions. The court declined to order DOE to begin
disposing of SNF by the statutory deadline of January 31, 1998, finding that the
standard contract with DOE and each utility provides a potentially adequate
remedy if DOE fails to fulfill its obligations by that date. However, the
court's ruling also forecloses DOE from arguing that the delay in the high-level
waste program was "unavoidable" in any future breach of contract actions brought
by utilities against DOE.
On December 29, 1997, DOE petitioned the court to reconsider its decision,
arguing that the U. S. Court of Appeals lacks jurisdiction over an issue which
only concerns contractual matters. Subsequent to DOE's failure to begin
accepting spent fuel for disposal on January 31, 1998, a number of states,
public utility commissions and utilities took additional legal action against
DOE. On February 24, 1998, NUSCO, NAESCO and CYAPC joined the lawsuit that had
been filed by the other utilities.
On February 18, 1998, YAEC filed a complaint against DOE in the United
States Court of Federal Claims seeking damages in excess of $70 million
resulting from DOE's failure to accept spent nuclear fuel for disposal. CYAPC
filed a similar complaint in the United States Court of Federal Claims on March
4, 1998, seeking damages of over $90 million.
Until the federal government begins accepting nuclear waste for disposal,
nuclear generating plants will need to retain high-level waste and spent fuel
onsite or make some other provisions for their storage. With the addition of new
storage racks, storage facilities for Millstone 3 are expected to be adequate
for the projected life of the unit. With the implementation of currently planned
modifications, the storage facilities for Millstone 1 and 2 are expected to be
adequate (maintaining the capacity to accommodate a full-core discharge from the
reactor) until 2004. Fuel consolidation, which has been licensed for Millstone
2, could provide adequate storage capability for the projected lives of
Millstone 1 and 2. With the current installation of new racks in its existing
spent fuel pool, Seabrook is expected to have spent fuel storage capacity until
at least 2010.
The storage capacity of the spent fuel pool at VY is expected to be reached
in 2004 and the available capacity of the pool is expected to be able to
accommodate full-core removal until 2001. Adequate storage capacity exists to
accommodate all of the SNF at CY, MY and Yankee Rowe until that fuel is removed
by the DOE.
LOW-LEVEL RADIOACTIVE WASTE
The System currently has contracts to dispose its low-level radioactive
waste (LLRW) at two privately operated facilities in Clive, Utah, and in
Barnwell, South Carolina. Because access to LLRW disposal may be lost at any
time, the System has plans that will allow for onsite storage of LLRW for at
least five years.
DECOMMISSIONING
Based upon the System's most recent comprehensive site-specific updates of
the decommissioning costs for each of the three Millstone units and for
Seabrook, the recommended decommissioning method continues to be immediate and
complete dismantlement of those units at their retirement. The table below sets
forth the estimated Millstone and Seabrook decommissioning costs for the System
companies. The estimates are based on the latest site studies, stated in
December 31, 1997 dollars.
CL&P PSNH WMECO NAEC System
(Millions)
Millstone 1 $ 390.9 $ - $ 91.7 $ - $482.6
Millstone 2 350.2 - 82.1 - 432.3
Millstone 3 294.0 15.6 67.8 - 377.4
Seabrook 19.2 - - 170.2 189.4
Total $1054.3 $ 15.6 $240.8 $170.2 $1481.7
As of December 31, 1997, the System recorded balances (at market) in its
external decommissioning trust funds as follows:
CL&P PSNH WMECO NAEC System
(Millions)
Millstone 1 $173.1 $ - $ 48.2 $ - $221.3
Millstone 2 115.4 - 33.5 - 148.9
Millstone 3 77.8 4.3 21.0 - 103.1
Seabrook 2.9 - - 26.5 29.7
Total $369.2 $ 4.3 $102.7 $26.5 $502.7
In 1986, the DPUC approved the establishment of separate external trusts
for the currently tax-deductible portions of decommissioning expense accruals
for Millstone 1 and 2 and for all expense accruals for Millstone 3. The DPUC
has authorized CL&P to collect its current decommissioning estimate for the
three Millstone units from customers. This estimate includes an approximate 19
percent contingency factor for the decommissioning cost of each unit.
WMECO has established independent trusts to hold all decommissioning
expense collections from customers. The DPU has authorized WMECO to collect its
current decommissioning estimate for the three Millstone units.
New Hampshire enacted a law in 1981 requiring the creation of a state-
managed fund to finance decommissioning of any units in that state. NAEC's
costs for decommissioning are billed by it to PSNH and recovered by PSNH under
the Rate Agreement. Under the Rate Agreement, PSNH is entitled to a base rate
increase to recover increased decommissioning costs. In its recent restructuring
orders, the NHPUC determined that PSNH would be allowed to recover
decommissioning costs through strandable cost charges. See "Rates--New
Hampshire Retail Rates" for further information on the Rate Agreement and
restructuring.
The decommissioning cost estimates for the System nuclear units are
reviewed and updated regularly to reflect inflation and changes in
decommissioning requirements and technology. Changes in requirements or
technology, or adoption of a decommissioning method other than immediate
dismantlement, could change these estimates. CL&P, PSNH and WMECO attempt to
recover sufficient amounts through their allowed rates to cover their expected
decommissioning costs. Only the portion of currently estimated total
decommissioning costs that has been accepted by regulatory agencies is reflected
in rates of the System companies. Based on present estimates, and assuming its
nuclear units operate to the end of their respective license periods, the System
expects that the decommissioning trust funds will be substantially funded when
those expenditures have to be made.
However, under Connecticut law, an electric company is prohibited from
collecting in rates any decommissioning costs after the date of closing the
facility unless the DPUC determines (i) that the utility has complied with the
decommissioning financing plan under which such costs are incurred and (ii) that
there are compelling reasons for including such costs in rates. A committee of
the General Assembly may review any such determination not later than thirty
days before such rates take effect. For more information regarding this matter,
see "Rates--Connecticut Retail Rates."
CYAPC, YAEC, VYNPC and MYAPC are all collecting revenues for
decommissioning from their power purchasers. The table below sets forth the
System companies' estimated share of decommissioning costs (and closure costs
where applicable) of the Yankee units. The estimates are based on the latest
site studies. For information on the equity ownership of the System companies
in each of the Yankee units, see "Electric Operations---uclear Generation---
General."
CL&P PSNH WMECO System
(Millions)
VY $ 48.0 $20.2 $12.6 $ 80.8
Yankee Rowe* 30.5 8.7 8.7 47.9
CY* 213.8 31.0 58.7 303.7
MY* 104.1 43.3 26.0 173.4
Total $396.4 $103.2 $106.0 $605.8
* As discussed more fully below, the costs shown include all of the
expected future billings associated with the funding of decommissioning,
recovery of remaining assets and other closure costs associated with the early
retirement of Yankee Rowe, CY and MY as of December 31, 1997, which have been
recorded as an obligation on the books of the System companies.
As of December 31, 1997, the System's share of the external decommissioning
trust fund balances (at market), which have been recorded on the books of the
Yankee Companies, is as follows:
CL&P PSNH WMECO System
(Millions)
VY $ 18.4 $ 7.7 $ 4.8 $ 30.9
Yankee Rowe 32.7 9.4 9.4 51.5
CY 89.8 13.0 24.8 127.6
MY 23.9 10.0 6.0 39.9
Total $164.8 $40.1 $45.0 $249.9
Effective January 1996, YAEC began billing its sponsors, including CL&P,
WMECO and PSNH, amounts based on a revised estimate approved by FERC that
assumes decommissioning by the year 2000. This revised estimate was based on
continued access to the Barnwell, South Carolina, low-level radioactive waste
facility, changes in assumptions about earnings on decommissioning trust
investments and changes in other decommissioning cost assumptions.
CYAPC accrues decommissioning costs on the basis of immediate
dismantlement at retirement. In late December 1996, CYAPC made a filing with
FERC to amend the wholesale power contracts between the owners of the facility
and revise decommissioning cost estimates and other cost estimates for the
facility. The amendments clarify the owners' entitlement to full recovery of
sunk costs and the ongoing costs of maintaining the plant in accordance with NRC
rules until decommissioning begins and ensures that decommissioning will
continue to be funded through June 2007, the full license term, despite the
unit's earlier shutdown. On February 26, 1997, FERC issued an order accepting
the power contract amendments and making them effective March 1, 1997, subject
to refund after hearing on the prudence of the decision to retire the plant and
the reasonableness of the CY proposal. A number of parties have intervened in
this proceeding. In total, the intervenors seek to disallow in excess of $200
million of the amount that CYAPC may collect from its power purchasers for
decommissioning. In addition, the intervenors and FERC staff have proposed
reductions in CY's currently allowed 11.5 percent return on equity, and certain
intervenors have requested that CYAPC not be permitted to recover approximately
$245 million of its unamortized investment in CY. The decision in this
proceeding is expected in the Spring of 1998.
MYAPC also accrues decommissioning costs on the basis of immediate
dismantlement at retirement. On January 14, 1998, FERC released a draft order on
the MYAPC application to amend its power contracts with the owners/purchasers
and revise its decommissioning and other charges. FERC has accepted the
proposed application for filing and made the amendments and the proposed charges
under the contracts effective on January 15, 1998, subject to refund after
hearings. FERC will determine the prudence of MYAPC's decision to retire the
plant before it finally determines the justness and reasonableness of MY's
proposed amended power contract rates. For information regarding a dispute
between the sponsors of MY and a number of municipalities and cooperatives which
had purchase agreements with MYAPC, see "Item 3 - Legal Proceedings."
For more information regarding nuclear decommissioning, see "Nuclear
Decommissioning" in the notes to NU's, CL&P's, PSNH's, WMECO's and NAEC's
financial statements.
RESOURCE PLANS
CONSTRUCTION
The System's construction program in the period 1998 through 2002 is
estimated as follows:
1998 1999 2000 2001 2002
(Millions)
CL&P $165 $283 $278 $310 $296
PSNH 42 61 69 63 68
WMECO 27 49 38 37 35
NAEC 9 10 9 3 5
OTHER 24 22 22 27 26
TOTAL $267 $425 $416 $440 $430
The construction program data shown above includes all anticipated capital
costs necessary for committed projects and for those reasonably expected to
become committed, regardless of whether the need for the project arises from
environmental compliance, nuclear safety, reliability requirements or other
causes. The construction program's main focus is maintaining and upgrading the
existing transmission and distribution system and nuclear and fossil-generating
facilities. The increase in construction expenditures after 1999 are primarily
related to projected capital improvements for the distribution system. System
companies' construction needs, however, may change substantially in light of its
commitment to sell its nonnuclear generating units in Massachusetts and New
Hampshire. It is conceivable that the System will no longer construct any new
generating facilities, but instead contract with third parties for capacity in a
competitive generation market.
FUTURE NEEDS
Restructuring of the electric industry will have a dramatic effect on the
System's long-range planning. While electric utility companies traditionally
have been required to meet their franchise customers' long-term electric needs,
a company's long-term planning after restructuring will depend on the nature of
its particular business. Where the electric company remains in the generation
business, such companies will rely on more market-based planning to meet its
supply obligations.
ENERGY-RELATED BUSINESSES
ENERGY PRODUCTS AND SERVICES
NU organized NUSCO Energy Partners, Inc. (NEP) in 1996 to engage in the
energy services business and in response to the NHPUC's requirement that PSNH's
participation in the New Hampshire retail electric competition pilot program
take place through an affiliate company. NEP acquired PSNH's retail sales
interest in the New Hampshire pilot program in 1996. During 1997, NEP changed
its name to Select Energy, Inc. Select Energy is a vehicle for participating in
retail pilot programs and open-access retail electric markets in the Northeast
and other appropriate areas of the country. In addition, Select Energy develops
and markets energy-related products and services in order to enhance its core
electric service and customer relationships. These include energy services,
productivity services, business and financial services, and residential
services. Select Energy continues to take steps to establish strategic alliances
with other companies in various energy-related fields including fuel supply and
management, power quality, energy efficiency and load management services.
PRIVATE POWER DEVELOPMENT
The System has participated as a developer and investor in domestic and
international private power projects through its subsidiary, Charter Oak.
Charter Oak has invested primarily in projects outside of the United States. In
March 1997, the NU Board of Trustees approved the offering for sale of Charter
Oak and its assets. Since March, three of the five operating projects in which
Charter Oak had invested were sold for an aggregate purchase price of $21
million. Charter Oak incurred a loss of approximately $3 million on the three
projects which it has sold. The other two projects are being actively marketed;
however, NU has recorded a reserve of approximately $25 million against future
losses attributed to the sale of these projects. NU had $33.4 million invested
in the remaining Charter Oak projects as of December 31, 1997.
ENERGY MANAGEMENT SERVICES
In 1990, NU organized a subsidiary corporation, HEC, to acquire
substantially all of the assets and personnel of a nonaffiliated energy
management services company. In general, HEC contracts to reduce its customers'
energy costs and/or conserve energy and other resources. HEC also provides DSM
consulting services to utilities and others. HEC's energy management and
consulting services have primarily been directed to the commercial, industrial
and institutional markets and utilities in New England and New York. NU's
aggregate equity investment in HEC was approximately $4 million as of December
31, 1997.
OTHER REGULATORY AND ENVIRONMENTAL MATTERS
ENVIRONMENTAL REGULATION
GENERAL
The System and its subsidiaries are subject to federal, state and local
regulations with respect to water quality, air quality, toxic substances,
hazardous waste and other environmental matters. Similarly, the System's major
generation and transmission facilities may not be constructed or significantly
modified without a review by the applicable state agency of the environmental
impact of the proposed construction or modification. Compliance with
environmental laws and regulations, particularly air and water pollution control
requirements, may limit operations or require substantial investments in new
equipment at existing facilities. See "Resource Plans" for a discussion of the
System's construction plans. In order to enhance the System's oversight of
environmental matters, management introduced a comprehensive energy management
system in 1997, which is estimated to cost the System approximately $2 million
dollars to implement through 1998.
SURFACE WATER QUALITY REQUIREMENTS
The federal Clean Water Act (CWA) requires every "point source" discharger
of pollutants into navigable waters to obtain a National Pollutant Discharge
Elimination System (NPDES) permit from the United States Environmental
Protection Agency (EPA) or state environmental agency specifying the allowable
quantity and characteristics of its effluent. System facilities have all
required NPDES permits in effect. Compliance with NPDES and state water
discharge permits has necessitated substantial expenditures, which are difficult
to estimate, and may require further expenditures because of additional
requirements that could be imposed in the future. For information regarding
ongoing criminal investigations by the Office of the U. S. Attorney for the
District of Connecticut related to allegations that there were violations of
certain facilities' NPDES permits and a related civil lawsuit and investigations
related to the Long Island cable, see "Item 3. Legal Proceedings."
The Federal Oil Pollution Act of 1990 (OPA 90) sets out the requirements
for facility response plans and periodic inspections of spill response equipment
at facilities that can cause substantial harm to the environment by discharging
oil or hazardous substances into the navigable waters of the United States and
onto adjoining shorelines. The System companies are currently in compliance
with the requirements of OPA 90. OPA 90 includes limits on the liability that
may be imposed on persons deemed responsible for release of oil. The limits do
not apply to oil spills caused by negligence or violation of laws or
regulations. OPA 90 also does not preempt state laws regarding liability for oil
spills. In general, the laws of the states in which the System owns facilities
and through which the System transports oil could be interpreted to impose
strict liability for the cost of remediating releases of oil and for damages
caused by releases. The System currently carries general liability insurance in
the total amount of $100 million per occurrence for oil spills.
AIR QUALITY REQUIREMENTS
The Clean Air Act Amendments of 1990 (CAAA) impose stringent requirements
on emissions of sulfur dioxide (SO2) and nitrogen oxide (NOX) for the purpose of
controlling acid rain and ground level ozone. In addition, the CAAA address the
control of toxic air pollutants. Installation of continuous emissions monitors
and expanded permitting provisions also are included. Compliance with CAAA
requirements has cost the System approximately $44 million as of December 31,
1997: $10 million for CL&P, $30 million for PSNH, $1 million for WMECO and $3
million for HWP. Compliance costs for additional federal and state NOX control
requirements to be effective in 1999 are currently estimated to be approximately
$5 million for both CL&P and PSNH. In addition, PSNH expects to spend
approximately $2 million a year for SO2 allowances.
Existing and future federal and state air quality regulations, including
recently proposed regulations, could hinder or possibly preclude the
construction of new, or the modification of existing, fossil units in the
System's service area and could raise the capital and operating cost of existing
units. The ultimate cost impact of these requirements on the System cannot be
estimated because of uncertainties about how EPA and the states will implement
various requirements of the CAAA.
Section 126 of the Clean Air Act provides for parties to request that the
EPA take action against emissions sources whose emissions may be atmospherically
transported and contribute to nonattainment of the National Ambient Air Quality
Standards in other states. In accordance with this, a group of northeastern
states filed a petition with EPA in 1997 asking them to take action against a
broadly defined group of emissions sources in several midwestern states which
are believed to be contributing to the nonattainment of the ozone standard in
the Northeast. EPA has deferred specific action on the Section 126 petitions
until its call for state implementation plans in the affected states is
complete, probably about 2003. A final decision by the EPA could have a
significant effect on NOX reduction requirements imposed on System companies
after 1999.
HAZARDOUS WASTE REGULATIONS
As many other industrial companies have done in the past, System companies
disposed of residues from operations by depositing or burying such materials on-
site or disposing of them at off-site landfills or facilities. Typical
materials disposed of include coal gasification waste, fuel oils, gasoline and
other hazardous materials that might contain PCBs. It has since been determined
that deposited or buried wastes, under certain circumstances, could cause
groundwater contamination or create other environmental risks. The System has
recorded a liability for what it believes is, based upon currently available
information, its estimated environmental remediation costs for waste disposal
sites for which the System companies expect to bear legal liability, and
continues to evaluate the environmental impact of its former disposal practices.
Under federal and state law, government agencies and private parties can attempt
to impose liability on System companies for such past disposal. At December 31,
1997, the liability recorded by the System for its estimated environmental
remediation costs for known sites needing remediation including those sites
described below, exclusive of recoveries from insurance or from third parties,
was approximately $16.2 million. These costs could be significantly higher if
alternative remedies become necessary.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, commonly known as Superfund, EPA has the
authority to clean up or order clean up of hazardous waste sites and to impose
the clean up costs on parties deemed responsible for the hazardous waste
activities on the sites. Responsible parties include the current owner of a
site, past owners of a site at the time of waste disposal, waste transporters
and waste generators. The System currently is involved in one Superfund site in
New Jersey, two in New Hampshire and one in Kentucky, which could have a
material impact on the System. The System has committed in the aggregate
approximately $1.3 million to its share of the clean up of these sites.
As discussed below, in addition to the remediation efforts for the above-
mentioned Superfund sites, the System has been named as a potentially
responsible party (PRP) and is monitoring developments in connection with
several state environmental actions. The level of study of each site and the
information about the waste contributed to the site by the System and other
parties differs from site to site. Where reliable information is available that
permits the System to make a reasonable estimate of the expected total costs of
remedial action and/or the System's likely share of remediation costs for a
particular site, those cost estimates are provided below. All cost estimates
were made in accordance with generally accepted accounting principles where
remediation costs were probable and reasonably estimable.
In 1987, the Connecticut Department of Environmental Protection (CDEP)
published a list of 567 hazardous waste disposal sites in Connecticut. The
System owns two sites, in Stamford and Rockville, which are on this list. Both
sites were formerly used by CL&P predecessor companies for the manufacture of
coal gas (also known as town gas sites) from the late 1800s to the 1950s. Site
investigations have been completed at these sites and discussions with state
regulators are in progress to address the need for and extent of remediation
necessary to protect public health and the environment. The total reserve
established for these two sites is $6.5 million. CL&P has also established a
reserve of $575,000 in connection with its share of the clean up of a site
located in Winsted.
CL&P owns a 2.6 mile section of an abandoned railroad bed in Portland.
Past studies of portions of the railroad bed have indicated elevated levels of
arsenic in the upper two to three feet of soil. A portion of this site was
cleaned up in 1997, but the System continues to reserve $275,000 for remediation
efforts at the remainder of the site.
PSNH contacted New Hampshire Department of Environmental Services (NHDES)
in December 1993 concerning possible coal tar contamination in Laconia, New
Hampshire, in Lake Opechee and the Winnipesaukee River near an area where PSNH
and a second PRP formerly owned and operated a coal gasification plant from the
late 1800's to the 1950's. A comprehensive site investigation was completed in
December 1996. This study has shown that byproducts from the operation of the
former manufactured gas plant are present in groundwater, subsurface soil and in
the sediments of the adjacent Winnipesaukee River. A reserve of $4.8 million
has been established for this site. Additional studies are planned in 1998 to
implement interim remedial measures, assess site risks and develop a remediation
plan. Interim cost sharing agreements with a second PRP in which this PRP
contributes 25% to the cost of the site investigations are in effect to
implement studies in 1998.
A second coal gasification facility formerly owned and operated by a
predecessor company to PSNH is located in Keene, New Hampshire. The NHDES has
been notified of the presence of coal tar and fuel oil contamination.
Additional New Hampshire sites include several former manufactured gasification
facilities, an inactive ash landfill located at Dover Point and a municipal
landfill in Peterborough. Studies of these sites are ongoing. PSNH's liability
at these sites is not expected to be material.
In Massachusetts, System companies have been designated by the
Massachusetts Department of Environmental Protection (MDEP) as a PRP for twelve
sites under MDEP's hazardous waste and spill remediation program. At two sites,
the System may incur remediation costs that may be material to HWP depending on
the remediation requirements. At one site, HWP has been identified by MDEP as
one of three PRPs in a coal tar site in Holyoke, Massachusetts. HWP owned and
operated the Holyoke Gas Works from 1859 to 1902. The site is located on the
east side of Holyoke, adjacent to the Connecticut River and immediately
downstream of HWP's Hadley Falls Station. MDEP has designated both the land and
river deposit areas as priority waste disposal sites. The PRPs have been
notified of the need to remove tar deposits from the river. To date, HWP has
spent approximately $1 million for river studies and construction costs related
to the site. The total estimated costs for remediation of tar patches in the
river range from $2 million to $3 million. HWP has agreed to complete the
remediation of tar patches following negotiations of a consent decree with all
state and federal regulatory agencies.
The second site is a former manufactured gas plant facility in Easthampton,
Massachusetts. WMECO predecessor companies owned and operated the Easthampton
Gas Works from 1864 to 1924. Previous investigations have identified coal tar
deposits on the land portion of the site. An analysis of the human, health and
ecological risks at the site and a remedial action plan will be submitted to the
MDEP in 1998. WMECO has reserved approximately $1 million for remediation costs
for the site.
In the past, the System has received other claims from government agencies
and third parties for the cost of remediating sites not currently owned by the
System but affected by past System disposal activities and may receive more such
claims in the future. The System expects that the costs of resolving claims for
remediating sites about which it has been notified will not be material, but
cannot estimate the costs with respect to sites about which it has not been
notified.
ELECTRIC AND MAGNETIC FIELDS
In recent years, published reports have discussed the possibility of
adverse health effects from electric and magnetic fields (EMF) associated with
electric transmission and distribution facilities and appliances and wiring in
buildings and homes. Most researchers, as well as numerous scientific review
panels considering all significant EMF epidemiological and laboratory studies to
date, agree that current information remains inconclusive, inconsistent and
insufficient for risk assessment of EMF exposures. The most significant
scientific study released on EMF in 1997 was the July 3rd New England Journal of
Medicine publication of the results of the U.S. National Cancer Institute's
(NCI) study of potential associations between residential EMF exposure and
childhood acute lymphocytic leukemia (ALL), the most common form of childhood
cancer in the United States. The NCI study was the largest of its kind to date,
and found "little support for the hypothesis that living in homes with
high...average magnetic-field levels or in homes close to electrical
transmission or distribution lines is related to risk" of childhood ALL.
Based on this information, management does not believe that a causal
relationship between EMF exposure and adverse health effects has been
established or that significant capital expenditures are appropriate to minimize
unsubstantiated risks. The System companies are continuing to closely monitor
research and government policy developments. No legislation related to EMF was
considered in Connecticut, Massachusetts or New Hampshire in 1997.
The System supports further research into the subject and is voluntarily
participating in the funding of the ongoing National EMF Research and Public
Information Dissemination Program. If further investigation were to demonstrate
that the present electricity delivery system is contributing to increased risk
of cancer or other health problems, the industry could be faced with the
difficult problem of delivering reliable electric service in a cost-effective
manner while managing EMF exposures. In addition, if the courts were to
conclude that individuals have been harmed and that utilities are liable for
damages, the potential monetary exposure for all utilities, including the System
companies, could be enormous. Without definitive scientific evidence of a
causal relationship between EMF and health effects, and without reliable
information about the kinds of changes in utilities' transmission and
distribution systems that might be needed to address the problem, if one is
found, no estimates of the cost impacts of remedial actions and liability awards
are available.
CL&P has been the focus of media reports since 1990 charging that EMF
associated with a substation and related distribution lines in Guilford,
Connecticut, are linked with various cancers and other illnesses in several
nearby residents. See "Item 3. Legal Proceedings" for information about two
suits brought by plaintiffs who now or formerly lived near that substation.
FERC HYDRO PROJECT LICENSING
Federal Power Act licenses may be issued for hydroelectric projects for
terms of 30 to 50 years as determined by FERC. Upon the expiration of a
license, any hydroelectric project so licensed is subject to reissuance by FERC
to the existing licensee or to others upon payment to the licensee of the lesser
of fair value or the net investment in the project plus severance damages less
certain amounts earned by the licensee in excess of a reasonable rate of return.
The System companies currently hold FERC licenses for 19 hydroelectric
projects aggregating approximately 1,375 MW of capacity, located in Connecticut,
Massachusetts and New Hampshire. Both WMECO and PSNH have proposed to auction
their hydroelectric projects in the future, with WMECO's auction likely to occur
in the first half of 1998.
Four of the System licenses expired on December 31, 1993 (WMECO's Gardners
Falls project and PSNH's Ayers Island, Smith and Gorham projects). These
licenses have all been renewed over the last few years.
The license for HWP's Holyoke Project expires in late 1999. On September
3, 1997, HWP filed its application for a new license for the Holyoke Project.
On August 29, 1997, a competing application for the project was submitted by the
Ashburnham Municipal Light Plant and the Massachusetts Municipal Wholesale
Electric Company. The competing application proposes to add an additional 15
MW of generating capacity at the site, as well as additional changes,
modifications and improvements to the facility. It is anticipated that the
competing license application will be amended to add or substitute the City of
Holyoke Gas and Electric Department as a competing applicant.
Absent significant differences in the competing license applications the
Federal Power Act gives a preference to an existing licensee for the new
license. It is not known if the competing license applicants' proposal to add
15 MW of additional capacity and the other proposed changes, modifications and
improvements to the Holyoke Project are sufficient to overcome HWP's preference.
If the license is awarded to a competing applicant, HWP is entitled to
compensation equal to the lesser of book value or fair market value and
severance damages pursuant to the Federal Power Act. FERC has established a
procedural schedule for preliminary licensing activities, but the time frame for
completion of all licensing activities and issuance of a new license has not
been established at this time.
CL&P's FERC licenses for operation of the Falls Village and Housatonic
Hydro Projects expire in 2001. A draft license application is scheduled to be
completed in the last quarter of 1998.
FERC has issued a notice indicating that it has authority to order project
licensees to decommission projects that are no longer economic to operate. The
potential costs of decommissioning a project, however, could be substantial.
FERC has recently ordered its first project decommissioning under this
authority. It is likely that this FERC decision will be appealed.
EMPLOYEES
As of December 31, 1997, the System companies had 9,015 full and part-time
employees on their payrolls, of which 2,163 were employed by CL&P, 1,254 by
PSNH, 507 by WMECO, 75 by HWP, 1,647 by NNECO, 2,530 by NUSCO and 839 by NAESCO.
NU, NAEC, Charter Oak, Mode 1 and Select Energy have no employees.
In December 1996, the System announced a voluntary separation program
affecting approximately 1,100 employees. The separations of the 99 participants
occurred between April 1, 1997 and March 1, 1998. The estimated cost of the
program is approximately $5.8 million.
Approximately 2,138 employees of CL&P, PSNH, WMECO, NAESCO and HWP are
covered by nine union agreements, which expire between June 1, 1998 and May 31,
1999.
ITEM 2. Properties
The physical properties of the System are owned or leased by subsidiaries
of NU. CL&P's principal plants and other properties are located either on land
which is owned in fee or on land, as to which CL&P owns perpetual occupancy
rights adequate to exclude all parties except possibly state and federal
governments, which has been reclaimed and filled pursuant to permits issued by
the United States Army Corps of Engineers. The principal properties of PSNH
are held by it in fee. In addition, PSNH leases space in an office building
under a 30-year lease expiring in 2002. WMECO's principal plants and a major
portion of its other properties are owned in fee, although one hydroelectric
plant is leased. NAEC owns a 35.98 percent interest in Seabrook 1 and
approximately 560 acres of exclusion area land located around the unit. In
addition, CL&P, PSNH, and WMECO have certain substation equipment, data
processing equipment, nuclear fuel, gas turbines, nuclear control room
simulators, vehicles, and office space that are leased. With few exceptions,
the System companies' lines are located on or under streets or highways, or on
properties either owned or leased, or in which the company has appropriate
rights, easements, or permits from the owners.
CL&P's properties and PSNH's properties are subject to the lien of each
company's respective first mortgage indenture. In addition, any PSNH
outstanding revolving credit agreement borrowings are secured by a second lien,
junior to the lien of the first mortgage indenture, on PSNH's property located
in New Hampshire. WMECO's properties are subject to the lien of its first
mortgage indenture. NAEC's First Mortgage Bonds are secured by a lien on the
Seabrook 1 interest described above, and all rights of NAEC under the Seabrook
Power Contracts. In addition, CL&P's and WMECO's interests in Millstone 1 are
subject to second liens for the benefit of lenders under agreements related to
pollution control revenue bonds. Various of these properties are also subject
to minor encumbrances which do not substantially impair the usefulness of the
properties to the owning company.
The System companies' properties are well maintained and are in good
operating condition.
Transmission and Distribution System
At December 31, 1997, the System companies owned 103 transmission and 410
distribution substations that had an aggregate transformer capacity of
25,199,669 kilovoltamperes (kVa) and 9,115,203 kVa, respectively; 3,074 circuit
miles of overhead transmission lines ranging from 69 kilovolt (kV) to 345 kV,
and 192 cable miles of underground transmission lines ranging from 69 kV to 138
kV; 32,802 pole miles of overhead and 1,999 conduit bank miles of underground
distribution lines; and 404,356 line transformers in service with an aggregate
capacity of 16,997,000 kVa.
Electric Generating Plants
As of December 31, 1997, the electric generating plants of the System
companies and the System companies' entitlement in the generating plant of the
Vermont Yankee regional generating company were as follows (See "Item 1.
Business - Electric Operations, Nuclear Generation" for information on ownership
and operating results for the year.):
Claim
Year Capability*
Owner Plant Name (Location) Type Installed (kilowatts)
CL&P Millstone (Waterford, CT)
Unit 1** Nuclear 1970 524,637
Unit 2** Nuclear 1975 708,345
Unit 3** Nuclear 1986 606,453
Seabrook (Seabrook, NH) Nuclear 1990 47,175
VT Yankee (Vernon, VT) Nuclear 1972 45,353
Total Nuclear-Steam Plants (5 units) 1,931,963
Total Fossil-Steam Plants (10 units) 1954-73 1,883,000
Total Hydro-Conventional (25 units) 1903-55 98,970
Total Hydro-Pumped Storage (7 units) 1928-73 937,550
Total Internal Combustion (20 units) 1966-96 567,940
Total CL&P Generating Plant (67 units) 5,419,423
PSNH Millstone (Waterford, CT)
Unit 3** Nuclear 1986 32,624
VT Yankee (Vernon, VT) Nuclear 1972 19,068
Total Nuclear-Steam Plants (2 units) 51,692
Total Fossil-Steam Plants (7 units) 1952-78 1,051,538
Total Hydro-Conventional (20 units) 1917-83 69,040
Total Internal Combustion (5 units) 1968-70 103,900
Total PSNH Generating Plant (34 units) 1,276,170
WMECO Millstone (Waterford, CT)
Unit 1** Nuclear 1970 123,063
Unit 2** Nuclear 1975 166,155
Unit 3** Nuclear 1986 140,216
VT Yankee (Vernon, VT) Nuclear 1972 11,948
Total Nuclear-Steam Plants (4 units) 441,382
Total Fossil-Steam Plants (1 unit) 1957 107,000
Total Hydro-Conventional (27 units) 1904-34 110,910***
Total Hydro-Pumped Storage (4 units) 1972-73 212,800
Total Internal Combustion (3 units) 1968-69 60,500
Total WMECO Generating Plant (39 units) 932,592
NAEC Seabrook (Seabrook, NH) Nuclear 1990 418,111
HWP Mt. Tom (Holyoke, MA) Fossil-Steam 1960 147,000
Total Hydro-Conventional (15 units) 1905-83 43,560
Total HWP Generating Plant (16 units) 190,560
NU System Millstone (Waterford, CT)
Unit 1** Nuclear 1970 647,700
Unit 2** Nuclear 1975 874,500
Unit 3** Nuclear 1986 779.239
Seabrook (Seabrook, NH) Nuclear 1990 465,286
VT Yankee (Vernon, VT) Nuclear 1972 76,369
Total Nuclear-Steam Plants (5 units) 2,843,094
Total Fossil-Steam Plants (19 units) 1952-78 3,188,538
Total Hydro-Conventional (87 units) 1903-83 322,480
Total Hydro-Pumped Storage (7 units) 1928-73 1,150,350
Total Internal Combustion (28 units) 1966-96 732,350
Total NU System Generating Plant
Including Vermont Yankee (146 units) 8,236,802
Excluding Vermont Yankee (145 units) 8,160,433
*Claimed capability represents winter ratings as of December 31, 1997.
**The numbers shown represent claimed capability at December 31, 1996.
Millstone 1, 2, and 3 have been out of service since November 4, 1995,
February 21, 1996 and March 30, 1996, respectively. The company has
restructured its nuclear organization and is currently implementing
comprehensive plans to restart the units.
The actual date of the return to service for each of the units is
dependent upon the completion of independent inspections and reviews
by the Nuclear Regulatory Commission (NRC) and a vote by the NRC
Commissioners. NU hopes to return Millstone 3 to service in early
spring of 1998 and Millstone 2 three to four months after Millstone 3.
Millstone 1 is currently in extended maintenance status.
***Total Hydro-Conventional capability includes the Cobble Mtn. plant's
33,960 kW which is leased from the City of Springfield, MA.
Franchises
NU's operating subsidiaries hold numerous franchises in the territories
served by them. For more information regarding recent judicial, regulatory and
legislative decisions and initiatives that may affect the terms under which the
System companies provide electric service in their franchised territories, see
Item 1. "Business - Electric Industry Restructuring" and "Item 3. Legal
Proceedings."
CL&P. Subject to the power of alteration, amendment or repeal by the
General Assembly of Connecticut and subject to certain approvals, permits and
consents of public authority and others prescribed by statute, CL&P has, subject
to certain exceptions not deemed material, valid franchises free from burdensome
restrictions to sell electricity in the respective areas in which it is now
supplying such service.
In addition to the right to sell electricity as set forth above, the
franchises of CL&P include, among others, rights and powers to manufacture,
generate, purchase, transmit and distribute electricity, to sell electricity at
wholesale to other utility companies and municipalities and to erect and
maintain certain facilities on public highways and grounds, all subject to such
consents and approvals of public authority and others as may be required by law.
The franchises of CL&P include the power of eminent domain.
PSNH. Subject to the power of alteration, amendment or repeal by the
General Court (legislature) of the State of New Hampshire and subject to certain
approvals, permits and consents of public authority and others prescribed by
statute, PSNH has, subject to certain exceptions not deemed material, valid
franchises free from burdensome restrictions to sell electricity in the
respective areas in which it is now supplying such service.
In addition to the right to sell electricity as set forth above, the
franchises of PSNH include, among others, rights and powers to manufacture,
generate, purchase, transmit and distribute electricity, to sell electricity at
wholesale to other utility companies and municipalities and to erect and
maintain certain facilities on certain public highways and grounds, all subject
to such consents and approvals of public authority and others as may be required
by law. The franchises of PSNH include the power of eminent domain.
NNECO. Subject to the power of alteration, amendment or repeal by the
General Assembly of Connecticut and subject to certain approvals, permits and
consents of public authority and others prescribed by statute, NNECO has a valid
franchise free from burdensome restrictions to sell electricity to utility
companies doing an electric business in Connecticut and other states.
In addition to the right to sell electricity as set forth above, the
franchise of NNECO includes, among others, rights and powers to manufacture,
generate and transmit electricity, and to erect and maintain facilities on
certain public highways and grounds, all subject to such consents and approvals
of public authority and others as may be required by law.
WMECO. WMECO is authorized by its charter to conduct its electric business
in the territories served by it, and has locations in the public highways for
transmission and distribution lines. Such locations are granted pursuant to the
laws of Massachusetts by the Department of Public Works of Massachusetts or
local municipal authorities and are of unlimited duration, but the rights
thereby granted are not vested. Such locations are for specific lines only,
and, for extensions of lines in public highways, further similar locations must
be obtained from the Department of Public Works of Massachusetts or the local
municipal authorities. In addition, WMECO has been granted easements for its
lines in the Massachusetts Turnpike by the Massachusetts Turnpike Authority.
Pursuant to the Massachusetts restructuring legislation, the DTE is
required to define service territories for each distribution company, including
WMECO, based on the service territories actually served on July 1, 1997, and
following to the extent possible municipal boundaries. After established by the
DTE, until terminated by effect of law or otherwise, the distribution company
shall have the exclusive obligation to provide distribution service to all
retail customers within its service territory, and no other person shall provide
distribution service within such service territory without the written consent
of such distribution company.
HWP and Holyoke Power and Electric Company (HP&E). HWP, and its wholly
owned subsidiary HP&E, are authorized by their charters to conduct their
businesses in the territories served by them. HWP's electric business is
subject to the restriction that sales be made by written contract in amounts of
not less than 100 horsepower, except for municipal customers in the counties of
Hampden or Hampshire, Massachusetts and except for customers who occupy property
in which HWP has a financial interest, by ownership or purchase money mortgage.
HWP also has certain dam and canal and related rights, all subject to such
consents and approvals of public authorities and others as may be required by
law. The two companies have locations in the public highways for their
transmission and distribution lines. Such locations are granted pursuant to the
laws of Massachusetts by the Department of Public Works of Massachusetts or
local municipal authorities and are of unlimited duration, but the rights
thereby granted are not vested. Such locations are for specific lines only and,
for extensions of lines in public highways, further similar locations must be
obtained from the Department of Public Works of Massachusetts or the local
municipal authorities. The two companies have no other utility franchises.
NAEC. NAEC is authorized by the NHPUC to own and operate its interest in
Seabrook 1.
ITEM 3 - LEGAL PROCEEDINGS
1. Litigation Relating to Electric and Magnetic Fields
NU and CL&P are currently involved in one lawsuit alleging physical and
emotional damages from exposure to "electromagnetic radiation" generated by the
defendants. Management believes that the allegations that EMF caused or
contributed to the plaintiffs' illnesses are not supported by scientific
evidence. A similar case was resolved in NU and CL&P's favor at the trial
level, but was appealed and pending hearing in the Connecticut Supreme Court
when on October 31, 1997 the plaintiff withdrew the appeal, ending the
litigation.
2. Southeastern Connecticut Regional Resources Recovery Authority (SCRRRA) -
Application of the Municipal Rate
This matter involves three separate disputes over the rates that apply to
CL&P's purchases of the generation of the SCRRRA project in Preston,
Connecticut. A favorable ruling on all of these matters could result in savings
to CL&P customers of approximately $20 million over the terms of the agreement
with the SCRRRA. FERC has ruled in CL&P's favor in one of these matters, but
this decision has been appealed to the United States D. C. Circuit Court of
Appeals. A final ruling in this decision in favor of CL&P would also resolve
the second dispute. A Connecticut Superior Court, however, has ruled in favor
of the SCRRRA in the final dispute. CL&P has appealed this decision. The appeal
is now pending in the Connecticut Supreme Court.
3. Wallingford Resource Recovery Lawsuit
On April 18, 1997, CL&P was served with a lawsuit filed in Connecticut
Superior Court by the Connecticut Resources Recovery Authority (CRRA) and a
subsidiary of Ogden Martin. The suit claims that CL&P breached its electricity
purchase agreement for the Wallingford Resources Recovery Project by refusing to
purchase certain electricity at the rates specified in the agreement. The amount
at issue through the end of 1997 is approximately $2.45 million, which amount
will increase by approximately $700,000 each year. The electricity in question
results from the buyout by the project of its steam contract and its termination
of steam sales to American Cyanimid. Attorneys for CL&P have filed their
appearance.
4. Connecticut DPUC - CL&P's Petition for Declaratory Ruling Regarding
Proposed Retail Sales of Electricity by Texas-Ohio Power, Inc. (TOP)
On August 3, 1995, CL&P filed a petition for declaratory rulings with the
DPUC to determine whether TOP, which built a small cogeneration plant in
Manchester, Connecticut, can sell electricity from the facility to two CL&P
retail customers in Manchester. On December 6, 1995, the DPUC ruled that,
because TOP's project would not use the public streets, it did not require
specific legislative authorization to make retail sales of electricity. In
February 1997, the Hartford Superior Court upheld the DPUC's decision. CL&P
appealed this decision. On February 9, 1998, the Connecticut Supreme Court ruled
in CL&P's favor. Specifically, the Court reversed the DPUC and Superior Court
rulings, finding that TOP was a foreign electric company and therefore was
prohibited from making retail sales of electricity in Connecticut. The Court
did rule that the DPUC was correct in finding that because TOP did not use
public streets it was not an electric light company prohibited by Connecticut
corporate law from making retail electric sales. The Court made it clear that
it would have ruled differently on this issue if TOP were using public streets.
On February 27, 1998, TOP filed a petition for rehearing.
In a related matter, CL&P has been sued in the United States Bankruptcy
Court for the Southern District of Texas - Houston Division by Triple C Power,
Inc., the successor of the now bankrupt TOP, alleging tortious interference with
contract; vexatious litigation/malicious prosecution; restraint of trade in
violation of the Sherman Act; monopolization; civil conspiracy; and deceptive
trade practices. The plaintiff seeks $20 million in actual damages, plus
attorneys' fees and court costs, $40 million in exemplary damages, and a
trebling of the actual damages, for a total of about $100 million. CL&P
believes this action is without merit and intends to vigorously defend itself.
5. Tax Litigation
In 1991, the Town of Haddam, Connecticut (Haddam) performed a town-wide
revaluation of the CY property in that town. Based on the report of the
engineering firm hired by the town to perform the revaluation, Haddam determined
that the full fair-market value of the property, as of October 1, 1991, was $840
million. At that time, CY's net-book value was $245 million. On September 5,
1996, a Connecticut court ruled that Haddam had over-assessed CY at three and a
half times its proper assessment. The decision set the plant's fair market value
at $235 million. On May 9, 1997, Haddam and CY reached an agreement regarding
the over-assessment. Haddam repaid CY an amount totaling $13,990,000.
6. Long Island Cable - Citizen's Suit Settlement
On April 4, 1996, a citizen's suit against Long Island Lighting Company
(LILCO), a non-affiliate of NU, CL&P and NUSCO (collectively, the "Companies")
was filed in Federal District Court in Connecticut. The suit was filed under the
Federal Clean Water Act regarding leaks from the Long Island cable into the Long
Island Sound. On April 23, 1997, the Companies and the plaintiffs jointly filed
a Stipulation of Dismissal in Federal District Court, which settled this suit.
The settlement does not impose material costs on CL&P or any other System
companies.
7. Shareholder Derivative Actions Settlement
On December 29, 1997, a United States District Court judge entered an
order, which became final on January 28, 1998, approving a $25 million
settlement of seven derivative lawsuits and one demand letter filed by
shareholders of NU related to alleged mismanagement at Millstone. The
settlement had been announced by the company in mid-1997. Under the agreement,
insurers for certain of NU's present and former officers and trustees will pay
NU $25 million less attorneys' fees, and NU has agreed to certain corporate
governance enhancements. On February 2, 1998, approximately $18 million under
the settlement was paid to NU. The judge has still not made a ruling regarding
the amount of attorneys' fees to be deducted from the $25 settlement. The
plaintiffs' counsel have requested fees of approximately $7.5 million. If and
when the judge determines that less than approximately $7.5 million will be
awarded as attorneys' fees, NU also will receive that amount.
8. Shareholder Securities Class Actions
Consolidated Federal Court Actions: Pursuant to a court order dated
October 1, 1997, the six class actions separately filed against NU in 1996 were
consolidated for pre-trial and trial purposes. The actions are based on various
Federal securities law and common law theories alleging misrepresentations and
omissions in public disclosures related to the System's nuclear situation.
These complaints represent classes of plaintiffs who purchased or otherwise
acquired NU common stock during periods ranging from March 1994 to April 1996.
State Court Actions: NU has been served with two separately filed class
actions based on various state securities law and common law theories alleging
misrepresentations and omissions in public disclosures related to the System's
nuclear situation. These complaints represent classes of plaintiffs who
purchased or otherwise acquired NU common stock during periods ranging from
December 1993 to April 1996. Plaintiffs' counsel in both state actions agreed
to stay the actions pending the outcome of the consolidated federal court
actions described above.
NU believes that all of these class actions are without merit and intends
to vigorously defend in all such actions.
9. Connecticut Municipal Electric Energy Cooperative (CMEEC) Dispute
This matter involves a dispute with CMEEC over its obligations under its
Millstone Units 1 & 2 contract with CL&P, under which CMEEC has a 3.49 percent
life-of-unit interest in each of the units. Since October 1996, CMEEC has failed
to make payment on its obligations of approximately $1.8 million per month,
claiming that CL&P materially breached its contractual obligations. CMEEC has
requested arbitration of the issues, which arbitration is currently ongoing.
CL&P has denied the allegations and filed a petition on July 1, 1997 requesting
the Connecticut Superior Court to order CMEEC to pay the outstanding obligations
(about $25 million) and make continuing payments while the arbitration is
proceeding. CL&P's petition was denied and CL&P has requested reargument and
that the court vacate its order.
On March 2, 1998, the parties executed a release and settlement agreement
that, upon authorization by the FERC, will result in the termination of CMEEC's
life-of-unit contractual interests in Millstone Units 1 and 2, and 26 other
fossil or hydro generating units owned by CL&P. Under the agreement, CMEEC will
pay CL&P, upon FERC approval of the settlement, the lump sum amount of $24
million and each party will provide to the other a release of any claims that
relate to the contracts or to Millstone Units 1 and 2. The parties have agreed
to request suspension of the arbitration and court proceedings pending FERC's
authorization to cancel the rate schedules for the life-of-unit contracts.
10. Millstone 3 - Joint Owner Litigation
CL&P and WMECO, through NNECO as agent, operate Millstone 3, at cost and
without profit, under a Sharing Agreement that obligates them to utilize good
utility operating practices and requires the joint owners of the facility to
share the risk of employee negligence and other risks of operation and
maintenance pro-rata in accordance with their ownership shares. The Sharing
Agreement also provides that CL&P and WMECO would only be liable for damages to
the non-NU owners for a deliberate breach of the agreement pursuant to
authorized corporate action.
On August 7, 1997, the non-NU owners of Millstone 3 filed demands for
arbitration with CL&P and WMECO as well as lawsuits in Massachusetts Superior
Court against NU and its current and many of its former trustees. The non-NU
owners raise a number of contract, tort and statutory claims, arising out of the
operation of Millstone 3. The arbitrations and lawsuits seek to recover
compensatory damages, punitive damages, treble damages and attorneys' fees.
Owners representing approximately two-thirds of the non-NU interests in
Millstone 3 have claimed compensatory damages in excess of $200 million. In
addition, one of the lawsuits seeks to restrain NU from disposing of its shares
of the stock of WMECO and Holyoke Water Power Company, pending the outcome of
the lawsuit. The NU companies believe there is no legal basis for the claims and
intend to defend against them vigorously. The parties are proceeding with the
selection of an arbitrator to hear the claims against CL&P and WMECO. The
defendants, including NU, in the three lawsuits have requested consolidation of
those actions and have filed motions to dismiss the lawsuits or, in the
alternative, to stay the court proceedings pending the outcome of the
arbitrations.
11. Maine Yankee - Secondary Purchasers Dispute
A number of municipalities and cooperatives (Secondary Purchasers) have
notified the sponsors of MY, including CL&P, WMECO and PSNH, that they consider
their purchase and payment obligations under their purchase agreements to have
been terminated as a result of the August 6, 1997 decision by the MYAPC Board of
Directors (MY Board) to retire the facility. Accordingly, these Secondary
Purchasers have informed the sponsors that they will be making no further
payments under the contracts for the period following the MY Board's decision.
Through such contracts, the sponsors agreed to deliver a portion of the capacity
and electrical output from the facility until the year 2003 in exchange for
payment by the Secondary Purchasers of a pro rata share of the plant's costs and
expenses. NU's subsidiaries' estimated exposure under these contracts is
approximately $15 million to $20 million over the remaining term of these
agreements.
On November 28, 1997, the Secondary Purchasers filed a "Notice of
Initiation of Arbitration" with the sponsors. On December 15, 1997, the sponsors
filed a complaint at FERC against the Secondary Purchasers, asking FERC to (i)
direct them to pay all amounts due plus interest; (ii) to declare that the
Secondary Purchasers remain obligated to make payment through December 2002; and
(iii) to order a modification to the contracts that preserves the continuing
obligations of the municipalities for decommissioning and other post-shutdown
costs beyond 2002. On January 16, 1998, the Secondary Purchasers filed a Motion
to Compel Arbitration in Maine State Court.
12. NRC - Section 2.206 Petitions
Spent Fuel Pool Off-Load Practices 2.206 Petition: In August 1995, a
petition was filed with the NRC under Section 2.206 of the NRC's regulations by
the organization We the People and a NUSCO employee. The petitioners maintained
that NU's historic practice of off-loading the full reactor core at Millstone 1
resulted in spent fuel pool heat loads in excess of the pool's NRC-approved
cooling capability, and asserted that the practice was a knowing and willful
violation of NRC requirements. The petitioners also filed a supplemental
petition concerning refueling practices at Millstone 2 and 3 and Seabrook
Station.
On December 26, 1996, the Acting Director of the Office of Nuclear Reactor
Regulation issued a partial decision granting, in part, the petition. The
decision, which is limited to the NRC staff's technical review of the issues
raised by petitioners, concluded that the design of the spent fuel pool and
related system at Millstone 1 was adequate, and that the full core offload
practices at that unit, Millstone 3 and Seabrook were safe. The petitioners'
assertions regarding Millstone 2 were not substantiated. The Director further
concluded that the regulatory actions taken by the NRC to date regarding the
three Millstone units, including the imposition of an Independent Corrective
Action Verification Program prior to restart, were broader than the actions
requested by petitioners and thus constituted a partial grant of petitioners'
request. Issues of wrongdoing raised in the petition remain under consideration
by the NRC staff, and will not be addressed until after the U.S. Attorney has
concluded its investigation of the spent fuel pool issues and decided whether to
commence criminal proceedings (See paragraph 13 below). By letter to the NRC
dated July 9, 1997, the petitioner requested that the hearing on its petition be
reconvened to submit additional information in support of the petition.
Other 2.206 Petitions: The Citizens Awareness Network (CAN) filed a
petition with the NRC under Section 2.206 of the NRC's regulations in November
1996 requesting that the NRC suspend or revoke the operating licenses for
Millstone 1, 2, and 3 and CY. The petition also requested that the NRC take
enforcement actions and make investigations based on numerous allegations. On
September 12, 1997, the Director of Nuclear Reactor Regulation (Director) issued
a partial decision granting certain aspects of the petition, denying other
aspects and deferring other aspects of the petition pertaining to possible
wrongdoing. The NRC responded to these requests by relying upon actions that
have already been taken or actions that are currently under way. The NRC also
denied petitioners' request that the Millstone restart decision be postponed
until completion of pending investigations into alleged wrongdoing. However,
the NRC decision indicated that the results of these investigations will be
considered by the NRC as part of the restart deliberations.
On September 3, 1997, the Director issued a partial decision deferring in
part and denying in part another Section 2.206 petition that had been filed by
CAN and the Nuclear Information Resource Service seeking NRC enforcement action
and placement of certain restrictions on decommissioning activities at CY. The
decision deferred that aspect of the petition requesting that the NRC take
enforcement action with respect to the radiological controls program at the
plant. The petitioners' requests that CY be placed on the NRC's watch list and
that a six-month moratorium be placed on decommissioning activities at CY were
denied.
Another petition under Section 2.206 was filed with the NRC in March 1997
by a then NU employee with the NRC requesting various actions be taken with
respect to the operating licenses for Millstone Units 1, 2 and 3 and CY. The
NRC has advised the petitioner of receipt of the petition and indicated that the
NRC Director's decision may be delayed as a result of ongoing investigations by
the NRC Office of Investigations and NRC Office of Inspector General. On
February 11, 1998, the Director of the Office of Nuclear Reactor Regulation
issued a decision which denied the petitioners' requests in their entirety.
On February 2, 1998, CAN filed a third Section 2.206 petition with the NRC
pertaining to nuclear issues in Connecticut. This petition requests that the NRC
revoke the operating licenses of Millstone Units 1, 2 and 3 as a result of the
company's harassment and intimidation of the nuclear workforce for raising
safety issues. CAN's petition was prompted by the public disclosure of an
internal memorandum prepared by the Millstone Nuclear Oversight organization.
CAN also requested that the NRC refer the matter to the U.S. Department of
Justice for an investigation. The NRC has not yet responded to CAN's petition.
13. NRC Office of Investigations and U.S. Attorney Investigations and
Related Matters
The NRC's Office of Investigations (OI) has been examining various matters
at Millstone and CY, including but not limited to procedural and technical
compliance matters and employee concerns. One of these matters has been
referred, and others may be referred, to the Office of the U.S. Attorney for the
District of Connecticut (U.S. Attorney) for possible criminal prosecution. The
referred matter concerns full core off-load procedures and related matters at
Millstone. The U.S. Attorney is also reviewing possible criminal violations
arising out of certain of NNECO's other activities at Millstone and CY,
including the 1996 nuclear workforce reduction; its licensed operator training
programs; and a matter involving health physics records.
The U.S. Attorney, together with the U.S. EPA, is also investigating
possible criminal violations of federal environmental laws at certain NU
facilities, including Millstone and Devon. NU has been informed by the
government that it is a target of the investigation, but that no one in senior
management is either a target or a subject of their investigations.
Management does not believe that any System company or officer has engaged
in conduct that would warrant a federal criminal prosecution. NU intends to
fully cooperate with the OI and the U.S. Attorney in their ongoing
investigations.
14. Connecticut Attorney General - Civil Lawsuit
On November 17, 1997, the Connecticut Attorney General (Attorney General)
initiated a civil lawsuit, on behalf of the Connecticut Department of
Environmental Protection (CDEP), against NNECO and NUSCO for violations of the
Millstone Station water discharge permit and Connecticut water discharge
regulations. The seven count suit alleges in general that NNECO moved a
sampling point for a discharge to an inappropriate location and treated and/or
discharged certain waste waters without authorization. The Attorney General has
stated publicly that he is seeking penalties over $1 million.
15. New Hampshire Office of Consumer Advocate (OCA) and the Campaign for
Ratepayers Rights (CRR) Case
On March 5, 1998, the New Hampshire Supreme Court (Court) denied two
appeals of several NHPUC orders which approved special contracts between PSNH
and five industrial customers. The appellants, OCA and CRR, complained that all
of PSNH's special contracts were void and constituted a breach of the 1989
statute authorizing the NHPUC to approve the PSNH Rate Agreement. The Court
found that approval of such special contracts did not violate the enabling
statute, which only required the establishment of a fixed rate path under the
PSNH Rate Agreement for tariff rates of general application. Since PSNH did not
request any adjustment to other customers' rates as a result of the special
contracts, the customers represented by OCA and CRR suffered no harm.
16. Other Legal Proceedings
The following sections of Item 1. "Business" discuss additional legal
proceedings: See "Rates" for information about CL&P's rate and energy
adjustment clause proceedings, various state restructuring proceedings and
civil lawsuits related thereto and NHPUC proceedings involving PSNH's franchise
rights; "Electric Operations--Transmission Access and FERC Regulatory Changes"
for information about proceedings relating to power and transmission issues;
"Electric Operations--Nuclear Generation" and "Electric Operations-Nuclear Plant
Performance and Regulatory Oversight" for information related to nuclear plant
performance, nuclear fuel enrichment pricing, high-level and low-level
radioactive waste disposal, decommissioning matters and NRC regulation; "Other
Regulatory and Environmental Matters" for information about proceedings
involving surface water and air quality, toxic substances and hazardous waste,
electric and magnetic fields, licensing of hydroelectric projects, and other
matters.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No Event that would be described in response to this item occurred
with respect to NU, CL&P, PSNH, WMECO or NAEC.
PART II
Item 5. Market for the Registrants' Common Equity and Related
Shareholder Matters
NU. The common shares of NU are listed on the New York Stock Exchange. The
ticket symbol is "NU," although it is frequently presented as "Noeast Util"
and/or "NE Util" in various financial publications. The high and low sales
prices for the past two years, by quarters, are shown below.
Year Quarter High Low
1997 First $14 1/4 $ 7 5/8
Second 9 7/8 7 3/4
Third 10 9/16 9
Fourth 13 15/16 9 1/2
1996 First $25 1/4 19
Second 20 1/4 11 7/8
Third 13 3/8 11 1/2
Fourth 13 1/2 9 1/2
As of January 30, 1998, there were 98,923 common shareholders of record of
NU. As of the same date, there were a total of 136,849,710 common shares
issued, including 6,606,181 million unallocated ESOP shares held in the ESOP
trust.
NU declared and paid a quarterly dividend of $0.25 per share during the
first quarter of 1997. On March 25, 1997, the NU Board of Trustees adopted a
resolution suspending the quarterly dividends on NU's common shares,
indefinitely. The declaration of future dividends may vary depending on capital
requirements and income, as well as financial and other conditions existing at
the time.
Information with respect to dividend restrictions for NU and its
subsidiaries is contained in Item 1. Business under the caption "Financing
Program - Financing Limitations" and in Note (b) to the "Consolidated Statements
of Common Shareholders' Equity" on page 27 of NU's 1997 Annual Report to
Shareholders, which information is incorporated herein by reference.
CL&P, PSNH, WMECO, and NAEC. The information required by this item is not
applicable because the common stock of CL&P, PSNH, WMECO, and NAEC is held
solely by NU.
Item 6. Selected Financial Data
NU. Reference is made to information under the heading "Selected
Consolidated Financial Data" contained on page 52 of NU's 1997 Annual Report to
Shareholders, which information is incorporated herein by reference.
CL&P. Reference is made to information under the heading "Selected
Financial Data" contained on page 54 of CL&P's 1997 Annual Report, which
information is incorporated herein by reference.
PSNH. Reference is made to information under the heading "Selected
Financial Data" contained on pages 50 and 51 of PSNH's 1997 Annual Report, which
information is incorporated herein by reference.
WMECO. Reference is made to information under the heading "Selected
Financial Data" contained on page 49 of WMECO's 1997 Annual Report, which
information is incorporated herein by reference.
NAEC. Reference is made to information under the heading "Selected
Financial Data" contained on page 32 of NAEC's 1997 Annual Report, which
information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations; and
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
NU. Reference is made to information under the heading "Management's
Discussion and Analysis" contained on pages 12 through 21 in NU's 1997 Annual
Report to Shareholders, which information is incorporated herein by reference.
CL&P. Reference is made to information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained on pages 42 through 53 in CL&P's 1997 Annual Report, which information
is incorporated herein by reference.
PSNH. Reference is made to information under the heading
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained on pages 42 through 49 in PSNH's 1997
Annual Report, which information is incorporated herein by reference.
WMECO. Reference is made to information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained on pages 39 through 48 in WMECO's 1997 Annual Report, which
information is incorporated herein by reference.
NAEC. Reference is made to information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained on pages 26 through 31 in NAEC's 1997 Annual Report, which information
is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
NU. Reference is made to information under the headings "Company Report,"
"Report of Independent Public Accountants," "Consolidated Statements of Income,"
"Consolidated Statements of Cash Flows," "Consolidated Statements of Income
Taxes," "Consolidated Balance Sheets," "Consolidated Statements of
Capitalization," "Consolidated Statements of Common Shareholders' Equity,"
"Notes to Consolidated Financial Statements," and "Consolidated Statements of
Quarterly Financial Data" contained on pages 22 through 51 in NU's 1997 Annual
Report to Shareholders, which information, which information is incorporated
herein by reference.
CL&P. Reference is made to information under the headings "Consolidated
Balance Sheets," "Consolidated Statements of Income," "Consolidated Statements
of Cash Flows," "Consolidated Statements of Common Stockholder's Equity," "Notes
to Consolidated Financial Statements," "Report of Independent Public
Accountants," and "Statements of Quarterly Financial Data" contained on pages 2
through 41 and page 54 in CL&P's 1997 Annual Report, which information is
incorporated herein by reference.
PSNH. Reference is made to information under the headings "Balance
Sheets," "Statements of Income," "Statements of Cash Flows," "Statements of
Common Stockholder's Equity," "Notes to Financial Statements," "Report of
Independent Public Accountants," and "Statements of Quarterly Financial Data"
contained on pages 2 through 40 and page 52 in PSNH's 1997 Annual Report, which
information is incorporated herein by reference.
WMECO. Reference is made to information under the headings "Consolidated
Balance Sheets," "Consolidated Statements of Income," "Consolidated Statements
of Cash Flows," "Consolidated Statements of Common Stockholder's Equity," "Notes
to Consolidated Financial Statements," "Report of Independent Public
Accountants," and "Statements of Quarterly Financial Data" contained on pages 2
through 38 and page 49 in WMECO's 1997 Annual Report, which information is
incorporated herein by reference.
NAEC. Reference is made to information under the headings "Balance
Sheets,""Statements of Income," "Statements of Cash Flows," "Statements of
Common Stockholder's Equity," "Notes to Financial Statements," "Report of
Independent Public Accountants," and "Statements of Quarterly Financial Data"
contained on pages 2 through 24 and page 32 in NAEC's 1997 Annual Report which
information is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
No event that would be described in response to this item has occurred with
respect to NU, CL&P, PSNH, WMECO, or NAEC.
PART III
Item 10. Directors and Executive Officers of the Registrants
NU.
In addition to the information provided below concerning the executive
officers of NU, incorporated herein by reference is the information contained in
the sections "Proxy Statement", "Committee Composition and Responsibility",
"Common Stock Ownership of Certain Beneficial Owners", "Common Stock Ownership
of Management", "Compensation of Trustees", "Executive Compensation", "Pension
Benefits", and "Report on Executive Compensation" of the definitive proxy
statement for solicitation of proxies by NU's Board of Trustees, dated March 31,
1998, which will be and filed with the Commission pursuant to Rule 14a-6 under
the Securities Exchange Act of 1934 (the Act).
First First
Positions Elected Elected
Name Held an Officer a Trustee
John H. Forsgren EVP, CFO 02/01/96 n/a
William T. Frain, Jr. OTH 02/01/94 n/a
Cheryl W. Grise OTH 06/01/91 n/a
Bruce D. Kenyon P 09/03/96 n/a
Hugh C. MacKenzie P 07/01/88 n/a
Michael G. Morris CHB, P, CEO, T 08/19/97 08/19/97
Lisa J. Thibdaue OTH 01/01/98 n/a
Robert P. Wax SVP, SEC, GC 08/01/92 n/a
CL&P.
First First
Positions Elected Elected
Name Held an Officer a Director
John H. Forsgren EVP, CFO, D 02/01/96 06/10/96
Cheryl W. Grise SVP, CAO 06/01/91 Note 1
Bruce D. Kenyon P, D 09/03/96 09/03/96
Hugh C. MacKenzie P, D 07/01/88 06/06/90
Michael G. Morris CH, D 08/19/97 08/19/97
Lisa J. Thibdaue VP 01/01/98 n/a
Robert P. Wax SVP, SEC, GC 08/01/92 n/a
PSNH.
First First
Positions Elected Elected
Name Held an Officer a Director
John C. Collins D n/a 10/19/92
John H. Forsgren EVP, CFO, D 02/01/96 08/05/96
William T. Frain, Jr. P, COO, D 03/18/71 02/01/94
Bruce D. Kenyon P, D 09/03/96 11/24/97
Gerald Letendre D n/a 10/19/92
Hugh C. MacKenzie D n/a 02/01/94
Michael G. Morris CH, CEO, D 08/19/97 08/19/97
Jane E. Newman D n/a 10/19/92
Lisa J. Thibdaue VP 01/01/98 n/a
Robert P. Wax SVP, SEC, GC 08/01/92 n/a
WMECO.
First First
Positions Elected Elected
Name Held an Officer a Director
Robert G. Abair VP, CAO 09/06/88 Note 1
John H. Forsgren EVP, CFO, D 02/01/96 06/10/96
Cheryl W. Grise SVP 06/01/91 Note 1
Bruce D. Kenyon P, D 09/03/96 09/03/96
Hugh C. MacKenzie P, D 07/01/88 06/06/90
Michael G. Morris CH, D 08/19/97 08/19/97
Lisa J. Thibdaue VP 01/01/98 n/a
Robert P. Wax SVP, SEC, AC, GC 08/01/92 n/a
NAEC.
First First
Positions Elected Elected
Name Held an Officer a Director
Ted C. Feigenbaum EVP, CNO 10/21/91 Note 1
John H. Forsgren EVP, CFO, D 02/01/96 11/01/97
Cheryl W. Grise SVP, CAO 10/21/91 Note 1
Bruce D. Kenyon P, CEO, D 09/03/96 09/03/96
Michael G. Morris CH, D 08/19/97 08/19/97
Robert P. Wax SVP, SEC, GC 08/01/92 n/a
Note 1 - resigned as a Director, effective 11/01/97.
Key:
AC - Assistant Clerk EVP - Executive Vice President
CAO - Chief Administrative Officer GC - General Counsel
CEO - Chief Executive Officer OTH - Executive Officer of NU
system
CFO - Chief Financial Officer P - President
CH - Chairman SEC - Secretary
CHB - Chairman of the Board SVP - Senior Vice President
COO - Chief Operating Officer T - Trustee
D - Director VP - Vice President
Name Age Business Experience During Past 5 Years
Robert G. Abair (1) 59 Vice President and Chief Administrative
Officer of WMECO since 1988.
John C. Collins (2) 52 Chief Executive Officer, The Hitchcock
Clinic, Dartmouth - Hitchcock Medical Center since
1977.
Ted C. Feigenbaum (3) 47 Executive Vice President and Chief Nuclear Officer
of NAEC since February, 1996; previously Senior
Vice President of NAEC since 1991; Senior Vice
President and Chief Nuclear Officer of PSNH June,
1992 to August, 1992; President and Chief
Executive Officer - New Hampshire Yankee Division
of PSNH October, 1990 to June, 1992 and Chief
Nuclear Production Officer of PSNH January, 1990
to June, 1992.
John H. Forsgren (4) 51 Executive Vice President and Chief Financial
Officer of NU, CL&P, PSNH, WMECO and NAEC since
February, 1996; previously Managing Director of
Chase Manhattan Bank from 1995 to 1996 and Senior
Vice President-Chief Financial Officer of Euro
Disney, The Walt Disney Company from 1990 to 1995.
William T. Frain, Jr.(5) 56 President and Chief Operating Officer of PSNH
since February, 1994; previously Senior Vice
President of PSNH from 1992 to 1994.
Cheryl W. Grise 45 Senior Vice President and Chief
Administrative Officer of CL&P, PSNH and NAEC, and
Senior Vice President of WMECO since December,
1995; previously Senior Vice President-Human
Resources and Administrative Services of CL&P,
WMECO and NAEC from 1994 to 1995 and Vice
President-Human Resources of CL&P, WMECO and NAEC
from 1992 to 1994.
Bruce D. Kenyon (6) 55 President and Chief Executive Officer of NAEC
and President-Nuclear Group of NU, CL&P, PSNH and
WMECO since September, 1996; previously President
and Chief Operating Officer of South Carolina
Electric and Gas Company from 1990 to 1996.
Gerald Letendre 56 President, Diamond Casting & Machine Co.,
Inc. since 1972.
Hugh C. MacKenzie (7) 55 President-Retail Business Group of NU since
February, 1996 and President of CL&P and WMECO
since January, 1994; previously Senior Vice
President-Customer Service Operations of CL&P and
WMECO from 1990 to 1994.
Michael G. Morris (8) 51 Chairman of the Board, President and Chief
Executive Officer of NU, Chairman and Chief
Executive Officer of PSNH, and Chairman of CL&P,
NAEC and WMECO since August, 1997; previously
President and Chief Executive Officer of Consumers
Power Company from 1994 to 1997 and Executive Vice
President and Chief Operating Officer of Consumers
Power Company from 1992 to 1994.
Jane E. Newman (9) 52 Dean, Whittemore School of Business and
Economics of the University of New Hampshire since
January, 1998; previously Executive Vice President
and Director, Exeter Trust Company from 1995 to
1997 and President, Coastal Broadcasting
Corporation from 1992 to 1995.
Lisa J. Thibdaue 44 Vice President-Rates, Regulatory Affairs and
Compliance of CL&P, PSNH and WMECO since January,
1998; previously Executive Director, Rates and
Regulatory Affairs, Consumers Power Company from
1996 to 1998 and Director of Regulatory Affairs,
Consumers Power Company from 1991 to 1996.
Robert P. Wax (10) 49 Senior Vice President, Secretary and General
Counsel of NU, CL&P, PSNH, NAEC and WMECO since
February, 1997. Previously Vice President,
Secretary and General Counsel of PSNH and NAEC
from 1994 to 1997; Vice President, Secretary and
General Counsel of NU and CL&P and Vice President,
Secretary, Assistant Clerk and General Counsel of
WMECO from 1993 to 1997; Vice President, Assistant
Secretary and General Counsel of PSNH and NAEC
from 1993 to 1994; and Vice President and General
Counsel-Regulatory of NU, CL&P, PSNH, WMECO and
NAEC from 1992 to 1993.
(1) Member-Advisory Committee, BankBoston Springfield/Pioneer Valley.
(2) Director of Fleet Bank - New Hampshire, Hamden Assurance Company Limited
and the Business and Industry Association of New Hampshire.
(3) Director of Connecticut Yankee Atomic Power Company, Maine Yankee Atomic
Power Company, Vermont Yankee Nuclear Power Corporation, and Yankee Atomic
Electric Company.
(4) Director of Connecticut Yankee Atomic Power Company.
(5) Director of the Business and Industry Association of New Hampshire and the
Greater Manchester Chamber of Commerce; Trustee of Saint Anselm College.
(6) Trustee of Columbia College and Director of Connecticut Yankee Atomic Power
Company.
(7) Director of Connecticut Yankee Atomic Power Company.
(8) Director of Connecticut Yankee Atomic Power Company.
(9) Director of Exeter Trust Company, Perini Corporation and Consumers Water
Company.
(10) Director of New England Legal Foundation.
There are no family relationships between any director or executive officer
and any other director or executive officer of NU, CL&P, PSNH, WMECO or NAEC.
Item 11. Executive Compensation
NU.
Incorporated herein by reference is the information contained in the
sections "Executive Compensation", "Summary Compensation Table", "Option/SAR
Grants in Last Fiscal Year", "Pension Benefits", and "Report on Executive
Compensation" of the definitive proxy statement for solicitation of proxies by
NU, dated March 31, 1998, which will be filed with the Commission pursuant to
Rule 14a-6 under the Act.
CL&P, PSNH, WMECO and NAEC SUMMARY COMPENSATION TABLE
The following table presents the cash and non-cash compensation received
by the Chief Executive Officer and the next four highest paid executive officers
of CL&P, PSNH, WMECO and NAEC, and by a former Chief Executive Officer and one
former executive officer, in accordance with rules of the Securities and
Exchange Commission (SEC): The compensation reported for 1997 includes grants of
restricted stock units and stock appreciation rights under the Stock Price
Recovery Incentive Program, which for these officers took the place of
participation in short and long-term incentive programs under the Executive
Incentive Plan in 1996, 1997 and 1998, as discussed under "Report on Executive
Compensation" below. The "Securities Underlying Options/Stock Appreciation
Rights" column in the Summary Compensation table below lists the Northeast
Utilities common shares for which options and stock appreciation rights were
granted; the value of the options and stock appreciation rights as of the date
of grant is given in the last column of the "Option/SAR Grants in Last Fiscal
Year" table below.
<TABLE>
Annual Compensation Long Term Compensation
Awards Payouts
<CAPTION>
Securities
Other Restrict- Underlying Long Term All
Annual ed Stock Options/ Incentive Other
Compensa- Award(s) Stock Program Compen-
Name and Salary tion($) ($) Appreciation Payouts sation($)
Principal Position Year ($) Bonus($) (Note 1) (Note 2) Rights (#) ($) (Note 3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael G. Morris 1997 258,333 1,350,000 - - 500,000 - -
Chairman of the
Board, President 1996 - - - - - - -
and Chief Executive
Officer 1995 - - - - - - -
Bruce D. Kenyon 1997 500,000 300,000 - 306,522 139,745 - -
President -
Nuclear Group 1996 144,231 400,000 - 499,762 - - -
1995 - - - - - - -
John H. Forsgren 1997 350,000 50,000 - 378,787 184,382 - -
Executive Vice
President and 1996 305,577 - 62,390 80,380 - - -
Chief Financial
Officer 1995 - - - - - - -
Hugh C. MacKenzie 1997 270,000 - - 189,778 142,549 26,998 4,800
President - Retail
Business Group 1996 264,904 - - - - 19,834 7,500
1995 247,665 128,841 - - - 46,789 7,350
Robert P. Wax 1997 207,660 - - 129,775 97,499 6,075 4,800
Senior Vice
President, 1996 193,650 - - - - 9,859 5,809
Secretary and
General Counsel 1995 183,427 96,225 - - - 17,147 5,503
Bernard M. Fox 1997 447,165 - - - 226,106 68,777 880,916
Retired Chairman of
the Board, President 1996 551,300 - - - - 65,420 7,500
and Chief Executive
Officer 1995 551,300 246,168 - - - 130,165 7,350
Ted C. Feigenbaum 1997 260,000 - - - - 21,498 4,800
Executive Vice
President and 1996 248,858 - - - - 14,770 7,222
Chief Nuclear
Officer of NAEC 1995 185,300 - - - - - 5,553
</TABLE>
<TABLE>
Option/SAR Grants in Last Fiscal Year
Individual Grants Grant Date Value
<CAPTION>
Name Number of % of Total Exercise Expiration Grant Date
Securities Options/SARs or Date Present
Underlying Granted to Base Price Value($)
Options/SARS Employees in ($/sh)
Granted (#) Fiscal Year
<S> <C> <C> <C> <C> <C>
Michael G. Morris 500,000 (Note 4) 34.9% 9.625 8/20/2007 840,744 (Note 4)
Bruce D. Kenyon 41,236 (Note 5) 2.9% 13.125 12/31/2001 71,751 (Note 5)
98,509 (Note 6) 6.9% 9.75 12/31/2001 66,986 (Note 6)
John H. Forsgren 54,408 (Note 5) 3.8% 13.125 12/31/2001 94,670 (Note 5)
129,974 (Note 6) 9.1% 9.75 12/31/2001 88,382 (Note 6)
Hugh C. MacKenzie 42,063 (Note 5) 2.9% 13.125 12/31/2001 73,190 (Note 5)
100,486 (Note 6) 7.0% 9.75 12/31/2001 68,330 (Note 6)
Robert P. Wax 28,764 (Note 5) 2.0% 13.125 12/31/2001 50,049 (Note 5)
68,735 (Note 6) 4.8% 9.75 12/31/2001 46,740 (Note 6)
Bernard M. Fox 226,106 (Note 5) 15.8% 13.125 12/31/2001 393,424 (Note 5)
Ted C. Feigenbaum - N/A N/A N/A N/A
</TABLE>
Notes to Summary Compensation and Option/SAR Grants Tables:
1. Other annual compensation for Mr. Forsgren consists of tax payments on a
restricted stock award.
2. The aggregate restricted stock holdings by the seven individuals named in
the table were, at December 31, 1997, 131,993 shares with a value of
$1,559,169. Awards shown for 1997 (except for additional awards made for
Messrs. Kenyon and Forsgren - see below) were restricted stock unit grants
under the Stock Price Recovery Incentive Program made on January 1, 1997.
The number of units in each grant will be adjusted on December 31, 1998 to
reflect the relative performance of Northeast Utilities common shares
between December 31, 1996 and December 31, 1998 versus the performance of
the Standard and Poor's Electric Company Index during the same period. The
adjusted units will vest on January 4, 1999 if the recipient is still
actively employed as a senior officer of the System (subject to earlier
vesting upon death, disability or retirement). Mr. Kenyon also received
12,200 restricted stock units on July 8, 1997, with a value at date of
grant of $120,475, which will vest, as will the restricted shares granted
to him in 1996, when Millstone Station is removed from the NRC's "watch
list", provided that this occurs within three years of Mr. Kenyon's
commencement of employment (September 3, 1996) and the Systematic
Assessment of Licensee Performance and Institute of Nuclear Power
Operations ratings of Seabrook Station have not materially changed from
their 1996 levels, or, if earlier, when he is transferred to a new position
within the System or with an affiliate, as defined. Mr. Forsgren also
received 13,500 restricted stock units on July 8, 1997, with a value at
grant of $133,313, which will vest, as will the restricted stock granted to
him in 1996, on January 1, 1999. Any dividends paid on restricted stock
and units are reinvested into additional restricted stock and units,
respectively, subject to the same vesting schedule.
3. "All Other Compensation" consists of employer matching contributions under
the Northeast Utilities Service Company 401(k) Plan, generally available to
all eligible employees. It also includes, in the case of Mr. Fox, who
retired from the System in 1997, a payment of $166,667 as a contractor to
the System in 1997, a payment of $82,000 which had been withheld from Mr.
Fox's 1995 annual bonus, $389,866, which is the approximate value at the
date of his retirement of that portion of Mr. Fox's retirement benefit in
excess of what would be payable under the System's retirement plans, and a
payment of $237,583 for payment of taxes on an annuity that provides a
portion of such retirement benefit. See Employment Contracts and
Termination of Employment Arrangements, below.
4. Mr. Morris received upon the commencement of his employment options to
purchase 500,000 NU common shares at a price of $9.625 commencing August
20, 1999 (250,000 shares), August 20, 2000 (125,000 shares) and August 20,
2001 (125,000 shares). The options expire August 20, 2007 or, if earlier,
three years after termination of his employment. Valued using the Black-
Scholes option pricing model, with the following assumptions: Volatility:
31.89 percent (36 months of monthly data); Risk-free rate: 6.41 percent;
Dividend yield: 7.42 percent (36 months of monthly data); Exercise price:
$9.625; Grant price: $9.625; Option term: 10 years; Exercise date: August
20, 2007.
5. These SARs were granted on January 1, 1997 under the Stock Price Recovery
Incentive Program. The total number of SARs in this grant will be adjusted
on December 31, 1998 to reflect the relative performance of NU common
shares between December 31, 1996 and December 31, 1998 versus the
performance of the Standard and Poor's Electric Companies Index during the
same period. This adjustment factor is assumed to be one for purposes of
valuation for this table. Valued using the Black-Scholes option pricing
model, with the following assumptions: Volatility: 25.63 percent (36
months of monthly data); Risk-free rate: 6.17 percent, Dividend yield: 7.95
percent (36 months of monthly data); Exercise date: December 31, 2001.
6. These SARs were granted on August 12, 1997 under the Stock Price Recovery
Incentive Program. Their value may not exceed $3.375 per SAR, which is the
value they would have if the price of a Northeast Utilities common share on
the date of exercise were $13.125 or higher. Valued using the Black-
Scholes option pricing model, assuming that the value limitation described
in the preceding sentence acts as a stock appreciation right written by the
recipient of the actual SARs to the Company, with a base price equal to
$13.125, but with other characteristics equivalent to the actual SARs, with
the following assumptions: Volatility: 31.89 percent (36 months of
monthly data); Risk-free rate: 6.22 percent; Dividend yield: 7.42 percent
(36 months of monthly data); Exercise date: December 31, 2001.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Trustees (the Committee) is the
administrator of executive compensation for the executives of the Northeast
Utilities system (the Company) with authority to establish and interpret the
terms of the Company's executive salary and incentive programs and to make
payment of awards.
Compensation Strategy: The Committee's executive compensation goals for
1997 were to continue to provide a competitive compensation package to enable
the Company to attract and retain key executives both during this critical
period and with an eye towards the future, and to further align executive
interests with those of Northeast Utilities' shareholders and with Company
performance. The 1997 compensation of the Company's executives included base
salary and long-term incentive awards. No annual incentive awards were paid in
1997.
To achieve the compensation goal of providing a competitive package, the
Committee draws upon information from a variety of sources, including
compensation consultants, utility and general industry surveys, and other
publicly available information, including proxy statements. In 1997, the
Company's comparison groups for purposes of executive compensation consisted of
a consultant's database of over 600 companies from a broad variety of
industries, a consultant's database of over 90 electric and combination electric
and gas utilities, and a smaller group of ten electric utilities whose operating
characteristics were substantially similar to those of the Company in terms of
generation mix, revenues and customer size. Nine of the ten companies are
included in the Standard & Poor's (S&P) Electric Companies Index, which is the
index used in the "Share Performance Chart" shown in the NU Proxy Statement.
Base Salary: The target level for the base salary of each executive
reflects the median base salary level for that position within the market
comparison groups. The Committee periodically adjusts the level of base salary
to reflect considerations such as changes in responsibility, market sensitivity,
individual performance and internal equity. The Committee sets base salary
ranges for all executive officers and sets the annual base salary for each
executive officer except for the Chief Executive Officer (CEO), whose base
salary is set by the Board of Trustees following a recommendation by the
Committee. During 1997, there were no changes in the base salary structure over
1996. Because 1997 base salary levels were generally within targeted pay levels
of the comparison group, only one executive officer received a 1997 base salary
adjustment.
Incentive Pay: Consistent with its goal to recognize the importance of
retaining key executive talent and to help assure the officers' continuing
dedication to their duties to the Company and its shareholders, during 1997 the
Committee established for officers not participating in the Stock Price Recovery
Incentive Program, as described below, a one-year short-term incentive program
and a three-year long-term incentive program. The programs calculate payouts
based on actual performance against target goals with respect to either total
shareholder return or Company division measures. Each measure has a threshold
performance level (below which no amount is awarded) and an upper limit (which
will yield the maximum payout of twice the target amount). The performance
measures for the 1997 short-term incentive program were division-specific
functional and financial performance. The corporate performance measure for the
1997-1999 long-term incentive program was total shareholder return over the
three-year period. The total shareholder return goal will be met at target if
the total return on a Northeast Utilities common share for the performance
period exceeds the return on the S&P Electric Companies Index for the same
period by thirty-three percent. Awards under the 1997 short-term program, if
any, are expected to be made in cash in the first quarter of 1998, and awards
under the 1997-1999 long-term program are expected to be made in Northeast
Utilities common shares in the first quarter of 2000.
For 1997, target awards for participants in the short-term program ranged
from 25 percent to 30 percent, and for participants in the long-term program
from 15 percent to 25 percent of the going rate for their positions. Awards
under the short-term program can vary from those determined solely by corporate
performance, depending on individual achievement of a set of assigned goals
established for the performance year. These assigned goals vary as appropriate
from officer to officer and include, among other things, employee safety;
service reliability; nuclear operations; economic development; operating,
maintenance and capital expenditure levels; environmental initiatives; and
generating unit capacity and availability.
During 1996, the Committee determined that establishing a special Stock
Price Recovery Incentive Program for eight senior officers was in the best
interest of the Company and its shareholders. The purpose of this program is to
focus key senior officers on achieving fundamental business goals relative to
the challenges of nuclear operations and industry restructuring, with a net
effect of advancing shareholder interests through share price recovery. In
connection with the commencement of this incentive program, the Committee
terminated the participation of these officers in the 1996 short-term program
and the 1996-1998 long-term program and resolved that these officers would not
participate in the 1997 or 1998 short-term or the 1997-1999 and 1998-2000 long-
term incentive programs. Awards under the Stock Price Recovery Incentive
Program will be based solely on appreciation of the price of Northeast Utilities
common shares between December 31, 1996 and December 31, 1998 against a targeted
share price goal, indexed to reflect the relative performance of a Northeast
Utilities common share compared to the performance of the S&P Electric Companies
Index during the same period. The target award of each participant is equal to
the value of the 1996, 1997, and 1998 short-term and long-term incentive
programs at target, assuming that there had been no changes in the 1997 and 1998
program target payout opportunities for these executives. There are no
individual performance goals in the program. Awards under the program are made
in restricted stock units and stock appreciation rights (SARs). The SARs
are exercisable from January 1, 1999 through December 31, 2001. During 1997,
the Committee granted additional SARs to the participants in the Stock Price
Recovery Incentive Program as a further retention device.
Also during 1997, the Committee made awards under the 1994-1996 long-term
incentive program. Awards, in Northeast Utilities common shares, were based on
the Company's relative ranking against a group of electric utilities with
respect to shareholder return and cost of service (COS). Achievement of goals
was less than target and resulted in awards that were 60.5 percent of target.
CEO Pay: The Committee did not increase Mr. Fox's base salary in 1997
because of Company performance. During 1997, Mr. Fox announced his intention to
take early retirement from the Company. Mr. Fox retired on September 1, 1997.
The terms of Mr. Fox's retirement arrangements are described below. Following
an executive search, the Company hired Mr. Morris as its Chairman of the Board,
President and Chief Executive Officer, effective August 19, 1997. Mr. Morris's
base salary was set at $750,000, which was determined to be market competitive.
The Company paid Mr. Morris a sign-on bonus of $1.35 million, reflecting in
large part his loss of stock options from his previous employer.
CEO Long-Term Incentive Programs: During 1997, Mr. Fox was awarded 8,465
Northeast Utilities common shares in conformance with the provisions of the
1994-1996 long-term incentive program whose payouts were based on the Company's
performance under COS and shareholder return measures as described above. Mr.
Morris received, upon his employment with the Company, nonqualified stock
options to purchase 500,000 NU common shares at $9.625 per share, expiring in
2007, which become exercisable in 1999 (50 percent), 2000 (25 percent), and 2001
(25 percent).
New Compensation Plans: During 1997, the Committee met with its
compensation consultants to begin the process of restructuring compensation
plans to more closely align them with the changing electric utility
industry. The new Incentive Plan was approved by the Board in January, 1998,
subject to shareholder and SEC approval. This plan is further described [under
"Approval of Incentive Plan" in the NU proxy statement]. The Board has approved
two other new compensation plans. The first is a Deferred Compensation Plan
under the terms of which all officers and certain other key employees of the
Company may defer all or some portion of their compensation and, to the extent
they are prevented by federal tax rules from taking full advantage of the
Company's 401(k) Plan, receive a matching contribution (which is also deferred
and will be payable on distribution in the form of Northeast Utilities common
shares) in an amount equal to the employer matching contribution forgone under
the 401(k) Plan because of the application of the federal tax rules. The second
is an Employee Share Purchase Plan, also subject to shareholder and SEC
approval, under which the Company may make available to eligible employees the
opportunity to purchase Northeast Utilities common shares at a discount from
time to time. The Employee Share Purchase Plan is further described [under
"Approval of Employee Share Purchase Plan" in the Northeast Utilities proxy
statement]. The Committee believes that these new plans serve the best
interests of shareholders by further aligning employees' interests with those of
shareholders.
The Committee intends that the new Incentive Plan will adequately respond
to issues raised by the deductibility cap placed on executive salaries by
Section 162(m) of the Internal Revenue Code because of its use of stock options
and qualified performance-based compensation as described [under "Approval of
Incentive Plan in the NU proxy statement"]. The Committee believes that the
Company's executive compensation programs continue to appropriately balance
shareholder and customer interests.
Respectfully submitted,
Robert E. Patricelli, Chairman
William J. Pape II, Vice Chairman
Cotton Mather Cleveland
John F. Curley
Elizabeth T. Kennan
Dated: January 13, 1998
PENSION BENEFITS
The following table shows the estimated annual retirement benefits payable
to an executive officer of the registrants upon retirement, assuming that
retirement occurs at age 65 and that the officer is at that time not only
eligible for a pension benefit under the NU Service Company Retirement Plan (the
Retirement Plan) but also eligible for the make-whole benefit and the target
benefit under the Supplemental Executive Retirement Plan for Officers of
Northeast Utilities System Companies (the Supplemental Plan). The Supplemental
Plan is a non-qualified pension plan providing supplemental retirement income to
system officers. The make-whole benefit under the Supplemental Plan, available
to all officers, makes up for benefits lost through application of certain tax
code limitations on the benefits that may be provided under the Retirement Plan,
and includes as "compensation" awards under the Executive Incentive Compensation
Program and the Executive Incentive Plan and deferred compensation (as earned).
The target benefit further supplements these benefits and is available to
officers at the Senior Vice President level and higher who are selected by the
NU Board of Trustees to participate in the target benefit and who remain in the
employ of NU companies until at least age 60 (unless the Board of Trustees sets
an earlier age).
Each of the executive officers of NU named in the Summary Compensation
Table above is currently eligible for a target benefit, except Messrs. Morris
and Kenyon, whose Employment Agreements provide specially calculated retirement
benefits, based on their previous arrangements with CMS Energy/Consumers Energy
Company (CMS) and South Carolina Electric and Gas, respectively. Mr. Morris's
agreement provides that upon retirement after reaching the fifth anniversary of
his employment date with the System (or upon disability or termination without
cause or following a change in control, as defined, of NU) he will be entitled
to receive a special retirement benefit calculated by applying the benefit
formula of the CMS Supplemental Executive Retirement Plan to all compensation
earned from the System and to all service rendered to the System and CMS. If
Mr. Kenyon retires with at least three years but less than five years of
service with the System, he will be deemed to have five years of service.
In addition, if Mr. Kenyon retires with at least three years of service with
the System, he will receive a lump sum payment of $500,000.
The benefits presented below are based on a straight life annuity
beginning at age 65 and do not take into account any reduction for joint and
survivorship annuity payments.
ANNUAL TARGET BENEFIT
Final Average Years of Credited Service
Compensation
15 20 25 30 35
$200,000 $72,000 $96,000 $120,000 $120,000 $120,000
250,000 90,000 120,000 150,000 150,000 150,000
300,000 108,000 144,000 180,000 180,000 180,000
350,000 126,000 168,000 210,000 210,000 210,000
400,000 144,000 192,000 240,000 240,000 240,000
450,000 162,000 216,000 270,000 270,000 270,000
500,000 180,000 240,000 300,000 300,000 300,000
600,000 216,000 288,000 360,000 360,000 360,000
700,000 252,000 336,000 420,000 420,000 420,000
800,000 288,000 384,000 480,000 480,000 480,000
900,000 324,000 432,000 540,000 540,000 540,000
1,000,000 360,000 480,000 600,000 600,000 600,000
1,100,000 396,000 528,000 660,000 660,000 660,000
1,200,000 432,000 576,000 720,000 720,000 720,000
Final average compensation for purposes of calculating the target benefit
is the highest average annual compensation of the participant during any 36
consecutive months compensation was earned. Compensation taken into account
under the target benefit described above includes salary, bonus, restricted
stock awards, and long-term incentive payouts shown in the Summary Compensation
Table, but does not include employer matching contributions under the 401k Plan.
In the event that an officer's employment terminates because of disability, the
retirement benefits shown above would be offset by the amount of any disability
benefits payable to the recipient that are attributable to contributions made by
NU and its subsidiaries under long term disability plans and policies.
As of December 31, 1997, the five current executive officers named in the
Summary Compensation Table had the following years of credited service for
purposes of calculating target benefits under the Supplemental Plan (or in the
case of Messrs. Morris and Kenyon, for purposes of calculating the special
retirement benefits under their respective Employment Agreements): Mr. Morris -
9, Mr. Kenyon - 1, Mr. Forsgren - 1, Mr. MacKenzie - 32, and Mr. Wax - 18.
Assuming that retirement were to occur at age 65 for these officers, retirement
would occur with 23, 11, 15, 41 and 34 years of credited service, respectively.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Officer Agreements
NUSCO (or, in the case of Mr. Morris, NU) has entered into employment
agreements (the Officer Agreements) with each of the named executive officers
and certain other executive officers and subsidiary directors. The Officer
Agreements are also binding on NU and on each majority-owned subsidiary of NU.
Each Officer Agreement obligates the officer to perform such duties as may
be directed by the NUSCO Board of Directors or the NU Board of Trustees, protect
the System's confidential information, and refrain, while employed by the System
and for a period of time thereafter, from competing with the System in a
specified geographic area. Each Officer Agreement provides that the officer's
base salary will not be reduced below certain levels without the consent of the
officer, that the officer will participate in specified benefits under the
Supplemental Executive Retirement Plan or other supplemental retirement programs
(see Pension Benefits, above), in applicable executive incentive programs (see
Report on Executive Compensation, above), and, beginning on January 1, 1999
(January 1, 1998 for Mr. Morris's participation in short-term programs), if the
employment term has not ended, in each short-term and long-term incentive
compensation program established by the System for such executives generally, at
an incentive opportunity level not less than that in effect for the officer as
of January 1, 1996 (or January 1, 1997 for certain officers, and, for Mr.
Morris, with minimum short-term and long-term target levels of 80 percent and 60
percent, respectively, of base salary and maximum opportunities of 130 percent
and 120 percent, respectively, of base salary).
Each Officer Agreement provides for a specified employment term and for
automatic one-year extensions of the employment term unless at least six months'
notice of non-renewal is given by either party. The employment term may also be
ended by the System for "cause", as defined, at any time (in which case no
supplemental retirement benefit, if any, shall be due), or by the officer on
thirty days' prior written notice for any reason. Absent "cause", the System
may remove the officer from his or her position on sixty days' prior written
notice, but in the event the officer is so removed and signs a release of all
claims against the System, the officer will receive one or two years' base
salary and annual incentive payments, specified employee welfare and pension
benefits, and vesting of stock appreciation rights, options and restricted
stock.
Under the terms of an Officer Agreement, upon any termination of employment
of the officer within two years following a change of control, as defined, if
the officer signs a release of all claims against the Company the officer will
be entitled to certain payments including two or three times annual base salary
(or in the case of Mr. Morris, if greater, the product of annual base salary
times one less than the number of years remaining in the initial five-year term
of his employment agreement), annual incentive payments, specified employee
welfare and pension benefits, and vesting of stock appreciation rights, options
and restricted stock. Certain of the change of control provisions may be
modified by the Board of Trustees prior to a change of control, on at least two
years' notice to the affected officer(s).
Besides the terms described above, Mr. Forsgren's Officer Agreement
provides for a starting salary of $350,000 per year and a $100,000 restricted
stock grant. Mr. Kenyon's Officer Agreement provides for an initial starting
salary at $500,000 per year, a $500,000 restricted stock grant and a $400,000
cash signing bonus. Mr. Kenyon's Officer Agreement also provides for a special
retirement benefit and a special short term incentive compensation program in
lieu of a portion of the Stock Price Recovery Incentive Program. Under this
incentive program Mr. Kenyon will be eligible to receive a payment up to 100
percent of base salary depending on his fulfillment of certain incentive goals
for each of the years ending August 31, 1997 and August 31, 1998, and for the 16
month period ending December 31, 1999. Mr. Kenyon received a payment of
$300,000, or 60 percent of his base salary, under this program during 1997. Mr.
Morris's Officer Agreement provides for an initial five-year term base salary of
$750,000 per year subject to annual review, a $1,350,000 cash signing bonus, a
grant of stock options, and a special retirement benefit. See Summary
Compensation Table and Pension Benefits, above, for further description of these
provisions.
Retention Bonuses
During July, 1997, the Compensation Committee agreed to pay Messrs.
Forsgren and MacKenzie cash retention bonuses of $100,000 each, payable in July,
1998 and December, 1998, respectively.
Transition and Retirement Agreement
In February, 1997, NU entered into a Transition and Retirement Agreement
(the Transition Agreement) with Mr. Fox, and Mr. Fox subsequently retired on
September 1, 1997. The Transition Agreement obligates Mr. Fox to maintain the
confidentiality of System information during his employment and following
his retirement, and not to compete with the System for certain periods of time
in specified geographic areas.
The Transition Agreement provides that Mr. Fox will be engaged as a
consultant to the Board of Trustees for 24 months following his retirement, with
a fee of $500,000 for the first 12 months and $300,000 for the second 12 months,
payable in full notwithstanding Mr. Fox's death or disability during such period
or the occurrence of a change of control, as defined. The Transition Agreement
also provides that Mr. Fox will be entitled to a target benefit under the
Supplemental Executive Retirement Plan (actuarially reduced to reflect payments
beginning prior to age 57), and for vesting of all stock appreciation rights
granted to him in the Stock Price Recovery Incentive Program. Further, Mr. Fox
signed a release of claims against the System "and all related parties" with
respect to matters arising out of his employment with the System, and the System
released Mr. Fox from all civil liability which may arise from his being or
having been a Trustee or officer of NU and its subsidiaries, except for any
liability which has been or may be asserted against Mr. Fox by the System as the
result of an investigation conducted upon the demand of a shareholder or by a
shareholder on behalf of the System. The Transition Agreement is binding on
each active majority-owned subsidiary of NU.
The descriptions of the various agreements set forth above are for purpose
of disclosure in accordance with the proxy and other disclosure rules of the SEC
and shall not be controlling on any party; the actual terms of the agreements
themselves determine the rights and obligations of the parties.
Item 12. Security Ownership of Certain Beneficial Owners and Management
NU.
Incorporated herein by reference is the information contained in the
sections "Common Stock Ownership of Certain Beneficial Owners", "Common Stock
Ownership of Management", "Compensation of Trustees", "Executive Compensation",
"Pension Benefits", and "Report on Executive Compensation" of the definitive
proxy statement for solicitation of proxies by NU, dated March 31, 1998 which
will be filed with the Commission pursuant to Rule 14a-6 under the Act.
CL&P, PSNH, WMECO and NAEC.
NU owns 100% of the outstanding common stock of registrants CL&P, PSNH,
WMECO and NAEC. As of February 24, 1998, the Directors and Executive Officers
of CL&P, PSNH, WMECO and NAEC beneficially owned the number of shares of each
class of equity securities of NU listed below. No equity securities of CL&P,
PSNH, WMECO or NAEC are owned by the Directors and Executive Officers of CL&P,
PSNH, WMECO and NAEC.
CL&P, PSNH, WMECO, and NAEC DIRECTORS AND EXECUTIVE OFFICERS
Title of Restricted Percent
Class Directly Restricted Stock of
Name Owned(1) Stock (2) Units(3) Class(4)
NU Common John C. Collins(5) 0
NU Common Ted C. Feigenbaum (6) 3,558
NU Common John H. Forsgren(7) 0 5,577 32,816
NU Common Bruce D. Kenyon(8) 3,373 41,615 26,840
NU Common Gerald Letendre(5) 0
NU Common Hugh C. MacKenzie(9) 12,573 14,933
NU Common Michael G. Morris(10) 1,000
NU Common Jane E. Newman(5) 0
NU Common Robert P. Wax(11) 4,746 10,212
Amount beneficially owned by Directors and Executive Officers as a group:
Directly Restricted Restricted Stock
Company Number of Persons Owned(1) Stock(2) Units (3)
CL&P 7 27,958 47,192 94,173
PSNH 10 27,958 47,192 84,801
WMECO 7 27,958 47,192 94,173
NAEC 7 18,944 47,192 79,240
(1) Unless otherwise noted, each Director and Executive Officer of CL&P,
PSNH, WMECO and NAEC has sole voting and investment power with respect
to the listed shares.
(2) The beneficial owner has the right to vote but no right to dispose of
restricted stock until the restrictions have lapsed.
(3) The beneficial owner has no right to vote or dispose of restricted
stock units until the restrictions have lapsed.
(4) As of February 24, 1998 there were 136,857,443 common shares of NU
outstanding. The percentage of such shares beneficially owned by any
Director or Executive Officer, and by all Directors and Executive
Officers of CL&P, PSNH, WMECO and NAEC as a group, does not exceed one
percent.
(5) Messrs. Collins, Letendre and Ms. Newman are Directors of PSNH.
(6) Mr. Feigenbaum is a former Director and Executive Officer of NAEC.
(7) Mr. Forsgren is a Director and Executive Officer of CL&P, WMECO, PSNH
and NAEC.
(8) Mr. Kenyon is a Director and Executive Officer of CL&P, PSNH, NAEC and
WMECO.
(9) Mr. MacKenzie is a Director of CL&P, PSNH and WMECO and an Executive
Officer of CL&P and WMECO. Mr. MacKenzie shares voting and investment
power with his wife for 1,584 of these shares.
(10) Mr. Morris is a Director and Executive Officer of CL&P, PSNH, WMECO and
NAEC. Mr. Morris shares voting and investment power with his wife for
these shares.
(11) Mr. Wax is an Executive Officer of CL&P, PSNH, WMECO and NAEC.
Item 13. Certain Relationships and Related Transactions
NU.
Incorporated herein by reference is the information contained in the
section "Certain Relationships and Related Transactions" of the definitive proxy
statement for solicitation of proxies by NU's Board of Trustees, dated March 31,
1998, which will be filed with the Commission pursuant to Rule 14a-6 under the
Act.
CL&P, PSNH, WMECO and NAEC.
No relationships or transactions that would be described in response to
this item exist now or existed during 1997 with respect to CL&P, PSNH, WMECO and
NAEC.
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) 1. Financial Statements:
The Report of Independent Public Accountants and financial
statements of NU, CL&P, PSNH, WMECO and NAEC are hereby incorporated
by reference and made a part of this report (see "Item 8. Financial
Statements and Supplementary Data").
Report of Independent Public Accountants
on Schedules S-1
Consent of Independent Public Accountants S-3
2. Schedules:
Financial Statement Schedules for NU (Parent),
NU and Subsidiaries, CL&P and Subsidiaries,
PSNH and WMECO and Subsidiary are listed in
the Index to Financial Statements Schedules S-4
3. Exhibits Index E-1
(b) Reports on Form 8-K:
NU, CL&P, PSNH, WMECO and NAEC filed Form 8-Ks dated November 24,
1997 with the SEC on November 26, 1997. This 8-K filing disclosed
that:
. New Hampshire Electric Cooperative, Inc., made an unsolicited offer
to purchase PSNH's transmission and distribution facilities, as
well as PSNH's claims for recovery of stranded costs for $1.4
billion.
. Neil S. Carns had resigned as a Senior Vice President and Chief
Nuclear Officer - Millstone.
NU, CL&P, WMECO, PSNH and NAEC filed Form 8-Ks dated November 25,
1997 with the SEC on December 23, 1997. This filing disclosed that:
. A U.S. District Court judge orally approved the $25 million
settlement of seven derivative lawsuits and one demand letter
filed by shareholders of NU related to alleged mismanagement at
Millstone. Under the approved settlement, NU would receive the
$25 million, less attorneys' fees which had yet to be determined,
from insurers of certain of NU's present and former officers and
trustees.
. The DPUC issued a draft decision regarding its review of CL&P's
rates. The draft decision requires CL&P to remove Millstone 1
from rate base early in 1998, pending its return to service.
. On November 25, 1997, Massachusetts enacted a comprehensive
electric utility industry restructuring bill calling for a ten
percent reduction of rates and choice of retail electric supplier
on March 1, 1998. It additionally calls for a further five
percent rate reduction, adjusted for inflation, by September 1,
1999.
. On December 17, 1997, Moody's Investors Service downgraded the
senior secured debt of CL&P, WMECO and NU, as well as the
preferred stock of CL&P and WMECO. All NU system securities
remain under review for further downgrade.
. On December 10, 1997, the NRC issued Millstone a notice of
violation and proposed imposition of civil penalties in the amount
of $2.1 million for past violations of NRC requirements.
. On December 1, 1997, the NHPUC issued the FPPAC rate to be
collected by PSNH for the period December 1, 1997 through May 31,
1998, increasing customer bills by approximately six percent.
NU, CL&P and WMECO filed Form 8-Ks dated December 31, 1997 with the
SEC on January 27, 1998. This filing disclosed:
. NU consolidated's 1997 earnings.
. The current status of the DPUC's review of CL&P's rates.
. The DPUC ordered CL&P to file a full rate case and will schedule
hearings to determine the status of Millstone 3 and Millstone 2.
. WMECO filed its restructuring plan with the DTE on December 31,
1997.
NORTHEAST UTILITIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NORTHEAST UTILITIES
(Registrant)
Date: March 6, 1998 By /s/ Michael G. Morris
Michael G. Morris
Chairman of the Board
and President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Title Signature
March 6, 1998 Chairman of the Board, /s/ Michael G. Morris
President and Michael G. Morris
Chief Executive Officer
and a Trustee
March 6, 1998 Executive Vice /s/ John H. Forsgren
President and John H. Forsgren
Chief Financial Officer
March 6, 1998 Vice President and /s/ John J. Roman
Controller John J. Roman
NORTHEAST UTILITIES
SIGNATURES (CONT'D)
Date Title Signature
March 6, 1998 Trustee /s/ Cotton M. Cleveland
Cotton M. Cleveland
March 6, 1998 Trustee /s/ William F. Conway
William F. Conway
March 6, 1998 Trustee
John F. Curley
March 6, 1998 Trustee /s/ E. Gail de Planque
E. Gail de Planque
March 6, 1998 Trustee /s/ Elizabeth T. Kennan
Elizabeth T. Kennan
March 6, 1998 Trustee /s/ William J. Pape II
William J. Pape II
March 6, 1998 Trustee /s/ Robert E. Patricelli
Robert E. Patricelli
March 6, 1998 Trustee /s/ John F. Swope
John F. Swope
March 6, 1998 Trustee /s/ John F. Turner
John F. Turner
THE CONNECTICUT LIGHT AND POWER COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE CONNECTICUT LIGHT AND POWER COMPANY
(Registrant)
Date: March 6, 1998 By /s/ Michael G. Morris
Michael G. Morris
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Title Signature
March 6, 1998 Chairman and /s/ Michael G. Morris
a Director Michael G. Morris
March 6, 1998 President and /s/ Hugh C. MacKenzie
a Director Hugh C. MacKenzie
March 6, 1998 Executive Vice /s/ John H. Forsgren
President and John H. Forsgren
Chief Financial
Officer and a
Director
March 6, 1998 Vice President /s/ John J. Roman
and Controller John J. Roman
March 6, 1998 Director /s/ Bruce D. Kenyon
Bruce D. Kenyon
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
(Registrant)
Date: March 6, 1998 By /s/ Michael G. Morris
Michael G. Morris
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Title Signature
March 6, 1998 Chairman and Chief /s/ Michael G. Morris
Executive Officer Michael G. Morris
and a Director
March 6, 1998 President and /s/ William T. Frain, Jr.
Chief Operating William T. Frain, Jr.
Officer and
a Director
March 6, 1998 Executive Vice /s/ John H. Forsgren
President and John H. Forsgren
Chief Financial
Officer and a
Director
March 6, 1998 Vice President /s/ John J. Roman
and Controller John J. Roman
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
SIGNATURES (CONT'D)
Date Title Signature
March 6, 1998 Director /s/ John C. Collins
John C. Collins
March 6, 1998 Director /s/ Bruce D. Kenyon
Bruce D. Kenyon
March 6, 1998 Director /s/ Gerald Letendre
Gerald Letendre
March 6, 1998 Director /s/ Hugh C. MacKenzie
Hugh C. MacKenzie
March 6, 1998 Director /s/ Jane E. Newman
Jane E. Newman
WESTERN MASSACHUSETTS ELECTRIC COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
(Registrant)
Date: March 6, 1998 By /s/ Michael G. Morris
Michael G. Morris
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Title Signature
March 6, 1998 Chairman and /s/ Michael G. Morris
a Director Michael G. Morris
March 6, 1998 President and /s/ Hugh C. MacKenzie
a Director Hugh C. MacKenzie
March 6, 1998 Executive Vice /s/ John H. Forsgren
President and John H. Forsgren
Chief Financial
Officer and a
Director
March 6, 1998 Vice President /s/ John J. Roman
and Controller John J. Roman
March 6, 1998 Director /s/ Bruce D. Kenyon
Bruce D. Kenyon
NORTH ATLANTIC ENERGY CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NORTH ATLANTIC ENERGY CORPORATION
(Registrant)
Date: March 6, 1998 By /s/ Michael G. Morris
Michael G. Morris
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Title Signature
March 6, 1998 Chairman and /s/ Michael G. Morris
a Director Michael G. Morris
March 6, 1998 President and /s/ Bruce D. Kenyon
Chief Executive Bruce D. Kenyon
Officer and
a Director
March 6, 1998 Executive Vice /s/ John H. Forsgren
President and John H. Forsgren
Chief Financial
Officer and a
Director
March 6, 1998 Vice President /s/ John J. Roman
and Controller John J. Roman
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Northeast Utilities' annual report to
shareholders and The Connecticut Light and Power Company's and
Western Massachusetts Electric Company's annual reports, incorporated by
reference in this Form 10-K, and have issued our reports thereon dated
February 20, 1998. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedules
listed in the accompanying Index to Financial Statements Schedules are the
responsibility of the companies' management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 20, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
We have audited in accordance with generally accepted auditing standards, the
financial statements included in North Atlantic Energy Corporation's and Public
Service Company of New Hampshire's annual reports to shareholders, incorporated
by reference in this Form 10-K and have issued our reports thereon dated
February 20, 1998. Our reports included an explanatory paragraph regarding the
existence of conditions which raise substantial doubt about the companies'
abilities to continue as going concerns. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedules listed in the accompanying Index to Financial Statements Schedules are
the responsibility of the companies' management and are presented for purposes
of complying with the Securities and Exchange Commission's rules and are not
part of the basic financial statements. These schedules have been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 20, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included (or incorporated by reference) in this Form 10-K, into the
Company's previously filed Registration Statements No. 33-55279 of The
Connecticut Light and Power Company, No. 33-56537 of CL&P Capital, LP and No.
33-34622, No. 33-44814, No. 33-63023, and No. 33-40156 of Northeast Utilities.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 6, 1998
INDEX TO FINANCIAL STATEMENTS SCHEDULES
Schedule
I. Financial Information of Registrant:
Northeast Utilities (Parent) Balance
Sheets 1997 and 1996 S-5
Northeast Utilities (Parent) Statements
of Income 1997, 1996, and 1995 S-6
Northeast Utilities (Parent) Statements
of Cash Flows 1997, 1996, and 1995 S-7
II. Valuation and Qualifying Accounts and Reserves
1997, 1996, and 1995:
Northeast Utilities and Subsidiaries S-8 - S-10
The Connecticut Light and Power Company
and Subsidiaries S-11 - S-13
Public Service Company of New Hampshire S-14 - S-16
Western Massachusetts Electric Company
and Subsidiary S-17 - S-19
All other schedules of the companies' for which provision is made in the
applicable regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable, and therefore
have been omitted.
SCHEDULE I
NORTHEAST UTILITIES (PARENT)
FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AT DECEMBER 31, 1997 AND 1996
(Thousands of Dollars)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
- ------
Other Property and Investments:
Investments in subsidiary companies, at
equity............................................... $2,271,902 $2,506,254
Investments in transmission companies, at equity...... 19,635 21,186
Other, at cost........................................ 402 413
----------- -----------
2,291,939 2,527,853
----------- -----------
Current Assets:
Cash.................................................. 10 10
Notes receivable from affiliated companies............ 34,200 5,475
Notes and accounts receivable......................... 711 813
Receivables from affiliated companies................. 961 7,106
Prepayments........................................... 265 224
----------- -----------
36,147 13,628
----------- -----------
Deferred Charges:
Accumulated deferred income taxes..................... 5,692 5,293
Unamortized debt expense.............................. 232 524
Other................................................. 47 46
----------- -----------
5,971 5,863
----------- -----------
Total Assets..................................... $2,334,057 $2,547,344
=========== ===========
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common Shareholders' Equity:
Common shares, $5 par value--Authorized
225,000,000 shares; 136,842,170 shares issued and
130,182,736 shares outstanding in 1997 and
136,051,938 shares issued and
128,444,373 outstanding in 1996..................... $ 684,211 $ 680,260
Capital surplus, paid in.............................. 932,493 940,446
Deferred benefit plan--employee stock ownership plan.. (154,141) (176,091)
Retained earnings..................................... 664,678 832,520
----------- -----------
Total common shareholders' equity................... 2,127,241 2,277,135
Long-term debt........................................ 177,000 194,000
----------- -----------
Total capitalization................................ 2,304,241 2,471,135
----------- -----------
Current Liabilities:
Notes payable to banks................................ - 38,750
Long-term debt and preferred stock--current portion... 17,000 16,000
Accounts payable...................................... 1,857 15,504
Accounts payable to affiliated companies.............. 216 600
Accrued taxes......................................... 7,860 2,158
Accrued interest...................................... 2,343 2,602
Dividend reinvestment plan............................ 90 -
Other................................................. - 2
----------- -----------
29,366 75,616
----------- -----------
Other Deferred Credits.................................. 450 593
----------- -----------
Total Capitalization and Liabilities $2,334,057 $2,547,344
=========== ===========
</TABLE>
S-5
SCHEDULE I
NORTHEAST UTILITIES (PARENT)
FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Thousands of Dollars Except Share Information)
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Operating Revenues............... $ - $ - $ -
------------- ------------- -------------
Operating Expenses:
Other.......................... 8,657 8,920 14,267
Federal income taxes........... (10,697) (10,390) (8,585)
------------- ------------- -------------
Total operating expenses...... (2,040) (1,470) 5,682
------------- ------------- -------------
Operating Income (Loss).......... 2,040 1,470 (5,682)
------------- ------------- -------------
Other Income:
Equity in earnings of
subsidiaries.................. (123,941) 18,272 310,025
Equity in earnings of
transmission companies........ 2,968 3,306 3,561
Other, net..................... 2,184 368 329
------------- ------------- -------------
Other income, net............ (118,789) 21,946 313,915
------------- ------------- -------------
Income before interest
charges..................... (116,749) 23,416 308,233
------------- ------------- -------------
Interest Charges ................ 18,959 21,585 25,799
------------- ------------- -------------
Earnings for Common Shares ...... $ (135,708) $ 1,831 $ 282,434
============= ============= =============
Earnings Per Common Share........ $ (1.05) $ 0.01 $ 2.24
============= ============= =============
Common Shares Outstanding
(average)....................... 129,567,708 127,960,382 126,083,645
============= ============= =============
</TABLE>
SCHEDULE I
NORTHEAST UTILITIES (PARENT)
FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, 1995
(Thousands of Dollars)
<TABLE>
<CAPTION>
1997 1996 1995
------------ -------------- --------------
<S> <C> <C> <C>
Operating Activities:
Net (loss) income $ (135,708) $ 1,831 $ 282,434
Adjustments to reconcile to net cash
from operating activities:
Equity in earnings of subsidiary companies 123,941 (18,272) (310,025)
Cash dividends received from subsidiary companies 132,994 247,101 272,350
Deferred income taxes 1,558 3,868 772
Other sources of cash 11,738 17,961 6,916
Other uses of cash (2,101) (3,065) (528)
Changes in working capital:
Receivables 6,247 (7,312) 1,991
Accounts payable (14,031) (3,183) 15,381
Other working capital (excludes cash) 5,490 (13,724) 7,396
------------ -------------- --------------
Net cash flows from operating activities 130,128 225,205 276,687
------------ -------------- --------------
Financing Activities:
Issuance of common shares 6,502 10,622 47,218
Net decrease in short-term debt (38,750) (18,750) (46,500)
Reacquisitions and retirements of long-term debt (16,000) (14,000) (12,000)
Cash dividends on common shares (32,134) (176,276) (221,701)
------------ -------------- --------------
Net cash flows used for financing activities (80,382) (198,404) (232,983)
------------ -------------- --------------
Investment Activities:
NU System Money Pool (28,725) 4,200 (7,700)
Investment in subsidiaries (22,583) (33,217) (38,963)
Other investment activities, net 1,562 2,208 2,935
------------ -------------- --------------
Net cash flows used for investments (49,746) (26,809) (43,728)
------------ -------------- --------------
Net decrease in cash for the period 0 (8) (24)
Cash - beginning of period 10 18 42
------------ -------------- --------------
Cash - end of period $ 10 $ 10 $ 18
============ ============== ==============
Supplemental Cash Flow Information
Cash paid during the year for:
Interest, net of amounts capitalized $ 18,960 $ 21,770 $ 26,430
============ ============== ==============
Income taxes (refund) $ (16,000) $ (7,700) $ (8,418)
============ ============== ==============
</TABLE>
<TABLE>
NORTHEAST UTILITIES AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1997
(Thousands of Dollars)
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 17,062 $ 14,854 $ - $ 29,864 (a) $ 2,052
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 99,460 $ 150,342 $ - $ 142,365 (b) $ 107,437
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, nuclear compliance expenditures and expenses in connection therewith.
</TABLE>
<TABLE>
NORTHEAST UTILITIES AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1996
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance atCharged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 14,379 $ 21,761 $ - $ 19,078 (a) $ 17,062
========= ========= ========= ========== ==========
Asset valuation reserves $ 10,266 $ $ - $ 10,266 $ 0
========= ========= ========= ========== ==========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 38,409 $ 71,597 $ - $ 10,546 (b) $ 99,460
========= ========= ========= ========== ==========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
NORTHEAST UTILITIES AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 16,826 $ 18,010 $ - $ 20,458 (a)$ 14,378
========= ========= ========= ========= =========
Asset valuation reserves $ 8,684 $ 1,582 $ - $ - $ 10,266
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 34,721 $ 11,475 $ - $ 7,787 (b)$ 38,409
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1997
(Thousands of Dollars)
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 13,241 $ 10,509 $ - $ 23,450 (a) $ 300
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 69,379 $ 118,174 $ - $ 113,891 (b) $ 73,662
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, nuclear compliance expenditures and expenses in connection therewith.
</TABLE>
<TABLE>
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1996
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance atCharged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 10,567 $ 15,704 $ - $ 13,030 (a) $ 13,241
========= ========= ========= ========== ==========
Asset valuation reserves $ 10,266 $ - $ - $ 10,266 $ 0
========= ========= ========= ========== ==========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 19,874 $ 56,209 $ - $ 6,704 (b) $ 69,379
========= ========= ========= ========== ==========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 12,778 $ 12,722 $ - $ 14,933 (a)$ 10,567
========= ========= ========= ========= =========
Asset valuation reserves $ 8,684 $ 1,582 $ - $ - $ 10,266
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 19,529 $ 5,633 $ - $ 5,288 (b)$ 19,874
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1997
(Thousands of Dollars)
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 1,700 $ 3,259 $ - $ 3,257 (a) $ 1,702
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 8,165 $ 2,970 $ - $ 2,847 (b) $ 8,288
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, nuclear compliance expenditures and expenses in connection therewith.
</TABLE>
<TABLE>
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1996
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance atCharged to other Balance
beginning costs and accounts- Deductions- at end
Description of period(expenses describe describe of period
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 1,582 $ 2,906 $ - $ 2,788 (a) $ 1,700
========= ========= ========= ========== ==========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 8,142 1,940 $ - $ 1,917 (b) $ 8,165
========= ========= ========= ========== ==========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period(a)expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 2,015 $ 2,454 $ - $ 2,887 (a)$ 1,582
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 5,113 $ 3,668 $ - $ 639 (b)$ 8,142
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1997
(Thousands of Dollars)
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 2,121 $ 1,086 $ - $ 3,157 (a) $ 50
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 17,375 $ 27,722 $ - $ 25,794 (b) $ 19,303
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, nuclear compliance expenditures and expenses in connection therewith.
</TABLE>
<TABLE>
WESTERN MASSACHUSETTS ELECTRIC COMPANY SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1996
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance atCharged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 2,230 $ 3,097 $ - $ 3,206 (a) $ 2,121
========= ========= ========= ========== ==========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 5,144 $ 13,022 $ - $ 791 (b) $ 17,375
========= ========= ========= ========== ==========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
<TABLE>
WESTERN MASSACHUSETTS ELECTRIC COMPANY SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1995
(Thousands of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
--------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
Description of period expenses describe describe of period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
Reserves for uncollectible accounts $ 2,032 $ 2,836 $ - $ 2,638 (a)$ 2,230
========= ========= ========= ========= =========
RESERVES NOT APPLIED AGAINST ASSETS:
Operating reserves $ 4,674 $ 1,340 $ - $ 870 (b)$ 5,144
========= ========= ========= ========= =========
(a) Amounts written off, net of recoveries.
(b) Principally payments for environmental remediation, various injuries and damages, employee
medical expenses, and expenses in connection therewith.
</TABLE>
EXHIBIT INDEX
Each document described below is incorporated by reference to the files of
the Securities and Exchange Commission, unless the reference to the document is
marked as follows:
* - Filed with the 1997 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1997 NU Form 10-K, File No. 1-5324 into
the 1997 Annual Reports on Form 10-K for CL&P, PSNH, WMECO and NAEC.
# - Filed with the 1997 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1997 NU Form 10-K, File No. 1-5324 into
the 1997 Annual Report on Form 10-K for CL&P.
@ - Filed with the 1997 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1997 NU Form 10-K, File No. 1-5324 into
the 1997 Annual Report on Form 10-K for PSNH.
** - Filed with the 1997 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1997 NU Form 10-K, File No. 1-5324 into
the 1997 Annual Report on Form 10-K for WMECO.
## - Filed with the 1997 Annual Report on Form 10-K for NU and herein
incorporated by reference from the 1997 Form 10-K, File No. 1-5324 into the
1997 Annual Report on Form 10-K for NAEC.
Exhibit
Number Description
3 Articles of Incorporation and By-Laws
3.1 Northeast Utilities
3.1.1 Declaration of Trust of NU, as amended through May 24, 1988.
(Exhibit 3.1.1, 1988 NU Form 10-K, File No. 1-5324)
3.2 The Connecticut Light and Power Company
3.2.1 Certificate of Incorporation of CL&P, restated to March 22,
1994. (Exhibit 3.2.1, 1993 NU Form 10-K, File No. 1-5324)
3.2.2 Certificate of Amendment to Certificate of Incorporation of
CL&P, dated December 26, 1996. (Exhibit 3.2.2, 1996 NU Form
10-K, File No. 1-5324)
3.2.3 By-laws of CL&P, as amended to January 1, 1997. (Exhibit
3.2.3, 1996 NU Form 10-K, File No. 1-5324)
3.3 Public Service Company of New Hampshire
3.3.1 Articles of Incorporation, as amended to May 16, 1991.
(Exhibit 3.3.1, 1993 NU Form 10-K, File No. 1-5324)
3.3.2 By-laws of PSNH, as amended to November 1, 1993. (Exhibit
3.3.2, 1993 NU Form 10-K, File No. 1-5324)
3.4 Western Massachusetts Electric Company
3.4.1 Articles of Organization of WMECO, restated to February 23,
1995. (Exhibit 3.4.1, 1994 NU Form 10-K, File No. 1-5324)
** 3.4.2 By-laws of WMECO, as amended to February 11, 1998.
3.5 North Atlantic Energy Corporation
3.5.1 Articles of Incorporation of NAEC dated September 20, 1991.
(Exhibit 3.5.1, 1993 NU Form 10-K, File No. 1-5324)
3.5.2 Articles of Amendment dated October 16, 1991 and June 2,
1992 to Articles of Incorporation of NAEC. (Exhibit 3.5.2,
1993 NU Form 10-K, File No. 1-5324)
3.5.3 By-laws of NAEC, as amended to November 8, 1993. (Exhibit
3.5.3, 1993 NU Form 10-K, File No. 1-5324)
4 Instruments defining the rights of security holders, including indentures
4.1 Northeast Utilities
4.1.1 Indenture dated as of December 1, 1991 between Northeast
Utilities and IBJ Schroder Bank & Trust Company, with
respect to the issuance of Debt Securities. (Exhibit 4.1.1,
1991 NU Form 10-K, File No. 1-5324)
4.1.2 First Supplemental Indenture dated as of December 1, 1991
between Northeast Utilities and IBJ Schroder Bank & Trust
Company, with respect to the issuance of Series A Notes.
(Exhibit 4.1.2, 1991 NU Form 10-K, File No. 1-5324)
4.1.3 Second Supplemental Indenture dated as of March 1, 1992
between Northeast Utilities and IBJ Schroder Bank & Trust
Company with respect to the issuance of 8.38% Amortizing
Notes. (Exhibit 4.1.3, 1992 NU Form 10-K, File No. 1-5324)
4.1.4 Credit Agreements among CL&P, NU, WMECO, NUSCO (as Agent)
and 3 Commercial Banks dated December 3, 1992 (Three-Year
Facility). (Exhibit C.2.38, 1992 NU Form U5S, File No. 30-
246)
4.1.5 Credit Agreements among CL&P, WMECO, NU, Holyoke Water Power
Company, RRR, NNECO and NUSCO (as Agent) and 1 commercial
bank dated December 3, 1992 (Three-Year Facility). (Exhibit
C.2.39, 1992 NU Form U5S, File No. 30-246)
4.1.6 Credit Agreement among NU, CL&P and WMECO and several
commercial banks, dated as of November 21, 1996. (Exhibit
No. B.1, File No. 70-8875)
4.1.7 First Amendment and Waiver dated as of May 30, 1997 to
Credit Agreement dated as of November 21, 1996 among NU,
CL&P, WMECO, and the Co-Agents and Banks named therein.
(Exhibit B.4(a) (Execution Copy), File No. 70-8875)
4.1.8 Credit Agreement dated as of February 10, 1998 among NU, the
Lenders named therein, and Toronto Dominion (Texas), Inc.,
as Administrative Agent, TD Securities (USA) Inc., as
Arranger. (Exhibit B.9 (Execution Copy), File No. 70-8875)
4.2 The Connecticut Light and Power Company
4.2.1 Indenture of Mortgage and Deed of Trust between CL&P and
Bankers Trust Company, Trustee, dated as of May 1, 1921.
(Composite including all twenty-four amendments to May 1,
1967.) (Exhibit 4.1.1, 1989 NU Form 10-K, File No. 1-5324)
Supplemental Indentures to the Composite May 1, 1921
Indenture of Mortgage and Deed of Trust between CL&P and
Bankers Trust Company, dated as of:
4.2.2 December 1, 1969. (Exhibit 4.20, File No. 2-60806)
4.2.3 June 30, 1982. (Exhibit 4.33, File No. 2-79235)
4.2.4 December 1, 1989. (Exhibit 4.1.26, 1989 NU Form 10-K, File
No. 1-5324)
4.2.5 July 1, 1992. (Exhibit 4.31, File No. 33-59430)
4.2.6 July 1, 1993. (Exhibit A.10(b), File No. 70-8249)
4.2.7 July 1, 1993. (Exhibit A.10(b), File No. 70-8249)
4.2.8 December 1, 1993. (Exhibit 4.2.14, 1993 NU Form 10-K, File
No. 1-5324)
4.2.9 February 1, 1994. (Exhibit 4.2.15, 1993 NU Form 10-K, File
No. 1-5324)
4.2.10 February 1, 1994. (Exhibit 4.2.16, 1993 NU Form 10-K, File
No. 1-5324)
4.2.11 June 1, 1994. (Exhibit 4.2.15, 1994 NU Form 10-K, File No.
1-5324)
4.2.12 October 1, 1994. (Exhibit 4.2.16, 1994 NU Form 10-K, File
No. 1-5324)
4.2.13 June 1, 1996. (Exhibit 4.2.16, 1996 NU Form 10-K, File No.
1-5324)
4.2.14 January 1, 1997. (Exhibit 4.2.17, 1996 NU Form 10-K, File
No. 1-5324)
4.2.15 May 1, 1997. (Exhibit 4.19, File No. 333-30911)
4.2.16 June 1, 1997. (Exhibit 4.20, File No. 333-30911)
# 4.2.17 June 1, 1997.
4.2.18 Financing Agreement between Industrial Development Authority
of the State of New Hampshire and CL&P (Pollution Control
Bonds, 1986 Series) dated as of December 1, 1986. (Exhibit
C.1.47, 1986 NU Form U5S, File No. 30-246)
4.2.18.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds, 1986 Series) dated as of
August 1, 1994. (Exhibit 1 (Execution Copy),
File No. 70-7320)
4.2.19 Financing Agreement between Industrial Development Authority
of the State of New Hampshire and CL&P (Pollution Control
Bonds, 1988 Series) dated as of October 1, 1988. (Exhibit
C.1.55, 1988 NU Form U5S, File No. 30-246)
4.2.19.1 Letter of Credit (Pollution Control Bonds,
1988 Series) dated October 27, 1988. (Exhibit
4.2.17.1, 1995 NU Form 10-K, File No. 1-5324)
4.2.19.2 Reimbursement and Security Agreement
(Pollution Control Bonds, 1988 Series) dated as
of October 1, 1988. (Exhibit 4.2.17.2, 1995 NU
form 10-K, File No. 1-5324)
4.2.20 Financing Agreement between Industrial Development Authority
of the State of New Hampshire and CL&P (Pollution Control
Bonds) dated as of December 1, 1989. (Exhibit C.1.39, 1989
NU Form U5S, File No. 30-246)
4.2.21 Loan and Trust Agreement among Business Finance Authority
of the State of New Hampshire, CL&P and the Trustee
(Pollution Control Bonds, 1992 Series A) dated as of
December 1, 1992.(Exhibit C.2.33, 1992 NU Form U5S, File No.
30-246)
4.2.21.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds, 1992 Series A) dated as
of December 1, 1992. (Exhibit 4.2.19.1, 1995 NU
Form 10-K, File No. 1-5324)
4.2.22 Loan Agreement between Connecticut Development Authority and
CL&P (Pollution Control Bonds - Series A, Tax Exempt
Refunding) dated as of September 1, 1993. (Exhibit 4.2.21,
1993 NU Form 10-K, File No. 1-5324)
4.2.22.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds - Series A, Tax Exempt
Refunding) dated as of September 1, 1993.
(Exhibit 4.2.23, 1993 NU Form 10-K, File No. 1-
5324)
4.2.23 Loan Agreement between Connecticut Development Authority and
CL&P (Pollution Control Bonds - Series B, Tax Exempt
Refunding) dated as of September 1, 1993. (Exhibit 4.2.22,
1993 NU Form 10-K, File No. 1-5324)
4.2.23.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds - Series B, Tax Exempt
Refunding) dated as of September 1, 1993.
(Exhibit 4.2.24, 1993 NU Form 10-K, File No. 1-
5324)
4.2.24 Amended and Restated Loan Agreement between Connecticut
Development Authority and CL&P (Pollution Control Revenue
Bond - 1996A Series) dated as of May 1, 1996 and Amended and
Restated as of January 1, 1997. (Exhibit 4.2.24, 1996 NU
Form 10-K, File No. 1-5324)
4.2.24.1 Amended and Restated Indenture of Trust
between Connecticut Development Authority and the
Trustee (CL&P Pollution Control Revenue Bond-1996A
Series), dated as of May 1, 1996 and Amended and
Restated as of January 1, 1997. (Exhibit
4.2.24.1, 1996 NU Form 10-K, File No. 1-5324)
4.2.24.2 Standby Bond Purchase Agreement among CL&P,
Societe Generale, New York Branch and the Trustee,
dated January 23, 1997. (Exhibit 4.2.24.2, 1996 NU
Form 10-K, File No. 1-5324)
# 4.2.24.3 Amendment No. 1, dated January 21, 1998,
to the Standby Bond Purchase Agreement,
dated January 23, 1997.
4.2.24.4 AMBAC Municipal Bond Insurance Policy issued
by the Connecticut Development Authority (CL&P
Pollution Control Revenue Bond-1996A Series),
effective January 23, 1997. (Exhibit 4.2.24.3,
1996 NU Form 10-K, File No. 1-5324)
4.2.25 Amended and Restated Limited Partnership Agreement (CL&P
Capital, L.P.) among CL&P, NUSCO, and the persons who became
limited partners of CL&P Capital, L.P. in accordance with
the provisions thereof dated as of January 23, 1995 (MIPS).
(Exhibit A.1 (Execution Copy), File No. 70-8451)
4.2.26 Indenture between CL&P and Bankers Trust Company, Trustee
(Series A Subordinated Debentures), dated as of January 1,
1995 (MIPS). (Exhibit B.1 (Execution Copy), File No. 70-
8451)
4.2.27 Payment and Guaranty Agreement of CL&P dated as of January
23, 1995 (MIPS). (Exhibit B.3 (Execution Copy), File No.
70-8451)
4.3 Public Service Company of New Hampshire
4.3.1 First Mortgage Indenture dated as of August 15, 1978
between PSNH and First Fidelity Bank, National Association,
New Jersey, Trustee, (Composite including all amendments to
May 16, 1991). (Exhibit 4.4.1, 1992 NU Form 10-K, File No.
1-5324)
4.3.1.1 Tenth Supplemental Indenture dated as of May 1,
1991 between PSNH and First Fidelity Bank,
National Association. (Exhibit 4.1, PSNH Current
Report on Form 8-K dated February 10, 1992, File
No. 1-6392)
4.3.2 Revolving Credit Agreement, dated as of May 1, 1991
(includes a collateral mortgage). (Exhibit 4.12, PSNH
Current Report on Form 8-K, File No. 1-6392)
4.3.2.1 Amended and Restated Revolving Credit
Agreement, dated as of April 1, 1996
(includes amendment to collateral
mortgage). (Exhibit 4.3.2, 1996 NU Form 10-K,
File No. 1-5324)
4.3.3 Series A (Tax Exempt New Issue) PCRB Loan and Trust
Agreement dated as of May 1, 1991. (Exhibit 4.2, PSNH
Current Report on Form 8-K dated February 10, 1992, File No.
1-6392)
4.3.4 Series B (Tax Exempt Refunding) PCRB Loan and Trust
Agreement dated as of May 1, 1991. (Exhibit 4.3, PSNH
Current Report on Form 8-K dated February 10, 1992, File No.
1-6392)
4.3.5 Series C (Tax Exempt Refunding) PCRB Loan and Trust
Agreement dated as of May 1, 1991. (Exhibit 4.4, PSNH
Current Report on Form 8-K dated February 10, 1992, File No.
1-6392)
4.3.6 Series D (Taxable New Issue) PCRB Loan and Trust Agreement
dated as of May 1, 1991. (Exhibit 4.5, PSNH Current Report
on Form 8-K dated February 10, 1992, File No. 1-6392)
4.3.6.1 First Supplement to Series D (Tax Exempt Refunding
Issue) PCRB Loan and Trust Agreement dated as of
December 1, 1992. (Exhibit 4.4.5.1, 1992 NU Form
10-K, File No. 1-5324)
4.3.6.2 Second Series D (May 1, 1991 Taxable New Issue and
December 1, 1992 Tax Exempt Refunding Issue) PCRB
Letter of Credit and Reimbursement Agreement dated
as of May 1, 1995 (Exhibit B.4, Execution Copy,
File No. 70-8036)
4.3.7 Series E (Taxable New Issue) PCRB Loan and Trust Agreement
dated as of May 1, 1991. (Exhibit 4.6, PSNH Current Report
on Form 8-K dated February 10, 1992, File No. 1-6392)
4.3.7.1 First Supplement to Series E (Tax Exempt Refunding
Issue) PCRB Loan and Trust Agreement dated as of
December 1, 1993. (Exhibit 4.3.8.1, 1993 NU Form
10-K, File No. 1-5324)
4.3.7.2 Second Series E (May 1, 1991 Taxable New Issue and
December 1, 1993 Tax Exempt Refunding Issue) PCRB
Letter of Credit and Reimbursement Agreement dated
as of May 1, 1995. (Exhibit B.5, (Execution Copy),
File No. 70-8036)
4.4 Western Massachusetts Electric Company
4.4.1 First Mortgage Indenture and Deed of Trust between WMECO and
Old Colony Trust Company, Trustee, dated as of August 1,
1954. (Exhibit 4.4.1, 1993 NU Form 10-K, File No. 1-5324)
Supplemental Indentures thereto dated as of:
4.4.2 October 1, 1954.(Exhibit 4.2, File No. 33-51185)
** 4.4.3 March 1, 1967.
4.4.4 July 1, 1973. (Exhibit 2.10. File No. 2-68808)
4.4.5 December 1, 1992. (Exhibit 4.15, File No. 33-55772)
4.4.6 January 1, 1993. (Exhibit 4.5.13, 1992 NU Form 10-K, File
No. 1-5324)
4.4.7 March 1, 1994. (Exhibit 4.4.11, 1993 NU Form 10-K, File No.
1-5324)
4.4.8 March 1, 1994. (Exhibit 4.4.12, 1993 NU Form 10-K, File No.
1-5324)
4.4.9 May 1, 1997. (Exhibit 4.11, File No. 33-51185)
** 4.4.10 July 1, 1997.
4.4.11 Loan Agreement between Connecticut Development Authority and
WMECO, (Pollution Control Bonds - Series A, Tax Exempt
Refunding) dated as of September 1, 1993. (Exhibit 4.4.13,
1993 NU Form 10-K, File No. 1-5324)
4.4.11.1 Letter of Credit and Reimbursement Agreement
(Pollution Control Bonds - Series A, Tax Exempt
Refunding) dated as of September 1, 1993.
(Exhibit 4.4.14, 1993 NU Form 10-K, File No. 1-
5324)
4.5 North Atlantic Energy Corporation
4.5.1 First Mortgage Indenture and Deed of Trust between NAEC and
United States Trust Company of New York, Trustee, dated as
of June 1, 1992. (Exhibit 4.6.1, 1992 NU Form 10-K, File
No. 1-5324)
4.5.2 Term Credit Agreement dated as of November 9, 1995.
(Exhibit 4.5.2, 1995 NU Form 10-K, File No. 1-5324)
10 Material Contracts
10.1 Stockholder Agreement dated as of July 1, 1964 among the stockholders
of Connecticut Yankee Atomic Power Company (CYAPC). (Exhibit 10.1,
1994 NU Form 10-K, File No. 1-5324)
10.2 Form of Power Contract dated as of July 1, 1964 between CYAPC and each
of CL&P, HELCO, PSNH and WMECO. (Exhibit 10.2, 1994 NU Form 10-K,
File No. 1-5324)
10.2.1 Form of Additional Power Contract dated as of April 30,
1984, between CYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.2.1, 1994 NU Form 10-K, File No. 1-5324)
10.2.2 Form of 1987 Supplementary Power Contract dated as of April
1, 1987, between CYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.2.6, 1987 NU Form 10-K, File No. 1-5324)
10.3 Capital Funds Agreement dated as of September 1, 1964 between CYAPC
and CL&P, HELCO, PSNH and WMECO. (Exhibit 10.3, 1994 NU Form 10-K,
File No. 1-5324)
10.4 Stockholder Agreement dated December 10, 1958 between Yankee Atomic
Electric Company (YAEC) and CL&P, HELCO, PSNH and WMECO. (Exhibit
10.4, 1993 NU Form 10-K, File No. 1-5324)
10.5 Form of Amendment No. 3, dated as of April 1, 1985, to Power Contract
between YAEC and each of CL&P, PSNH and WMECO, including a composite
restatement of original Power Contract dated June 30, 1959 and
Amendment No. 1 dated April 1, 1975 and Amendment No. 2 dated October
1, 1980. (Exhibit 10.5, 1988 NU Form 10-K, File No. 1-5324.)
10.5.1 Form of Amendment No. 4 to Power Contract, dated May 6,
1988, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.1, 1989 NU Form 10-K, File No. 1-5324)
10.5.2 Form of Amendment No. 5 to Power Contract, dated June 26,
1989, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.2, 1989 NU Form 10-K, File No. 1-5324)
10.5.3 Form of Amendment No. 6 to Power Contract, dated July
1,1989, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.3, 1989 NU Form 10-K, File No. 1-5324)
10.5.4 Form of Amendment No. 7 to Power Contract, dated February
1, 1992, between YAEC and each of CL&P, PSNH and WMECO.
(Exhibit 10.5.4, 1993 NU Form 10-K, File No. 1-5324)
#@**10.6 Stockholder Agreement dated as of May 20, 1968 among stockholders of
MYAPC.
#@**10.7 Form of Power Contract dated as of May 20, 1968 between MYAPC and
each of CL&P, HELCO, PSNH and WMECO.
10.7.1 Form of Amendment No. 1 to Power Contract dated as of March
1, 1983 between MYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.7.1, 1993 NU Form 10-K, File No. 1-5324)
10.7.2 Form of Amendment No. 2 to Power Contract dated as of
January 1, 1984 between MYAPC and each of CL&P, PSNH and
WMECO. (Exhibit 10.7.2, 1993 NU Form 10-K, File No. 1-5324)
10.7.3 Form of Amendment No. 3 to Power Contract dated as of
October 1, 1984 between MYAPC and each of CL&P, PSNH and
WMECO. (Exhibit No. 10.7.3, 1994 NU Form 10-K, File No. 1-
5324)
10.7.4 Form of Additional Power Contract dated as of February 1,
1984 between MYAPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.7.4, 1993 NU Form 10-K, File No. 1-5324)
#@**10.8 Capital Funds Agreement dated as of May 20, 1968 between MYAPC
and CL&P, PSNH, HELCO and WMECO.
10.8.1 Amendment No. 1 to Capital Funds Agreement, dated as of
August 1, 1985, between MYAPC, CL&P, PSNH and WMECO.
(Exhibit No. 10.8.1, 1994 NU Form 10-K, File No. 1-5324)
#@**10.9 Sponsor Agreement dated as of August 1, 1968 among the
sponsors of Vermont Yankee Nuclear Power Corporation
(VYNPC).
#@**10.10 Form of Power Contract dated as of February 1, 1968 between VYNPC
and each of CL&P, HELCO, PSNH and WMECO.
10.10.1 Form of Amendment to Power Contract dated as of June 1, 1972
between VYNPC and each of CL&P, HELCO, PSNH and WMECO.
(Exhibit 5.22, File No. 2-47038)
10.10.2 Form of Second Amendment to Power Contract dated as of April
15, 1983 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.2, 1993 NU Form 10-K, File No. 1-5324)
10.10.3 Form of Third Amendment to Power Contract dated as of April
24, 1985 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit No. 10.10.3, 1994 NU Form 10-K, File No. 1-5324)
10.10.4 Form of Fourth Amendment to Power Contract dated as of June
1, 1985 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit No. 10.10.4, 1996 NU Form 10-K, File No. 1-5324)
10.10.5 Form of Fifth Amendment to Power Contract dated as of May 6,
1988 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.5, 1990 NU Form 10-K, File No. 1-5324)
10.10.6 Form of Sixth Amendment to Power Contract dated as of May
6, 1988 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.6, 1990 NU Form 10-K, File No. 1-5324)
10.10.7 Form of Seventh Amendment to Power Contract dated as of June
15, 1989 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.7, 1990 NU Form 10-K, File No. 1-5324)
10.10.8 Form of Eighth Amendment to Power Contract dated as of
December 1, 1989 between VYNPC and each of CL&P, PSNH and
WMECO. (Exhibit 10.10.8, 1990 NU Form 10-K, File No. 1-
5324)
10.10.9 Form of Additional Power Contract dated as of February 1,
1984 between VYNPC and each of CL&P, PSNH and WMECO.
(Exhibit 10.10.9, 1993 NU Form 10-K, File No. 1-5324)
#@**10.11 Capital Funds Agreement dated as of February 1, 1968 between VYNPC
and CL&P, HELCO, PSNH and WMECO.
#@** 10.11.1 Form of First Amendment to Capital Funds Agreement dated as
of March 12, 1968 between VYNPC and CL&P, HELCO, PSNH and
WMECO.
10.11.2 Form of Second Amendment to Capital Funds Agreement dated
as of September 1, 1993 between VYNPC and CL&P, HELCO, PSNH
and WMECO. (Exhibit 10.11.2, 1993 NU Form 10-K, File No. 1-
5324)
10.12 Amended and Restated Millstone Plant Agreement dated as of December
1, 1984 by and among CL&P, WMECO and Northeast Nuclear Energy Company
(NNECO). (Exhibit 10.12, 1994 NU Form 10-K, File No. 1-5324)
10.13 Sharing Agreement dated as of September 1, 1973 with respect to 1979
Connecticut nuclear generating unit (Millstone 3). (Exhibit 6.43, File
No. 2-50142)
10.13.1 Amendment dated August 1, 1974 to Sharing Agreement - 1979
Connecticut Nuclear Unit. (Exhibit 5.45, File No. 2-52392)
10.13.2 Amendment dated December 15, 1975 to Sharing Agreement -
1979 Connecticut Nuclear Unit. (Exhibit 7.47, File No. 2-
60806)
10.13.3 Amendment dated April 1, 1986 to Sharing Agreement - 1979
Connecticut Nuclear Unit. (Exhibit 10.17.3, 1990 NU Form
10-K, File No. 1-5324)
10.14 Agreement dated July 19, 1990, among NAESCO and Seabrook Joint
owners with respect to operation of Seabrook. (Exhibit 10.53, 1990
NU Form 10-K, File No. 1-5324)
10.15 Sharing Agreement between CL&P, WMECO, HP&E, HWP and PSNH dated as
of June 1, 1992. (Exhibit 10.17, 1992 NU Form 10-K, File No. 1-
5324)
10.16 Rate Agreement by and between NUSCO, on behalf of NU, and the
Governor of the State of New Hampshire and the New Hampshire
Attorney General dated as of November 22, 1989. (Exhibit 10.44,
1989 NU Form 10-K, File No. 1-5324)
10.16.1 First Amendment to Rate Agreement dated as of December
5, 1989. (Exhibit 10.16.1, 1995 NU Form 10-K, File No. 1-
5324)
10.16.2 Second Amendment to Rate Agreement dated as of December
12, 1989. (Exhibit 10.16.2, 1995 NU Form 10-K, File No. 1-
5324)
10.16.3 Third Amendment to Rate Agreement dated as of December
3, 1993. (Exhibit 10.16.3, 1995 NU Form 10-K, File No. 1-
5324)
10.16.4 Fourth Amendment to Rate Agreement dated as of
September 21, 1994. (Exhibit 10.16.4, 1995 NU Form 10-K,
File No. 1-5324)
10.16.5 Fifth Amendment to Rate Agreement dated as of September
9, 1994. (Exhibit 10.16.5, 1995 NU Form 10-K, File No. 1-
5324)
10.17 Form of Seabrook Power Contract between PSNH and NAEC, as amended and
restated. (Exhibit 10.45, 1992 NU Form 10-K, File No. 1-5324)
10.18 Agreement (composite) for joint ownership, construction and operation
of New Hampshire nuclear unit, as amended through the November 1,
1990 twenty-third amendment. (Exhibit No. 10.17, 1994 NU Form 10-K,
File No. 1-5324)
10.18.1 Memorandum of Understanding dated November 7, 1988 between
PSNH and Massachusetts Municipal Wholesale Electric Company
(Exhibit 10.17, PSNH 1989 Form 10-K, File No. 1-6392)
10.18.2 Agreement of Settlement among Joint Owners dated as of
January 13, 1989. (Exhibit 10.13.21, 1988 NU Form 10-K,
File No. 1-5324)
10.18.2.1 Supplement to Settlement Agreement, dated as
of February 7, 1989, between PSNH and Central
Maine Power Company. (Exhibit 10.18.1, PSNH 1989
Form 10-K, File No. 1-6392)
10.19 Amended and Restated Agreement for Seabrook Project Disbursing Agent
dated as of November 1, 1990. (Exhibit 10.4.7, File No. 33-35312)
10.19.1 Form of First Amendment to Exhibit 10.19. (Exhibit 10.4.8,
File No. 33-35312)
10.19.2 Form (Composite) of Second Amendment to Exhibit 10.19.
(Exhibit 10.18.2, 1993 NU Form 10-K, File No. 1-5324)
10.20 Agreement dated November 1, 1974 for Joint Ownership, Construction and
Operation of William F. Wyman Unit No. 4 among PSNH, Central Maine
Power Company and other utilities. (Exhibit 5.16 , File No. 2-52900)
10.20.1 Amendment to Exhibit 10.20 dated June 30, 1975. (Exhibit
5.48, File No. 2-55458)
10.20.2 Amendment to Exhibit 10.20 dated as of August 16, 1976.
(Exhibit 5.19, File No. 2-58251)
10.20.3 Amendment to Exhibit 10.20 dated as of December 31, 1978.
(Exhibit 5.10.3, File No. 2-64294)
10.21 Form of Service Contract dated as of July 1, 1966 between each of NU,
CL&P and WMECO and the Service Company. (Exhibit 10.20, 1993 NU Form
10-K, File No. 1-5324)
10.21.1 Service Contract dated as of June 5, 1992 between PSNH and
the Service Company. (Exhibit 10.12.4, 1992 NU Form 10-K,
File No. 1-5324)
10.21.2 Service Contract dated as of June 5, 1992 between NAEC and
the Service Company. (Exhibit 10.12.5, 1992 NU Form 10-K,
File No. 1-5324)
10.21.3 Form of Service Agreement dated as of June 29, 1992 between
PSNH and North Atlantic Energy Service Corporation, and the
First Amendment thereto. (Exhibits B.7 and B.7.1, File No.
70-7787)
10.21.4 Form of Annual Renewal of Service Contract. (Exhibit
10.20.3, 1993 NU Form 10-K, File No. 1-5324)
10.22 Memorandum of Understanding between CL&P, HELCO, HP&E, HWP and WMECO
dated as of June 1, 1970 with respect to pooling of generation and
transmission. (Exhibit 13.32, File No. 2-38177)
10.22.1 Amendment to Memorandum of Understanding between CL&P,
HELCO, HP&E, HWP and WMECO dated as of February 2, 1982
with respect to pooling of generation and transmission.
(Exhibit 10.21.1, 1993 NU Form 10-K, File No. 1-5324)
10.22.2 Amendment to Memorandum of Understanding between CL&P,
HELCO, HP&E, HWP and WMECO dated as of January 1, 1984 with
respect to pooling of generation and transmission.
(Exhibit 10.21.2, 1994 NU Form 10-K, File No. 1-5324)
10.23 New England Power Pool Agreement effective as of November 1, 1971, as
amended to December 1, 1996. (Exhibit 10.15, 1988 NU Form 10-K, File
No. 1-5324.)
10.23.1 Twenty-sixth Amendment to Exhibit 10.23 dated as of March
15, 1989. (Exhibit 10.15.1, 1990 NU Form 10-K, File No. 1-
5324)
10.23.2 Twenty-seventh Amendment to Exhibit 10.23 dated as of
October 1, 1990. (Exhibit 10.15.2, 1991 NU Form 10-K, File
No. 1-5324)
10.23.3 Twenty-eighth Amendment to Exhibit 10.23 dated as of
September 15, 1992. (Exhibit 10.18.3, 1992 NU Form 10-K,
File No. 1-5324)
10.23.4 Twenty-ninth Amendment to Exhibit 10.23 dated as of May 1,
1993. (Exhibit 10.22.4, 1993 NU Form 10-K, File No.
1-5324)
10.23.5 Thirty-second Amendment (Amendments 30 and 31 were
withdrawn) to Exhibit 10.23 dated as of September 1, 1995.
(Exhibit 10.23.5, 1995 NU Form 10-K, File No. 1-5324)
10.23.6 Thirty-third Amendment to Exhibit 10.23 dated as of
December 31, 1996 and Form of Interim Independent System
Operator (ISO) Agreement. (Exhibit 10.23.6, 1996 NU Form
10-K, File No. 1-5324)
10.24 Agreements among New England Utilities with respect to the Hydro-
Quebec interconnection projects. (See Exhibits 10(u) and 10(v);
10(w), 10(x), and 10(y), 1990 and 1988, respectively, Form 10-K of New
England Electric System, File No. 1-3446.)
10.25 Trust Agreement dated February 11, 1992, between State Street Bank and
Trust Company of Connecticut, as Trustor, and Bankers Trust Company,
as Trustee, and CL&P and WMECO, with respect to NBFT. (Exhibit 10.23,
1991 NU Form 10-K, File No. 1-5324)
10.25.1 Nuclear Fuel Lease Agreement dated as of February 11, 1992,
between Bankers Trust Company, Trustee, as Lessor, and CL&P
and WMECO, as Lessees. (Exhibit 10.23.1, 1991 NU Form
10-K, File No. 1-5324)
10.26 Simulator Financing Lease Agreement, dated as of February 1, 1985, by
and between ComPlan and NNECO. (Exhibit 10.25, 1994 NU Form 10-K,
File No. 1-5324)
10.27 Simulator Financing Lease Agreement, dated as of May 2, 1985, by and
between The Prudential Insurance Company of America and NNECO.
(Exhibit No. 10.26, 1994 NU Form 10-K, File No. 1-5324)
10.28 Lease dated as of April 14, 1992 between The Rocky River Realty
Company (RRR) and Northeast Utilities Service Company (NUSCO) with
respect to the Berlin, Connecticut headquarters (office lease).
(Exhibit 10.29, 1992 NU Form 10-K, File No. 1-5324)
10.28.1 Lease dated as of April 14, 1992 between RRR and NUSCO with
respect to the Berlin, Connecticut headquarters (project
lease). (Exhibit 10.29.1, 1992 NU Form 10-K, File No. 1-
5324)
10.29 Millstone Technical Building Note Agreement dated as of December 21,
1993 between, by and between The Prudential Insurance Company of
America and NNECO. (Exhibit 10.28, 1993 NU Form 10-K, File No. 1-
5324)
10.30 Lease and Agreement, dated as of December 15, 1988, by and between
WMECO and Bank of New England, N.A., with BNE Realty Leasing
Corporation of North Carolina. (Exhibit 10.63, 1988 NU Form 10-K,
File No. 1-5324.)
10.31 Note Agreement dated April 14, 1992, by and between The Rocky River
Realty Company (RRR) and Purchasers named therein (Connecticut General
Life Insurance Company, Life Insurance Company of North America, INA
Life Insurance Company of New York, Life Insurance Company of
Georgia), with respect to RRR's sale of $15 million of guaranteed
senior secured notes due 2007 and $28 million of guaranteed senior
secured notes due 2017. (Exhibit 10.52, 1992 NU Form 10-K, File No.
1-5324)
* 10.31.1 Amendment to Note Agreement, dated September 26, 1997.
10.31.2 Note Guaranty dated April 14, 1992 by Northeast Utilities
pursuant to Note Agreement dated April 14, 1992 between
RRR and Note Purchasers, for the benefit of The Connecticut
National Bank as Trustee, the Purchasers and the owners of
the notes. (Exhibit 10.52.1, 1992 NU Form 10-K, File No.
1-5324)
* 10.31.2.1 Extension of Note Guaranty, dated September 26,
1997.
10.31.3 Assignment of Leases, Rents and Profits, Security Agreement
and Negative Pledge, dated as of April 14, 1992 among RRR,
NUSCO and The Connecticut National Bank as Trustee,
securing notes sold by RRR pursuant to April 14, 1992 Note
Agreement. (Exhibit 10.52.2, 1992 NU Form 10-K, File No.
1-5324)
* 10.31.3.1 Modification of and Confirmation of
Assignment of Leases, Rents and Profits,
Security Agreement and Negative Pledge,
dated as of September 26, 1997.
* 10.31.4 Purchase and Sale Agreement, dated July 28, 1997 by and
between RRR and the Sellers and Purchasers named therein.
* 10.31.5 Purchase and Sale Agreement, dated September 26, 1997 by
and between RRR and the Purchaser named therein.
10.32 Master Trust Agreement dated as of September 2, 1986 between CL&P and
WMECO and Colonial Bank as Trustee, with respect to reserve funds for
Millstone 1 decommissioning costs. (Exhibit No. 10.32, 1996 NU Form
10-K, File No. 1-5324)
10.32.1 Notice of Appointment of Mellon Bank, N.A. as Successor
Trustee, dated November 20, 1990, and Acceptance of
Appointment. (Exhibit 10.41.1, 1992 NU Form 10-K, File No.
1-5324)
10.33 Master Trust Agreement dated as of September 2, 1986 between CL&P and
WMECO and Colonial Bank as Trustee, with respect to reserve funds for
Millstone 2 decommissioning costs. (Exhibit No. 10.33, 1996 NU Form
10-K, File No. 1-5324)
10.33.1 Notice of Appointment of Mellon Bank, N.A. as Successor
Trustee, dated November 20, 1990, and Acceptance of
Appointment. (Exhibit 10.42.1, 1992 NU Form 10-K, File No.
1-5324)
10.34 Master Trust Agreement dated as of April 23, 1986 between CL&P and
WMECO and Colonial Bank as Trustee, with respect to reserve funds for
Millstone 3 decommissioning costs. (Exhibit No. 10.34, 1996 NU Form
10-K, File No. 1-5324)
10.34.1 Notice of Appointment of Mellon Bank, N.A. as Successor
Trustee, dated November 20, 1990, and Acceptance of
Appointment. (Exhibit 10.43.1, 1992 NU Form 10-K, File No.
1-5324)
10.35 NU Executive Incentive Plan, effective as of January 1, 1991.
(Exhibit 10.44, NU 1991 Form 10-K, File No. 1-5324)
10.36 Supplemental Executive Retirement Plan for Officers of NU System
Companies, Amended and Restated effective as of January 1, 1992.
(Exhibit 10.45.1, NU Form 10-Q for the Quarter Ended June 30, 1992,
File No. 1-5324)
10.36.1 Amendment 1 to Exhibit 10.36, effective as of August 1,
1993. (Exhibit 10.35.1, 1993 NU Form 10-K, File No.
1-5324)
10.36.2 Amendment 2 to Exhibit 10.36, effective as of January 1,
1994. (Exhibit 10.35.2, 1993 NU Form 10-K, File No.
1-5324)
10.36.3 Amendment 3 to Exhibit 10.36, effective as of January 1,
1996. (Exhibit 10.36.3, 1995 NU Form 10-K, File No.
1-5324)
10.37 Special Severance Program for Officers of NU System Companies, as
adopted on June 9, 1997. (Exhibit No. 10.33, File No. 333-30911)
10.38 Loan Agreement dated as of December 2, 1991, by and between NU and
Mellon Bank, N.A., as Trustee, with respect to NU's loan of $175
million to an ESOP Trust. (Exhibit 10.46, 1991 NU Form 10-K, File No.
1-5324)
10.38.1 First Amendment to Exhibit 10.37 dated February 7, 1992.
(Exhibit 10.36.1, 1993 NU Form 10-K, File No. 1-5324)
10.38.2 Loan Agreement dated as of March 19, 1992 by and between NU
and Mellon Bank, N.A., as Trustee, with respect to NU's
loan of $75 million to the ESOP Trust. (Exhibit 10.49.1,
1992 NU Form 10-K, File No. 1-5324)
10.38.3 Second Amendment to Exhibit 10.37 dated April 9, 1992.
(Exhibit 10.36.3, 1993 NU Form 10-K, File No. 1-5324)
* 10.39 Employment Agreement with Michael G. Morris.
10.40 Transition and Retirement Agreement with Bernard M. Fox. (Exhibit
10.39, 1996 NU Form 10-K, File No. 1-5324)
10.41 Employment Agreement with Bruce M. Kenyon. (Exhibit 10.40, 1996 NU
Form 10-K, File No. 1-5324)
10.42 Employment Agreement with John H. Forsgren. (Exhibit 10.41, 1996 NU
Form 10-K, File No. 1-5324)
10.43 Employment Agreement with Hugh C. MacKenzie. (Exhibit 10.42, 1996 NU
Form 10-K, File No. 1-5324)
* 10.44 Employment Agreement with Robert P. Wax.
10.45 Northeast Utilities Deferred Compensation Plan for Trustees, Amended
and Restated December 13, 1994. (Exhibit 10.39, 1995 NU Form 10-K,
File No. 1-5324)
10.46 Deferred Compensation Plan for Officers of Northeast Utilities System
Companies adopted September 23, 1986. (Exhibit 10.40, 1995 NU Form
10-K, File No. 1-5324)
10.47 Northeast Utilities Deferred Compensation Plan for Executives, adopted
January 13, 1998. (Exhibit A.5, File No. 70-09185)
10.48 Reciprocal Support Agreement Among NNECO, NAESCO, CYAPC, YAEC and
NUSCO dated January 1, 1996. (Exhibit 10.41, 1995 NU Form 10K, File
No. 1-5324)
# 10.49 Receivables Purchase and Sale Agreement (CL&P and CL&P Receivables
Corporation), dated as of September 30, 1997.
# 10.49.1 Purchase and Contribution Agreement (CL&P and CL&P
Receivables Corporation), dated as of September 30, 1997.
** 10.50 Receivables Purchase Agreement (WMECO and WMECO Receivables
Corporation), dated as of May 22, 1997.
** 10.50.1 Purchase and Sale Agreement (WMECO and WMECO
Receivables Corporation), dated as of May 22, 1997.
10.51 Master Lease Agreement between General Electric Capital Corporation
and CL&P, dated as of June 21, 1996. (Exhibit 10.50, 1996 NU Form
10-K, File No. 1-5324)
# 10.51.1 Amendment No. 1 to Master Lease Agreement, dated as of
August 29, 1997.
13 Annual Report to Security Holders (Each of the Annual Reports is filed
only with the Form 10-K of that respective registrant.)
* 13.1 Portions of the Annual Report to Shareholders of NU (pages 12-53)
that have been incorporated by reference into this Form 10-K.
13.2 Annual Report of CL&P.
13.3 Annual Report of WMECO.
13.4 Annual Report of PSNH.
13.5 Annual Report of NAEC.
*21 Subsidiaries of the Registrant.
27 Financial Data Schedules (Each Financial Data Schedule is filed only with
the Form 10-K of that respective registrant.)
27.1 Financial Data Schedule of NU.
27.2 Financial Data Schedule of CL&P.
27.3 Financial Data Schedule of WMECO.
27.4 Financial Data Schedule of PSNH.
27.5 Financial Data Schedule of NAEC.
Exhibit 3.4.2
BY-LAWS
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Adopted:
February 11, 1937
Amended:
February 18, 1942
January 13, 1943
October 19, 1945
January 15, 1947
August 18, 1948
November 17, 1954
February 26, 1960
September 9, 1960
February 27, 1962
July 8, 1964
May 19, 1966
December 5, 1967
June 3, 1970
August 2, 1971
October 13, 1971
October 20, 1975
December 16, 1981
March 1, 1982
April 12, 1983
December 15, 1983
(effective November 13, 1986)
February 11, 1987
February 24, 1988
April 11, 1994
(effective February 13, 1995)
February 11, 1998
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BY-LAWS
ARTICLE I
STOCKHOLDERS' MEETINGS
The Annual Meeting of Stockholders for the election of directors and for
the transaction of such other business as may properly be brought before the
meeting shall be held in such place and on such day and hour in the months of
January, February, March, April, May or June in each year as shall be fixed
by the Board of Directors, or failing action by the Board, by the President,
and designated in the call or on any subsequent time or day to which such
meeting may be adjourned. In the event that no date for the annual meeting
is established or said meeting has not been held on the date so fixed or
determined, a special meeting in lieu of the annual meeting may be held with
all of the force and effect of an annual meeting.
Special meetings of the Stockholders may be called by the President or
by the Directors, and shall be called by the Clerk, or in case of the death,
absence, incapacity or refusal of the Clerk, by any other officer, upon
written application of any stockholder or stockholders who are entitled to
vote and who hold at least ten percent of the capital stock, stating the
time, place and purpose of the meeting.
Notice of the time and place of any annual or special meeting of
stockholders shall be given by the Clerk or an Assistant Clerk at least seven
days before the meeting to each stockholder entitled to vote thereat, by
leaving such notice with him or at this residence or usual place of business,
or by mailing it, postage prepaid, and addressed to such stockholder at his
address as it appears in the records of the corporation.
A majority in interest of all the shares of stock of the corporation
outstanding present in person or by proxy shall constitute a quorum for the
transaction of business but less than a quorum may adjourn either sine die or
to a date certain.
Any action required or permitted to be taken at any meeting of the
stockholders may be taken without a meeting if all stockholders entitled to
vote on the matter consent to the action in writing and the written consents
are filed with the records of the meetings of stockholders. Such consents
shall be treated for all purposes as a vote at a meeting.
ARTICLE II
OFFICERS
The officers of the corporation shall be a Chairman of the Board of
Directors, a President, an Executive Vice-president, one or more Vice-
presidents, a Treasurer, a Clerk, and such other officers as the Board of
Directors may appoint, including, if the Directors see fit, a Secretary and
one or more Assistant Treasurers. The officers need not be stockholders. No
two of the following offices may be held by the same person: Chairman of the
Board of Directors, President, Executive Vice-president, and Vice-president,
and the Treasurer shall not be an Assistant Treasurer.
The business, property and affairs of the Company shall be managed by a
Board of not less than three nor more than sixteen Directors. Within these
limits, the number of positions on the Board of Directors for any year shall
be the number fixed by resolution of the shareholders or of the Board of
Directors, or, in the absence of such a resolution, shall be the number of
Directors elected at the preceding Annual Meeting of Shareholders. The
Directors so elected shall continue in office until their successors have
been elected and qualified.
ARTICLE III
ELECTION OF OFFICERS
The Directors, the clerk, and the Treasurer shall be elected by ballot
each year at the annual meeting of the stockholders. The Chairman of the
Board, the President, the Executive Vice-president, and each Vice- president
shall be elected annually by, and the Chairman of the Board and the President
shall be elected from, The Board of Directors. All such other officers as
the Directors may appoint, as provided in Article II, shall be elected
annually by the Board of Directors.
Any vacancy in the office of Chairman of the Board, President, Executive
Vice-president, Vice-president, Directors, Treasurer, Assistant Treasurer, or
Clerk arising from non-election, resignation, declination, death, or any
other cause, may be filled by the Board of Directors, except that whenever
the number of Directors shall be increased at any special meeting of the
stockholders the additional Directors so provided for shall be elected by
ballot by the stockholders at the same meeting. Said Board may also elect an
officer pro tempore to serve during the disability or absence of any officer.
Officers chosen to fill vacancies shall hold their offices until new officers
are duly chosen by the stockholders or Directors, as the case may be.
ARTICLE IV
DIRECTORS
Meetings of the Board of Directors may be held at any time and place at
the call of the Chairman of the Board, the President, or any two Directors.
Notice of each meeting shall be given to each Director either by notice
mailed to him at least forty-eight (48) hours before the time of such
meeting, or by a telephone or telegraphic message sent to his place of
business or residence, or other form of notice actually given to him
twenty-four (24) hours before the time of such meetings. However, any meeting
of the Board and all business transacted thereat shall be legal and valid
without such notice if each member of the Board is present in person or
waives notice thereof by writing filed with the records of the meeting or
assents in writing to the recorded proceedings of the meeting.
One-third of the directors then in office shall constitute a quorum,
except that no quorum shall consist of less than two Directors. A number
less than a quorum may adjourn from time to time until a quorum is present.
In the event of such an adjournment, notice of the adjourned meeting shall be
given to all Directors.
The Board of Directors may at any time elect by ballot not less than
five (5) of their members who shall constitute an Executive committee of the
Board, and if such an Executive Committee is elected the Board of Directors
shall make regulations defining the powers and duties of such Executive
Committee and may delegate to it any or all of their powers in management of
the property, business and affairs of the corporation except so far as is
incompatible with these By-laws or with the laws of the Commonwealth. A
majority of the Executive Committee shall constitute a quorum.
Such Executive Committee shall elect a Chairman and Secretary and shall
keep a record of its doings which at all reasonable times shall be open to
inspection by each member of the Board of Directors. The Chairman of the
Executive Committee shall submit its records to the Board of Directors at
may deem proper.
The Directors as a Board shall have the management of the property,
business and affairs of the corporation and they are hereby invested in such
management with all the powers which the corporation itself possesses so far
as such investing is not incompatible with the provisions of these By-laws or
the laws of the Commonwealth. However, so long as the holders of the
outstanding shares of the corporation's preferred stock voting as a class
have not exercised their right to elect a majority of the Board of Directors
of the corporation on the happening of any of the events of default specified
in the preferred stock provisions of these By-laws, any right of the
corporation to terminate, amend, rescind, waive, discharge, or in any other
way alter or change the obligations of the corporation under any contract
with Northeast Nuclear Energy Company covering the maintaining of an
inventory of nuclear core elements for Unit Nos. 1, 2 or 3 of the Millstone
Nuclear Power Station, including, without limitation, the Fuel Supply
Contract dated as of December 1, 1972, (as it is to be amended by a Contract
of Amendment to be dated as of October 1, 1975), by and among the
corporation, The Hartford Electric Light Company, and the Connecticut Light
and Power Company and Northeast Nuclear Energy Company, shall be reserved to
the common stockholders of the corporation.
They may appoint and remove at pleasure such subordinate officers and
employees as may see to them wise.
They may assign such powers and duties to any officers or subordinate
officers or employees as may not be inconsistent with Laws or these By-laws.
They shall have access to the books, vouchers and funds of the
corporation in the custody of the Treasurer, shall determine upon the form of
the corporate seal and of the certificates of stock, shall fix the salaries
of the officers, and shall declare dividends from time to time as they may
deem for the best interests of the corporation.
They may make contributions to corporations, trusts, funds or
foundations organized and operated exclusively for charitable, scientific or
educational purposes, no part of the earnings of which inures to the benefit
of any private shareholder or individual, in such amounts as they may deem
reasonable up to but not exceeding in any fiscal year in the aggregate
one-half of one percent of the capital and surplus of the corporation as at
the close of the fiscal year last preceding the making of any such
contribution.
The Company shall indemnify each of its Directors and officers
(including persons who serve at its request as Directors, officers, or in any
other similar capacity of another organization in which it has any interest
as a shareholder, creditor or otherwise) against all liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and counsel fees, reasonably incurred by him in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while in office or thereafter, by reason of his
being or having been such a Director or officer, except with respect to any
matter as to which he shall have been adjudicated in such action, suit or
proceeding not to have acted in good faith in the reasonable belief that his
action was in the best interests of the corporation; provided, however, that
as to any matter disposed of by a compromise payment by such Director or
officer pursuant to a consent decree or otherwise, no indemnification either
for said payment or for any other expenses shall be provided unless such
compromise shall be approved as in the best interests of the corporation,
after notice that it involves such indemnification, (a) by a disinterested
majority of the Directors then in office; or (b) by a majority of the
disinterested Directors then in office, provided that there has been obtained
an opinion in writing of independent legal counsel to the effect that such
Director or officer appears to have acted in good faith in the reasonable
belief that his action was in the best interests of the corporation; or (c)
by the holders of majority of the outstanding stock at the time entitled to
vote for Directors, voting as a single class, exclusive of any stock owned by
an interested Director or officer. In discharging his duty any such Director
or officer, when acting in good faith, may rely upon the books of account of
the corporation or of such other organization, reports made to the
corporation or to such other organization by any of its officers or employees
or by counsel, accountants, appraisers or other experts selected with
reasonable care by the Board of Directors or officers, or upon other records
of the corporation or of such other organization. Expenses incurred with
respect to any such action, suit or proceeding may be advanced by the
corporation prior to the final disposition of such action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the recipient
to repay such amount unless it is ultimately determined that he is entitled
to indemnification. The right of indemnification hereby provided shall not
be exclusive of or affect any other right to which any Director or officer
may be entitled. As used in this paragraph, the terms "Director" and
"officer" include their respective heirs, executors and administrators, and
an "interested" Director or officer is one against whom in such capacity the
proceedings in question or another proceeding on the same or similar grounds
is then pending. Nothing contained in this Article shall be found, in any
action, suit or proceeding to be invalid or ineffective, the validity and the
effect of the remaining parts shall not be affected.
ARTICLE V
CHAIRMAN OF THE BOARD OF DIRECTORS
The Chairman of the Board of Directors shall preside at the meetings of
the Board and shall act in a general advisory capacity to the Board in regard
to all activities of the corporation, and shall have such other powers and
perform such other duties as may from time to time be determined by the
Board.
ARTICLE VI
THE PRESIDENT
The President shall preside at all meetings of the stockholders and in
the absence of the Chairman of the Board at all meetings of the Board of
Directors. The President shall be the chief executive officer of the
corporation and shall have full charge of its business and affairs and shall
perform all the duties of this office prescribed by law and all powers and
duties given him by the Board of Directors.
ARTICLE VII
EXECUTIVE VICE-PRESIDENT AND VICE-PRESIDENTS
The Executive Vice-president shall have such powers and perform such
duties as may be assigned to him by the Board of Directors or as may be
delegated to him by the President. In the absence or disability of the
President, or in case of an unfilled vacancy in that office, the Executive
Vice-president shall perform the duties and exercise the powers of the
President.
The Vice-president or Vice-presidents shall perform such duties of a
general or special nature as may be assigned to him or them by the Board of
Directors or as may be delegated to him or them by or through the President.
In case of the absence or disability of the Executive Vice-president, a
Vice-president shall perform all the duties and have all the powers of the
Executive Vice-president. If there are at any time two or more
Vice-presidents, the one to act in place of the Executive Vice-president
shall be selected by the Board of Directors, provided, however, that prior to
the making of such selection by said Board a Vice-president to act as
aforesaid may be appointed by the President, or if he is unable to make such
appointment or fails to do so, by the Chairman of the Board, and the
Vice-president so appointed shall continue to act as aforesaid until another
Vice-president has been appointed for that purpose by the Board of Directors.
ARTICLE VIII
THE SECRETARY AND THE CLERK
The Secretary shall have such duties as may from time to time be
delegated to him by the Board of Directors.
The Clerk shall be a resident of Massachusetts. He shall be sworn, and
shall record all votes of the corporation in a book to be kept for the
purpose. He shall attend all meetings of stockholders, of the Board of
Directors, and of the Executive Committee. In the absence of the Clerk or if
at any such meeting he shall be otherwise engaged, an Assistant Clerk if
present shall record the votes taken at the meeting, and if no Assistant
Clerk shall be present, a Clerk pro tempore shall be chosen for that purpose.
The Clerk or any Assistant Clerk may furnish certified copies of any portion
of the records of the corporation under its corporate seal.
All Assistant Clerks shall be sworn.
ARTICLE IX
THE TREASURER
The Treasurer when required by the Directors shall give bond with
sureties acceptable to them for the faithful discharge of his duties and in
such sum as the Directors may determine, and the premium may, by vote of the
Board of Directors, be paid from the funds of the corporation.
He shall be the transfer agent of the stock of the corporation unless a
special transfer agent is appointed by the Directors, shall keep a record of
the names and residences of all the stockholders, shall have the custody of
the corporate seal and of all the moneys, funds and valuable papers and
documents of the corporation except his own bond which shall be in the
custody of the President.
He shall deposit all the funds of the corporation in such bank or banks
as the Directors shall designate to the credit of the corporation by its
corporate name, subject to the checks of the corporation signed by its
Treasurer or an Assistant Treasurer or such other officer or employee as may
be designated for that purpose by the vote of the Directors, but with such
requirements, if any, as to joint signatures and such other limitations, if
any, of the authority as aforesaid of any signing officer or employee as the
Directors may see fit to impose.
He shall issue notes and accept drafts on behalf of the corporation only
when authorized thereto by the Directors.
He shall keep accurate books of account of the corporation's
transactions which shall be the property of the corporation, which together
with all its property in his custody shall be subject at all times to
inspection and control of the Directors.
ARTICLE X
ASSISTANT TREASURER
Each Assistant Treasurer, if any, shall have such powers and duties as
may be given him by the Directors and shall give bond when required by the
Directors with sureties acceptable to them for the faithful discharge of his
duties in such sum as the Directors may determine, and the premiums may, by
vote of the Board of Directors, be paid by the corporation.
ARTICLE XI
SALES, LEASES, AND CONVEYANCES OF REAL ESTATE
The President and Treasurer may in their discretion, to the extent
authorized by law and by vote of the Directors or of the Executive Committee,
lease for any term of time and convey all of its real estate including water
power and release or modify easements and other rights in real estate whether
granted to or by the corporation; and all deeds, conveyances and leases of
real estate including water power and releases and modifications of easements
and of other rights in real estate of the corporation, unless otherwise
provided by vote of the corporation, shall be made in the name of the
corporation under its corporate seal, and be signed by the President, the
Executive Vice-president, or any Vice-president thereto authorized by a vote
of the Directors or of the Executive Committee and may be acknowledged by any
person signing as aforesaid.
ARTICLE XII
CERTIFICATES OF STOCK-TRANSFERS
Certificates of stock may be signed by the President or a Vice-president
and the Treasurer or an Assistant Treasurer. Such certificates shall be in
such form as the Directors may approve, and shall also bear the seal of the
corporation which shall be in the form theretofore used by the corporation,
or in a newer form adopted by the Directors.
Shares of stock may be transferred by assignment thereof in writing,
accompanied by delivery of the certificates; but no such transfer of stock
shall affect the right of the corporation to pay any dividend thereon or to
treat the holder of record as the holder in fact until the transfer has been
recorded upon the books of the corporation or a new certificate has been
issued to the person to whom the stock has been transferred.
In case of the loss of a certificate, a duplicate may be issued on such
reasonable terms as the Directors shall prescribe.
ARTICLE XIII
CLOSING OF TRANSFER BOOKS
The transfer books of the corporation may be closed for not exceeding
fifteen (15) days next prior to any meeting of the stock-holders and at such
other times and for such reasonable periods as may be determined by the Board
of Directors.
ARTICLE XIV
FISCAL YEAR
The fiscal year of the corporation shall end on the thirty-first day of
December in each year.
ARTICLE XV
TRANSFER AGENT AND REGISTRAR
If the Board of Directors deem it advisable to have a transfer agent
other than the Treasurer, they may appoint any Bank or Trust Company to that
office. They may appoint the same or any other Bank or Trust Company as
Registrar of stock certificates if it appear desirable to have the stock
registered. They may terminate the authority of any Bank acting in either
capacity whenever it shall seem wise.
ARTICLE XVI
SENIOR STOCK PROVISIONS
The Company's capital stock includes a class of capital stock designated
"Common Stock," a class of capital stock designated "Preferred Stock," and a
class of capital stock designated "Class A Preferred Stock." The authorized
shares of Common Stock, Preferred Stock and Class A Preferred Stock are the
number of shares authorized in the Company's articles of organization, as
amended from time to time. The Preferred Stock and the Class A Preferred
Stock are hereinafter for convenience of reference sometimes collectively
referred to as the "Senior Stock," and either class may hereinafter
individually be referred to as "Senior Stock." Shares of Preferred Stock and
shares of Class A Preferred Stock shall rank on a parity in respect of
dividends or payment in case of liquidation, and, to the extent not fixed and
determined by these by-laws or the Company's articles of organization or
otherwise by law, shall have the same rights, preferences and powers. The
general terms, limitations and relative rights and preferences of each share
of Preferred Stock and each share of Class A Preferred Stock shall be
determined in accordance with the following Sections:
Section 1. Issuance of Senior Stock
Shares of Preferred Stock may be issued from time to time in one or more
series on such terms and for such consideration as may be determined by the
Board of Directors. Shares of Class A Preferred Stock may be issued from
time to time in one or more series on such terms and for such consideration
as may be determined by the Board of Directors. The series designation,
dividend rate, redemption prices, and any other terms, limitations and
relative rights and preferences of each series of either class of Senior
Stock shall be determined by the Board of Directors to the extent not fixed
and determined by this Article or the Company's articles of organization.
Section 2. Dividends
A. The holders of either class of the Senior Stock shall receive, but
only when and as declared by the Board of Directors, cumulative dividends at
the rate provided for the particular series and payable on such dividend
payment dates in each year as said Board may determine, such dividends to be
payable to holders of record on such dates as may be fixed by said Board but
not more than 45 days before each dividend date, provided, however, that
dividends shall not be declared and set apart for payment, or paid, on Senior
Stock of any one class and series, for any dividend period, unless dividends
have been or are contemporaneously declared and set apart for payment, or
paid, on Senior Stock of all series for all dividend periods terminating on
the same or an earlier date.
B. Dividends on each share of Senior Stock shall be cumulative from
the date of issue thereof or from such earlier date as the Board of Directors
may determine therefor. Unless full cumulative dividends to the last
preceding dividend date shall have been paid or set apart for payment on all
outstanding shares of Senior Stock, no dividend shall be paid on any junior
stock. The term "junior stock" means Common Stock or any other stock of the
Company subordinate to the Senior Stock in respect of dividends or payments
in liquidation.
C. So long as any shares of Senior Stock are outstanding, the Company
shall not declare any dividends or make any other distributions in respect of
outstanding shares of any junior stock of the Company, other than dividends
or distributions in shares of junior stock, or purchase or otherwise acquire
for value any outstanding shares of junior stock (the declaration of any such
dividend or the making of any such distribution, purchase or acquisition
being herein called a "junior stock payment") in contravention of the
following:
(1) If and so long as the junior stock equity (hereinafter
defined), adjusted to reflect the proposed junior stock payment, at the end
of the calendar month immediately preceding the calendar month in which the
proposed junior stock payment is to be made is less than 20% of total
capitalization (hereinafter defined) at that date, as so adjusted, the
Company shall not make such junior stock payment in an amount which, together
with all other junior stock payments made within the year ending with and
including the date on which the proposed junior stock payment is to be made,
exceeds 50% of the net income of the Company available for dividends on
junior stock for the 12 full calendar months immediately preceding the
calendar month in which such junior stock payment is made, except in an
amount not exceeding the aggregate of junior stock payments which under the
restrictions set forth above in this paragraph (1) could have been, and have
not been, made.
(2) If and so long as the junior stock equity, adjusted to reflect
the proposed junior stock payment, at the end of the calendar month
immediately preceding the calendar month in which the proposed junior stock
payment is to be made, is less than 25% but not less than 20% of the total
capitalization at that date, as so adjusted, the Company shall not make such
junior stock payment in an amount which, together with all other junior
stock payments made within the year ending with and including the date on
which the proposed junior stock payment is to be made, exceeds 75% of the net
income of the Company available for dividends on the junior stock for the 12
full calendar months immediately preceding the calendar month in which such
junior stock payment is made, except in an amount not exceeding the aggregate
of junior stock payments which under the restrictions set forth above in this
paragraph (2) could have been, and have not been, made.
D. The term "junior stock equity" means the aggregate of the part
value of or stated capital represented by, the outstanding shares of junior
stock, all earned surplus, capital or paid-in surplus, and any premiums on
the junior stock then carried on the books of the Company, less:
(1) the excess, if any, of the aggregate amount payable on
involuntary liquidation of the Company upon all outstanding shares of Senior
Stock over the sum of (i) the aggregate par or stated value of such shares
and (ii) any premiums thereon;
(2) any amounts on the books of the Company known, or estimated if
not known, to represent the excess, if any, of recorded value over original
cost of used or useful utility plant; and
(3) any intangible items set forth on the asset side of the
balance sheet of the Company as a result of accounting convention, such as
unamortized debt discount and expense; provided, however, that no deductions
shall be required to be made in respect of items referred to in clauses (2)
and (3) of this subsection D in cases in which such items are being amortized
or are provided for, or are being provided for, by reserves.
E. The term "total capitalization" means the aggregate of:
(1) the principal amount of all outstanding indebtedness of the
Company maturing more than 12 months after the date of issue thereof; and
(2) the par value or stated capital represented by, and any
premiums carried on the books of the Company in respect of, the outstanding
shares of all classes of the capital stock of the Company, earned surplus,
and capital or paid-in surplus, less any amounts required to be deducted
pursuant to clauses (2) and (3) of subsection D of this Section 2 in the
determination of junior stock equity.
Section 3. Redemption or Purchase of Senior Stock
A. All or any part of any series of Senior Stock may by vote of the
Board of Directors be called for redemption at any time at the redemption
price provided for the particular series and in the manner hereinbelow
provided. Subject to the provisions of subsection B of this Section 3, all
or any part of any series of Senior Stock may be called for redemption
without calling all or any part of any other series of Senior Stock. If less
than all of any series of Senior Stock is so called, the Transfer Agent shall
determine by lot or in some other manner approved by the Board of Directors
the shares of such series of Senior Stock to be called.
B. No call for redemption of less than all shares of Senior Stock
outstanding shall be made if the Company shall be in arrears in respect of
payment of dividends on any shares of Senior Stock outstanding.
C. The sums payable in respect of any shares of Senior Stock so called
shall be payable at the office of an incorporated bank or trust company in
good standing. Notice of such call stating the redemption date shall be
mailed not less than 30 days before the redemption date to each holder of
record of shares of Senior Stock so called at his address as it appears upon
the books of the Company.
D. The Company shall, before the redemption date, deposit with said
bank or trust company all sums payable with respect to shares of Senior Stock
so called. After such mailing and deposit the holders of shares of Senior
Stock so called for redemption shall cease to have any right to future
dividends or other rights or privileges as stockholders in respect of such
shares and shall be entitled to look for payment on and after the redemption
date only to the sums so deposited with said bank or trust company for their
respective amounts. Shares so redeemed may be reissued but only subject to
the limitations imposed upon the issue of Senior Stock.
E. The Company may at any time purchase all or any of the then
outstanding shares of Senior Stock of any class and series upon the best
terms reasonably obtainable, but not exceeding the then current redemption
price of such shares, except that no such purchase shall be made if the
Company shall be in arrears in respect of payment of dividends on any shares
of Senior Stock outstanding or if there shall exist an event of default as
defined in Section 5 hereof.
Section 4. Amounts Payable on Liquidation
A. The holders of any series of Senior Stock shall receive upon any
voluntary liquidation, dissolution or winding up of the Company the then
current redemption price of the particular series and if such action is
involuntary $100 per share in the case of the Preferred Stock and $25 per
share in the case of the Class A Preferred Stock, plus in each case all
dividends accrued and unpaid to the date of such payment, before any payment
in liquidation is made on any junior stock.
B. If the net assets of the Company available for distribution on
liquidation to the holders of Senior Stock shall be insufficient to pay said
amounts in full, then such net assets shall be distributed among the holders
of Senior Stock, who shall receive a common percentage of the full respective
preferential amounts.
Section 5. Voting Powers
A. Except as provided in this Article or in the Company's articles of
organization and as provided by law, the holders of Senior Stock shall have
no voting power or right to notice of any meeting.
B. Whenever the holders of the Senior Stock shall have the right to
vote or consent to an action as provided in these Articles or the Company's
articles of organization or as provided by law, both classes of Senior Stock
shall (except as provided below) vote together as a single class, each
outstanding share of Preferred Stock entitled to vote and each outstanding
share of Class A Preferred Stock entitled to vote having such voting rights
as are proportionate to the ratio of (i) the par value represented by such
share to (ii) the par value represented by all shares of Senior Stock then
outstanding. Whenever only one class of the Senior Stock shall have the
right to vote or consent to an action as provided in these Articles or the
Company's articles of organization or as provided by law, or whenever each
class of the Senior Stock shall be entitled or be required to vote as a
separate class on a matter, each outstanding share of such class entitled to
vote shall be entitled to one vote on each such matter.
C. Whenever dividends on any share of Senior Stock shall be in arrears
in an amount equal to or exceeding four quarterly dividend payments, or
whenever there shall have occurred some default in the observance of any of
the provisions of this Article, or some default on which action has been
taken by debentureholders, bondholders or the trustee of any deed of trust or
mortgage of the Company, or whenever the Company shall have been declared
bankrupt or a receiver of its property shall have been appointed (any of said
conditions being herein called an "event of default"), then the holders of
Senior Stock shall be given notice of all stockholders' meetings and shall
have the right voting together as a class to elect the smallest number of
directors necessary to constitute a majority of the Board of Directors of the
Company and the exclusive right voting together as a class to amend the
by-laws to make such appropriate increase in the number of directorships as
may be required to effect such election. When all arrears of dividends shall
have been paid and such event of default shall have been terminated, all the
rights and powers of the holders of Senior Stock to receive notice and to
vote shall cease, subject to being again revived on any subsequent event of
default.
D. Whenever the right to elect directors shall have accrued to the
holders of Senior Stock the Company shall call a meeting of stockholders for
the election of directors and, if necessary, the amendment of the by-laws to
permit the holders of Senior Stock to exercise their rights pursuant to
subsection C of this Section 5, such meeting to be held not less than 45 days
and not more than 90 days after the accrual of such rights. When such rights
shall cease, the Company shall, within seven days from the delivery to the
Company of a written request therefor by any stockholder, cause a meeting of
the stockholders to be held within 30 days from the delivery of such request
for the purpose of electing a new Board of Directors. Forthwith, upon the
election of such new Board of Directors, the directors in office immediately
prior to such election (other than persons elected directors in such
election) shall be deemed removed from office without further action by the
Company.
Section 6. Action Requiring Certain Consent of Senior Stockholders
A. So long as any Senior Stock is outstanding, the Company, without
the affirmative vote or written consent of at least a majority in interest of
the Senior Stock then outstanding voting or giving consent together as a
class shall not:
(1) Issue or assume any unsecured notes, unsecured debentures or
other securities representing unsecured debt (other than for the purpose of
refunding or renewing outstanding unsecured securities issued or assumed by
the Company resulting in equal or longer maturities or redeeming or otherwise
retiring all outstanding shares of Senior Stock) if immediately after such
issue or assumption (a) the total outstanding principal amount of all
unsecured notes, unsecured debentures or other securities representing
unsecured debt of the Company will thereby exceed 20% of the aggregate of all
outstanding secured debt of the Company and the capital stock, premiums
thereon, and surplus of the Company, as stated on its books, or (b) the total
outstanding principal amount of all unsecured debt of the Company of
maturities of less than 10 years will thereby exceed 10% of the aggregate of
all outstanding secured debt of the Company and the capital stock, premiums
thereon, and surplus of the Company, as stated on its books. For the
purposes of this subsection A, the payment due upon the maturity of unsecured
debt having an original single stated maturity of 10 years or more shall not
be regarded as unsecured debt with a maturity of less than 10 years until
within three years of the maturity thereof, and none of the payments due upon
any unsecured serial debt having an original stated maturity for the final
serial payment of 10 years or more shall be regarded as unsecured debt of a
maturity of less than 10 years until within three years of the maturity of
the final serial payment.
(2) Issue, sell or otherwise dispose of any shares of the then
authorized but unissued Senior Stock or any other stock ranking on a parity
with or having a priority over Senior Stock in respect of dividends or of
payments in liquidation, or reissue, sell or otherwise dispose of any
reacquired shares of Senior Stock or such other stock, other than to
refinance an equal par value or stated value of Senior Stock or of stock
ranking on a parity with or having priority over Senior Stock in respect of
dividends or of payments in liquidation, if:
(a) For a period of 12 consecutive calendar months within 15
calendar months immediately preceding the calendar month in which any such
shares shall be issued, the Income before Interest Charges of the Company for
said period available for the payment of interest determined in accordance
with the systems of accounts then prescribed for the Company by the
Department of Public Utilities of the Commonwealth of Massachusetts (or by
such other official body as may then have authority to prescribe such systems
of accounts) but in any event after deducting depreciation charges and taxes
(including income taxes) and including, in any case in which such stock is to
be issued, sold or otherwise disposed of in connection with the acquisition
of any property, the Income before Interest Charges of the property to be so
acquired, computed as nearly as practicable in the manner specified above,
shall not have been at least one and one-half (1 1/2) times the sum of (i)
the interest charges for one year on all indebtedness which shall then be
outstanding (excluding interest charges on any indebtedness, proposed to be
retired in connection with the issue, sale or other disposition of such
shares), and (ii) an amount equal to all annual dividend requirements on all
outstanding shares of Senior Stock and all other stock, if any, ranking on a
parity with or having priority over Senior Stock in respect of dividends or
of payments in liquidation, including the shares proposed to be issued, but
not including any shares proposed to be retired in connection with such
issue, sale or other disposition; or if
(b) Such issue, sale or disposition would bring the aggregate
of the amount payable in connection with an involuntary liquidation of the
Company with respect to all shares of Senior Stock and all shares of stock,
if any, ranking on a parity with or having priority over Senior Stock in
respect of dividends or of payments in liquidation to an amount in excess of
the sum of the junior stock equity. If for the purposes of meeting the
requirements of this clause (b), it shall have been necessary to take into
consideration any earned surplus of the Company, the Company shall not
thereafter pay any dividends on or make any distributions in respect of, or
make any payment for the purchase or other acquisition of, junior stock which
would result in reducing the junior stock equity to an amount less than the
amount payable on involuntary liquidation of the Company in respect of Senior
Stock and all shares ranking on a parity with or having a priority over
Senior Stock in respect of dividends or of payments in liquidation at the
time outstanding.
If during the period for which Income before Interest Charges is to be
determined for the purpose set forth in this paragraph (2), the amount, if
any, required to be expended by the Company during such period for property
additions pursuant to a renewal and replacement fund or similar fund
established under any indenture of mortgage or deed of trust of the Company
shall exceed the amount deducted during such period in the determination of
such Income before Interest Charges on account of depreciation and
amortization of electric plan acquisition adjustments, such excess shall also
be deducted in determining such Income before Interest Charges.
B. So long as any Senior Stock is outstanding, the Company, without
the affirmative vote or written consent of at least two-thirds in interest of
the Senior Stock then outstanding voting or giving consent together as a
class shall not authorize any shares of any class of stock having a priority
over the Senior Stock in respect of dividends or of payments in liquidation
or issue any shares of any such prior ranking stock more than 12 months after
the date of the vote or consent authorizing such prior ranking stock.
C. The provisions of this Article may be changed only by the
affirmative vote or written consent of at least two-thirds in interest of the
issued and outstanding shares of each class of capital stock of the Company
voting or giving their consent in each case separately as a class; provided,
however, that if any such change or proposed change would affect only one
class of Senior Stock, then such change may be effected only by the
affirmative vote or written consent of at least two-thirds in interest of the
issued and outstanding shares of Common Stock and at least two-thirds in
interest of the issued and outstanding shares of the class of Senior Stock
that is affected, voting or giving their consent in each case separately as
a class; and provided further, however, the holders of Senior Stock shall not
be entitled to vote on an increase in the number of authorized shares of
Preferred Stock or Class A Preferred Stock. In no event shall any reduction
of the dividend rate or of the amounts payable upon redemption or liquidation
with respect to any share of Senior Stock be made without the consent of the
holder thereof, and no such reduction in respect of the shares of any
particular series of Senior Stock shall be made without the consent of all
the holders of shares of such series.
D. No share of Senior Stock shall be deemed to be "outstanding" within
the meaning of this Section 6 or of Section 7 if, at or prior to the time
when the approval herein or therein referred to would otherwise be required,
provision shall be made for its redemption, including a deposit complying
with the requirements of subsection D of Section 3.
Section 7. Merger, Consolidation or Sale of All Assets
Except with the affirmative vote or written consent of a majority in
interest of Senior Stock then outstanding voting or giving consent together
as a class, the Company shall not merge or consolidate with or into any other
corporation or sell or otherwise dispose of all or substantially all of its
assets (except by mortgage or pledge) unless such merger, consolidation, sale
or other disposition, or the issuance or assumption of securities in the
effectuation thereof shall have been ordered, approved or permitted under the
Public Utility Holding Company Act of 1935.
Section 8. No Preemptive Right
Except as otherwise expressly provided by law, the holders of Senior
Stock shall have no preemptive right to subscribe to any further issue of
additional shares of Senior Stock or of any other class of stock now or
hereafter authorized, nor for any future issue of bonds, debentures, notes or
other evidence of indebtedness or other security convertible into stock. If
it is expressly required by law that, notwithstanding the provisions of the
preceding sentence, any such further or future issue be offered
proportionately to the stockholders, the holders of Preferred Stock only
shall be entitled to subscribe for new or additional Preferred Stock, the
holders of Class A Preferred Stock only shall be entitled to subscribe for
new or additional Class A Preferred Stock and the holders of Common Stock
only shall be entitled to subscribe for new or additional Common Stock; and
notice of such increase as required by law need be given and the new shares
need be offered proportionately only to the stockholders who are so entitled
to subscribe.
Section 9. Immunity of Directors, Officers and Agents
No director, officer or agent of the Company shall be held personally
responsible for any action taken in good faith though subsequently adjudged
to be in violation of this Article.
Section 10. Transfer Agent
The Company shall always have at least one transfer agent for Senior
Stock, which shall be an incorporated bank or trust company of good standing.
ARTICLE XVII
PROVISIONS WITH RESPECT TO THE SERIES OF PREFERRED STOCK
1. 9.60% Preferred Stock, Series A
There shall be a series of Preferred Stock designated "9.60% Preferred
Stock, Series A," and consisting of 150,000 shares with an aggregate par
value of $15,000,000 and a par value per share of $100. The dividend rate and
redemption prices as to said 9.60% Preferred Stock, Series A, shall be as
follows:
(a) Dividends on said 9.60% Preferred Stock, Series A, shall be at
the rate of 9.60% per share per annum, and no more, and shall be cumulative
from June 1, 1970. Said dividends, when declared, shall be payable on the
first days of March, June, September and December in each year.
(b) Redemption Prices of said 9.60% Preferred Stock, Series A,
shall be $111.19 per share if redeemed on or before June 1, 1975, $108.79 per
share if redeemed after June 1, 1975 and on or before June 1, 1980, $106.39
per share if redeemed after June 1, 1980 and on or before June 1, 1985, and
$103.99 per share if redeemed after June 1, 1985, plus in all cases that
portion of the quarterly dividend accrued thereon to the redemption date and
all unpaid dividends thereon, if any.
2. 7.72% Preferred Stock, Series B
There shall be a series of Preferred Stock designated "7.72% Preferred
Stock, Series B," and consisting of 200,000 shares with an aggregate par
value of $20,000,000 and a par value per share of $100. The dividend rate
and redemption prices as to said 7.72% Preferred Stock, Series B, shall be as
follows:
(a) Dividends on said 7.72% Preferred Stock, Series B, shall be at
the rate of 7.72% per share per annum, and no more, and shall be cumulative
from October 1, 1971. Said dividends, when declared, shall be payable on the
first days of January, April, July and October in each year.
(b) Redemption Prices of said 7.72% Preferred Stock, Series B,
shall be $109.30 per share if redeemed on or before October 1, 1976, $107.37
per share if redeemed after October 1, 1976 and on or before October 1, 1981,
$105.44 per share if redeemed after October 1, 1981 and on or before October
1, 1986, and $103.51 per share if redeemed after October 1, 1986, plus in all
cases that portion of the quarterly dividend accrued thereon to the
redemption date and all unpaid dividends thereon, if any, provided, however,
that none of the 7.72% Preferred Stock, Series B shall be redeemed prior to
October 1, 1976, if such redemption is for the purpose of or in anticipation
of refunding such 7.72% Preferred Stock, Series B through the use, directly
or indirectly, of finds borrowed by the Company or of the proceeds of the
issue by the Company of shares of any stock ranking prior to or on a parity
with the 7.72% Preferred Stock, Series B as to dividends or assets, if such
borrowed funds or such shares have an effective interest cost or effective
dividend cost to the Company (computed in accordance with generally accepted
financial principles), as the case may be, of less than 7.69% per annum.
3. 16% Preferred Stock, Series C
There shall be a series of Preferred Stock designated "16% Preferred
Stock, Series C," and consisting of 150,000 shares with an aggregate par
value of $15,000,000 and a par value per share of $100. The dividend rate
and redemption prices as to said 16% Preferred Stock, Series C, shall be as
follows:
(a) Dividends on said 16% Preferred Stock, Series C, shall be at
the rate of 16% per share per annum, and no more, and shall be cumulative
from date of issuance. Said dividends, when declared, shall be payable on
the first days of March, June, September and December in each year,
commencing March 1, 1982.
(b) Redemption Prices of said 16% Preferred Stock, Series C, shall
be $116.00 per share if redeemed on or before December 1, 1986, $112.00 per
share if redeemed after December 1, 1986 and on or before December 1, 1991,
$108.00 per share if redeemed after December 1, 1991 and on or before
December 1, 1996, $104.00 per share if redeemed after December 1, 1996 and on
or before December 1, 2001, and at $101.60 per share if redeemed after
December 1, 2001, plus in all cases that portion of the quarterly dividend
accrued thereon to the redemption date and all unpaid dividends thereon, if
any; provided, however, that none of the 16% Preferred Stock, Series C shall
be redeemed prior to December 1, 1986, if such redemption is for the purpose
of or in anticipation of refunding such 16% Preferred Stock, Series C through
the use, directly or indirectly, of funds borrowed by the Company or of the
proceeds of the issue by the company of shares of any stock ranking prior to
or on a parity with the 16% Preferred Stock, Series C as to dividends or
assets, if such borrowed funds or such shares have an effective interest cost
or effective dividend cost to the Company (computed in accordance with
generally accepted financial principles), as the case may be, of less than
16.59% per annum.
(c) As and for a sinking fund for said 16% Preferred Stock, Series
C, commencing on December 1, 1986 and on or before each December 1 in each
year thereafter so long as any shares of the 16% Preferred Stock, Series C
remain outstanding, the Company shall, to the extent of any funds of the
Company legally available therefor and except as otherwise restricted by the
Company's Statement of Preferred Stock Provisions, redeem 7,500 shares of 16%
Preferred Stock, Series C (or such lesser number of such shares as remain
outstanding) at $100 per share plus accrued dividends to the date of
redemption; provided, however, that if in any year the Company does not
redeem the full number of shares of 16% Preferred Stock, Series C required to
be redeemed pursuant to this sinking fund, the deficiency shall be made good
on the next December 1 on which the Company has funds legally available for,
and is otherwise permitted to effect, the redemption of shares of 16%
Preferred Stock, Series C, pursuant to this sinking fund. The number of
shares of 16% Preferred Stock, Series C, redeemed on any December 1 shall be
reduced by the number of such shares purchased and cancelled by the Company
during the preceding twelve-month period or redeemed during such period
pursuant to subsection (b) hereof. Any shares so redeemed or purchased or
cancelled may be given the status of authorized but unissued shares or
Preferred Stock, but none of such shares shall be reissued as shares of 16%
Preferred Stock, Series C. The Company shall have the option, which shall be
noncumulative, to redeem on December 1, 1986 and on each December 1
thereafter up to an additional 7,500 shares of 16% Preferred Stock, Series C,
at the sinking fund redemption price. No such optional sinking fund shall
operate to reduce the number of shares of the 15% Preferred Stock, Series C,
required to be redeemed pursuant to the mandatory sinking fund provisions
hereinabove set forth. In the event that the Company shall at any time fail
to make a full mandatory sinking fund payment on any sinking fund payment
date, the Company shall not pay any dividends or make any other distributions
in respect of outstanding shares of any junior stock (as that term is defined
in Subsection A of Section of Article XVI of the by-laws of the Company) of
the Company, other than dividends or distributions in shares of junior stock,
or purchase or otherwise acquire for value any out-standing shares of junior
stock, until all such payments have been made.
4. Adjustable Rate Preferred Stock, Series D
There shall be a series of Preferred Stock designated "Adjustable Rate
Preferred Stock, Series D", and consisting of 350,000 shares with an
aggregate par value of $35,000,000 and a par value per share of $100. The
dividend rate provisions, redemption prices and sinking fund provisions as to
said Adjustable Rate Preferred Stock, Series D, shall be as follows:
(a) The dividend per share on said Adjustable Rate Preferred
Stock, Series D, shall be (1) at the rate of 12% per annum per share for the
Initial Dividend Payment Period (as herein defined) (2) at the rate of
forty-one hundredth (40/100th) of one percentage point above the Applicable
Rate (as herein defined), from time to time in effect, for each subsequent
quarterly Dividend Period (as herein defined); provided, however, the
dividend rate for any Dividend Period (including the Initial Dividend Payment
Period) shall not be at a rate of less than 8% per annum per share or greater
than 13% per annum per share. Dividends shall be cumulative from the date of
issuance. Except as provided below in this paragraph, the "Applicable Rate"
for any Dividend Period shall be the highest of (i) the Treasury Bill Rate,
(ii) the Ten Year Constant Maturity Rate and (iii) the Twenty Year Constant
Maturity Rate (each as hereinafter defined) for such Dividend Period. If the
Company determines in good faith that for any reason one or more of such
rates cannot be determined for a particular Dividend Period, then the
Applicable Rate for such Dividend Period shall be the higher of whichever of
such rates can be so determined. If the Company determines in good faith
that none of such rates can be determined for a particular Dividend Period,
then the Applicable Rate in effect for the preceding Dividend Period shall be
continued for such Dividend Period.
Except as provided below in this paragraph, the "Treasury Bill
Rate" for each Dividend Period shall be the arithmetic average of the two
most recent weekly per annum market discount rates (or the one weekly per
annum market discount rate, if only one such rate shall be published during
the relevant Calendar Period (as defined below)) for three-month U.S.
Treasury bills, as published weekly by the Federal Reserve Board or its
successor agency during the Calendar Period immediately prior to the ten
calendar days immediately preceding the Dividend Payment Date for the
dividend period immediately prior to the Dividend Period for which the
dividend rate on the Adjustable Rate Preferred Stock, Series D is being
determined. If the Federal Reserve Board or its successor agency does not
publish such a weekly per annum market discount rate during such Calendar
Period, then the Treasury Bill Rate for such Dividend Period shall be the
arithmetic average of the two most recent weekly per annum market discount
rates (or the one weekly per annum market discount rate, if one such rate
shall be published during the relevant Calendar Period) for three-month U.S.
Treasury bills, as published weekly during such Calendar Period by any
Federal Reserve Bank or by any U.S. Government department or agency selected
by the Company. If a per annum market discount rate for three-month U.S.
Treasury bills shall not be published by the Federal Reserve Board or its
successor agency or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Treasury Bill Rate
for such Dividend Period shall be the arithmetic average of the two most
recent weekly per annum market discount rates (or the one weekly per annum
market discount rate, if one such rate shall be published during the relevant
Calendar Period) for all of the U.S. Treasury bills then having maturities of
not less than 80 nor more than 100 days, as published during such Calendar
Period by the Federal Reserve Board or its successor agency or, if the
Federal Reserve Board or its successor agency shall not publish such rates,
by any Federal Reserve Bank or by any U.S. Government department or agency
selected by the Company. If the Company determines in good faith that for
any reason no such U.S. Treasury bill rates are published as provided above
during such Calendar Period, then the Treasury Bill Rate for such Dividend
Period shall be the arithmetic average of the per annum market discount rates
based upon the closing bids during such Calendar Period for each of the
issues of marketable non-interest bearing U.S. Treasury securities with a
maturity of not less than 80 nor more than 100 days from the date of each
such quotation, as quoted daily for each business day in New York City (or
less frequently if daily quotations shall not be generally available) to the
Company by at least three recognized U.S. Government securities dealers
selected by the Company. If the Company determines in good faith that for
any reason the Company cannot determine the Treasury Bill Rate for any
Dividend Period as provided above in this paragraph, the Treasury Bill Rate
for such Dividend Period shall be the arithmetic average of the per annum
market discount rates based upon the closing bids during the related Calendar
Period for each of the issues of marketable interest-bearing U.S. Treasury
securities with a maturity of not less than 80 nor more than 100 days from
the date of each such quotation, as quoted daily for each business day in New
York City (or less frequently if daily quotations shall not be generally
available) to the Company by at least three recognized U.S. Government
securities dealers selected by the Company.
Except as provided below in this paragraph, the "Ten Year Constant
Maturity Rate" for each Dividend Period shall be the arithmetic average of
the two most recent weekly per annum Ten Year Average Yields (or the one
weekly per annum Ten Year Average Yield, if only one such Yield shall be
published during the relevant Calendar Period as provided below), as
published weekly by the Federal Reserve Board or its successor agency during
the Calendar Period immediately prior to the ten calendar days immediately
preceding the Dividend Payment Date prior to the Dividend Period for which
the dividend rate on the Adjustable Rate Preferred Stock, Series D is being
determined. If the Federal Reserve Board or its successor agency does not
publish such a weekly per annum Ten Year Average Yield during such Calendar
Period, then the Ten Year Constant Maturity Rate for such Dividend Period
shall be the arithmetic average of the two most recent weekly per annum Ten
Year Average Yields (or the one weekly per annum Ten Year Average Yield, if
only one such Yield shall be published during such Calendar Period), as
published weekly during such Calendar Period by any Federal Reserve Bank or
by any U.S. Government department or agency selected by the Company. If a
per annum Ten Year Average Yield shall not be published by the Federal
Reserve Board or its successor agency or by any Federal Reserve Bank or by
any U.S. Government department or agency during such Calendar Period, then
the Ten Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the two most recent weekly per annum average yields to
maturity (or the one weekly average yield to maturity, if only one such yield
shall be published during such Calendar Period) for all of the actively
traded marketable U.S. Treasury fixed interest rate securities (other than
Special Securities (as defined below)) then having maturities of not less
than eight nor more than twelve years, as published during such Calendar
Period by the Federal Reserve Board or its successor agency or, if the
Federal Reserve Board or its successor agency shall not publish such yields,
by any Federal Reserve Bank or by any U.S. Government department or agency
selected by the Company. If the Company determines in good faith that for
any reason the Company cannot determine the Ten Year Constant Maturity Rate
for any Dividend Period as provided above in this paragraph, then the Ten
Year Constant Maturity Rate for such Dividend Period shall be the arithmetic
average of the per annum average yields to maturity based upon the closing
bids during such Calendar Period for each of the issues of actively traded
marketable U.S. Treasury fixed interest rate securities (other than Special
Securities) with a final maturity date not less than eight nor more than
twelve years from the date of each such quotation, as quoted daily for each
business day in New York City (or less frequently if daily quotations shall
not be generally available) to the Company by at least three recognized U.S.
Government securities dealers selected by the Company.
Except as provided below in this paragraph, the "Twenty Year Constant
Maturity Rate" for each Dividend Period shall be the arithmetic average of
the two most recent weekly per annum Twenty Year Average Yields (or the one
weekly per annum Twenty Year Average Yield, if only one such Yield shall be
published during the relevant Calendar Period), as published weekly by the
Federal Reserve Board or its successor agency during the Calendar Period
immediately prior to the ten calendar days immediately preceding the Dividend
Payment Date prior to the Dividend Period for which the dividend rate on the
Adjustable Rate Preferred Stock, Series D is being determined. If the
Federal Reserve Board or its successor agency does not publish such a weekly
per annum Twenty Year Average Yield during such Calendar Period, then the
Twenty Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the two most recent weekly per annum Twenty Year
Average Yields (or the one weekly per annum Twenty Year Average Yield, if
only one such Yield shall be published during such Calendar Period), as
published weekly during such Calendar Period by any Federal Reserve Bank or
by any U.S. Government department or agency selected by the Company. If a
per annum Twenty Year Average Yield shall not be published by the Federal
Reserve Board or its successor agency or by any Federal Reserve Bank or by
any U.S. Government department or agency during such Calendar Period, then
the Twenty Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the two most recent weekly per annum average yields to
maturity (or the one weekly average yield to maturity, if only one such yield
shall be published during such Calendar Period) for all of the actively
traded marketable U.S. Treasury fixed interest rate securities (other than
Special Securities) then having maturities of not less than eighteen nor more
than twenty-two years, as published during such Calendar Period by the
Federal Reserve Board or its successor agency or, if the Federal Reserve
Board or its successor agency shall not publish such yields, by any Federal
Reserve Bank or by any U.S. Government department or agency selected by the
Company. If the Company determines in good faith that for any reason the
Company cannot determine the Twenty Year Constant Maturity Rate for any
Dividend Period as provided above in this paragraph, then the Twenty Year
Constant Maturity Rate for such Dividend Period shall be the arithmetic
average of the per annum average yields to maturity based upon the closing
bids during such Calendar Period for each of the issues of actively traded
marketable U.S. Treasury fixed interest rate securities (other than Special
Securities) with a final maturity date not less than eighteen nor more than
twenty-two years from the date of each such quotation, as quoted daily for
each business day in New York City (or less frequently if daily quotations
shall not be generally available) to the Company by at least three recognized
U.S. Government securities dealers selected by the Company.
The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the
Twenty Year Constant Maturity Rate shall each be rounded to the nearest five
one-hundredths of a percentage point.
The "Initial Dividend Payment Period" shall be that period
beginning on April 19, 1983 (the date of issuance) and continuing through and
including June 30, 1983. The initial dividend payment date shall be July 1,
1983.
A "Dividend Period" shall mean the three month period beginning
April 1, July 1, October 1, and January 1 in each year. A "Dividend Payment
Date" shall mean the first day of April, July, October, and January in each
year, commencing October 1, 1983.
The amount of dividends per share payable for each Dividend Period
shall be computed by dividing the dividend rate for such Dividend Period by
four and applying such rate against the par value per share of the Adjustable
Rate Preferred Stock, Series D. The amount of dividends payable for the
Initial Dividend Period or any period shorter than a full quarterly Dividend
Period shall be computed on the basis of 30-day months, a 360-day year and
the actual number of days elapsed in such period.
The dividend rate with respect to each Dividend Period will be
calculated as promptly as practicable by the Company according to the
appropriate method described herein. The mathematical accuracy of each such
calculation will be confirmed in writing by independent accountants of
recognized standing. The Company will cause each dividend rate to be
published in a newspaper of general circulation in New York City prior to the
commencement of the new Dividend Period to which it applies and will cause
notice of such dividend rate to be enclosed with the dividend payment checks
next mailed to the holders of the Adjustable Rate Preferred Stock, Series D.
As used herein, the term "Calendar Period" means a period of
fourteen calendar days; the term "Special Securities" means securities which
can, at the option of the holder, be surrendered at face value in payment of
any Federal estate tax or which provide tax benefits to the holder and are
priced to reflect such tax benefits or which were originally issued at a deep
or substantial discount; the term "Ten Year Average Yield" means the average
yield to maturity for actively traded marketable U.S. Treasury fixed interest
rate securities (adjusted to constant maturities of ten years); and the term
"Twenty Year Average Yield" means the average yield to maturity for actively
traded marketable U.S. Treasury fixed interest rate securities (adjusted to
constant maturities of twenty years).
(b) The redemption prices of the Adjustable Rate Preferred Stock,
Series D, shall be $112.00 per share if redeemed on or before April 1, 1988,
$103.00 per share if redeemed after April 1, 1988 but on or before April 1,
1993, or $100.00 per share if redeemed after April 1, 1993. In each case the
redemption price will also include accrued dividends to the date of
redemption. None of the Adjustable Rate Preferred Stock, Series D shall be
redeemed prior to April 1, 1988 if such redemption is for the purpose of or
in anticipation of refunding the Adjustable Rate Preferred Stock, Series D
through the use, directly or indirectly, of borrowed funds or of the proceeds
of the issue by the Company of shares of any stock ranking prior to or on a
parity with the Adjustable Rate Preferred Stock, Series D as to dividends or
assets, if such borrowed funds or such shares have an effective interest cost
or effective dividend cost (computed in accordance with generally accepted
financial principles), as the case may be, of less than 12.36 % per annum per
share.
(c) As and for a sinking fund for the Adjustable Rate Preferred
Stock, Series D, commencing on April 1, 1988 and on or before each April 1 in
each year thereafter so long as any shares of the Adjustable Rate Preferred
Stock, Series D remain outstanding, the Company shall, to the extent of any
funds of the Company legally available therefor and except as otherwise
restricted by the Company's Statement of Preferred Stock Provisions, redeem
17,500 shares of Adjustable Rate Preferred Stock, Series D (or such lesser
number of such shares as remain outstanding) at $100 per share plus accrued
dividends to the date of redemption; provided, however, that if in any year
the Company does not redeem the full number of shares of Adjustable Rate
Preferred Stock, Series D required to be redeemed pursuant to this sinking
fund, the deficiency shall be made good on the next April 1 on which the
Company has funds legally available for, and is otherwise permitted to
effect, the redemption of shares of Adjustable Rate Preferred Stock, Series
D, pursuant to this sinking fund. The number of shares of Adjustable Rate
Preferred Stock, Series D, redeemed on any April 1 shall be reduced by the
number of such shares purchased and cancelled by the Company during the
preceding twelve-month period or redeemed during such period pursuant to
subsection (b) hereof. Any shares so redeemed or purchased or cancelled may
be given the status of authorized but unissued shares of Preferred Stock, but
none of such shares shall be reissued as shares of Adjustable Rate Preferred
Stock, Series D. The Company shall have the option, which shall be
noncumulative, to redeem on April 1, 1988 and on each April 1 thereafter up
to an additional 17,500 shares of Adjustable Rate Preferred Stock, Series D,
at the sinking fund redemption price. No such optional sinking fund shall
operate to reduce the number of shares of the Adjustable Rate Preferred
Stock, Series D, required to be redeemed pursuant to the mandatory sinking
fund provisions hereinabove set forth. In the event that the Company shall
at any time fail to make a full mandatory sinking fund payment on any sinking
fund payment date, the Company shall not pay any dividends or make any other
distributions in respect of outstanding shares of any junior stock (as that
term is defined in Subsection A of Section of Article XVI of the by-laws of
the Company) of the Company, other than dividends or distributions in shares
of junior stock, or purchase or otherwise acquire for value any outstanding
shares of junior stock, until all such payments have been made.
5. 7.60% Class A Preferred Stock, 1987 Series
There shall be a series of Preferred Stock designated "7.60% Class A
Preferred Stock, 1987 Series," and consisting of 1,200,000 shares with an
aggregate par value of $30,000,000 and a par value per share of $25. The
dividend rate and redemption prices as to said 7.60% Class A Preferred Stock,
1987 Series, shall be as follows:
(a) Dividends on said 7.60% Class A Preferred Stock, 1987 Series, shall
be at the rate of 7.60% per share per annum, and no more, and shall be
cumulative from the date of issuance. Said dividends, when declared, shall
be payable on the first days of February, May, August and November in each
year, commencing May 1, 1987.
(b) For each of the twelve month periods commencing February 1, 1987,
the redemption prices of said 7.60% Class A Preferred Stock, 1987 Series,
shall be the amount per share set forth below:
Twelve Twelve
Months Redemption Months Redemption
Beginning Price Beginning Price
February 1 Per Share February 1 Per Share
1987 $26.90 2000 $25.26
1988 26.90 2001 25.13
1989 26.90 2002 25.00
1990 26.90 2003 25.00
1991 26.90 2004 25.00
1992 26.27 2005 25.00
1993 26.14 2006 25.00
1994 26.02 2007 25.00
1995 25.89 2008 25.00
1996 25.76 2009 25.00
1997 25.64 2010 25.00
1998 25.51 2011 25.00
1999 25.38
plus in all cases that portion of the quarterly dividend accrued thereon to
the redemption date and all unpaid dividends thereon, if any; provided,
however, that none of the 7.60% Class A Preferred Stock, 1987 Series, shall
be redeemed prior to February 1, 1992, if such redemption is for the purpose
of or in anticipation of refunding such 7.60% Class A Preferred Stock, 1987
Series, through the use, directly or indirectly, of funds borrowed by the
Company or of the proceeds of the issue by the Company of shares of any stock
ranking prior to or on a parity with the 7.60% Class A Preferred Stock, 1987
Series, as to dividends or assets, if such borrowed funds or such shares have
an effective interest cost or effective dividend cost to the Company
(computed in accordance with generally accepted financial principles), as the
case may be, of less than 7.69% per annum.
(c) As and for a sinking fund for said 7.60% Class A Preferred Stock,
1987 Series, commencing on February 1, 1992, and on each February 1 in each
year thereafter so long as any shares of the 7.60% Class A Preferred Stock,
1987 Series, remain outstanding, the Company shall, to the extent of any
funds of the Company legally available therefor and except as otherwise
restricted by the Company's Statement of Preferred Stock Provisions, redeem
60,000 shares of 7.60% Class A Preferred Stock, 1987 Series (or such lesser
number of such shares as remain outstanding) at $25 per share plus accrued
dividends to the date of redemption; provided, however, that if in any year
the Company does not redeem the full number of shares of 7.60% Class A
Preferred Stock, 1987 Series, required to be redeemed pursuant to this
sinking fund, the deficiency shall be made good on the next succeeding
February 1 on which the Company has funds legally available for, and is
otherwise permitted to effect, the redemption of shares of 7.60% Class A
Preferred Stock, 1987 Series, pursuant to this sinking fund. At the option
of the Company, the number of shares of 7.60% Class A Preferred Stock, 1987
Series, redeemed on any February 1 may be reduced by the number of such
shares purchased and canceled by the Company during the preceding
twelve-month period or redeemed during such period pursuant to subsection (b)
hereof. Any shares so redeemed or purchased and canceled may be given the
status of authorized but unissued shares of Senior Stock, but none of such
shares shall be reissued as shares of 7.60% Class A Preferred Stock, 1987
Series. The Company shall have the option, which shall be noncumulative, to
redeem on February 1, 1992 and on each February 1 thereafter up to an
additional 60,000 shares of 7.60% Class A Preferred Stock, 1987 Series, at
the sinking fund redemption price. No such optional sinking fund shall
operate to reduce the number of shares of the 7.60% Class A Preferred Stock,
1987 Series, required to be redeemed pursuant to the mandatory sinking fund
provisions hereinabove set forth. In the event that the Company shall at any
time fail to make a full mandatory sinking fund payment on any sinking fund
payment date, the Company shall not pay any dividends or make any other
distributions in respect of outstanding shares of any junior stock (as that
term is defined in Subsection 2D of Section 2 of Article XVI of the by-laws
of the Company) of the Company, other than dividends or distributions in
shares of junior stock, or purchase or otherwise acquire for value any
outstanding shares of junior stock, until all such payments have been made.
6. Dutch Auction Rate Transferable Securities Class A Preferred Stock,
1988 Series
There shall be a series of Class A Preferred Stock designated "Dutch
Auction Rate Transferable Securities Class A Preferred Stock, 1988 Series"
(the "1988 DARTS") consisting of 2,140,000 shares with an aggregate par
value of $53,500,000 and a par value per share of $25. The provisions
governing the issue and sale of the 1988 DARTS in Units, certification,
dividend rights, redemption, reacquisition, auction procedures, and other
preferences, qualifications and special or relative rights or privileges with
respect to the 1988 DARTS shall be as follows:
(1) Units
The 1988 DARTS shall be issued and sold by the Company only in units of
4,000 shares per unit ("Units"). No partial Units shall be issued and sold
by the Company, and no fractional shares of the 1988 DARTS shall be issued
and sold, no transfer of the 1988 DARTS in less than whole Units shall be
made, nor shall any transfer in less than whole Units be registered on the
transfer books of the Company or be effective for any purpose.
(2) Certification
Except as otherwise provided by law, all outstanding DARTS shall be
represented by a certificate or certificates registered in the name of a
nominee of the Securities Depository (as defined in Section (6)(a)(xxi)
below), and no person acquiring Units shall be entitled to receive a
certificate representing the 1988 DARTS. The nominee of the Securities
Depository shall be the sole holder of record of the 1988 DARTS. Each
purchaser of Units will receive dividends, distributions and notices
according to the procedures of the Securities Depository and, if such
purchaser is not a member of the Securities Depository, of such purchaser's
Agent Member (as defined in Section (6)(a)(ii) below).
(3) Dividend Rights
(a) Dividends on the 1988 DARTS shall be paid, when, as and if declared
by the Board of Directors of the Company out of funds legally available
therefor, at the rate per annum determined as set forth below in subsection
(c) of this Section (3) and no more (the "Applicable Rate"), payable on the
respective dates set forth below.
(b) Dividends on the 1988 DARTS shall accrue from the date of original
issuance and shall be payable commencing on May 3, 1988, and on each
succeeding seventh Tuesday thereafter, except that if any of such Tuesday,
the Monday preceding such Tuesday, or the Wednesday following such Tuesday is
not a Business Day (as defined below), then (i) the dividend payment date
shall be the first Business Day after such Tuesday that is immediately
followed by a Business Day and is preceded by a Business Day that is the
preceding Monday or a day after such Monday, or (ii) if the Securities
Depository shall make available to its participants and members, in funds
immediately available in New York City on dividend payment dates, the amount
due as dividends on such dividend payment dates (and the Securities
Depository shall have so advised the Trust Company (as defined in Section
(6)(a)(xxx) below)), then the dividend payment date shall be the first
Business Day on or after such Tuesday that is preceded by a Business Day that
is the preceding Monday or a day after such Monday. "Business Day" means a
day on which the New York Stock Exchange is open for trading and which is
not a day on which banks in New York City are authorized by law to close.
Each dividend payment date determined as provided above is referred to herein
as the "Dividend Payment Date." Although any particular Dividend Payment
Date may not occur on the originally scheduled Tuesday because of the
exceptions discussed above, the next succeeding Dividend Payment Date shall
be, subject to such exceptions, the seventh Tuesday following the originally
designated Tuesday Dividend Payment Date for the prior Dividend Period. As
used herein, Dividend Period means the period commencing on a Dividend
Payment Date for DARTS and ending on the day next preceding the next Dividend
Payment Date. Notwithstanding the foregoing, in the event of a change in law
altering the minimum holding period (currently found in Section 246(c) of the
Internal Revenue Code of 1986, as amended (the "Code")) required for
taxpayers to be entitled to the dividends received deduction on preferred
stock held by non-affiliated corporations (currently found in Section 243(a)
of the Code), the Company shall adjust the period of time between Dividend
Payment Dates so as to adjust uniformly the number of days (such number of
days without giving effect to the exceptions referred to above being
hereinafter referred to as "Dividend Period Days") in Dividend Periods
commencing after the date of such change in law to equal or exceed the then
current minimum holding period; provided that the number of Dividend Period
Days shall not exceed by more than nine days the length of such then current
minimum holding period and shall be evenly divisible by seven, and the
maximum number of Dividend Period Days in no event shall exceed 98 days.
Upon any such change in the number of Dividend Period Days as a result of a
change in law, the Company shall give notice of such change to all Existing
Holders of Units.
(c) The dividend rate on shares of the 1988 DARTS during the period
from and after the date of original issuance to the Initial Dividend Payment
Date (the "Initial Dividend Period") shall be 6.375 percent per annum.
Commencing on the Initial Dividend Payment Date, the dividend rate on shares
of the 1988 DARTS for each subsequent Dividend Period shall be at a rate per
annum that results from the implementation of the Auction procedures set
forth in Section (6) below.
The amount of dividends per Unit for the 1988 DARTS payable for each
Dividend Period shall be computed by multiplying the dividend rate for such
series for each Dividend Period determined in accordance with subsection (c)
above by a fraction the numerator of which shall be the number of days in
such Dividend Period (calculated by counting the first day thereof but
excluding the last day thereof) such Unit was outstanding and the denominator
of which shall be 360, and multiplying the amount so obtained by $100,000 per
Unit.
(d) Prior to each Dividend Payment Date, the Company shall pay to the
Trust Company sufficient funds for the payment of declared dividends.
(e) For the purpose of determining whether and when holders of the
Senior Stock are entitled to the rights to elect certain directors of the
Company, described under Article XVI, Section 5(c) of these By-laws,
dividends on the DARTS shall be deemed to be in arrears "in an amount equal
to or exceeding four quarterly dividend payments," if, at the time dividends
are in arrears for four quarterly dividend payments for Senior Stock having
quarterly dividend payments, dividends on the 1988 DARTS are in arrears for
each Dividend Period beginning on or after the first day of the first of the
four quarterly dividend periods as to which dividends on the Senior Stock
having quarterly dividends are in arrears.
(4) Redemption Provisions
(a) At the option of the Company, the Units may be redeemed out of
funds legally available therefor in whole on any Dividend Payment Date at a
redemption price of $25 per share of the 1988 DARTS ($100,000 per Unit) plus
accrued and unpaid dividends (whether or not earned or declared) to the
redemption date. Only whole Units may be redeemed. See Section (5) below
for restrictions on the reissue of Units after redemption.
(b) In accordance with Article XVI, Section 3 of these By-laws, notice
of redemption shall be mailed to each record holder of Units and to the Trust
Company not less than 30 days prior to the date fixed for redemption thereof.
Each notice of redemption shall include a statement setting forth: (i) the
redemption date, (ii) the number of Units to be redeemed, (iii) the
redemption price, (iv) the place or places where Units are to be surrendered
for payment of the redemption price, and (v) that dividends of the Units to
be redeemed will cease to accrue on such redemption date. No defect in the
notice of redemption or in the mailing thereof shall affect the validity of
the redemption proceedings, except as required by applicable law.
(c) If less than all of the outstanding Units are to be redeemed, the
number of Units to be redeemed shall be determined by the Company and
communicated to the Trust Company. In accordance with Article XVI, Section
3A of these By-laws, the Trust Company shall give notice to the Securities
Depository and the Securities Depository will determine by lot under its
usual operating procedures the number of Units, if any, to be redeemed from
the account of the Agent Member of each Existing Holder. An Agent Member may
determine to redeem Units from some Existing Holders without redeeming Units
from the accounts of other Existing Holders.
(5) Reacquisition
Except in an Auction (as defined in Section (6)(a)(iii) below), the
Company shall have the right, in accordance with Article XVI, Section 3E of
these By-laws, and where permitted by applicable law, to purchase or
otherwise acquire Units upon the best terms reasonably obtainable, but not
exceeding the then current redemption price of such Units, except that no
such purchase shall be made if the Company shall be in arrears in respect to
payment of dividends on any shares of Senior Stock outstanding or if there
shall exist an event of default as defined in Article XVI, Section 5 of
these By-laws. Notwithstanding the provisions of Article XVI, Section 3D of
these By-laws, Units that have been redeemed, purchased or otherwise
acquired by the Company shall not be reissued as 1988 DARTS and shall either
be restored to authorized but unissued shares of the Company's Class A
Preferred Stock or canceled at the Company's option.
(6) Auction Procedures
(a) Certain Definitions. As used in this Section 6 of these Provisions
with Respect to the series of Senior Stock, the following terms shall have
the following meanings, unless the context otherwise requires:
(i) "Affiliate" shall mean any Person known to the Trust Company
to be controlled by, in control of, or under common control with the Company.
(ii) "Agent Member" shall mean the member of the Securities
Depository that will act on behalf of a Bidder and is identified as such in
such Bidder's Purchaser's Letter.
(iii) "Auction" shall mean the periodic operation of the
procedures set forth herein.
(iv) "Auction Date" shall mean the Business Day next preceding a
Dividend Payment Date.
(v) "Available Units" shall have the meaning specified in
paragraph (d)(i)(A) below.
(vi) "Bid" shall have the meaning specified in paragraph(b)(i)
below.
(vii) "Bidder" shall have the meaning specified in
paragraph(b)(i) below.
(viii) "Board of Directors" shall mean the Board of Directors of
the Company.
(ix) "Broker-Dealer" shall mean any broker-dealer, or other entity
permitted by law to perform the functions required of a Broker-Dealer herein,
that has been selected by the Company and has entered into a Broker-Dealer
Agreement with the Trust Company that remains effective.
(x) "Broker-Dealer Agreement" shall mean an agreement between the
Trust Company and a Broker-Dealer pursuant to which such Broker-Dealer agrees
to follow the procedures specified herein.
(xi) "DARTS" or "1988 DARTS" shall mean the 2,140,000 shares of
Dutch Auction Rate Transferable Securities Class A Preferred Stock, 1988
Series, $25 Par Value, of the Company.
(xii) "Existing Holder," when used with respect to Units, shall
mean a Person who has signed a Purchaser's Letter and is listed as the
beneficial owner of such Units in the records of the Trust Company.
(xiii) "Hold Order" shall have the meaning specified in
paragraph (b)(i) below.
(xiv) "Maximum Applicable Rate," on any Auction Date, shall
mean the percentage of the 60-day "AA" Composite Commercial Paper Rate (as
defined below) in effect on such Auction Date, determined as set forth below
based on the prevailing rating of the DARTS in effect at the close of
business on the day preceding such Auction Date:
Prevailing Rating Percentage
AA/aa or Above........................... 110%
A/a...................................... 120%
BBB/baa.................................. 130%
BB/ba.................................... 175%
Below BB/ba.............................. 200%
For purposes of this definition, the "prevailing rating" of the DARTS shall
be (i) AA/aa or Above, if the DARTS have a rating of AA- or better by
Standard & Poor's Corporation or its successor ("S&P") and aa3 or better by
Moody's Investors Service, Inc. or its successor ("Moody's"), or the
equivalent of both of such ratings by such agencies or a substitute rating
agency or substitute rating agencies selected as provided below, (ii) if not
AA/aa or Above, then A/a, if the DARTS have a rating of A- or better by S&P
and a3 or better by Moody's or the equivalent of both of such ratings by such
agencies or a substitute rating agency or substitute rating agencies selected
as provided below, (iii) if not AA/aa or Above or A/a, then BBB/Baa, if the
DARTS have a rating of BBB- or better by S&P and baa3 or better by Moody's or
the equivalent of both of such ratings by such agencies or a substitute
rating agency or substitute rating agencies selected as provided below, and
(iv) if not AA/aa or Above, A/a or BBB/baa, then BB/ba, if the DARTS have a
rating of BB- or better by S&P and Ba3 or better by Moody's, or the
equivalent of both of such ratings by such agencies or a substitute rating
agency or substitute rating agencies selected as provided below, and (v) if
not AA/aa or Above, A/a, BBB/baa or BB/ba, then Below BB/ba. The Company
shall take all reasonable action necessary to enable S&P and Moody's to
provide a rating for the DARTS. If either S&P or Moody's shall not make such
a rating available, or neither S&P nor Moody's shall make such a rating
available, Salomon Brothers Inc and Morgan Stanley & Co. Incorporated, or
their successors shall select a nationally recognized securities rating
agency or two nationally recognized securities rating agencies to act as
substitute rating agency or substitute rating agencies, as the case may be.
(xv) "Minimum Applicable Rate," on any Auction Date, shall mean 59%
of the 60-day "AA" Composite Commercial Paper Rate in effect on such Auction
Date.
(xvi) "Order" shall have the meaning specified in
paragraph(b)(i) below.
(xvii) "Outstanding" shall mean, as of any date, the DARTS
theretofore issued by the Company except, without duplication, (A) any DARTS
theretofore canceled or delivered to the Trust Company for cancellation, or
redeemed by the Company, or as to which a notice of redemption shall have
been given by the Company, (B) any DARTS as to which the Company or any
Affiliate thereof shall be an Existing Holder and (C) any DARTS represented
by any certificate in lieu of which a new certificate has been executed and
delivered by the Company.
(xviii) "Person" shall mean and include an individual, a
partnership, a corporation, a trust, an unincorporated association, a joint
venture or other entity or a government or any agency or political
subdivision thereof.
(xix) "Potential Holder" shall mean any Person, including any
Existing Holder, (A) who shall have executed and delivered or caused to be
delivered a Purchaser's Letter to the Trust Company and (B) who may be
interested in acquiring Units (or, in the case of an Existing Holder,
additional Units).
(xx) "Purchaser's Letter" shall mean a letter addressed to the
Company, the Trust Company, Broker-Dealer and other persons in which a Person
agrees, among other things, to offer to purchase, purchase, offer to sell
and/or sell Units as set forth herein.
(xxi) "Securities Depository" shall mean The Depository Trust
Company and its successors and assigns or any other securities depository
selected by the Company which agrees to follow the procedures required to be
followed by such securities depository in connection with the DARTS.
(xxii) "Sell Order" shall have the meaning specified in
paragraph (b)(i) below.
(xxiii) "60-day 'AA' Composite Commercial Paper Rate," on any
date, means (i) the interest equivalent of the 60-day rate on commercial
paper placed on behalf of issuers whose corporate bonds are rated "AA" by S&P
or the equivalent of such rating by S&P or another rating agency, as such
60-day rate is made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such
date, or (ii) in the event that the Federal Reserve Bank of New York does not
make available such a rate, then the interest equivalent of the 60-day rate
on commercial paper placed on behalf of such issuers, as quoted on a discount
basis or otherwise by Morgan Stanley & Co. Incorporated or, in lieu thereof,
any affiliates or successor thereof (the "Commercial Paper Dealer"), to the
Trust Company for the close of business on the Business Day immediately
preceding such date. If the Commercial Paper Dealer does not quote a rate
required to determine the 60-day "AA" Composite Commercial Rate, the 60-day
"AA" Composite Commercial Paper Rate shall be determined on the basis of the
quotation or quotations furnished by any Substitute Commercial Paper Dealer
or Substitute Commercial Paper Dealers selected by the Company to provide
such rate. If the Company, however, shall adjust the number of Dividend
Period Days in the event of a change in the dividends received deduction
minimum holding period contained in the Internal Revenue Code of 1986, as
amended, with the result that (i) the Dividend Period Days shall be fewer
than 70 days, such rate shall be the interest equivalent of the 60-day rate
on such commercial paper, (ii) the Dividend Period Days shall be 70 or more
days but fewer than 85 days, such rate shall be the arithmetic average of the
interest equivalent of the 60-day and 90-day rates on such commercial paper,
and (iii) the Dividend Period Days shall be 85 or more days but 98 or fewer
days, such rate shall be the interest equivalent of the 90-day rate on such
commercial paper. For the purposes of such definition, "interest equivalent"
means the equivalent yield on a 360-day basis of a discount basis security to
an interest-bearing security and "Substitute Commercial Paper Dealer" shall
mean any commercial paper dealer that is a leading dealer in the commercial
paper market, provided that neither such dealer nor any of its affiliates is
a Commercial Paper Dealer.
(xxiv) "Submission Deadline" shall mean 12:30 P.M., New York
City time, on any Auction Date or such other time on any Auction Date by
which Broker-Dealers are required to submit Orders to the Trust Company as
specified by the Trust Company from time to time.
(xxv) "Submitted Bid" shall have the meaning specified in
paragraph (d)(i) below.
(xxvi) "Submitted Hold Order" shall have the meaning specified
in paragraph (d)(i) below.
(xxvii) "Submitted Order" shall have the meaning specified in
paragraph (d)(i) below.
(xxviii) "Submitted Sell Order" shall have the meaning specified
in paragraph (d)(i) below.
(xxvix) "Sufficient Clearing Bids" shall have the meaning
specified in paragraph (d)(i) below.
(xxx) "Trust Company" shall mean Bankers Trust Company and its
successor, and assigns or any other bank, trust company or other entity
selected by the Company which agrees to follow the Auction Procedures
described in this Section (6) for the purposes of determining the Applicable
Rate for the DARTS.
(xxxi) "Winning Bid Rate" shall have the meaning specified in
paragraph (d)(i) below.
(b) Orders by Existing Holders and Potential Holders
(i) On or prior to each Auction Date:
(A) each Existing Holder may submit to a Broker-Dealer information
as to:
(1) the number of Outstanding Units, if any, held by such
Existing Holder which such Existing Holder desires to continue to hold
without regard to the Applicable Rate for the next succeeding Dividend
Period;
(2) the number of Outstanding Units, if any, held by such
Existing Holder which such Existing Holder desires to continue to hold,
provided that the Applicable Rate for the next succeeding Dividend Period
shall not be less than the rate per annum specified by such Existing Holder;
and/or
(3) the number of Outstanding Units, if any, held by such
Existing Holder which such Existing Holder offers to sell without regard to
the Applicable Rate for the next succeeding Dividend Period; and
(B) Each Broker-Dealer, using a list of Potential Holders that
shall be maintained in good faith for the purpose of conducting a
competitive Auction shall contact Potential Holders, including Persons that
are not Existing Holders, on such list to determine the number of Outstanding
Units, if any, which each such Potential Holder offers to purchase, provided
that the Applicable Rate for the next succeeding Dividend Period shall not be
less than the rate per annum specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of
information referred to in clause (A) or (B) of this paragraph (b)(i) is
hereinafter referred to as an "Order" and each Existing Holder and each
Potential Holder placing an Order is hereinafter referred to as a "Bidder";
and Order containing the information referred to in clause (A)(1) of this
paragraph (b)(i) is hereinafter referred to as a "Hold Order"; an Order
containing the information referred to in clause (A)(2) or (B) of this
paragraph (b)(i) is hereinafter referred to as a "Bid"; and an Order
containing the information referred to in clause (A)(3) of this paragraph
(b)(i) is hereinafter referred to as a "Sell Order."
(ii) (A) A Bid by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding Units specified in such Bid if
the Applicable Rate determined on such Auction Date shall be less than the
rate specified therein; or
(2) such number or a lesser number of Outstanding Units to be
determined as set forth in paragraph (e)(i)(D) if the Applicable Rate
determined on such Auction Date shall be equal to the rate specified therein;
or
(3) a lesser number of Outstanding Units to be determined as
set forth in paragraph (e)(ii)(C) if such specified rate shall be higher than
Maximum Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding Units specified in such Sell
Order; or
(2) such number or a lesser number of Outstanding Units to be
determined as set forth in paragraph (e)(ii)(C) if Sufficient Clearing Bids
do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable
offer to purchase:
(1) the number of Outstanding Units specified in such Bid if
the Applicable Rate determined on such Auction Date shall be higher than the
rate specified therein; or
(2) such number of a lesser number of Outstanding Units to be
determined as set forth in paragraph (e)(i)(E) if the Applicable Rate
determined on such Auction Date shall be equal to the rate specified therein.
(c) Submission of Orders by Broker-Dealers to Trust Company (i) Each
Broker-Dealer shall submit in writing to the Trust Company prior to the
Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer and specifying with respect to each Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate number of Outstanding Units that are subject of
such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding Units, if any, subject to any
Hold Order placed by such Existing Holder;
(2) the number of Outstanding Units, if any, subject to any
Bid placed by such Existing Holder and the rate specified in such Bid; and
(3) the number of Outstanding Units, if any, subject to any
Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate
specified in such Potential Holder's Bid.
(ii) If any rate specified in any Bid contains more than three
figures to the right of the decimal point, the Trust Company shall round such
rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the
Outstanding Units held by an Existing Holder is not submitted to the Trust
Company prior to the Submission Deadline, the Trust Company shall deem a Hold
Order to have been submitted on behalf of such Existing Holder covering the
number of Outstanding Units held by such Existing Holder and not subject to
Orders submitted to the Trust Company.
(iv) If one or more Orders covering in the aggregate more than
the number of Outstanding Units held by an Existing Holder are submitted to
the Trust Company, such Orders shall be considered valid as follows and in
the following order or priority:
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of Outstanding Units
held by such Existing Holder; provided that if more than one Hold Order is
submitted on behalf of such Existing Holder and the number of Units subject
to such Hold Orders exceeds the number of Outstanding Units held by such
Existing Holder, the number of Units subject to such Hold Orders shall be
reduced pro rata so that such Hold Orders shall cover the number of
Outstanding Units held by such Existing Holder;
(B) (1) any Bid shall be considered valid up to and including the
excess of the number of Outstanding Units held by such Existing Holder over
the number of Units subject to Hold Orders referred to in paragraph
(c)(iv)(A);
(2) subject to clause (1) above, if more than one Bid with
the same rate is submitted on behalf of such Existing Holder and the number
of Outstanding Units subject to such Bids is greater than such excess, the
number of Outstanding Units subject to such Bids shall be reduced pro rata so
that such Bids shall cover the number of Outstanding Units equal to such
excess; and
(3) subject to clause (1) above, if more than one Bid with
different rates is submitted on behalf of such Existing Holder, such Bids
shall be considered valid in the ascending order of their respective rates
and in any such event the number, if any, of such Outstanding shares subject
to Bids not valid under this clause (B) shall be treated as the subject of a
Bid by a Potential Holder; and (C) any Sell Order shall be considered valid
up to and including the excess of the number of Outstanding Units held by
such Existing Holder over the number of Outstanding Units subject to Hold
Orders referred to in paragraph (c)(iv)(A) and Bids referred to in paragraph
(c)(iv)(B).
(v) If more than one Bid is submitted on behalf of any
Potential Holder, each Bid submitted shall be a separate Bid with the rate
and Units therein specified.
(vi) If any rate specified in any Bid is lower than the
Minimum Applicable Rate for the Dividend Period to which such Bid relates,
such Bid shall be deemed to be a Bid specifying a rate equal to such Minimum
Applicable Rate.
(vii) Orders by Existing Holders and Potential Holders
must specify numbers of Units in whole Units. Any Order that specifies a
number of Units other than in whole shares will be invalid and will not be
considered a Submitted Order for purposes of an Auction.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate (i) Not earlier than the Submission Deadline on each
Auction Date, the Trust Company shall assemble all Orders submitted or deemed
submitted to it by the Broker-Dealers (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order" a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding Units over the
number of Outstanding Units that are the subject of Submitted Hold Orders
(such excess being hereinafter referred to as the "Available Units");
(B) from the Submitted Orders, whether:
(1) the number of Outstanding Units that are the subject of
Submitted Bids by Potential Holders specifying one or more rates equal to or
lower than the Maximum Applicable Rate exceeds or is equal to the sum of:
(2) [a] the number of Outstanding Units that are the subject
of Submitted Bids by Existing Holders specifying one or more rates higher
than the Maximum Applicable Rate, and [b] the number of Outstanding Units
that are subject to Submitted Sell Orders (if such excess of such equality
exists (other than because the number of Outstanding Units in clauses [a] and
[b] above are each zero because all of the Outstanding Units are the subject
of Submitted Hold Orders), such Submitted Bids in clause (1) above being
hereinafter referred to collectively as "Sufficient Clearing Bids"); and (C)
if Sufficient Clearing Bids exist, the lowest rate specified in the Submitted
Bids (the "Winning Bid Rate"), which if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other Submitted Bids from Existing Holders
specifying lower rates were rejected, thus entitling such Existing Holders to
continue to hold the Units that are the subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential Holders
specifying lower rates were accepted, thus entitling the Potential Holders to
purchase the Units that are the subject of such Submitted Bids, would result
in the number of shares subject to all Submitted Bids specifying the Winning
Bid Rate or a lower rate being at least equal to the Available Units.
(ii) Promptly after the Trust Company has made the determinations
pursuant to paragraph (d)(i), the Trust Company shall advise the Company of
the Maximum Applicable Rate and the Minimum Applicable Rate and, based on
such determinations, the Applicable Rate for the next succeeding Dividend
Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate
for the next succeeding Dividend Period shall be equal to the Winning Bid
Rate so determined;
(B) if Sufficient Clearing Bids do not exist (other than because
all of the Outstanding Units are the subject of Submitted Hold Orders), that
the Applicable Rate for the next succeeding Dividend Period shall be equal to
the Maximum Applicable Rate; or (C) if all the Outstanding Units are the
subject of Submitted Hold Orders, that the Applicable Rate for the next
succeeding Dividend Period shall be equal to the Minimum Applicable Rate.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares Based on the determinations made pursuant to
paragraph (d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Trust Company shall take such other action as
set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraphs (e)(iii) and (e)(iv), Submitted Bids and Submitted
Sell Orders shall be accepted or rejected in the following order or priority
and all other Submitted bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders specifying any
rate that is higher than the Winning Bid Rate shall be rejected, thus
requiring each such Existing Holder to sell the Outstanding Units that are
the subject of such Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders
specifying any rate that is lower than the Winning Bid Rate shall be
accepted, thus entitling each such Existing Holder to continue to hold the
Outstanding Units that are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders
specifying any rate that is lower than the Winning Bid Rate shall be
accepted;
(D) the Submitted Bid of each of the Existing Holders
specifying a rate that is equal to the Winning Bid Rate shall be accepted,
thus entitling each such Existing Holder to continue to hold the Outstanding
Units that are the subject of such Submitted Bid, unless the number of
Outstanding Units subject to all such Submitted Bids shall be greater than
the number of Outstanding Units ("remaining shares") equal to the excess of
the Available Units over the number of Outstanding Units subject to Submitted
Bids described in paragraphs (e)(i)(B) and (e)(i)(C), in which event the
Submitted Bids of each such Existing Holder shall be rejected, and each such
Existing Holder shall be required to sell Outstanding Units, but only in an
amount equal to the difference between (1) the number of Outstanding Units
then held by such Existing Holder subject to such Submitted Bid and (2) the
number of Units obtained by multiplying (x) the number of remaining shares by
(y) a fraction the numerator of which shall be the number of Outstanding
Units held by such Existing Holder subject to such Submitted Bid and the
denominator of which shall be the sum of the number of Outstanding Units
subject to such Submitted Bids made by all such Existing Holders that
specified a rate equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders
specifying a rate that is equal to the Winning Bid Rate shall be accepted but
only in an amount equal to the number of Outstanding Units obtained by
multiplying (x) the difference between the Available Units and the number of
Outstanding Units subject to the Submitted Bids described in paragraphs
(e)(i)(B), (e)(i)(C) and (e)(i)(D) by (y) a fraction the numerator of which
shall be the number of Outstanding shares of Units subject to such Submitted
Bid and the denominator of which shall be the sum of the number of
Outstanding Units subject to such Submitted Bids made by all such Potential
Holders that specified rates equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have been made (other than because all
of the Outstanding Units are subject to Submitted Hold Orders), subject to
the provisions of paragraphs (e)(iii) and (e)(iv), Submitted Orders shall be
accepted or rejected as follows in the following order of priority and all
other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate
that is equal to or lower than the Maximum Applicable Rate shall be accepted,
thus entitling such Existing Holder to continue to hold the Outstanding Units
that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate
that is equal to or lower than the Maximum Applicable Rate shall be accepted,
thus requiring such Potential Holder to purchase the Outstanding Units that
are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate
that is higher than the Maximum Applicable Rate shall be rejected and the
Submitted Sell Orders of each Existing Holder shall be accepted, in both
cases only in an amount equal to the difference between (1) the number of
Outstanding Units then held by such Existing Holder subject to such Submitted
Bid or Submitted Sell Order and (2) the number of Units obtained by
multiplying (x) the difference between the Available Units and the aggregate
number of Outstanding Units subject to Submitted Bids described in paragraphs
(e)(ii)(A) and (e)(ii)(B) by (y) a fraction the numerator of which shall be
the number of Outstanding Units held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and the denominator of which shall be
the number of Outstanding Units subject to all such Submitted Bids and
Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph
(e)(i) or (e)(ii), any Existing Holder would be entitled or required to sell,
or any Potential Holder would be entitled or required to purchase, a fraction
of a Unit on any Auction Date, the Trust Company shall, in such manner as, in
its sole discretion, it shall determine, round up or down the number of Units
to be purchased or sold by any Existing Holder or Potential Holder on such
Auction Date so that the number of Outstanding shares purchased or sold by
each Existing Holder or Potential Holder on such Auction Date shall be whole
Units.
(iv) If, as a result of the procedures described in paragraph (e)(i),
any Potential Holder would be entitled or required to purchase less than a
whole Unit on any Auction Date, the Trust Company shall, in such manner as,
in its sole discretion, it shall determine, allocate Units for purchase among
Potential Holders so that only whole Units are purchased on such Auction Date
by any Potential Holder, even if such allocation results in one or more of
such Potential Holders not purchasing Units on such Auction Date.
(v) Based on the results of each Auction, the Trust Company shall
determine the aggregate number of Outstanding Units to be purchased and the
aggregate number of Outstanding Units to be sold by Potential Holders and
Existing Holders on whose behalf each Broker-Dealer submitted Bids or Sell
Orders, and, with respect to each Broker-Dealer, to the extent that such
aggregate number of Outstanding shares to be purchased and such aggregate
number of Outstanding shares to be sold differ, determine to which other
Broker-Dealer or Broker-Dealers acting for one or more purchasers such
Broker-Dealer shall deliver, or from which other Broker-Dealer or
Broker-Dealers acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, Outstanding Units.
(f) Miscellaneous
The Board of Directors may interpret the provisions of these
Auction Procedures to resolve any inconsistency or ambiguity, and may remedy
any formal defect or make any other change or modification which does not
adversely affect the rights of Existing Holders of Units. An Existing Holder
(A) may sell, transfer or otherwise dispose of Units only pursuant to a Bid
or Sell Order in accordance with the procedures described in this paragraph
or to or through a Broker-Dealer or to a Person that has delivered a signed
copy of a Purchaser's Letter to the Trust Company, provided that in the case
of all transfers other than pursuant to Auctions such Existing Holder, its
Broker-Dealer or its Agent Member advises the Trust Company of such transfer
and (B) shall have the ownership of the Units held by it maintained in book
entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Existing Holder's beneficial
ownership. Neither the Company nor any Affiliate shall submit an Order,
either directly or indirectly, in any Auction. Except as otherwise provided
by law, all of the Outstanding Units shall be represented by a certificate
registered in the name of the nominee of the Securities Depository and no
Person acquiring Units shall be entitled to receive a certificate
representing such shares.
(g) Headings of Subdivisions
The headings of the various subdivisions of these Auction
Procedures are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
ARTICLE XVIII
AMENDMENTS
Except as otherwise provided in Article XVI hereof, these By-Laws may be
altered, amended or repealed at any meeting of the stockholders called for
the purpose by vote of a majority of stock present and voting thereon or at
any meeting of the Board of Directors called for the purpose by vote of a
majority of the Board of Directors.
Exhibit 4.2.17
SIXTY-EIGHTH
SUPPLEMENTAL INDENTURE
Dated as of June 1, 1997
TO
Indenture of Mortgage and Deed of Trust
Dated as of May 1, 1921
THE CONNECTICUT LIGHT AND POWER COMPANY
TO
BANKERS TRUST COMPANY, Trustee
7-3/4% 1997 Series C Bonds, Due June 1, 2002
THE CONNECTICUT LIGHT AND POWER COMPANY
Sixty-Eighth Supplemental Indenture, Dated as of June 1, 1997
Table of Contents
Parties
Recitals
Granting Clauses
Habendum
Grant in Trust
ARTICLE 1.
FORM AND PROVISIONS OF BONDS OF 1997 SERIES C
SECTION 1.01. Designation; Amount
SECTION 1.02. Form of Bonds of 1997 Series C
SECTION 1.03. Provisions of Bonds of 1997 Series C; Interest Accrual
SECTION 1.04. Transfer and Exchange of Bonds of 1997 Series C
ARTICLE 2.
REDEMPTION OF BONDS OF 1997 Series C
ARTICLE 3.
MISCELLANEOUS
SECTION 3.01. Benefits of Supplemental Indenture and Bonds of 1997 Series C
SECTION 3.02. Effect of Table of Contents and Headings
SECTION 3.03. Counterparts
TESTIMONIUM
SIGNATURES
ACKNOWLEDGMENTS
SCHEDULE A - Form of Bond of 1997 Series C, Form of Trustee's Certificate
SCHEDULE B - Property Subject to the Lien of the Mortgage
SIXTY-EIGHTH SUPPLEMENTAL INDENTURE, dated as of the first day of June,
1997, between THE CONNECTICUT LIGHT AND POWER COMPANY, a corporation
organized and existing under the laws of the State of Connecticut
(hereinafter called "Company"), and BANKERS TRUST COMPANY, a corporation
organized and existing under the laws of the State of New York (hereinafter
called "Trustee"), with its principal corporate trust office at Four Albany
Street, New York, NY 10006.
WHEREAS, the Company heretofore duly executed, acknowledged and
delivered to the Trustee a certain Indenture of Mortgage and Deed of Trust
dated as of May 1, 1921, and sixty-seven Supplemental Indentures thereto
dated respectively as of May 1, 1921, February 1, 1924, July 1, 1926, June
20, 1928, June 1, 1932, July 1, 1932, July 1, 1935, September 1, 1936,
October 20, 1936, December 1, 1936, December 1, 1938, August 31, 1944,
September 1, 1944, May 1, 1945, October 1, 1945, November 1, 1949, December
1, 1952, December 1, 1955, January 1, 1958, February 1, 1960, April 1, 1961,
September 1, 1963, April 1, 1967, May 1, 1967, January 1, 1968, October 1,
1968, December 1, 1969, January 1, 1970, October 1, 1970, December 1, 1971,
August 1, 1972, April 1, 1973, March 1, 1974, February 1, 1975, September 1,
1975, May 1, 1977, March 1, 1978, September 1, 1980, October 1, 1981, June
30, 1982, October 1, 1982, July 1, 1983, January 1, 1984, October 1, 1985,
September 1, 1986, April 1, 1987, October 1, 1987, November 1, 1987, April 1,
1988, November 1, 1988, June 1, 1989, September 1, 1989, December 1, 1989,
April 1, 1992, July 1, 1992, October 1, 1992, July 1, 1993, July 1, 1993,
December 1, 1993, February 1, 1994, February 1, 1994, June 1, 1994, October
1, 1994, June 1, 1996, January 1, 1997, May 1, 1997 and June 1, 1997 (said
Indenture of Mortgage and Deed of Trust (i) as heretofore amended, being
hereinafter generally called the "Mortgage Indenture," and (ii) together with
said Supplemental Indentures thereto, being hereinafter generally called the
"Mortgage"), all of which have been duly recorded as required by law, for the
purpose of securing its First and Refunding Mortgage Bonds (of which
$1,746,000,000 aggregate principal amount are outstanding at the date of this
Supplemental Indenture) in an unlimited amount, issued and to be issued for
the purposes and in the manner therein provided, of which Mortgage this
Supplemental Indenture is intended to be made a part, as fully as if therein
recited at length;
WHEREAS, the Company by appropriate and sufficient corporate action in
conformity with the provisions of the Mortgage has duly determined to create
a further series of bonds under the Mortgage to be designated "First and
Refunding Mortgage 7-3/4% Bonds, 1997 Series C" (hereinafter generally
referred to as the "bonds of 1997 Series C"), to consist of fully registered
bonds containing terms and provisions duly fixed and determined by the Board
of Directors of the Company and expressed in this Supplemental Indenture,
such fully registered bonds and the Trustee's certificate of its
authentication thereof to be substantially in the forms thereof respectively
set forth in Schedule A appended hereto and made a part hereof; and
WHEREAS, the execution and delivery of this Supplemental Indenture and
the issue of not in excess of Two Hundred Million Dollars ($200,000,000) in
aggregate principal amount of bonds of 1997 Series C and other necessary
actions have been duly authorized by the Board of Directors of the Company;
and
WHEREAS, the Company has purchased, constructed or otherwise acquired
certain additional property not specifically described in the Mortgage but
which is and is intended to be subject to the lien thereof, and proposes
specifically to subject such additional property to the lien of the Mortgage
at this time; and
WHEREAS, the Company proposes to execute and deliver this Supplemental
Indenture to provide for the issue of the bonds of 1997 Series C and to
confirm the lien of the Mortgage on the property referred to below, all as
permitted by Section 14.01 of the Mortgage Indenture; and
WHEREAS, all acts and things necessary to constitute this Supplemental
Indenture a valid, binding and legal instrument and to make the bonds of 1997
Series C, when executed by the Company and authenticated by the Trustee
valid, binding and legal obligations of the Company have been authorized and
performed;
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE OF MORTGAGE AND DEED OF
TRUST WITNESSETH:
That in order to secure the payment of the principal of and interest on
all bonds issued and to be issued under the Mortgage, according to their
tenor and effect, and according to the terms of the Mortgage and this
Supplemental Indenture, and to secure the performance of the covenants and
obligations in said bonds and in the Mortgage and this Supplemental Indenture
respectively contained, and for the better assuring and confirming unto the
Trustee, its successor or successors and its or their assigns, upon the
trusts and for the purposes expressed in the Mortgage and this Supplemental
Indenture, all and singular the hereditaments, premises, estates and property
of the Company thereby conveyed or assigned or intended so to be, or which
the Company may thereafter have become bound to convey or assign to the
Trustee, as security for said bonds (except such hereditaments, premises,
estates and property as shall have been disposed of or released or withdrawn
from the lien of the Mortgage and this Supplemental Indenture, in accordance
with the provisions thereof and subject to alterations, modifications and
changes in said hereditaments, premises, estates and property as permitted
under the provisions thereof), the Company, for and in consideration of the
premises and the sum of One Dollar ($1.00) to it in hand paid by the Trustee,
the receipt whereof is hereby acknowledged, and of other valuable
considerations, has granted, bargained, sold, assigned, mortgaged, pledged,
transferred, set over, aliened, enfeoffed, released, conveyed and confirmed,
and by these presents does grant, bargain, sell, assign, mortgage, pledge,
transfer, set over, alien, enfeoff, release, convey and confirm unto said
Bankers Trust Company, as Trustee, and its successor or successors in the
trusts created by the Mortgage and this Supplemental Indenture, and its and
their assigns, all of said hereditaments, premises, estates and property
(except and subject as aforesaid), as fully as though described at length
herein, including, without limitation of the foregoing, the property, rights
and privileges of the Company described or referred to in Schedule B hereto.
Together with all plants, buildings, structures, improvements and
machinery located upon said real estate or any portion thereof, and all
rights, privileges and easements of every kind and nature appurtenant
thereto, and all and singular the tenements, hereditaments and appurtenances
belonging to the real estate or any part thereof described or referred to in
Schedule B or intended so to be, or in any wise appertaining thereto, and the
reversions, remainders, rents, issues and profits thereof, and also all the
estate, right, title, interest, property, possession, claim and demand
whatsoever, as well in law as in equity, of the Company, of, in and to the
same and any and every part thereof, with the appurtenances; except and
subject as aforesaid.
TO HAVE AND TO HOLD all and singular the property, rights and privileges
hereby granted or mentioned or intended so to be, together with all and
singular the reversions, remainders, rents, revenues, income, issues and
profits, privileges and appurtenances, now or hereafter belonging or in any
way appertaining thereto, unto the Trustee and its successor or successors in
the trust created by the Mortgage and this Supplemental Indenture, and its
and their assigns, forever, and with like effect as if the above described
property, rights and privileges had been specifically described at length in
the Mortgage and this Supplemental Indenture.
Subject, however, to permitted liens, as defined in the Mortgage
Indenture.
IN TRUST, NEVERTHELESS, upon the terms and trusts of the Mortgage and
this Supplemental Indenture for those who shall hold the bonds and coupons
issued and to be issued thereunder, or any of them, without preference,
priority or distinction as to lien of any of said bonds and coupons over any
others thereof by reason of priority in the time of the issue or negotiation
thereof, or otherwise howsoever, subject, however, to the provisions in
reference to extended, transferred or pledged coupons and claims for interest
set forth in the Mortgage and this Supplemental Indenture (and subject to any
sinking fund that may heretofore have been or hereafter be created for the
benefit of any particular series).
And it is hereby covenanted that all such bonds of 1997 Series C are to
be issued, authenticated and delivered, and that the mortgaged premises are
to be held by the Trustee, upon and subject to the trusts, covenants,
provisions and conditions and for the uses and purposes set forth in the
Mortgage and this Supplemental Indenture and upon and subject to the further
covenants, provisions and conditions and for the uses and purposes
hereinafter set forth, as follows, to wit:
ARTICLE 1.
FORM AND PROVISIONS OF BONDS OF 1997 SERIES C
SECTION 1.01. Designation; Amount. The bonds of 1997 Series C shall be
designated "First and Refunding Mortgage 7-3/4% Bonds, 1997 Series C" and,
subject to Section 2.08 of the Mortgage Indenture, shall not exceed Two
Hundred Million Dollars ($200,000,000) in aggregate principal amount at any
one time outstanding. The initial issue of the bonds of 1997 Series C may be
effected upon compliance with the applicable provisions of the Mortgage
Indenture.
SECTION 1.02. Form of Bonds of 1997 Series C. The bonds of 1997 Series
C shall be issued only in fully registered form without coupons in
denominations of One Hundred Thousand Dollars ($100,000) or integral
multiples of $1,000 in excess thereof; provided, however, that, if any
registered holder holds less than $100,000 in aggregate principal amount of
the bonds of 1997 Series C as result of a partial redemption by the Company
in accordance with Article 2 hereof, a bond of 1997 Series C in the amount of
such holder's aggregate holdings shall be issued.
The bonds of 1997 Series C and the certificate of the Trustee upon said
bonds shall be substantially in the forms thereof respectively set forth in
Schedule A appended hereto.
SECTION 1.03. Provisions of Bonds of 1997 Series C; Interest Accrual.
The bonds of 1997 Series C shall mature on June 1, 2002 and shall bear
interest, payable semiannually on the first days of June and December of each
year, commencing December 1, 1997, at the rate of 7-3/4% per annum, until the
Company's obligation in respect of the principal thereof shall be discharged;
and shall be payable both as to principal and interest at the office or
agency of the Company in the Borough of Manhattan, New York, New York, in any
coin or currency of the United States of America which at the time of payment
is legal tender for the payment of public and private debts. The interest on
the bonds of 1997 Series C, whether in temporary or definitive form, shall be
payable without presentation of such bonds; and only to or upon the written
order of the registered holders thereof of record at the applicable record
date. The bonds of 1997 Series C shall be callable for redemption in whole
or in part according to the terms and provisions herein in Article 2.
Each bond of 1997 Series C shall be dated as of June 1, 1997 and shall
bear interest on the principal amount thereof from the interest payment date
next preceding the date of authentication thereof by the Trustee to which
interest has been paid on the bonds of 1997 Series C, or if the date of
authentication thereof is prior to November 16, 1997, then from June 1, 1997,
or if the date of authentication thereof be an interest payment date to which
interest is being paid or a date between the record date for any such
interest payment date and such interest payment date, then from such interest
payment date.
The person in whose name any bond of 1997 Series C is registered at the
close of business on any record date (as hereinafter defined) with respect to
any interest payment date shall be entitled to receive the interest payable
on such interest payment date notwithstanding the cancellation of such bond
upon any registration of transfer or exchange thereof subsequent to the
record date and prior to such interest payment date, except that if and to
the extent the Company shall default in the payment of the interest due on
such interest payment date, then such defaulted interest shall be paid to the
person in whose name such bond is registered on a subsequent record date for
the payment of defaulted interest if one shall have been established as
hereinafter provided and otherwise on the date of payment of such defaulted
interest. A subsequent record date may be established by the Company by
notice mailed to the owners of bonds of 1997 Series C not less than ten (10)
days preceding such record date, which record date shall not be more than
thirty (30) days prior to the subsequent interest payment date. The term
"record date" as used in this Section with respect to any regular interest
payment (i.e., June 1 or December 1) shall mean the May 15 or November 15, as
the case may be, next preceding such interest payment date, or if such May 15
or November 15 shall be a legal holiday or a day on which banking
institutions in the Borough of Manhattan, New York, New York are authorized
by law to close, the next preceding day which shall not be a legal holiday or
a day on which such institutions are so authorized to close.
SECTION 1.04. Transfer and Exchange of Bonds of 1997 Series C. The
bonds of 1997 Series C may be surrendered for registration of transfer as
provided in Section 2.06 of the Mortgage Indenture at the office or agency of
the Company in the Borough of Manhattan, New York, New York, and may be
surrendered at said office for exchange for a like aggregate principal amount
of bonds of 1997 Series C of other authorized denominations. Notwithstanding
the provisions of Section 2.06 of the Mortgage Indenture, no charge, except
for taxes or other governmental charges, shall be made by the Company for any
registration of transfer of bonds of 1997 Series C or for the exchange of any
bonds of 1997 Series C for such bonds of other authorized denominations.
ARTICLE 2.
REDEMPTION OF BONDS OF 1997 SERIES C.
The bonds of 1997 Series C shall be redeemable, as a whole at any time
or in part from time to time, in accordance with the provisions of the
Mortgage and upon not less than thirty (30) days and not more than 60 days
prior notice given by mail as provided in the Mortgage (which notice may
state that it is subject to the receipt of the redemption moneys by the
Trustee on or before the date fixed for redemption and which notice shall be
of no effect unless such moneys are so received on or before such date), at
the option of the Company, at a redemption price equal to the greater of (i)
100% of the principal amount of the bonds being redeemed and (ii) the sum of
the present values of the remaining scheduled payments of principal and
interest thereon, discounted to the date of redemption on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Yield, plus in each case accrued interest to the date of redemption (the
"Redemption Date").
"Treasury Yield" means, with respect to any Redemption Date, the rate
per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker having a maturity comparable to
the remaining term of the bonds of 1997 Series C that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the bonds of 1997 Series C. "Independent Investment
Banker" means Morgan Stanley & Co. Incorporated or, if such firm is unwilling
or unable to select the Comparable Treasury Issue, an independent investment
banking institution of national standing to be selected by the Company and
appointed by the Trustee.
"Comparable Treasury Price" means, with respect to any Redemption Date
(i) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor
release) is not published or does not contain such prices on such business
day, (A) the average of the Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, Salomon Brothers Inc and another Primary Treasury Dealer (as
defined herein) at the option of the Company, provided, however, that if any
of the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer.
ARTICLE 3.
MISCELLANEOUS.
SECTION 3.01. Benefits of Supplemental Indenture and Bonds of 1997
Series C. Nothing in this Supplemental Indenture, or in the bonds of 1997
Series C, expressed or implied, is intended to or shall be construed to give
to any person or corporation other than the Company, the Trustee and the
holders of the bonds and interest obligations secured by the Mortgage and
this Supplemental Indenture, any legal or equitable right, remedy or claim
under or in respect of this Supplemental Indenture or of any covenant,
condition or provision herein contained. All the covenants, conditions and
provisions hereof are and shall be for the sole and exclusive benefit of the
Company, the Trustee and the holders of the bonds and interest obligations
secured by the Mortgage and this Supplemental Indenture.
SECTION 3.02. Effect of Table of Contents and Headings. The table of
contents and the description headings of the several Articles and Sections of
this Supplemental Indenture are inserted for convenience of reference only
and are not to be taken to be any part of this Supplemental Indenture or to
control or affect the meaning, construction or effect of the same.
SECTION 3.03. Counterparts. For the purpose of facilitating the
recording hereof, this Supplemental Indenture may be executed in any number
of counterparts, each of which shall be and shall be taken to be an original
and all collectively but one instrument.
IN WITNESS WHEREOF, The Connecticut Light and Power Company has caused
these presents to be executed by a Vice President and its corporate seal to
be hereunto affixed, duly attested by an Assistant Secretary, and Bankers
Trust Company has caused these presents to be executed by a Vice President
and its corporate seal to be hereunto affixed, duly attested by an Assistant
Vice President, as of the day and year first above written.
THE CONNECTICUT LIGHT AND POWER
COMPANY
Attest:
s/s O. Kay Comendul By: s/s John B. Keane
Name: O. Kay Comendul Name: John B. Keane
Title: Assistant Secretary Title: Vice President and Treasurer
(SEAL) Signed, sealed and delivered
in the presence of:
s/s Tracy A. DeCredico
s/s Christine A. Balboni
STATE OF CONNECTICUT )
) ss.: Berlin
COUNTY OF HARTFORD )
On this 3rd day of October 1997, before me, Judith D. Boucher, the
undersigned officer, personally appeared John B. Keane and O. Kay Comendul,
who acknowledged themselves to be Vice President and Treasurer and Assistant
Secretary, respectively, of THE CONNECTICUT LIGHT AND POWER COMPANY, a
corporation, and that they, as such Vice President and Treasurer and such
Assistant Secretary, being authorized so to do, executed the foregoing
instrument for the purpose therein contained, by signing the name of the
corporation by themselves as Vice President and Treasurer and Assistant
Secretary, and as their free act and deed.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
s/s Judith D. Boucher
Judith D. Boucher
Notary Public
My commission expires on September 30, 1999
(SEAL)
BANKERS TRUST COMPANY
Attest:
s/s Jason C. Theriault By: s/s Scott F. Thiel
Name: Jason C. Theriault Name: Scott F. Thiel
Title: Assistant Treasurer Title: Assistant Vice President
(SEAL) Signed, sealed and delivered
in the presence of:
s/s David Beane
s/s Stephen M. Moore
STATE OF NEW YORK )
) ss.: New York
COUNTY OF NEW YORK )
On this 3rd day of October, 1997, before me, Sharon V. Alston, the
undersigned officer, personally appeared Scott F. Thiel and Jason C.
Theriault who acknowledged themselves to be an Assistant Vice President and
an Assistant Treasurer, respectively, of BANKERS TRUST COMPANY, a
corporation, and that they, as such Assistant Vice President and such
Assistant Treasurer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by themselves as Assistant Vice President and Assistant
Treasurer, and as their free act and deed.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
s/s Sharon V. Alston
Name: Sharon V. Alston
Notary Public, State of New York
No. 31-4966275
Qualified in New York County
Commission Expires May 7, 1998
(SEAL)
SCHEDULE A
[FORM OF BOND OF 1997 SERIES C]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
No. $
THE CONNECTICUT LIGHT AND POWER COMPANY
Incorporated under the Laws of the State of Connecticut
FIRST AND REFUNDING MORTGAGE 7-3/4% BOND, 1997 SERIES C
PRINCIPAL DUE JUNE 1, 2002
FOR VALUE RECEIVED, THE CONNECTICUT LIGHT AND POWER COMPANY, a
corporation organized and existing under the laws of the State of Connecticut
(hereinafter called the Company), hereby promises to pay to , or
registered assigns, the principal sum of dollars, on the first day
of June, 2002 and to pay interest on said sum, semiannually on the first days
of June and December in each year, commencing December 1, 1997, until the
Company's obligation with respect to said principal sum shall be discharged,
at the rate of 7-3/4% per annum from the interest payment date next preceding
the date of authentication hereof to which interest has been paid on the
bonds of this series, or if the date of authentication hereof is prior to
November 16, 1997, then from June 1, 1997, or if the date of authentication
hereof is an interest payment date to which interest is being paid or a date
between the record date for any such interest payment date and such interest
payment date, then from such interest payment date. Both principal and
interest shall be payable at the office or agency of the Company in the
Borough of Manhattan, New York, New York, in such coin or currency of the
United States of America as at the time of payment is legal tender for the
payment of public and private debts.
Each installment of interest hereon (other than overdue interest) shall
be payable to the person who shall be the registered owner of this bond at
the close of business on the record date, which shall be the May 15 or
November 15, as the case may be, next preceding the interest payment date,
or, if such May 15 or November 15 shall be a legal holiday or a day on which
banking institutions in the Borough of Manhattan, New York, New York, are
authorized by law to close, the next preceding day which shall not be a legal
holiday or a day on which such institutions are so authorized to close.
Reference is hereby made to the further provisions of this bond set
forth on the reverse hereof, including without limitation provisions in
regard to the call and redemption and the registration of transfer and
exchangeability of this bond, and such further provisions shall for all
purposes have the same effect as though fully set forth in this place.
This bond shall not become or be valid or obligatory until the
certificate of authentication hereon shall have been signed by Bankers Trust
Company (hereinafter with its successors as defined in the Mortgage
hereinafter referred to, generally called the Trustee), or by such a
successor.
IN WITNESS WHEREOF, The Connecticut Light and Power Company has caused
this bond to be executed in its corporate name and on its behalf by its
President by his signature or a facsimile thereof, and its corporate seal to
be affixed or imprinted hereon and attested by the manual or facsimile
signature of its Secretary.
Dated as of , 1997.
THE CONNECTICUT LIGHT AND POWER
COMPANY
By:
Name:
Title: President
Attest:
Name:
Title: Secretary
[FORM OF TRUSTEE'S CERTIFICATE]
Bankers Trust Company hereby certifies that this bond is one of the
bonds described in the within mentioned Mortgage.
BANKERS TRUST COMPANY, TRUSTEE
By:
Name:
Title: Authorized Officer
[FORM OF BOND]
[REVERSE]
THE CONNECTICUT LIGHT AND POWER COMPANY
FIRST AND REFUNDING MORTGAGE 7-3/4% BOND, 1997 SERIES C
This bond is one of an issue of bonds of the Company, of an unlimited
authorized amount of coupon bonds or registered bonds without coupons, or
both, known as its First and Refunding Mortgage Bonds, all issued or to be
issued in one or more series, and is one of a series of said bonds limited in
principal amount to Two Hundred Million Dollars ($200,000,000), consisting
only of registered bonds without coupons and designated "First and Refunding
Mortgage 7-3/4% Bonds, 1997 Series C," all of which bonds are issued or are
to be issued under, and equally and ratably secured by, a certain Indenture
of Mortgage and Deed and Trust dated as of May 1, 1921, and by sixty-eight
Supplemental Indentures dated respectively as of May 1, 1921, February 1,
1924, July 1, 1926, June 20, 1928, June 1, 1932, July 1, 1932, July 1, 1935,
September 1, 1936, October 20, 1936, December 1, 1936, December 1, 1938,
August 31, 1944, September 1, 1944, May 1, 1945, October 1, 1945, November 1,
1949, December 1, 1952, December 1, 1955, January 1, 1958, February 1, 1960,
April 1, 1961, September 1, 1963, April 1, 1967, May 1, 1967, January 1,
1968, October 1, 1968, December 1, 1969, January 1, 1970, October 1, 1970,
December 1, 1971, August 1, 1972, April 1, 1973, March 1, 1974, February 1,
1975, September 1, 1975, May 1, 1977, March 1, 1978, September 1, 1980,
October 1, 1981, June 30, 1982, October 1, 1982, July 1, 1983, January 1,
1984, October 1, 1985, September 1, 1986, April 1, 1987, October 1, 1987,
November 1, 1987, April 1, 1988, November 1, 1988, June 1, 1989, September 1,
1989, December 1, 1989, April 1, 1992, July 1, 1992, October 1, 1992, July 1,
1993, July 1, 1993, December 1, 1993, February 1, 1994, February 1, 1994,
June 1, 1994, October 1, 1994, June 1, 1996, January 1, 1997, May 1, 1997,
June 1, 1997 and June 1, 1997 (said Indenture of Mortgage and Deed of Trust
and Supplemental Indentures being collectively referred to herein as the
"Mortgage"), all executed by the Company to Bankers Trust Company, as
Trustee, all as provided in the Mortgage to which reference is made for a
statement of the property mortgaged and pledged, the nature and extent of the
security, the rights of the holders of the bonds in respect thereof and the
terms and conditions upon which the bonds may be issued and are secured; but
neither the foregoing reference to the Mortgage nor any provision of this
bond or of the Mortgage shall affect or impair the obligation of the Company,
which is absolute, unconditional and unalterable, to pay at the maturities
herein provided the principal of and interest on this bond as herein
provided. The principal of this bond may be declared or may become due on
the conditions, in the manner and at the time set forth in the Mortgage, upon
the happening of an event of default as in the Mortgage provided.
This bond is transferable by the registered holder hereof in person or
by attorney upon surrender hereof at the office or agency of the Company in
the Borough of Manhattan, New York, New York, together with a written
instrument of transfer in approved form, signed by the holder, and a new bond
or bonds of this series for a like principal amount in authorized
denominations will be issued in exchange, all as provided in the Mortgage.
Prior to due presentment for registration of transfer of this bond, the
Company and the Trustee may deem and treat the registered owner hereof as the
absolute owner hereof, whether or not this bond be overdue, for the purpose
of receiving payment and for all other purposes, and neither the Company nor
the Trustee shall be affected by any notice to the contrary.
This bond is exchangeable at the option of the registered holder hereof
upon surrender hereof, at the office or agency of the Company in the Borough
of Manhattan, New York, New York, for an equal principal amount of bonds of
this series of other authorized denominations, in the manner and on the terms
provided in the Mortgage.
Bonds of this series are to be issued initially under a book-entry only
system and, except as hereinafter provided, will be evidenced by a single
Global Security registered in the name of The Depository Trust Company, New
York, New York ("DTC") or its nominee, which shall be considered to be the
holder of all such bonds for all purposes of the Mortgage, including, without
limitation, payment by the Company of principal of and interest on such bonds
and receipt of notices and exercise of rights of holders of such bonds. The
Global Security shall be immobilized in the custody of DTC with the owners of
book-entry interests in the Global Security ("Book-Entry Interests") having
no right to receive bonds of this series in the form of physical securities
or certificates. Ownership of Book-Entry Interests shall be shown by
book-entry on the system maintained and operated by DTC, its participants
(the "Participants") and certain persons acting through the Participants.
Transfers of ownership of Book-Entry Interests are to be made only by DTC and
the Participants by that book-entry system, the Company and the Trustee
having no responsibility therefor so long as the Global Security is
registered in the name of DTC or its nominee. DTC is to maintain records of
positions of Participants in bonds of this series registered by the Global
Security, and the Participants and persons acting through Participants are to
maintain records of the purchasers and owners of Book-Entry Interests. If
DTC or its nominee determines not to continue to act as a depository for the
bonds of this series in connection with a book-entry only system, another
depository, if available, may act instead and the Global Security will be
transferred into the name of such other depository or its nominee, in which
case the above provisions will continue to apply to the new depository. If
the book-entry system for bonds of this series is discontinued for any
reason, upon surrender and cancellation of the Global Security registered in
the name of the then depository or its nominee, new registered bonds of this
series will be issued in authorized denominations to the holders of
Book-Entry Interests in principal amounts coinciding with the amounts of
Book-Entry Interests shown on the book-entry system immediately prior to the
discontinuance thereof. Neither the Trustee nor the Company shall be
responsible for the accuracy of the interests shown on that system.
The bonds of this series are subject to redemption prior to maturity, as
a whole at any time or in part from time to time, in accordance with the
provisions of the Mortgage, upon not less than thirty (30) days and not more
than 60 days prior notice (which notice may be made subject to the deposit of
redemption moneys with the Trustee before the date fixed for redemption)
given by mail as provided in the Mortgage, at the option of the Company, at a
redemption price equal to the greater of (i) 100% of their principal amount
and (ii) the sum of the present values of the remaining scheduled payments of
principal and interest thereon discounted to the date of redemption on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Treasury Yield, plus in each case accrued interest to the date of
redemption (the "Redemption Date").
"Treasury Yield" means, with respect to any Redemption Date, the rate
per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker having a maturity comparable to
the remaining term of the bonds of this series that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the bonds of this series. "Independent Investment Banker"
means Morgan Stanley & Co. Incorporated or, if such firm is unwilling or
unable to select the Comparable Treasury Issue, an independent investment
banking institution of national standing to be selected by the Company and
appointed by the Trustee.
"Comparable Treasury Price" means, with respect to any Redemption Date,
(i) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor
release) is not published or does not contain such prices on such business
day (A) the average of the Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated and Salomon Brothers Inc. and another Primary Treasury Dealer
(as defined herein) at the option of the Company, provided, however, that if
any of the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer.
The Mortgage provides that the Company and the Trustee, with consent of
the holders of not less than 66-2/3% in aggregate principal amount of the
bonds at the time outstanding which would be affected by the action proposed
to be taken, may by supplemental indenture add any provisions to or change or
eliminate any of the provisions of the Mortgage or modify the rights of the
holders of the bonds and coupons issued thereunder; provided, however, that
without the consent of the holder hereof no such supplemental indenture shall
affect the terms of payment of the principal of or interest or premium on
this bond, or reduce the aforesaid percentage of the bonds the holders of
which are required to consent to such a supplemental indenture, or permit the
creation by the Company of any mortgage or pledge or lien in the nature
thereof ranking prior to or equal with the lien of the Mortgage or deprive
the holder hereof of the lien of the Mortgage on any of the property which is
subject to the lien thereof.
No recourse shall be had for the payment of the principal of or the
interest on this bond, or any part thereof, or for any claim based thereon or
otherwise in respect thereof, to any incorporator, or any past, present or
future stockholder, officer or director of the Company, either directly or
indirectly, by virtue of any statute or by enforcement of any assessment or
otherwise, and any and all liability of the said incorporators, stockholders,
officers or directors of the Company in respect to this bond is hereby
expressly waived and released by every holder hereof.
SCHEDULE B
PROPERTY SUBJECT TO THE LIEN OF THE MORTGAGE
TOWN OF AVON
All of the following described rights, privileges and easements
situated in the Town of Avon, County of Hartford and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(1) Avonridge, Incorporated June 19, 1997 334 380
(2) Avonridge, Incorporated July 30, 1997 337 86
(3) Solo Development, Inc. July 16, 1997 336 818
(4) PSIC, LLC August 27, 1997 337 313
(5) The Avon Water Company August 22, 1997 337 933
TOWN OF BARKHAMSTED
All of the following described rights, privileges and easements
situated in the Town of Barkhamsted, County of Litchfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(6) Donald F. Oldakowski August 18, 1997 101 1053
TOWN OF BEACON FALLS
All of the following described rights, privileges and easements
situated in the Town of Beacon Falls, County of New Haven and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(7) Calloway Group, Inc. October 7, 1997 103 251
(8) Duane Douglas et al May 27, 1997 103 254
(9) David R. Gualtieri et al June 26, 1997 103 256
(10) John C. Shepherd, Jr.
et al July 9, 1997 103 258
TOWN OF BETHEL
All of the following described rights, privileges and easements
situated in the Town of Bethel, County of Fairfield and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(11) Gary Crossland November 6, 1996 617 392
(12) Robert V. Dibble et al November 13, 1996 617 118
TOWN OF BRANFORD
All of the following described rights, privileges and easements
situated in the Town of Branford, County of New Haven and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(13) Charles E. Weber, Jr.
et al May 21, 1997 629 766
(14) Carole A. Barber et al July 25, 1997 631 972
TOWN OF BRIDGEWATER
All of the following described rights, privileges and easements
situated in the Town of Bridgewater, County of Litchfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(15) Mountain Laurel Estates March 21, 1997 45 654
Development Corp.
TOWN OF BRISTOL
All of the following described rights, privileges and easements
situated in the Town of Bristol, County of Hartford and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(16) East View Farm Associates
et al May 31, 1996 1187 818
TOWN OF BROOKFIELD
All of the following described rights, privileges and easements
situated in the Town of Brookfield, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(17) Alice Shultz July 15, 1996 310 294
(18) Empire Development, Inc. August 27, 1996 313 791
(19) Samual A. Prata et al November 27, 1996 315 335
(20) Stephen R. Weise et al May 1, 1997 319 936
(21) Phoenix Industries of
NY Corp. March 26, 1997 318 384
TOWN OF CHESHIRE
All of the following described rights, privileges and easements
situated in the Town of Cheshire, County of New Haven and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(22) JRR Associates, LLC June 27, 1997 1224 4
(23) Michael S. Adams et al July 25, 1997 1225 101
(24) Sasso Custom Homes, Inc. April 8, 1993 1171 305
(25) Lynne Rosenberg August 14, 1997 1228 331
TOWN OF COLCHESTER
All of the following described rights, privileges and easements
situated in the Town of Colchester, County of New London and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(26) Signature Pelletier, LLC May 16, 1997 431 149
TOWN OF COLUMBIA
All of the following described rights, privileges and easements
situated in the Town of Columbia, County of Tolland and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(27) Lori L. Kalinowski July 30, 1997 113 29
(28) Estate of Leonard C.
German et al July 10, 1997 112 801
(29) Gregory F. Ethier et al July 31, 1997 113 31
(30) Estate of Leonard C.
German et al August 2, 1997 & 113 378
September 3, 1997
TOWN OF COVENTRY
All of the following described rights, privileges and easements
situated in the Town of Coventry, County of Tolland and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(31) Robert L. Therien May 20, 1997 587 127
(32) C. Bruno Primus et al June 23, 1997 589 350
TOWN OF DANBURY
All of the following described rights, privileges and easements
situated in the Town of Danbury, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(33) Gary Mead May 17, 1996 1149 1185
(34) Old Field Development
Corp. May 8, 1996 1149 20
(35) Salame Plaza, LLC January 29, 1997 1173 553
(36) Silversmith Heights,
LLC December 5, 1996 1168 296
(37) Construction Consultants,
LLC November 5, 1996 1166 866
TOWN OF DARIEN
All of the following described rights, privileges and easements
situated in the Town of Darien, County of Fairfield and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(38) PG Properties Limited
Partnership May 3, 1996 798 505
(39) Marie S. O'Neill December 2, 1996 817 339
TOWN OF DEEP RIVER
All of the following described rights, privileges and easements
situated in the Town of Deep River, County of Middlesex and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(40) W H Estates, L.L.C. May 7, 1997 145 785
(41) W H Estates, L.L. C. May 7, 1997 145 787
(42) Springbrook Properties,
L.L.C. September 9, 1997 147 423
TOWN OF DURHAM
All of the following described rights, privileges and easements
situated in the Town of Durham, County of Middlesex and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(43) Michael L. Petrucelli
et al June 10, 1997 153 816
TOWN OF EAST HADDAM
All of the following described rights, privileges and easements
situated in the Town of East Haddam, County of Middlesex and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(44) Progressive Building
Systems, Inc. May 23, 1997 408 344
(45) Emanuel A. Misenti et al July 11, 1997 412 165
TOWN OF EAST WINDSOR
All of the following described rights, privileges and easements
situated in the Town of East Windsor, County of Hartford and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(46) Country Home Partners,
LLC May 23, 1997 196 659
TOWN OF ELLINGTON
All of the following described rights, privileges and easements
situated in the Town of Ellington, County of Tolland and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(47) Robert D. Gingras August 25, 1997 234 416
(48) J&K Assoc., L.L.C. August 29, 1997 234 340
TOWN OF FARMINGTON
All of the following described rights, privileges and easements
situated in the Town of Farmington, County of Hartford and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(49) Evelyn L. Waldron et al July 5, 1994 488 742
(50) Andrew Mason & Terraform,
LLC July 3, 1997 542 714
(51) Paul Construction
Corporation July 17, 1997 543 787
(52) Paul Construction
Corporation August 19, 1997 547 656
TOWN OF GLASTONBURY
All of the following described rights, privileges and easements
situated in the Town of Glastonbury, County of Hartford and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(53) Carol E. Carson et al May 21, 1997 1080 347
(54) GJLM Builders, LLC August 25, 1997 1104 91
TOWN OF GRANBY
All of the following described rights, privileges and easements
situated in the Town of Granby, County of Hartford and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(55) Michael B. Guarco July 2, 1997 216 355
TOWN OF GREENWICH
All of the following described rights, privileges and easements
situated in the Town of Greenwich, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(56) Scott A. Rogers et al June 28, 1996 2812 96
(57) Richard C. McKenzie, Jr.
et al December 10, 1996 2864 78
(58) Rodney L. McBride
et al March 5, 1997 2894 224
(59) Jeffrey R. Peterson March 4, 1997 2894 222
(60) Bridle Path Associates,
Ltd. May 21, 1997 2920 38
TOWN OF GROTON
All of the following described rights, privileges and easements
situated in the Town of Groton, County of New London and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(61) Braebourne Estates, LLC July 16, 1997 647 465
TOWN OF GUILFORD
All of the following described rights, privileges and easements
situated in the Town of Guilford, County of New Haven and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(62) M & E Construction, Inc. May 22, 1997 475 572
(63) Orcutt Family Ltd.,
Partnership January 20, 1997 471 820
(64) Orcutt Family Limited
Partnership July 14, 1997 478 322
TOWN OF HARTFORD
All of the following described rights, privileges and easements
situated in the Town of Hartford, County of Hartford and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(65) Connecticut Natural Gas
Corporation May 19, 1997 3822 93
TOWN OF HEBRON
All of the following described rights, privileges and easements
situated in the Town of Hebron, County of Tolland and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(66) K & M Properties, LLC May 15, 1997 182 886
(67) Donald W. Brancard, Jr. July 3, 1997 183 981
(68) Charles R. Smith March 7, 1997 183 1143
TOWN OF KILLINGLY
All of the following described rights, privileges and easements
situated in the Town of Killingly, County of Windham and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(69) Todd Waldron May 19, 1997 682 308
(70) Keith B. Olsen et al June 24, 1997 685 8
TOWN OF LITCHFIELD
All of the following described rights, privileges and easements
situated in the Town of Litchfield, County of Litchfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(71) Nancy B. Flammia et al February 18, 1997 235 781
TOWN OF LYME
All of the following described rights, privileges and easements
situated in the Town of Lyme, County of New London and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(72) Joseph Henry Rhodes, III
et al June 13, 1997 104 569
(73) William W. Martin et al May 27, 1997 104 273
(74) Lee Erwin Rhodes et al June 5, 1997 104 271
TOWN OF MADISON
All of the following described rights, privileges and easements
situated in the Town of Madison, County of New Haven and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(75) Vigliotti Construction Co.
et al June 9, 1997 748 159
(76) Kenneth L. Evarts et al May 29, 1997 746 205
(77) Indigo Woods, L.L.C. August 7, 1997 757 194
(78) Tish Stevens-Brown August 5, 1997 757 198
(79) John F. Brady et al September 23, 1997 762 132
TOWN OF MANSFIELD
All of the following described rights, privileges and easements
situated in the Town of Mansfield, County of Tolland and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(80) PARC Associates April 28, 1997 385 413
TOWN OF MERIDEN
All of the following described rights, privileges and easements
situated in the Town of Meriden, County of New Haven and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(81) Record Journal Publishing
Company November 18, 1996 2225 209
TOWN OF MIDDLETOWN
All of the following described rights, privileges and easements
situated in the Town of Middletown, County of Middlesex and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(82) The Ravenswood Company,
LLC February 18, 1997 1119 15
(83) The Bysiewicz
Corporation May 29, 1997 1128 130
(84) Thaddeus P. Byziewicz
et al May 29, 1997 1128 133
(85) Ameritage Construction
Corp. May 29, 1997 1128 136
(86) Richard H. Ricciardi, Jr.
et al March 27, 1997 1123 337
(87) Laurel Grove Associates,
LLC May 16, 1997 1128 103
(88) Yvon Beaudoin Builder,
Inc. January 17, 1997 1119 387
(89) Yvon Beaudoin Builder,
Inc. May 14, 1997 1128 99
TOWN OF MONROE
All of the following described rights, privileges and easements
situated in the Town of Monroe, County of Fairfield and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(90) Jan's Construction Company,
Inc. May 28, 1996 704 294
(91) J&C Bargas Construction
LLC May 15, 1996 703 19
(92) S & J Development,
L.L.C. October 2, 1996 720 291
(93) Monroe Investment Group August 28, 1996 716 32
Limited Partnership
TOWN OF MONTVILLE
All of the following described rights, privileges and easements
situated in the Town of Montville, County of New London and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(94) Donald G. Concascia
et al June 16, 1997 300 215
TOWN OF NEW CANAAN
All of the following described rights, privileges and easements
situated in the Town of New Canaan, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(95) Special Properties II
LLC June 17, 1996 456 873
(96) Special Properties II
LLC May 6, 1996 455 506
(97) Forest Glen, Inc. May 13, 1996 455 548
(98) William E. Erickson
et al December 21, 1996 465 152
(99) Ronald O. Drake et al March 18, 1997 468 532
(100)Stately Homes, LLC November 1, 1996 464 569
TOWN OF NEW FAIRFIELD
All of the following described rights, privileges and easements
situated in the Town of New Fairfield, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(101) Twin Hills, LLC October 31, 1996 266 970
(102) Brighton Development,
LLC August 12, 1997 274 328
TOWN OF NEW MILFORD
All of the following described rights, privileges and easements
situated in the Town of New Milford, County of Litchfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(103) Cordeiro's Construction
Corporation March 28, 1996 534 853
(104) Fordyce Associates II,
Inc. February 19, 1997 553 40
(105) SAN-P., Homes Inc. September 13, 1996 547 728
(106) Debra F. Vosburgh October 3, 1996 546 291
(107) William F. Saunders January 10, 1997 552 721
(108) Canterbury School,
Incorporated May 6, 1997 558 571
(109) Robert H. Mouat et al January 13, 1997 555 447
(110) Louis M. Venezia et al February 26, 1997 557 70
(111) MTV Properties L.L.C. August 5, 1996 542 853
TOWN OF NEWINGTON
All of the following described rights, privileges and easements
situated in the Town of Newington, County of Hartford and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(112) Milo & Denorfia
Construction Co., Inc. June 3, 1997 1141 271
(113) Adelme J. Sirois et al June 12, 1997 1141 273
(114) Steven J. DaCosta,
L.L.C. May 23, 1997 1141 822
TOWN OF NEWTOWN
All of the following described rights, privileges and easements
situated in the Town of Newtown, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(115) Anthony J. Crisci et al April 26, 1996 532 44
(116) Charles W. Tilson et al June 5, 1996 535 445
(117) Joel Fitzgerald September 4, 1996 544 175
(118) Toll Land XVII Limited
Partnership July 30, 1996 538 459
(119) High Meadow Farm
Associates December 10, 1996 547 141
(120) David G. French Builders,
LLC September 12, 1996 541 806
(121) Bennetts Farm Associates December 2, 1996 545 753
(122) M & M Development, LLC February 20, 1997 556 599
(123) M & E Land Group June 9, 1994 495 674
(124) Danzinger Development
Inc. April 5, 1995 510 97
(125) Half Farm Estates
Acquisition and Development
Partnership August 18, 1994 499 610
(126) Newtown Housing for the
Elderly, Inc. October 27, 1994 507 362
(127) Anthony T. Pietrini
et al July 31, 1996 312 237
(128) PSD Partnership July 17, 1997 559 527
TOWN OF NORWALK
All of the following described rights, privileges and easements
situated in the Town of Norwalk, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(129) John Efstathiades et al August 30, 1996 3255 121
(130) West Greyrock LLC April 2, 1997 3333 318
(131) Sarno Associates May 23, 1997 3355 119
TOWN OF NORTH STONINGTON
All of the following described rights, privileges and easements
situated in the Town of North Stonington, County of New London and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(132) Milltown Properties, LLC April 30, 1997 114 187
TOWN OF OLD LYME
All of the following described rights, privileges and easements
situated in the Town of Old Lyme, County of New London and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(133) Whitney A. Talcott et al May 13, 1997 238 481
TOWN OF OLD SAYBROOK
All of the following described rights, privileges and easements
situated in the Town of Old Saybrook, County of Middlesex and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(134) Kevin F. Buchanan July 18, 1997 346 219
TOWN OF POMFRET
All of the following described rights, privileges and easements
situated in the Town of Pomfret, County of Windham and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(135) Mark D. Graham et al June 13, 1997 136 182
(136) John H. Perkins et al May 5, 1997 135 77
(137) Long Meadow Farm, LLC April 10, 1997 135 72
(138) David J. Gregoire et al April 16, 1997 134 74
TOWN OF PORTLAND
All of the following described rights, privileges and easements
situated in the Town of Portland, County of Middlesex and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(139) Lauralee J. Kelley August 19, 1997 356 316
TOWN OF PRESTON
All of the following described rights, privileges and easements
situated in the Town of Preston, County of New London and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(140) Alexander N. Grillo
et al June 11, 1997 113 22
(141) Twomey & Whitney
Enterprises, LLC September 10, 1997 113 959
TOWN OF PROSPECT
All of the following described rights, privileges and easements
situated in the Town of Prospect, County of New Haven and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(142) A.C.E. Development Group
LLC June 19, 1997 292 158
TOWN OF REDDING
All of the following described rights, privileges and easements
situated in the Town of Redding, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(143) Jack H. Whitton et al October 30, 1996 204 688
(144) Twenty Gallows Hill,
L.L.C. March 3, 1997 207 169
(145) Gilbert & Bennett Limited
Partnership April 16, 1997 208 557
(146) Fyber Properties
Broadriver North
Limited Partnership October 31, 1996 204 892
TOWN OF RIDGEFIELD
All of the following described rights, privileges and easements
situated in the Town of Ridgefield, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(147) Robert L. Lewis et al June 11, 1996 529 26
(148) Griswold Forbes et al May 9, 1996 525 1078
(149) Robert Cioffoletti May 8, 1996 526 447
(150) Effie W. Pinchbeck June 11, 1996 527 993
(151) Barry N. Finch et al October 16, 1996 534 1009
(152) A. J. Czyr, Inc. November 1, 1996 536 205
(153) Tuccio Development, Inc. May 19, 1997 545 550
(154) Heritage Homes, LLC April 10, 1997 542 712
(155) Elizabeth Valentine April 16, 1997 543 966
(156) John N. Sturges September 30, 1996 534 166
(157) John N. Sturges
Construction, Inc. November 14, 1996 535 876
(158) J. Randolph Gepfert, III July 31, 1997 549 981
TOWN OF ROCKY HILL
All of the following described rights, privileges and easements
situated in the Town of Rocky Hill, County of Hartford and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(159) BT Rocky Hill Realty
Corp. July 22, 1997 315 868
TOWN OF ROXBURY
All of the following described rights, privileges and easements
situated in the Town of Roxbury, County of Litchfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(160) Roxbury Associates January 11, 1997 67 940
TOWN OF SEYMOUR
All of the following described rights, privileges and easements
situated in the Town of Seymour, County of New Haven and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(161) Hickory Estates
Developers, LLC February 21, 1997 234 348
TOWN OF SHERMAN
All of the following described rights, privileges and easements
situated in the Town of Sherman, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(162) Michael Mill et al June 10, 1996 79 480
TOWN OF SIMSBURY
All of the following described rights, privileges and easements
situated in the Town of Simsbury, County of Hartford and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(163) Robert S. Martin, MD.,
Trustee June 27, 1997 473 303
(164) C.G.R. Associates,
L.L.C. December 20, 1996 465 845
TOWN OF SOUTHINGTON
All of the following described rights, privileges and easements
situated in the Town of Southington, County of Hartford and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(165) Westridge Development
Corporation May 22, 1997 671 687
(166) Jeffrey A. Wight May 6, 1997 672 154
(167) LePage Homes, Inc. July 9, 1997 674 252
(168) Peter Welch August 7, 1997 676 829
(169) Sunset Ridge of Southington,
LLC July 11, 1997 675 660
(170) F C III L.L.C. August 11, 1997 677 745
(171) Randolph C. Parent
et al July 16, 1997 677 857
(172) Christine M. Gombotz July 25, 1997 677 860
(173) Peter A. Perez et al August 14, 1997 677 846
(174) Stephen J. Annelli July 9, 1997 675 546
(175) Michael K. Saucier
et al July 17, 1997 677 849
(176) John P. Morelli et al July 14, 1997 677 852
(177) The Town of Southington July 24, 1997 677 855
TOWN OF STAMFORD
All of the following described rights, privileges and easements
situated in the Town of Stamford, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(178) Norman A. Fieber July 29, 1996 4620 300
(179) 778 Long Ridge Road May 23, 1997 4765 88
Associates Limited Partnership
TOWN OF STONINGTON
All of the following described rights, privileges and easements
situated in the Town of Stonington, County of New London and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(180) Atlas Paving Company,
Inc. et al August 1, 1997 407 509
TOWN OF SUFFIELD
All of the following described rights, privileges and easements
situated in the Town of Suffield, County of Hartford and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(181) Harry Kraiza, Jr. et al May 15, 1997 275 516
&
May 28, 1997
(182) Begin Homes, Inc. August 26, 1997 277 599
TOWN OF TOLLAND
All of the following described rights, privileges and easements
situated in the Town of Tolland, County of Tolland and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(183) SHC, L.L.C. July 14, 1997 563 151
(184) Lee & Lamont Realty August 4, 1997 565 71
TOWN OF UNION
All of the following described rights, privileges and easements
situated in the Town of Union, County of Tolland and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(185) J & J Excavating August 11, 1997 40 176
TOWN OF VOLUNTOWN
All of the following described rights, privileges and easements
situated in the Town of Voluntown, County of New London and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(186) John H. Wood, Jr. July 10, 1997 66 414
TOWN OF WASHINGTON
All of the following described rights, privileges and easements
situated in the Town of Washington, County of Litchfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(187) Orchard Lane Associates,
L.L.C. August 13, 1997 137 495
TOWN OF WATERBURY
All of the following described rights, privileges and easements
situated in the Town of Waterbury, County of New Haven and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(188) MJV Development, Inc. May 7, 1997 3472 130
TOWN OF WATERFORD
All of the following described rights, privileges and easements
situated in the Town of Waterford, County of New London and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(189) RTT Development, Inc. June 11, 1997 470 464
TOWN OF WATERTOWN
All of the following described rights, privileges and easements
situated in the Town of Watertown, County of Litchfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(190) Madelaine B. Pecci March 10, 1997 847 330
TOWN OF WESTBROOK
All of the following described rights, privileges and easements
situated in the Town of Westbrook, County of Middlesex and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(191) Sheryl S. Magnano July 24, 1997 183 669
(192) Johnson Pond LLC August 27, 1997 184 532
TOWN OF WESTPORT
All of the following described rights, privileges and easements
situated in the Town of Westport, County of Fairfield and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(193) Lorna B. Christophersen May 13, 1996 1466 162
(194) and Elena B. Dreiske, Successor
(195) Trustees et al
(196) Robert F. Grele, Trustee November 26, 1996 1489 59
(197) Richard Kornutik et al March 5, 1997 1504 309
(198) Arnold P. Cohen et al July 22, 1994 1336 74
(199) Ronald Schulman et al July 7, 1997 1529 190
TOWN OF WESTON
All of the following described rights, privileges and easements
situated in the Town of Weston, County of Fairfield and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(200) Annette J. Sandstrom July 17, 1996 241 654
(201) O&J Investments, LLC May 1, 1997 250 225
(202) The Rector, Wardens and June 20, 1996 239 695
Vestry of the Emmanuel Episcopal
Church of Weston, Connecticut
TOWN OF WETHERSFIELD
All of the following described rights, privileges and easements
situated in the Town of Wethersfield, County of Hartford and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(203) Premier Building &
Development, Inc. June 24, 1997 657 198
TOWN OF WILTON
All of the following described rights, privileges and easements
situated in the Town of Wilton, County of Fairfield and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(204) Rosemary E. Middeleer
et al June 25, 1996 1001 166
(205) Marc A. Fleisher et al January 25, 1997 1029 42
(206) Grumman Hill, LLC July 30, 1996 1002 278
(207) Grumman Hill, LLC March 18, 1997 1032 263
(208) Fairfield 2000 Homes
Corporation September 12, 1996 1008 166
(209) Kenneth R. Young et al October 1, 1996 1014 307
(210) H. Back Builders, Inc. September 11, 1996 1014 303
(211) Nod Hill Properties, LLC September 10, 1996 1009 92
(212) John R. Gregory et al November 12, 1996 1028 320
TOWN OF WINDHAM
All of the following described rights, privileges and easements
situated in the Town of Windham, County of Windham and State of Connecticut,
more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(213) Gaetano D'Elia et al June 10, 1997 516 68
TOWN OF WOODSTOCK
All of the following described rights, privileges and easements
situated in the Town of Woodstock, County of Windham and State of
Connecticut, more particularly described in the following deeds, viz:
RECORDED
GRANTOR DATE OF INSTRUMENT VOLUME PAGE
(214) Colleen R. Boxx August 4, 1997 277 387
(215) Michael H. Heckendorf
et al July 9, 1997 277 251
Exhibit 4.2.24.3
AMENDMENT NO. 1
to the
STANDBY BOND PURCHASE AGREEMENT
AMENDMENT NO. 1, dated January 21, 1998 ("Amendment No. 1"), to the Standby
Bond Purchase Agreement, dated January 23, 1997 (the "Original Agreement"),
among THE CONNECTICUT LIGHT AND POWER COMPANY, a corporation organized and
existing and qualified to do business as a public utility in the State of
Connecticut (the "Company"), SOCIETE GENERALE, a banking corporation
organized under the laws of France, acting though its New York Branch (the
"Bank"), and STATE STREET BANK AND TRUST COMPANY, a national banking
association, as successor trustee under the Indenture referred to below
(including any successor trustee, the "Trustee").
W I T N E S S E T H:
WHEREAS, the liquidity facility (the "Liquidity Facility") provided by the
Bank pursuant to the Original Agreement is scheduled to expire on January 21,
1998;
WHEREAS, the Company has requested that the Bank extend the Stated Expiration
Date for an additional 364-day period (the "First Extension"), and the Bank
has agreed to do so on the terms and conditions contained herein and, to the
extent applicable and not superseded by this Amendment No. 1, according to
the terms and conditions of the Original Agreement;
WHEREAS, certain conditions precedent to the effectiveness of this Amendment
No. 1 have been or will be fulfilled to the satisfaction of the Bank and its
counsel as of the date of this Amendment No. 1;
NOW, THEREFORE, in consideration of the premises herein contained, and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, all capitalized terms
used herein shall have the same respective meanings as in the Original
Agreement. From and after the date of this Amendment No. 1, the term
"Agreement" shall be deemed to mean the Original Agreement as amended by this
Amendment No. 1.
2. Extension of Stated Expiration Date. The Stated Expiration Date is
hereby extended for an additional 364-day period, to expire on January 19,
1999, and the definition of "Stated Expiration Date" contained in Section 1.1
of the Original Agreement is hereby amended accordingly. The Bank Purchase
Period means the period from the date of this Amendment No. 1 to and
including the earliest of (a) the Stated Expiration Date then in effect, (b)
the close of business on the fifth Business Day following the Conversion Date
on which all of the Bonds shall have been converted to a Fixed Rate or a
Multiannual Rate (provided, however, that if less than all of the Bonds shall
have been converted to a Fixed Rate or Multiannual Rate, the Bank's Available
Commitment shall extend only to those Bonds not bearing interest at the Fixed
Rate or the Multiannual Rate), (c) the fifth Business Day following the
mandatory tender for purchase in connection with a Substitution Date, or (d)
the Purchase Termination Date.
3. Representations and Warranties. The Company hereby represents and
warrants that all of the representations and warranties contained in Article
5 of the Original Agreement are true and correct, including any statements
made regarding the Related Documents as they may have been or will be
amended, supplemented or otherwise modified in connection with this First
Extension, as of the date hereof (except that the dates contained in Section
5.5 shall be deemed to refer to the end of the Company's most recently
completed fiscal year and most recently completed fiscal quarter,
respectively). The Company further represents and warrants that no Event of
Default or Event of Termination has occurred or is occurring, and that no
event has occurred which, with notice or the lapse of time or both, would
become an Event of Default or Event of Termination, as the case may be.
4. Specific Amendments.
(a) Section 2.5 of the Original Agreement is hereby amended in part to
correct a typographical error at Level 2 and should now read as follows:
Level 2 0.125%
(b) Section 1.1 is hereby amended in part to correct a typographical error
and should now read as follows:
""Claim" has the meaning set forth in Section 6.8."
5. Conditions Precedent to the Effectiveness of this Amendment No. 1. The
Bank's obligation to enter into and perform its obligations under this
Amendment No. 1 is subject to the fulfillment, to the satisfaction of the
Bank and its counsel, of each of the following conditions as of the date of
this Amendment No. 1:
(a) The Act; the Resolution. Neither the Act nor the Resolution shall have
been revoked or rescinded, or modified or amended in any material respect
adverse to the interests of the Bank or the holders of the Bonds.
(b) Receipt of Documents. The Bank shall have received an executed copy of
this Amendment No. 1 as well as any other documents and instruments as the
Bank shall reasonably request.
(c) Certificate. The Bank shall have received a certificate from the
Company, dated the date of this Agreement and duly executed by an Authorized
Officer, stating that on and as of the date thereof, except as otherwise
disclosed to the Bank as of the date of this Amendment No. 1:
(i) the Company has obtained all consents, permits, licenses and approvals
of, has made all registrations and declarations with, and has taken all other
actions with respect to, governmental authorities required under law to be
obtained, made or taken by the Company, to maintain the Bonds and to execute,
deliver and perform this Amendment No. 1.;
(ii) that the Insurance Policy is currently effective and provides for (i)
the payment of interest on the Bank Bonds at the Bank Rate and (ii)
amortization of the Bank Bonds in equal semi-annual installments during the
Amortization Period.
(iii) to the best knowledge of the Authorized Officer executing the
certificate, no Event of Default or event which, with the giving of notice or
the passage of time or both would constitute an Event of Default, has
occurred or would occur after giving effect to the issuance of the Bonds or
this Amendment No. 1.;
(iv) all representations and warranties of the Company set forth in the
Original Agreement and the Related Documents to which the Company is a party
are true and correct in all material respects, except to the extent that any
such representation or warranty relates solely to a prior date;
(v) the Company is not in default of its obligations under this Amendment
No. 1 or the Original Agreement or any of the Related Documents to which it
is a party;
(vi) except for any pending or threatened action, suit, investigation or
proceeding disclosed in the Reoffering Circular or otherwise disclosed to the
Bank in writing prior to the date hereof (as to which certification is not
being made), there is no action, suit, investigation or proceeding pending
or, to the best knowledge of the Authorized Officer executing the
certificate, threatened (A) in connection with the Bonds, the replacement of
the Letter of Credit, the Original Agreement, this Amendment No. 1 or any of
the other transactions contemplated by this Amendment No. 1 or the Related
Documents, or (B) against or affecting the Company, the result of which is
reasonably likely to have a materially adverse effect on the business,
financial condition or operations of the Company or the ability of the
Company to perform or observe any of its duties, liabilities or obligations
under this Amendment No. 1 or any of the Related Documents.
(d) Proceedings and Certifications. The Bank shall have received a copy,
certified by an Authorized Officer, of all proceedings taken by the Company
authorizing the transactions hereunder and contemplated hereby, including,
without limitation, the execution and delivery of this Amendment No. 1 and
all other documents and agreements contemplated hereby, together with such
other certifications as to matters of fact as shall reasonably be requested
by the Bank or its counsel.
(e) Incumbency Certificate. The Bank shall have received a certificate of
the Secretary or Assistant Secretary of the Company certifying the names and
true signatures of the officials of the Company authorized to sign this
Amendment No. 1 and the other documents to be delivered by the Company
hereunder, and shall also cover such other matters incident to the
transactions contemplated by this Agreement as the Bank or its counsel may
request.
(f) Opinion of Company Counsel. The Bank shall have received an opinion
addressed to it of Day, Berry & Howard, counsel to the Company, dated the
closing date on which the extension of the Liquidity Facility provided by
this Amendment No. 1 shall have become effective, in form and substance
satisfactory to the Bank and its counsel.
(g) Other Documents, Etc. The Bank shall have received such other
documents, certificates, and opinions as the Bank or its counsel may
reasonably request, including, without limitation, organizational documents
of the Authority, the Company, and the Bond Insurer, and all matters relating
to this Amendment No. 1 and the Bonds shall be satisfactory to the Bank.
6. Fees and Expenses.
(a) Expenses Relating to Amendment No. 1. The Company hereby agrees to pay
all costs and expenses of the Bank (including, without limitation, reasonable
attorneys' fees and disbursements, but excluding overhead and other internal
costs of the Bank) in connection with the negotiation, preparation, review,
execution and delivery of this Amendment No. 1. The Company hereby also
agrees to pay on demand all costs and expenses paid or incurred by the Bank,
if any, in connection with the enforcement of this Amendment No. 1 and in
connection the amendment or enforcement of any Related Documents, and the
protection of the rights of the Bank hereunder and thereunder (including
reasonable counsel fees and disbursements but excluding overhead and other
internal costs of the Bank).
(b) Amendment and Extension Fee. The Company hereby also agrees
to pay a one time amendment and extension fee (the "Amendment and Extension
Fee"), calculated at 7.5 basis points on the total Liquidity Facility amount
of sixty-two million nine hundred eighteen thousand dollars ($62,918,000) for
a total Amendment and Extension Fee of forty-seven thousand one hundred
eighty-eight dollars and fifty cents ($47,188.50).
7. Continued Effectiveness. This Amendment No. 1 is to be narrowly
construed. Except as expressly amended by this Amendment No. 1, all terms
and provisions of the Original Agreement are and shall continue in full force
and effect.
8. Governing Law. This Amendment No. 1 shall be governed by, and construed
in accordance with, the laws of the State of New York.
9. Counterparts. This Amendment No. 1 may be executed by the parties
hereto in any number of counterparts.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be
duly executed and delivered by their respective officers thereunto authorized
as of the date first written above.
THE CONNECTICUT LIGHT AND POWER
COMPANY
By: s/s David R. McHale
Name: David R. McHale
Title: Assistant Treasurer-Finance
SOCIETE GENERALE, New York Branch
By: s/s Gordon Eadon
Name: Gordon Eadon
Title: Vice President
STATE STREET BANK AND TRUST COMPANY, as Trustee
By: s/s Kathy Larimore
Name: Kathy Larimore
Title: Assistant Vice President
Exhibit 4.4.3
TWENTY-FOURTH SUPPLEMENTAL INDENTURE dated as of the first day of March,
1967, made and entered into by and between WESTERN MASSACHUSETTS ELECTRIC
COMPANY, a corporation organized under the laws of the Commonwealth of
Massachusetts having its principal place of business at West Springfield in
the County of Hampden, in said Commonwealth, (hereinafter called the Company)
and OLD COLONY TRUST COMPANY, a corporation organized under the laws of the
Commonwealth of Massachusetts, and having its principal office and usual
place of business at Boston in the County of Suffolk in said Commonwealth,
(hereinafter called the Trustee).
WITNESSETH that:
WHEREAS the Company has heretofore executed and delivered to the Trustee its
First Mortgage Indenture and Deed of Trust dated as of August 1, 1954,
(hereinafter as amended by a First Supplemental Indenture dated as of October
1, 1954, called the Original Indenture) conveying certain property therein
described in trust as security for the Bonds of the Company to be issued
thereunder as therein provided and for other purposes more particularly
specified therein, and the Trustee has accepted said Trust; and
WHEREAS there are now outstanding thereunder $11,000,000 aggregate principal
amount of First Mortgage Bonds, Series A, 2.95% due October 1, 1973; under
said First Supplemental Indenture, $6,000,000 aggregate principal amount of
First Mortgage Bonds, Series B, 3 1/8%, due October 1, 1984; under a Sixth
Supplemental Indenture, $12,000,000 aggregate principal amount of First
Mortgage Bonds, Series C, 4 3/8% due April 1, 1987; and under a Sixteenth
Supplemental Indenture $8,000,000 aggregate principal amount of First
Mortgage Bonds, Series E, 4 3/8%, due May 1, 1992; and
WHEREAS the Company has authorized the issue pursuant to Section 3.08 of the
Original Indenture of an additional series of its fully registered First
Mortgage Bonds without coupons, to be issued under the Original Indenture and
this Twenty-fourth Supplemental Indenture (hereinafter with all prior
Supplemental Indentures called the Indenture) to be designated "First
Mortgage Bonds, Series F, 5 3/4%, due March 1, 1997" (hereinafter called the
Series F Bonds) and to be limited in aggregate principal amount to
$15,000,000, being the entire issue of the Series F Bonds; and
WHEREAS the Company, pursuant to votes or resolutions duly and legally
adopted by its Board of Directors and by its stockholder at meetings duly
called and held for the purpose, has duly authorized the execution and
delivery of this Twenty-fourth Supplemental Indenture and the issue of the
Series F Bonds in the aggregate principal amount of $15,000,000; and
WHEREAS the issue of the Series F Bonds in said aggregate principal amount of
$15,000,000 and the execution and delivery of this Twenty-fourth Supplemental
Indenture have been duly approved to the extent required by law by the
Department of Public Utilities of said Commonwealth, the Public Utilities
Commission of the State of Connecticut, and by the Securities and Exchange
Commission pursuant to the provisions of the Public Utility Holding Company
Act of 1935; and
WHEREAS, pursuant to the provisions of Section 16.01(b) of the Original
Indenture, the Company desires to add to the covenants and agreements of the
Company contained in the Original Indenture other covenants and agreements to
be observed after the execution and delivery of this Twenty-fourth
Supplemental Indenture which its Board of Directors has considered to be for
the protection of the Mortgaged Property and of the holders of the Bonds,
although the freedom of action of the Company may be restricted thereby; and
WHEREAS the permanent form of the Series F Bonds in fully registered
form without coupons, and of the transfer thereof, and the form of the
certificate of authentication to be affixed thereto shall be substantially as
follows:
FORM of BOND
No. FR $
WESTERN MASSACHUSETTS ELECTRIC COMPANY
First Mortgage Bond, Series F. 5 3/4%, due March 1, 1997
FOR VALUE RECEIVED, WESTERN MASSACHUSETTS ELECTRIC COMPANY, a corporation of
the Commonwealth of Massachusetts, (hereinafter called the Company) hereby
promises to pay to , or registered assigns, the
principal sum of $ dollars, on the first day of March, 1997,
and semi-annually on the first days of March and September in each year until
the Company's obligation with respect to said principal sum shall be
discharged, to pay interest on said sum at the rate per annum specified in
the title of this Bond from the interest payment date next preceding the date
hereof to which interest has been paid on the Bonds of this series, or if the
date hereof is prior to August 16, 1967 then from March 1, 1967, or if the
date hereof be an interest payment date to which interest is being paid or a
date between the record date for any interest payment date to which interest
is paid and such interest payment date, then from such interest payment date.
Both principal and interest shall be payable at the principal office in the
City of Boston in the County of Suffolk and said Commonwealth of Old Colony
Trust Company, a corporation organized under the laws of said Commonwealth
(hereinafter with its successors, as defined in the Indenture mentioned on
the reverse hereof, generally called the Trustee), or of such successors, in
such coin or currency of the United States of America as at the time of
payment is legal tender for public and private debts.
Each installment of interest hereon (other than overdue interest) shall be
payable to the person (as defined in the Original Indenture mentioned on the
reverse hereof) who shall be the registered owner of this Bond at the close
of business on the record date, which shall be the February 15 or August 15,
as the case may be, next preceding such interest payment date, or, if such
February 15 or August 15 shall be a legal holiday or a day on which banking
institutions in the City of Boston, Massachusetts, are authorized by law to
close, the next preceding day which shall not be a legal holiday or a day on
which such institutions are so authorized to close.
Reference is hereby made to the further provisions of this Bond set forth on
the reverse hereof, including without limitation, provisions in regard to the
call and redemption and the transfer and exchangeability of this Bond, and
such further provisions shall for all purposes, have the same effect as
though
fully set forth in this place.
This Bond shall take effect as a sealed instrument.
This Bond shall not become or be valid or obligatory until the certificate of
authentication hereon shall have been signed by the Trustee.
IN WITNESS WHEREOF, WESTERN MASSACHUSETTS ELECTRIC COMPANY has caused this
Bond to be executed in its name and on its behalf by its President or a Vice
President and its Treasurer or an Assistant Treasurer thereunto duly
authorized, and its corporate seal to be impressed or imprinted hereon.
Dated:
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By
By
CERTIFICATE OF AUTHENTICATION
This Bond is one of the First Mortgage Bonds, Series F, 5 3/4%, due March 1,
1997, described and provided for in the within mentioned Indenture.
OLD COLONY TRUST COMPANY, Trustee
By
Authorized Officer
[FORM OF BOND]
[REVERSE]
This Bond is one of a series of Bonds fully registered form known as the
"First Mortgage Bonds, Series F, 5 3/4%, due March 1, 1997" of the Company,
limited to fifteen million dollars ($15,000,000) in aggregate principal
amount (except as provided by the terms of Section 2.13 of the Indenture
mentioned below), and issued under and secured by a First Mortgage Indenture
and Deed of Trust between the Company and said Old Colony Trust Company, as
Trustee, dated as of August 1, l954, (herein as amended by a First
Supplemental Indenture dated as of October 1, 1954, called the Original
Indenture and together with all indentures stated to be supplemental thereto
to which the Trustee shall be a party, including the Twenty-fourth
Supplemental Indenture mentioned below, generally called the Indenture) and a
Twenty-fourth Supplemental Indenture dated as of March 1, 1967, an executed
counterpart of each of which is on file at the principal office of the
Trustee, to which Indenture reference is hereby made for a description of the
nature and extent of the security, the rights thereunder of the bearers or
registered owners of Bonds issued and to be issued thereunder, the rights,
duties, and immunities thereunder of the Trustee, the rights and obligations
thereunder of the Company, and the terms and conditions upon which said
Bonds, and other and further Bonds of other series, are issued and are to be
issued; but neither the foregoing reference to the Indenture nor any
provision of this Bond or of the Indenture shall affect or impair the
obligation of the Company, which is absolute, unconditional and unalterable,
to pay at the maturities herein provided the principal of and interest on
this Bond as herein provided.
The fully registered Bonds of this series in permanent form are issuable in
denominations of one thousand dollars ($1,000) and any multiple thereof.
This Bond is transferable by the registered owner hereof in person or by his
duly authorized attorney at the principal office of the Trustee or at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, New York, upon surrender and cancellation hereof, and a new Bond or
Bonds of this series for a like principal amount will be issued in exchange,
all as provided in the Indenture. Prior to due presentment for registration
of transfer of this Bond the Company and the Trustee may deem and treat the
registered owner hereof as the absolute owner hereof, whether or not this
Bond be overdue, for the purpose of receiving payment and for all other
purposes, and neither the Company nor the Trustee shall be affected by any
notice to the contrary.
This Bond is exchangeable at the option of the registered owner hereof at the
principal office of the Trustee or at the office or agency of the Company in
the Borough of Manhattan, The City of New York, New York, for an equal
principal amount of fully registered Bonds of this series of other
denominations, in the manner and on the terms provided in the Indenture.
The Bonds of this series are subject to redemption prior to maturity upon not
less than thirty (30) days' prior notice, as a whole at any time, or subject
to the provisions of Section 5.06 of the Original Indenture in part from time
to time, either at the option of the Company, or for the purposes of the
Improvement Fund for Bonds of this series or of any other applicable
provision of the Indenture, in the manner and with the effect provided in the
Indenture, (i) if from Improvement Fund moneys pursuant to Article IV of said
Twenty-fourth Supplemental Indenture or from moneys received by the Trustee
pursuant to Sections 4.05, 4.18, 7.03, 7.04, 7.05, or 7.07 to be applied by
the Trustee as provided in Section 8.03(a) or in Section 8.05 of the Original
Indenture, at the applicable percentages of the called principal amount
thereof specified under the column headed Special Redemption Price, below,
and (ii) if at the option of the Company or pursuant to any provisions of the
Indenture other than those in respect of said Improvement Fund or of the
aforesaid moneys applied pursuant to Section 8.03(a) or Section 8.05 of the
Original Indenture, at the applicable percentages of the called principal
amount thereof specified under the column headed Optional Redemption Price,
below, together in each case with accrued and unpaid interest to the date
fixed for redemption:
If Redeemed If Redeemed
During the During the
12 Months' Optional Special 12 Months'Optional Special
Period Redemption Redemption Period Redemption Redemption
Starting Price Price Starting Price Price
March 1 % % March 1 % %
1967 107.75 102.00 1982 103.45 101.41
1968 107.47 102.00 1983 103.16 101.35
1969 107.18 101.97 1984 102.88 101.28
1970 106.89 101.94 1985 102.59 101.22
1971 106.61 101.91 1986 102.30 101.14
1972 106.32 101.87 1987 102.01 101.07
1973 106.03 101.84 1988 101.73 100.98
1974 105.75 101.80 1989 101.44 100.90
1975 105.46 101.76 1990 101.15 100.81
1976 105.17 101.72 1991 100.87 100.71
1977 104.88 101.68 1992 100.58 100.58
1978 104.60 101.63 1993 100.29 100.29
1979 104.31 101.58 1994 100.00 100.00
1980 104.02 101.53 1995 100.00 100.00
1981 103.74 101.47 1996 100.00 100.00
Notice of redemption as aforesaid shall be mailed by the Trustee not less
than thirty (30) days nor more than sixty (60) days prior to the date set for
redemption, by first class mail, to the registered owners of all Bonds of
this series which have been called for redemption, at their last addresses
upon the books for registration kept by the Registrar.
If this Bond, or a part hereof, shall be called for redemption, or provision
for such call shall have been made, as provided in the Indenture, and payment
of the redemption price shall have been duly provided for by the Company,
interest shall cease to accrue hereon, or on such called part, from and after
the redemption date, the Company shall from the time provided in the
Indenture be under no further liability in respect of the principal of, or
premium, if any, or interest on, this Bond, or such called part, and the
registered owner hereof shall from and after such time look for payment
hereof, or of such called part, solely to the money so provided.
The Indenture contains provisions permitting the Company and the Trustee with
the consent of the bearers or registered owners of not less than seventy
percentum (70%) in principal amount of the Bonds at the time outstanding
(except Bonds held by or for the benefit of the Company), including, if more
than one series of Bonds shall be at the time outstanding, not less than
seventy percentum (70% ) in principal amount of the Bonds (except Bonds held
by or for the benefit of the Company) of each series affected differently
from those of other series, to effect by supplemental indenture modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the bearers and registered owners of the Bonds; but no such
modification or alteration shall be made which, without the written approval
or consent of the registered owner hereof, will extend the maturity hereof or
reduce the rate or extend the time for payment of interest hereon or reduce
the amount of the principal hereof or of any premium payable on the
redemption hereof, or which will reduce the percentage of the principal
amount of Bonds or the percentage of the principal amount of Bonds of any one
series required for the adoption of the modifications or alterations as
aforesaid, or authorize the creation by the Company, except as expressly
authorized by the Indenture, of any mortgage, pledge, or lien upon the
property subjected thereto ranking prior to or on an equality with the lien
thereof.
If a default as defined in the Indenture shall occur, the principal of this
Bond may become or be declared due and payable before maturity, in the manner
and with the effect provided in the Indenture; but any default and the
consequences thereof may be waived by certain percentages of the bearers or
registered owners of Bonds, all as provided in the Indenture.
No recourse shall be had for the payment of the principal of or the interest
on this Bond or for any claim based hereon or otherwise in respect hereof or
of the Indenture against any incorporator, stockholder, director, or officer,
past, present, or future, as such, of the Company or of any predecessor or
successor corporation under any constitution, statute, or rule of law, or by
the enforcement of any assessment, penalty, or otherwise, all such liability
being waived and released by the holder hereof by the acceptance of this
Bond.
FORM FOR TRANSFER
FOR VALUE RECEIVED
hereby sell, assign, and transfer the within Bond to
and hereby irrevocably constitute and
appoint
attorney to transfer said Bond on the books of the Company with full power of
substitution in the premises.
Dated this day of , 19
In presence of:
AND WHEREAS all requirements of law and of the certificate of incorporation
as amended, and of the by-laws of the Company, including all requisite action
on the part of directors and officers, and all things necessary to make the
Series F Bonds, when duly executed by the Company and delivered, the valid,
binding, and legal obligations of the Company, and the covenants and
stipulations herein contained valid and binding obligations of the Company,
have been done and performed, and the execution and delivery hereof have been
in all respects duly authorized;
NOW, THEREFORE, THIS TWENTY-FOURTH SUPPLEMENTAL WITNESSETH: In consideration
of the premises and of the mutual covenants herein contained and of the
purchase and acceptance by the registered owners thereof of the Series F
Bonds at any time issued hereunder, and of one dollar ($1) duly paid to the
Company by the Trustee and for other good and valuable considerations, the
receipt whereof at or before the ensealing and delivery of these presents is
hereby acknowledged, and in confirmation of and supplementing the Indenture,
and in the performance and observance of the provisions thereof, and in order
to establish the forms and characteristics of the Series F Bonds, and to
secure the payment of the principal of and premium, if any, and interest on
all Bonds from time to time outstanding under the Indenture according to
their tenor and effect, and to secure the performance and observance of all
the covenants and conditions contained therein and in this Twenty-fourth
Supplemental Indenture, the Company has executed and delivered this
Twenty-fourth Supplemental Indenture, and does hereby confirm the conveyance,
transfer, assignment, and mortgage of the franchises and properties as set
forth in the Original Indenture and in all subsequent indentures prior hereto
and has granted, bargained, sold, conveyed, assigned, transferred, mortgaged,
and confirmed, and by these presents does grant, bargain, sell, convey,
assign, transfer, mortgage, and confirm unto Old Colony Trust Company, as
Trustee, as provided in the Indenture, its successors in the trusts thereof
and hereof, and its and their assigns, all and singular the franchises and
properties of the Company of the character described and defined in the
Original Indenture as Mortgaged Property, including all and singular such
franchises and properties which may hereafter be acquired by the Company,
acquired after the execution of the Original Indenture, subject, however, to
Permitted Encumbrances and to any mortgages or other liens or encumbrances
thereon of the character described in Section 4.10 of the Original Indenture
existing at the time of the acquisition of such franchises and properties by
the Company or created contemporaneously to secure or to raise a part of the
purchase price thereof and to any renewals or extensions of such mortgages or
other liens or encumbrances; it being intended that such conveyance,
transfer, and assignment shall include without limitation thereby all
Fundable Property not previously so conveyed, transferred, or assigned to the
Trustee.
There is furthermore expressly excepted and excluded from the lien and
operation of this Twenty-fourth Supplemental Indenture, and from the
definition of Mortgaged Property, all the property of the Company described
in clauses A to J, both inclusive, of the granting clauses of said Original
Indenture, whether owned at the time of the execution of this Twenty-fourth
Supplemental Indenture or hereafter acquired by it.
TO HAVE AND TO HOLD all and singular the above described franchises and
properties unto the said Old Colony Trust Company, as Trustee under the
Indenture, its successors in the trusts thereof and hereof, and its and their
assigns, to its and their own use forever.
BUT IN TRUST, NEVERTHELESS, upon the terms and trusts set forth in the
Indenture for the equal pro rata benefit, security, and protection of the
bearers or registered owners of the Bonds from time to time certified,
issued, and outstanding under the Indenture, without any discrimination,
preference, priority, or distinction of any Bond or coupon over any other
Bond or coupon by reason of series, priority in the time of issue, sale, or
negotiation thereof, or otherwise howsoever, except as otherwise provided in
the Indenture;
PROVIDED, HOWEVER, and these presents are upon the condition that if the
Company, its successors or assigns, shall pay or cause to be paid, the
principal of and the premium, if any, and interest on the Bonds outstanding
under the Indenture at the times and in the manner stipulated therein and in
the Indenture and shall keep, perform, and observe all and singular the
covenants and promises in said Bonds and in the Indenture expressed to be
kept, performed, and observed by or on the part of the Company, then this
Twenty-fourth Supplemental Indenture, and the estate and rights hereby
granted shall, pursuant to the provisions of Article XV of the Original
Indenture, cease, determine and be void, but only if the Original Indenture
shall have ceased, determined and become void, as therein provided, otherwise
to be and remain in full force and effect.
ARTICLE I.
DESCRIPTION AND ISSUE OF SERIES F BONDS.
Section 1.01. The permanent Series F Bonds shall be substantially in
the form hereinbefore set forth, with such changes therein as shall be
approved by the Company and the Trustee, shall be designated as the First
Mortgage Bonds, Series F, 5 3/4%, due March 1, 1997, of the Company, shall be
issuable in the aggregate principal amount of fifteen million dollars
($15,000,000) and no more except as provided in Section 2.13 of the Original
Indenture, shall be dated as provided in said Indenture and in Section 1.02
of this Twenty-fourth Supplemental Indenture, shall mature March 1, 1997,
shall bear interest at the rate specified in their title as provided in said
Section 1.02 until the Company's obligation in respect of the principal
thereof shall be discharged, payable semi-annually on the first days of March
and September in each year as provided in said Indenture and in said Section
1.02 (the principal, premium, if any, and interest thereon being payable at
the principal office of the Trustee in the City of Boston, Massachusetts, in
such coin or currency of the United States of America as at the time of
payment is legal tender for public and private debts), shall be issued in
fully registered form in denominations of one thousand dollars ($1,000) and
any multiple thereof, shall be transferable as provided in Section 2.08 of
said Indenture at the principal office the Trustee or at the office or agency
of the Company in the Borough of Manhattan, The City of New York, New York,
shall be redeemable at the times and in the manner provided in Article V of
the Original Indenture and as hereinafter provided in Article III of this
Twenty-fourth Supplemental Indenture and shall be entitled to the benefit of
the Improvement Fund described in Article IV of this Twenty-fourth
Supplemental Indenture. Notwithstanding the provisions of Section 2.11 of
the Original Indenture, no charge, except for taxes or governmental charges,
shall be made by the Company upon any transfer or exchange of Series F Bonds.
Series F Bonds in fully registered form may be exchanged at the principal
office of the Trustee or at the office or agency of the Company in the
Borough of Manhattan, The City of New York, New York, for a like aggregate
principal amount of Series F Bonds in fully registered form of other
denominations and, upon surrender for exchange of one or more of such Series
F Bonds, the Company shall execute and the Trustee shall certify and there
shall be delivered in exchange therefor a like aggregate principal amount of
such Series F Bonds of other denominations. Bonds so surrendered for
exchange shall be considered as having been surrendered for Cancellation and
shall be forthwith Cancelled by the Trustee.
Neither the Company nor the Trustee shall be required (i) to transfer or
exchange Series F Bonds for a period of fifteen days next preceding any
selection of Series F Bonds to be redeemed, or (ii) to transfer or exchange
any Series F Bond or that portion of any Series F Bond which has been called
for redemption.
Pursuant to the provisions of Section 2.07 of the Original Indenture, the
Company appoints Bankers Trust Company and its successors as the agency of
the Company in the Borough of Manhattan, The City of New York, New York, for
the registration, transfer, and exchange of Series F Bonds.
Section 1.02. Notwithstanding the provisions of Section 2.12 of the Original
Indenture, the person in whose name any Series F Bond is registered at the
close of business on any record date (as hereinbelow defined) with respect to
any interest payment date shall be entitled to receive the interest payable
on such interest payment date notwithstanding the Cancellation of such Bond
upon any transfer or exchange thereof subsequent to the record date and prior
to such interest payment date, except if and to the extent the Company shall
default in the payment of the interest due on such interest payment date,
then such defaulted interest shall be paid to the person in whose name such
Bond is registered on a subsequent record date for the payment of such
defaulted interest if one shall have been established as hereinafter provided
and otherwise on the date of payment of such defaulted interest. A
subsequent record date may be established by the Company by notice mailed to
the owners of Series F Bonds not less than ten days preceding such record
date, which record date shall be not more than thirty days prior to the
subsequent interest payment date. The term "record date" as used in this
Section with respect to any regular interest payment date shall mean the
February 15 or August 15, as the case may be, next preceding such interest
payment date, or, if such February 15 or August 15 shall be a legal holiday
or a day on which banking institutions in The City of Boston, Massachusetts,
are authorized by law to close, the next preceding day which shall not be a
legal holiday or a day on which such institutions are so authorized to close.
Notwithstanding the provisions of Sections 2.01 and 2.12 of the Original
Indenture, each Series F Bond shall be dated the date of the certification
thereof by the Trustee, and shall bear interest on the principal amount
thereof payable semi-annually on the first days of March and September in
each year, until the Company's obligation with respect to the principal shall
be discharged, at the rate per annum specified in the title from the interest
payment date next preceding the date thereof to which interest has been paid
on the Bonds of said series, or if the date thereof is prior to August 16,
1967 then from March 1, 1967, or if the date thereof be an interest payment
date to which interest is being paid or a date between the record date for
any interest payment date to which interest is paid and such interest payment
date, then from such interest payment date.
ARTICLE II.
DIVIDEND COVENANT.
Section 2.01. The Company hereby covenants and agrees with the Trustee and
with the respective owners of Series F Bonds that so long as any of the
Series F Bonds shall be Outstanding the Company will not on or after January
1, 1967, declare or pay any dividends or make any other distributions (except
(a) dividends payable or distributions made in shares of common stock of the
Company and (b) dividends payable in cash when, concurrently with the payment
of the dividend, an amount of cash equal to the dividend is received by the
Company as a capital contribution or as the proceeds of the issue and sale of
its common stock) on or in respect of its common stock or purchase or
otherwise acquire for a consideration any shares of its common stock if the
aggregate of such dividends, distributions and such consideration for
purchase or other acquisition of shares of its common stock after December
31, 1966 shall exceed:
(i) the earned surplus of the Company accumulated after December 31, 1966,
(determined in accordance with generally accepted accounting principles and
without giving effect to any subsequent net transfers from earned surplus to
stated capital, or to any subsequent charges to earned surplus on account of
such dividends, distributions, or acquisitions, or to any subsequent charges
to earned surplus on account of the disposition of any amounts which may then
be classified by the Company on its books as amounts in excess of the
original cost of utility plant, or to any subsequent charges or credits to
earned surplus applicable to the period prior to January 1, 1967, including
charges for write-offs or write-downs of book values of assets owned by the
Company on January 1, 1967) plus
(ii) $3,300,000 plus
(iii) such additional amount as shall be authorized or approved, upon
application by the Company, by the Securities and Exchange Commission, or by
any successor commission thereto, under the Public Utility Holding Company
Act of 1935, less
(iv) dividends accruing subsequent to December 31, 1966, on any preferred
stock of the Company; and also less
(v) the total amount, if any, by which the charges to income or earned
surplus since December 31, 1966, as provision for the depreciation of
Mortgaged Property shall have been less than the Replacement Fund Requirement
since said date.
The term "consideration", as used in this Section, shall mean Cost or Fair
Value, whichever is less, if the consideration be other than cash, and the
term "provision for depreciation" shall not be deemed to include provision
for the amortization of any amounts classified by the Company on its books as
amounts in excess of original cost of Mortgaged Property.
In the event that the Company shall merge or consolidate with any other
corporation or corporations pursuant to Article XIV of the Original
Indenture, the earned surplus of the Company shall not be increased or
diminished by the surplus or deficit of such corporation or corporations or
by its or their earnings, dividends, distributions, or purchases prior to the
date of such merger or consolidation.
ARTICLE III.
REDEMPTION OF SERIES F BONDS.
Section 3.01. The Series F Bonds shall be redeemable as a whole at any time,
or, subject to the provisions of Section 5.06 of the Original Indenture, in
part, from time to time, either at the option of the Company or for the
purposes of the Improvement Fund provided for in Article IV hereof or of any
other applicable provisions of the Indenture including this Twenty-fourth
Supplemental Indenture (i) if from Improvement Fund moneys pursuant to said
Article IV or from moneys received by the Trustee pursuant to Sections 4.05,
4.18, 7.03, 7.04, 7.05, or 7.07 to be applied by the Trustee as provided in
Section 8.03(a) or in Section 8.05 of the Original Indenture, at the
applicable percentages of the called principal amount thereof specified under
the column headed Special Redemption Price in the form of Series F Bond
hereinabove contained, and (ii) if at the option of the Company or pursuant
to any provisions of the Indenture including this Twenty-fourth Supplemental
Indenture, other than those in respect of said Improvement Fund or of the
aforesaid moneys applied pursuant to Section 8.03(a) or Section 8.05 of the
Original Indenture, at the applicable percentages of the called principal
amount thereof specified under the column headed Optional Redemption Price in
the form of Series F Bond hereinabove contained, together in each case with
accrued and unpaid interest to the date fixed for redemption.
Section 3.02. Notice of redemption of the Series F Bonds either as a whole
of in part shall be mailed by the Trustee by first class mail, postage
prepaid, to the registered owner or owners of each Series F Bond called for
redemption either in whole or in part not less than thirty (30) nor more than
sixty (60) days prior to the date set for redemption by the Company at their
last addresses as they shall appear upon the books for registration kept by
the Registrar. Any notice given in the foregoing manner shall be
conclusively deemed to have been duly given whether or not received by the
owner or owners. Failure to give such notice by mail to the owner or owners
of any Series F Bond designated for redemption in whole or in part, or any
defect therein, shall not affect the validity of any proceedings for the
redemption of any other Series F Bond. Except as aforesaid and except that
in the event a Series F Bond shall be called for redemption in its entirety
the notice need not contain the number of the Bond so called, the applicable
provisions of Article V of the Original Indenture shall control and be
followed in all matters connected with the redemption and payment of Series F
Bonds.
ARTICLE IV.
IMPROVEMENT FUND.
Section 4.01. The Company covenants that so long as any Series F Bonds are
Outstanding hereunder it will on the first day of November, 1968, and on the
first day of November in each calendar year thereafter pay to the Trustee the
sum of one hundred fifty thousand dollars ($150,000), as an Improvement Fund
to be held and applied by the Trustee pursuant to the terms of Section 4.03
of this Article IV; provided however, that the Company may, at its option,
upon filing the application and other documents described in Section 4.02 of
this Article IV
(i) deposit with the Trustee Outstanding Series F Bonds, toward the
satisfaction of the obligation aforesaid in an amount equal to one hundred
percentum (100%) of the aggregate principal amount of Series F Bonds so
deposited; and/or
(ii) irrevocably allocate Net Property Additions toward the satisfaction of
the obligation aforesaid in an amount equal to sixty percentum (60%) of the
Available Net Property Additions as set forth in Item G of the Certificate of
Available Net Property Additions filed in connection with said application.
Section 4.02. For the purpose of determining the amount of money, if any, to
be paid to the Trustee pursuant to the provisions of Section 4.01, the
Company shall file with the Trustee on or before each said first day of
November the following:
(a) an application consisting of an Officers' Certificate conforming to the
requirements of Section 17.02 of the Original Indenture and otherwise
substantially in the following form:
WESTERN MASSACHUSETTS ELECTRIC COMPANY
To Old Colony Trust Company, Trustee
under Indenture dated as of August 1, 1954
Improvement Fund Application
under Twenty-fourth Supplemental Indenture
filed November 1, 19
In conformity with the provisions of Article IV of the Twenty-fourth
Supplemental Indenture providing for an annual Improvement Fund in the amount
of $150,000 for the benefit of the registered owners of the First Mortgage
Bonds, Series F, 5 3/4%, due March 1, 1997, of the aforesaid Company issued
under the aforesaid Indenture, we hereby certify that the sum of $150,000 is
due at this time from the Company to you as Trustee as aforesaid on account
of said Improvement Fund obligation now due and payable.
(If deposit of Series F Bonds in the aggregate principal sum of $150,000 is
made, the following should be used)
Outstanding Series F Bonds in the aggregate principal sum of $150,000 are
transmitted herewith for Cancellation in full satisfaction of said
obligation.
(If deposit of money in the amount of $150,000 is made, the following should
be used)
The sum of $150,000 is transmitted herewith in cash in full satisfaction of
said obligation.
(If irrevocable allocation of Net Property Additions is in full satisfaction
of the Improvement Fund obligation then current, the following should be
used)
Application is hereby made irrevocably to allocate in the amount of $250,000
the Available Net Property Additions set forth in Item G of the accompanying
Certificate of Available Net Property Additions in full satisfaction of said
obligation.
(If full satisfaction be not achieved by any one of the foregoing, the
following should be used, omitting reference to Series F Bonds and/or to
money if none are transmitted, and to Net Property Additions if none are
irrevocably allocated)
Outstanding Series F Bonds in the aggregate principal amount of $
and the sum of $ is [are] transmitted herewith
and application is hereby made irrevocably to allocate Net Property Additions
shown in the accompanying Certificate of Available Net Property Additions by
application of an amount equal to sixty percentum (60% ) of the Available Net
Property Additions set forth in Item G of said Certificate, in full
satisfaction of said obligation.
Office held
Office held
(b) if Series F Bonds are transmitted
(1) Outstanding Series F Bonds in the aggregate principal amount set forth
in the application described in (a) above;
(2) An Officers' Certificate containing the statements described in
subparagraph (d) (1) of Section 3.04 of the Original Indenture, and a further
statement that the Bonds so deposited comply with the definition of
Outstanding contained in the Original Indenture.
(c) if irrevocable allocation of any Net Property Additions be made
(1) a Directors Resolution authorizing the execution of a Supplemental
Indenture in form satisfactory to the Trustee conveying, transferring and/or
assigning to the Trustee all Fundable Property not previously so conveyed,
transferred and/or assigned;
(2) said Supplemental Indenture duly executed by the Company, and if
necessary by the Trustee, in as many counterparts as the Trustee shall
require;
(3) a Certificate of Available Net Property Additions;
(4) an Accountant's Certificate similar, except for necessary variations, to
the Accountant's Certificate described in subparagraph (f) of Section 3.08 of
the Original Indenture;
(5) an Engineer's Certificate similar, except for necessary variations, to
the Engineer's Certificate described in subparagraph (g) of Section 3.08 of
the Original Indenture.
(d) an Opinion of Counsel to the effect that the amount of the Improvement
Fund obligation then due pursuant to this Section is correctly stated in said
application, and that the documents described in this Section and/or the sum
of money paid to the Trustee and/or the Series F Bonds transmitted to the
Trustee and/or the Net Property Additions irrevocably allocated pursuant to
this Section fully satisfy the liability of the Company upon the Improvement
Fund obligation then due pursuant to this Section and if any Fundable
Property be conveyed, assigned, and/or transferred to the Trustee, that all
corporate action prerequisite or necessary for the execution and delivery of
the Supplemental Indenture has been taken; that the Properly Additions
described in Item B of said Certificate are Fundable Property within the
definition thereof contained in the Original Indenture; and that all
recording and filing in respect of said Supplemental Indenture necessary for
the security of any and all Bonds has been or will be completed.
(e) The Company shall also pay to the Trustee with the documents aforesaid
the sum of money, if any, set forth in the said application.
All Series F Bonds deposited with the Trustee pursuant to this Article IV
shall be Canceled by it.
Section 4.03. If at the close of the first day of November, 1968, and of the
first day of November in any calendar year thereafter, there shall be in the
hands of the Trustee any cash paid to the Trustee pursuant to the provisions
of Section 4.02, in the aggregate amount of five thousand dollars ($5,000) or
more, said cash shall be set aside by the Trustee for the call and redemption
of Series F Bonds then Outstanding and the Trustee, on behalf of and in the
name of the Company and at the Company's expense, shall call for redemption
on or prior to the next succeeding thirty-first day of December, at a
redemption price in respect of each Bond so called for redemption consisting
of the applicable percentage of the called principal amount thereof specified
under the column headed Special Redemption Price in the forms of Series F
Bonds hereinabove contained and interest accrued thereon to the date fixed
for redemption, Series F Bonds to a principal amount sufficient (exclusive of
premium and accrued interest) to exhaust as nearly as may be the cash so set
aside. Notice to owners of the Series F Bonds called for redemption under
this Section shall be given in the manner provided in Section 3.02 of this
Twenty-fourth Supplemental Indenture and such Series F Bonds shall be
presented for payment and paid in the manner provided in Section 5.04 of the
Original Indenture; the particular Series F Bonds to be redeemed shall,
unless they shall include all the Series F Bonds then Outstanding, be chosen
by lot as provided in Section 5.02 of the Original Indenture; and the
provisions of Section 5.05 of the Original Indenture shall be applicable to
the redemption of such Series F Bonds and all matters related thereto.
The Company shall reimburse the Trustee, forthwith upon its request, for all
sums paid or to be paid out as premium and interest upon Series F Bonds
redeemed pursuant to the provisions of this Section.
ARTICLE V.
THE TRUSTEE.
Section 5.01. The Trustee shall be entitled to, may exercise, and shall be
protected by, where and to the full extent that the same are applicable, all
the rights, powers, privileges, immunities and exemptions provided in the
Indenture, as if the provisions concerning the same were incorporated herein
at length. The remedies and provisions of the Indenture applicable in case
of any default by the Company thereunder are hereby adopted and made
applicable in case of any default with respect to the properties included
herein and, without limitation of the generality of the foregoing, there are
hereby conferred upon the Trustee the same powers of sale and other powers
over the properties described herein as are expressed to be conferred by the
Indenture.
ARTICLE VI.
DEFASANCE.
Section 6.01. This Twenty-fourth Supplemental Indenture shall become void
when the Indenture shall be void.
ARTICLE VII.
AMENDMENTS OF ORIGINAL INDENTURE.
Section 7.01. The Original Indenture is hereby amended pursuant to
subparagraph (b) of Section 16.01 of the Original Indenture, as follows:
(a) Section 1.02 (1) is amended by adding thereto the following sentence:
"The term 'Original Indenture' shall mean the Indenture dated as of August 1,
1954, as amended by Article VII of the First Supplemental Indenture dated as
of October 1, 1954."
(b) Section 1.02 (7) is amended by substituting therein for the words
"Western Massachusetts Companies" the words "Northeast Utilities".
(c) Section 1.02 (33) is amended by adding thereto the following sentence:
"The total of all Property Additions shall be determined on the basis of the
Cost or Fair Value thereof, whichever is less, and the total of all Property
Retirements on the basis of the Cost thereof as and to the extent provided in
Section 1.02(32)."
(d) Section 1.02 is amended by inserting at the end thereof the following:
(38) Replacement Fund Requirement
The term "Replacement Fund Requirement" (1) for any period of time, other
than a period of twelve (12) consecutive calendar months which is not a
calendar year, shall mean an amount equal to the sum of the minimum
provisions for replacement of Depreciable Property for:
(i) each calendar year, if any, included within the period in question, and
(ii) the months, if any, included within such period which are subsequent to
the end of the last completed calendar year, and
(2) for a period of twelve (12) consecutive calendar months which is not a
calendar year shall mean the minimum provision for replacement of Depreciable
Property for such period.
The minimum provision for replacement of Depreciable Property for a calendar
year or any other period of twelve (12) consecutive calendar months shall be
2.25% (or such other percentage as shall be authorized or approved, upon
application by the Company, by the Securities and Exchange Commission, or by
any commission successor thereto, under the Public Utility Holding Company
Act of 1935) of the average of the Company's Depreciable Property as at the
beginning and end of such year or other period.
The minimum provision for replacement of Depreciable Property for the period
of months subsequent to the end of the last completed calendar year shall be
1/12th of 2.25% (or such other percentage as shall be approved by the
Securities and Exchange Commission as aforesaid) of the average of the
Company's Depreciable Property as at the beginning and end of such period for
each month included within such period.
(39) Depreciable Property
The term "Depreciable Property" shall mean, as of any specified time of
computation, an amount, determined in accordance with generally accepted
accounting principles, equal to the sum of (a) the aggregate of the Cost to
the Company or the original cost (whichever is less) of the Mortgaged
Property as defined in the Original Indenture, other than land, flowage
rights, rights of way, water rights and other like undepreciable real estate
and rights in real estate, and unfinished construction, excluding however any
amount included in utility plant acquisition adjustments accounts or in any
accounts for similar purposes, and (b) amounts included in the utility plant
acquisition adjustments accounts or in accounts for similar purposes of the
Company if (1) the Company shall have failed to provide a reserve therefor on
its books and (2) the Company shall have failed to make provision for charges
to income and/or periodic charges to surplus in lieu of charges to income
adequate to permit the write-off thereof at the expiration of the estimated
useful life of the property represented thereby.
(e) Section 1.02 (35) is amended by substituting in the second full
paragraph thereof for the parenthesis "(but excluding charges to income for
the amortization of plant and equipment (devoted to utility operation)
account or amounts transferred therefrom)" the following parenthesis:
"(including such additional annual charges as shall be necessary to provide
for complete amortization of depreciable plant and equipment (devoted to
utility operation) account of hereafter acquired plant or systems at the
close of their estimated useful life, and the amount, if any, by which the
Replacement Fund Requirement for the period for which net earnings are
calculated exceeds the depreciation charged to income in said period on the
property on which the said Replacement Fund Requirement is based)"
(f) Section 1.03 is amended by changing Items D and E of the Form of
Certificate of Available Net Property Additions set forth therein to read
respectively as follows in any such Certificate filed with the Trustee after
March 31, 1967:
D. (1) That the Cost of all Property Retirements made by the Company after
May 31, 1954, and on or prior to December 31, 1956, is $
(2) That the greater of (x), the Cost of all Property Retirements made by
the Company after December 31, 1966, and on or prior to , 19
[here insert the date inserted in the second space in Item B] and (y) the
Replacement Fund Requirement for the period between December 31, 1966, to and
including [here insert the date inserted in the second space in Item B] is $
E. That the total of all Net Property Additions heretofore made the basis
for the withdrawal of money from the hands of the Trustee pursuant to the
provisions of Section 3.06 or of Section 8.03(b), or the issue of additional
Bonds pursuant to Section 3.08, or irrevocably allocated for credit against
the Improvement Fund pursuant to the provisions of Section 6.01, or (here
insert the name of any Sinking Fund, Maintenance and Renewal Fund,
Improvement Fund or analogous : fund created by Supplemental Indenture
against the obligations of which Net Property Additions have been heretofore
credited) or allocated to satisfy a Replacement Deficit and not thereafter
reinstated pursuant to Section 4.18 is $
(g) Section 2.03 is amended by inserting between the first and second
sections thereof the following sentence:
"The signature of any such officer or officers may be facsimile."
(h) Section 4.10 is amended by adding thereto a new sentence reading as
follows:
"The Company will not permit any increase in the aggregate principal amount
of the outstanding indebtedness secured by any such mortgage, encumbrance, or
lien superior to the lien of this Indenture upon the Mortgaged Property,
unless the additional obligations representing such increase are issued in
exchange for or in lieu of outstanding obligations on the exercise by holders
of such outstanding obligations of a right possessed by holders thereof at
the date of acquisition by the Company of the property subject to such
mortgage, encumbrance, or lien."
(i) Article IV is amended as follows:
by substituting the following Section 4.17 for Section 4.17:
Section 4.17. That in every Certificate of Available Net Property Additions
filed with the Trustee for any purpose under this Indenture, all Property
Additions and all Property Retirements, the Cost or Fair Value of which is
included in any such Certificate will comply with the definition herein of
Property Additions and Property Retirements, respectively; that the Cost and
Fair Value of all such Property Additions and the Cost of all such Property
Retirements will be compiled in accordance with the definitions herein of
Cost and Fair Value respectively; that no property which is not Fundable
Property will be included in Item A or Item B of any such Certificate; and
that no Property Additions which have once been Made the Basis for Action or
Credit hereunder will thereafter be Made the Basis for Action or Credit
hereunder unless reinstated pursuant to the provisions of Section 4.18,
provided however that property at any time subject to the Lien hereof
consisting solely of materials or supplies usable as components in the
construction of electric utility or steam plant, and which has once been Made
the Basis for Action or Credit hereunder may again be Made the Basis for
subsequent Action or Credit hereunder when restored to service if it shall in
the meantime have been retired from service and the Cost thereof (less any
credit for salvage value actually received) shall then have been charged to
the depreciation reserve, the reserve for contributions to extensions, or to
the surplus account of the Company and such charge shall have been reflected
in Item D of any Certificate of Available Net Property Additions filed with
the Trustee pursuant to the provisions of Sections 3.06, 3.08, 6.02(b),
8.03(b) or 4.18.
and by adding the following Section 4.18 thereto:
Section 4.18. On or before May 1 of each year, beginning with the year 1968,
the Company will deliver to the Trustee an Officers' Certificate (hereinafter
called the Maintenance Certificate), which shall be dated within thirty (30)
days of the date of delivery to the Trustee and shall state:
(i) the Replacement Fund Requirement for the period between December 31,
1966, and the January 1 which next precedes the date of the Certificate;
(ii) the amount specified pursuant to Item (i) in the Maintenance
Certificate, if any, filed in the preceding calendar year;
(iii) the difference between the amount specified in Item (i) and the
amount specified in Item (ii) above;
(iv) the amount expended by the Company for Property Additions made in the
period between December 31, 1966, and that January 1, which next precedes the
date of the Certificate;
(v) the amount specified pursuant to Item (iv) in the Maintenance
Certificate, if any, filed in the preceding calendar year;
(vi) the difference between the amount specified in Item (iv) above and the
amount specified in Item (v) above;
(vii) any Available Replacement Credit, as hereinafter defined, and the
computation thereof; and
(viii) the Replacement Credit or Replacement Deficit, as hereinafter
defined.
The amount "expended by the Company for Property Additions", for purposes of
this Section, shall not include (a) any amount on account of Property
Additions acquired by the Company which were used by another Person in a
business or for a purpose similar to the business of, or to their proposed
use by, the Company or acquired by merger or consolidation or (b) any amount
expended for the acquisition of any property disposed of by the Company
within the year immediately preceding such acquisition.
The term "Replacement Credit" shall mean the excess of the sum of the amounts
stated pursuant to Items (vi) and (vii) of the Maintenance Certificate over
the amount stated pursuant to Item (iii).
The term "Available Replacement Credit" shall mean the amount of the
Replacement Credit, if any, stated in Item (viii) of the latest Maintenance
Certificate filed with the Trustee after deducting the principal amount of
Bonds and cash which, pursuant to the terms of this Section, were transmitted
to the Trustee and subsequently withdrawn and/or the Cost or Fair Value of
any Available Net Property Additions allocated to satisfy a Replacement
Deficit to the extent subsequently reinstated as hereafter in this Section
provided.
The term "Replacement Deficit" shall mean the amount by which amounts stated
pursuant to Item (iii) of the Maintenance Certificate exceed the sum of the
amounts stated pursuant to Items (vi) and (vii).
In case any Maintenance Certificate shows any Replacement Deficit, the
Company will, concurrently with the filing of such Certificate, satisfy such
Replacement Deficit by any one or more of the following methods:
1. depositing cash with the Trustee; or
2. depositing Outstanding Bonds to the Trustee; or
3. allocating Available Net Property Additions.
For the purposes of this Section, Bonds so deposited shall be taken at the
aggregate principal amount thereof and credit shall be allowed in an amount
equal to 100% of Available Net Property Additions.
If Outstanding Bonds shall be deposited with the Trustee to satisfy a
Replacement Deficit, the Company shall deliver to the Trustee an Officers'
Certificate containing the statements described in subparagraph (d)(l) of
Section 3.04 of the Original Indenture, and a further statement that the
Bonds so deposited comply with the definition of Outstanding contained in the
Original Indenture.
If Available Net Property Additions shall be allocated to satisfy a
Replacement Deficit, the Company shall deliver to the Trustee a Certificate
of Available Net Property Additions, an Accountant's Certificate similar,
except for necessary variations, to the Accountant's Certificate described in
subparagraph (f) of Section 3.08 of the Original Indenture, an Engineer's
Certificate similar, except for necessary variations, to the Engineer's
Certificate described in subparagraph (g) of Section 3.08 of the Original
Indenture, and an Opinion of Counsel to the effect that the Property
Additions described in Item B of said Certificate of Available Net Property
Additions are Fundable Property within the definition thereof contained in
the Original Indenture.
At any time while the Trustee shall be holding cash or Bonds deposited with
it or while Available Net Property Additions have been allocated in
satisfaction of the Replacement Deficit and not reinstated, in all cases
pursuant to the provisions of this Section, the Company may:
1. substitute Outstanding Bonds or Available Net Property Additions for
such cash, Outstanding Bonds for Available Net Property Additions so
allocated, or Available Net Property Additions for Bonds so deposited, the
basis of substitution being the same as the basis for deposit hereinbefore
set forth;
Bonds may be substituted for cash or for Available Net Property Additions
upon written application made by the Company accompanied by an Officers'
Certificate substantially similar to the Officers' Certificate required in
connection with the deposit of Bonds with the Trustee; Available Net Property
Additions may be substituted for cash or for Bonds upon written application
made by the Company accompanied by Certificates substantially similar to the
Certificates required in connection with the allocation of Available Net
Property Additions in satisfaction of a Replacement Deficit;
2. withdraw cash or Bonds upon written application therefor accompanied by
an Officers' Certificate stating
(i) the amount of cash or the aggregate principal amount of Bonds to be
withdrawn;
(ii) the Available Replacement Credit on the date of the Certificate, which
shall at least equal the amount of the cash or the aggregate principal amount
of the Bonds to be withdrawn, and the computation thereof; and
(iii) that to the best of the knowledge and belief of such Officers the
Company is not in default in the performance and observance of any terms,
covenants, and conditions of the Indenture;
3. reinstate the Cost or Fair Value of Available Net Property Additions
allocated in satisfaction of any Replacement Deficit or for the withdrawal of
cash or of Bonds as above provided in an amount equal to any Available
Replacement Credit upon the filing with the Trustee of an Officers'
Certificate stating the Available Replacement Credit and the amount of the
Available Net Property Additions to be reinstated and that the Company is not
in default in the performance and observance of any terms, covenants and
conditions of the Indenture, and thereupon the Available Net Property
Additions so reinstated may be made the Basis for Action or Credit hereunder
in all Certificates of Available Net Property Additions thereafter filed with
the Trustee.
Except as hereinbefore provided for the withdrawal of cash or Bonds, any cash
deposited with the Trustee pursuant to the provisions of this Section shall
be held and disposed of pursuant to the provisions of Section 8.02 of the
Original Indenture, and any Bonds deposited with the Trustee shall be held by
the Trustee and while so held shall not be made the basis for the
certification of Bonds, the withdrawal, use or application of cash, or the
release of property under the provisions of the Indenture or used to satisfy
a Replacement Deficit or to satisfy any other requirements of the Indenture.
No payment by way of principal, interest, or otherwise on any Bonds held by
the Trustee shall be made or demanded by the Trustee while so held.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS.
Section 8.01. The recitals in this Twenty-fourth Supplemental Indenture
shall be taken as recitals by the Company alone, and shall not be considered
as made by or as imposing any obligation or liability upon the Trustee, nor
shall the Trustee be held responsible for the legality or validity of this
Twenty-fourth Supplemental Indenture, and the Trustee makes no covenants or
representations, and shall not be responsible, as to or for the effect,
authorization, execution, delivery, or recording of this Twenty-fourth
Supplemental Indenture, except as expressly set forth in the Original
Indenture. The Trustee shall not be taken impliedly to waive by this
Twenty-fourth Supplemental Indenture any right it would otherwise have. As
provided in the Original Indenture, this Twenty-fourth Supplemental Indenture
shall hereafter form a part of the Indenture.
Section 8.02. If and to the extent that any provision of this Twenty-fourth
Supplemental Indenture limits, qualifies, or conflicts with another provision
of the Indenture required by any of Sections 310 to 317, inclusive, of the
Trust Indenture Act of 1939 to be included in an indenture to be qualified
under said Act, such required provision shall control.
Section 8.03. This Twenty-fourth Supplemental Indenture may be
simultaneously executed in any number of counterparts, each of which shall be
deemed an original; and all said counterparts executed and delivered, each as
an original, shall constitute but one and the same instrument, which shall
for all purposes be sufficiently evidenced by any such original counterpart.
Section 8.04. This Twenty-fourth Supplemental Indenture is intended to be
filed under the Uniform Commercial Code of Massachusetts as a financing
statement or as an amendment to a financing statement previously filed,
Western Massachusetts Electric Company, 174 Brush Hill Avenue, West
Springfield, in said County of Hampden, said Commonwealth, being the debtor,
and Old Colony Trust Company, 1 Federal Street, Boston, in the County of
Suffolk, said Commonwealth, being the secured party.
IN WITNESS WHEREOF, said Western Massachusetts Electric Company has caused
this instrument to be executed in its corporate name its President, or one of
its Vice Presidents, "thereunto duly authorized, and its corporate seal to be
hereto affixed, attested by its Clerk or an Assistant Clerk, and said Old
Colony Trust Company teas caused this instrument to be executed in its
corporate name by one of its Vice Presidents, "thereunto duly authorized, and
its corporate seal to be hereto affixed, all as of the day and year first
above written.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By /s/PAUL H. MEHRTENS
President
Attest:
/s/N. F. PLANTE
Clerk
Signed, sealed and delivered by Western Massachusetts Electric Company in our
presence:
PAUL J. SULLIVAN
W. L. MITCHELL
OLD COLONY TRUST COMPANY
By J. J. WALSH
Vice President
Signed, sealed and delivered by Old Colony Trust Company in our presence:
M. R. WALSH
H. G. MAGUIRE
COMMONWEALTH OF MASSACHUSETTS
HAMPDEN, ss.
On this 21th day of March in the year 1967 before me personally came PAUL H.
MEHRTENS and N. F. PLANTE, both to me personally known, who being by me duly
sworn did depose and say that they are respectively President and Clerk of
Western Massachusetts Electric Company, one of the corporations described in
and which executed the foregoing instrument; that they know the seal of said
corporation; that the seal affixed to said instrument opposite the execution
was affixed thereto pursuant to the authority of its Board of Directors; that
they signed their respective names thereto by like authority; and each of
them acknowledged said instrument to be his free act and deed in his said
capacity and the free act and deed of Western Massachusetts Electric Company.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal,
at West Springfield in said Commonwealth, the day and year first above
written.
MARIE A. NOLIN
Notary Public for
the Commonwealth of Massachusetts
My commission expires: Dec. 1, 1972
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss.
On this 21th day of March in the year 1967 before me personally came J. J.
WALSH, to me personally known, who being by me duly sworn did depose and say
that he is a Vice President of Old Colony Trust Company, one of the
corporations described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said
instrument opposite the execution was affixed thereto pursuant to the
authority of its Board of Directors; that he signed his name thereto by like
authority; and he acknowledged said instrument to be his free act and deed in
his said capacity and the free act and deed of Old Colony Trust Company.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal,
at Boston in said Commonwealth, the day and year first above written.
MARIETTA R. LYNCH
Notary Public for
the Commonwealth of Massachusetts
MY commission expires: Jan. 25, 1974
I, the undersigned, Clerk of WESTERN MASSACHUSETTS ELECTRIC COMPANY, hereby
CERTIFY that at an adjourned session of a special meeting of the stockholders
of said Company, duly convened and held at West Springfield, Massachusetts,
on March 16, 1967, the following vote was duly adopted by the affirmative
vote of all the outstanding stock of said Company; and I, the undersigned,
FURTHER CERTIFY that at a meeting of the Board of Directors of said Company,
duly called and held on March 16, 1967, at which a quorum was present and
voting, the same identical vote was duly adopted by said Board:
Voted: That the form, as presented to this meeting, of the proposed
Twenty-fourth Supplemental Indenture to be dated as of March 1, 1967, between
the Company and Old Colony Trust Company, as its Trustee, under the First
Mortgage Indenture and Deed of Trust dated as of August 1, 1954, which
Twenty-fourth Supplemental Indenture conveys, transfers, and/or assigns to
said Old Colony Trust Company as Trustee as aforesaid all property of the
character defined as Fundable Property in definition (28) of Section 1.02 of
said First Mortgage Indenture, is hereby approved and the proper officers of
the Company are severally authorized to execute and deliver the same in the
name and on behalf of the Company.
AND I FURTHER CERTIFY that PAUL H. MEHRTENS is the President of said Company,
duly authorized to execute in the name and on behalf of said Company, the
foregoing Twenty-fourth Supplemental Indenture dated as of March 1, 1967;
that I am the Clerk of said Company, duly authorized to attest the ensealing
of said Twenty-fourth Supplemental Indenture; that the Twenty-fourth
Supplemental Indenture to which this certificate is attached is substantially
in the form presented to and approved at each of said meetings held March 16,
1967; that the foregoing is a correct copy of the vote adopted at each of
said meetings; and that the foregoing vote, as adopted at each of said
meetings, remains in full force and effect without alteration.
IN WITNESS WHEREOF, I have hereunto subscribed my name as Clerk and have
caused the corporate seal of the Company to be hereunto affixed on March 21,
1967.
N. F. PLANTE
Clerk
Exhibit 4.4.10
EIGHTIETH SUPPLEMENTAL INDENTURE dated as of the 1st day of July, 1997,
made and entered into by and between WESTERN MASSACHUSETTS ELECTRIC COMPANY,
a corporation organized under the laws of the Commonwealth of Massachusetts,
with its principal place of business at 174 Brush Hill Avenue, West
Springfield, Massachusetts 01089 (hereinafter generally called the Company),
and STATE STREET BANK AND TRUST COMPANY, a trust company organized under the
laws of the Commonwealth of Massachusetts, as successor to The First National
Bank of Boston, as TRUSTEE under the Mortgage Indenture described below, with
its principal corporate trust office at Two International Place, 4th Floor,
Boston, MA 02110 (said State Street Bank and Trust Company or, as applied to
action antedating the effective date of said succession, said The First
National Bank of Boston, or its predecessor by merger, Old Colony Trust
Company, being hereinafter generally called the Trustee).
WITNESSETH that:
WHEREAS , the Company has heretofore executed and delivered to the
Trustee its First Mortgage Indenture and Deed of Trust (See Note 1) dated as
of August 1, 1954 (hereinafter as amended by a First Supplemental Indenture
dated as of October 1, 1954, called the Original Indenture, the Original
Indenture with all indentures supplemental thereto being hereinafter
generally called the Indenture), conveying certain property therein described
in trust as security for the Bonds of the Company to be issued thereunder as
therein provided and for other purposes more particularly specified therein,
and the Trustee has accepted said Trust; and
Note 1: For details as to the filing and recording of this instrument in
Massachusetts, see Schedule C.
WHEREAS there are outstanding $334,800,000 aggregate principal amount of
Bonds which have been issued at various times and in various amounts and with
various dates of maturity and rates of interest and have been denominated
Series G, Series V, Series W, Series X, Series Y and 1997 Series A; and
WHEREAS the Company has authorized the issue pursuant to Section 3.08 of
the Original Indenture of an additional series of its fully registered First
Mortgage Bonds without coupons, to be issued under the Indenture, to be
designated "First Mortgage 7-3/8% Bonds, 1997 Series B, due July 1, 2001"
(hereinafter called the 1997 Series B Bonds) and to be limited (except as
provided in Section 2.13 of the original Indenture) in aggregate principal
amount to $60,000,000 being the entire issue of the 1997 Series B Bonds; and
WHEREAS the Company, pursuant to resolutions duly and legally adopted by
its Board of Directors at a meeting duly called and held for the purpose, has
duly authorized the execution and delivery of this Eightieth Supplemental
Indenture and the issue of the 1997 Series B Bonds in the aggregate principal
amount of $60,000,000; and
WHEREAS the issue of the 1997 Series B Bonds in said aggregate principal
amount of $60,000,000 and the execution and delivery of this Eightieth
Supplemental Indenture have been duly approved to the extent required by law
by the Department of Public Utilities of said Commonwealth and by the
Department of Public Utility Control of the State of Connecticut; and
WHEREAS all requirements of law and of the certificate of incorporation,
as amended, and of the by-laws of the Company, including all requisite action
on the part of directors and officers, and all things necessary to make the
1997 Series B Bonds, when duly executed by the Company and delivered, the
valid, binding, and legal obligations of the Company, and the covenants and
stipulations herein contained valid and binding obligations of the Company,
have been done and performed, and the execution and delivery hereof have been
in all respects duly authorized; and
NOW, THEREFORE, THIS EIGHTIETH SUPPLEMENTAL INDENTURE WITNESSETH: In
consideration of the premises and of the mutual covenants herein contained
and of the purchase and acceptance by the registered owners thereof of the
1997 Series B Bonds at any time issued hereunder, and of one dollar ($1) duly
paid to the Company by the Trustee and for other good and valuable
considerations, the receipt whereof at or before the ensealing and delivery
of these presents is hereby acknowledged, and in confirmation of and
supplementing the Indenture, and in the performance and observance of the
provisions thereof, and in order to establish the form and characteristics of
the 1997 Series B Bonds, and to secure the payment of the principal of and
premium, if any, and interest on all Bonds from time to time outstanding
under the Indenture according to their tenor and effect, and to secure the
performance and observance of all the covenants and conditions contained
therein and in this Eightieth Supplemental Indenture, the Company has
executed and delivered this Eightieth Supplemental Indenture, and does hereby
confirm the conveyance, transfer, assignment, and mortgage of the franchises
and properties as set forth in the Original Indenture and in all supplemental
indentures prior hereto, excepting only such as have been released in
accordance with Article VII of the Indenture and has granted, bargained,
sold, conveyed, assigned, transferred, mortgaged, and confirmed, and by these
presents does grant, bargain, sell, convey, assign, transfer, mortgage, and
confirm unto State Street Bank and Trust Company, as Trustee, as provided in
the Indenture, its successors in the trusts thereof and hereof, and its and
their assigns, all and singular the franchises and properties of the Company
of the character described and defined in the Original Indenture as Mortgaged
Property (including all and singular such franchises and properties which may
hereafter be acquired by the Company) acquired after the execution of the
Original Indenture including all real property conveyed to the Company prior
to the date hereof, including, but not limited to, the property set forth in
Schedule B appended hereto, subject, however, to Permitted Encumbrances and
to any mortgages or other liens or encumbrances thereon of the character
described in Section 4.10 of the Indenture existing at the time of the
acquisition of such franchises and properties by the Company or created
contemporaneously to secure or to raise a part of the purchase price thereof
and to any renewals or extensions of such Permitted Encumbrances, mortgages
or other liens or encumbrances.
There is furthermore expressly excepted and excluded from the lien and
operation of this Eightieth Supplemental Indenture, and from the definition
of Mortgaged Property, all the property of the Company described in clauses A
to J, both inclusive, of the granting clauses of the Original Indenture,
whether owned at the time of the execution of this Eightieth Supplemental
Indenture or thereafter acquired by it.
TO HAVE AND TO HOLD all and singular the above described franchises and
properties unto the said State Street Bank and Trust Company, as Trustee
under the Indenture, its successors in the trusts thereof and hereof, and its
and their assigns, to its and their own use forever.
BUT IN TRUST, NEVERTHELESS, upon the terms and trusts set forth in the
Indenture for the equal pro rata benefit, security, and protection of the
bearers or registered owners of the Bonds from time to time certified,
issued, and outstanding under the Indenture, without any discrimination,
preference, priority, or distinction of any Bond or coupon over any other
Bond or coupon by reason of series, priority in the time of issue, sale, or
negotiation thereof, or otherwise howsoever, except as otherwise provided in
the Indenture;
PROVIDED, HOWEVER, and these presents are upon the condition that if the
Company, its successors or assigns, shall pay or cause to be paid the
principal of and the premium, if any, and interest on the Bonds Outstanding
under the Indenture at the times and in the manner stipulated therein and in
the Indenture and shall keep, perform, and observe all and singular the
covenants and promises in said Bonds and in the Indenture expressed to be
kept, performed, and observed by or on the part of the Company, then this
Eightieth Supplemental Indenture and the estate and rights hereby granted
shall, pursuant to the provisions of Article XV of the Original Indenture,
cease, determine and be void, but only if the Indenture shall have ceased,
determined and become void, as therein provided, otherwise to be and remain
in full force and effect.
ARTICLE I.
DESCRIPTION AND ISSUE OF 1997 SERIES B BONDS.
Section 1.01. 1997 Series B Bonds and the certificate of authentication
of the Trustee upon said Bonds shall be substantially in the forms thereof
respectively set forth in Schedule A appended hereto, with such changes
therein as shall be approved by the Company and the Trustee. 1997 Series B
Bonds shall be designated as the First Mortgage 7-3/8 % Bonds, 1997 Series B,
due July 1, 2001, of the Company, shall be issuable in the aggregate
principal amount of sixty million dollars ($60,000,000) and no more except as
provided in Section 2.13 of the Original Indenture, shall be dated as
provided in Section 1.02 of this Eightieth Supplemental Indenture, shall
mature July 1, 2001, shall bear interest at the rate specified in their
title, as provided in said Section 1.02 until the Company's obligation in
respect of the principal thereof shall be discharged, payable semiannually on
the first days of January and July in each year as provided in said Section
1.02 (the principal, premium, if any, and interest thereon being payable at
the principal corporate trust office of the Trustee in the City of Boston,
Massachusetts, or at the principal corporate trust office of its successors,
in such coin or currency of the United States of America as at the time of
payment is legal tender for public and private debts), shall be issued in
fully registered form in denominations of one thousand dollars ($1,000) and
any multiple thereof, shall be transferable as provided in Section 2.08 of
said Original Indenture at the principal corporate trust office of the
Trustee or at the office or agency of the Company in the Borough of
Manhattan, The City of New York, New York, and shall be redeemable at the
times and in the manner provided in Article V of the Original Indenture and
as hereinafter provided in Article III of this Eightieth Supplemental
Indenture. Notwithstanding the provisions of Section 2.11 of the Original
Indenture, no charge, except for taxes or governmental charges, shall be made
by the Company upon any registration of transfer or exchange of 1997 Series B
Bonds.
1997 Series B Bonds in fully registered form may be exchanged at the
principal corporate trust office of the Trustee or at the office or agency of
the Company in the Borough of Manhattan, The City of New York, New York, for
a like aggregate principal amount of 1997 Series B Bonds in fully registered
form of other authorized denominations and, upon surrender for exchange of
one or more of such 1997 Series B Bonds, the Company shall execute and the
Trustee shall certify and there shall be delivered in exchange therefor a
like aggregate principal amount of such 1997 Series B Bonds of other
authorized denominations. Bonds so surrendered for exchange shall be
considered as having been surrendered for cancellation and shall be forthwith
canceled by the Trustee.
Pursuant to the provisions of Section 2.07 of the Original Indenture,
the Company appoints State Street Bank and Trust Company, N.A. and its
successors as the agency of the Company in the Borough of Manhattan, The City
of New York, New York, for the registration of transfer and exchange of 1997
Series B Bonds.
Section 1.02. Notwithstanding the provisions of Section 2.12 of the
Original Indenture, the person in whose name any 1997 Series B Bond is
registered at the close of business on any record date (as herein below
defined) with respect to any interest payment date shall be entitled to
receive the interest payable on such interest payment date notwithstanding
the cancellation of such Bond upon any registration of transfer or exchange
thereof subsequent to the record date and prior to such interest payment
date, except if and to the extent the Company shall default in the payment of
the interest due on such interest payment date, then such defaulted interest
shall be paid to the person in whose name such Bond is registered on a
subsequent record date for the payment of such defaulted interest if one
shall have been established as hereinafter provided and otherwise on the date
of payment of such defaulted interest. A subsequent record date may be
established by the Company by notice mailed to the owners of 1997 Series B
Bonds not less than ten (10) days preceding such record date, which record
date shall be not more than thirty (30) days prior to the subsequent interest
payment date. The term "record date" as used in this Section with respect to
any regular interest payment date shall mean the December 15 or June 15, as
the case may be, next preceding such interest payment date, or, if such
December 15 or June 15 shall be a day on which banking institutions in the
City of Boston, Massachusetts, are authorized by law to close, the next
preceding day which shall not be a day on which such institutions are so
authorized to close.
Notwithstanding the provisions of Sections 2.01 and 2.12 of the Original
Indenture, each 1997 Series B Bond shall be dated the date of the
certification thereof by the Trustee, and shall bear interest on the
principal amount thereof payable semiannually on the first days of January
and July in each year, until the Company's obligation with respect to the
principal shall be discharged, at the rate per annum specified in the title
from the interest payment date next preceding the date thereof to which
interest has been paid on the Bonds of said series, or if the date thereof is
prior to December 16, 1997, then from the date of original issuance, or if
the date thereof be an interest payment date to which interest is being paid
or a date between the record date for any interest payment date to which
interest is paid and such interest payment date, then from such interest
payment date.
Section 1.03. Each initial and successive holder of any 1997 Series B
Bond, solely by virtue of its acquisition thereof, shall have and be deemed
to have given written consent, without the need for any further action or
consent by such holder, to the following amendment to the Original Indenture,
and each said holder hereby authorizes and directs the Trustee, on behalf of
the holder, to waive any notice contemplated by the Indenture and to give
written consent to such amendment. The amendment modifies Section 3.04 (h)
of the Original Indenture to read as follows:
(h) in the event that (i) the total annual interest requirements of the
Bonds then to be issued under this Section exceed the total annual interest
requirements of the Bonds in respect of the payment, retirement, redemption,
Cancellation or surrender to the Trustee for Cancellation of which said Bonds
are then to be issued and (ii) such Bonds in respect of the payment,
retirement, redemption, Cancellation or surrender to the Trustee for
Cancellation of which said Bonds are then to be issued are then Outstanding
and mature more than two years from the date of the Officers' Certificate
contemplated by paragraph (d) of this Section, an Earnings Certificate.
ARTICLE II
DIVIDEND COVENANT
Section 2.01. This Eightieth Supplemental Indenture imposes no
additional restrictions on the Company's right to declare or pay any
dividends or make any other distributions on or in respect of its common
stock or to purchase or otherwise acquire for a consideration any shares of
its common stock beyond those created by prior supplemental indentures and
those in the Company's preferred stock provisions, by-laws and those
otherwise required by law.
ARTICLE III.
REDEMPTION OF 19997 SERIES B BONDS.
Section 3.01. The 1997 Series B Bonds will be redeemable in whole or in
part, at the option of the Company at any time, at a redemption price equal
to the greater of (i) 100% of their principal amount and (ii) the sum of the
present values of the remaining scheduled payments of principal and interest
thereon discounted to the date of redemption on a semiannual basis (assuming
a 360-day year consisting of twelve 30-day months) at the Treasury Yield,
plus in each case accrued interest to the date of redemption (the Redemption
Date).
"Treasury Yield" means, with respect to any Redemption Date, the rate
per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker having a maturity comparable to
the remaining term of the 1997 Series B Bonds that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the 1997 Series B Bonds. "Independent Investment Banker"
means Morgan Stanley & Co. Incorporated or, if such firm is unwilling or
unable to select the Comparable Treasury Issue, an independent investment
banking institution of national standing selected by the Company and
appointed by the Trustee.
"Comparable Treasury Price" means, with respect to any Redemption Date,
(i) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor
release) is not published or does not contain such prices on such business
day, (A) the average of the Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, Salomon Brothers Inc and another Primary Treasury Dealer (as
defined herein) at the option of the Company, that if any of the foregoing
shall cease to be a primary U.S. Government Securities dealer in New York
City (a "Primary Treasury Dealer"), the Company shall substitute therefor
another Primary Treasury Dealer.
Section 3.02. Notice of redemption of the 1997 Series B Bonds either as
a whole or in part shall be mailed by the Trustee by first class mail,
postage prepaid, to the registered owner or owners of each 1997 Series B Bond
called for redemption either in whole or in part not less than thirty (30) or
more than sixty (60) days prior to the date set for redemption at their last
addresses as they shall appear upon the books for registration kept by the
Registrar. Such notice may state that it is subject to the receipt of
redemption moneys by the Trustee on or before the date fixed for redemption
and the notice shall be of no effect unless such moneys are so received on or
before such date. Any notice given in the foregoing manner shall be
conclusively deemed to have been duly given whether or not received by the
owner or owners. Failure to give such notice by mail to the owner or owners
of any 1997 Series B Bond designated for redemption in whole or in part, or
any defect therein, shall not affect the validity of any proceedings for the
redemption of any other 1997 Series B Bond. Except as aforesaid and except
that (a) Published Notice need not be given, (b) in the event a 1997 Series B
Bond shall be called for redemption in its entirety the notice herein
provided need not contain the number of the Bond so called, and (c) any such
notice may be made subject to the deposit of redemption moneys with the
Trustee before the date fixed for redemption, the applicable provisions of
Article V of the Original Indenture shall control and be followed in all
matters connected with the redemption and payment of 1997 Series B Bonds.
ARTICLE IV.
THE TRUSTEE.
Section 4.01. The Trustee shall be entitled to, may exercise, and shall
be protected by, where and to the full extent that the same are applicable,
all the rights, powers, privileges, immunities and exemptions provided in the
Indenture, as if the provisions concerning the same were incorporated herein
at length. The remedies and provisions of the Indenture applicable in case
of any default by the Company thereunder are hereby adopted and made
applicable in case of any default with respect to the properties included
herein and, without limitation of the generality of the foregoing, there are
hereby conferred upon the Trustee the same powers of sale and other powers
over the properties described herein as are expressed to be conferred by the
Indenture.
ARTICLE V.
DEFEASANCE.
Section 5.01. This Eightieth Supplemental Indenture shall become void
when the Indenture shall become void.
ARTICLE VI.
MISCELLANEOUS PROVISIONS.
Section 6.01. The recitals in this Eightieth Supplemental Indenture
shall be taken as recitals by the Company alone, and shall not be considered
as made by or as imposing any obligation or liability upon the Trustee, nor
shall the Trustee be held responsible for the legality or validity of this
Eightieth Supplemental Indenture, and the Trustee makes no covenants or
representations, and shall not be responsible, as to or for the effect,
authorization, execution, delivery, or recording of this Eightieth
Supplemental Indenture, except as expressly set forth in the Original
Indenture. The Trustee shall not be taken impliedly to waive by this
Eightieth Supplemental Indenture any right it would otherwise have as
provided in the Original Indenture. This Eightieth Supplemental Indenture
shall hereafter form a part of the Indenture.
Section 6.02. This Eightieth Supplemental Indenture may be
simultaneously executed in any number of counterparts, each of which shall be
deemed an original; and all said counterparts executed and delivered, each as
an original, shall constitute but one and the same instrument, which shall
for all purposes be sufficiently evidenced by any such original counterpart.
IN WITNESS WHEREOF, said Western Massachusetts Electric Company has
caused this instrument to be executed in its corporate name by its President
or one of its Vice Presidents and by its Treasurer or an Assistant Treasurer,
thereunto duly authorized, and its corporate seal to be hereto affixed and
attested by its Clerk or an Assistant Clerk, and said State Street Bank and
Trust Company has caused this instrument to be executed in its corporate name
by one of its Vice Presidents or Assistant Vice Presidents, thereunto duly
authorized, and its corporate seal to be hereto affixed, all as of the day
and year first above written.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By s/s
John B. Keane
Vice President
and by s/s
David R. McHale
Assistant Treasurer
Attest: (CORPORATE SEAL)
s/s O. Kay Comendul
Assistant Clerk
Signed, sealed and delivered by
Western Massachusetts Electric
Company in our presence:
s/s Alyssa Lagace
s/s Tracy A. DeCredico
STATE OF CONNECTICUT BERLIN
COUNTY OF HARTFORD
On this 29th day of July in the year 1997 before me personally came John
B. Keane and David R. McHale, to me personally known, who being by me duly
sworn did depose and say that they are respectively a Vice President and an
Assistant Treasurer of Western Massachusetts Electric Company, one of the
corporations described in and which executed the foregoing instrument; that
they know the seal of said corporation; that the seal affixed to said
instrument opposite the execution was affixed thereto pursuant to the
authority of its Board of Directors; that they signed their names thereto by
like authority; and they acknowledged said instrument to be their free act
and deed in their said respective capacities and the free act and deed of
Western Massachusetts Electric Company.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, at Berlin in said State, the day and year first above written.
s/s Judith D. Boucher
Judith D. Boucher
Notary Public for the
My commission expires September 30, 1999 State of Connecticut
(NOTARIAL SEAL)
STATE STREET BANK AND TRUST COMPANY,
Trustee
By s/s Henry W. Seemore
Name: Henry W. Seemore
Title: Assistant Vice President
(CORPORATE SEAL)
Signed, sealed and delivered by
State Street Bank and Trust Company
in our presence:
s/s James E. Schultz
s/s
COMMONWEALTH OF MASSACHUSETTS
BOSTON
COUNTY OF SUFFOLK
On this 29th day of July in the year 1997 before me personally came
Henry W. Seemore, to me personally known, who being by me duly sworn did
depose and say that he is an Assistant Vice President of State Street Bank
and Trust Company, one of the corporations described in and which executed
the foregoing instrument; that he knows the seal of said corporation; that
the seal affixed to said instrument opposite the execution was affixed
thereto pursuant to the authority of its Board of Directors; that he signed
his name thereto by like authority; and he acknowledged said instrument to be
his free act and deed in his said capacity and the free act and deed of State
Street Bank and Trust Company.
IN WITNESS WHEREOF, I have hereunto set my hand and my official seal, at
Boston in said Commonwealth, the day and year first above written.
s/s Laura L. Morse
Notary Public for the
Commonwealth of
Massachusetts
My commission expires: July 12, 2002
(NOTARIAL SEAL)
1 For details as to the filing and recording of this instrument in
Massachusetts, see Schedule C.
Schedule A
[FORM OF BOND]
No. $_________
WESTERN MASSACHUSETTS ELECTRIC COMPANY
First Mortgage 7-3/8 % Bond, 1997 Series B, due July 1, 2001
FOR VALUE RECEIVED, WESTERN MASSACHUSETTS ELECTRIC COMPANY, a
corporation of the Commonwealth of Massachusetts (hereinafter called the
Company), hereby promises to pay to , or registered assigns, the
principal sum of dollars, on the first day of July, 2001 and to
pay interest on said sum semiannually on the first days of January and July
in each year until the Company's obligation with respect to said principal
sum shall be discharged at the rate per annum specified in the title of this
Bond from the interest payment date next preceding the date hereof to which
interest has been paid on the Bonds of this series, or if the date hereof is
prior to December 16, 1997 then from the date of original issuance, or if the
date hereof be an interest payment date to which interest is being paid or a
date between the record date for any interest payment date to which interest
is paid and such interest payment date, then from such interest payment date.
Both principal and interest shall be payable at the principal corporate trust
office in the City of Boston in the County of Suffolk in said Commonwealth of
State Street Bank and Trust Company (hereinafter with its successors,
generally called the Trustee), or at the principal corporate trust office of
its successors, in such coin or currency of the United States of America as
at the time of payment is legal tender for public and private debts.
Each installment of interest hereon (other than overdue interest) shall
be payable to the person (as defined in the Original Indenture mentioned on
the reverse hereof) who shall be the registered owner of this Bond at the
close of business on the record date, which shall be the December 15 or June
15, as the case may be, next preceding such interest payment date, or, if
such December 15 or June 15 shall be a day on which banking institutions in
the City of Boston, Massachusetts, are authorized by law to close, the next
preceding day which shall not be a day on which such institutions are so
authorized to close.
Reference is hereby made to the further provisions of this Bond set
forth on the reverse hereof, including without limitation provisions in
regard to the registration of transfer and exchangeability of this Bond, and
such further provisions shall for all purposes have the same effect as though
fully set forth in this place.
This Bond shall take effect as a sealed instrument.
This Bond shall not become or be valid or obligatory until the
certificate of authentication hereon shall have been signed by the Trustee.
IN WITNESS WHEREOF, WESTERN MASSACHUSETTS ELECTRIC COMPANY has caused
this Bond to be executed in its name and on its behalf by its President or a
Vice President and its Treasurer or an Assistant Treasurer thereunto duly
authorized, and its corporate seal to be impressed or imprinted hereon.
Dated: WESTERN MASSACHUSETTS ELECTRIC COMPANY
By s/s
By s/s
CERTIFICATE OF AUTHENTICATION
This Bond is one of the First Mortgage 7-3/8 % Bonds, 1997 Series B, due
July 1, 2001, described and provided for in the within mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY
By s/s
Authorized Signatory
[FORM OF BOND]
[REVERSE]
This Bond is one of a series of Bonds in fully registered form known as
the "First Mortgage 7-3/8 % Bonds, 1997 Series B, due July 1, 2001" of the
Company, limited to sixty million dollars ($60,000,000) in aggregate
principal amount (except as provided by the terms of Section 2.13 of the
Original Indenture mentioned below), and issued under and secured by a First
Mortgage Indenture and Deed of Trust between the Company and Old Colony Trust
Company (now State Street Bank and Trust Company, successor Trustee) as
Trustee, dated as of August 1, 1954 (herein as amended by a First
Supplemental Indenture dated as of October 1, 1954, called the Original
Indenture, the Original Indenture with all indentures supplemental thereto,
including specifically the Eightieth Supplemental Indenture dated as of July
1, 1997, being herein generally called the Indenture) and said Eightieth
Supplemental Indenture, an executed counterpart of each of which is on file
at the principal corporate trust office of the Trustee, to which Indenture
reference is hereby made for a description of the nature and extent of the
security, the rights thereunder of the bearers or registered owners of Bonds
issued and to be issued thereunder, the rights, duties, and immunities
thereunder of the Trustee, the rights and obligations thereunder of the
Company, and the terms and conditions upon which said Bonds, and other and
further Bonds of other series, are issued and are to be issued; but neither
the foregoing reference to the Indenture nor any provision of this Bond or of
the Indenture shall affect or impair the obligation of the Company, which is
absolute, unconditional and unalterable, to pay at the maturities herein
provided the principal of and premium, if any, and interest on this Bond as
herein provided.
The Bonds of this series are issuable in fully registered form in
denominations of one thousand dollars ($1,000) and any multiple thereof.
This Bond is transferable by the registered owner hereof upon surrender
hereof at the principal corporate trust office of the Trustee or at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, New York, together with a written instrument of transfer in approved
form signed by the registered owner or by his duly authorized attorney, and a
new Bond or Bonds of this series for a like principal amount will be issued
in exchange, all as provided in the Indenture. Prior to due presentment for
registration of transfer of this Bond, the Company and the Trustee may deem
and treat the registered owner hereof as the absolute owner hereof, whether
or not this Bond be overdue, for the purpose of receiving payment and for all
other purposes, and neither the Company nor the Trustee shall be affected by
any notice to the contrary.
This Bond is exchangeable at the option of the registered owner hereof
at the principal corporate trust office of the Trustee or at the office or
agency of the Company in the Borough of Manhattan, The City of New York, New
York, for an equal principal amount of fully registered bonds of this series
of other authorized denominations, in the manner and on the terms provided in
the Indenture.
Bonds of this series are to be issued initially under a book-entry only
system and, except as hereinafter provided, registered in the name of The
Depository Trust Company, New York, New York ("DTC") or its nominee, which
shall be considered to be the holder of all bonds of this series for all
purposes of the Indenture, including, without limitation, payment by the
Company of principal of and premium, if any, and interest on such Bonds of
this series and receipt of notices and exercise of rights of holders of such
Bonds of this series. There shall be a single Bond of this series which
shall be immobilized in the custody of DTC with the owners of book-entry
interests in Bonds of this series ("Book-Entry Interests") having no right to
receive Bonds of this series in the form of physical securities or
certificates. Ownership of Book-Entry Interests shall be shown by book-entry
on the system maintained and operated by DTC, its participants (the
"Participants") and certain persons acting through the Participants.
Transfer of ownership of Book-Entry Interests are to be made only by DTC and
the Participants by that book-entry system, the Company and the Trustee
having no responsibility therefor so long as Bonds of this series are
registered in the name of DTC or its nominee. DTC is to maintain records of
positions of Participants in Bonds of this series, and the Participants and
persons acting through Participants are to maintain records of the purchasers
and owners of Book-Entry Interests. If DTC or its nominee determines not to
continue to act as a depository for the Bonds of this series in connection
with a book-entry only system, another depository, if available, may act
instead and the single Bond of this series will be transferred into the name
of such other depository or its nominee, in which case the above provisions
will continue to apply but to the new depository. If the book-entry only
system for Bonds of this series is discontinued for any reason, upon
surrender and cancellation of the single Bond of this series registered in
the name of the depository or its nominee, new registered Bonds of this
series will be issued in authorized denominations to the holder of Book-Entry
Interests shown on the book-entry system immediately prior to the
discontinuance thereof. Neither the Trustee nor the Company shall be
responsible for the accuracy of the interests shown on that system.
The 1997 Series B Bonds will be redeemable in whole or in part, at the option
of the Company at any time, at a redemption price equal to the greater of (i)
100% of their principal amount and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to
the date of redemption on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Yield, plus in each case
accrued interest to the date of redemption (the Redemption Date).
"Treasury Yield" means, with respect to any Redemption Date, the rate
per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker having a maturity comparable to
the remaining term of the 1997 Series B Bonds that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the 1997 Series B Bonds. "Independent Investment Banker"
means Morgan Stanley & Co. Incorporated or, if such firm is unwilling or
unable to select the Comparable Treasury Issue, an independent investment
banking institution of national standing selected by the Company and
appointed by the Trustee.
"Comparable Treasury Price" means, with respect to any Redemption Date,
(i) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor
release) is not published or does not contain such prices on such business
day, (A) the average of the Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, Salomon Brothers Inc and another Primary Treasury Dealer (as
defined herein) at the option of the Company, that if any of the foregoing
shall cease to be a primary U.S. Government Securities dealer in New York
City (a "Primary Treasury Dealer"), the Company shall substitute therefor
another Primary Treasury Dealer.
Notice of redemption as aforesaid (which notice may be made subject to
the deposit of redemption moneys with the Trustee before the date fixed for
redemption) shall be mailed by the Trustee not less than thirty (30) days nor
more than sixty (60) days prior to the date set for redemption, by first
class mail, postage prepaid, to the registered owner or owners of each Bond
of this series called for redemption, at their last addresses as they shall
appear upon the books for registration kept by the Registrar.
If this Bond, or a part hereof, shall be duly called for redemption, or
provision for such call shall have been made, as provided in the Indenture,
and payment of the redemption price shall have been duly provided for by the
Company, interest shall cease to accrue hereon, or on such called part, from
and after the redemption date, the Company shall from the time provided in
the Indenture be under no further liability in respect of the principal of,
or premium, if any, or interest on, this Bond, or such called part, and the
registered owner hereof shall from and after such time look for payment
hereof, or of such called part, solely to the money so provided.
The Indenture contains provisions permitting the Company and the Trustee
with the consent of the bearers or registered owners of not less than seventy
percentum (70%) in principal amount of the Bonds at the time outstanding
(except Bonds held by or for the benefit of the Company), including, if more
than one series of Bonds shall be at the time outstanding, not less than
seventy percentum (70%) in principal amount of the Bonds (except Bonds held
by or for the benefit of the Company) of each series affected differently
from those of other series, to effect by supplemental indenture modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the bearers and registered owners of the Bonds; but no such
modification or alteration shall be made which, without the written approval
or consent of the registered owner hereof, will extend the maturity hereof or
reduce the rate or extend the time for payment of interest hereon or change
the amount of the principal hereof or of any premium payable on the
redemption hereof, or which will reduce the percentage of the principal
amount of Bonds or the percentage of the principal amount of Bonds of any one
series required for the adoption of the modifications or alterations as
aforesaid, or authorize the creation by the Company, except as expressly
authorized by the Indenture, of any mortgage, pledge, or lien upon the
property subjected thereto ranking prior to or on an equality with the lien
thereof.
Each initial and successive holder of this Bond, solely by virtue of its
acquisition thereof, shall have and be deemed to have given written consent,
without the need for any further action or consent by such holder, to the
following amendment to the Original Indenture and each said holder hereby
authorizes and directs the Trustee, on behalf of the holder, to waive any
notice contemplated by the Indenture, and to give written consent to such
amendment. The amendment modifies Section 3.04 (h) of the Original Indenture
to read as follows:
(h) in the event that (i) the total annual interest requirements of the
Bonds then to be issued under this Section exceed the total annual interest
requirements of the Bonds in respect of the payment, retirement, redemption,
Cancellation or surrender to the Trustee for Cancellation of which said Bonds
are then to be issued and (ii) such Bonds in respect of the payment,
retirement, redemption, Cancellation or surrender to the Trustee for
Cancellation of which said Bonds are then to be issued are then Outstanding
and mature more than two years from the date of the Officers' Certificate
contemplated by paragraph (d) of this Section, an Earnings Certificate.
If a default as defined in the Indenture shall occur, the principal of
this Bond may become or be declared due and payable before maturity, in the
manner and with the effect provided in the Indenture; but any default and the
consequences thereof may be waived by certain percentages of the bearers or
registered owners of Bonds, all as provided in the Indenture.
No recourse shall be had for the payment of the principal of or the
interest on this Bond or for any claim based hereon or otherwise in respect
hereof or of the Indenture against any incorporator, stockholder, director,
or officer, past, present, or future, as such, of the Company or of any
predecessor or successor corporation under any constitution, statute, or rule
of law, or by the enforcement of any assessment, penalty, or otherwise, all
such liability being waived and released by the holder hereof by the
acceptance of this Bond.
Schedule B
NONE
Schedule C
Detail of Filing and Recording of First Mortgage Indenture and Deed
Trust dated as of August 1, 1954 in Massachusetts.
Date
Page Recorded Doc. No. Book
Registry of Deeds
County of Berkshire
Middle District 8/18/54 22357 614 395
Northern District 8/18/54 2684 512 97
Southern District 8/18/54 None 310 379
Assigned
County of Franklin 8/18/54 3501 1007 2
County of Hampshire 8/18/54 5070 1175 388
County of Hampden 8/15/54 20682 2331 1
Registry District of Land Court
County of Berkshire
Middle District 10/4/54 8407-A
Northern District 11/5/68 3115
County of Hampshire 8/18/54 822
County of Hampden 8/19/54 18800
Office of Town Clerk,
West Springfield* 3/22/67 6917 None Assigned
*Confirmatory Indenture of
Mortgage filed 8/18/54 None 54 121
Assigned
Secretary of the Commonwealth 442315
Exhibit 10.6
[Composite Conformed Copy]
STOCKHOLDER AGREEMENT, dated as of May 20, 1968, among the stockholders
of MAINE YANKEE ATOMIC POWER COMPANY ("Maine Yankee"), a Maine corporation,
namely:
State of
Stockholder Incorporation
Central Maine Power Company Maine
New England Power Company Massachusetts
The Connecticut Light and Power Company Connecticut
Bangor Hydro-Electric Company Maine
Maine Public Service Company Maine
Public Service Company of New Hampshire New Hampshire
Cambridge Electric Light Company Massachusetts
Montaup Electric Company Massachusetts
The Hartford Electric Light Company Connecticut
Western Massachusetts Electric Company Massachusetts
Central Vermont Public Service Corporation Vermont
(hereinafter referred to collectively as the "Stockholders" and individually
as the "Stockholder").
It is agreed as follows:
1. Relationship Among the Parties
Maine Yankee has been organized to provide for the supply of power to
the Stockholders. It has commenced construction of a nuclear electric
generating unit of the pressurized water type, designed to have a capability
of approximately 800 megawatts electric, at a site on tidewater in the Town
of Wiscasset, Maine (such unit being herein, together with the site and all
related facilities to be owned by Maine Yankee, referred to as the "Unit").
Construction of the Unit is now being carried out under contracts with
Combustion Engineering, Inc. and Westinghouse Electric Corporation for
certain major systems of equipment and Stone and Webster Engineering
Corporation as Architect-Engineer.
By separate power contracts (the "Power Contracts") and capital funds
agreements (the "Capital Funds Agreements"), Maine Yankee is agreeing to sell
the entire output of the Unit to the Stockholders and the Stockholders are
agreeing to purchase such output and to provide Maine Yankee with necessary
capital funds. The respective percentages of the capacity and output of the
Unit to be purchased by the Stockholders will be the same as their respective
percentages of stock ownership as follows:
Stock
Stockholders Percentage
Central Maine Power Company 38%
New England Power Company 20%
The Connecticut Light and Power Company 8%
Bangor Hydro-Electric Company 7%
Maine Public Service Company 5%
Public Service Company of New Hampshire 5%
Cambridge Electric Light Company 4%
Montaup Electric Company 4%
The Hartford Electric Light Company 4%
Western Massachusetts Electric Company 3%
Central Vermont Public Service Corporation 2%
2. Unanimous Consent to Certain Matters
The Stockholders will not cause or permit Maine Yankee to take any of
the following actions unless the holders at the time of all of Maine Yankee's
outstanding common stock consent thereto, by vote or otherwise:
(a) the amendment in any material respect of any of the Power Contracts
or Capital Funds Agreements;
(b) the construction by Maine Yankee of an additional generating unit
or units at the Wiscasset site or elsewhere; and
(c) participation by Maine Yankee, to a material extent, in any
business other than the generation and sale of electric power.
However, the amendment of particular Power Contracts and Capital Funds
Agreements to effect changes in entitlement and stock percentages of the
Stockholders shall not constitute such a material amendment, if, after the
amendment, the sum of the entitlement percentages of all Stockholders under
all Power Contracts then in force, and the sum of the stock percentages of
all Stockholders under all Capital Funds Agreements then in force, continues
to be 100%.
3. Consent to Construction of Additional Units by Others
The Stockholders will not cause or permit Maine Yankee to make any
arrangement with respect to the construction and/or operation by one or more
persons other than Maine Yankee of an additional generating unit or units at
the Wiscasset site unless the holders at the time of at least 60% of Maine
Yankee's outstanding common stock consent thereto by vote. However, if the
holders at the time of at least 60% of Maine Yankee's outstanding common
stock vote to consent to such a proposed arrangement at a meeting of
Stockholders duly held on at least 30 days' notice which shall specify in
reasonable detail the proposed arrangement to be voted on, Maine Yankee may
give effect to such arrangement by selling, leasing or otherwise transferring
a portion of the site and of the facilities included in the Unit to one or
more other persons proposing to construct an additional generating unit or
units at the site, and by contracting with such person or persons with
respect to operating the same and other matters.
4. Power Entitlement Upon Failure to Provide Additional Capital
If, as the result of any Stockholder's failure to provide capital to
Maine Yankee as requested by Maine Yankee pursuant to Sections 4 or 6 of such
Stockholder's Capital Funds Agreement, such Stockholder's entitlement
percentage under its Power Contract is in excess of its "capital percentage"
(as hereinafter defined), then, in such event and so long as such condition
continues, such Stockholder shall, if requested to do so by Stockholders
whose respective entitlement percentages are less than their respective
capital percentages, enter into appropriate arrangements to sell to such
Stockholders at its cost some or all, as such Stockholders may from time to
time determine, of its "excess power" (as hereinafter defined).
For the purposes of this Section, (i) a Stockholder's "capital
percentage" as of any time shall be the percentage which the aggregate amount
(whether paid with respect to the Common Stock, by capital contributions, by
loans or by advances, paid to Maine Yankee by the Stockholder under its
Capital Funds Agreement bears to the aggregate amount paid to Maine Yankee by
all of the Stockholders under the Capital Funds Agreements, and (ii) a
Stockholder's "excess power" as of any time shall be that amount of Maine
Yankee's capacity and net electric output determined by subtracting such
Stockholder's then capital percentage of such capacity and output from such
Stockholder's entitlement percentage of such capacity and output.
5. Cancellation of Power Contracts
If at any time:
(a) Stockholders owning more than 50% of Maine Yankee's outstanding
common stock have canceled their Power Contracts pursuant to Section 9
thereof, and
(b) Maine Yankee has paid in full, or made adequate provision for the
payment in full of, all its outstanding bonds and notes and other
indebtedness and liabilities, other than its indebtedness to Stockholders for
loans and advances made pursuant to Section 6 of the Capital Funds
Agreements,
then, and in such case, upon the request of any Stockholder who has
theretofore so canceled its Power Contract, the Stockholders whose Power
Contracts are still in effect will forthwith cancel their respective Power
Contracts pursuant to Section 9 thereof. Upon occurrence of (a) and (b)
above and cancellation of all Power Contracts, the Capital Funds Agreements
shall terminate forthwith and the Stockholders shall cause Maine Yankee to
confirm such termination.
6. Arbitration
In case any dispute shall arise as to the interpretation or performance
of this contract which cannot be settled by agreement among the parties and
which may be finally determined by arbitration under the law of the State of
Maine then in effect, such dispute shall be submitted to arbitration, and
arbitration of such dispute shall be a condition precedent to any action at
law or suit in equity that can be brought. The parties shall if possible
agree upon a single arbitrator. In case of failure to agree upon an
arbitrator within 15 days after the delivery by any party to the other
parties of a written notice requesting arbitration, any party may request the
American Arbitration Association to appoint the arbitrator. The arbitrator,
after opportunity for each of the parties to be heard, shall consider and
decide the dispute and notify the parties in writing of his decision. The
expenses of the arbitration shall be borne equally by the parties.
7. Interpretation
The interpretation and performance of this Agreement shall be in
accordance with and controlled by the laws of the State of Maine.
8. Addresses
Except as the parties may otherwise agree, any notice, request or other
communication from a party to any other party, relating to this Agreement, or
the rights, obligations or performance of the parties hereunder, shall be in
writing and shall be effective upon delivery to the other party. Any such
communication shall be considered as duly delivered upon the lapse of 48
hours after mailing by registered or certified mail, postage prepaid, to the
post office address of the other party shown following the signature of such
other party hereto, or such other address as may be designated by written
notice given as provided in this Section 8.
9. Successors and Assigns
This Agreement shall be binding upon and shall inure to the benefit of,
and may be performed by, the corporate successors of the parties. No
assignment of this Agreement, other than to a corporate successor to all or
substantially all the electric business and property of a party, shall
operate to relieve the assignor of its obligations under this Agreement
without the written consent of the remaining parties hereto.
10. Execution in Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one and
the same instrument. This Agreement shall become effective at such time as
counterparts thereof have been executed by each of the parties and it shall
not be a condition to its effectiveness that each of the parties have
executed the same counterpart.
IN WITNESS WHEREOF, the undersigned parties have executed this
Stockholder Agreement by their respective officers thereunto duly authorized
as of the date first above written.
CENTRAL MAINE POWER COMPANY
9 Green Street
Augusta, Maine
By W. H. Dunham
President
NEW ENGLAND POWER COMPANY
441 Stuart Street
Boston, Massachusetts
By Robert F. Krause
President
THE CONNECTICUT LIGHT AND POWER COMPANY
P.O. Box 2010
Hartford, Connecticut
By S. R. Knapp
Chairman
BANGOR HYDRO-ELECTRIC COMPANY
33 State Street
Bangor, Maine
By R. N. Haskell
President
MAINE PUBLIC SERVICE COMPANY
209 State Street
Presque Isle, Maine
By C. Hazen Stetson
Chairman of the Board
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
1087 Elm Street
Manchester, New Hampshire
By W. C. Tallman
President
CAMBRIDGE ELECTRIC LIGHT COMPANY
130 Austin Street
Cambridge, Massachusetts
By John F. Rich
President
MONTAUP ELECTRIC COMPANY
P.O. Box 2333
Boston, Massachusetts
By Guido R. Perera
President
THE HARTFORD ELECTRIC LIGHT COMPANY
P.O. Box 2370
Hartford, Connecticut
By C. L. Derrick
Chairman
WESTERN MASSACHUSETTS ELECTRIC COMPANY
174 Brush Hill Avenue
West Springfield, Massachusetts
By Robert E. Barrett, Jr.
President
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
77 Grove Street
Rutland, Vermont
By L. Douglas Meredith
President
Exhibit 10.7
[Composite Conformed Copy]
POWER CONTRACT, dated as of May 20, 1968, between MAINE YANKEE ATOMIC
POWER COMPANY ("Maine Yankee"), a Maine corporation, and
(The names of the Purchasers appear in the attached Appendix)
(the "Purchaser").
It is agreed as follows:
1. Basic Understandings
Maine Yankee has been organized to provide for the supply of power to
its eleven sponsoring utility companies (including the Purchaser). Late in
1966 and early in 1967, it entered into contracts for the manufacture of the
major components and the services of an architect-engineer for the
construction of a nuclear electric generating unit of the pressurized water
type, designed to have a capability of approximately 800 megawatts electric,
at a site on tidewater in the Town of Wiscasset, Maine (such unit being
herein, together with the site and all related facilities to be owned by
Maine Yankee, referred to as the "Unit"). Construction of the Unit is now
being carried out under contracts with Combustion Engineering, Inc. and
Westinghouse Electric Corporation for certain major systems of equipment and
Stone and Webster Engineering Corporation as Architect-Engineer.
The Unit is to be operated to supply power to each of the eleven
sponsoring utilities (the "sponsors"), each of which has contemporaneously
agreed to purchase a stated percentage of the capacity and output of the Unit
and a like percentage of Maine Yankee's stock. The names of the sponsors and
their respective percentages ("entitlement percentages") of the capacity and
output of the Unit are as follows:
Entitlement
Sponsors Percentage
Central Maine Power Company 38.0%
New England Power Company 20.0%
The Connecticut Light and Power Company 8.0%
Bangor Hydro-Electric Company 7.0%
Maine Public Service Company 5.0%
Public Service Company of New Hampshire 5.0%
Cambridge Electric Light Company 4.0%
Montaup Electric Company 4.0%
The Hartford Electric Light Company 4.0%
Western Massachusetts Electric Company 3.0%
Central Vermont Public Service Corporation 2.0%
Maine Yankee and its other sponsors are contemporaneously entering into
power contracts which are identical to this contract except for necessary
changes in the names of the parties.
2. Effective Date and Term
This contract shall become effective upon receipt by the Purchaser of
notice that Maine Yankee has entered into power contracts, as contemplated by
Section 1 above, with each of the other sponsors. The term of this contract
shall expire 30 years after the plant completion date.
The "plant completion date" shall be the earlier of (i) December 31,
1973, or (ii) the date on which the Unit is placed in commercial operation,
as determined by Maine Yankee (the "commercial operation date").
3. Construction of the Unit
Maine Yankee will proceed with due diligence with construction of the
Unit, and will exercise its best efforts to complete and place it in
commercial operation by May 1, 1972 within present cost estimates, and will
keep the Purchaser reasonably informed as to the progress of construction,
material modifications in cost estimates, and the expected plant completion
date.
4. Operation and Maintenance of the Unit
Maine Yankee will operate and maintain the Unit in accordance with good
utility practice under the circumstances and all applicable law, including
the applicable provisions of the Atomic Energy Act of 1954, as amended, and
of any licenses issued thereunder to Maine Yankee. Within the limits imposed
by good utility practice under the circumstances and applicable law, the Unit
will be operated at its maximum capability and on a long hour use basis.
Outages for inspection, maintenance, refueling and repairs and
replacements will be scheduled in accordance with good utility practice and
insofar as practicable shall be mutually agreed upon by Maine Yankee and the
Purchaser. In the event of an outage, Maine Yankee will use its best efforts
to restore the Unit to service as promptly as practicable.
5. Purchaser's Entitlement
The Purchaser will, throughout the term of this contract, be entitled
and obligated to take its entitlement percentage of the capacity and net
electrical output of the Unit, at whatever level the Unit is operated or
operable, whether more or less than 800 megawatts electric.
6. Deliveries and Metering
The Purchaser's entitlement percentage of the output of the Unit will be
delivered to and accepted by it at the step-up substation at the site. All
deliveries will be made in the form of 3-phase, 60 cycle, alternating current
at a nominal voltage of 345,000 volts. The Purchaser will make its own
arrangements for the transmission of its entitlement percentage of the output
of the Unit.
Maine Yankee will supply and maintain all necessary metering equipment
for determining the quantity and conditions of supply of deliveries under
this contract, will make appropriate tests of such equipment in accordance
with good utility practice and as reasonably requested by the Purchaser, and
will maintain the accuracy of such equipment within reasonable limits. Maine
Yankee will furnish the Purchaser with such summaries of meter readings as
the Purchaser may reasonably request.
7. Payment
With respect to each month commencing prior to the plant completion
date, the Purchaser will pay Maine Yankee at the rate of 3.75 mills per
kilowatt-hour, for the Purchaser's entitlement percentage of the net
electrical output (if any) of the Unit during the particular month.
With respect to each month commencing on or after the plant completion
date, the Purchaser will pay Maine Yankee an amount equal to the Purchaser's
entitlement percentage of the sum of (a) Maine Yankee's total fuel costs for
the month with respect to the Unit, plus (b) Maine Yankee's total operating
expenses for the month with respect to the Unit, plus (c) an amount equal to
one-twelfth of the composite percentage for such month of the net Unit
investment as most recently determined in accordance with this Section 7.
"Composite percentage" shall be computed as of the plant completion date
and as of the last day of each month thereafter (the "computation date") and
for any month the composite percentage shall be that computed as of the last
day of the previous month. "Composite percentage" as of a computation date
shall be the sum of (i) nine and eight-tenths percent (9.8%) multiplied by
the percentage which equity investment with respect to the Unit (other than
equity investment for the financing of fuel inventory, including nuclear
materials and the cost of fabrication thereof, for the Unit) as of such date
is of the total capital as of such date; plus (ii) the "effective interest
rate" per annum of each principal amount of indebtedness outstanding on such
date for money borrowed with respect to the Unit (other than for money
borrowed for the financing of fuel inventory, including nuclear materials and
the cost of fabrication thereof, for the Unit), multiplied by the percentage
which such principal amount is of total capital as of such date. The
"effective interest rate" of each principal amount of indebtedness referred
to in clause (ii) of the next preceding sentence will reflect the annual
interest requirements and to the extent applicable, amortization of issue
expenses, discounts and premiums, sinking fund call premiums, expenses and
discounts, refunding and retirement expenses, discounts and premiums, and all
other expenses applicable to the issue.
"Equity investment" as of any date shall consist of the sum of (i) all
amounts theretofore paid to Maine Yankee for all capital stock theretofore
issued, plus all capital contributions, less the sum of any amounts paid by
Maine Yankee in the form of stock retirements, repurchases or redemptions or
return of capital; plus (ii) any credit balance in the capital surplus
account not included under (i) and in the earned surplus account on the books
of Maine Yankee as of such date.
"Total capital" as of any date shall be the equity investment with
respect to the Unit, plus the total of all other securities and indebtedness
then outstanding with respect to the Unit other than equity investment,
securities, indebtedness and other obligations issued in connection with the
financing or leasing of fuel inventory, including nuclear materials and the
cost of fabrication thereof, for the Unit.
"Uniform System" shall mean the Uniform System of Accounts prescribed by
the Federal Power Commission for Class A and Class B Public Utilities and
Licensees as in effect on the date of this contract and as said System may be
hereafter amended to take account of private ownership of special nuclear
material.
Maine Yankee's "fuel costs" for any month shall include (i) amounts
chargeable in accordance with the Uniform System in such month as
amortization of costs of fuel assemblies and components and burnup of nuclear
materials for the Unit; plus (ii) all other amounts properly chargeable in
accordance with the Uniform System to fuel costs for the Unit less any
applicable credits thereto; plus (iii) one-twelfth of nine and eight-tenths
percent (9.8%) multiplied by the equity investment for the financing of fuel
inventory, including nuclear materials and the cost of fabrication thereof,
for the Unit; plus (iv) to the extent not provided for in any of the
foregoing, all payments (or accruals therefor or amortization thereof) with
respect to obligations incurred in connection with the financing or leasing
of fuel inventory, including nuclear materials and the cost of fabrication
thereof, for the Unit.
Maine Yankee's "operating expenses" shall include all amounts properly
chargeable to operating expense accounts (other than such amounts which are
included in Maine Yankee's fuel costs) less any applicable credits thereto,
in accordance with the Uniform System; provided, however, that for the
purposes of this contract, the accrual of depreciation and amortization of
the Unit as an operating expense shall commence on the plant completion date.
The amount of depreciation and amortization for each period shall be at a
rate at least sufficient to fully amortize the then non-salvable plant
investment balance in equal amounts over the periods remaining until May 1,
2002.
The "net Unit investment" shall consist, in each case with respect to
the Unit, of the net sum of (i) the aggregate amount properly chargeable at
the time in accordance with the Uniform System to Maine Yankee's electric
plant accounts (including construction work in progress); plus (ii) the
amount of any unamortized property losses; less (iii) the amount of any
reserves for depreciation and for amortization of property losses; plus (iv)
such allowances for inventories, materials and supplies (other than fuel
assemblies and components), prepaid items and cash working capital as may
reasonably be determined from time to time by Maine Yankee.
The net Unit investment shall be determined as of the plant completion
date and thereafter as of the commencement of each calendar year, or if Maine
Yankee elects, at more frequent intervals.
Maine Yankee will bill the Purchaser, as soon as practicable after the
end of each month, for all amounts payable by the Purchaser with respect to
the particular month. Such bills will be rendered in such detail as the
Purchaser may reasonably request and may be rendered on an estimated basis
subject to corrective adjustments in subsequent billing periods. All bills
shall be paid in full within 10 days after receipt thereof by the Purchaser.
8. Make-up Term and Option Term
(a) The Purchaser may elect to extend the contract term by written
notice to Maine Yankee upon the following conditions and for the following
period or periods:
(i) In the event that the Unit is not in commercial operation on the
plant completion date, the contract term may be extended for a period equal
to the number of consecutive days by which commercial operation is delayed
beyond the plant completion date; and
(ii) if at any time after the commencement of commercial operation no
deliveries are made under this contract for a period of at least 120
consecutive days, the contract may be extended for a period equal to the
aggregate of such periods during which no deliveries were made.
If the term of the contract is extended pursuant to the provisions of this
subsection (a), all of the contract provisions shall remain in effect for the
extended term.
(b) Upon expiration of the initial term of this contract or upon
expiration of the term as extended in accordance with subsection (a) of this
Section 8, the Purchaser shall continue to be entitled, at its option, to its
entitlement percentage of the capacity and output of the Unit upon terms at
least as favorable as those obtained by any other person.
9. Cancellation of Contract
If deliveries cannot be made to the Purchaser because either
(i) the Unit is damaged to the extent of being completely or
substantially completely destroyed, or
(ii) the Unit is taken by exercise of the right of eminent domain or a
similar right or power, or
(iii) (a) the Unit cannot be used because of contamination, or
because a necessary license or other necessary public authorization cannot be
obtained or is revoked, or because the utilization of such a license or
authorization is made subject to specified conditions which are not met, and
(b) the situation cannot be rectified to an extent which will permit Maine
Yankee to make deliveries to the Purchaser from the Unit;
then and in any such case, the Purchaser may cancel this contract. Such
cancellation shall be effected by written notice given by the Purchaser to
Maine Yankee. In the event of such cancellation, all continuing obligations
of the parties, including the Purchaser's obligations to continue payments,
shall cease forthwith.
The Purchaser may cancel this contract or be relieved of its obligations
to make payments hereunder only as provided in the next preceding paragraph
of this Section 9. Further, if for reasons beyond Maine Yankee's reasonable
control, deliveries are not made as contemplated by this contract, Maine
Yankee shall have no liability to the purchaser on account of such
nondelivery.
10. Insurance
Prior to the first shipment of fuel to the plant site, Maine Yankee will
obtain, and thereafter will at all times maintain, insurance to cover its
"public liability" for personal injury and property damage resulting from a
"nuclear incident" (as those terms are defined in the Atomic Energy Act of
1954 as amended), with limits not less than Maine Yankee may be required to
maintain to qualify for governmental indemnity under said Act and shall
execute and maintain an indemnification agreement with the Atomic Energy
Commission as provided by said Act. Maine Yankee will also at all times
maintain such other types of liability insurance, including workmens'
compensation insurance, in such amounts, as is customary in the case of other
similar electric utility companies, or as may be required by law.
Maine Yankee will at all times keep insured such portions of the Unit
(other than the fuel assemblies and components, including nuclear materials)
as are of a character usually insured by electric utility companies similarly
situated and operating like properties, against the risk of a "nuclear
incident" and such other risks as electric utility companies, similarly
situated and operating like properties, usually insure against; and such
insurance shall to the extent available be carried in amounts sufficient to
prevent Maine Yankee from becoming a co-insurer. Maine Yankee will at all
times keep its fuel assemblies and components (including nuclear materials)
insured against such risks and in such amounts as shall, in the opinion of
Maine Yankee, provide adequate protection.
11. Additional Units
Maine Yankee or its nominees may install one or more additional
generating units at the Wiscasset site. The installation of such unit or
units shall not affect the terms of this contract, but in such case if any
portion of the Unit (whether such portion constitutes land, structures or
equipment) is also used with an additional unit or units, an appropriate
allocation of the cost of the Unit shall be made and the net Unit investment
shall be reduced accordingly, subject, however, to the limitation that the
aggregate amount of the reduction in net Unit investment resulting from all
such allocations shall not exceed $5,000,000. Maine Yankee may make any
other necessary allocations or any necessary adjustments in its accounts with
respect to the Unit (including fuel assemblies and components) and any
additional unit or units, and such allocations and adjustments shall be
binding on the sponsors.
12. Audit
Maine Yankee's books and records (including metering records) shall be
open to reasonable inspection and audit by the Purchaser.
13. Arbitration
In case any dispute shall arise as to the interpretation or performance
of this contract which cannot be settled by mutual agreement and which may be
finally determined by arbitration under the law of the State of Maine then in
effect, such dispute shall be submitted to arbitration, and arbitration of
such dispute shall be a condition precedent to any action at law or suit in
equity that can be brought. The parties shall if possible agree upon a
single arbitrator. In case of failure to agree upon an arbitrator within 15
days after the delivery by either party to the other of a written notice
requesting arbitration, either party may request the American Arbitration
Association to appoint the arbitrator. The arbitrator, after opportunity for
each of the parties to be heard, shall consider and decide the dispute and
notify the parties in writing of his decision. The expenses of the
arbitration shall be borne equally by the parties.
14. Regulation
This contract, and all rights, obligations and performance of the
parties hereunder, are subject to all applicable state and federal law and to
all duly promulgated orders and other duly authorized action of governmental
authority having jurisdiction in the premises.
15. Assignment
This contract shall be binding upon and shall inure to the benefit of,
and may be performed by, the successors and assigns of the parties, except
that no assignment, pledge or other transfer of this contract by either party
shall operate to release the assignor, pledgor or transferor from any of its
obligations under this contract unless consent to the release is given in
writing by the other party, or, if the other party has theretofore assigned,
pledged or otherwise transferred its interest in this contract, by the other
party's assignee, pledgee or transferee, or unless such transfer is incident
to a merger or consolidation with, or transfer of all or substantially all of
the assets of the transferor to, another sponsor which shall, as a part of
such succession, assume all the obligations of the transferor under this
contract.
16. Right of Setoff
The Purchaser shall not be entitled to set off against the payments
required to be made by it under this contract (i) any amounts owed to it by
Maine Yankee or (ii) the amount of any claim by it against Maine Yankee.
However, the foregoing shall not affect in any other way the Purchaser's
right and remedies with respect to any such amounts owed to it by Maine
Yankee or any such claim by it against Maine Yankee.
17. Interpretation
The interpretation and performance of this contract shall be in
accordance with and controlled by the law of the State of Maine.
18. Addresses
Except as the parties may otherwise agree, any notice, request, bill or
other communication from one party to the other, relating to this contract,
or the rights, obligations or performance of the parties hereunder, shall be
in writing and shall be effective upon delivery to the other party. Any such
communication shall be considered as duly delivered when delivered in person
or upon the lapse of 48 hours from mailing by registered or certified mail,
postage prepaid, to the post office address of the other party shown
following the signature of such other party hereto, or such other address as
may be designated by written notice given as provided in this Section 18.
19. Corporate Obligations
This contract is the corporate act and obligation of the parties hereto,
and any claim hereunder against any stockholder (other than the Purchaser),
director or officer of either party, as such, is expressly waived.
20. All Prior Agreements Superseded
This contract represents the entire agreement between us relating to the
subject matter hereof, and all previous agreements, discussions,
communications and correspondence with respect to the subject matter are
hereby superseded and are of no further force and effect.
IN WITNESS WHEREOF, the parties have executed this contract by their
respective officers thereunto duly authorized as of the date first above
written.
MAINE YANKEE ATOMIC POWER COMPANY
By William H. Dunham
President
9 Green Street
Augusta, Maine 04330
[Purchaser]
By
(Officer & Title)
(Address)
APPENDIX
Separate Power Contracts were entered into, identical in form with the
foregoing except as to the execution thereof and except that on page 1 the
names of the respective Purchasers were inserted.
The Power Contracts were executed by the respective parties thereto, as
follows:
MAINE YANKEE ATOMIC POWER COMPANY
By W. H. Dunham,
President
9 Green Street
Augusta, Maine 04330
CENTRAL MAINE POWER COMPANY
By S. Giddings
Executive Vice President
9 Green Street
Augusta, Maine
NEW ENGLAND POWER COMPANY
By Robert F. Krause
President
441 Stuart Street
Boston, Massachusetts
THE CONNECTICUT LIGHT AND POWER COMPANY
By Sherman R. Knapp
Chairman
P.O. Box 2010
Hartford, Connecticut 06101
BANGOR HYDRO-ELECTRIC COMPANY
By R. N. Haskell
President
33 State Street
Bangor, Maine 04401
MAINE PUBLIC SERVICE COMPANY
By C. H. Stetson
Chairman
209 State Street
Presque Isle, Maine 04769
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
By W. C. Tallman
President
1087 Elm Street
Manchester, New Hampshire 03105
CAMBRIDGE ELECTRIC LIGHT COMPANY
By John F. Rich
President
130 Austin Street
Cambridge, Massachusetts 02139
MONTAUP ELECTRIC COMPANY
By Guido R. Perera
President
P.O. Box 2333
Boston, Massachusetts 02107
THE HARTFORD ELECTRIC LIGHT COMPANY
By C. L. Derrick
Chairman
P.O. Box 2370
Hartford, Connecticut 06101
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By Robert E. Barrett, Jr.
President
174 Brush Hill Avenue
West Springfield, Massachusetts 01089
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
By L. Douglas Meredith
President
77 Grove Street
Rutland, Vermont 05701
Exhibit 10.8
[Composite Conformed Copy]
CAPITAL FUNDS AGREEMENT, dated as of May 20, 1968, between MAINE YANKEE
ATOMIC POWER COMPANY ("Maine Yankee"), a Maine corporation, and
(The names of the Sponsors appear in the attached Appendix)
(the "Sponsor").
It is agreed as follows:
1. Basic Understandings
Maine Yankee has been organized to provide for the supply of power to
its eleven sponsoring utility companies (including the Sponsor). Late in
1966 and early in 1967, it entered into contracts for the manufacture of the
major components and the services of an architect-engineer for the
construction of a nuclear electric generating unit of the pressurized water
type, designed to have a capability of approximately 800 megawatts electric,
at a site on tidewater in the Town of Wiscasset, Maine (such unit being
herein, together with the site and all related facilities to be owned by
Maine Yankee, referred to as the "Unit"). Construction of the Unit is now
being carried out under contracts with Combustion Engineering, Inc. and
Westinghouse Electric Corporation for certain major systems of equipment and
Stone and Webster Engineering Corporation as Architect-Engineer.
Each of the eleven sponsoring utilities (the "sponsors") has
contemporaneously agreed to purchase a stated percentage of the capacity and
output of the Unit and a like percentage of Maine Yankee's stock (its "stock
percentage"). The names of the sponsors and their respective stock
percentages are as follows:
Stock
Sponsors Percentage
Central Maine Power Company 38.0%
New England Power Company 20.0%
The Connecticut Light and Power Company 8.0%
Bangor Hydro-Electric Company 7.0%
Maine Public Service Company 5.0%
Public Service Company of New Hampshire 5.0%
Cambridge Electric Light Company 4.0%
Montaup Electric Company 4.0%
The Hartford Electric Light Company 4.0%
Western Massachusetts Electric Company 3.0%
Central Vermont Public Service Corporation 2.0%
Maine Yankee and each of its other sponsors are contemporaneously entering
into capital funds agreements which are identical to this agreement except
for the necessary changes in the names of the parties.
Maine Yankee's authorized and outstanding capital as of the date of this
agreement is $10,000,000 consisting of 100,000 shares of common stock, $100
par value, which is owned by Maine Yankee's sponsors in their respective
stock percentages. Maine Yankee's estimated capital requirements with
respect to the Unit (exclusive of fuel) aggregate $145,000,000. It is the
present intention of Maine Yankee to finance not less than 65% of the capital
requirements of the Unit, whether incurred before or after the Unit is placed
in commercial operation, through the issuance and sale of mortgage bonds or
other securities and through borrowings from other than the sponsors, and the
balance through the issuance and sale of additional common stock to its
sponsors or the receipt from its sponsors of loans, advances or capital
contributions or the issuance and sale of preferred stock to other than the
sponsors.
2. Effective Date and Term
This agreement shall become effective upon receipt by the Sponsor of
notice that Maine Yankee has entered into capital funds agreements, as
contemplated by Section 1 above, with each of the other sponsors.
The term of this agreement shall expire December 31, 2003.
3. Construction of the Unit
Maine Yankee will proceed with due diligence with the construction of
the Unit, and will exercise its best efforts to complete and place it in
commercial operation by May 1, 1972 within present cost estimates, and will
keep the Sponsor informed as to the progress of construction, material
modifications in cost estimates, and the date on which it is expected the
Unit will be placed in commercial operation.
4. Stock Purchases and Capital Contributions to Provide the Capital
Requirements of the Unit
From time to time when Maine Yankee requires capital to meet the capital
requirements of the Unit, it may offer shares of its common stock to its
sponsors for subscription, or may request capital contributions from its
sponsors, to raise such capital. Subject to the provisions of Section 7, (i)
whenever Maine Yankee determines to offer any such shares for such purpose,
Maine Yankee agrees to offer to the Sponsor, and the Sponsor agrees to
subscribe for and purchase, for cash at the par value thereof, the Sponsor's
stock percentage of the shares so offered, and (ii) whenever Maine Yankee
requests capital contributions for such purpose, the Sponsor will contribute
in cash its stock percentage of the total capital contribution so requested.
5. Capital Requirements of the Unit Defined
Maine Yankee shall be deemed to have capital requirements of the Unit
within the meaning of Section 4 if it requires capital (including funds to
reimburse Maine Yankee for expenditures made for any of the following
purposes out of the proceeds of short-term borrowings) for any of the
following purposes:
(i) to complete construction of the Unit and place it in commercial
operation at a gross capability of at least 800 megawatts electric;
(ii) to make additions and replacements (other than those chargeable to
maintenance) to the Unit which are required to insure the continued regular
operation of the Unit at a gross capability of at least 800 megawatts
electric or to restore it to regular operation at such gross capability;
(iii) to make any change in or addition to the Unit which must be
made in order to obtain or maintain, or to meet the conditions of any license
or other public authorization, regulation or order which is required for or
applicable to the regular operation of the Unit at a gross capability of at
least 800 megawatts electric;
(iv) to provide materials and supplies, or funds for prepaid items or
cash working capital, required for the regular operation of the Unit at a
gross capability of at least 800 megawatts electric;
(v) to finance the costs of obtaining and maintaining an inventory of
nuclear fuel of a type and amount required for the operation of the Unit.
If Maine Yankee shall at any time or times determine that it would be
more feasible, economic or otherwise desirable for regular operation for the
generation of power and energy for delivery under its Power Contracts with
its sponsors for the Unit to operate at a lower gross capability than 800
megawatts and if it holds or can obtain all licenses and other public
authorizations required for the regular operation of the Unit at such lower
level, then the "capital requirements of the Unit" shall include any
additional capital required for any of the foregoing purposes for operation
of the Unit at any such lower level of capability.
6. Loans and Advances
In lieu of offering shares of its common stock for subscription and
purchase or requesting capital contributions under Section 4, Maine Yankee
may, at its option, request its sponsors to provide required capital by means
of loans or advances. In any case where Maine Yankee determines to request
such loans or advances in lieu of stock purchases, Maine Yankee agrees to
offer to the Sponsor, and the Sponsor, subject to the provisions of Section
7, agrees to provide to Maine Yankee the Sponsor's stock percentage thereof.
However, Maine Yankee shall not be entitled to request such loans or advances
except in circumstances where it would be entitled to require the Sponsor to
make a stock subscription or capital contribution pursuant to Section 4.
The terms of any loans and advances requested by Maine Yankee under the
preceding paragraph, as to interest, maturity date, rights and terms of
prepayment, and otherwise shall be the same for all sponsors. Such terms
shall be as determined by Maine Yankee in its discretion, except that the
terms of each such loan or advance shall provide for quarterly payments of
interest at an annual rate not less than 11/2% in excess of the lowest prime
rate for commercial loans at the time in effect at any bank in Boston,
Massachusetts.
Nothing in this agreement shall be construed as prohibiting Maine Yankee
from requesting and receiving non-interest bearing open account advances from
its sponsors in the nature of interim investment advances to be applied
toward the purchase of stock or capital contributions.
7. Conditions to the Sponsor's Obligations
The Sponsor shall not be obligated to subscribe for and purchase its
stock percentage of any stock issue under Section 4 or to provide its stock
percentage of any capital contribution under Section 4 or of any loan or
advance under Section 6, unless all necessary regulatory approvals shall have
been obtained with respect to both the action to be taken by Maine Yankee and
the action to be taken by the Sponsor in connection with such stock issue,
capital contribution, loan or advance. The parties will use their best
efforts to obtain, or to assist in obtaining, the foregoing regulatory
approvals. Except as expressly provided in this Section 7, no action of, nor
failure to act by, Maine Yankee or any of the several sponsors shall permit
cancellation of, or relieve the Sponsor from any of its obligations under,
this agreement. The failure of any other sponsor to purchase its stock
percentage of any stock issue or to make its stock percentage of any capital
contribution, loan or advance requested by Maine Yankee shall not excuse the
Sponsor from making stock purchases, capital contributions, loans or advances
which do not in the aggregate exceed the Sponsor's stock percentage of the
total stock purchases, capital contributions, loans and advances requested
under Sections 4 or 6 from all sponsors. However, no sponsor shall be
required to make any stock purchase, capital contribution, loan or advance
which is for the purpose of providing funds required by reason of the failure
of another sponsor to purchase its stock percentage of any stock issue or to
make its stock percentage of any capital contribution, loan or advance
requested by Main Yankee.
8. Other Financing
Nothing in this agreement shall be construed as precluding Maine Yankee
from offering shares of its common stock to, or requesting capital
contributions and loans and advances from, its sponsors to finance capital
requirements other than those contemplated by Section 5, or from financing,
in its discretion, its capital requirements (including the capital
requirements contemplated by Section 5), by means other than the sale of its
common stock to the sponsors or capital contributions or loans or advances
from them, but not by the sale of its common stock other than to its
sponsors.
9. Cooperation by Sponsor
The Sponsor agrees that it will cooperate with Maine Yankee in taking
all such action as may be necessary or appropriate to effectuate the purposes
of this agreement.
10. Restrictions on Transfer
The Sponsor acknowledges notice of the restrictions on stock transfers
contained in Section 8.1 of Maine Yankee's by-laws and agrees to be bound by
said provisions with respect to all shares of Maine Yankee's common stock
which it may acquire.
11. Arbitration
In case any dispute shall arise as to the interpretation or performance
of this contract which cannot be settled by mutual agreement and which may be
finally determined by arbitration under the law of the State of Maine then in
effect, such dispute shall be submitted to arbitration, and arbitration of
such dispute shall be a condition precedent to any action at law or suit in
equity that can be brought. The parties shall if possible agree upon a
single arbitrator. In case of failure to agree upon an arbitrator within 15
days after the delivery by either party to the other of a written notice
requesting arbitration, either party may request the American Arbitration
Association to appoint the arbitrator. The arbitrator, after opportunity for
each of the parties to be heard, shall consider and decide the dispute and
notify the parties in writing of his decision. The expenses of the
arbitration shall be borne equally by the parties.
12. Interpretation
The interpretation and performance of this agreement shall be in
accordance with and controlled by the law of the State of Maine.
13. Addresses
Except as the parties may otherwise agree, any notice, request or other
communication from one party to the other, relating to this agreement or the
rights, obligations or performance of the parties hereunder, shall be in
writing and shall be effective upon delivery to the other party. Any such
communication shall be considered as duly delivered when delivered in person
or upon the lapse of 48 hours after mailing by registered or certified mail,
postage prepaid, to the address of the other party shown following the
signature of such other party hereto, or such other address as may be
designated by written notice given as provided in this Section 13.
14. Assignment
This agreement shall be binding upon and shall inure to the benefit of,
and may be performed by, the successors and assigns of the parties, except
that no assignment, pledge or other transfer of this agreement by either
party shall operate to release the assignor, pledgor or transferor from any
of its obligations under this agreement unless consent to the release is
given in writing by the other party (if not theretofore released pursuant to
this Section) and, if the other party has theretofore assigned, pledged or
otherwise transferred its interest in this agreement, by the other party's
assignee, pledgee or transferee, or unless such transfer is incident to a
merger or consolidation with, or transfer of all or substantially all of the
assets of the transferor to, another sponsor which shall, as a part of such
succession, assume all the obligations of the transferor under this
agreement.
15. Corporate Obligations
This agreement is the corporate act and obligation of the parties
hereto, and any claim hereunder against any stockholder (other than the
Sponsor), director or officer of either party, as such, is expressly waived.
16. All Prior Agreements Superseded
This agreement represents the entire agreement between Maine Yankee and
the Sponsor relating to the subject matter hereof, and all previous
agreements, discussions, communications and correspondence with respect to
the subject matter are hereby superseded and are of no further force and
effect.
IN WITNESS WHEREOF, the parties have executed this agreement by their
respective officers thereunto duly authorized as of the date first above
written.
MAINE YANKEE ATOMIC POWER COMPANY
By W. H. Dunham
President
9 Green Street
Augusta, Maine 04330
[Sponsor]
By
(Officer)
Its
(Title)
(Address)
APPENDIX
Separate Capital Funds Agreements were entered into, identical in form
with the foregoing except as to the execution thereof and except that on page
1 the names of the respective Sponsors were inserted.
The Capital Funds Agreements were executed by the respective parties
thereto, as follows:
MAINE YANKEE ATOMIC POWER COMPANY
By W. H. Dunham,
President
9 Green Street
Augusta, Maine 04330
CENTRAL MAINE POWER COMPANY
By S. Giddings
Executive Vice President
9 Green Street
Augusta, Maine
NEW ENGLAND POWER COMPANY
By Robert F. Krause
President
441 Stuart Street
Boston, Massachusetts
THE CONNECTICUT LIGHT AND POWER COMPANY
By Sherman R. Knapp
Chairman
P.O. Box 2010
Hartford, Connecticut 06101
BANGOR HYDRO-ELECTRIC COMPANY
By R. N. Haskell
President
33 State Street
Bangor, Maine 04401
MAINE PUBLIC SERVICE COMPANY
By C. Hazen Stetson
Chairman
209 State Street
Presque Isle, Maine 04769
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
By W. C. Tallman
President
1087 Elm Street
Manchester, New Hampshire 03105
CAMBRIDGE ELECTRIC LIGHT COMPANY
By John F. Rich
President
130 Austin Street
Cambridge, Massachusetts 02139
MONTAUP ELECTRIC COMPANY
By Guido R. Perera
President
P.O. Box 2333
Boston, Massachusetts 02107
THE HARTFORD ELECTRIC LIGHT COMPANY
By C. L. Derrick
Chairman
P.O. Box 2370
Hartford, Connecticut 06101
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By Robert E. Barrett, Jr.
President
174 Brush Hill Avenue
West Springfield, Massachusetts 01089
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
By L. Douglas Meredith
President
77 Grove Street
Rutland, Vermont 05701
Exhibit 10.9
SPONSOR AGREEMENT, dated as of August 1, 1968, among the sponsors of
VERMONT YANKEE NUCLEAR POWER CORPORATION ("Vermont Yankee"), a Vermont
corporation, namely: Central Vermont Public Service Corporation, Green
Mountain Power Corporation, New England Power Company, The Connecticut Light
and Power Company, Central Maine Power Company, Public Service Company of New
Hampshire, The Hartford Electric Light Company, Montaup Electric Company,
Western Massachusetts Electric Company and Cambridge Electric Light Company
(collectively called the "Sponsors").
It is agreed as follows:
1. Relationship Among the Parties
Vermont Yankee has been organized to provide a supply of power to the
Sponsors by the construction of a nuclear electric generating unit of the
boiling water type, which is being designed to have a maximum net capability
of approximately 540 megawatts electric, at a site adjacent to the
Connecticut River at Vernon, Vermont (the unit being herein, together with
the site and all related facilities to be owned by Vermont Yankee, referred
to as the "Unit"). Construction of the Unit is being carried out under
contracts with General Electric Company and Ebasco Services Incorporated.
By separate power contracts (the "Power Contract") and capital funds
agreements (the "Capital Funds Agreement"), all dated as of February 1, 1968,
Vermont Yankee has agreed to sell the entire output of the Unit to the
Sponsors and the Sponsors have agreed to purchase the output and to provide
Vermont Yankee with necessary capital funds. The respective percentages of
the capacity and output of the Unit to be purchased by the Sponsors will be
the same as their respective percentages of stock ownership (exclusive of
directors' qualifying shares) and as of the date of this Agreement are as
follows:
Stock
Sponsors Percentage
Central Vermont Public Service Corporation 35.0%
Green Mountain Power Corporation 20.0%
New England Power Company 20.0%
The Connecticut Light and Power Company 6.0%
Central Maine Power Company 4.0%
Public Service Company of New Hampshire 4.0%
The Hartford Electric Light Company 3.5%
Western Massachusetts Electric Company 2.5%
Montaup Electric Company 2.5%
Cambridge Electric Light Company 2.5%
2. Unanimous Consent to Certain Matters
The Sponsors will not cause or permit Vermont Yankee to take any of the
following actions unless all of the Sponsors consent thereto, by vote or
otherwise:
(a) the amendment in any material respect of any of the Power Contracts
or Capital Funds Agreements;
(b) participation by Vermont Yankee, to a material extent, in any
business other than the generation and sale of electric power; and
(c) the construction by Vermont Yankee of an additional generating unit
or units at the Vernon site or elsewhere.
However, the amendment of particular Power Contracts and Capital Funds
Agreements to effect changes in entitlement and stock percentages of the
Sponsors shall not constitute such a material amendment, if, after the
amendment, the sum of the entitlement percentages of all Sponsors under all
Power Contracts then in force, and the sum of the stock percentages of all
Sponsors under all Capital Funds Agreements then in force, continues to be
100%.
3. Power Entitlement Upon Failure to Provide Additional Capital
If, as the result of any Sponsor's failure to provide capital to Vermont
Yankee as requested by Vermont Yankee pursuant to Sections 4 or 6 of such
Sponsor's Capital Funds Agreement, such Sponsor's entitlement percentage
under its Power Contract is in excess of its "capital percentage" (as
hereinafter defined), then, in such event and so long as such condition
continues, such Sponsor shall, if requested to do so by Sponsors whose
respective entitlement percentages are less than their respective capital
percentages, enter into appropriate arrangements to sell to such Sponsors at
its cost some or all, as such Sponsors may from time to time determine, of
its "excess power" (as hereinafter defined).
For the purposes of this Section, (i) a Sponsor's "capital percentage"
as of any time shall be the percentage which the aggregate amount (whether
paid with respect to the Common Stock or by loans or advances) paid to
Vermont Yankee by the Sponsor under its Capital Funds Agreement bears to the
aggregate amount paid to Vermont Yankee by all of the Sponsors under the
Capital Funds Agreements, and (ii) a Sponsor's "excess power" as of any time
shall be that amount of Vermont Yankee's capacity and net electric output
determined by subtracting such Sponsor's then capital percentage of such
capacity and output from such Sponsor's entitlement percentage of such
capacity and output.
4. Cancellation of Power Contracts and Capital Funds Agreements
If at any time:
(a) Sponsors owning more than 50% of Vermont Yankee's outstanding
Common Stock have canceled their Power Contracts, pursuant to Section 9
thereof, because either (i) the Unit is damaged to the extent of being
completely or substantially completely destroyed, or (ii) the Unit is taken
by exercise of the right of eminent domain or a similar right or power, or
(iii) the Unit cannot be used because of contamination, or because a
necessary license or other necessary public authorization cannot be obtained
or is revoked, or because the utilization of such a license or authorization
is made subject to specified conditions which are not met, and the situation
cannot be rectified to an extent which will permit Vermont Yankee to make
deliveries to the Sponsors from the Unit, and
(b) Vermont Yankee has paid in full, or made adequate provision for the
payment in full of, all its outstanding bonds and notes and other
indebtedness and liabilities, other than its indebtedness to Sponsors for
loans and advances made pursuant to Section 6 of the Capital Funds
Agreements,
then, and in such case, upon the request of any Sponsor who has
theretofore canceled its Power Contract, the Sponsors whose Power Contracts
are still in effect will forthwith cancel their respective Power Contracts
pursuant to Section 9 thereof.
After the events described in (a) and (b) above have occurred, it is
agreed that the Capital Funds Agreement between Vermont Yankee and each
Sponsor shall terminate concurrently with the cancellation of the Power
Contract between said parties and the Sponsors agree to cause Vermont Yankee
to take all action necessary to accomplish such termination.
5. Arbitration
In case any dispute shall arise as to the interpretation or performance
of this Agreement which cannot be settled by mutual agreement, such dispute
shall be submitted to arbitration. The disputing parties shall if possible
agree upon a single arbitrator. In case of failure to agree upon an
arbitrator within 15 days after the delivery by either disputing party to the
other of a written notice requesting arbitration, either disputing party may
request the American Arbitration Association to appoint the arbitrator. The
arbitrator, after opportunity for each of the disputing parties to be heard,
shall consider and decide the dispute and notify the disputing parties in
writing of his decision. Such decision shall be binding upon the disputing
parties, and the expenses of the arbitration shall be borne equally by them.
6. Interpretation
The interpretation and performance of this Agreement shall be in
accordance with and controlled by the laws of the State of Vermont.
7. Addresses
Except as the parties may otherwise agree, any notice, request or other
communication from a party to any other party, relating to this Agreement, or
the rights, obligations or performance of the parties hereunder, shall be in
writing and shall be effective upon delivery to the other party. Any such
communication shall be considered as duly delivered upon the lapse of 48
hours after mailing by registered or certified mail, postage prepaid, to the
respective post office address of the other party shown following the
signature of such other party hereto, or such other post office address as
may be designated by written notice given as provided in this Section 7.
8. Successors and Assigns
This Agreement shall be binding upon and shall inure to the benefit of,
and may be performed by, the corporate successors of the parties. No
assignment of this Agreement, other than to a corporate successor to all or
substantially all the electric business and property of a party, shall
operate to relieve the assignor of its obligations under this Agreement
without the written consent of the remaining parties hereto.
9. Execution in Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one and
the same instrument. This Agreement shall become effective at such time as
counterparts thereof have been executed by each of the parties and it shall
not be a condition to its effectiveness that each of the parties have
executed the same counterpart.
IN WITNESS WHEREOF, the undersigned parties have executed this Sponsor
Agreement by their respective officers thereunto duly authorized as of the
date first above written.
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
77 Grove Street
Rutland, Vermont
By L. Douglas Meredith
President
GREEN MOUNTAIN POWER CORPORATION
1 Main Street
Burlington, Vermont
By Glen M. McKibben
President
NEW ENGLAND POWER COMPANY
441 Stuart Street
Boston, Massachusetts 02116
By Robert F. Krause
President
THE CONNECTICUT LIGHT AND POWER COMPANY
P.O. Box 2010
Hartford, Connecticut 06101
By Sherman R. Knapp
Chairman
CENTRAL MAINE POWER COMPANY
9 Green Street
Augusta, Maine 04330
By W. H. Dunham
President
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
1037 Elm Street
Manchester, New Hampshire
By W. C. Tallman
President
THE HARTFORD ELECTRIC LIGHT COMPANY
P.O. Box 2370
Hartford, Connecticut 06101
By Joseph R. McCormick
President
WESTERN MASSACHUSETTS ELECTRIC COMPANY
174 Brush Hill Avenue
West Springfield, Massachusetts 01089
By Robert E. Barrett, Jr.
President
MONTAUP ELECTRIC COMPANY
P.O. Box 2333
Boston, Massachusetts 02107
By R. F. Dinnie
Vice President
CAMBRIDGE ELECTRIC LIGHT COMPANY
130 Austin Street
Cambridge, Massachusetts 02133
By John F. Rich
President
Exhibit 10.10
POWER CONTRACT, dated as of February 1, 1968, between VERMONT YANKEE
NUCLEAR ATOMIC POWER CORPORATION ("Vermont Yankee"), a Vermont corporation,
and (the "Purchaser").
It is agreed as follows:
1. Basic Understandings
Vermont Yankee has been organized to provide for the supply of power to
its ten sponsoring utility companies (including the Purchaser), which
utilities are hereinafter called the "sponsors." In the spring of 1967, it
commenced the construction of a nuclear electric generating unit of the
boiling water type, which is being designed to have a maximum net capability
of approximately 540 megawatts electric, at a site adjacent to the
Connecticut River at Vernon, Vermont (the unit being herein, together with
the site and all related facilities to be owned by Vermont Yankee, referred
to as the "Unit"). Construction of the Unit is being carried out under
contracts with General Electric Company and Ebasco Services Incorporated. It
is presently estimated that construction costs and working capital will
aggregate approximately $115,000,000, exclusive of fuel.
The Unit is to be operated to supply power to Vermont Yankee's sponsors,
each of which is undertaking to purchase a fixed percentage of the capacity
and output of the Unit. The names of the sponsors and their respective
percentages ("entitlement percentages") of the capacity and output of the
Unit are as follows:
Entitlement
Sponsor Percentage
Central Vermont Public Service Corporation 35.0%
Green Mountain Power Corporation 20.0%
New England Power Company 20.0%
The Connecticut Light and Power Company 6.0%
Central Maine Power Company 4.0%
Public Service Company of New Hampshire 4.0%
The Hartford Electric Light Company 3.5%
Western Massachusetts Electric Company 2.5%
Montaup Electric Company 2.5%
Cambridge Electric Light Company 2.5%
Vermont Yankee and its other sponsors are entering into power contracts
which are identical to this contract except for necessary changes in the
names of the parties.
2. Effective Date and Term
This contract shall become effective upon receipt by the Purchaser of
notice that Vermont Yankee has entered into power contracts, as contemplated
by Section 1 above, with each of its other sponsors. The term of this
contract shall expire 30 years after the plant completion date.
The "plant completion date" shall be the earlier of (i) December 31,
1972, or (ii) the date on which the Unit is placed in commercial operation,
as determined by Vermont Yankee (the "commercial operation date").
3. Construction of the Unit
Vermont Yankee will proceed with due diligence with construction of the
Unit, and will exercise its best efforts to complete and place it in
commercial operation by July 1, 1971, on the presently estimated schedule
therefor and within present cost estimates, and will keep the Purchaser
reasonably informed as to the progress of construction, material
modifications in cost estimates, and expected plant completion date.
4. Operation and Maintenance of the Unit
Vermont Yankee will operate and maintain the Unit in accordance with
good utility practice under the circumstances and all applicable law,
including the applicable provisions of the Atomic Energy Act of 1954, as
amended, and of any licenses issued thereunder to Vermont Yankee. Within the
limits imposed by good utility practice under the circumstances and
applicable law, the Unit will be operated at its maximum capability and on a
longhour use basis.
Outages for inspection, maintenance, refueling and repairs and
replacements will be scheduled in accordance with good utility practice and
insofar as practicable shall be mutually agreed upon by Vermont Yankee and
the Purchaser. In the event of an outage, Vermont Yankee will use its best
efforts to restore the Unit to service as promptly as practicable.
5. Purchaser's Entitlement
The Purchaser will, throughout the term of this contract, be entitled
and obligated to take its entitlement percentage of the capacity and net
electrical output of the Unit, at whatever level the Unit is operated or
operable, whether more or less than 540 megawatts electric.
6. Deliveries and Metering
The Purchaser's entitlement percentage of the output of the Unit will be
delivered to and accepted by it at the step-up substation at the site. All
deliveries will be made in the form of 3-phase, 60 cycle, alternating current
at a nominal voltage of 345,000 volts. The Purchaser will make its own
arrangements for the transmission of its entitlement percentage of the output
of the Unit.
Vermont Yankee will supply and maintain all necessary metering equipment
for determining the quantity and conditions of supply of deliveries under
this contract, will make appropriate tests of such equipment in accordance
with good utility practice and as reasonably requested by the Purchaser, and
will maintain the accuracy of such equipment within reasonable limits.
Vermont Yankee will furnish the Purchaser with such summaries of meter
readings as the Purchaser may reasonably request.
7. Payment
With respect to each month commencing prior to the plant completion
date, the Purchaser will pay Vermont Yankee at the rate of 4 mills per
kilowatt-hour, for the Purchaser's entitlement percentage of the net
electrical output (if any) of the Unit during the particular month.
With respect to each month commencing on or after the plant completion
date, the Purchaser will pay Vermont Yankee an amount equal to the
Purchaser's entitlement percentage of the sum of (a) Vermont Yankee's total
fuel costs for the month with respect to the Unit, plus (b) Vermont Yankee's
total operating expenses for the month with respect to the Unit, plus (c) an
amount equal to one-twelfth of the composite percentage for such month of the
net Unit investment as most recently determined in accordance with this
Section 7.
"Composite percentage" shall be computed as of the plant completion date
and as of the last day of each month thereafter (the "computation date") and
for any month the composite percentage shall be that computed as of the most
recent computation date. "Composite percentage" as of a computation date
shall be the sum of (i) eight and one-half percent (81/2%) multiplied by the
percentage which equity investment as of such date is of the total capital as
of such date; plus (ii) the stated interest rate per annum of each principal
amount of indebtedness bearing a particular rate of interest outstanding on
such date for money borrowed from other than sponsors multiplied by the
percentage which such principal amount is of total capital as of such date.
"Equity investment" as of any date shall consist of not less than the
sum of (i) all amounts theretofore paid to Vermont Yankee for all capital
stock theretofore issued (taken at the total par value thereof plus the total
of all amounts in excess of such par value paid thereon); plus all capital
contributions, loans and advances theretofore made to Vermont Yankee by its
sponsors, less the sum of any amounts distributed by Vermont Yankee to its
sponsors or stockholders in the form of stock repurchases or redemptions,
return of capital or repayments of loans and advances; plus (ii) any credit
balance in the capital surplus account (not included under (i)) and in earned
surplus account on the books of Vermont Yankee as of such date.
"Total capital" as of any date shall be the equity investment plus the
total of all indebtedness then outstanding for money borrowed from other than
Vermont Yankee's sponsors.
"Uniform System" shall mean the Uniform System of Accounts prescribed by
the Federal Power Commission for Class A and Class B Public Utilities and
Licensees as in effect on the date of this contract and as said System may be
hereafter amended to take account of private ownership of special nuclear
material.
Vermont Yankee's "fuel costs" for any month shall include (i) amounts
chargeable in accordance with the Uniform System in such month as
amortization of costs of fuel assemblies and components and burn-up of
nuclear materials for the Unit; plus (ii) all other amounts properly
chargeable in accordance with the Uniform System to fuel costs for the Unit
less any applicable credits thereto; plus (iii) to the extent not so
chargeable, all payments (or accruals therefor) with respect to lease
obligations incurred in connection with such fuel assemblies and components,
including nuclear materials, for the Unit.
Vermont Yankee's "operating expenses" shall include all amounts properly
chargeable to operating expense accounts (other than such amounts which are
included in Vermont Yankee's fuel costs), less any applicable credits
thereto, in accordance with the Uniform System; provided, however, that for
purposes of this contract, the accrual of depreciation as an operating
expense shall commence on the plant completion date at the rate of 3.846% per
annum, whether or not the Unit is then in operation, and during each of the
first 26 years after the plant completion date, the amount included in
operating expenses on account of depreciation accruals (and amortization, if
any, of property losses) shall in no event be less than 3.846% of the excess
of:
(a) the amount properly chargeable at the plant completion date in
accordance with the Uniform System to electric plant accounts (including
construction work in progress) with respect to the depreciable portion of the
Unit (or, if the plant completion date is prior to the commercial operation
date and the amount so chargeable with respect to the depreciable portion of
the Unit on the commercial operation date is greater than it was on the plant
completion date, then such greater amount),
over
(b) the amount of net available cash.
The "net Unit investment" shall consist, in each case with respect to
the Unit, of (i) the aggregate amount properly chargeable at the time in
accordance with the Uniform System to Vermont Yankee's electric plant
accounts (including construction work in progress); less the sum of (x) the
aggregate minimum amount required by this Section 7 to be included in
operating expenses from the plant completion date to the date in question on
account of depreciation accruals (and amortization, if any, of property
losses) reduced by the aggregate of all amounts charged during such period
against the accumulated provision for depreciation plus (y) the amount of net
available cash; plus (ii) the aggregate amount properly chargeable at the
time in accordance with the Uniform System to accounts representing fuel
assemblies and components (including nuclear materials) and other materials
and supplies, less the balance, if any, at the time of the accumulated
amortization thereof; plus (iii) such reasonable allowances for prepaid items
and cash working capital as may from time to time be determined by Vermont
Yankee. However, for purposes of this contract, the net amount included at
any date after the plant completion date in net Unit investment under clause
(i) of the immediately preceding sentence shall in no event be less than the
excess of:
(a) the amount properly chargeable at the plant completion date in
accordance with the Uniform System to electric plant accounts (including
construction work in progress) with respect to the Unit (or, if the plant
completion date is prior to the commercial operation date and the amount so
chargeable with respect to the Unit on the commercial operation date is
greater than it was on the plant completion date, then such greater amount),
over
(b) the sum of (x) the aggregate minimum amount required by this
Section 7 to be included in operating expenses from the plant completion date
to the date in question on account of depreciation accruals (and
amortization, if any, of property losses) plus (y) the amount of net
available cash.
The net Unit investment shall be determined as of the plant completion date
and thereafter as of the commencement of each calendar year, or if Vermont
Yankee elects, at more frequent intervals.
"Net available cash" means, at any date as of which the amount thereof
is to be determined, the excess of (a) the aggregate amount received by
Vermont Yankee after the plant completion date and prior to two years before
the determination date as insurance proceeds on account of loss or damage to
the Unit or as the proceeds of a sale or condemnation of a portion of the
Unit, over (b) the aggregate amount expended after the plant completion date
and prior to the determination date on account of rebuilding, repairs,
replacements and additions to the Unit, provided that insurance proceeds
received with respect to a particular loss shall be taken into account for
purposes of the foregoing computation only if the amount received with
respect to the loss exceeds $150,000.
Vermont Yankee will bill the Purchaser, as soon as practicable after the
end of each month, for all amounts payable by the Purchaser with respect to
the particular month. Such bills will be rendered in such detail as the
Purchaser may reasonably request and may be rendered on an estimated basis
subject to corrective adjustments in subsequent billing periods. All bills
shall be paid in full within 10 days after receipt thereof by the Purchaser.
8. Make-up Term and Option Term
(a) The Purchaser may elect to extend the contract term by written
notice to Vermont Yankee upon the following conditions and for the following
period or periods:
(i) In the event that the Unit is not in commercial operation on the
plant completion date, the contract term may be extended for a period equal
to the number of consecutive days by which commercial operation is delayed
beyond the plant completion date; and
(ii) if at any time after the commencement of commercial operation no
deliveries are made under this contract for a period of at least 120
consecutive days, the contract may be extended for a period equal to the
aggregate of such periods during which no deliveries were made.
If the term of the contract is extended pursuant to the provisions of this
subsection (a), all of the contract provisions shall remain in effect for the
extended term.
(b) Upon expiration of the initial term of this contract or upon
expiration of the term as extended in accordance with subsection (a) of this
Section 8, the Purchaser shall continue to be entitled, at its option, to its
entitlement percentage of the capacity and output of the Unit upon terms at
least as favorable as those obtained by any other person.
9. Cancellation of Contract
If deliveries cannot be made to the Purchaser because either
(i) the Unit is damaged to the extent of being completely or
substantially completely destroyed, or
(ii) the Unit is taken by exercise of the right of eminent domain or a
similar right or power, or
(iii) (a) the Unit cannot be used because of contamination, or
because a necessary license or other necessary public authorization cannot be
obtained or is revoked, or because the utilization of such a license or
authorization is made subject to specified conditions which are not met, and
(b) the situation cannot be rectified to an extent which will permit Vermont
Yankee to make deliveries to the Purchaser from the Unit;
then and in any such case, the Purchaser may cancel this contract. Such
cancellation shall be effected by written notice given by the Purchaser to
Vermont Yankee. In the event of such cancellation, all continuing
obligations of the parties, including the Purchaser's obligations to continue
payments, shall cease forthwith. Any dispute as to the Purchaser's right to
cancel this contract pursuant to the foregoing provisions shall be referred
to arbitration in accordance with the provisions of Section 12.
Notwithstanding anything in this contract elsewhere contained, the
Purchaser may cancel this contract or be relieved of its obligations to make
payments hereunder only as provided in the next preceding paragraph of this
Section 9. Further, if for reasons beyond Vermont Yankee's reasonable
control, deliveries are not made as contemplated by this contract, Vermont
Yankee shall have no liability to the Purchaser on account of such
nondelivery.
10. Insurance
Prior to the first shipment of fuel to the plant site, Vermont Yankee
will obtain, and thereafter will at all times maintain, insurance to cover
its "public liability" for personal injury and property damage resulting from
a "nuclear incident" (as those terms are defined in the Atomic Energy Act of
1954 as amended), with limits not less than Vermont Yankee may be required to
maintain to qualify for governmental indemnity under said Act and shall
execute and maintain an indemnification agreement with the Atomic Energy
Commission as provided by said Act. Vermont Yankee will also at all times
maintain such other types of liability insurance, including workmens'
compensation insurance, in such amounts, as is customary in the case of other
similar electric utility companies, or as may be required by law.
Vermont Yankee will at all times keep insured such portions of the Unit
(other than the fuel assemblies and components, including nuclear materials)
as are of a character usually insured by electric utility companies similarly
situated and operating like properties, against the risk of a "nuclear
incident" and such other risks as electric utility companies, similarly
situated and operating like properties, usually insure against; and such
insurance shall to the extent available be carried in amounts sufficient to
prevent Vermont Yankee from becoming a co-insurer. Vermont Yankee will at
all times keep its fuel assemblies and components (including nuclear
materials) insured against such risks and in such amounts as shall, in the
opinion of Vermont Yankee, provide adequate protection.
11. Audit
Vermont Yankee's books and records (including metering records) shall be
open to reasonable inspection and audit by the Purchaser.
12. Arbitration
In case any dispute shall arise as to the interpretation or performance
of this contract which cannot be settled by mutual agreement, such dispute
shall be submitted to arbitration. The parties shall if possible agree upon
a single arbitrator. In case of failure to agree upon an arbitrator within
15 days after the delivery by either party to the other of a written notice
requesting arbitration, either party may request the American Arbitration
Association to appoint the arbitrator. The arbitrator, after opportunity for
each of the parties to be heard, shall consider and decide the dispute and
notify the parties in writing of his decision. Such decision shall be
binding upon the parties, and the expenses of the arbitration shall be borne
equally by them.
13. Regulation
This contract, and all rights, obligations and performance of the
parties hereunder, are subject to all applicable state and federal law and to
all duly promulgated orders and other duly authorized action of governmental
authority having jurisdiction in the premises.
14. Assignment
This contract shall be binding upon and shall inure to the benefit of,
and may be performed by, the successors and assigns of the parties, except
that no assignment, pledge or other transfer of this contract by either party
shall operate to release the assignor, pledgor or transferor from any of its
obligations under this contract unless consent to the release is given in
writing by the other party, or, if the other party has theretofore assigned,
pledged or otherwise transferred its interest in this contract, by the other
party's assignee, pledgee or transferee, or unless such transfer is incident
to a merger or consolidation with, or transfer of all or substantially all of
the assets of the transferor to, another sponsor which shall, as a part of
such succession, assume all the obligations of the transferor under this
contract.
15. Right of Setoff
The Purchaser shall not be entitled to set off against the payments
required to be made by it under this contract (i) any amounts owed to it by
Vermont Yankee or (ii) the amount of any claim by it against Vermont Yankee.
However, the foregoing shall not affect in any other way the Purchaser's
right and remedies with respect to any such amounts owed to it by Vermont
Yankee or any such claim by it against Vermont Yankee.
16. Interpretation
The interpretation and performance of this contract shall be in
accordance with and controlled by the law of the State of Vermont.
17. Addresses
Except as the parties may otherwise agree, any notice, request, bill or
other communication from one party to the other, relating to this contract,
or the rights, obligations or performance of the parties hereunder, shall be
in writing and shall be effective upon delivery to the other party. Any such
communication shall be considered as duly delivered when delivered in person
or mailed by registered or certified mail, postage prepaid, to the respective
post office address of the other party shown following the signatures of such
other party hereto, or such other address as may be designated by written
notice given as provided in this Section 17.
18. Corporate Obligations
This contract is the corporate act and obligation of the parties hereto,
and any claim hereunder against any stockholder, director or officer of
either party, as such, is expressly waived.
19. All Prior Agreements Superseded
This contract represents the entire agreement between us relating to the
subject matter hereof, and all previous agreements, discussions,
communications and correspondence with respect to the subject matter are
hereby superseded and are of no further force and effect.
IN WITNESS WHEREOF, the parties have executed this contract by their
respective officers thereunto duly authorized as of the date first above
written.
VERMONT YANKEE NUCLEAR POWER CORPORATION
By
President
77 Grove Street
Rutland, Vermont 05701
PURCHASER
By
(Officer & Title)
(Address)
Exhibit 10.11
CAPITAL FUNDS AGREEMENT, dated as of February 1, 1968, between VERMONT
YANKEE NUCLEAR POWER CORPORATION ("Vermont Yankee"), a Vermont corporation,
and (the "Sponsor").
It is agreed as follows:
1. Basic Understandings
Vermont Yankee has been organized to provide for the supply of power to
its ten sponsoring utility companies (including the Sponsor). In the spring
of 1967, it commenced the construction of a nuclear electric generating unit
of the boiling water type, which is being designed to have a maximum net
capability of approximately 540 megawatts electric, at a site adjacent to the
Connecticut River at Vernon, Vermont (the unit being herein, together with
the site and all related facilities to be owned by Vermont Yankee, referred
to as the "Unit"). Construction of the Unit is being carried out under
contracts with General Electric Company and Ebasco Services Incorporated.
Each of the ten sponsoring utilities (the "sponsors") has heretofore
committed itself to purchase a stated percentage (its "stock percentage") of
the capacity and output of the Unit and a like percentage of Vermont Yankee's
stock exclusive of directors' qualifying shares. The names of the sponsors
and their respective stock percentages are as follows:
Stock
Sponsors Percentage
Central Vermont Public Service Corporation 35.0%
Green Mountain Power Corporation 20.0%
New England Power Company 20.0%
The Connecticut Light and Power Company 6.0%
Central Maine Power Company 4.0%
Public Service Company of New Hampshire 4.0%
The Hartford Electric Light Company 3.5%
Western Massachusetts Electric Company 2.5%
Montaup Electric Company 2.5%
Cambridge Electric Light Company 2.5%
Vermont Yankee and each of its other sponsors are entering into capital funds
agreements which are identical to this agreement except for the necessary
changes in the names of the parties.
Vermont Yankee represents to Sponsor that all stockholders of Vermont
Yankee other than the above-named sponsors - being 13 directors and
(possibly) certain Vermont electric distribution utilities which may acquire
stock from one or more of the sponsors - have waived or will waive any
preemptive rights which they might possess with respect to future stock
issues by Vermont Yankee.
Vermont Yankee's authorized capital as of the date of this agreement is
$20,010,000 consisting of 200,100 shares of common stock, $100 par value, of
which 13 directors' qualifying shares have been purchased at the par value
thereof by its directors. Vermont Yankee's sponsors have, subject to
obtaining necessary regulatory approvals, entered into subscription
agreements with it covering the purchase of their respective stock
percentages of an aggregate issue of 200,000 shares of Vermont Yankee's
common stock, $100 par value, at the par value thereof. Vermont Yankee's
estimated capital requirements, exclusive of fuel, with respect to the Unit
aggregate $115,000,000. It is the present intention of Vermont Yankee to
finance not less than 65% of the capital requirements of the Unit, whether
incurred before or after plant completion date, through the issuance and sale
of first mortgage bonds or other securities and through borrowings from
others than the sponsors, and the balance through the issuance and sale of
additional common stock to its sponsors or the receipt from its sponsors of
loans, advances or capital contributions.
2. Effective Date and Term
This agreement shall become effective upon receipt by the Sponsor of
notice that Vermont Yankee has entered into capital funds agreements, as
contemplated by Section 1 above, with each of the other sponsors, and the
execution of capital funds agreements by such other sponsors shall constitute
consideration for the obligations of the Sponsor hereunder.
The term of this agreement shall expire December 31, 2002.
3. Construction of the Unit
Vermont Yankee will proceed with due diligence with construction of the
Unit, and will exercise its best efforts to complete and place it in
commercial operation by July 1, 1971, on the presently estimated schedule
therefor and within present cost estimates, and will keep the Sponsor
currently informed as to the progress of construction and expected plant
completion date.
4. Stock Purchases and Capital Contributions to Provide the Capital
Requirements of the Unit
From time to time when Vermont Yankee requires capital to meet the
capital requirements of the Unit, it may offer shares of its common stock to
its sponsors for subscription, or may request capital contributions from its
sponsors, to raise such capital. Subject to the condition in Section 7, (i)
whenever Vermont Yankee determines to offer any such shares for such purpose,
Vermont Yankee agrees to offer to the Sponsor, and the Sponsor agrees to
subscribe for and purchase, for cash at the par value thereof the Sponsor's
stock percentage of the shares so offered, and (ii) whenever Vermont Yankee
requests capital contributions for such purpose after the issuance of common
stock to the sponsors, the Sponsor will contribute in cash its stock
percentage of the total capital contribution so requested.
5. Capital Requirements of the Unit Defined
Vermont Yankee shall be deemed to have capital requirements of the Unit
within the meaning of Section 4 if it requires capital for any of the
following purposes:
(i) to complete construction of the Unit and place it in commercial
operation at a gross capability of at least 520 megawatts electric;
(ii) to make additions and replacements (other than those chargeable to
maintenance) to the Unit which are required to insure the continued regular
operation of the Unit at a gross capability of at least 520 megawatts
electric or to restore it to regular operation at such gross capability;
(iii) to make any changes in or addition to the Unit which must be
effected in order to obtain or maintain, or to meet the conditions of, any
license or other public authorization, regulation or order which is required
for or applicable to the regular operation of the Unit at a gross capability
of at least 520 megawatts electric;
(iv) to provide materials and supplies, or funds for prepaid items or
cash working capital, required for the regular operation of the Unit at a
gross capability of at least 520 megawatts electric, or to finance the cost
of acquiring and maintaining an inventory of nuclear fuel owned by Vermont
Yankee.
If Vermont Yankee shall at any time or times determine that it would be
more feasible, economic or otherwise desirable for regular operation for the
generation of power and energy for delivery under its Power Contracts with
its sponsors for the Unit to operate at a lower gross capability than 520
megawatts and if it holds or can obtain all licenses and other public
authorizations required for the regular operation of the Unit at such lower
level, then the "capital requirements of the Unit" shall include any
additional capital required for any of the foregoing purposes for operation
of the Unit at any such lower level of capability as from time to time
determined.
6. Loans and Advances
In lieu of offering additional shares of its common stock for
subscription and purchase or requesting capital contributions under Section
4, Vermont Yankee may, at its option, request its sponsors to provide
required capital by means of loans or advances. In any case where Vermont
Yankee determines to request such loans or advances in lieu of stock
purchases, Vermont Yankee agrees to offer to the Sponsor, and the Sponsor,
subject to the condition in Section 7, agrees to provide to Vermont Yankee
the Sponsor's stock percentage thereof. However, Vermont Yankee shall not be
entitled to request such loans or advances except in circumstances where it
would be entitled to require the Sponsor to make a stock subscription or
capital contribution pursuant to Section 4.
The terms of any loans and advances requested by Vermont Yankee under
this Section 6, as to interest, maturity date, rights and terms of
prepayment, and otherwise shall be the same for all sponsors. Such terms
shall be as determined by Vermont Yankee in its discretion, except that the
terms of each such loan or advance shall provide for quarterly payments of
interest at an annual rate not less than 11/2% in excess of the lowest prime
rate for commercial loans at the time in effect at any bank in New York, New
York.
Nothing in this agreement shall be construed as prohibiting Vermont
Yankee from requesting and receiving non-interest bearing open account
advances from its sponsors in the nature of interim investment advances to be
applied toward the purchase of stock or capital contributions.
7. Conditions to the Sponsor's Obligations
The obligation of the Sponsor to subscribe for and purchase its stock
percentage of any stock issue under Section 4 and to provide its stock
percentage of any capital contribution under Section 4 or of any loan or
advance under Section 6 shall be subject to the condition that all necessary
regulatory approvals shall have been obtained with respect to both the action
to be taken by Vermont Yankee and the action to be taken by the Sponsor. The
parties will use their best efforts to obtain, or to assist in obtaining, the
foregoing regulatory approvals. Except as expressly provided in this Section
7, no action of, nor failure to act by, Vermont Yankee or any of the several
sponsors referred to in Section 1 shall permit cancellation of, or relieve
the Sponsor from any of its obligations under, this agreement. However, the
failure of any other sponsor to purchase its stock percentage of any stock
issue or to make its stock percentage of any capital contribution, loan or
advance requested by Vermont Yankee shall not require the Sponsor to make
stock purchases (including those under the subscriptions referred to in
Section 1), capital contributions, loans or advances which in the aggregate
exceed the Sponsor's stock percentage of the total capital requirements of
the Unit.
8. Other Financing
Nothing in this agreement shall be construed as precluding Vermont
Yankee from offering shares of its common stock to, or requesting capital
contributions and loans and advances from, its sponsors to finance capital
requirements other than those contemplated by Section 5, or from financing,
in its discretion, its capital requirements (including the capital
requirements contemplated by Section 5) by means other than the sale of its
common stock to the sponsors or capital contributions or loans or advances
from them, but not by the sale of its common stock other than to sponsors.
9. Cooperation by Sponsor
The Sponsor agrees that it will cooperate with Vermont Yankee in taking
all such action as may be necessary or appropriate to effectuate the purposes
of this agreement.
10. Restrictions on Transfer
The Sponsor acknowledges notice of the restrictions on stock transfers
contained in Section 8.1 of Vermont Yankee's by-laws, and agrees to be bound
by said provisions with respect to all shares of Vermont Yankee's capital
stock which it may acquire.
11. Arbitration
In case any dispute shall arise as to the interpretation or performance
of this contract which cannot be settled by mutual agreement, such dispute
shall be submitted to arbitration. The parties shall if possible agree upon
a single arbitrator. In case of failure to agree upon an arbitrator within
15 days after the delivery by either party to the other of a written notice
requesting arbitration, either party may request the American Arbitration
Association to appoint the arbitrator. The arbitrator, after opportunity for
each of the parties to be heard, shall consider and decide the dispute and
notify the parties in writing of his decision. Such decision shall be
binding upon the parties, and the expenses of the arbitration shall be borne
equally by them.
12. Interpretation
The interpretation and performance of this agreement shall be in
accordance with and controlled by the law of the State of Vermont.
13. Addresses
Except as the parties may otherwise agree, any notice, request or other
communication from one party to the other, relating to this agreement or the
rights, obligations or performance of the parties hereunder, shall be in
writing and shall be effective upon delivery to the other party. Any such
communication shall be considered as duly delivered when delivered in person
or mailed by registered or certified mail, postage prepaid, to the respective
address of the other party shown following the signatures of such other party
hereto, or such other address as may be designated by written notice given as
provided in this Section 13.
14. Assignment
This agreement shall be binding upon and shall inure to the benefit of,
and may be performed by, the successors and assigns of the parties, except
that no assignment, pledge or other transfer of this agreement by either
party shall operate to release the assignor, pledgor or transferor from any
of its obligations under this agreement unless consent to the release is
given in writing by the other party (if not theretofore released pursuant to
this Section) and, if the other party has theretofore assigned, pledged or
otherwise transferred its interest in this agreement, by the other party's
assignee, pledgee or transferee, or unless such transfer is incident to a
merger or consolidation with, or transfer of all or substantially all of the
assets of the transferor to, another sponsor which shall, as a part of such
succession, assume all the obligations of the transferor under this
agreement.
15. Corporate Obligations
This agreement is the corporate act and obligation of the parties
hereto, and any claim hereunder against any stockholder, director or officer
of either party, as such, is expressly waived.
16. All Prior Agreements Superseded
This agreement represents the entire agreement between Vermont Yankee
and the Sponsor relating to the subject matter hereof, and all previous
agreements, discussions, communications and correspondence with respect to
the subject matter are hereby superseded and are of no further force and
effect, except that the uncalled portion of the outstanding subscription
agreements referred to in Section 1, between the Sponsor and Vermont Yankee
with respect to the Sponsor's subscription for its stock percentage of
200,000 shares of Vermont Yankee's common stock, $100 par value, is not
superseded and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this agreement by their
respective officers thereunto duly authorized as of the date first above
written.
VERMONT YANKEE NUCLEAR POWER CORPORATION
By
President
77 Grove Street
Rutland, Vermont 05701
By
(Officer)
(Address)
Exhibit 10.11.1
AMENDMENT dated as of March 12, 1968, between VERMONT YANKEE NUCLEAR
POWER CORPORATION ("Vermont Yankee") a Vermont corporation, and (the
"Sponsor") to the Capital Funds Agreement dated as of February 1, 1968,
between Vermont Yankee and the Sponsor.
It is agreed that, in order to clarify a possible ambiguity in said
Capital Funds Agreement, Section 5 of said Capital Funds Agreement is hereby
amended by striking out the following:
"Vermont Yankee shall be deemed to have capital requirements of the Unit
within the meaning of Section 4 if it requires capital for any of the
following purposes:"
and by inserting in lieu thereof the following:
"Vermont Yankee shall be deemed to have capital requirements of the Unit
within the meaning of Section 4 if it requires capital (including funds to
reimburse it for expenditures made for any of the following purposes out of
the proceeds of short term borrowings) for any of the following purposes:"
IN WITNESS WHEREOF, the parties have executed this amendment by their
respective officers duly authorized as of the date first above written.
VERMONT YANKEE NUCLEAR POWER CORPORATION
By
President
SPONSOR
By
(Officer)
Its
(Title)
(Address)
Exhibit 10.31.1
AMENDMENT TO NOTE AGREEMENT
AMENDMENT dated September 26, 1997 (herein, the "Amendment") by and
among WESTERN NATIONAL LIFE INSURANCE COMPANY, a Texas corporation having its
principal place of business in Houston, Texas ("WLIC"), ML CBO VII, Series
1997-C-3 ("ML CBO3"), a Cayman Islands entity having its principal place of
business in George Town, Grand Cayman, ROYALTON COMPANY, a Cayman Islands
entity having its principal place of business in George Town, Grand Cayman
("Royalton")(WLIC, ML CBO3 and Royalton are sometimes referred to
collectively as the "Purchasers") and THE ROCKY RIVER REALTY COMPANY, a
Connecticut corporation having its principal place of business in Berlin,
Connecticut (the "Company").
WHEREAS, pursuant to certain Note Agreements dated April 14, 1992
between the Company and the institutional investors named therein
(collectively, the "Note Agreement") and certain other Operative Agreements,
as defined in the Note Agreement, the Company issued $15,000,000 aggregate
principal amount of 8.81% Guaranteed Senior Secured Notes, Series A, due
April 14, 2007 (the "Series A Notes"). As contemplated by and provided for
in the Note Agreement and this Amendment, certain of the Series A Notes have
been assigned and transferred by the original holders thereof to WLIC and ML
CBO3 and the remaining outstanding Series A Notes have been repurchased by
the Company and are being reissued to Royalton as of the date hereof (the
"Note Reissue"); and
WHEREAS, the Purchasers and the Company have determined that certain
technical amendments to the Note Agreement are desirable to effect the Note
Reissue.
NOW THEREFORE, the parties hereto agree as follows:
1. Amendment
(a) A new sentence is hereby added to the end of Section 4.2(b)(ii) of
the Note Agreement as follows:
"Notwithstanding the foregoing, the Company in its sole discretion may, prior
to such closing, repurchase any such Notes for reissuance under the terms set
forth in such written commitment letter as provided in this subsection and
all or any of such repurchased Notes may be reissued by the Company at any
time thereafter and, as reissued, the Notes and the holders thereof shall be
fully entitled to all the benefits, obligations and provisions of this
Agreement."
(b) The first sentence of Section 14.5 of the Note Agreement is hereby
amended by the addition of the words "Other than as set forth in Section
4.2(b)(ii)," to the beginning of the sentence.
(c) The definition of "Operative Agreements" set forth in Section
3.1(b) of the Note Agreement is hereby amended to read as follows:
"(b) each other agreement or instrument executed and delivered at the
Closing, all as amended or supplemented from time to time, including, but not
limited to, the Extension of Note Guaranty by Guarantor dated September 26,
1997 and the Modification of and Confirmation of Assignment of Leases,
Permits and Profits, Security Agreement and Negative Pledge dated September
26, 1997."
2. Miscellaneous.
(a) All references to the "Agreement" in the Note Agreement, and all
other documents executed in connection therewith, shall be deemed to refer to
the "Agreement" as amended hereby.
(b) The Note Agreement and all other documents executed in connection
therewith shall each be deemed amended, to the extent necessary, if any, to
give effect to the provisions of this Amendment.
(c) As hereby amended, the Note Agreement is in all respects
reaffirmed, ratified and confirmed for the benefit of each of the Series A
Noteholders as of the date hereof.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed on the date first written above.
ROYALTON COMPANY THE ROCKY RIVER REALTY COMPANY
By Pacific Investment
Management Company, as
its Investment Advisor By s/s David R. McHale
David R. McHale
Assistant Treasurer
By s/s Raymond Kennedy
Its Vice President
WESTERN NATIONAL LIFE INSURANCE ML CBO VII, Series 1997-C-3
COMPANY By CONSECO Capital Management, Inc.,
By CONSECO Capital Management, Inc., acting as Investment Advisor
acting as Investment Advisor
By s/s Gary F. Greaur By s/s Gary F. Greaur
Its Assistant Vice President Its Assistant Vice President
Exhibit 10.31.2.1
EXTENSION OF NOTE GUARANTY
EXTENSION OF NOTE GUARANTY dated September 26, 1997 (herein called the
"Extension") by NORTHEAST UTILITIES, a Massachusetts business trust having an
address at 107 Selden Street, Berlin, Connecticut 06037 (herein called
"Guarantor"). Capitalized terms used herein but not otherwise defined shall
have the meanings set forth in the Guaranty hereinafter referred to.
WHEREAS, pursuant to certain Note Agreements dated April 14, 1992 between the
Company and the institutional investors named therein and certain other
Operative Agreements, as defined in the Note Agreements, the Company issued
$15,000,000 aggregate principal amount of 8.81% Guaranteed Senior Secured
Notes, Series A, due April 14, 2007 (the "Series A Notes"). As contemplated
by and provided for in the Note Agreements, as amended by an Amendment to
Note Agreement dated the date hereof, certain of the Series A Notes have been
assigned and transferred by the original holders thereof to the current
holders thereof identified on Appendix A hereto and the remaining outstanding
Series A Notes in the outstanding principal amount of $5,828,180.14 have been
repurchased by the Company and are being reissued to Royalton Company, a
Cayman Islands entity having its principal place of business in George Town,
Grand Cayman ("Royalton") (Royalton and the purchasers identified on Appendix
A hereto are referred to herein as the "New Series A Noteholders") as of the
date hereof; and
WHEREAS, in order to induce each New Series A Noteholder to acquire the
Series A Notes, and notwithstanding the provisions of Section 11 of the Note
Guaranty dated April 14, 1992 by Guarantor (the "Guaranty"), the Guarantor
hereby desires to hereby reaffirm and extend the benefits of the Guaranty to
the New Series A Noteholders ("Extension") as of the respective dates of
purchase of the Series A Notes by the New Series A Noteholders.
NOW, THEREFORE, in consideration of the acquisition of the Series A Notes by
the New Series A Noteholders and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by the Guarantor,
the Guarantor hereby agrees, for the equal and ratable benefit of all New
Series A Noteholders and the subsequent owners of the Series A Notes
hereinafter from time to time outstanding, as follows:
1. The Guarantor hereby irrevocably and unconditionally guarantees the due
and punctual payment and performance by the Company of the following
obligations (individually, a "Guaranteed Obligation" and collectively, the
"Guaranteed Obligations"):
(a) the payment when due and payable (whether at maturity or on a date fixed
for any payment or any prepayment or by declaration or acceleration or
otherwise) of the principal of and premium (including, without limitation,
the Make-Whole Premium), if any, and interest on the Series A Notes; and
(b) the payment when due and payable and punctual performance of any and all
other indebtedness and obligations of the Company under and in respect of the
Note Agreements (including, without limitation, any indebtedness arising
under Section 9 of the Note Agreements), each of the other Operative
Agreements, and any other agreement, document or instrument relating thereto,
all as amended from time to time.
2. Guarantor hereby reaffirms and acknowledges, for the benefit of the New
Series A Noteholders, effective as of the dates of their respective purchases
of the Series A Notes, its obligation (a) to perform each and all of the
covenants, agreements and obligations under the Guaranty to be performed by
it thereunder, at the time, in the manner and in all respects as provided in
the Guaranty and (b) to be bound by each and all of the terms and provisions
of the Guaranty as though the Guaranty had originally been made, executed and
delivered to the New Series A Noteholders.
3. The Guaranty and this Extension shall be binding upon and inure to the
benefit of the Guarantor, the New Series A Noteholders and their respective
successors and assigns.
4. No shareholder or trustee of Guarantor shall be held to any liability
whatever for the payment of any sum of money or for damages or otherwise
under this Extension, and this Extension shall be enforceable against the
trustees of Guarantor only as such, and every person, firm, association,
trust or corporation having any claim or demand arising under this Extension
relating to Guarantor, its shareholders or trustees shall look solely to the
trust estate of Guarantor for the payment or satisfaction thereof.
5. As of the date hereof, the Guarantor represents and warrants, for the
benefit of the New Series A Noteholders, that:
(a) each of the Series A Notes is in the outstanding principal
amount set forth beside the name of each New Series A Noteholder identified
on Appendix A; and
(b) no part of the outstanding principal amount of any of the
Series A Notes set forth on Appendix A has been terminated, paid or otherwise
reduced, other than pursuant to the terms thereof; and
(c) the Note being issued to Royalton as the date hereof is in the
outstanding principal amount of $5,828,180.14, no part of which has been
terminated, paid or otherwise reduced.
6. This Extension shall supplement the Guaranty, which is in all other
respects reaffirmed, ratified and confirmed for the benefit of the New Series
A Noteholders.
IN WITNESS WHEREOF, the Guarantor has caused this Extension to be duly
executed as an instrument under seal and hand delivered as of the date first
above written.
NORTHEAST UTILITIES
By: s/s David R. McHale
David R. McHale
Assistant Treasurer
APPENDIX A
Principal Amount of
Purchaser Series A Notes Purchased
WESTERN NATIONAL $1,138,344.82
COMPANIES
ML CBO VII, $4,754,000.00
Series 1997 C-3
Exhibit 10.31.3.1
MODIFICATION OF AND CONFIRMATION OF
ASSIGNMENT OF LEASES, RENTS
AND PROFITS, SECURITY AGREEMENT AND NEGATIVE PLEDGE
THIS MODIFICATION OF AND CONFIRMATION OF ASSIGNMENT OF LEASES,
RENTS AND PROFITS, SECURITY AGREEMENT AND NEGATIVE PLEDGE (the "Modification
Agreement") is made and entered into as of the 26th day of September, 1997,
by and among THE ROCKY RIVER REALTY COMPANY, a Connecticut corporation having
its principal office at 107 Selden Street, Berlin, Connecticut 06037 (the
"Company"), NORTHEAST UTILITIES SERVICE COMPANY, a Connecticut corporation
having its principal office at 107 Selden Street, Berlin, Connecticut 06037
(the "Lessee"), and FLEET NATIONAL BANK (formerly known as The Connecticut
National Bank), a national banking association having its principal office at
777 Main Street, Hartford, Connecticut 06115 (together with all successors
thereto, collectively, the "Trustee").
W I T N E S S E T H :
WHEREAS, effective as of April 14, 1992, the Company, the Lessee
and the Trustee entered into an Assignment of Leases, Rents and Profits,
Security Agreement and Negative Pledge (the "Assignment Agreement") pursuant
to which the Company absolutely and unconditionally assigned to the Trustee
all of its right, title and interest in and to all present and future leases
of the Office Lease Property and the Project Lease Property, including,
without limitation, the Office Lease and the Project Lease to secure the
Notes and the other Obligations (as such capitalized terms are defined in the
Assignment Agreement), which Assignment Agreement was recorded in Volume 326,
Page 805 of the Berlin Land Records and in Volume 829, Page 204 of the
Newington Land Records; and
WHEREAS, as contemplated by and provided for in the Note Agreements
(as such capitalized term is defined in the Assignment Agreement), certain of
the Series A Notes (as such capitalized term is defined in the Assignment
Agreement) have been assigned and transferred by the original holders thereof
to subsequent purchasers and holders thereof (herein referred to as the
"Transferred Series A Notes") and the remaining outstanding Series A Notes
have been repurchased by the Company to be reissued to a new purchaser and
holder thereof on the effective date hereof (herein referred to as the
"Reissued Series A Notes"), which Reissued Series A Notes are to be of the
same series, tenor and aggregate outstanding principal amount as the Series A
Notes repurchased by the Company; and
WHEREAS, also as contemplated by and provided for in the Note
Agreements, the Company has purchased and retired in full all of the Series B
Notes (as such capitalized term is defined in the Assignment Agreement); and
WHEREAS, the Company, the Lessee and the Trustee wish to enter into
this Modification Agreement to unconditionally confirm the lien and security
interest in the Assigned Estate (as such capitalized term is defined in the
Assignment Agreement) previously granted by the Company to the Trustee, for
the benefit of the holders of the Transferred Series A Notes and the Reissued
Series A Notes, to secure the Company's obligations under such Transferred
Series A Notes and Reissued Series A Notes, and, to the extent necessary, to
re-grant to the Trustee, for the benefit of the holders of the Transferred
Series A Notes and the Reissued Series A Notes, a continuing first priority
lien and security interest in the Assigned Estate to secure the Obligations;
and
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00)
and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by the Trustee, and in further consideration of
the premises and the promises of the parties contained herein, it is hereby
agreed as follows:
1. From and after the effective date of this Modification
Agreement, all references in the Assignment Agreement to the term "Notes"
shall refer to the Transferred Series A Notes and the Reissued Series A Notes
(and the term "Note" shall refer to any one of them), copies of which
Transferred Series A Notes and Reissued Series A Notes and the names and
addresses of the holders thereof are on file in the office of the Trustee at
the address set forth above, and the term "Obligations" as defined in the
Assignment Agreement shall include the indebtedness evidenced by the
Transferred Series A Notes and the Reissued Series A Notes and the payment of
all principal of, premium, if any, and interest on such Transferred Series A
Notes and Reissued Series A Notes.
2. The Company hereby acknowledges and confirms the previous
grant, pursuant to the Assignment Agreement, of a valid, continuing first
priority lien and security interest in the Assigned Estate to Trustee, for
the ratably equal benefit of the holders of the Notes, to secure the
Obligations, and hereby agrees that the execution and delivery of this
Modification Agreement does not in any way impair or adversely affect the
Trustee's continuing first priority lien and security interest in the
Assigned Estate.
3. In furtherance of the modification evidenced by this
Modification Agreement, and in addition to the grant set forth in the
Assignment Agreement (which grant is confirmed herein), the Company does
hereby give, grant, bargain, sell and confirm unto the Trustee, its
successors and assigns forever, the Assigned Estate.
TO HAVE AND TO HOLD all and singular the Assigned Estate, whether
now owned or held or hereafter acquired, unto the Trustee and its successors
and assigns forever, to its own proper use and benefit forever, subject,
however, to the terms and conditions of the Assignment Agreement, as modified
by this Modification Agreement. The assignment and conveyance of the
Assigned Estate to the Trustee as set forth in the Assignment Agreement, and
as confirmed in this Modification Agreement, is and shall hereafter be a
present and absolute assignment and conveyance of the Assigned Estate and is
and shall not be conditioned upon the occurrence of any default hereunder or
under the Obligations, or any other event or contingency, and is and shall
not be subject to defeasance except in accordance with the terms of the
Assignment Agreement, as modified by this Modification Agreement.
IN TRUST, NEVERTHELESS upon the terms and trusts set forth in the
Assignment Agreement, as modified by this Modification Agreement, to secure
the Obligations for the equal and proportionate benefit and security of the
owners from time to time of the Notes, without preference, priority or
distinction of any one Note over any other Note by reason of priority in the
issue, sale and negotiation thereof or for any other reason, except as
explicitly provided otherwise in the Assignment Agreement, as modified by
this Modification Agreement.
4. All of the other terms, covenants, agreements and conditions
in the Assignment Agreement, other than those specifically modified hereby,
shall remain unchanged.
5. The rights, privileges, duties and obligations of the parties
under the Assignment Agreement shall, except as above modified, remain
unchanged and in full force and effect, and nothing herein contained shall
operate to release the Company or the Lessee from its joint and several
liabilities to the Trustee under the Assignment Agreement, and to keep and
perform the terms, conditions, obligations and agreements contained in the
Assignment Agreement, except as herein modified, and the Company hereby
agrees to pay the indebtedness secured by the Assignment Agreement with
interest and all of the payments required to be made by the Notes and the
Assignment Agreement in accordance with the provisions thereof, except as
herein expressly modified.
6. The modifications and agreements herein contained are
expressly made binding upon and shall inure to the benefit of the heirs,
executors, administrators, successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Modification
Agreement as of the 26th day of September, 1997.
Signed, Sealed and Delivered
in the presence of:
THE ROCKY RIVER REALTY COMPANY
s/s Jane P. Seidl
Jane P. Seidl
By: s/s David R. McHale
s/s Lori A. Anjiras David R. McHale
Lori A. Anjiras Its Assistant Treasurer
NORTHEAST UTILITIES SERVICE COMPANY
s/s Jane P. Seidl
Jane P. Seidl
By: s/s David R. McHale
s/s Lori A. Anjiras David R. McHale
Lori A. Anjiras Its Assistant Treasurer
FLEET NATIONAL BANK
s/s Melanie C. Moir
Melanie C. Moir
By: s/s Elizabeth Hammer
s/s Laurel Melody-Casasanta Elizabeth Hammer
Laurel Melody-Casasanta Its Vice President
as Attorney-in-Fact
STATE OF CONNECTICUT )
) ss: Berlin September 26, 1997
COUNTY OF HARTFORD )
Personally appeared David R. McHale, the Assistant Treasurer of THE
ROCKY RIVER REALTY COMPANY, a Connecticut corporation, signer of the
foregoing instrument, and acknowledged the same to be his free act and deed
as such officer, and the free act and deed of said corporation, before me.
s/s Judith D. Boucher
Judith D. Boucher
Commissioner of the Superior Court/
Notary Public
My Commission Expires:
9/30/99
STATE OF CONNECTICUT )
) ss: Berlin September 26, 1997
COUNTY OF HARTFORD )
Personally appeared David R. McHale, the Assistant Treasurer of
NORTHEAST UTILITIES SERVICE COMPANY, a Connecticut corporation, signer of the
foregoing instrument, and acknowledged the same to be his free act and deed
as such officer, and the free act and deed of said corporation, before me.
s/s Judith D. Boucher
Judith D. Boucher
Commissioner of the Superior Court/
Notary Public
My Commission Expires: 9/30/99
STATE OF CONNECTICUT )
) ss: Hartford September 26, 1997
COUNTY OF HARTFORD )
Personally appeared Elizabeth Hammer, Attorney In Fact of FLEET
NATIONAL BANK, a national banking association, signer of the foregoing
instrument, and acknowledged the same to be his/her free act and deed as such
officer, and the free act and deed of said bank, before me.
s/s Karen R. Felt
Karen R. Felt
Commissioner of the Superior Court/
Notary Public
My Commission Expires:
02/28/99
After Recording, Return To:
Carmody & Torrance
50 Leavenworth Street
Waterbury, Connecticut 06702
Attention: Joseph L. Kinsella, Esq.
Exhibit 10.31.4
PURCHASE AND SALE AGREEMENT
AGREEMENT ("Agreement") entered into this 28th day of July, 1997 by and
between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation
having its principal place of business in Bloomfield, Connecticut ("CGLIC"),
LIFE INSURANCE COMPANY OF NORTH AMERICA, a Pennsylvania corporation having
its principal place of business in Philadelphia, Pennsylvania ("LINA"), and
LIFE INSURANCE COMPANY OF GEORGIA, a Georgia corporation having its principal
place of business in Atlanta, Georgia ("LIC") (CGLIC, LINA and LIC are
sometimes individually referred to herein as "Seller" and collectively as the
"Sellers"); WESTERN NATIONAL LIFE INSURANCE COMPANY a Texas corporation
having its principal place of business in Houston, Texas ("WLIC"), ML CBO
VII, Series 1997-C-3 ("ML CBO3"), a Cayman Islands entity having its
principal place of business in George Town, Grand Cayman (WLIC and ML CBO3
are sometimes individually referred to herein as "Purchaser" and collectively
as the "Purchasers"), and THE ROCKY RIVER REALTY COMPANY, a Connecticut
corporation having its principal place of business in Berlin, Connecticut
(the "Company").
All of Sellers' agreements hereunder are subject to the provisions of
Section 5 below.
Sellers own an aggregate of $11,784,689.32 principal amount of 8.81%
Guaranteed Senior Secured Notes, Series A, due April 14, 2007 (the "Series A
Notes") issued by the Company in the original aggregate principal amount of
$15,000,000 pursuant to Note Agreements dated April 14, 1992 between the
Sellers, the Company and certain others (collectively, the "Note Agreements")
and certain other Operative Agreements, as defined in the Note Agreements.
Purchasers desire to purchase $5,892,344.81 aggregate principal amount of the
Series A Notes (the "Notes") from Sellers, as set forth more fully below and
in Exhibit A hereto. Simultaneously with the consummation of the
transactions contemplated herein, the Company is separately repurchasing from
Sellers the remaining outstanding Series A Notes not being purchased and sold
hereunder. Capitalized terms used herein which are defined in the Note
Agreements have the respective meanings set forth therein, unless otherwise
defined herein or the context otherwise requires.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and agreements herein
contained, the parties have agreed and do hereby agree as follows:
1. Transfer of Notes. Upon the terms set forth in this Agreement,
Sellers will sell, assign, transfer and deliver to Purchasers, and Purchasers
will purchase from Sellers, at the Closing (as defined in Section 6) and as
contemplated in the escrow letter agreement dated July 28, 1997 among the
Sellers, the Purchasers, the Company and the individuals to whom it is
addressed (the "Escrow Letter"), the Notes and all the rights of the Sellers
with respect to the Notes under the related Note Agreements, free and clear
of all liens, charges and encumbrances of any nature whatsoever, in the
principal amounts and for the amounts to be paid to the Sellers set forth on
Exhibit A hereof.
2. Representations and Warranties of Sellers. Each of the Sellers
represents and warrants for itself only to the Purchasers that:
(a) Organization of Seller. Seller is a corporation duly
organized, validly existing and in good standing under the laws of its state
of incorporation, and has valid corporate authority to execute and deliver
this Agreement and to sell the Notes held by it as provided herein.
(b) Authority. The execution, delivery and performance of this
Agreement, the Note Agreement and the other Operative Agreements to which
Seller is a party and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized and approved by
Seller and no further corporate action by Seller is or shall be required for
such execution, delivery or performance. This Agreement and the Operative
Agreements to which Seller is a party have been duly executed and delivered
by Seller and constitute the legal, valid and binding Agreements of Seller
enforceable against Seller in accordance with their terms, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws of general application affecting the rights of
creditors and by general equity principles. No governmental or regulatory
approval is necessary for the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby by the
Sellers.
(c) No Liens. When sold to Purchasers as provided herein, the
Notes will be free of all liens, charges and encumbrances of any nature
whatsoever.
(d) No Registration. Based on Purchasers' representations herein,
the sale of the Notes hereunder is not required to be registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities or
"Blue Sky" laws.
3. Representations and Warranties of Purchasers. Each Purchaser represents
and warrants for itself only to the Sellers and the Company as follows:
(a) Organization and Authority of Purchaser. Purchaser is duly
organized, validly existing and in good standing under the laws of its state
of incorporation or foreign jurisdiction, as applicable, and has valid
corporate authority to execute and deliver this Agreement and to purchase the
Notes to be purchased by it as provided herein.
(b) Authority. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by Purchaser, have received all
necessary governmental or regulatory approval and no further corporate action
by Purchaser is or shall be required for such execution, delivery,
performance or consummation.
(c) No Registration. Purchaser understands that the Notes have not
been and will not be registered under the Securities Act of 1933, as amended
(the "Act"), or any state securities or "Blue Sky" laws, and may be resold
only if registered pursuant to the provisions of the Act and applicable state
securities laws or if an exemption from such registration is available; that
neither the Company nor the Seller is required to register the Notes; and
that any transfer must comply with the agreements and documents that govern
the Notes. Each Purchaser will comply with all applicable federal and state
securities laws in connection with any subsequent resale of the Notes it
purchases hereunder.
(d) Status of Purchaser, Purpose of Purchase. The Purchaser is a
sophisticated institutional investor that is an "accredited investor" within
the meaning of Rule 501 under the Act and has knowledge and experience in
financial and business matters and is capable of evaluating the merits and
risks of its investment in the Notes and is able to bear the economic risk of
such investment. The Purchaser represents that it is not (i) an employee
benefit plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), whether or not it is subject to
the provisions of Title I of ERISA or (ii) a plan described in Section
4975(e)(1) of the Internal Revenue Code of 1986, as amended. The Purchaser
is acquiring the Notes for its own account, and not with a present view to,
or for sale in connection with any, distribution thereof, provided that the
disposition of the Purchaser's property shall at all times be and remain
within its control.
(e) No Solicitation. The Notes were not offered or sold to Purchaser
by any form of general solicitation or general advertising.
(f) Independent Investigation. Purchaser acknowledges that it has
conducted, to the extent it deemed necessary, an independent investigation of
such matters, and has had the opportunity to receive such information as, in
its judgment, is necessary for it to make an informed investment decision,
and has not relied upon the Seller for any investigation or assessment to
evaluate the transaction contemplated hereby.
(g) Public Information. Certain information that may be pertinent to
the Purchaser's decision to purchase the Notes can be obtained from a variety
of public sources, including the Securities and Exchange Commission. The
Purchaser has obtained and carefully reviewed the Company's most recent
Annual Report on Form 10K and the press releases and other public disclosures
made by the Company since the filing of its annual report.
(h) Reliance. The Seller has not made any representation or warranty,
express or implied, of any kind to the Purchasers, other than as set forth
herein. Seller has no obligation to Purchaser, express or implied, including
without limitation fiduciary obligations, except for the obligations
specifically set forth in this Agreement or in the Escrow Letter.
Purchaser is fully aware that, with regard to the sale of the Notes
it is purchasing hereunder, Seller is relying upon the truth and accuracy of
these representations and warranties.
4. Representations and Warranties of the Company. The Company represents
and warrants to Purchasers as follows:
(a) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Connecticut and
has valid corporate authority to execute and deliver this Agreement.
(b) Authority. The execution, delivery and performance of this
Agreement, the Note Agreement and the other Operative Agreements and the
consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized and approved by the Company and no further
corporate action by the Company is or shall be required for such execution,
delivery, performance or consummation. This Agreement and the other
Operative Agreements have been duly executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company enforceable
against the Company in accordance with their terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or similar laws of general application affecting the rights of
creditors and by general equity principles. No governmental or regulatory
approval is necessary for the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby by the
Company.
(c) No Conflict or Restrictions. The Company is not now under any
obligation of a contractual or other nature to any person, firm or
corporation which is inconsistent or in conflict with this Agreement, the
Notes, the Note Agreement or the other Operative Agreements, or which would
prevent, limit or impair in any way its performance of its obligations
hereunder or thereunder.
(d) Title to Property. The Company owns the Office Lease Property free
and clear of all liens, charges and encumbrances, other than as permitted
under the Note Agreement and other Operative Agreements.
(e) Series B Notes. The Company has paid off in full and retired the
Series B Notes. The Series A Notes which are not being purchased and sold
hereunder are being repurchased simultaneously with the consummation of the
transactions contemplated herein.
(f) Defaults; Guaranty. There are no Defaults or Events of Default
under the Notes or the Note Agreement. Since December 31, 1996, there has
been no material adverse change in the financial condition of the Company
other than as disclosed in Northeast Utilities' 1996 Annual Report, Annual
Report on Form 10-K for the year ended December 31, 1996, Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997 and its Current Reports on
Form 8-K filed after January 1, 1997. The Guaranty has been duly authorized,
executed and delivered by, and constitutes a legal, valid and binding
obligation of, the Guarantor enforceable against the Guarantor in accordance
with its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or similar laws of general
application affecting the rights of creditors and by general equity
principles and is in full force and effect.
(g) Documentation. True and complete copies of the Notes, the
applicable Note Agreement and the other Operative Agreements have been
provided to Purchasers.
(h) No Registration. Based on Purchasers' representations herein, the
sale and purchase of the Notes hereunder is not required to be registered
under the Act or any state securities or "Blue Sky" laws.
5. Sellers' Agreements. Notwithstanding any other provisions of this
Agreement, the undertakings and agreements of CGLIC, LINA, and LIC in this
Agreement constitute agreements and undertakings of each of them individually
and not collectively, and any and all such undertakings and agreements are
for the benefit of the Purchasers only, and are not intended to nor shall
they be construed as conferring any benefit on or creating any rights in
favor of the Company with respect to the Sellers or any of them.
The Sellers have not verified any matters covered by any representations
and warranties of the Company to Purchasers contained in this Agreement, and
Sellers shall in no way be deemed to have agreed with any such
representations and warranties of the Company (except to the extent covered
by specific representations and warranties of Sellers under Section 2 hereof)
to have any duty of due diligence or disclosure to the Purchasers with
respect to those matters covered by the Company's representations and
warranties contained in this Agreement.
Further, in the event that the transactions contemplated hereunder and
by the Escrow Letter are not timely consummated, Sellers have not waived and
each of them specifically reserves any and all rights they and each of them
may have with respect to the Company under the terms of the Note Agreement,
the Operative Agreements, and any other agreements or documents delivered to
them or any of them in connection with the transactions which are covered by
or are the subject of the Note Agreement (collectively, the "Sellers'
Transaction Documents"). Specifically, and without in any way limiting the
generality of the preceding sentence, in the event the transactions
contemplated hereunder and by the Escrow Letter are not timely consummated,
the Sellers have not and shall not be deemed to have consented to or agreed
to the provisions, or to have consented to the deferral of the exercise of
any rights they or any of them may have under any of the Sellers' Transaction
Documents or to any waiver, modification or amendment of or with respect to
any of the Sellers' Transaction Documents, including, without limitation, the
rights of the Sellers under Section 4.2(b) of the Note Agreement.
6. Closing. The closing of the purchase and sale of the Notes as
provided for herein (the "Closing") shall take place on or before July 30,
1997 as contemplated in the Escrow Letter.
The obligations under this Agreement of each party to this Agreement
shall be terminated and shall be of no further force and effect if the
transactions contemplated hereby, including receipt by Sellers of all
payments due to Sellers hereunder in connection with their sale of the Notes,
and receipt by Sellers of all payments due to Sellers in connection with the
separate contemporaneous repurchase by the Company from Sellers of the
remaining outstanding Series A Notes have not occurred on or before July 30,
1997, time being of the essence.
7. Payment of Consideration. At the Closing, (i) each Seller shall
execute and deliver to the Purchaser purchasing the Notes an assignment of
the Notes and Sellers' rights under the related Note Agreement as shall be
appropriate to carry out the intent of this Agreement and sufficient to sell,
assign, transfer and deliver to Purchasers all of Sellers' right, title and
interest in and to the Notes; (ii) Purchasers shall deliver to Sellers the
consideration (to be paid by Purchasers) for the Notes and Sellers' rights
with respect to the Notes under the related Note Agreement as set forth on
Exhibit A hereof by wire transfer of immediately available funds; (iii) the
Company shall pay to each Seller by wire transfer of immediately available
funds the amount (to be paid by the Company) set forth on Exhibit A hereto
with respect to the Notes and (iv) the Company shall deliver to Purchasers at
the addresses for physical delivery therefor set forth on Exhibit A
replacement notes relating to the Notes purchased by Purchasers hereunder and
an opinion of counsel substantially in the form of Exhibit B hereto.
8. Consent Regarding Note Agreement. The Purchasers hereby consent
that so long as they shall hold the Notes, they will only seek to enforce the
below-referenced provisions of the Note Agreement as if such provisions
provide as follows:
(a) Section 3.1: The definition of "Major Subsidiary" shall
exclude Public Service Company of New Hampshire and North Atlantic Energy
Corporation for all completed fiscal years of NU ending on or before December
31, 1998. Furthermore, the term "Major Subsidiary" shall be limited to
Western Massachusetts Electric Company, a Massachusetts corporation; The
Connecticut Light and Power Company, a Connecticut corporation; Public
Service Company of New Hampshire, a New Hampshire corporation; and North
Atlantic Energy Corporation, a New Hampshire corporation, so long as each of
these Subsidiaries from time to time either holds more than ten percent (10%)
of the consolidated assets of Guarantor and its Subsidiaries (as defined in
Section 3.1 of the Note Agreement), or accounts for more than ten percent
(10%) of the consolidated earnings of Guarantor and its Subsidiaries, both
tests measured as of the end of the most recently completed fiscal year of
Guarantor.
(b) Sections 4.2(b) and 11.1(h): The term "Investment Grade" is
replaced in each place where it appears in Section 4.2 (b) of the Note
Agreement with the term "Minimum Grade", which for those purposes and for
purposes of Section 11.1(h) of the Note Agreement is defined as "a rating by
Moody's Investor Services, Inc. (or any successor) of what is currently
referred to as "B1" or higher, or by Standard & Poor's Corporation (or any
successor) of what is currently known as "B+" or higher, respectively. In
addition, the notification required by Section 11.1(h) of the Note Agreement
shall apply only to becoming aware that Moody's Investors Services, Inc. or
Standard & Poor's Corporation (or any successor to either such entity if
either or both do not then exist) has placed the senior debt of any Major
Subsidiary on a so-called "watch list" prior to a possible downgrading to a
rating lower than Minimum Grade.
(c) Transfer. Each Purchaser agrees that, without the prior
written consent of the Company, it will not sell, assign, transfer or deliver
any Note unless it shall arrange to make the provisions of this Section 8
survive any subsequent transfer of the Note.
9. Purchasers' Covenant. Each Purchaser hereby covenants, promises
and agrees (a) to perform each and all of the covenants, agreements and
obligations under the Note Agreement and the Operative Agreements to be
performed by the Sellers thereunder on or after the date hereof, at the time,
in the manner and in all respects as provided in such documentation, and (b)
to be bound by each and all of the terms and provisions of the Note Agreement
and the Operative Agreements as though such documentation had originally been
made, executed and delivered by such Purchaser on the date hereof, as such
terms and provisions have been amended by this Agreement as to Purchasers.
10. Miscellaneous
(a) Modification. The rights and duties hereunder may not be
modified, revised or terminated except by a writing signed by all parties
hereto or their duly authorized representatives.
(b) Expenses of Parties; Brokers. Except as otherwise
specifically provided for herein, each party hereto shall bear all expenses
incurred by it in connection with this Agreement including, without
limitation, the charges of its counsel and other experts or brokers. Each
party hereto further represents and warrants that no agent, broker,
investment banker, person or firm acting on its behalf is or will be entitled
to any broker's or finder's fee or any other commission or similar fee
directly or indirectly from any of the parties hereto in connection with any
of the transactions contemplated herein, except for the fee of Donaldson
Lufkin & Jenrette Securities Corporation, which the Company agrees to pay.
(c) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same agreement of the parties
hereto.
(d) Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as
of the day and year first above written.
CONNECTICUT GENERAL LIFE WESTERN NATIONAL LIFE INSURANCE
INSURANCE COMPANY COMPANY
By CIGNA Investments, Inc. By CONSECO Capital Management, Inc.,
acting as Investment Advisor
s/s Lawrence A. Drake s/s Gary F. Greaur
By Lawrence A. Drake By Gary F. Greaur
Its Managing Director Its Assistant Vice President
LIFE INSURANCE COMPANY ML CBO VII, Series 1997-C-3
OF NORTH AMERICA By CONSECO Capital Management, Inc.,
By CIGNA Investments, Inc. acting as Investment Advisor
s/s Lawrence A. Drake s/s Gary F. Greaur
By Lawrence A. Drake By Gary F. Greaur
Its Managing Director Its Assistant Vice President
LIFE INSURANCE COMPANY THE ROCKY RIVER REALTY COMPANY
OF GEORGIA
By ING Investment Management, Inc.
its Agent
s/s Fred C. Smith s/s David R. McHale
By Fred C. Smith By David R. McHale
Its SVP and Managing Its Assistant Treasurer
Director
Exhibit 10.31.5
PURCHASE AND SALE AGREEMENT
AGREEMENT ("Agreement") entered into this 26th day of September, 1997 by
and between ROYALTON COMPANY, a Cayman Islands entity having its principal
place of business in George Town, Grand Cayman (the "Purchaser"), and THE
ROCKY RIVER REALTY COMPANY, a Connecticut corporation having its principal
place of business in Berlin, Connecticut (the "Company" or the "Seller").
Pursuant to Note Agreements each dated April 14, 1992 between the Company and
certain others (collectively, the "Original Note Agreement") and certain
other Operative Agreements, as defined in the Original Note Agreement, the
Company issued $15,000,000 aggregate principal amount of 8.81% Guaranteed
Senior Secured Notes, Series A, due April 14, 2007 (the "Series A Notes").
As contemplated by and provided for in the Original Note Agreement, certain
of the Series A Notes have been assigned and transferred by the original
holders thereof to subsequent purchasers and holders thereof and the
remaining outstanding Series A Notes have been repurchased by the Company to
be reissued to the Purchaser under the terms of the Amendment to Note
Agreement dated as of September 26, 1997 (together with the Original Note
Agreements, the "Note Agreement") and as further provided herein, which
reissued note in the aggregate principal amount of $5,828,180.14 (the "Note")
is to be of the same series and tenor as the Series A Notes repurchased by
the Company. Purchaser desires to purchase the Note from Seller, as set
forth more fully below and in Exhibit A hereto. Capitalized terms used
herein which are defined in the Note Agreement have the respective meanings
set forth therein, unless otherwise defined herein or the context otherwise
requires.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and agreements herein
contained, the parties have agreed and do hereby agree as follows:
1. Transfer of Note. Upon the terms set forth in this Agreement,
Seller will sell, assign, transfer and deliver to Purchaser, and Purchaser
will purchase from Seller, at the Closing (as defined in Section 4), the Note
for the amount to be paid to the Company set forth on Exhibit A hereof.
2. Representations and Warranties of Purchaser. Purchaser represents and
warrants as follows:
(a) Organization and Authority of Purchaser. Purchaser is duly
organized, validly existing and in good standing under the laws of its
foreign jurisdiction and has valid corporate authority to execute and deliver
this Agreement and to purchase the Note.
(b) Authority. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by Purchaser, have received all
necessary governmental or regulatory approval and no further corporate action
by Purchaser is or shall be required for such execution, delivery,
performance or consummation.
(c) No Registration. Purchaser understands that the Note has not been
and will not be registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities or "Blue Sky" laws, and may be resold only if
registered pursuant to the provisions of the Act and applicable state
securities laws or if an exemption from such registration is available; that
the Company is not required to register the Note; and that any transfer must
comply with the agreements and documents that govern the Note. The Purchaser
will comply with all applicable federal and state securities laws in
connection with any subsequent resale of the Note it purchases hereunder.
(d) Status of Purchaser; Purpose of Purchase. The Purchaser is a
sophisticated institutional investor that is an "accredited investor" within
the meaning of Rule 501 under the Act and has knowledge and experience in
financial and business matters and is capable of evaluating the merits and
risks of its investment in the Note and is able to bear the economic risk of
such investment. The Purchaser represents that it is not (i) an employee
benefit plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), whether or not it is subject to
the provisions of Title I of ERISA or (ii) a plan described in Section
4975(e)(1) of the Internal Revenue Code of 1986, as amended. The Purchaser
is acquiring the Note for its own account, and not with a present view to, or
for sale in connection with any, distribution thereof, provided that the
disposition of the Purchaser's property shall at all times be and remain
within its control.
(e) No Solicitation. The Note was not offered or sold to Purchaser by
any form of general solicitation or general advertising.
(f) Independent Investigation. Purchaser acknowledges that it has
conducted, to the extent it deemed necessary, an independent investigation of
such matters, and has had the opportunity to receive such information as, in
its judgment, is necessary for it to make an informed investment decision,
and has not relied upon the Seller for any investigation or assessment to
evaluate the transaction contemplated hereby.
(g) Public Information. Certain information that may be pertinent to
the Purchaser's decision to purchase the Note can be obtained from a variety
of public sources, including the Securities and Exchange Commission. The
Purchaser has obtained and carefully reviewed the Company's most recent
Annual Report on Form 10K and the press releases and other public disclosures
made by the Company since the filing of its annual report.
(h) Principal Amount. The Note is in the outstanding principal amount
of $5,828,180.14, no part of which has been terminated, paid or otherwise
reduced.
3. Representations and Warranties of the Company. The Company represents
and warrants to Purchaser as follows:
(a) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Connecticut and
has valid corporate authority to execute and deliver this Agreement, the Note
Agreement and the Modification and Confirmation of Assignment of Leases,
Rents and Profits, Security Agreement and Negative Pledge (the
"Modification").
(b) Authority. The execution, delivery and performance of this
Agreement, the Note Agreement and the other Operative Agreements, including
the Note, and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized and approved by the Company and
no further corporate action by the Company is or shall be required for such
execution, delivery, performance or consummation. This Agreement and the
other Operative Agreements have been duly executed and delivered by the
Company and constitute the legal, valid and binding agreements of the Company
enforceable against the Company in accordance with their terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or similar laws of general application affecting the
rights of creditors and by general equity principles. No governmental or
regulatory approval is necessary for the execution, delivery or performance
of this Agreement or the consummation of the transactions contemplated hereby
by the Company.
(c) No Conflict or Restrictions. The Company is not now under any
obligation of a contractual or other nature to any person, firm or
corporation which is inconsistent or in conflict with this Agreement, the
Notes, the Note Agreement or the other Operative Agreements, or which would
prevent, limit or impair in any way its performance of its obligations
hereunder or thereunder.
(d) Title to Property. The Company owns the Office Lease Property free
and clear of all liens, charges and encumbrances, other than as permitted
under the Note Agreement and other Operative Agreements.
(e) Series B Notes. The Company has paid off in full and retired the
Series B Notes.
(f) Defaults; Guaranty. There are no Defaults or Events of Default
under the Notes or the Note Agreement. Since December 31, 1996, there has
been no material adverse change in the financial condition of the Company
other than as disclosed in Northeast Utilities' 1996 Annual Report, Annual
Report on Form 10-K for the year ended December 31, 1996, Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997 and its
Current Reports on Form 8-K filed after January 1, 1997. The Guaranty has
been duly authorized, executed and delivered by, and constitutes a legal,
valid and binding obligation of, the Guarantor enforceable against the
Guarantor in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
similar laws of general application affecting the rights of creditors and by
general equity principles and is in full force and effect.
(g) Documentation. True and complete copies of the Notes, the
applicable Note Agreement and the other Operative Agreements have been
provided to Purchasers.
4. Closing. The closing of the purchase and sale of the Notes as
provided for herein (the "Closing") shall take place on or before September
26, 1997, or at such other time as mutually agreed to by the parties hereto.
5. Payment of Consideration. At the Closing, (i) Purchaser shall
deliver to the Company the consideration for the Note as set forth on Exhibit
A hereof by wire transfer of immediately available funds and (ii) the
Company shall deliver to Purchaser at the address for physical delivery
therefor set forth on Exhibit A the Note purchased by Purchaser hereunder and
an opinion of counsel substantially in the form of Exhibit B hereto.
6. Consent Regarding Note Agreement. The Purchaser hereby consents
that so long as it shall hold the Note, it will only seek to enforce the
below-referenced provisions of the Note Agreement as if such provisions
provide as follows:
(a) Section 3.1: The definition of "Major Subsidiary" shall
exclude Public Service Company of New Hampshire and North Atlantic Energy
Corporation for all completed fiscal years of NU ending on or before December
31, 1998. Furthermore, the term "Major Subsidiary" shall be limited to
Western Massachusetts Electric Company, a Massachusetts corporation; The
Connecticut Light and Power Company, a Connecticut corporation; Public
Service Company of New Hampshire, a New Hampshire corporation; and North
Atlantic Energy Corporation, a New Hampshire corporation, so long as each of
these Subsidiaries from time to time either holds more than ten percent (10%)
of the consolidated assets of Guarantor and its Subsidiaries (as defined in
Section 3.1 of the Note Agreement), or accounts for more than ten percent
(10%) of the consolidated earnings of Guarantor and its Subsidiaries, both
tests measured as of the end of the most recently completed fiscal year of
Guarantor.
(b) Sections 4.2(b) and 11.1(h): The term "Investment Grade" is
replaced in each place where it appears in Section 4.2 (b) of the Note
Agreement with the term "Minimum Grade", which for those purposes and for
purposes of Section 11.1(h) of the Note Agreement is defined as "a rating by
Moody's Investor Services, Inc. (or any successor) of what is currently
referred to as "B1" or higher, or by Standard & Poor's Corporation (or any
successor) of what is currently known as "B+" or higher, respectively. In
addition, the notification required by Section 11.1(h) of the Note Agreement
shall apply only to becoming aware that Moody's Investors Services, Inc. or
Standard & Poor's Corporation (or any successor to either such entity if
either or both do not then exist) has placed the senior debt of any Major
Subsidiary on a so-called "watch list" prior to a possible downgrading to a
rating lower than Minimum Grade.
(c) Transfer. Purchaser agrees that, without the prior written
consent of the Company, it will not sell, assign, transfer or deliver the
Note, or any portion thereof, unless it shall arrange to make the provisions
of this Section 6 survive any subsequent transfer of the Note.
7. Purchaser's Covenant. Purchaser hereby covenants, promises and
agrees (a) to perform each and all of the covenants, agreements and
obligations under the Note Agreement and the Operative Agreements to be
performed by the original purchasers thereunder on or after the date hereof,
at the time, in the manner and in all respects as provided in such
documentation, and (b) to be bound by each and all of the terms and
provisions of the Note Agreement and the Operative Agreements as though such
documentation had originally been made, executed and delivered by such
Purchaser on the date hereof, as such terms and provisions have been amended
by this Agreement as to Purchaser.
8. Conditions to Closing. The parties hereto acknowledge that
simultaneously with the consummation of the transactions contemplated herein,
and as conditions to Closing, (i) the Company, Northeast Utilities Service
Company and the Trustee are separately entering into the Modification to be
dated the date hereof; (ii) the Company, the Purchaser and the holders of the
Series A Notes not being purchased and sold hereunder are entering into the
Amendment to be dated the date hereof; and (iii) Northeast Utilities is
executing an Extension of Note Guaranty to be dated the date hereof.
9. Miscellaneous.
(a) Modification. The rights and duties hereunder may not be
modified, revised or terminated except by a writing signed by all parties
hereto or their duly authorized representatives.
(b) Expenses of Parties; Brokers. Except as otherwise
specifically provided for herein, each party hereto shall bear all expenses
incurred by it in connection with this Agreement including, without
limitation, the charges of its counsel and other experts or brokers. Each
party hereto further represents and warrants that no agent, broker,
investment banker, person or firm acting on its behalf is or will be entitled
to any broker's or finder's fee or any other commission or similar fee
directly or indirectly from any of the parties hereto in connection with any
of the transactions contemplated herein, except for the fee of Donaldson
Lufkin & Jenrette Securities Corporation, which the Company agrees to pay.
(c) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same agreement of the parties
hereto.
(d) Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
the day and year first above written.
ROYALTON COMPANY
By Pacific Investment
Management Company, as
its Investment Advisor
By s/s Raymond Kennedy
Raymond Kennedy
Vice President
THE ROCKY RIVER REALTY COMPANY
By s/s David R. McHale
David R. McHale
Assistant Treasurer
Exhibit 10.39
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of August
20, 1997, by and between Northeast Utilities, a Massachusetts business trust
(together with its successors and assigns permitted under the Agreement and
each direct and indirect affiliated company that shall adopt this Agreement
pursuant to Section 18 hereof, the "Company"), with its principal office in
West Springfield, Massachusetts, and its general office in Berlin,
Connecticut, and Michael G. Morris, a resident of Northville, Michigan
("Executive").
WHEREAS, both parties desire to enter into an agreement to reflect
Executive's executive capacities in the Company's business and to provide for
Executive's employment by the Company, upon the terms and conditions set
forth herein:
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Employment. The Company hereby agrees to employ Executive, and
Executive hereby accepts such employment and agrees to perform Executive's
duties and responsibilities, in accordance with the terms, conditions and
provisions hereinafter set forth.
1.1. Employment Term. The term of Executive's employment under this
Agreement shall commence as of the date hereof (the "Effective Date") and
shall continue until August 20, 2002, unless sooner terminated in accordance
with Section 5 or Section 6 hereof, and shall automatically renew for periods
of one year unless one party gives written notice to the other, at least six
months prior to August 20, 2002 or at least six months prior to the end of
any one-year renewal period, that the Agreement shall not be further
extended. The period commencing as of the Effective Date and ending on
August 20, 2002 is hereinafter referred to as the "Initial Employment Term,"
and the period commencing as of the Effective Date and ending on the date on
which the term of Executive's employment under the Agreement shall terminate
is hereinafter referred to as the "Employment Term".
1.2. Duties and Responsibilities. Executive shall serve as Chairman,
President and Chief Executive Officer of Northeast Utilities and in such
other senior positions, if any, to which he may be elected during the
Employment Term. During the Employment Term, Executive shall perform all
duties and accept all responsibilities incident to such positions as may be
assigned to him by the Northeast Utilities' Board of Trustees (the
"Trustees").
1.3. Extent of Service. During the Employment Term, Executive agrees to
use Executive's best efforts to carry out Executive's duties and
responsibilities under Section 1.2 hereof and, consistent with the other
provisions of this Agreement, to devote substantially all Executive's
business time, attention and energy thereto. Except as provided in Section 3
hereof, the foregoing shall not be construed as preventing Executive from
making minority investments in other businesses or enterprises provided that
Executive agrees not to become engaged in any other business activity which,
in the reasonable judgment of the Trustees, is likely to interfere with
Executive's ability to discharge Executive's duties and responsibilities to
the Company.
1.4. Base Salary. For all the services rendered by Executive hereunder,
the Company shall pay Executive a base salary ("Base Salary"), commencing on
the Effective Date, at the annual rate of $750,000, payable in installments
at such times as the Company customarily pays its other senior level
executives (but in any event no less often than monthly). Executive's Base
Salary shall be reviewed annually for appropriate adjustment (but shall not
be reduced below that in effect on the Effective Date without Executive's
written consent) by the Trustees pursuant to its normal performance review
policies for senior level executives.
1.5. Retirement and Benefit Coverages. During the Employment Term,
Executive shall be entitled to participate in all (a) employee pension and
retirement plans and programs ("Retirement Plans") and (b) welfare benefit
plans and programs ("Benefit Coverages"), in each case made available to the
Company's senior level executives as a group or to its employees generally,
as such Retirement Plans or Benefit Coverages may be in effect from time to
time, but not the Company's Supplemental Executive Retirement Plan for
Officers (the "Supplemental Plan"). Executive shall also be covered by an
individual term life insurance policy in the face amount that was maintained
for Executive by his immediately prior employer, CMS Energy, ("CMS") on the
day before the Effective Date. In lieu of coverage under the Supplemental
Plan, Executive shall also be entitled to receive a special retirement
benefit (the "Special Retirement Benefit") equal to the excess of (i) the
annual benefit payable at normal or early retirement, as applicable, under
the benefit formula (including any actuarial subsidy for early retirement) of
the Supplemental Executive Retirement Plan for Employees of CMS
Energy/Consumers Energy Company, as in effect on the Effective Date, as set
forth in Appendix A to this Agreement, and based on all service rendered for
the Company and CMS but on compensation paid only by the Company over (ii)
the retirement benefit actually due to Executive, at his normal or early
retirement date, as applicable, under the Retirement Plan of the Company;
provided, however, that, except as otherwise specifically provided in this
Agreement, Executive must be employed by the Company until at least the fifth
anniversary of the Effective Date in order to be entitled to the Special
Retirement Benefit. In the event a Special Retirement Benefit is payable
under this Agreement, the time of commencement of payment of the Benefit
shall be governed by the terms of the Supplemental Executive Retirement Plan
of Consumers Energy Company, as in effect on the Effective Date. The
standard and optional forms of benefit with respect to the Special Retirement
Benefit shall also be governed by the terms of the Supplemental Executive
Retirement Plan of Consumers Energy Company, as in effect on the Effective
Date. In the event of Executive's death prior to retirement and without
regard to the length of the Employment Term, a survivor benefit (the
"Survivor Benefit") shall be paid as follows: a Survivor Benefit shall be
paid to Executive's surviving spouse, if any, equal to the excess of (i) the
survivor benefit that would be calculated for such spouse under the
Supplemental Plan if (x) Executive's Special Retirement Benefit, as
calculated above, had been a vested Target Benefit under the Supplemental
Plan and (y) Executive's surviving spouse had been entitled to a
pre-retirement death benefit with respect to that Target Benefit under the
Supplemental Plan over (ii) the survivor benefit actually due to such spouse
under the Retirement Plan of the Company.
1.6. Reimbursement of Expenses and Dues; Vacation. Executive shall be
provided with reimbursement of expenses related to Executive's employment by
the Company on a basis no less favorable than that which may be authorized
from time to time for senior level executives as a group, and shall be
entitled to five weeks of vacation annually and holidays in accordance with
the Company's normal personnel policies for senior level executives. In
addition, Executive shall be entitled to (i) the initiation fee for and the
annual dues of a luncheon club in Hartford, Connecticut and (ii) the use of
an automobile including all operating and maintenance expenses until
Executive relocates his residence to Connecticut from Michigan or August 31,
1998, if earlier, both to be used primarily in pursuit of the business of
the Company.
1.7. Short-Term Incentive Compensation. If the Employment Term has not
previously terminated, beginning on January 1, 1998, Executive shall be
entitled to participate in any short-term incentive compensation programs
established by the Company for its senior level executives generally,
depending upon achievement of certain annual individual or business
performance objectives specified and approved by the Trustees (or a Committee
thereof) in its sole discretion; provided, however, that Executive's "target
opportunity" and "maximum opportunity" under any such program shall be at
least 80% and 130% respectively of Executive's Base Salary. Executive's
short-term incentive compensation, either in shares of NU or cash, as
applicable from time to time, shall be paid to Executive, subject to the
Trustees' reasonable discretion, not later than such payments are made to the
Company's senior level executives generally.
1.8. Long-Term Incentive Compensation. If the Employment Term has not
previously terminated, beginning on January 1, 1999, Executive shall also be
entitled to participate in any long-term incentive compensation programs
established by the Company for its senior level executives generally,
depending upon achievement of certain business performance objectives
specified and approved by the Trustees (or a Committee thereof) in its sole
discretion; provided, however, that Executive's "target opportunity" and
"maximum opportunity" under any such program shall be at such percentages of
Base Salary as are determined by the Trustees but at least 60% and 120%
respectively of Base Salary. Executive's long-term incentive compensation,
either in shares of NU, restricted stock units, options or cash, as
applicable from time to time, shall be paid to Executive, subject to the
Trustees' reasonable discretion, not later than such payments are made to the
Company's senior level executives generally.
1.9 Signing Bonus and Stock Option Grant. On or about the Effective
Date, the Company shall pay Executive a bonus of $1,350,000 for agreeing to
become an Executive of the Company and to forego certain compensation and
benefits otherwise to have been provided by his former employer. In
addition, on the Effective Date, Executive shall be granted a non-qualified
stock option (for a term expiring August 20, 2007 or, if earlier, three years
after the date of Executive's termination from employment by the Company for
any reason other than Cause, as defined in Section 5.3, in which case the
term shall expire immediately) to purchase 500,000 shares of common stock of
the Company at a purchase price of $9.625 for each share purchased (the
"Option"). Executive's right to exercise the Option shall vest in increments
equal to 250,000 shares on August 20, 1999, an additional 125,000 shares on
August 20, 2000 (a total of 375,000 shares), and an additional 125,000 (all
500,000 shares) on August 20, 2001, provided that Executive remains employed
by the Company (except that in the case of death, disability, as defined in
Section 5.1, a Termination upon Change of Control, as defined in Section
6.1(f), or removal without cause, as provided in Section 5.4(b), Executive
shall be fully vested in the right to purchase all such shares). The terms of
the Option, to the extent not inconsistent with the provisions outlined in
this Section shall be made subject to the terms of the Company's stock option
plan, if one is developed by the Company for its other executives and
approved by the Company's shareholders in 1998.
1.10 Temporary Living and Moving Expenses. The Company shall provide
temporary housing for Executive in a suitable residence in the vicinity of
its offices and shall pay the cost of Executive commuting between such
residence and his current residence in Northville, Michigan until Executive
relocates his residence to Connecticut from Michigan or August 31, 1998, if
earlier. The Company shall also reimburse Executive for moving and home
seeking and buying expenses incurred by Executive in accordance with its
relocation policy for senior level executives and the Company shall purchase
Executive's residence in Northville, Michigan and Executive's vacation home
in Green Oak Township, Michigan (if Executive is unable to sell either or
both such properties within 90 days of placing either or both on the market)
for fair market value as determined in accordance with the Company's normal
policy for senior level executives. The Company shall also pay Executive a
tax equivalency bonus in an amount such that all federal, state and local
income taxes (calculated at the highest marginal rate) which may be due by
reason of any such expenses and the tax equivalency bonus being included in
Executive's taxable income will not reduce the net amount of reimbursement
that Executive is to receive hereunder.
2. Confidential Information. Executive recognizes and acknowledges
that by reason of Executive's employment by and service to the Company during
and, if applicable, after the Employment Term Executive will continue to have
access to certain confidential and proprietary information relating to the
business of the Company, which may include, but is not limited to, trade
secrets, trade "know-how", customer information, supplier information, cost
and pricing information, marketing and sales techniques, strategies and
programs, computer programs and software and financial information
(collectively referred to as "Confidential Information"). Executive
acknowledges that such Confidential Information is a valuable and unique
asset of the Company and Executive covenants that Executive will not, unless
expressly authorized in writing by the Trustees, at any time during the
course of Executive's employment use any Confidential Information or divulge
or disclose any Confidential Information to any person, firm or corporation
except in connection with the performance of Executive's duties for the
Company and in a manner consistent with the Company's policies regarding
Confidential Information. Executive also covenants that at any time after
the termination of such employment, directly or indirectly, Executive will
not use any Confidential Information or divulge or disclose any Confidential
Information to any person, firm or corporation, unless such information is in
the public domain through no fault of Executive or except when required to do
so by a court of law, by any governmental agency having supervisory authority
over the business of the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order
Executive to divulge, disclose or make accessible such information, in which
case Executive will inform the Company in writing promptly of such required
disclosure, but in any event at least two business days prior to disclosure.
All written Confidential Information (including, without limitation, in any
computer or other electronic format) which comes into Executive's possession
during the course of Executive's employment shall remain the property of the
Company. Except as required in the performance of Executive's duties for the
Company, or unless expressly authorized in writing by the Trustees, Executive
shall not remove any written Confidential Information from the Company's
premises, except in connection with the performance of Executive's duties for
the Company and in a manner consistent with the Company's policies regarding
Confidential Information. Upon termination of Executive's employment,
Executive agrees immediately to return to the Company all written
Confidential Information in Executive's possession. For the purposes of
this Section 2, the term "Company" shall be deemed to include NU and the
Affiliates, as defined in Section 6.1(a), of NU and the Company.
3. Non-Competition; Non-Solicitation.
(a) During Executive's employment by the Company and for a period
of two years after Executive's termination of employment for any reason,
within the Company's "Service Area," as defined below, Executive will not,
except with the prior written consent of the Trustees, directly or
indirectly, own, manage, operate, join, control, finance or participate in
the ownership, management, operation, control or financing of, or be
connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with, or use or permit Executive's
name to be used in connection with, any business or enterprise which is
engaged in any business that is competitive with any business or enterprise
in which the Company is engaged. For the purposes of this Section, "Service
Area" shall mean the geographic area within the states of Connecticut, Maine,
Massachusetts, New Hampshire, Rhode Island, and Vermont, or any other state
in which the Company, in the aggregate, generates 25% or more of its revenues
in the fiscal year of NU in which Executive's termination of employment
occurs. Executive acknowledges that the listed Service Area is the area in
which the Company presently does business.
(b) The foregoing restrictions shall not be construed to prohibit
the ownership by Executive of less than five percent (5%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act"), provided that such ownership
represents a passive investment and that neither Executive nor any group of
persons including Executive in any way, either directly or indirectly,
manages or exercises control of any such corporation, guarantees any of its
financial obligations, otherwise takes any part in its business, other than
exercising Executive's rights as a shareholder, or seeks to do any of the
foregoing.
(c) Executive further covenants and agrees that during Executive's
employment by the Company and for the period of two years thereafter,
Executive will not, directly or indirectly, (i) solicit, divert, take away,
or attempt to solicit, divert or take away, any of the Company's "Principal
Customers," defined for the purposes hereof to include any customer of the
Company, from which $100,000 or more of annual gross revenues are derived at
such time, or (ii) encourage any Principal Customer to reduce its patronage
of the Company.
(d) Executive further covenants and agrees that during Executive's
employment by the Company and for the period of two years thereafter,
Executive will not, except with the prior written consent of the Trustees,
directly or indirectly, solicit or hire, or encourage the solicitation or
hiring of, any person who was a managerial or higher level employee of the
Company at any time during the term of Executive's employment by the Company
by any employer other than the Company for any position as an employee,
independent contractor, consultant or otherwise. The foregoing covenant of
Executive shall not apply to any person after 12 months have elapsed
subsequent to the date on which such person's employment by the Company has
terminated.
(e) Nothing in this Section 3 shall be construed to prohibit
Executive from being connected as a partner, principal, shareholder,
associate, counsel or otherwise with another lawyer or a law firm which
performs services for clients engaged in any business or enterprise that is
competitive with any business or enterprise in which the Company is engaged,
provided that Executive is not personally involved, directly or indirectly,
in performing services for any such clients during the period specified in
Section 3(a) and provided further that such lawyer or law firm takes
reasonable precautions to screen Executive from participating for the period
specified in Section 3(a) in the representation of any such clients. The
parties agree that any such personal performance of services by Executive for
any such clients during such period would create an unreasonable risk of
violation by Executive of the provisions of Section 2 of this Agreement, and
Executive agrees (and the Company may elect) to notify in writing any lawyer
or law firm with which Executive may be connected during the period specified
in Section 3(a) of Executive's Agreement as set forth herein. Executive
agrees to notify the Company in writing in advance of the precautions to be
taken by such lawyer or law firm to screen Executive from any representation
of such competing client by such lawyer or law firm.
(f) For the purposes of this Section 3, the term "Company" shall
be deemed to include NU and the Affiliates, as defined in Section 6.1(a), of
NU and the Company.
4. Equitable Relief.
(a) Executive acknowledges and agrees that the restrictions
contained in Sections 2 and 3 are reasonable and necessary to protect and
preserve the legitimate interests, properties, goodwill and business of the
Company, that the Company would not have entered into this Agreement in the
absence of such restrictions and that irreparable injury will be suffered by
the Company should Executive breach any of the provisions of those Sections.
Executive represents and acknowledges that (i) Executive has been advised by
the Company to consult Executive's own legal counsel in respect of this
Agreement, and (ii) that Executive has had full opportunity, prior to
execution of this Agreement, to review thoroughly this Agreement with
Executive's counsel.
(b) Executive further acknowledges and agrees that a breach of any
of the restrictions in Sections 2 and 3 cannot be adequately compensated by
monetary damages. Executive agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits
and other benefits arising from any violation of Sections 2 or 3 hereof,
which rights shall be cumulative and in addition to any other rights or
remedies to which the Company may be entitled. In the event that any of the
provisions of Sections 2 or 3 hereof should ever be adjudicated to exceed the
time, geographic, service, or other limitations permitted by applicable law
in any jurisdiction, it is the intention of the parties that the provision
shall be amended to the extent of the maximum time, geographic, service, or
other limitations permitted by applicable law, that such amendment shall
apply only within the jurisdiction of the court that made such adjudication
and that the provision otherwise be enforced to the maximum extent permitted
by law.
(c) If Executive breaches any of Executive's obligations under
Sections 2 or 3 hereof, and such breach constitutes "cause," as defined in
Section 5.3 hereof, or would constitute cause if it had occurred during the
Employment Term, the Company shall thereafter remain obligated only for the
compensation and other benefits provided in any plans, policies or practices
then applicable to Executive in accordance with the terms thereof.
(d) Executive irrevocably and unconditionally (i) agrees that any
suit, action or other legal proceeding arising out of Sections 2 or 3 hereof,
including without limitation, any action commenced by the Company for
preliminary and permanent injunctive relief and other equitable relief, may
be brought in the United States District Court for the District of
Connecticut, or if such court does not have jurisdiction or will not accept
jurisdiction, in any court of general jurisdiction in Hartford, Connecticut,
(ii) consents to the non-exclusive jurisdiction of any such court in any such
suit, action or proceeding, and (iii) waives any objection which Executive
may have to the laying of venue of any such suit, action or proceeding in any
such court. Executive also irrevocably and unconditionally consents to the
service of any process, pleadings, notices or other papers in a manner
permitted by the notice provisions of Section 10 hereof.
(e) Executive agrees that for a period of five years following the
termination of Executive's employment by the Company Executive will provide,
and that at all times after the date hereof the Company may similarly
provide, a copy of Sections 2 and 3 hereof to any business or enterprise (i)
which Executive may directly or indirectly own, manage, operate, finance,
join, control or of which he may participate in the ownership, management,
operation, financing, or control, or (ii) with which Executive may be
connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise, or in connection with which
Executive may use or permit to be used Executive's name; provided, however,
that this provision shall not apply in respect of Section 3 hereof after
expiration of the time periods set forth therein.
(f) For the purposes of this Section 4, the term "Company" shall
be deemed to include NU and the Affiliates, as defined in Section 6.1(a), of
NU and the Company.
5. Termination. The Employment Term shall terminate upon the
occurrence of any one of the following events:
5.1. Disability. The Company may terminate the Employment Term if
Executive is unable substantially to perform Executive's duties and
responsibilities hereunder to the full extent required by the Trustees by
reason of illness, injury or incapacity for six consecutive months, or for
more than six months in the aggregate during any period of twelve calendar
months; provided, however, that the Company shall continue to pay Executive's
Base Salary until the Company acts to terminate the Employment Term. If the
Company terminates the Employment Term, Executive shall be entitled to
receive (i) any amounts earned, accrued or owing but not yet paid under
Section 1 above, (ii) a continuation of his Base Salary until the end of the
Initial Employment Term, (iii) the Special Retirement Benefit regardless of
whether the fifth anniversary of the Effective Date occurred prior to the
termination, calculated on the basis of all Base Salary (including Base
Salary to be paid pursuant to clause (ii) above) and all service that would
have been credited through the end of the Initial Employment Term, and
calculated as if the last day of the Initial Employment Term were his early
retirement date for purposes of eligibility for early retirement as to the
Special Retirement Benefit if Executive has not then attained age 55;
provided, however, that commencement of such benefit and the actuarial
reduction for determining the amount of such benefit shall always be based on
his actual age, and (iv) any other benefits in accordance with the terms of
any applicable plans and programs of the Company. Otherwise, the Company
shall have no further liability or obligation to Executive for compensation
under this Agreement. Executive agrees, in the event of a dispute under this
Section 5.1, to submit to a physical examination by a licensed physician
selected by the Trustees.
5.2. Death. The Employment Term shall terminate in the event of
Executive's death. In such event, the Company shall pay to Executive's
executors, legal representatives or administrators, as applicable, an amount
equal to the installment of Executive's Base Salary set forth in Section 1.4
hereof for the month in which Executive dies and to Executive's surviving
spouse the Survivor Benefit. In addition, Executive's estate shall be
entitled to receive (i) any other amounts earned, accrued or owing but not
yet paid under Section 1 above and (ii) any other benefits in accordance with
the terms of any applicable plans and programs of the Company. Otherwise,
the Company shall have no further liability or obligation under this
Agreement to Executive's executors, legal representatives, administrators,
heirs or assigns or any other person claiming under or through Executive.
5.3. Cause. The Company may terminate the Employment Term, at any time,
for "cause" upon written notice, in which event all payments under this
Agreement shall cease, except for Base Salary to the extent already accrued,
but Executive shall remain entitled to any other benefits in accordance with
the terms of any applicable plans and programs of the Company but shall not
be entitled to the Special Retirement Benefit. For purposes of this
Agreement, Executive's employment may be terminated for "cause" if (i)
Executive is convicted of a felony, (ii) in the reasonable determination of
the Trustees, Executive has (x) committed an act of fraud, embezzlement, or
theft in connection with Executive's duties in the course of Executive's
employment with the Company, (y) caused intentional, wrongful damage to the
property of the Company or intentionally and wrongfully disclosed
Confidential Information, or (z) engaged in gross misconduct or gross
negligence in the course of Executive's employment with the Company or (iii)
Executive materially breached Executive's obligations under this Agreement
and shall not have remedied such breach within 30 days after receiving
written notice from the Trustees specifying the details thereof. For
purposes of this Agreement, an act or omission on the part of Executive shall
be deemed "intentional" only if it was not due primarily to an error in
judgment or negligence and was done by Executive not in good faith and
without reasonable belief that the act or omission was in the best interest
of the Company.
5.4. Termination Without Cause and Non-Renewal.
(a) The Company may remove Executive, at any time, without cause
from the position in which Executive is employed hereunder (in which case the
Employment Term shall be deemed to have ended) upon not less than 60 days'
prior written notice to Executive; provided, however, that, in the event that
such notice is given, Executive shall be under no obligation to render any
additional services to the Company and, subject to the provisions of Section
3 hereof, shall be allowed to seek other employment. Upon any such removal
or if the Company informs Executive that the Agreement will not be renewed
after December 31, 2002 or at the end of any subsequent renewal period,
Executive shall be entitled to receive, as liquidated damages for the failure
of the Company to continue to employ Executive, only the amount due to
Executive under the Company's then current severance pay plan for employees.
No other payments or benefits shall be due under this Agreement to Executive,
but Executive shall be entitled to any other benefits in accordance with the
terms of any applicable plans and programs of the Company. Notwithstanding
anything in this Agreement to the contrary, on or after the date Executive
attains age 65, no action by the Company shall be treated as a removal from
employment or non-renewal if on the effective date of such action Executive
satisfies all of the requirements for the executive or high policy-making
exception to applicable provisions of state and federal age discrimination
legislation.
(b) Notwithstanding the provisions of Section 5.4(a) (other than
the last sentence), in the event that Executive executes a written release
upon such removal or non-renewal, substantially in the form attached hereto
as Annex 1, (the "Release"), of any and all claims against the Company and
all related parties with respect to all matters arising out of Executive's
employment by the Company (other than any entitlements under the terms of
this Agreement or under any other plans or programs of the Company in which
Executive participated and under which Executive has accrued a benefit), or
the termination thereof, Executive shall be entitled to receive, in lieu of
the payment described in Section 5.4(a), which Executive agrees to waive,
(i) as liquidated damages for the failure of the Company to
continue to employ Executive, a single cash payment, within 30 days after the
effective date of the removal or non-renewal, equal to Executive's Base
Compensation, as defined in Section 6.1(b) below;
(ii) for a period equal to two years following the end of the
Employment Term, Executive and Executive's spouse and dependents shall be
eligible for a continuation of those Benefit Coverages, as in effect at the
time of such termination or removal, and as the same may be changed from time
to time, as if Executive had been continued in employment during said period
or to receive cash in lieu of such benefits or premiums, as applicable, where
such Benefit Coverages may not be continued (or where such continuation would
adversely affect the tax status of the plan pursuant to which the Benefit
Coverage is provided) under applicable law or regulations;
(iii) any other amounts earned, accrued or owing but not
yet paid under Section 1 above;
(iv) any other benefits in accordance with the terms of any
applicable plans and programs of the Company;
(v) as additional consideration for the non-competition and
non-solicitation covenant contained in Section 3, a single cash payment,
within 30 days after the effective date of the removal or non-renewal, equal
to Executive's Base Compensation, as defined in Section 6.1(b) below;
(vi) in addition, (w) Executive shall be entitled to the
Special Retirement Benefit without regard to the duration of his employment,
(x) Executive's years of service with the Company shall be increased by two
years following the end of the Employment Term and shall be taken into
account in determining the amount of the Special Retirement Benefit, (y) the
last day of the Initial Employment Term shall be treated as his early
retirement date for purposes of eligibility for early retirement as to the
Special Retirement Benefit if Executive has not then attained age 55;
provided, however, that commencement of such benefit and the actuarial
reduction for determining the amount of such benefit shall always be based on
his actual age, and (z) two years of Base Compensation shall be taken into
account as compensation during such additional two year period in determining
Executive's Special Retirement Benefit, but only if the effect is to increase
the amount of the Special Retirement Benefit; and
(vii) The Option, to the extent not already vested prior
to the removal or non-renewal, shall be fully vested and immediately
exercisable as if Executive had remained actively employed by the Company,
and satisfied all time requirements as to exercise, including the right of
exercise, where appropriate, within 36 months after the removal or
non-renewal.
5.5. Voluntary Termination. Executive may voluntarily terminate the
Employment Term upon 30 days' prior written notice for any reason. In such
event, after the effective date of such termination, no further payments
shall be due under this Agreement except that Executive shall be entitled to
the Special Retirement Benefit to the extent vested pursuant to Section 1.5
and any benefits due in accordance with the terms of any applicable plan and
programs of the Company.
6. Payments Upon a Change in Control.
6.1. Definitions. For all purposes of this Section 6, the following
terms shall have the meanings specified in this Section 6.1 unless the
context otherwise clearly requires:
(a) "Affiliate" shall mean an "affiliate" as defined in Rule 12b-2
of the General Rules and Regulations under the Exchange Act.
(b) "Base Compensation" shall mean, for a calendar year,
Executive's annualized Base Salary as would be reported for federal income
tax purposes on Form W-2 for such calendar year, together with any and all
salary reduction authorized amounts under any of the Company's benefit plans
or programs for such calendar year, and all short-term incentive compensation
at the target level to be paid to Executive in all employee capacities with
the Company attributable to such calendar year and taxable in the following
calendar year. "Base Compensation" shall be the higher of (i) Base
Compensation for the calendar year in which occurs the Change of Control or,
if no Change of Control occurs, the calendar year in which occurs the
involuntary termination; or (ii) Base Compensation for the full calendar
year immediately prior thereto. "Base Compensation" shall not include the
value of the Option, any subsequent stock options or any exercise thereunder.
(c) "Change of Control" shall mean the happening of any of the
following:
(i) When any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than
the Company, its Affiliates, or any Company or NU employee benefit plan
(including any trustee of such plan acting as trustee), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of NU representing more than 20% of the
combined voting power of either (i) the then outstanding shares of common
stock of NU (the "Outstanding Common Stock") or (ii) the then outstanding
voting securities of NU entitled to vote generally in the election of
directors (the "Voting Securities"); or
(ii) Individuals who, as of the beginning of any twenty-four month
period, constitute the Trustees (the "Incumbent Trustees") cease for any
reason to constitute at least a majority of the Trustees or cease to be able
to exercise the powers of the majority of the Trustees, provided that any
individual becoming a trustee subsequent to the beginning of such period
whose election or nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the trustees then comprising the
Incumbent Trustees shall be considered as though such individual were a
member of the Incumbent Trustees, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection with an actual
or threatened election contest relating to the election of the Trustees of NU
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act); or
(iii) Consummation by NU of a reorganization, merger or
consolidation (a "Business Combination"), in each case, with respect to which
all or substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Common Stock and Voting
Securities immediately prior to such Business Combination do not, following
consummation of all transactions intended to constitute part of such Business
Combination, beneficially own, directly or indirectly, more than 75% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation, business trust or other entity resulting from or being the
surviving entity in such Business Combination in substantially the same
proportion as their ownership immediately prior to such Business Combination
of the Outstanding Common Stock and Voting Securities, as the case may be; or
(iv) Consummation of a complete liquidation or dissolution of NU or
sale or other disposition of all or substantially all of the assets of NU
other than to a corporation, business trust or other entity with respect to
which, following consummation of all transactions intended to constitute part
of such sale or disposition, more than 75% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, is then owned beneficially, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Common Stock and
Voting Securities immediately prior to such sale or disposition in
substantially the same proportion as their ownership of the Outstanding
Common Stock and Voting Securities, as the case may be, immediately prior to
such sale or disposition.
(d) "Termination Date" shall mean the date of receipt of a Notice
of Termination of this Agreement or any later date specified therein.
(e) "Termination of Employment" shall mean the termination of
Executive's actual employment relationship with the Company, including a
failure to renew the Agreement after August 20, 2002 or at the end of any
subsequent renewal period, in either case occasioned by the Company's action.
(f) "Termination upon a Change of Control" shall mean a
Termination of Employment upon or within two years after a Change of Control
either:
(i) initiated by the Company for any reason other than
Executive's (w) disability, as defined in Section 5.1 hereof, (x) death, (y)
retirement on or after attaining age 65, or (z) "cause," as defined in
Section 5.3 hereof, or (ii) initiated by Executive (A) upon any failure of
the Company materially to comply with and satisfy any of the terms of this
Agreement, including any material reduction by the Company of the authority,
duties or responsibilities of Executive, any reduction of Executive's
compensation or benefits due hereunder, or the assignment to Executive of
duties which are materially inconsistent with the duties of Executive's
position as defined in Section 1.2 above, or (B) if Executive is transferred,
without Executive's written consent, to a location that is more than 50 miles
from Executive's principal place of business immediately preceding the Change
of Control.
6.2. Notice of Termination. Any Termination upon a Change of Control
shall be communicated by a Notice of Termination to the other party hereto
given in accordance with Section 10 hereof. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) briefly
summarizes the facts and circumstances deemed to provide a basis for a
Termination of Employment and the applicable provision hereof, and (iii) if
the Termination Date is other than the date of receipt of such notice,
specifies the Termination Date (which date shall not be more than 15 days
after the giving of such notice).
6.3. Payments upon Termination. Subject to the provisions of Section
6.6 hereof, in the event of Executive's Termination upon a Change of Control,
the Company agrees, in the event Executive executes the Release required by
Section 5.4(b), to pay to Executive, in a single cash payment, within thirty
days after the Termination Date, the greater of (i) Executive's Base
Compensation, as defined in Section 6.1(b), for the balance of the Initial
Employment Term minus one year, or (ii) two multiplied by Executive's Base
Compensation. The payment made under clause (i) or under clause (ii),
together with an additional year of Base Compensation shall be taken into
account as additional compensation over the period in which it would have
been paid in determining Executive's Special Retirement Benefit, but only if
the effect is to increase the amount of the Special Retirement Benefit. In
addition, all amounts, benefits and Benefit Coverages described in Section
5.4(b)(ii), (iii), (iv) and (v) shall also be due to Executive, provided that
in (ii) Benefit Coverages shall continue for at least three years instead of
two. In the event Executive fails or refuses to execute the Release required
by Section 5.4(b), the Company shall only pay to Executive, in a single cash
payment, within thirty days after the Termination Date, the amount due under
Section 5.4(a) above and, in addition, all other amounts and benefits
described in Section 5.4(a).
6.4. Other Payments, Special Retirement Benefit, Stock Option and Stock
Grants, etc. Subject to the provisions of Section 6.6 hereof, in the event
of Executive's Termination upon a Change of Control, and the execution of the
Release required by Section 5.4(b):
(a) Executive's years of service with the Company through the greater
of (i) the balance of the Initial Employment Term, or (ii) the 36th month
following the Termination Date shall be taken into account in determining
Executive's eligibility for, but not amount of cost sharing under, the
Company's retiree health plan and, in addition, such number of months shall
be added to Executive's age for this purpose;
(b) Executive's years of service with the Company through the greater
of (i) the balance of the Initial Employment Term, or (ii) the 36th month
following the Termination Date shall be taken into account in determining the
amount of, and Executive's eligibility for, the Special Retirement Benefit
and the last day of the Initial Employment Term shall be treated as his early
retirement date for purposes of eligibility for early retirement as to the
Special Retirement Benefit if Executive has not then attained age 55;
provided, however, that commencement of such benefit and the actuarial
reduction for determining the amount of such benefit shall always be based on
his actual age;
(c) On Executive's Termination Date, the Option and any subsequent
stock option grants previously granted to Executive, to the extent not
already vested prior to the Termination Date, shall be fully vested and
immediately exercisable as if Executive had remained actively employed by the
Company and satisfied all requirements as to exercise, including the right of
exercise where appropriate within 36 months of the removal or non-renewal,
and if the Change of Control results in the Voting Securities of NU ceasing
to be traded on a national securities exchange or though the national market
system of the National Association of Securities Dealers Inc., the price at
which the Option shall be exercised shall be the average of the closing
prices for the five trading days preceding the day such Voting Securities
cease trading.
6.5. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent
or limit Executive's continuing or future participation in or rights under
any benefit, bonus, incentive or other plan or program provided by the
Company and for which Executive may qualify; provided, however, that if
Executive becomes entitled to and receives all of the payments provided for
in this Agreement, Executive hereby waives Executive's right to receive
payments under any severance plan or similar program applicable to all
employees of the Company.
6.6. Certain Increase in Payments.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event that it shall be determined that any payment or distribution by the
Company to or for the benefit of Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (the "Payment"), would constitute an "excess parachute payment"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), Executive shall be paid an additional amount (the
"Gross-Up Payment") such that the net amount retained by Executive after
deduction of any excise tax imposed under Section 4999 of the Code, and any
federal, state and local income and employment tax and excise tax imposed
upon the Gross-Up Payment shall be equal to the Payment. For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed to
pay federal income tax and employment taxes at the highest marginal rate of
federal income and employment taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of Executive's
residence on the Termination Date, net of the maximum reduction in federal
income taxes that may be obtained from the deduction of such state and local
taxes.
(b) All determinations to be made under this Section 6 shall be
made by the Company's independent public accountant immediately prior to the
Change of Control (the "Accounting Firm"), which firm shall provide its
determinations and any supporting calculations both to the Company and
Executive within 10 days of the Termination Date. Any such determination by
the Accounting Firm shall be binding upon the Company and Executive. Within
five days after the Accounting Firm's determination, the Company shall pay
(or cause to be paid) or distribute (or cause to be distributed) to or for
the benefit of Executive such amounts as are then due to Executive under this
Agreement.
(c) In the event that upon any audit by the Internal Revenue
Service, or by a state or local taxing authority, of the Payment or Gross-Up
Payment, a change is finally determined to be required in the amount of taxes
paid by Executive, appropriate adjustments shall be made under this Agreement
such that the net amount which is payable to Executive after taking into
account the provisions of Section 4999 of the Code shall reflect the intent
of the parties as expressed in subsection (a) above, in the manner determined
by the Accounting Firm.
(d) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in subsections (b) and (c) above
shall be borne solely by the Company. The Company agrees to indemnify and
hold harmless the Accounting Firm of and from any and all claims, damages and
expenses resulting from or relating to its determinations pursuant to
subsections (b) and (c) above, except for claims, damages or expenses
resulting from the gross negligence or willful misconduct of the Accounting
Firm.
7. Survivorship. The respective rights and obligations of the parties
under this Agreement shall survive any termination of Executive's employment
to the extent necessary to the intended preservation of such rights and
obligations.
8. Mitigation. Executive shall not be required to mitigate the amount
of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise and there shall be no offset against amounts due
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that Executive may obtain.
9. Arbitration; Expenses. In the event of any dispute under the
provisions of this Agreement other than a dispute in which the primary relief
sought is an equitable remedy such as an injunction, the parties shall be
required to have the dispute, controversy or claim settled by arbitration in
the City of Hartford, Connecticut in accordance with National Rules for the
Resolution of Employment Disputes then in effect of the American Arbitration
Association, before a panel of three arbitrators, two of whom shall be
selected by the Company and Executive, respectively, and the third of whom
shall be selected by the other two arbitrators. Any award entered by the
arbitrators shall be final, binding and nonappealable (except as provided in
Section 52-418 of the Connecticut General Statutes) and judgment may be
entered thereon by either party in accordance with applicable law in any
court of competent jurisdiction. This arbitration provision shall be
specifically enforceable. The arbitrators shall have no authority to modify
any provision of this Agreement or to award a remedy for a dispute involving
this Agreement other than a benefit specifically provided under or by virtue
of the Agreement. If Executive prevails on any material issue which is the
subject of such arbitration or lawsuit, the Company shall be responsible for
all of the fees of the American Arbitration Association and the arbitrators
and any expenses relating to the conduct of the arbitration (including the
Company's and Executive's reasonable attorneys' fees and expenses).
Otherwise, each party shall be responsible for its own expenses relating to
the conduct of the arbitration (including reasonable attorneys' fees and
expenses) and shall share the fees of the American Arbitration Association.
10. Notices. All notices and other communications required or
permitted under this Agreement or necessary or convenient in connection
herewith shall be in writing and shall be deemed to have been given when hand
delivered or mailed by registered or certified mail, as follows (provided
that notice of change of address shall be deemed given only when received):
If to the Company, to:
Northeast Utilities
P.O. Box 270
Hartford, CT 06141-0270
Attention: Senior Vice President, Secretary and General Counsel
With a required copy to:
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103-6993
Attention: Robert J. Lichtenstein, Esquire
If to Executive, to:
Michael G. Morris
996 Elmsmere
Northville, MI 48167
With a required copy to:
Shipman & Goodwin
One American Row
Hartford, CT 06103-2819
Attention: Brian Clemow, Esquire
or to such other names or addresses as the Company or Executive, as the case
may be, shall designate by notice to each other person entitled to receive
notices in the manner specified in this Section.
11. Contents of Agreement; Amendment and Assignment.
(a) This Agreement sets forth the entire understanding between the
parties hereto with respect to the subject matter hereof and cannot be
changed, modified, extended or terminated except upon written amendment
approved by the Trustees and executed on its behalf by a duly authorized
officer and by Executive.
(b) All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, executors, administrators, legal representatives, successors and
assigns of the parties hereto, except that the duties and responsibilities of
Executive under this Agreement are of a personal nature and shall not be
assignable or delegatable in whole or in part by Executive. The Company
shall require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of
the business or assets of the Company, by agreement in form and substance
satisfactory to Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the extent the Company would be required
to perform if no such succession had taken place.
12. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect any other provision or application of this Agreement which can be
given effect without the invalid or unenforceable provision or application
and shall not invalidate or render unenforceable such provision or
application in any other jurisdiction. If any provision is held void,
invalid or unenforceable with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other circumstances.
13. Remedies Cumulative; No Waiver. No remedy conferred upon a party
by this Agreement is intended to be exclusive of any other remedy, and each
and every such remedy shall be cumulative and shall be in addition to any
other remedy given under this Agreement or now or hereafter existing at law
or in equity. No delay or omission by a party in exercising any right,
remedy or power under this Agreement or existing at law or in equity shall be
construed as a waiver thereof, and any such right, remedy or power may be
exercised by such party from time to time and as often as may be deemed
expedient or necessary by such party in its sole discretion.
14. Beneficiaries/References. Executive shall be entitled, to the
extent permitted under any applicable law, to select and change a beneficiary
or beneficiaries to receive any compensation or benefit payable under this
Agreement following Executive's death by giving the Company written notice
thereof. In the event of Executive's death or a judicial determination of
Executive's incompetence, reference in this Agreement to Executive shall be
deemed, where appropriate, to refer to Executive's beneficiary, estate or
other legal representative.
15. Miscellaneous. All section headings used in this Agreement are for
convenience only. This Agreement may be executed in counterparts, each of
which is an original. It shall not be necessary in making proof of this
Agreement or any counterpart hereof to produce or account for any of the
other counterparts.
16. Withholding. The Company may withhold from any payments under this
Agreement all federal, state and local taxes as the Company is required to
withhold pursuant to any law or governmental rule or regulation. Executive
shall bear all expense of, and be solely responsible for, all federal, state
and local taxes due with respect to any payment received under this
Agreement.
17. Governing Law. This Agreement shall be governed by and interpreted
under the laws of the State of Connecticut without giving effect to any
conflict of laws provisions.
18. Adoption by Affiliates; Obligations.
(a) The obligations under this Agreement shall, in the first instance,
be paid and satisfied by the Company; provided, however, that the Company
will use its best efforts to cause NU and each entity in which NU (or its
successors or assigns) now or hereafter holds, directly or indirectly, more
than a 50 percent voting interest (an "Employer") to approve and adopt this
Agreement and, by such approval and adoption, to be bound by the terms hereof
as though a signatory hereto. If the Company shall be dissolved or for any
other reason shall fail to pay and satisfy the obligations, each individual
Employer shall thereafter shall be jointly and severally liable to pay and
satisfy the obligations to Executive.
(b) The Declaration of Trust of NU provides that no shareholder of NU
shall be held to any liability whatever for the payment of any sum of money,
or for damages or otherwise under any contract, obligation or undertaking
made, entered into or issued by the trustees of NU or by any officer, agent
or representative elected or appointed by the trustees and no such contract,
obligation or undertaking shall be enforceable against the trustees or any of
them in their or his individual capacities or capacity and all such
contracts, obligations and undertakings shall be enforceable only against the
trustees as such and every person, firm, association, trust and corporation
having any claim or demand arising out of any such contract, obligation or
undertaking shall look only to the trust estate for the payment or
satisfaction thereof. Any liability for benefits under this Agreement
incurred by NU shall be subject to the provisions of this Subsection (b).
19. Establishment of Trust. The Company may establish an irrevocable
trust fund pursuant to a trust agreement to hold assets to satisfy any of its
obligations under this Agreement. Funding of such trust fund shall be
subject to the Trustees's discretion, as set forth in the agreement pursuant
to which the fund will be established.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
NORTHEAST UTILITIES
By:/S/ROBERT P.WAX
/S/MICHAEL G. MORRIS Name: Robert P. Wax
Title: Senior Vice President and
General Counsel
APPENDIX A
The Special Retirement Benefit described in Section 1.5 of this
Agreement shall be calculated, subject to the modifications set forth in 1, 2
and 3 below, in accordance with the benefit formula of the Supplemental
Executive Retirement Plan for Employees of CMS Energy/Consumers Energy
Company (the "Consumers SERP"), a copy of which follows. A copy of the
Pension Plan for Employees of Consumers Power Company (the "Consumers Pension
Plan") is also included because the Consumers SERP uses certain terms defined
in the Consumers Pension Plan.
In calculating the Special Retirement Benefit, the following
modifications shall apply to the benefit formula set forth in the Consumers
SERP:
1. The term "Executive Incentive Compensation" in the Consumers
SERP shall refer to any short-term incentive compensation programs
established by the Company for its senior level executives, as described in
Section 1.7 of this Agreement and any long-term incentive compensation
programs established by the Company for its senior level executives, as
described in Section 1.8 of this Agreement; provided, however, that in the
event that the Target Benefit under the Supplemental Plan is amended in the
future to eliminate or modify the use of long-term incentive compensation
from or in its calculation, as applicable, then long-term incentive
compensation shall be eliminated or modified in the same manner and to the
same extent in this calculation.
2. No reduction shall be made pursuant to Section V.1(ii) of the
Consumers SERP for any benefits payable under the Consumers Pension Plan.
3. Payment of the Special Retirement Benefit shall not be
conditioned on a payment under the Consumers Pension Plan.
ANNEX 1
CONFIDENTIAL SEPARATION AGREEMENT
AND GENERAL RELEASE
THIS AGREEMENT, made and entered into on this day of ,
, by and between Northeast Utilities, a Massachusetts business trust,
with its principal office in West Springfield, Massachusetts, (together with
each direct and indirect affiliated company that has adopted the Employment
Agreement entered into as of August 20, 1997 (the "Employment Agreement"),
with , hereinafter, the "Company"), and , a resident of
, Connecticut ("Executive").
W I T N E S S E T H:
WHEREAS, the Company had heretofore employed Executive under the
Employment Agreement; and
WHEREAS, Executive's employment [has been terminated\has not been
renewed]; and
WHEREAS, the Company and Executive wish to enter into an agreement
to provide for a mutual release as to any claims including, without
limitation, claims that might be asserted by Executive under the Employment
Agreement and the Age Discrimination in Employment Act, as further described
herein, and reaffirm Executive's right to indemnification;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. The Company and Executive hereby agree that [Executive's
termination of employment\the non-renewal] shall be effective on ,
and that the Employment Agreement shall continue only to the extent provided
therein as to obligations that survive the termination of Executive's
employment.
2. Executive agrees and acknowledges that the Company, on a
timely basis, has paid, or agreed to pay, to Executive all other amounts due
and owing based on Executive's prior services in accordance with the terms of
the Employment Agreement or any other contract with Executive, whether
express or implied, and that the Company has no obligation, contractual or
otherwise to Executive, except as provided herein, in the Employment
Agreement or any other such contract with Executive, nor does it have any
obligation to hire, rehire or re-employ Executive in the future.
3. In full and complete settlement of any claims that Executive
may have against the Company, including any possible violations of the Age
Discrimination in Employment Act, 29 U.S.C. Section 621 et seq., ("ADEA") in
connection with Executive's termination of employment, and for and in
consideration of the undertakings of the Company described herein, Executive
does hereby REMISE, RELEASE, AND FOREVER DISCHARGE the Company, and each of
its subsidiaries and affiliates, their officers, directors, shareholders,
partners, employees and agents, and their respective successors and assigns,
heirs, executors and administrators (hereinafter all included within the term
"the Company"), of and from any and all manner of actions and causes of
actions, suits, debts, claims and demands whatsoever in law or in equity,
which Executive ever had, now has, or hereafter may have, or which
Executive's heirs, executors or administrators hereafter may have, by reason
of any matter, cause or thing whatsoever from the beginning of Executive's
employment to the date of this Agreement; and particularly, but without
limitation of the foregoing general terms, any claims arising from or
relating in any way to Executive's employment relationship or the Employment
Agreement to the extent of any obligation that does not survive Executive's
[termination of employment/non-renewal] and Executive's termination from that
employment relationship, including but not limited to, any claims which have
been asserted, could have been asserted, or could be asserted now or in the
future under any federal, state or local laws, including any claims under
ADEA, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section
2000e et seq. ("Title VII"), the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), the Rehabilitation Act of 1973, the Americans with
Disabilities Act, the Family and Medical Leave Act, the Energy Reorganization
Act of 1974, as amended, Section 11(c) of the Occupational Safety and Health
Act, and the Energy Policy Act, and any common law claims now or hereafter
recognized and all claims for counsel fees and costs. Notwithstanding the
foregoing, nothing contained in this Agreement shall prevent Executive from
requiring the Company to fulfill its obligations under this Agreement, under
the Employment Agreement, to the extent of any continuing obligations
thereunder, under any employee benefit plan, as defined in Section 3(3) of
ERISA, maintained by the Company and in which Executive participated or any
other contract with Executive, whether express or implied.
Nothing in this Agreement shall be construed to prohibit Executive
from reporting any suspected instance of illegal activity of any nature, any
nuclear safety concern, any workplace safety concern, or any public safety
concern to the Nuclear Regulatory Commission (NRC), the United States
Department of Labor, or any other federal or state governmental agency. This
Agreement shall not be construed to prohibit Executive from providing
information to the NRC or to any other federal or state governmental agency
or governmental officials, or testifying in any civil or criminal proceedings
concerning any matter. This Agreement shall not be construed as a waiver or
withdrawal of safety concerns, if any, which Executive may have reported to
the NRC, or the withdrawal of participation by Executive in any NRC
proceedings.
Nothing in this Agreement shall limit or impair any right Executive
may otherwise have to indemnity and defense by the Company, and,
notwithstanding any contrary provision of this Agreement, (i) the Company
shall indemnify and defend Executive in connection with any action, suit or
proceeding in which Executive may be involved or with which Executive may be
threatened by reason of Executive's being or having been an officer of the
Company in the same manner contemplated by (including the payment or
advancement of any reasonable expenses as incurred) and to the fullest extent
permitted by the Declaration of Trust of Northeast Utilities as of the date
hereof, unless later limited in accordance with applicable law, or under
applicable law, (in which case Executive shall notify the Company within five
business days after receiving service of process as to the commencement of
the action, suit or proceeding and give the Company the right to control the
defense of any such action, suit or proceeding, provided that no delay in
giving such notice shall result in a forfeiture of any rights by Executive
unless, and then only to the extent that, the Company is actually prejudiced
by such delay), and (ii) Executive may join the Company in any action, suit
or proceeding, or bring any action, suit or proceeding against the Company,
as may be necessary for the protection or enforcement of such rights of
indemnification and defense by the Company.
4. Except to the extent permitted by paragraph 3, Executive
further agrees and covenants that neither Executive, nor any person,
organization or other entity on Executive's behalf, will file, charge, claim,
sue or cause or permit to be filed, charged, or claimed, any action for
damages, including injunctive, declaratory, monetary or other relief against
the Company, involving any matter occurring at any time in the past up to the
date of this Agreement, or involving any continuing effects of any actions or
practices which may have arisen or occurred prior to the date of this
Agreement, including any charge of discrimination under ADEA, Title VII, the
Workers' compensation Act or state or local laws. In addition, Executive
further agrees and covenants that should Executive, or any other person,
organization or entity on Executive's behalf, file, charge, claim, sue or
cause or permit to be filed, charged, or claimed, any action for damages,
including injunctive, declaratory, monetary or other relief, despite
Executive's agreement not to do so under this Agreement, or should Executive
otherwise fail to abide, in any material respect, by any of the terms of this
Agreement, then the Company will be relieved of all further obligations owed
under the Employment Agreement and this Agreement, Executive will forfeit all
monies paid to Executive under the Employment Agreement following
Executive's [termination of employment/non-renewal] and Executive will pay
all of the costs and expenses of the Company (including reasonable attorneys'
fees) incurred in the defense of any such action or undertaking.
5. In full and complete settlement of any claims that the Company
may have against Executive, other than the fulfillment of Executive's
obligations under this Agreement or under the Employment Agreement, and for
and in consideration of the undertakings of Executive described herein, the
Company does hereby REMISE, RELEASE, AND FOREVER DISCHARGE Executive and
Executive's heirs, executors and administrators (hereinafter all included
within the term "Executive"), of and from any and all manner of actions and
causes of actions, suits, debts, claims and demands whatsoever in law or in
equity, which the Company ever had, now has, or hereafter may have, by reason
of any civil (but specifically not any criminal act) matter, cause or thing
whatsoever by reason of Executive's being or having been an officer of the
Company from the beginning of Executive's employment with the Company to the
date of this Agreement; and particularly, but without limitation of the
foregoing general terms, any claims arising from or relating in any way to
actions taken by Executive by reason of Executive's being or having been an
officer of the Company and Executive's termination from those relationships
with the Company.
6. The Company further agrees and covenants that neither it, nor
any person, organization or other entity on its behalf, will file, charge,
claim, sue or cause or permit to be filed, charged, or claimed, any action
for damages, including injunctive, declaratory, monetary or other relief
against Executive, involving any matter occurring at any time in the past up
to the date of this Agreement, or involving any continuing effects of any
actions or practices which may have arisen or occurred prior to the date of
this Agreement, by reason of Executive's being or having been an officer of
the Company, so long as Executive meets, in all material respects,
Executive's obligations under this Agreement and the Employment Agreement.
In addition, the Company further agrees and covenants that should it, or any
other person, organization or entity on its behalf, file, charge, claim, sue
or cause or permit to be filed, charged, or claimed, any action for damages,
including injunctive, declaratory, monetary or other relief, despite its
agreement not to do so under this Agreement, then it will pay all of the
costs and expenses of Executive (including reasonable attorneys' fees)
incurred in the defense of any such action or undertaking.
7. Executive hereby agrees and acknowledges that under this
Agreement, the Company has agreed to provide Executive with compensation and
benefits that are in addition to any amounts to which Executive otherwise
would have been entitled under the Employment Agreement or otherwise in the
absence of this Agreement, and that such additional compensation is
sufficient to support the covenants and agreements by Executive herein.
8. Executive and the Company, its officers and directors, will
not, disparage the name, business reputation or business practices of the
other. In addition, by signing this Agreement, Executive agrees not to
pursue any internal grievance with the Company.
9. Executive hereby certifies that Executive has read the terms of
this Agreement, that Executive has been advised by the Company to consult
with an attorney and that Executive understands its terms and effects.
Executive acknowledges, further, that Executive is executing this Agreement
of Executive's own volition, without any threat, duress or coercion and with
a full understanding of its terms and effects and with the intention, as
expressed in paragraph 3 hereof, of releasing all claims recited herein in
exchange for the consideration described herein, which Executive acknowledges
is adequate and satisfactory to Executive provided the Company meets all of
its obligations under this Agreement. The Company has made no
representations to Executive concerning the terms or effects of this
Agreement other than those contained in this Agreement.
10. Executive hereby acknowledges that Executive was presented
with this Agreement on , , and that Executive was informed that
Executive had the right to consider this Agreement and the release contained
herein for a period of twenty-one (21) days prior to execution. Executive
also understands that Executive has the right to revoke this Agreement for a
period of seven (7) days following execution, by giving written notice to the
Company at 107 Selden Street, Berlin, CT 06037, in which event the provisions
of this Agreement shall be null and void, and the parties shall have the
rights, duties, obligations and remedies afforded by applicable law.
11. This Agreement shall be interpreted and enforced under the
laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
ATTEST: NORTHEAST UTILITIES
By:
Secretary
Witness Executive
Exhibit 10.44
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of February
25, 1997, by and between Northeast Utilities Service Company, a Connecticut
corporation (the "Company"), with its principal office in Berlin,
Connecticut, and Robert P. Wax, a resident of West Hartford, Connecticut
("Executive").
WHEREAS, Executive is currently employed as the Senior Vice President,
Secretary and General Counsel of the Company and both parties desire to enter
into an agreement to reflect Executive's contribution to the Company's
business in Executive's executive capacities and to provide for Executive's
continued employment by the Company, upon the terms and conditions set forth
herein:
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Employment. The Company hereby agrees to continue the employment
of Executive, and Executive hereby accepts such employment and agrees to
perform Executive's duties and responsibilities, in accordance with the
terms, conditions and provisions hereinafter set forth.
1.1. Employment Term. The term of Executive's employment under this
Agreement shall commence as of the date hereof (the "Effective Date") and
shall continue until December 31, 1998, unless sooner terminated in
accordance with Section 5 or Section 6 hereof, and shall automatically renew
for periods of one year unless one party gives written notice to the other,
at least six months prior to December 31, 1998 or at least six months prior
to the end of any one-year renewal period, that the Agreement shall not be
further extended. The period commencing as of the Effective Date and ending
on the date on which the term of Executive's employment under the Agreement
shall terminate is hereinafter referred to as the "Employment Term".
1.2. Duties and Responsibilities. Executive shall serve in such senior
positions as directed by the Company's Board of Directors (the "Board") or
the Board of Trustees (the "Trustees") of Northeast Utilities ("NU") that
provide Executive with duties and compensation that are substantially
equivalent to Executive's current position in terms of duties and
responsibilities. During the Employment Term, Executive shall perform all
duties and accept all responsibilities incident to such positions as may be
assigned to Executive by the Board.
1.3. Extent of Service. During the Employment Term, Executive agrees to
use Executive's best efforts to carry out Executive's duties and
responsibilities under Section 1.2 hereof and, consistent with the other
provisions of this Agreement, to devote substantially all Executive's
business time, attention and energy thereto. Except as provided in Section 3
hereof, the foregoing shall not be construed as preventing Executive from
making minority investments in other businesses or enterprises provided that
Executive agrees not to become engaged in any other business activity which,
in the reasonable judgment of the Board, is likely to interfere with
Executive's ability to discharge Executive's duties and responsibilities to
the Company.
1.4. Base Salary. For all the services rendered by Executive hereunder,
the Company shall pay Executive a base salary ("Base Salary"), commencing on
the Effective Date, at the annual rate then being paid to Executive by the
Company, payable in installments at such times as the Company customarily
pays its other senior level executives (but in any event no less often than
monthly). Executive's Base Salary shall be reviewed annually for appropriate
adjustment (but shall not be reduced below that in effect on the Effective
Date without Executive's written consent) by the Trustees pursuant to its
normal performance review policies for senior level executives.
1.5. Retirement and Benefit Coverages. During the Employment Term,
Executive shall be entitled to participate in all (a) employee pension and
retirement plans and programs ("Retirement Plans") and (b) welfare benefit
plans and programs ("Benefit Coverages"), in each case made available to the
Company's senior level executives as a group or to its employees generally,
as such Retirement Plans or Benefit Coverages may be in effect from time to
time, including, without limitation, the Company's Supplemental Executive
Retirement Plan for Officers (the "Supplemental Plan"), both as to the
Make-Whole Benefit and the Target Benefit.
1.6. Reimbursement of Expenses; Vacation. Executive shall be provided
with reimbursement of expenses related to Executive's employment by the
Company on a basis no less favorable than that which may be authorized from
time to time for senior level executives as a group, and shall be entitled to
vacation and holidays in accordance with the Company's normal personnel
policies for senior level executives.
1.7. Short-Term Incentive Compensation. If the Employment Term has not
previously terminated, beginning on January 1, 1999, Executive shall be
entitled to participate in any short-term incentive compensation programs
established by the Company for its senior level executives generally
depending upon achievement of certain annual individual or business
performance objectives specified and approved by the Trustees (or a Committee
thereof) in its sole discretion; provided, however, that Executive's "target
opportunity" and "maximum opportunity" under any such program shall be at
least at the same level as in effect for Executive on January 1, 1996.
Executive's short-term incentive compensation, either in shares of NU or
cash, as applicable from time to time, shall be paid to Executive, subject
to the Board's or the Trustee's reasonable discretion, not later than such
payments are made to the Company's senior level executives generally.
1.8. Long-Term Incentive Compensation. On and after the Effective Date
and until December 31, 1998, Executive shall participate in the NU Stock
Price Recovery Plan, in accordance with the terms adopted by the Trustees and
NU's Organization, Compensation and Board Affairs Committee on December 21,
1996. If the Employment Term has not previously terminated, beginning on
January 1, 1999, Executive shall also be entitled to participate in any
long-term incentive compensation programs established by the Company for its
senior level executives generally depending upon achievement of certain
business performance objectives specified and approved by the Trustees (or a
Committee thereof) in its sole discretion; provided, however, that
Executive's "target opportunity" and "maximum opportunity" under any such
program shall be at least at the same level as in effect for Executive on
January 1, 1996. Executive's long-term incentive compensation, either in
shares of NU or cash, as applicable from time to time, shall be paid to
Executive, subject to the Board's or the Trustee's reasonable discretion, not
later than such payments are made to the Company's senior level executives
generally.
2. Confidential Information. Executive recognizes and acknowledges
that by reason of Executive's employment by and service to the Company
before, during and, if applicable, after the Employment Term Executive has
had and will continue to have access to certain confidential and proprietary
information relating to the business of the Company, which may include, but
is not limited to, trade secrets, trade "know-how", customer information,
supplier information, cost and pricing information, marketing and sales
techniques, strategies and programs, computer programs and software and
financial information (collectively referred to as "Confidential
Information"). Executive acknowledges that such Confidential Information is
a valuable and unique asset of the Company and Executive covenants that
Executive will not, unless expressly authorized in writing by the Board, at
any time during the course of Executive's employment use any Confidential
Information or divulge or disclose any Confidential Information to any
person, firm or corporation except in connection with the performance of
Executive's duties for the Company and in a manner consistent with the
Company's policies regarding Confidential Information. Executive also
covenants that at any time after the termination of such employment, directly
or indirectly, Executive will not use any Confidential Information or divulge
or disclose any Confidential Information to any person, firm or corporation,
unless such information is in the public domain through no fault of Executive
or except when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by
any administrative or legislative body (including a committee thereof) with
apparent jurisdiction to order Executive to divulge, disclose or make
accessible such information, in which case Executive will inform the Company
in writing promptly of such required disclosure, but in any event at least
two business days prior to disclosure. All written Confidential Information
(including, without limitation, in any computer or other electronic format)
which comes into Executive's possession during the course of Executive's
employment shall remain the property of the Company. Except as required in
the performance of Executive's duties for the Company, or unless expressly
authorized in writing by the Board, Executive shall not remove any written
Confidential Information from the Company's premises, except in connection
with the performance of Executive's duties for the Company and in a manner
consistent with the Company's policies regarding Confidential Information.
Upon termination of Executive's employment, Executive agrees immediately to
return to the Company all written Confidential Information in Executive's
possession. For the purposes of this Section 2, the term "Company" shall be
deemed to include NU and the Affiliates, as defined in Section 6.1(a), of NU
and the Company.
3. Non-Competition; Non-Solicitation.
(a) During Executive's employment by the Company and for a period
of two years after Executive's termination of employment for any reason,
within the Company's "service area," as defined below, Executive will not,
except with the prior written consent of the Board, directly or indirectly,
own, manage, operate, join, control, finance or participate in the ownership,
management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant or otherwise with, or use or permit Executive's name to be used in
connection with, any business or enterprise which is engaged in any business
that is competitive with any business or enterprise in which the Company is
engaged. For the purposes of this Section, "service area" shall mean the
geographic area within the states of Connecticut, Maine, Massachusetts, New
Hampshire, Rhode Island, and Vermont, or any other geographic area in which,
at the time of Executive's termination of employment from the Company, the
Company is doing business. Executive acknowledges that the listed service
area is the area in which the Company presently does business.
(b) The foregoing restrictions shall not be construed to prohibit
the ownership by Executive of less than five percent (5%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act"), provided that such ownership
represents a passive investment and that neither Executive nor any group of
persons including Executive in any way, either directly or indirectly,
manages or exercises control of any such corporation, guarantees any of its
financial obligations, otherwise takes any part in its business, other than
exercising Executive's rights as a shareholder, or seeks to do any of the
foregoing.
(c) Executive further covenants and agrees that during Executive's
employment by the Company and for the period of two years thereafter,
Executive will not, directly or indirectly, (i) solicit, divert, take away,
or attempt to solicit, divert or take away, any of the Company's "Principal
Customers," defined for the purposes hereof to include any customer of the
Company, from which $100,000 or more of annual gross revenues are derived at
such time, or (ii) encourage any Principal Customer to reduce its patronage
of the Company.
(d) Executive further covenants and agrees that during Executive's
employment by the Company and for the period of two years thereafter,
Executive will not, directly or indirectly, solicit or hire, or encourage the
solicitation or hiring of, any person who was a managerial or higher level
employee of the Company at any time during the term of Executive's employment
by the Company by any employer other than the Company for any position as an
employee, independent contractor, consultant or otherwise. The foregoing
covenant of Executive shall not apply to any person after 12 months have
elapsed subsequent to the date on which such person's employment by the
Company has terminated.
(e) Nothing in this Section 3 shall be construed to prohibit
Executive, if Executive is a lawyer, from being connected as a partner,
principal, shareholder, associate, counsel or otherwise with another lawyer
or a law firm which performs services for clients engaged in any business or
enterprise that is competitive with any business or enterprise in which the
Company is engaged, provided that Executive is not personally involved,
directly or indirectly, in performing services for any such clients during
the period specified in Section 3(a) and provided further that such lawyer or
law firm takes reasonable precautions to screen Executive from participating
for the period specified in Section 3(a) in the representation of any such
clients. The parties agree that any such personal performance of services by
Executive for any such clients during such period would create an
unreasonable risk of violation by Executive of the provisions of Section 2 of
this Agreement, and Executive agrees (and the Company may elect) to notify in
writing any lawyer or law firm with which Executive may be connected during
the period specified in Section 3(a) of Executive's Agreement as set forth
herein. The parties further agree that, in addition to the nondisclosure
obligations of Section 2 of this Agreement, Executive remains subject to all
ethical obligations relating to confidentiality of information to the extent
that Executive acted as a lawyer for the Company, but Executive's knowledge
of such confidential information shall not be imputed to such other lawyer or
law firm with which Executive subsequently may become connected. Executive
agrees to notify the Company in writing in advance of the precautions to be
taken by such lawyer or law firm to screen Executive from any representation
of such competing client of such lawyer or law firm.
(f) For the purposes of this Section 3, the term "Company" shall
be deemed to include NU and the Affiliates, as defined in Section 6.1(a), of
NU and the Company.
4. Equitable Relief.
(a) Executive acknowledges and agrees that the restrictions
contained in Sections 2 and 3 are reasonable and necessary to protect and
preserve the legitimate interests, properties, goodwill and business of the
Company, that the Company would not have entered into this Agreement in the
absence of such restrictions and that irreparable injury will be suffered by
the Company should Executive breach any of the provisions of those Sections.
Executive represents and acknowledges that (i) Executive has been advised by
the Company to consult Executive's own legal counsel in respect of this
Agreement, and (ii) that Executive has had full opportunity, prior to
execution of this Agreement, to review thoroughly this Agreement with
Executive's counsel.
(b) Executive further acknowledges and agrees that a breach of any
of the restrictions in Sections 2 and 3 cannot be adequately compensated by
monetary damages. Executive agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits
and other benefits arising from any violation of Sections 2 or 3 hereof,
which rights shall be cumulative and in addition to any other rights or
remedies to which the Company may be entitled. In the event that any of the
provisions of Sections 2 or 3 hereof should ever be adjudicated to exceed the
time, geographic, service, or other limitations permitted by applicable law
in any jurisdiction, it is the intention of the parties that the provision
shall be amended to the extent of the maximum time, geographic, service, or
other limitations permitted by applicable law, that such amendment shall
apply only within the jurisdiction of the court that made such adjudication
and that the provision otherwise be enforced to the maximum extent permitted
by law.
(c) If Executive breaches any of Executive's obligations under
Sections 2 or 3 hereof, and such breach constitutes "Cause," as defined in
Section 5.3 hereof, or would constitute Cause if it had occurred during the
Employment Term, the Company shall thereafter have no Target Benefit
obligation pursuant to the Supplemental Plan, but shall remain obligated for
the Make-Whole Benefit under the Supplemental Plan, but only to the extent
not modified by the terms of this Agreement, and compensation and other
benefits provided in any plans, policies or practices then applicable to
Executive in accordance with the terms thereof.
(d) Executive irrevocably and unconditionally (i) agrees that any
suit, action or other legal proceeding arising out of Sections 2 or 3 hereof,
including without limitation, any action commenced by the Company for
preliminary and permanent injunctive relief and other equitable relief, may
be brought in the United States District Court for the District of
Connecticut, or if such court does not have jurisdiction or will not accept
jurisdiction, in any court of general jurisdiction in Hartford, Connecticut,
(ii) consents to the non-exclusive jurisdiction of any such court in any such
suit, action or proceeding, and (iii) waives any objection which Executive
may have to the laying of venue of any such suit, action or proceeding in any
such court. Executive also irrevocably and unconditionally consents to the
service of any process, pleadings, notices or other papers in a manner
permitted by the notice provisions of Section 10 hereof.
(e) Executive agrees that for a period of five years following the
termination of Executive's employment by the Company Executive will provide,
and that at all times after the date hereof the Company may similarly
provide, a copy of Sections 2 and 3 hereof to any business or enterprise (i)
which Executive may directly or indirectly own, manage, operate, finance,
join, control or participate in the ownership, management, operation,
financing, or control of, or (ii) with which Executive may be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant or otherwise, or in connection with which Executive may use or
permit Executive's name to be used; provided, however, that this provision
shall not apply in respect of Section 3 hereof after expiration of the time
periods set forth therein.
(f) For the purposes of this Section 4, the term "Company" shall
be deemed to include NU and the Affiliates, as defined in Section 6.1(a), of
NU and the Company.
5. Termination. The Employment Term shall terminate upon the
occurrence of any one of the following events:
5.1. Disability. The Company may terminate the Employment Term if
Executive is unable substantially to perform Executive's duties and
responsibilities hereunder to the full extent required by the Board by reason
of illness, injury or incapacity for six consecutive months, or for more than
six months in the aggregate during any period of twelve calendar months;
provided, however, that the Company shall continue to pay Executive's Base
Salary until the Company acts to terminate the Employment Term. In addition,
Executive shall be entitled to receive (i) any amounts earned, accrued or
owing but not yet paid under Section 1 above and (ii) any other benefits in
accordance with the terms of any applicable plans and programs of the
Company. Otherwise, the Company shall have no further liability or
obligation to Executive for compensation under this Agreement. Executive
agrees, in the event of a dispute under this Section 5.1, to submit to a
physical examination by a licensed physician selected by the Board.
5.2. Death. The Employment Term shall terminate in the event of
Executive's death. In such event, the Company shall pay to Executive's
executors, legal representatives or administrators, as applicable, an amount
equal to the installment of Executive's Base Salary set forth in Section 1.4
hereof for the month in which Executive dies. In addition, Executive's
estate shall be entitled to receive (i) any other amounts earned, accrued or
owing but not yet paid under Section 1 above and (ii) any other benefits in
accordance with the terms of any applicable plans and programs of the
Company. Otherwise, the Company shall have no further liability or
obligation under this Agreement to Executive's executors, legal
representatives, administrators, heirs or assigns or any other person
claiming under or through Executive.
5.3. Cause. The Company may terminate the Employment Term, at any time,
for "cause" upon written notice, in which event all payments under this
Agreement shall cease, except for Base Salary to the extent already accrued,
and no Target Benefit shall be due under the Supplemental Plan, but Executive
shall remain entitled to the Make-Whole Benefit under the Supplemental Plan,
but only to the extent not modified by the terms of this Agreement, and any
other benefits in accordance with the terms of any applicable plans and
programs of the Company. For purposes of this Agreement, Executive's
employment may be terminated for "cause" if (i) Executive is convicted of a
felony, (ii) in the reasonable determination of the Board, Executive has (x)
committed an act of fraud, embezzlement, or theft in connection with
Executive's duties in the course of Executive's employment with the Company,
(y) caused intentional, wrongful damage to the property of the Company or
intentionally and wrongfully disclosed Confidential Information, or (z)
engaged in gross misconduct or gross negligence in the course of Executive's
employment with the Company or (iii) Executive materially breached
Executive's obligations under this Agreement and shall not have remedied such
breach within 30 days after receiving written notice from the Board
specifying the details thereof. For purposes of this Agreement, an act or
omission on the part of Executive shall be deemed "intentional" only if it
was not due primarily to an error in judgment or negligence and was done by
Executive not in good faith and without reasonable belief that the act or
omission was in the best interest of the Company.
5.4. Termination Without Cause and Non-Renewal.
(a) The Company may remove Executive, at any time, without cause
from the position in which Executive is employed hereunder (in which case the
Employment Term shall be deemed to have ended) upon not less than 60 days'
prior written notice to Executive; provided, however, that, in the event that
such notice is given, Executive shall be under no obligation to render any
additional services to the Company and, subject to the provisions of Section
3 hereof, shall be allowed to seek other employment. Upon any such removal
or if the Company informs Executive that the Agreement will not be renewed
after December 31, 1998 or at the end of any subsequent renewal period,
Executive shall be entitled to receive, as liquidated damages for the failure
of the Company to continue to employ Executive, only the amount due to
Executive under the Company's then current severance pay plan for employees.
No other payments or benefits shall be due under this Agreement to Executive,
but Executive shall be entitled to any other benefits in accordance with the
terms of any applicable plans and programs of the Company. Notwithstanding
anything in this Agreement to the contrary, on or after Executive attains age
65, no action by the Company shall be treated as a removal from employment or
non-renewal if on the effective date of such action Executive satisfies all
of the requirements for the executive or high policy-making exception to
applicable provisions of state and federal age discrimination legislation.
(b) Notwithstanding the foregoing, in the event that Executive
executes a written release upon such removal or non-renewal, substantially in
the form attached hereto as Annex 1, (the "Release"), of any and all claims
against the Company and all related parties with respect to all matters
arising out of Executive's employment by the Company (other than any
entitlements under the terms of this Agreement or under any other plans or
programs of the Company in which Executive participated and under which
Executive has accrued a benefit), or the termination thereof, Executive shall
be entitled to receive, in lieu of the payment described in subsection (a)
hereof, which Executive agrees to waive,
(i) as liquidated damages for the failure of the Company to
continue to employ Executive, a single cash payment, within 30 days after the
effective date of the removal or non-renewal, equal to Executive's Base
Compensation, as defined in Section 6.1(a) below, which shall not constitute
a "severance benefit" to Executive for purposes of the Target Benefit under
the Supplemental Plan;
(ii) for a period of two years following the end of the
Employment Term, Executive and Executive's spouse and dependents shall be
eligible for a continuation of those Benefit Coverages, as in effect at the
time of such termination or removal, and as the same may be changed from time
to time, as if Executive had been continued in employment during said period
or to receive cash in lieu of such benefits or premiums, as applicable, where
such Benefit Coverages may not be continued (or where such continuation would
adversely affect the tax status of the plan pursuant to which the Benefit
Coverage is provided) under applicable law or regulations;
(iii) any other amounts earned, accrued or owing but not yet
paid under Section 1 above;
(iv) any other benefits in accordance with the terms of any
applicable plans and programs of the Company and a payment equal to any
unused vacation;
(v) as additional consideration for the non-competition and
non-solicitation covenant contained in Section 3, a single cash payment,
within 30 days after the effective date of the removal or non-renewal, equal
to Executive's Base Compensation, as defined in Section 6.1(a) below, which
shall not constitute a "severance benefit" to Executive for purposes of the
Target Benefit under the Supplemental Plan;
(vi) Executive's years of service with the Company through the
24th month following the Termination Date shall be taken into account in
determining the amount of, and eligibility for, the Target Benefit and
Make-Whole Benefit under the Supplemental Plan and 24 months shall be added
to Executive's age for purposes of determining Executive's eligibility for
both such Benefits and the actuarial reduction under the Plan; and
(vii) All stock appreciation rights and restricted stock
units granted to Executive under NU's Stock Price Recovery Plan or stock
options or restricted shares previously granted to Executive, to the extent
not already vested prior to the removal or non-renewal, shall be fully vested
and exercisable or paid as if Executive had remained actively employed by the
Company, including the right of exercise, where appropriate, within 36 months
after the removal or non-renewal; provided, however, that the stock
appreciation rights and restricted stock units shall be paid on a pro rata
basis for the number of completed months in the applicable period for any
such stock appreciation rights or restricted stock units during which
Executive was employed by the Company.
5.5. Voluntary Termination. Executive may voluntarily terminate the
Employment Term upon 30 days' prior written notice for any reason. In such
event, after the effective date of such termination, no further payments
shall be due under this Agreement except that Executive shall be entitled to
any benefits due in accordance with the terms of any applicable plan and
programs of the Company.
6. Payments Upon a Change in Control.
6.1. Definitions. For all purposes of this Section 6, the following
terms shall have the meanings specified in this Section 6.1 unless the
context otherwise clearly requires:
(a) "Affiliate" shall mean an "affiliate" as defined in Rule 12b-2
of the General Rules and Regulations under the Exchange Act.
(b) "Base Compensation" shall mean Executive's annualized Base
Salary and all short-term incentive compensation at the target level for
Executive (but in no event less than the target level for Executive in effect
on January 1, 1996), specified under programs established by the Company for
its senior level executives generally, received by Executive in all
capacities with the Company, as would be reported for federal income tax
purposes on Form W-2, together with any and all salary reduction authorized
amounts under any of the Company's benefit plans or programs, for the most
recent full calendar year immediately preceding the calendar year in which
occurs Executive's Termination Date or preceding the Change of Control, if
higher. "Base Compensation" shall not include the value of any stock
appreciation rights or restricted stock units granted to Executive under NU's
Stock Price Recovery Plan.
(c) "Change of Control" shall mean the happening of any of the
following:
(i) When any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than
the Company, its Affiliates, or any Company or NU employee benefit plan
(including any trustee of such plan acting as trustee), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of NU representing more than 20% of the
combined voting power of either (i) the then outstanding shares of common
stock of NU (the "Outstanding Common Stock") or (ii) the then outstanding
voting securities of NU entitled to vote generally in the election of
directors (the "Voting Securities"); or
(ii) Individuals who, as of the beginning of any twenty-four month
period, constitute the Trustees (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Trustees or cease to be able to
exercise the powers of the majority of the Board, provided that any
individual becoming a trustee subsequent to the beginning of such period
whose election or nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the trustees then comprising the
Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the Trustees of NU
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act); or
(iii) Consummation by NU of a reorganization, merger or
consolidation (a "Business Combination"), in each case, with respect to which
all or substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Common Stock and Voting
Securities immediately prior to such Business Combination do not, following
such Business Combination, beneficially own, directly or indirectly, more
than 75% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of the
corporation, business trust or other entity resulting from or being the
surviving entity in such Business Combination in substantially the same
proportion as their ownership immediately prior to such Business Combination
of the Outstanding Common Stock and Voting Securities, as the case may be; or
(iv) Consummation of a complete liquidation or dissolution of NU
or sale or other disposition of all or substantially all of the assets of NU
other than to a corporation, business trust or other entity with respect to
which, following such sale or disposition, more than 75% of, respectively,
the then outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, is then owned beneficially,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Common Stock and Voting Securities immediately prior to such sale or
disposition in substantially the same proportion as their ownership of the
Outstanding Common Stock and Voting Securities, as the case may be,
immediately prior to such sale or disposition.
(d) "Termination Date" shall mean the date of receipt of a Notice
of Termination of this Agreement or any later date specified therein.
(e) "Termination of Employment" shall mean the termination of
Executive's actual employment relationship with the Company, including a
failure to renew the Agreement after December 31, 1998 or at the end of any
subsequent renewal period, in either case occasioned by the Company's action.
(f) "Termination upon a Change of Control" shall mean a
Termination of Employment upon or within two years after a Change of Control
either:
(i) initiated by the Company for any reason other than
Executive's (w) disability, as described in Section 5.1 hereof, (x) death,
(y) retirement on or after attaining age 65, or (z) "cause," as defined in
Section 5.3 hereof, or (ii) initiated by Executive (A) upon any failure of
the Company materially to comply with and satisfy any of the terms of this
Agreement, including any significant reduction by the Company of the
authority, duties or responsibilities of Executive, any reduction of
Executive's compensation or benefits due hereunder, or the assignment to
Executive of duties which are materially inconsistent with the duties of
Executive's position as defined in Section 1.2 above, or (B) if Executive is
transferred, without Executive's written consent, to a location that is more
than 50 miles from Executive's principal place of business immediately
preceding the Change of Control.
6.2. Notice of Termination. Any Termination upon a Change of Control
shall be communicated by a Notice of Termination to the other party hereto
given in accordance with Section 10 hereof. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) briefly
summarizes the facts and circumstances deemed to provide a basis for a
Termination of Employment and the applicable provision hereof, and (iii) if
the Termination Date is other than the date of receipt of such notice,
specifies the Termination Date (which date shall not be more than 15 days
after the giving of such notice).
6.3. Payments upon Termination. Subject to the provisions of Sections
6.6 and 6.7 hereof, in the event of Executive's Termination upon a Change of
Control, the Company agrees (a) in the event Executive executes the Release
required by Section 5.4(b), to pay to Executive, in a single cash payment,
within thirty days after the Termination Date, two multiplied by Executive's
Base Compensation and, in addition, all amounts, benefits and Benefit
Coverages described in Section 5.4(b)(ii), (iii), (iv) and (v), provided that
in (ii) Benefit Coverages shall continue for three years instead of two, or
(b) in the event Executive fails or refuses to execute the Release required
by Section 5.4(b), to pay to Executive, in a single cash payment, within
thirty days after the Termination Date, the amount due under Section 5.4(a)
above and, in addition, all other amounts and benefits described in Section
5.4(a).
6.4. Other Payments, Supplemental Plan, Stock Option and Stock Grants,
etc. Subject to the provisions of Sections 6.6 and 6.7 hereof, in the event
of Executive's Termination upon a Change of Control, and the execution of the
Release required by Section 5.4(b):
(a) Under the Supplemental Plan, Executive shall be entitled to a
Target Benefit and a Make-Whole Benefit commencing as provided below with an
actuarial reduction in the event the Target Benefit and Make-Whole Benefit
commence prior to age 65 (age 60 if Executive has attained age 60 and
completed at least 30 years of service at the Termination Date), whether or
not Executive is then age 60 and notwithstanding the Plan's requirement that
a participant retire on or after age 60 and be entitled to a vested benefit
under the Company's Retirement Plan. The actuarial reduction shall be 2% for
each year younger than age 65 to age 60, if applicable, 3% for each year
younger than age 60 to age 55 and a full actuarial reduction, as determined
by the enrolled actuary for the Retirement Plan, for each year younger than
55. Executive's years of service with the Company through the 36th month
following the Termination Date shall be taken into account in determining the
amount of the Target Benefit and Make-Whole Benefit and 36 months shall be
added to Executive's age for purposes of determining Executive's eligibility
for both such Benefits and the actuarial reduction under the Plan as modified
herein. Executive shall determine the form of payment in which the Target
Benefit and Make-Whole Benefit shall be paid, in accordance with the terms of
the Supplemental Plan or may elect to receive a single sum payment equal to
the then actuarial present value (computed using the 1983 GAM (50%/Male/50%/
Female) Mortality Table and at an interest rate equal to the discount rate
used in the Retirement Plan's previous year's FASB 87 accounting) of the
amount of the Target Benefit and Make-Whole Benefit as determined in
accordance with the first three sentences of this subsection (a). Payment
shall commence or be made within 30 days after the Termination Date or on any
date thereafter, as specified by Executive in a written election. Such
election may be made at any time and amended at any time but any election or
amendment, other than one made within 30 days of the Effective Date, shall be
ineffective if made within six months prior to the Termination Date. In the
absence of any election or determination provided for herein, the terms of
the Supplemental Plan shall govern the form and time of payment.
(b) Executive's years of service with the Company through the 36th
month following the Termination Date shall be taken into account in
determining Executive's eligibility for, but not amount of cost sharing
under, the Company's retiree health plan and, in addition, 36 months shall be
added to Executive's age for this purpose.
(c) On Executive's Termination Date, all stock appreciation rights
and restricted stock units granted to Executive under NU's Stock Price
Recovery Plan or stock options or restricted shares previously granted to
Executive, to the extent not already vested prior to the Termination Date,
shall be fully vested and exercisable or paid as if Executive had remained
actively employed by the Company, including the right of exercise, where
appropriate, within 36 months after the Termination Date and, if the Change
of Control results in the Voting Securities of NU ceasing to be traded on a
national securities exchange or though the national market system of the
National Association of Securities Dealers Inc., the price at which the
rights or units may be exercised shall be the average of the closing prices
for the five trading days preceding the day such Voting Securities cease
trading.
6.5. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent
or limit Executive's continuing or future participation in or rights under
any benefit, bonus, incentive or other plan or program provided by the
Company and for which Executive may qualify; provided, however, that if
Executive becomes entitled to and receives all of the payments provided for
in this Agreement, Executive hereby waives Executive's right to receive
payments under any severance plan or similar program applicable to all
employees of the Company.
6.6. Certain Increase in Payments.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event that it shall be determined that any payment or distribution by the
Company to or for the benefit of Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (the "Payment"), would constitute an "excess parachute payment"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), Executive shall be paid an additional amount (the
"Gross-Up Payment") such that the net amount retained by Executive after
deduction of any excise tax imposed under Section 4999 of the Code, and any
federal, state and local income and employment tax and excise tax imposed
upon the Gross-Up Payment shall be equal to the Payment. For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed to
pay federal income tax and employment taxes at the highest marginal rate of
federal income and employment taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of Executive's
residence on the Termination Date, net of the maximum reduction in federal
income taxes that may be obtained from the deduction of such state and local
taxes.
(b) All determinations to be made under this Section 6 shall be
made by the Company's independent public accountant immediately prior to the
Change of Control (the "Accounting Firm"), which firm shall provide its
determinations and any supporting calculations both to the Company and
Executive within 10 days of the Termination Date. Any such determination by
the Accounting Firm shall be binding upon the Company and Executive. Within
five days after the Accounting Firm's determination, the Company shall pay
(or cause to be paid) or distribute (or cause to be distributed) to or for
the benefit of Executive such amounts as are then due to Executive under this
Agreement.
(c) In the event that upon any audit by the Internal Revenue
Service, or by a state or local taxing authority, of the Payment or Gross-Up
Payment, a change is finally determined to be required in the amount of taxes
paid by Executive, appropriate adjustments shall be made under this Agreement
such that the net amount which is payable to Executive after taking into
account the provisions of Section 4999 of the Code shall reflect the intent
of the parties as expressed in subsection (a) above, in the manner determined
by the Accounting Firm.
(d) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in subsections (b) and (c) above
shall be borne solely by the Company. The Company agrees to indemnify and
hold harmless the Accounting Firm of and from any and all claims, damages and
expenses resulting from or relating to its determinations pursuant to
subsections (b) and (c) above, except for claims, damages or expenses
resulting from the gross negligence or wilful misconduct of the Accounting
Firm.
6.7 Changes to Sections 6.3 and 6.4. The payments, benefits and other
compensation provided under Sections 6.3 and 6.4 may be revised, in the sole
discretion of the Board, after the expiration of two years following written
notice to Executive of the Board's intention to do so and the changes to be
made; provided, however, that no revision may be made that would reduce the
payments, benefits and other compensation below those provided under Section
5.4 in the event Executive's employment is terminated without cause or this
Agreement is not renewed; and provided, further, that no such notice may be
given and no such revision may become effective following a Change of
Control. Notice under this Section 6.7 shall not constitute a non-renewal or
removal of Executive, nor shall any such actual revision be grounds for a
determination that this Agreement is not being renewed or that Executive has
been removed, for purposes of Section 5.4.
7. Survivorship. The respective rights and obligations of the parties
under this Agreement shall survive any termination of Executive's employment
to the extent necessary to the intended preservation of such rights and
obligations.
8. Mitigation. Executive shall not be required to mitigate the amount
of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise and there shall be no offset against amounts due
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that Executive may obtain.
9. Arbitration; Expenses. In the event of any dispute under the
provisions of this Agreement other than a dispute in which the primary relief
sought is an equitable remedy such as an injunction, the parties shall be
required to have the dispute, controversy or claim settled by arbitration in
the City of Hartford, Connecticut in accordance with National Rules for the
Resolution of Employment Disputes then in effect of the American Arbitration
Association, before a panel of three arbitrators, two of whom shall be
selected by the Company and Executive, respectively, and the third of whom
shall be selected by the other two arbitrators. Any award entered by the
arbitrators shall be final, binding and nonappealable (except as provided in
Section 52-418 of the Connecticut General Statutes) and judgment may be
entered thereon by either party in accordance with applicable law in any
court of competent jurisdiction. This arbitration provision shall be
specifically enforceable. The arbitrators shall have no authority to modify
any provision of this Agreement or to award a remedy for a dispute involving
this Agreement other than a benefit specifically provided under or by virtue
of the Agreement. If Executive prevails on any material issue which is the
subject of such arbitration or lawsuit, the Company shall be responsible for
all of the fees of the American Arbitration Association and the arbitrators
and any expenses relating to the conduct of the arbitration (including the
Company's and Executive's reasonable attorneys' fees and expenses).
Otherwise, each party shall be responsible for its own expenses relating to
the conduct of the arbitration (including reasonable attorneys' fees and
expenses) and shall share the fees of the American Arbitration Association.
10. Notices. All notices and other communications required or
permitted under this Agreement or necessary or convenient in connection
herewith shall be in writing and shall be deemed to have been given when hand
delivered or mailed by registered or certified mail, as follows (provided
that notice of change of address shall be deemed given only when received):
If to the Company, to:
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141-0270
Attention: Vice President, Secretary and General Counsel
With a required copy to:
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103-6993
Attention: Robert J. Lichtenstein, Esquire
If to Executive, to:
Robert P. Wax
14 Stratford Road
West Hartford, CT 06117
With a required copy to:
Shipman & Goodwin
One American Row
Hartford, CT 06103-2819
Attention: Brian Clemow, Esquire
or to such other names or addresses as the Company or Executive, as the case
may be, shall designate by notice to each other person entitled to receive
notices in the manner specified in this Section.
11. Contents of Agreement; Amendment and Assignment.
(a) This Agreement sets forth the entire understanding between the
parties hereto with respect to the subject matter hereof and cannot be
changed, modified, extended or terminated except upon written amendment
approved by the Board and executed on its behalf by a duly authorized officer
and by Executive.
(b) All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, executors, administrators, legal representatives, successors and
assigns of the parties hereto, except that the duties and responsibilities of
Executive under this Agreement are of a personal nature and shall not be
assignable or delegatable in whole or in part by Executive. The Company
shall require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of
the business or assets of the Company, by agreement in form and substance
satisfactory to Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the extent the Company would be required
to perform if no such succession had taken place.
12. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect any other provision or application of this Agreement which can be
given effect without the invalid or unenforceable provision or application
and shall not invalidate or render unenforceable such provision or
application in any other jurisdiction. If any provision is held void,
invalid or unenforceable with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other circumstances.
13. Remedies Cumulative; No Waiver. No remedy conferred upon a party
by this Agreement is intended to be exclusive of any other remedy, and each
and every such remedy shall be cumulative and shall be in addition to any
other remedy given under this Agreement or now or hereafter existing at law
or in equity. No delay or omission by a party in exercising any right,
remedy or power under this Agreement or existing at law or in equity shall be
construed as a waiver thereof, and any such right, remedy or power may be
exercised by such party from time to time and as often as may be deemed
expedient or necessary by such party in its sole discretion.
14. Beneficiaries/References. Executive shall be entitled, to the
extent permitted under any applicable law, to select and change a beneficiary
or beneficiaries to receive any compensation or benefit payable under this
Agreement following Executive's death by giving the Company written notice
thereof. In the event of Executive's death or a judicial determination of
Executive's incompetence, reference in this Agreement to Executive shall be
deemed, where appropriate, to refer to Executive's beneficiary, estate or
other legal representative.
15. Miscellaneous. All section headings used in this Agreement are for
convenience only. This Agreement may be executed in counterparts, each of
which is an original. It shall not be necessary in making proof of this
Agreement or any counterpart hereof to produce or account for any of the
other counterparts.
16. Withholding. The Company may withhold from any payments under this
Agreement all federal, state and local taxes as the Company is required to
withhold pursuant to any law or governmental rule or regulation. Executive
shall bear all expense of, and be solely responsible for, all federal, state
and local taxes due with respect to any payment received under this
Agreement.
17. Governing Law. This Agreement shall be governed by and interpreted
under the laws of the State of Connecticut without giving effect to any
conflict of laws provisions.
18. Adoption by Affiliates; Obligations. The obligations under this
Agreement shall, in the first instance, be paid and satisfied by the Company;
provided, however, that the Company will use its best efforts to cause NU and
each entity in which NU (or its successors or assigns) now or hereafter
holds, directly or indirectly, more than a 50 percent voting interest and
that has at least fifty (50) employees on its direct payroll (an "Employer")
to approve and adopt this Agreement and, by such approval and adoption, to be
bound by the terms hereof as though a signatory hereto. If the Company shall
be dissolved or for any other reason shall fail to pay and satisfy the
obligations, each individual Employer shall thereafter shall be jointly and
severally liable to pay and satisfy the obligations to Executive.
19. Establishment of Trust. The Company may establish an irrevocable
trust fund pursuant to a trust agreement to hold assets to satisfy any of its
obligations under this Agreement. Funding of such trust fund shall be
subject to the Board's discretion, as set forth in the agreement pursuant to
which the fund will be established.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
NORTHEAST UTILITIES
SERVICE COMPANY
/s/Robert P. Wax 2/25/97 By:/s/Bernard M. Fox 2/25/97
Executive
Exhibit 10.49
Execution Copy
U.S. $200,000,000
RECEIVABLES
PURCHASE AND SALE AGREEMENT
Dated as of September 30, 1997
Among
CL&P RECEIVABLES CORPORATION
as Seller
THE CONNECTICUT LIGHT AND POWER COMPANY
as Collection Agent and Originator
CORPORATE ASSET FUNDING COMPANY, INC.
as a Purchaser
CITIBANK, N.A.
as a Bank
and
CITICORP NORTH AMERICA, INC.
as Agent
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
SECTION 1.01. Certain Defined Terms
SECTION 1.02. Other Terms
SECTION 1.03. Computation of Time Periods
ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES
SECTION 2.01. Designated Obligors; Special Concentration Limits
SECTION 2.02. Purchase Facility
SECTION 2.03. Making Purchases from the Seller
SECTION 2.04. Receivable Interest Percentage Computation
SECTION 2.05. Fees
SECTION 2.06. Settlement Procedures
SECTION 2.07. Payments and Computations, Etc.
SECTION 2.08. Increased Costs
SECTION 2.09. Additional Yield on Receivable
Interests Bearing a
Eurodollar Rate
SECTION 2.10. Security Interest
ARTICLE III CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Initial Purchase
SECTION 3.02. Conditions Precedent to All Purchases
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller
ARTICLE V GENERAL COVENANTS
SECTION 5.01. Affirmative Covenants of the Seller and the Originator
SECTION 5.02. Reporting Requirements of the Seller
SECTION 5.03. Negative Covenants of the Seller
SECTION 5.04. Special Covenants Regarding Corporate
Separateness, Etc.
ARTICLE VI ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent
SECTION 6.02. Duties of Collection Agent
SECTION 6.03. Rights of the Agent
SECTION 6.04. Responsibilities of the Seller and the Originator
SECTION 6.05. Further Action Evidencing Purchases
SECTION 6.06. Application of Collections
SECTION 6.07. Indemnities by the Collection Agent
ARTICLE VII EVENTS OF TERMINATION
SECTION 7.01. Events of Termination
ARTICLE VIII THE AGENT
SECTION 8.01. Authorization and Action
SECTION 8.02. Agent's Reliance, Etc.
SECTION 8.03. CNAI and Affiliates
SECTION 8.04. Purchasers' and Banks' Purchase Decisions
ARTICLE IX ASSIGNMENT
SECTION 9.01. Assignability
ARTICLE X INDEMNIFICATION
SECTION 10.01. Indemnities by the Seller
ARTICLE XI MISCELLANEOUS
SECTION 11.01. Amendments, Etc.
SECTION 11.02. Notices, Etc.
SECTION 11.03. No Waiver; Remedies.
SECTION 11.04. Binding Effect.
SECTION 11.05. GOVERNING LAW.
SECTION 11.06. Costs, Expenses and Taxes.
SECTION 11.07. No Proceedings
SECTION 11.08. Confidentiality
SECTION 11.09. Execution in Counterparts
EXHIBIT A Special Concentration Limits
EXHIBIT B Form of Seller Report
EXHIBIT C Description of Tariffs
EXHIBIT D Cancellation of Designation of Obligors and/or Special
Concentration Limits
EXHIBIT E Form of Opinion of Counsel for Seller
EXHIBIT F Audit Scope
RECEIVABLES PURCHASE AND SALE AGREEMENT
Dated as of September 30, 1997
CL&P RECEIVABLES CORPORATION, a Connecticut corporation (the "Seller"), THE
CONNECTICUT LIGHT AND POWER COMPANY, a Connecticut corporation, as Collection
Agent and Originator, CORPORATE ASSET FUNDING COMPANY, INC., a Delaware
corporation, CITIBANK, N.A. and CITICORP NORTH AMERICA INC., a Delaware
corporation ("CNAI"), as agent (the "Agent") for the Purchasers and the Banks
(as defined herein), agree as follows:
PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and used
throughout this Agreement (in addition to those defined above) are defined in
Article I of this Agreement.
(2) The Seller has acquired, and may continue to acquire Receivables from
the Originator, either by purchase or by contribution to the capital of the
Seller, as determined from time to time by the Seller and the Originator.
The Seller is prepared to sell undivided fractional ownership interests in
the Receivables (referred to herein as "Receivable Interests").
(3) The Conduit and the Banks are prepared to purchase such Receivable
Interests from the Seller on the terms set forth herein.
(4) CNAI has been requested and is prepared to act as Agent.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"Adverse Claim" means a lien, security interest, charge or encumbrance, or
other right or claim of any Person.
"Affiliate" when used with respect to a Person means any other Person
controlling, controlled by or under common control with such Person.
"Affiliated Obligor" means any Obligor which is an Affiliate of another
Obligor.
"Alternate Base Rate" means a fluctuating interest rate per annum as shall be
in effect from time to time, which rate per annum shall at all times be equal
to the higher of:
(a) the rate of interest announced publicly by Citibank in New York, New
York, from time to time as Citibank's base rate; or
(b) 1/2 of one percent above the latest three-week moving average of
secondary market morning offering rates in the United States for three-month
certificates of deposit of major United States money market banks, such
three-week moving average being determined weekly on each Monday (or, if such
day is not a Business Day, on the next succeeding Business Day) for the
three-week period ending on the previous Friday by Citibank on the basis of
such rates reported by certificate of deposit dealers to and published by the
Federal Reserve Bank of New York or, if such publication shall be suspended
or terminated, on the basis of quotations for such rates received by Citibank
from three New York certificate of deposit dealers of recognized standing, in
either case adjusted to the nearest 1/4 of one percent or, if there is no
nearest 1/4 of one percent, to the next higher 1/4 of one percent.
"Applicable Percentage" means, for any Settlement Period, the rate per annum
set forth below corresponding, as of the first Business Day of such
Settlement Period, to the actual ratings for the Originator's long-term
public senior debt on such date (or, if the two ratings do not correlate on
any such date, the lower of the two ratings):
Public Debt Rating by
Standard & Poor's and Moody's Applicable Percentage
BBB-/Baa3 or above 1.00%
BB+/Ba1 1.25%
BB/Ba2 1.50%
BB-/Ba3 1.75%
"Assignee Rate" for any Settlement Period for any Receivable Interest means
an interest rate per annum equal to the Eurodollar Rate plus the Applicable
Percentage for such Settlement Period; provided, however, that in case of:
(i) any Settlement Period on or prior to the first day of which a Purchaser
or Bank shall have notified the Agent that the introduction of or any change
in or in the interpretation of any law or regulation makes it unlawful, or
any central bank or other governmental authority asserts that it is unlawful,
for such Purchaser or Bank to fund such Receivable Interest at the Assignee
Rate set forth above (and such Purchaser or Bank shall not have subsequently
notified the Agent that such circumstances no longer exist),
(ii) any Settlement Period of one to (and including) 29 days,
(iii) any Settlement Period as to which the Agent does not receive
notice, by no later than 12:00 noon (New York City time) on the third
Business Day preceding the first day of such Settlement Period, that the
related Receivable Interest will not be funded by issuance of commercial
paper, or
(iv) any Settlement Period for a Receivable Interest the Capital of which
allocated to the Purchasers or the Banks is less than $500,000,
the "Assignee Rate" for such Settlement Period shall be an interest rate per
annum equal to 0.25% per annum above the Alternate Base Rate in effect on the
first day of such Settlement Period; provided further that the Agent and the
Seller may agree in writing from time to time upon a different "Assignee
Rate."
"Average Dilution Ratio" means for any calendar month the average of the
Dilution Ratios for the 12 most recently ended calendar months.
"Average Maturity" means at any time that period of days equal to the average
maturity of the Pool Receivables calculated by the Collection Agent in the
then most recent Seller Report; provided that if the Agent shall determine
that such calculation is incorrect, the Agent may recalculate such Average
Maturity.
"Bank Commitment" of any Bank means, (a) with respect to Citibank
$100,000,000 or such amount as reduced by any assignment entered into between
Citibank and other Banks; or (b) with respect to a Bank that has entered into
an assignment with another Bank, the amount set forth therein as such Bank's
Bank Commitment, in each case as such amount may be reduced by an assignment
entered into between such Bank and an Eligible Assignee, and as may be
further reduced (or terminated) pursuant to the next sentence. Any reduction
(or termination) of the Purchase Limit pursuant to the terms of this
Agreement shall reduce ratably (or terminate) each Bank's Bank Commitment.
Notwithstanding the foregoing, with respect to each assignment entered into
between Citibank and another Bank, so long as the aggregate amount of such
assignments does not exceed $100,000,000, the Bank Commitment of Citibank
shall be automatically increased, immediately following such assignment, to
$100,000,000, and the Agent shall, concurrently with such assignment, notify
the Seller of the Bank Commitment of the applicable assignee and of the new
Bank Commitment of Citibank; provided, however, that in no event shall the
aggregate Bank Commitments of all Banks exceed $200,000,000.
"Banks" means Citibank and each Eligible Assignee that shall become a party
to this Agreement pursuant to Section 9.01.
"Budget Account" means an account of an Obligor with the Originator pursuant
to which such Obligor is billed a fixed monthly fee for a fixed period of
time at the end of which such Obligor's account with the Originator is
adjusted.
"Budget Account Credit Balance" means for any date the amount by which
amounts paid by an Obligor pursuant to a Budget Account exceeds the amount
for which such Obligor should have been billed by the Originator had such
Obligor not been party to a Budget Account.
"Business Day" means any day on which (i) banks are not authorized or
required to close in New York City, and (ii) if this definition of "Business
Day" is utilized in connection with the Eurodollar Rate, dealings are carried
out in the London interbank market.
"Capital" of any Receivable Interest means the original amount paid to the
Seller for such Receivable Interest at the time of its Purchase by the
Conduit or a Bank pursuant to this Agreement, in each case reduced from time
to time by Collections distributed on account of such Capital pursuant to
Section 2.06(d); provided that if such Capital shall have been reduced by any
distribution and thereafter all or a portion of such distribution is
rescinded or must otherwise be returned for any reason, such Capital shall be
increased by the amount of such rescinded or returned distribution, as though
it had not been made.
"Citibank" means Citibank, N.A., a national banking association.
"Collection Agent" means at any time the Person then authorized pursuant to
Article VI to administer and collect Pool Receivables.
"Collection Account" means Account # 9370121283 at Fleet National Bank,
Hartford, Connecticut.
"Collection Agent Fee" has the meaning specified in the Originator Purchase
Agreement.
"Collection Agent Fee Reserve" for any Receivable Interest at any time means
the sum of (i) the unpaid Collection Agent Fee relating to such Receivable
Interest accrued to such time plus (ii) an amount equal to (a) the Capital of
such Receivable Interest on such date multiplied by (b) the product of (x)
the percentage per annum at which the Collection Agent Fee is accruing on
such date and (y) a fraction having the sum of the Average Maturity plus the
Collection Delay Period (each as in effect at such date) as its numerator and
360 as its denominator.
"Collection Delay Period" means 10 days or such other number of days as may
be agreed to by the Agent and the Seller.
"Collections" means, with respect to any Receivable, all cash collections and
other cash proceeds of such Receivable, including, without limitation, all
cash proceeds of Related Security with respect to such Receivable, and any
Collection of such Receivable deemed to have been received pursuant to
Section 2.06.
"Commitment Termination Date" means the earliest of (a) September 29, 1998,
unless, prior to such date (or the date so extended pursuant to this clause),
upon the Seller's request, made not more than 90 nor less than 45 days prior
to the then Commitment Termination Date, one or more Banks having 100% of the
Purchase Limit shall in their sole discretion consent, which consent shall be
given not more than 30 days prior to the then Commitment Termination Date, to
the extension of the Commitment Termination Date to the date occurring not
more than 360 days after the then Commitment Termination Date; provided,
however, that any failure of any Bank to respond to the Seller's request for
such extension shall be deemed a denial of such request by such Bank, (b) the
Facility Termination Date and (c) the date determined pursuant to Section
7.01.
"Concentration Limit" means, with respect to any Obligor, 2% (or such higher
percentage as is agreed to by the Agent) of the Outstanding Balance of all
Pool Receivables (a "Normal Concentration Limit"), or such other percentage
of the Outstanding Balance of all Pool Receivables, or such amount as may be
designated for any Obligor by the Seller and agreed to for such Obligor by
the Agent, in a notice to the Agent in substantially the form of Exhibit A
(such other percentage or amount for any Obligor being a "Special
Concentration Limit"), subject to cancellation thereof pursuant to Section
2.01; provided, however, that, in the case of an Obligor with one or more
Affiliated Obligors which is or are Designated Obligors, the Concentration
Limit shall be calculated as if such Obligor and such one or more Affiliated
Obligors were one Obligor.
"Conduit" means Corporate Asset Funding Company, Inc. and any successor or
assign thereof that is a receivables investment company which in the ordinary
course of its business issues commercial paper or other securities to fund
its acquisition and maintenance of receivables.
"Contract" means the Tariffs and any agreement between the Originator and an
Obligor, provided that such agreement does not vary the payment terms of such
Obligor from those in the Tariffs or the Credit and Collection Policy.
"Credit and Collection Policy" means those credit and collection policies and
practices of the Originator in effect on the date hereof relating to the
Receivables, as they may be modified in the manner permitted under Section
5.03(c).
"Default Ratio" means the ratio (expressed as a percentage) computed as of
the last day of each calendar month by dividing (i) the aggregate Outstanding
Balance of all Pool Receivables that were Defaulted Receivables on such day
or that would have been Defaulted Receivables on such day had they not been
written off the books of the Originator or the Seller during such month by
(ii) the aggregate Outstanding Balance of all Pool Receivables on such day.
"Defaulted Receivable" means a Receivable:
(i) as to which any payment, or part thereof, remains unpaid for 91 days or
more from the original billing date for such payment and which does not
relate to an Inactive Account,
(ii) as to which the Obligor thereof, or any other Person obligated thereon
or owning any Related Security in respect thereof, has taken any action, or
suffered any event to occur, of the type described in Section 7.01(g), or
(iii) which, consistent with the Credit and Collection Policy, would be
written off the Originator's or the Seller's books as uncollectible.
"Deferred Purchase Price" has the meaning specified in the Originator
Purchase Agreement.
"Delinquency Ratio" means the ratio (expressed as a percentage) computed as
of the last day of each calendar month by dividing (i) the aggregate
Outstanding Balance of all Pool Receivables that were Delinquent Receivables
on such day by (ii) the aggregate Outstanding Balance of all Pool Receivables
on such day.
"Delinquent Receivable" means a Receivable that is not a Defaulted Receivable
and:
(i) as to which any payment, or part thereof, remains unpaid for 61 days or
more from the original billing date for such payment; or
(ii) which, consistent with the Credit and Collection Policy, would be
classified as delinquent by the Originator or the Seller.
"Designated Account" means an account in the name of, and owned by, CNAI, as
Agent, designated by the Agent for the purpose of receiving collections of
Pool Receivables directly from Obligors.
"Designated Obligor" means, at any time, any Obligor unless the Seller or the
Agent has, following three Business Days' notice in accordance with Section
2.01, advised the other that such Obligor shall not be considered a
Designated Obligor.
"Dilution" means any reduction in the Outstanding Balance of any Receivable,
except for reductions resulting from payments or writeoffs with respect to
such Receivable.
"Dilution Horizon Factor" means the ratio (expressed as percentage) computed
by dividing (i) the sum of (a) the aggregate Outstanding Balance of all
Receivables created during the most recently ended calendar month and (b) the
aggregate Outstanding Balance of Unbilled Receivables as determined on the
last day of the most recently ended calendar month by (ii) the Net
Receivables Pool Balance as of the last day of the most recently ended
calendar month.
"Dilution Ratio" means for any calendar month the greater of (i) the ratio
(expressed as a percentage) of (A) the aggregate amount of Dilution with
respect to the Receivables during such calendar month to (B) the aggregate
original Outstanding Balance of all Receivables generated during the month
preceding the most recently ended calendar month and (ii) 0.5%.
"Dilution Volatility Factor" means, as of the last day of each calendar
month, the product (expressed as a percentage) of (i) the amount by which (A)
the highest Dilution Ratio for any of the twelve most recently ended calendar
months exceeds (B) the average of the Dilution Ratios for the twelve most
recently ended calendar months and (ii) a fraction equal to (A) the highest
Dilution Ratio for any of the twelve most recently ended calendar months
divided by (B) the average of the Dilution Ratios for the twelve most
recently ended calendar months.
"Eligible Assignee" means (a) CNAI, any of its Affiliates, any Person managed
by Citibank or CNAI or any of their Affiliates or (b) any financial or other
institution acceptable to the Agent.
"Eligible Receivable" means, at any time and with respect to any Receivable
Interest, a Receivable:
(i) the Obligor of which is a United States resident and is not a
government or a governmental subdivision or agency (including, without
limitation, any such government, subdivision or agency that has the right to
offset obligations to the Originator with tax-related claims of any kind),
except that Receivables of governmental Obligors will be permitted to the
extent that the aggregate Outstanding Balance of such Receivables does not
exceed 15% of the aggregate Outstanding Balance of all Pool Receivables;
(ii) the Obligor of which, at the time of the purchase of an undivided
percentage ownership interest in such Receivable, is a Designated Obligor;
(iii) which, at the time of the purchase of an undivided percentage
ownership interest in such Receivable, is not a Delinquent Receivable or a
Defaulted Receivable;
(iv) which does not relate to an Inactive Account and which, according
to the Contract related thereto, is required to be paid in full within 30
days of the original billing date therefor;
(v) the Outstanding Balance of which, at the time of the purchase of an
undivided percentage ownership interest in such Receivable, does not, when
calculated substantially as provided in the Seller Report, exceed the
Concentration Limit of the Obligor thereon;
(vi) which arises under a Contract which has been duly authorized and
which, together with such Receivable, is in full force and effect and
constitutes the legal, valid and binding obligation of the Obligor of such
Receivable enforceable against such
Obligor in accordance with its terms and is not subject to any dispute,
offset, counter-claim or defense whatsoever (except the discharge in
bankruptcy of such Obligor);
(vii) which, together with the Contract related thereto, does not
contravene in any material respect any law, rule or regulation applicable
thereto (including, without limitation, any law, rule or regulation relating
to usury, consumer protection, truth in lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection practices
and privacy) and with respect to which none of the Seller, the Originator or
the Obligor is in violation of any such law, rule or regulation in any
material respect;
(viii) which (A) satisfies all applicable requirements of the Credit
and Collection Policy and (B) complies with such other reasonable criteria
and requirements (other than those relating to the collectibility of such
Receivable) as the Agent may from time to time specify to the Seller
following 30 days' notice;
(ix) which is an account receivable representing all or part of the
sales price of merchandise, insurance or services, within the meaning of
Section 3(c)(5) of the Investment Company Act of 1940, as amended;
(x) a purchase of which with the proceeds of notes would constitute a
"current transaction" within the meaning of Section 3(a)(3) of the Securities
Act of 1933, as amended;
(xi) which is an "account" within the meaning of Section 9-106 of the
UCC of all applicable jurisdictions;
(xii) which is denominated and payable only in United States dollars
in the United States of America; and
(xiii) as to which, at or prior to the time of purchase hereunder,
the Agent has not notified the Seller that the Agent has determined, in its
sole discretion, that such Receivable (or class of Receivables) is not
acceptable for purchase hereunder.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Rate" means, for any Settlement Period, an interest rate per
annum equal to the rate per annum at which deposits in U.S. dollars are
offered by the principal office of Citibank in London, England to prime banks
in the London interbank market at 11:00 A.M. (London Time) two Business Days
before the first day of such Settlement Period in an amount substantially
equal to the Capital associated with such Settlement Period on such first day
and for a period equal to such Settlement Period.
"Eurodollar Rate Reserve Percentage" of any Purchaser or Bank for any
Settlement Period in respect of which Yield is computed by reference to the
Eurodollar Rate means the reserve percentage applicable two Business Days
before the first day of such Settlement Period under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) (or if more than one such percentage shall be applicable, the
daily average of such percentages for those days in such Settlement Period
during which any such percentage shall be so applicable) for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for such Purchaser or
Bank with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate on
Eurocurrency Liabilities is determined) having a term equal to such
Settlement Period.
"Event of Termination" has the meaning specified in Section 7.01.
"Facility" means the willingness of the Conduit to consider, in its sole
discretion pursuant to Article II, or the obligation of the Banks to make
pursuant to Article II, the purchase from the Seller of undivided percentage
interests in Pool Receivables by making Purchases of Receivable Interests or
reinvestments from time to time.
"Facility Termination Date" means the earlier of July 11, 2001 or the date of
termination of the Facility pursuant to Section 2.02(c) or Section 7.01.
"Fee Agreement" means the agreement of even date between the Seller and the
Agent, as the same may be amended or restated from time to time, with respect
to the fees to be paid by or on behalf of the Seller in connection with this
Agreement.
"Inactive Account" means an account of an Obligor which has been sent a final
bill.
"Incipient Event of Termination" means an event which would constitute an
Event of Termination but for the requirement that notice be given or time
elapse or both.
"Liquidation Day" means, for any Receivable Interest, (i) each day during a
Settlement Period for such Receivable Interest on which the conditions set
forth in Section 3.02 are not satisfied, and (ii) each day which occurs on or
after the Termination Date for such Receivable Interest.
"Liquidation Fee" means, for any Settlement Period during which a Liquidation
Day occurs, the amount, if any, by which (i) the additional Yield (calculated
without taking into account any Liquidation Fee or any shortened duration of
such Settlement Period) which would have accrued during such Settlement
Period on the reductions of Capital of the Receivable Interest relating to
such Settlement Period had such reductions remained as Capital exceeds (ii)
the income, if any, received by the Purchasers' investing the proceeds of
such reductions of Capital.
"Loss and Dilution Percentage" means for any calendar month the greater of
(i) the sum of (A) the product of (x) the highest of the Loss Ratios as of
the last day of each of the twelve most recently ended calendar months, (y)
the Loss Horizon Factor as of the last day of the most recently ended
calendar month and (z) 1.6 plus (B) the product of (a) the Average Dilution
Ratio for the most recently ended calendar month, (b) 1.6 and (c) the
Dilution Horizon Factor as of the most recently ended calendar month plus
(C) the product of (a) the Dilution Volatility Factor as of the last day of
the most recently ended calendar month and (b) the Dilution Horizon Factor as
of the last day of the most recently ended calendar month and (ii) the
Minimum Percentage as of the last day of the most recently ended calendar
month.
"Loss and Dilution Reserve" means, for any Receivable Interest on any date,
an amount equal to the Capital of such Receivable Interest at the close of
business of the Collection Agent on such date multiplied by the Loss and
Dilution Percentage on such date.
"Loss Horizon Factor" means for any date the ratio (expressed as a
percentage) computed as of the last day of the most recently ended calendar
month by dividing (i) the aggregate Outstanding Balance of all Receivables
created during the two most recently ended calendar months plus the Unbilled
Receivables for the most recent calendar month by (ii) the Net Receivable
Pool Balance as of such date.
"Loss Ratio" means for any date the average of the ratios (expressed as a
percentage) for each of the three most recently ended calendar months
computed as of the last day of each such calendar month determined by
dividing the sum of (i) the gross writeoffs for such calendar month, (ii)
increases, if any, in the outstanding balance of accounts designated by the
Originator as "hardship accounts" as of the last day of such calendar month
over the outstanding balance of such accounts as of the last day of the
preceding calendar month and (iii) additions to Inactive Accounts for such
calendar month by the aggregate original Outstanding Balance of Receivables
that were created during the fifth preceding calendar month. For purposes of
this definition, "additions to Inactive Accounts" for any calendar month
shall be (A) the outstanding balance of Inactive Accounts as of the last day
of the most recently ended calendar month less (B) the difference between (x)
the outstanding balance of Inactive Accounts as of the last day of the month
preceding the most recently ended calendar month and (y) gross writeoffs for
the most recently ended calendar month; provided, however, that if the amount
calculated under this sentence shall, for any date, be a negative number,
then, for purposes of calculating the Loss Ratio on such date, the amount set
forth in clause (iii) above shall be zero.
"Loss-to-Liquidation Ratio" means for any calendar month the ratio (expressed
as a percentage) computed as of the last day of such calendar month by
dividing (i) the aggregate Out-standing Balance of all Pool Receivables
written off by the Collection Agent or the Seller, or which should have been
written off by the Collection Agent or the Seller in accordance with its
Credit and Collection Policy, during such calendar month by (ii) the
aggregate amount of Collections of Pool Receivables actually received during
such calendar month.
"Minimum Percentage" means on any date the sum of (i) the product of (A) 4
and (B) the Normal Concentration Limit in effect on such date and (ii) the
product of (A) the Dilution Horizon Factor on such date and (B) the Average
Dilution Ratio on such date.
"Moody's" means Moody's Investors Service, Inc.
"Net Receivables Pool Balance" means at any time the Outstanding Balance of
Eligible Receivables then in the Receivables Pool reduced by the sum of (i)
the Outstanding Balance of such Eligible Receivables that are then Defaulted
Receivables or Delinquent Receivables or arise from Inactive Accounts, (ii)
the aggregate amount by which the Outstanding Balance of Eligible Receivables
(other than Defaulted Receivables or Delinquent Receivables) of any Obligor
or group of Obligors exceeds the product of (A) the Concentration Limit of
such Obligor or group of Obligors multiplied by (B) the Outstanding Balance
of the Receivables then in the Receivables Pool and (iii) the sum of all
Budget Account Credit Balances.
"Normal Concentration Limit" has the meaning specified in the definition of
"Concentration Limit."
"Obligor" means a Person obligated to make payments pursuant to a Contract.
"Originator" means The Connecticut Light and Power Company, a Connecticut
corporation.
"Originator Purchase Agreement" means the Purchase and Contribution
Agreement, dated the date of this Agreement, between the Originator, as
seller, and the Seller, as purchaser, as the same may be amended, modified or
restated from time to time.
"Other Corporations" means the Originator and all of its Subsidiaries except
the Seller.
"Outstanding Balance" of any Receivable at any time means the then
outstanding principal balance thereof.
"Percentage" of any Bank means (i) with respect to Citibank the percentage
set forth on the signature page to this Agreement, or such amount to which
such percentage is reduced by an assignment entered into with an Eligible
Assignee, and (b) with respect to a Bank that has entered into an assignment,
the amount set forth therein as such Bank's Percentage, or such amount to
which such percentage is reduced by an assignment entered into between such
Bank and an Eligible Assignee.
"Person" means an individual, partnership, corporation (including a business
trust), joint stock company, limited liability company, trust, unincorporated
association, joint venture or other entity, or a government or any political
subdivision or agency thereof.
"Pool Receivable" means a Receivable in the Receivables Pool.
"Public Disclosure Documents" means (i) the Originator's Annual Report on
Form 10-K for the year ending December 31, 1996, (ii) the Originator's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June
30, 1997, Northeast Utilities' reports on Form 8-K dated January 20, 1997,
February 20, 1997, February 28, 1997, April 11, 1997, June 26, 1997, July 22,
1997 and August 19, 1997 and (iv) the Originator's Registration Statement No.
333-30911 on Form S-1, as amended.
"Purchase" means the purchase of a Receivable Interest from the Seller, in
accordance with Section 2.03(a).
"Purchase Limit" means $200,000,000, as such amount may be reduced pursuant
to Section 2.02; provided, however, that at no time shall the Purchase Limit
exceed the aggregate Bank Commitments in effect at such time. References to
the unused portion of the Purchase Limit shall mean, at any time, the
Purchase Limit, as then reduced pursuant to Section 2.02(c), minus the then
outstanding Capital of Receivable Interests under this Agreement.
"Purchaser" means the Conduit and all other owners by assignment or otherwise
of a Receivable Interest (other than Banks) and, to the extent of the
undivided interests so purchased, shall include any participants.
"Purchaser Rate" for any Settlement Period for any Receivable Interest means,
to the extent the Conduit funds such Receivable Interest for such Settlement
Period by issuing commercial paper, the per annum rate equivalent to the
weighted average of the per annum rates paid or payable by the Conduit from
time to time as interest on or otherwise (by means of interest rate hedges or
otherwise) in respect of those promissory notes issued by the Conduit that
are allocated, in whole or in part, by the Agent (on behalf of the Conduit)
to fund the purchase or maintenance of such Receivable Interest during such
Settlement Period as determined by the Agent (on behalf of the Conduit) and
reported to the Seller, which rates shall reflect and give effect to the
commissions of placement agents and dealers in respect of such commercial
paper notes, to the extent such commissions are allocated, in whole or in
part, to such commercial paper notes by the Agent (on behalf of the Conduit);
provided, however, that if any component of such rate is a discount rate, in
calculating the 'Purchaser Rate' for such Settlement Period the Agent shall
for such component use the rate resulting from converting such discount rate
to an interest bearing equivalent rate per annum.
"Receivable" means the accounts, general intangibles and other indebtedness
(billed and unbilled) of an Obligor arising from the retail sale of
electricity and related services by the Originator in Connecticut to such
Obligor pursuant to a Contract as booked to Accounts 142 (excluding amounts
booked to Account 142.04) and 173 as defined under the Federal Energy
Regulatory Commission Chart of Accounts as utilized by the Originator, but
excluding any obligation of such Obligor to pay finance charges and other
amounts in the case of late payment.
"Receivable Interest" means, at any time, an undivided percentage ownership
interest in all Receivables in the Receivables Pool and in all Related
Security with respect to such Pool Receivables and all Collections with
respect to, and other proceeds of, such Pool Receivables equal to the
Receivable Interest Percentage.
"Receivable Interest Percentage" means, with respect to any Receivable
Interest, a percentage equal to the following fraction:
C + YR + LR + CAFR
- ----------------------------
NRPB
where:
C = the Capital of such Receivable Interest at the time of
computation.
YR = the Yield Reserve of such Receivable Interest at the time of
computation.
LR = the Loss and Dilution Reserve of such Receivable Interest at
the time of computation.
CAFR = the Collection Agent Fee Reserve of such Receivable Interest
at the time of computation.
NRPB = the Net Receivables Pool Balance at the time of computation.
"Receivables Pool" means at any time the aggregation of each then outstanding
Receivable in respect of which the Obligor is a Designated Obligor at such
time or was a Designated Obligor on the date of the initial creation of an
interest in such Receivable under this Agreement.
"Regulatory Authority" means each of the Connecticut Department of Public
Utility Control, Federal Energy Regulatory Commission, and any successor
commission thereto.
"Related Security" means, with respect to any Receivable:
(i) all security interests or liens and property subject thereto from time
to time purporting to secure payment of such Receivable, whether pursuant to
the Contract related to such Receivable or otherwise;
(ii) all guarantees, indemnities, warranties, insurance policies and proceeds
and premium refunds thereof and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such
Receivable, whether pursuant to the Contract related to such Receivable or
otherwise; and
(iii) the Contract and all other books, records and other information
(including, without limitation, computer programs, tapes, discs, punch cards,
data processing software and related property and rights) relating to such
Receivable and the related Obligor.
"Seller Report" means a report in substantially the form of Exhibit B hereto
and containing such additional information as the Agent may reasonably
request from time to time, furnished by the Collection Agent to the Agent.
"Settlement Date" means the third Business Day after the end of each
Settlement Period during the term of this Agreement; provided that with
respect to any Settlement Period for which Yield is computed by reference to
the Assignee Rate and such rate is known prior to the last day of the
Settlement Period, the Settlement Date shall be the last day of the
Settlement Period.
"Settlement Period" means:
(a) in the case of any Settlement Period in respect of which Yield is
computed by reference to the Purchaser Rate, each successive period
commencing on the 19th day of each calendar month during the term of this
Agreement and ending on the 18th day of the succeeding calendar month during
the term of this Agreement; provided, however, that in the case of any
Settlement Period for any Receivable Interest which commences before the
Termination Date for such Receivable Interest and would otherwise end on a
date occurring after such Termination Date, such Settlement Period shall end
on such Termination Date and the duration of each Settlement Period which
commences on or after the Termination Date for such Receivable Interest may
be any period (including, without limitation, a period of one day) as shall
be selected from time to time by the Agent;
(b) in the case of any Settlement Period in respect of which Yield is
computed by reference to the Assignee Rate, each successive period commencing
on the 19th day of each calendar month during the term of this Agreement and
ending on the 18th day of the succeeding calendar month during the term of
this Agreement; provided, however, that any Settlement Period which is other
than the monthly Settlement Period shall be of such duration as shall be
selected by the Agent; and
(c) in the case of any Settlement Period in respect of which Yield is
computed by reference to the Alternate Base Rate, such Settlement Period
shall be of such duration as shall be selected by the Agent.
"Significant Subsidiary" means the Seller and any Subsidiary having total
assets exceeding 10% of consolidated total assets of the Originator.
"Special Concentration Limit" has the meaning specified in the definition of
"Concentration Limit."
"Standard & Poor's" means Standard & Poor's Ratings Group.
"Subsidiary" means any corporation of which securities having ordinary voting
power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
the Seller or the Originator, as the case may be, or one or more
Subsidiaries, or by the Seller or the Originator, as the case may be, and one
or more Subsidiaries.
"Supplemental Collection Account" means Account # 5044-3708 at Fleet National
Bank, Hartford, Connecticut, which is the account to which Obligors are
directed to make ACH payments on Receivables.
"Tangible Net Worth" means at any time the excess of (i) the Outstanding
Balance of all Receivables plus cash and cash equivalents of the Seller at
such time minus (ii) the sum at such time of (a) the Outstanding Balance of
such Receivables which have become Defaulted Receivables, (b) Capital, Yield
Reserve, Loss and Dilution Reserve and Collection Agent Fee Reserve plus (c)
the Deferred Purchase Price.
"Tariffs" means the tariffs described in Exhibit C, which have been approved
by the governing Regulatory Authority, as hereafter amended or modified by
the governing Regulatory Authority, pursuant to which the Originator provides
electricity to the Obligors and the Obligors are obligated to pay for such
electricity.
"Termination Date" for any Receivable Interest means (i) in the case of a
Receivable Interest owned by a Purchaser, the earlier of (a) the Business Day
which the Seller or the Agent so designates by notice to the other at least
three Business Days (or such shorter period as is required under the
circumstances, but in any event not less than one Business Day) in advance
for such Receivable Interest and (b) the Facility Termination Date and (ii)
in the case of a Receivable Interest owned by a Bank, the earlier of (a) the
Business Day which the Seller so designates by notice to the Agent at least
three Business Days (or such shorter period as is required under the
circumstances, but in any event not less than one Business Day) in advance
for such Receivable Interest and (b) the Commitment Termination Date.
"Transaction Document" means any of this Agreement, the Originator Purchase
Agreement and all other agreements and documents delivered and/or related
hereto or thereto.
"UCC" means the Uniform Commercial Code as from time to time in effect in the
specified jurisdiction.
"Unbilled Receivable" means a Receivable which has not yet been billed to an
Obligor.
"Yield" means:
(i) for each Receivable Interest for any Settlement Period to the extent the
Conduit will be funding such Receivable Interest during such Settlement
Period through the issuance of commercial paper,
PR x C x ED + LF
----
360
(ii) for each Receivable Interest for any Settlement Period to the extent (x)
the Purchasers will not be funding such Receivable Interest during such
Settlement Period through the issuance of commercial paper or (y) the Banks
will be funding such Receivable Interest,
AR x C x ED + LF
----
360
where:
AR = the Assignee Rate for such Receivable Interest for such Settlement
Period
C = the Capital of such Receivable Interest during such Settlement
Period
ED = the actual number of days elapsed during such Settlement Period
LF = the Liquidation Fee, if any, for such Receivable Interest for such
Settlement Period
PR = the Purchaser Rate for such Receivable Interest for such Settlement
Period
provided that no provision of this Agreement shall require the payment or
permit the collection of Yield in excess of the maximum permitted by
applicable law; and provided further that Yield for any Receivable Interest
shall not be considered paid by any distribution to the extent that at any
time all or a portion of such distribution is rescinded or must otherwise be
returned for any reason.
"Yield Reserve" for any Receivable Interest at any time means the sum of (i)
the Liquidation Yield at such time for such Receivable Interest, and (ii) the
then accrued and unpaid Yield for such Receivable Interest. For purposes of
this definition,
(a) "Liquidation Yield" means, for any Receivable Interest on any date, an
amount equal to the Rate Variance Factor on such date multiplied by the
product of (i) the Capital of such Receivable Interest on such date and (ii)
the product of (a) the Assignee Rate for such Receivable Interest for a
30-day period deemed to commence on such date and (b) a fraction having the
sum of the Average Maturity plus the Collection Delay Period (each as in
effect at such date) as its numerator and 360 as its denominator; and
(b) "Rate Variance Factor" means a number greater than one that reflects the
potential variance in selected interest rates over a period of time
designated by the Agent, as computed by the Collection Agent each month and
set forth in the Seller Report in accordance with the provisions thereof;
provided that the factors used in computing the "Rate Variance Factor" may be
changed from time to time in accordance with industry standards upon at least
five days' prior notice by the Agent to the Collection Agent.
SECTION 1.02. Other Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles. All terms used in Article 9 of the UCC in effect in the State of
New York and not specifically defined herein, are used herein as defined in
such Article 9. References herein to Receivables "generated" or "created"
during any period shall mean all Receivables billed during such period.
SECTION 1.03. Computation of Time Periods. Unless otherwise stated in this
Agreement, in the computation of a period of time from a specified date to a
later specified date, the word "from" means "from and including" and the
words "to" and "until" each means "to but excluding."
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 2.01. Designated Obligors; Special Concentration Limits. Either the
Seller or the Agent may cancel the designation of an Obligor as a Designated
Obligor or any Special Concentration Limit for any Obligor, by notice in
substantially the form of Exhibit D delivered by it to the other at least
three Business Days prior to the date on which such cancellation shall become
effective. Such notice of cancellation shall be applicable only to
Receivable Interests purchased on and after its effective date.
SECTION 2.02. Purchase Facility. (a) On the terms and conditions
hereinafter set forth, the Conduit may, in its sole discretion, and the Banks
shall, ratably in accordance with their respective Bank Commitments, purchase
Receivable Interests from the Seller by making Purchases through the Agent,
for the benefit of the Conduit or the Banks, as the case may be, from time to
time during the period from the date hereof to the Facility Termination Date
(in the case of the Conduit) and to the Commitment Termination Date (in the
case of the Banks). Under no circumstances shall the Conduit make any
Purchase of a Receivable Interest, or the Banks be obligated to make any such
Purchase if
(i) after giving effect to such Purchase, the outstanding Capital of
Receivable Interests owned by all Purchasers and all Banks would exceed the
Purchase Limit or
(ii) in the case of the Conduit, a notice of termination in whole of the
Purchase Limit has been delivered to the Seller by the Agent and has become
effective.
Nothing in this Agreement shall be deemed to be or construed as a commitment
by the Conduit to purchase, or a commitment by the Seller to sell, any
Receivable Interest at any time.
(b) The Agent, on behalf of the Purchasers, may, at any time, by written
notice to the Seller terminate in whole the Purchase Limit, such termination
to become effective at the close of business on the last day of the
Settlement Period following the Settlement Period in which such notice is
given.
(c) The Seller may, upon at least five Business Days' notice to the Agent,
terminate in whole or reduce in part the unused portion of the Purchase
Limit; provided, however, that for purposes of this Section 2.02(c), the
unused portion of the Purchase Limit shall be computed as the excess of (i)
the Purchase Limit immediately prior to giving effect to such termination or
reduction over (ii) the aggregate Capital of all Receivable Interests
outstanding under this Agreement; provided, further, that each partial
reduction shall be in the amount of at least $5,000,000 and shall be an
integral multiple of $1,000,000.
(d) Until the Agent gives the Seller the notice provided in Section
3.02(b)(iv), the Agent, on behalf of the Purchasers which own Receivable
Interests, may have the Collections attributable to such Receivable Interests
automatically reinvested pursuant to Section 2.06 in additional undivided
percentage interests in the Pool Receivables by making an appropriate
readjustment of the Receivable Interest Percentage. The Agent, on behalf of
the Banks which own Receivable Interests, shall have the Collections
attributable to such Receivable Interests automatically reinvested pursuant
to Section 2.06 in additional undivided percentage interests in the Pool
Receivables by making an appropriate readjustment of such Receivable Interest
Percentage.
(e) Interests in all Receivable in existence on the date of the initial
Purchase (and all related security with respect to such Receivables)
(collectively, the "Sold Receivables") have heretofore been sold to the
Agent, on behalf of the Purchasers and the Banks, pursuant to the Original
Purchase Agreement (as such term is defined in the Originator Purchase
Agreement). The Seller, with the consent of the Agent and the Originator,
hereby assumes, as of the date of the initial Purchase hereunder, all of the
Originator's rights and obligations under the Original Purchase Agreement
with respect to the Sold Receivables; the Seller, the Agent and the Conduit
agree that from and after the initial Purchase hereunder the terms of the
Seller's rights and obligations with respect to the Sold Receivables shall be
governed by this Agreement and the Original Purchase Agreement shall
terminate; and both the Seller and the Conduit agree that the purchase price
for the initial Purchase hereunder shall be reduced by the aggregate purchase
price received by the Originator with respect to the Sold Receivables under
the Original Purchase Agreement.
SECTION 2.03. Making Purchases from the Seller. (a) Each Purchase by the
Conduit or the Banks shall be made on at least three Business Days' notice
from the Seller to the Agent. Each such notice of a Purchase shall specify
(i) the amount requested to be paid to the Seller (such amount, which shall
not be less than $5,000,000, being referred to herein as the initial
"Capital" of the Receivable Interest then being purchased) and (ii) the date
of such Purchase (which shall be a Business Day). The Agent shall promptly
thereafter transmit such request to the Conduit and the Banks. The Agent
shall promptly thereafter verbally notify the Seller whether the Conduit has
determined to make a Purchase and, if so, whether all of the terms specified
by the Seller are acceptable to the Conduit. If the Conduit has determined
not to make a proposed Purchase, the Agent shall promptly notify all of the
Banks concurrently by telecopier, telex or cable specifying the date of such
Purchase, each Bank's Percentage multiplied by the aggregate amount of
Capital of the Receivable Interest being purchased and whether the Yield for
such Receivable Interest is calculated based on the Eurodollar Rate (which
may be selected only if such notice is given at least two Business Days prior
to the purchase date) or the Alternate Base Rate.
(b) On the date for the Purchase of a Receivable Interest, the Conduit or
the Banks, as the case may be, shall, upon satisfaction of the applicable
conditions set forth in Article III, make available to the Agent at its
address specified on the signature page to this Agreement an amount equal to
the initial Capital of such Receivable Interest in same day funds. After
receipt by the Agent of such funds, the Agent will make such funds
immediately available to the Seller at Fleet National Bank, Hartford,
Connecticut, ABA # 011500010, Account # 9370212175, or at such other account
as the Seller may notify the Agent in writing.
(c) Effective on the date of each Purchase pursuant to this Section 2.03 and
each reinvestment, the Seller hereby sells and assigns to the Agent, for the
benefit of the parties making such Purchase, an undivided percentage
ownership interest, to the extent of the Receivable Interest Percentage, in
each Pool Receivable then existing and in the Related Security and
Collections with respect thereto.
(d) Notwithstanding the foregoing, a Bank shall not be obligated to make
Purchases under this Section 2.03 at any time in an amount which would exceed
such Bank's Bank Commitment less (in the case of any Bank other than
Citibank) the outstanding and unpaid amount of any purchases made by such
Bank under any asset purchase agreement related hereto. Each Bank's
obligation shall be several, such that the failure of any Bank to make
available to the Seller any funds in connection with any Purchase shall not
relieve any other Bank of its obligation, if any, hereunder to make funds
available on the date of such Purchase, but no Bank shall be responsible for
the failure of any other Bank to make funds available in connection with any
Purchase.
SECTION 2.04. Receivable Interest Percentage Computation. The Receivable
Interest Percentage shall be initially computed on the date of purchase of
the applicable Receivable Interest. Thereafter until the Termination Date
for such Receivable Interest, such Receivable Interest Percentage shall be
automatically recomputed (or deemed to be recomputed) on each day other than
a Liquidation Day. Any Receivable Interest Percentage, as computed (or
deemed recomputed) as of the day immediately preceding the Termination Date
for such Receivable Interest, shall there-after remain constant. Such
Receivable Interest shall become zero when Capital thereof and Yield thereon
shall have been paid in full, and all other amounts owed by the Seller
hereunder to the Purchasers, the Banks or the Agent are paid and the
Collection Agent shall have received the accrued Collection Agent Fee
thereon.
SECTION 2.05. Fees. (a) The Seller shall pay to the Agent certain fees in
the amounts and on the dates set forth in the Fee Agreement.
(b) In consideration of the purchase by the Purchaser and/or the Banks of
Receivable Interests as herein provided, the Seller agrees to pay to the
Collection Agent the Collection Agent Fee. The Collection Agent Fee shall be
payable only from Collections pursuant to, and subject to the priority of
payment set forth in, Section 2.06.
SECTION 2.06. Settlement Procedures. (a) Collection of the Pool Receivables
shall be administered by a Collection Agent, in accordance with the terms of
Article VI of this Agreement. The Seller shall provide to the Collection
Agent (if other than the Seller) on a timely basis all information needed for
such administration, including notice of the occurrence of any Liquidation
Day and current computations of the Receivable Interest Percentage.
(b) Within two Business Days following its receipt of any item of payment
with respect to the Pool Receivables (including, without limitation, cash,
checks, money orders, wire transfers and automated clearing house payments),
the Collection Agent shall deposit such item into the Collection Account.
Except during the continuance of an Event of Termination or Incipient Event
of Termination or as otherwise required in this Agreement, funds received in
the Collection Account shall be transferred to an account designated by the
Seller for the benefit of the Collection Agent. The Collection Agent shall,
on each day on which it receives any such funds:
(i) set aside on its books and hold in trust for the Purchasers or the
Banks that hold such Receivable Interest out of the applicable Receivable
Interest Percentage of such Collections an amount equal to the Yield and
Collection Agent Fee accrued through such day for such Receivable Interest
and not previously set aside;
(ii) if such day is not a Liquidation Day for such Receivable Interest,
reinvest with the Seller on behalf of the Purchasers or the Banks that hold
such Receivable Interest the percentage of such Collections represented by
such Receivable Interest Percentage, to the extent representing a return of
Capital, by recomputation of such Receivable Interest Percentage pursuant to
Section 2.04;
(iii) if such day is a Liquidation Day for such Receivable Interest, set
aside, hold in trust and segregate for the Purchasers or the Banks that hold
such Receivable Interest the entire remainder of such percentage of
Collections; provided that if amounts are set aside and held in trust on any
Liquidation Day occurring prior to the Termination Date, and thereafter
during such Settlement Period the conditions set forth in Section 3.02 are
satisfied or waived by the Agent, such previously set aside amounts shall, to
the extent representing a return of Capital, be reinvested in accordance with
the preceding subsection (ii) on the day of such subsequent satisfaction or
waiver of conditions; and
(iv) during such times as amounts are required to be reinvested in
accordance with the foregoing subsection (ii) or the proviso to subsection
(iii), apply any Collections in excess of such amounts or in excess of the
amounts that are required to be set aside pursuant to subsection (i) above to
the payment of any "Purchase Price" (including any "Deferred Purchase Price",
as such terms are defined in the Originator Purchase Agreement) then due and
release the balance, if any, to the Seller.
(c) On each Settlement Date, the Collection Agent, on behalf of the Seller,
shall deposit funds equal to the lesser of (x) the Collections received or
deemed received during the preceding Settlement Period which are held or
required to be held for the benefit of the Purchasers or the Banks pursuant
to Section 2.06(b) or 2.06(e) and (y) an amount sufficient to make the
distributions set forth in clauses (i) and (ii) below in account #4070-3544
at Citibank or to such other account designated by the Agent therefor
(provided, however, that so long as the Collection Agent is the Originator
and no Event of Termination or Incipient Event of Termination has occurred,
the Collection Agent may, on the last day of each month following each
Settlement Date, retain from such funds an amount equal to the accrued
Collection Agent Fee as of such Settlement Date, instead of including such
amount in the deposit made on such Settlement Date.) Upon receipt of such
funds, the Agent shall distribute them as follows:
(i) if such distribution occurs on a day that is not a Liquidation Day,
first to the Purchasers or the Banks that hold the relevant Receivable
Interest in payment in full of all accrued Yield and then to the Collection
Agent in payment in full of all accrued Collection Agent Fees; and
(ii) if such distribution occurs on a Liquidation Day, first to the
Purchasers or the Banks that hold the relevant Receivable Interest in payment
in full of all accrued Yield, second to such Purchasers or Banks in reduction
to zero of all Capital, third to such Purchasers, Banks or the Agent in
payment of any other amounts owed by the Seller hereunder, and fourth to the
Collection Agent in payment in full of all accrued Collection Agent Fee.
After the Capital and Yield and Collection Agent Fee with respect to a
Receivable Interest, and any other amounts payable by the Seller to the
Purchasers, the Banks or the Agent hereunder, have been paid in full, all
additional Collections with respect to such Receivable Interest shall revert
to and be paid to the Seller for its own account.
(e) For the purposes of this Section 2.06:
(i) if on any day the Outstanding Balance of any Pool Receivable is
reduced or adjusted as a result of any defective, rejected, returned,
repossessed or foreclosed merchandise or services, or any cash discount,
other promotional adjustment or other retroactive credit made by the Seller
or the Originator, the Seller shall be deemed to have received on such day a
Collection of such Pool Receivable in the amount of such reduction or
adjustment;
(ii) if on any day any of the representations or warranties in Section
4.01(i) is no longer true with respect to any Pool Receivable, the Seller
shall be deemed to have received on such day a Collection of such Pool
Receivable in full; and
(iii) except as provided in paragraph (i) or (ii) of this subsection
2.06(e), or as otherwise required by applicable law or the relevant Contract,
all Collections received from an Obligor of any Receivables shall be applied
to the Receivables of such Obligor in the order of the age of such
Receivables, starting with the oldest such Receivable, unless such Obligor
designates its payment for application to specific Receivables.
(f) If and to the extent that the Agent, any Purchaser or any Bank shall be
required for any reason to pay over to an Obligor any amount received on its
behalf hereunder, such amount shall be deemed not to have been so received
but rather to have been retained by the Seller and, accordingly, such
Purchaser, the Agent or such Bank, as the case may be, shall have a claim
against the Seller for such amount, payable when and to the extent that any
distribution from or on behalf of such Obligor is made in respect thereof.
SECTION 2.07. Payments and Computations, Etc. (a) All amounts to be paid or
deposited by the Seller or the Collection Agent hereunder shall be paid or
deposited in accordance with the terms hereof no later than 11:00 A.M. (New
York City time) on the day when due in lawful money of the United States of
America in immediately available funds at the office of Citibank specified on
the signature page hereto.
(b) The Seller shall, to the extent permitted by applicable law, pay
interest to the Agent on any amount not paid by the Seller when required to
be paid by it hereunder, at an interest rate per annum equal to the Alternate
Base Rate, payable on demand; provided, however, that such interest rate
shall not at any time exceed the maximum rate permitted by applicable law.
Such interest shall be for the account of, and shall be distributed to, the
Purchasers or the Banks, as the case may be, ratably in accordance with their
respective interests in such overdue amount and shall be paid by the Seller
free and clear of and without deduction for any taxes of any kind whatsoever.
(c) All computations of interest under subsection (b) above and all
computations of fees hereunder shall be made on the basis of a year of 360
days for the actual number of days (including the first but excluding the
last day) elapsed. Whenever any payment or deposit to be made hereunder
shall be stated to be due on a day other than a Business Day, such payment or
deposit shall be made on the next succeeding Business Day and such extension
of time shall in such case be included in the computation of such payment or
deposit.
SECTION 2.08. Increased Costs. (a) If CNAI, any Purchaser, any Bank, any
entity which enters into a commitment to purchase Receivable Interests or
interests therein, or any of their respective Affiliates (each an "Affected
Person") determines that compliance with any law or regulation or any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount
of the capital required or expected to be maintained by such Affected Person
and such Affected Person determines that the amount of such capital is
increased by or based upon the existence of any commitment to make purchases
of or otherwise to maintain the investment in Pool Receivables or interests
therein related to this Agreement or to the funding thereof and other
commitments of the same type, then, upon demand by such Affected Person (with
a copy to the Agent), the Seller shall immediately pay to the Agent for the
account of such Affected Person (as a third-party beneficiary), from time to
time as specified by such Affected Person, additional amounts sufficient to
compensate such Affected Person in the light of such circumstances, to the
extent that such Affected Person reasonably determines such increase in
capital to be allocable to the existence of any of such commitments. A
certificate as to such amounts submitted to the Seller and the Agent by such
Affected Person shall be conclusive and binding for all purposes, absent
manifest error.
(b) If, due to either (i) the introduction of or any change in or in the
interpretation of any law or regulation or (ii) compliance with any guideline
or request from any central bank or other governmental authority (whether or
not having the force of law), there shall be any increase in the cost to any
Purchaser or Bank of agreeing to purchase or purchasing, or maintaining the
ownership of Receivable Interests in respect of which Yield is computed by
reference to a Eurodollar Rate, then, upon demand by such Purchaser or Bank
(with a copy to the Agent), the Seller shall immediately pay to the Agent,
for the account of such Purchaser or Bank (as a third-party beneficiary),
from time to time as specified by such Purchaser or Bank, additional amounts
sufficient to compensate such Purchaser or Bank for such increased costs. A
certificate as to such amounts submitted to the Seller and the Agent by such
Purchaser or Bank shall be conclusive and binding for all purposes, absent
manifest error.
SECTION 2.09. Additional Yield on Receivable Interests Bearing a Eurodollar
Rate. The Seller shall pay to any Purchaser or Bank, so long as such
Purchaser or Bank shall be required under regulations of the Board of
Governors of the Federal Reserve System to maintain reserves with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities,
additional Yield on the unpaid Capital of each Receivable Interest of such
Purchaser or Bank during each Settlement Period in respect of which Yield is
computed by reference to the Eurodollar Rate, for such Settlement Period, at
a rate per annum equal at all times during such Settlement Period to the
remainder obtained by subtracting (i) the Eurodollar Rate for such Settlement
Period from (ii) the rate obtained by dividing such Eurodollar Rate referred
to in clause (i) above by that percentage equal to 100% minus the Eurodollar
Rate Reserve Percentage of such Purchaser or Bank for such Settlement Period,
payable on each date on which Yield is payable on such Receivable Interest.
Such additional Yield shall be determined by such Purchaser or Bank and
notice thereof given to the Seller through the Agent within 30 days after any
Yield payment is made with respect to which such additional Yield is
requested. A certificate as to such additional Yield submitted to the Seller
and the Agent by such Purchaser or Bank shall be conclusive and binding for
all purposes, absent manifest error.
SECTION 2.10. Security Interest. As collateral security for the performance
by the Seller of all the terms, covenants and agreements on the part of the
Seller (whether as Seller or otherwise) to be performed under this Agreement
or any document delivered in connection with this Agreement in accordance
with the terms thereof, including the punctual payment when due of all
obligations of the Seller hereunder or thereunder, whether for
indemnification payments, fees, expenses or otherwise, the Seller hereby
assigns to the Agent for its benefit and the ratable benefit of the
Purchasers and the Banks, and hereby grants to the Agent for its benefit and
the ratable benefit of the Purchasers and the Banks, a security interest in,
all of the Seller's right, title and interest in and to (a) the Originator
Purchase Agreement, including, without limitation, (i) all rights of the
Seller to receive moneys due or to become due under or pursuant to the
Originator Purchase Agreement, (ii) all security interests and property
subject thereto from time to time purporting to secure payment of monies due
or to become due under or pursuant to the Originator Purchase Agreement,
(iii) all rights of the Seller to receive proceeds of any insurance,
indemnity, warranty or guaranty with respect to the Originator Purchase
Agreement, (iv) claims of the Seller for damages arising out of or for breach
of or default under the Originator Purchase Agreement and (v) the right of
the Seller to compel performance and otherwise exercise all remedies
thereunder, (b) all Receivables, the Related Security with respect thereto
and the Collections and all other assets, including, without limitation,
accounts, instruments and general intangibles (as those terms are defined in
the UCC) owned by the Seller and not otherwise purchased or scheduled to be
purchased under this Agreement and (c) to the extent not included in the
foregoing, all proceeds of any and all of the foregoing.
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Initial Purchase. The initial
Purchase hereunder is subject to the conditions precedent that the Agent
shall have received on or before the date of such Purchase the following,
each in form and substance satisfactory to the Agent:
(a) A copy of the resolutions of the Board of Directors of each of the
Seller and the Originator authorizing this Agreement and the Originator
Purchase Agreement and the other documents to be delivered by it hereunder
and thereunder and the transactions contemplated hereby and thereby,
certified by its Secretary or Assistant Secretary.
(b) A certificate of the Secretary or Assistant Secretary of each of the
Seller and the Originator certifying the names and true signatures of the
officers authorized on its behalf to sign this Agreement and the Originator
Purchase Agreement and the other documents to be delivered by it hereunder
and thereunder (on which certificate the Agent, the Purchasers and the Banks
may conclusively rely unless and until such time as the Agent shall receive
from the Seller or the Originator a replacement certificate meeting the
requirements of this subsection (b)).
(c) Acknowledgment copies or time stamped receipt copies of proper Financing
Statements (Form UCC-1), duly filed on or before the date of such initial
Purchase under the UCC of all appropriate jurisdictions or any comparable law
that the Agent may deem necessary or desirable in order to perfect the
ownership and security interests in all Receivables and Related Security
contemplated by this Agreement and the Originator Purchase Agreement.
(d) Acknowledgment copies or time stamped receipt copies of proper Financing
Statements (Form UCC-3), if any, necessary to release all security interests
and other rights of any person in (i) the Receivables and Related Security
previously granted by the Seller or the Originator and (ii) the collateral
security referred to in Section 2.10 previously granted by the Seller.
(e) Certified copies of requests for information or copies (Form UCC-11) (or
a similar search report certified by a party acceptable to the Agent), dated
a date reasonably near to the date of the initial Purchase, listing all
effective financing statements which name the Seller or the Originator (under
its present name and any previous name) as debtor and which are filed in the
jurisdictions in which filings were made pursuant to subsection (c) above,
together with copies of such financing statements (none of which, other than
the financing statements filed pursuant to subsection (c), shall cover any
Receivables, Related Security or Contracts or the collateral security
referred to in Section 2.10).
(f) The Fee Agreement referred to in Section 2.05.
(g) A favorable opinion or opinions of counsel for the Seller and the
Originator, in substantially the form of Exhibit E and as to such other
matters as the Agent may reasonably request.
(h) A favorable opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP,
counsel for the Agent, as the Agent may reasonably request.
(i) A letter agreement with Fleet National Bank acknowledging the Agent's
dominion and control over the Collection Account, duly executed by Fleet
National Bank, the Originator and the Seller.
(j) A letter agreement acknowledging the Agent's dominion and control over
the Supplemental Collection Account, duly executed by the Originator and the
Seller.
(k) An executed copy of the Originator Purchase Agreement.
(l) A copy of the by-laws of the Seller, certified by the Secretary or
Assistant Secretary of the Seller.
(m) A copy of the certificate or articles of incorporation of the Seller,
certified as of a recent date by the Secretary of State or other appropriate
official of the state of its organization, and a certificate as to the good
standing of the Seller from such Secretary of State or other official, dated
as of a recent date.
SECTION 3.02. Conditions Precedent to All Purchases. Each Purchase
(including the initial Purchase) and each reinvestment hereunder shall be
subject to the further conditions precedent that:
(a) the Collection Agent shall have prepared and forwarded to the Agent, for
each Purchaser and each Bank, on or prior to the 18th day of each month, a
Seller Report related to each Receivable Interest owned by such Purchaser or
Bank as of the close of business of the Seller on the last day of the
preceding Settlement Period and containing such additional information as may
be reasonably requested by the Agent;
(b) on the date of such Purchase or reinvestment the following statements
shall be true, except that the statement in clause (iv) below is required to
be true only if such Purchase or reinvestment is by a Purchaser (and the
Seller by accepting a payment of Capital shall be deemed to have certified
that):
(i) the representations and warranties contained in Section 4.01 of
this Agreement are correct on and as of such date as though made on and as of
such date,
(ii) no event has occurred and is continuing, or would result from such
Purchase, which constitutes an Event of Termination or Incipient Event of
Termination,
(iii) on such date, all of the Originator's long-term public senior
debt securities are rated at least BB- by Standard & Poor's or Ba3 by
Moody's,
(iv) the Agent shall not have given the Seller at least one Business
Day's notice that the Purchasers have terminated new Purchases of Receivable
Interests or reinvestments therein, and
(v) the Originator shall have sold or contributed to the Seller,
pursuant to the Originator Purchase Agreement, all Pool Receivables then
outstanding; and
(c) the Agent shall have received such other approvals, opinions or
documents as the Agent may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller. The Seller
represents and warrants as follows:
(a) The Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Connecticut.
(b) The execution, delivery and performance by the Seller of the Transaction
Documents and the other instruments and documents to be delivered by it
hereunder, and the transactions contemplated hereby and thereby, including
the Seller's use of the proceeds of Purchases and reinvestments, are within
the Seller's corporate powers, have been duly authorized by all necessary
corporate action, do not contravene (i) the Seller's charter and by-laws,
(ii) any law, rule or regulation applicable to the Seller, (iii) any
contractual restriction binding on or affecting the Seller or its property or
(iv) any order, writ, judgment, award, injunction or decree binding on or
affecting the Seller or its property, and (except as contemplated hereby) do
not result in or require the creation of any lien, security interest or other
charge or encumbrance upon or with respect to any of its properties; and no
transaction contemplated hereby requires compliance with any bulk sales act
or similar law. Each of the Transaction Documents to which the Seller is a
party has been duly executed and delivered by the Seller.
(c) No authorization, approval, declaration, order or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Seller of the
Transaction Documents to which the Seller is a party or any other document or
instrument to be delivered hereunder except for such as have been
accomplished and except for the filing of the UCC Financing Statements
referred to in Article III, all of which, at the time required in Article
III, shall have been duly made and shall be in full force and effect.
(d) Each of the Transaction Documents to which the Seller is a party
constitutes the legal, valid and binding obligation of the Seller enforceable
against the Seller in accordance with its terms.
(e) This Agreement evidences the transfer to the Agent, for the benefit of
the Purchasers and the Banks, as the case may be, of legal and equitable
title to, and ownership of, an undivided percentage ownership interest in
Receivables to the extent of the applicable Receivable Interest Percentage.
(f) The consolidated balance sheet of the Originator as at December 31,
1996, and the related statements of income and retained earnings of the
Originator for the year then ended (the "Financial Statements"), copies of
which have been furnished to the Agent, fairly present the financial
condition of the Originator and its Subsidiaries as of such date and the
results of the operations of the Originator and its Subsidiaries for the
period ended on such date, all in accordance with generally accepted
accounting principles consistently applied, and since December 31, 1996 there
has not occurred any event which may materially adversely affect the
collectibility of the Pool Receivables or the ability of the Originator to
collect Pool Receivables or otherwise perform its obligations under this
Agreement. The opening pro forma balance sheet of the Seller as at September
30, 1997, giving effect to the initial Purchase to be made under this
Agreement, a copy of which has been furnished to the Agent, fairly presents
the financial condition of the Seller as at such date, in accordance with
generally accepted accounting principles, and since September 30, 1997 there
has not occurred any event which may materially adversely affect the
collectibility of the Pool Receivables or the ability of the Seller to
collect Pool Receivables or otherwise perform its obligations under this
Agreement.
(g) There are no actions, suits or proceedings pending, or to the knowledge
of the Seller or the Originator threatened, against or affecting the
Originator or any Significant Subsidiary, or the property of the Originator
or of any Significant Subsidiary, except as otherwise disclosed in the
Financial Statements and the Public Disclosure Documents, in any court, or
before any arbitrator of any kind, or before or by any governmental body,
which may materially adversely affect the collectibility of the Receivables
Pool or the ability of the Seller or the Originator to collect Pool
Receivables or otherwise perform their respective obligations under the
Transaction Documents. Neither the Originator nor any Significant Subsidiary
is in default with respect to any order of any court, arbitrator or
governmental body except for defaults, if any, which are not material to the
business or operations of the Originator or any Significant Subsidiary.
(h) No proceeds of any Purchase or reinvestment will be used by the Seller
to acquire any security in any transaction which is subject to Section 13 or
14 of the Securities Exchange Act of 1934, as amended.
(i) Each Pool Receivable (i) at the time that the Purchasers or the Banks
initially purchase an undivided percentage ownership interest in such Pool
Receivable from the Seller, is owned by the Seller free and clear of any
Adverse Claim and (ii) together with the Contract related thereto, at all
times after such time is free and clear of any Adverse Claim except as
otherwise specifically provided hereunder. Upon each Purchase of a
Receivable Interest and each reinvestment, the Agent, for the benefit of the
Purchasers or the Banks, as the case may be, will acquire a valid and
perfected first priority undivided percentage ownership interest (to the
extent of such Receivable Interest) in each Pool Receivable then existing or
thereafter arising and in the Related Security (to the extent able to be
perfected by filing), related Contract and (subject to Section 9-306 of the
UCC) Collections with respect thereto free and clear of any Adverse Claim
except as provided hereunder; and no effective financing statement or other
instrument similar in effect covering any such Receivable or the Related
Security, related Contract and Collections with respect thereto is on file in
any recording office, or otherwise effective, except such as may be filed in
favor of the Agent in accordance with this Agreement and those filed by the
Seller pursuant to the Originator Purchase Agreement.
(j) No Seller Report (if prepared by the Seller, or any Person with which
the Seller has subcontracted pursuant to Section 6.01, or to the extent that
information contained therein is supplied by the Seller or such other
Person), information, exhibit, financial statement, document, book, record or
report furnished or to be furnished by the Seller to the Agent, any Purchaser
or any Bank in connection with this Agreement is inaccurate in any material
respect or omits to state a material fact or any fact necessary to make the
statements contained therein not materially misleading.
(k) The chief place of business and chief executive office of the Seller and
the offices where the Seller keeps all its books, records and documents
evidencing Pool Receivables or the related Contracts are located at the
address specified in Section 5.01(f), in jurisdictions where all action
required by Section 6.05 has been taken and completed.
(l) The Seller has not (i) extended, modified or waived any of the terms of
any Contract giving rise to a Pool Receivable or (ii) made any change in its
Credit and Collection Policy except, in either case, as permitted by Section
5.03(c).
(m) Each Purchase of a Receivable Interest hereunder and each reinvestment
will constitute (i) a "current transaction" within the meaning of Section
3(a)(3) of the Securities Act of 1933, as amended, and (ii) a purchase or
other acquisition of notes, drafts, acceptances, open accounts receivable or
other obligations representing part or all of the sales price of merchandise,
insurance or services within the meaning of Section 3(c)(5) of the Investment
Company Act of 1940, as amended.
(n) On any date, the Net Receivables Pool Balance will not be less than 105%
of the sum of Capital, Yield Reserve, Collection Agent Fee Reserve and Loss
and Dilution Reserve for all Receivable Interests on such date; provided that
no breach of the representation contained in this subsection (n) shall be
deemed to have occurred if the condition set forth herein shall be cured
within three Business Days after the Seller shall become aware of such
condition.
(o) Neither the Seller nor the Originator is known by or uses any tradename
or doing-business-as name in the origination or collection of any of the
Receivables.
(p) The Seller was incorporated on September 5, 1997, and did not engage in
any business activities prior to the date of this Agreement. The Seller has
no Subsidiaries.
(q) (i) The fair value of the property of the Seller is greater than the
total amount of liabilities, including contingent liabilities, of the Seller,
(ii) the present fair salable value of the assets of the Seller is not less
than the amount that will be required to pay all probable liabilities of the
Seller on its debts as they become absolute and matured, (iii) the Seller
does not intend to, and does not believe that it will, incur debts or
liabilities beyond the Seller's abilities to pay such debts and liabilities
as they mature and (iv) the Seller is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction, for
which the Seller's property would constitute unreasonably small capital.
(r) With respect to each Pool Receivable as to which any Receivable Interest
is outstanding, the Seller either (i) received such Pool Receivable as a
contribution to the capital of the Seller by the Originator or (ii) purchased
such Pool Receivable from the Originator in exchange for payment (made by the
Seller to the Originator in accordance with the provisions of the Originator
Purchase Agreement) of cash, Deferred Purchase Price, or a combination
thereof in an amount which constitutes fair consideration and reasonably
equivalent value. Each such sale referred to in clause (ii) of the preceding
sentence was not made for or on account of an antecedent debt owed by the
Originator to the Seller and no such sale is or may be voidable or subject to
avoidance under any section of the Federal Bankruptcy Code.
ARTICLE V
GENERAL COVENANTS
SECTION 5.01. Affirmative Covenants of the Seller and the Originator. Until
the latest of the Facility Termination Date, the Commitment Termination Date,
the date that the Capital and Yield with respect to all Receivable Interests
shall be paid in full or the date all other amounts owed by the Seller
hereunder to the Purchasers, the Banks or the Agent are paid in full, the
Seller and the Originator will each, unless the Agent shall otherwise consent
in writing:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders with respect to it, its
business and properties and all Pool Receivables, Related Security and
related Contracts, except to the extent any such failure to comply is being
contested in good faith by appropriate proceedings or any such failure would
not have a material adverse effect on the collectibility of the Receivables
Pool or the ability of the Seller or the Originator to perform their
respective obligations under this Agreement and the related documents.
(b) Preservation of Corporate Existence. Preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified in good standing as a
foreign corporation in each jurisdiction where the failure to preserve and
maintain such existence, rights, franchises, privileges and qualification
would materially adversely affect the interests of any Purchaser, any Bank or
the Agent hereunder or in the Pool Receivables, or the ability of the Seller
or the Collection Agent to perform their respective obligations under this
Agreement.
(c) Audits. At any time and from time to time during regular business hours
as requested by the Agent, permit the Agent, or its agents or representatives
(including independent public accountants, which may be the Seller's or the
Originator's independent public accountants), (i) to conduct periodic audits
of the Pool Receivables, the Related Security and the related books and
records and collections systems of the Seller or the Originator, as the case
may be, (ii) to examine and make copies of and abstracts from all books,
records and documents (including, without limitation, computer tapes and
disks) in the possession or under the control of the Seller or the
Originator, as the case may be, relating to Pool Receivables and the Related
Security, including, without limitation, the related Contracts, and (iii) to
visit the offices and properties of the Seller or the Originator, as the case
may be, for the purpose of examining such materials described in clause (ii)
above, and to discuss matters relating to Pool Receivables and the Related
Security or the Seller's or the Originator's performance under the
Transaction Documents or under the Contracts with any of the officers or
employees of the Seller or the Originator, as the case may be, having
knowledge of such matters. In addition, upon the Agent's request at least
once per year, the Seller will, at its expense, appoint independent public
accountants (which may be the Originator's regular independent public
accountants, Arthur Andersen, LLP, or other major nationally recognized
independent public accountants), or utilize the Agent's representatives or
auditors, to prepare and deliver to the Agent a written report with respect
to the Pool Receivables and the Credit and Collection Policy (including, in
each case, the systems, procedures and records relating thereto) on a scope
and in a form set forth in Exhibit F hereto or in such other form as may be
reasonably requested by the Agent. In connection herewith and unless
otherwise required by applicable law, the Agent agrees to maintain the
confidentiality of all results of such inspections (except that the Agent
shall have no obligation or confidentiality in respect of any information
which may be generally available to the public or becomes available to the
public through no fault of the Agent).
(d) Keeping of Records and Books of Account. Maintain and implement, or
cause to be maintained and implemented, administrative and operating
procedures (including, without limitation, an ability to recreate records
evidencing Pool Receivables and related Contracts in the event of the
destruction of the originals thereof), and keep and maintain, or cause to be
kept and maintained, all documents, books, records and other information
reasonably necessary or advisable for the collection of all Pool Receivables
(including, without limitation, records adequate to permit the daily
identification of each Pool Receivable and all Collections of and adjustments
to each existing Pool Receivable).
(e) Performance and Compliance with Receivables and Contracts. At its
expense timely and fully perform and comply with all material provisions,
covenants and other promises required to be observed by it under the
Contracts related to the Pool Receivables.
(f) Location of Records. Keep its chief place of business and chief
executive office, and the offices where it keeps its records concerning the
Pool Receivables and all Contracts related thereto (and all original
documents relating thereto), at the address of the Seller or the Originator,
as the case may be, set forth under its name on the signature pages to this
Agreement or (i) in the case of such records and Contracts, at the
Originator's offices in Wethersfield, Connecticut or (ii) upon 30 days' prior
written notice to the Agent, at such other locations in a jurisdiction where
all action required by Section 6.05 shall have been taken and completed.
(g) Credit and Collection Policies. Comply in all material respects with
the Credit and Collection Policy in regard to each Pool Receivable and the
related Contract.
(h) Collections. Take all actions necessary to ensure that all items of
payment with respect to Pool Receivables (including, without limitation,
cash, checks, money orders, wire transfers and automated clearing house
payments) are deposited in the Collection Account within two Business Days
following receipt thereof.
(i) Supplemental Collection Account. Within 30 days after the date hereof,
obtain the agreement of Fleet National Bank to the letter agreement relating
to the Supplemental Collection Account referred to in Section 3.01(j).
SECTION 5.02. Reporting Requirements of the Seller. Until the latest of the
Facility Termination Date, the Commitment Termination Date, the date that the
Capital and Yield with respect to all Receivable Interests shall be paid in
full or the date all other amounts owed by the Seller hereunder to the
Purchasers, the Banks or the Agent are paid in full, the Seller will, unless
the Agent shall otherwise consent in writing, furnish or cause to be
furnished to the Agent:
(a) as soon as available and in any event within 60 days after the end of
each of the first three quarters of each fiscal year of the Originator a copy
of the Originator's Quarterly Report on Form 10-Q for such quarter;
(b) as soon as available and in any event within 105 days after the end of
each fiscal year of the Originator a copy of the Originator's Annual Report
on Form 10-K, for such fiscal year;
(c) upon request by the Agent, copies of all reports which the Originator
sends to any holders of its publicly held securities and copies of all
reports and registration statements which the Originator files with the
Securities and Exchange Commission or any national securities exchange;
(d) promptly after the filing or receiving thereof, copies of all reports
and notices with respect to any Reportable Event (as defined in Article IV of
ERISA) which the Originator or any Significant Subsidiary files under ERISA
with the Internal Revenue Service or the Pension Benefit Guaranty Corporation
or the U.S. Department of Labor or which the Originator or any Significant
Subsidiary receives from any of the foregoing in each case in respect of the
assessment of withdrawal liability or event or condition which could, in the
aggregate, result in the imposition of liability on the Originator in excess
of $10,000,000;
(e) as soon as possible and in any event within five days after an officer
of the Seller obtains knowledge of the occurrence of an Event of Termination
or an Incipient Event of Termination, the statement of the chief financial
officer or chief accounting officer or the Treasurer or an Assistant
Treasurer of the Seller setting forth the details of such Event of
Termination or Incipient Event of Termination and the action that the Seller
proposes to take with respect thereto;
(f) upon the request of the Agent, a list of the Receivables in which each
Purchaser and each Bank has purchased an undivided percentage ownership
interest hereunder;
(g) promptly, from time to time, such other information, documents, records
or reports respecting the Receivables or Related Security or the conditions
or operations, financial or otherwise, of the Originator or any Significant
Subsidiary as the Agent may from time to time reasonably request in order to
protect any Purchaser's, any Bank's or the Agent's interests under or
contemplated by this Agreement;
(h) on or prior to the 18th day of each month, such Seller Reports and other
reports, information, documents, books or records as the Agent may reasonably
request;
(i) promptly after the Seller obtains knowledge thereof, notice of any
"Event of Termination" or "Facility Termination Date" under the Originator
Purchase Agreement;
(j) so long as any Capital shall be outstanding, as soon as possible and in
any event no later than the day of occurrence thereof, notice that the
Originator has stopped selling or contributing to the Seller, pursuant to the
Originator Purchase Agreement, all newly arising Pool Receivables;
(k) at the time of the delivery of the financial statements provided for in
clauses (a) and (b) of this paragraph, a certificate of the chief financial
officer or chief accounting officer or the treasurer or an assistant
treasurer of the Seller to the effect that, to the best of such officer's
knowledge, no Event of Termination has occurred and is continuing or, if any
Event of Termination has occurred and is continuing, specifying the nature
and extent thereof; and
(l) promptly after receipt thereof, copies of all notices received by the
Seller from the Originator under the Originator Purchase Agreement.
SECTION 5.03. Negative Covenants of the Seller. Until the latest of the
Facility Termination Date, the Commitment Termination Date, the date that the
Capital and Yield with respect to all Receivable Interests shall be paid in
full or the date all other amounts owed by the Seller hereunder to the
Purchasers, the Banks or the Agent are paid in full, the Seller will not,
without the written consent of the Agent:
(a) Sales, Liens, Etc. Except as otherwise provided herein, sell, assign
(by operation of law or otherwise) or otherwise dispose of, or create or
suffer to exist any Adverse Claim upon or with respect to, the Seller's
undivided interest in any Pool Receivable, Related Security, related Contract
or Collections, or upon or with respect to any lock-box account to which any
Collections of any Pool Receivable are sent, or assign any right to receive
income in respect thereof.
(b) Extension or Amendment of Receivables. Except in conformance with the
Credit and Collection Policy, extend, amend or otherwise modify the terms of
any Pool Receivable, or amend, modify or waive any term or condition of any
Contract related thereto if such action might reduce or impair the rights of
any Purchaser, any Bank or the Agent with respect to any Pool Receivable or
the collectibility or value of any Pool Receivable.
(c) Change in Business or Contracts or Credit and Collection Policy. Make
any change in the character of its business or its Contracts or Credit and
Collection Policy, which change would, in any case, impair the collectibility
of any Pool Receivable.
(d) No Actions Against Obligors. Commence or settle any legal action to
enforce collection of any Pool Receivable except in conformance with the
Credit and Collection Policy.
(e) Deposits to Designated Accounts. Deposit or otherwise credit, or cause
or fail to use commercially reasonable efforts to prevent from being so
deposited or credited, to any Designated Account cash or cash proceeds other
than Collections of Pool Receivables.
SECTION 5.04. Special Covenants Regarding Corporate Separateness, Etc. The
Seller and the Originator each acknowledges that the Agent, each Purchaser
and each Bank is entering into the transactions contemplated hereby in
reliance on the separate legal identity of the Seller. In accordance with
such reliance, the Seller hereby agrees that until the latest of the Facility
Termination Date, the Commitment Termination Date, the date that the Capital
and Yield with respect to all Receivable Interests shall be paid in full or
the date all other amounts owed by the Seller hereunder to the Purchasers,
the Banks or the Agent are paid in full, the Seller shall:
(a) Corporate Separateness. (i) At all times maintain at least one
independent director who (x) is not currently and has not been during the
five years preceding the date of this Agreement an officer, director or
employee of an Affiliate of the Seller or any Other Corporation, (y) is not a
current or former officer or employee of the Seller and (z) is not a
stockholder of any Other Corporation or any of their respective Affiliates.
(ii) Not direct or participate in the management of any of the Other
Corporations' operations.
(iii) Have stationery and other business forms and a telephone number
separate from that of the Other Corporations.
(iv) At all times be adequately capitalized in light of its contemplated
business.
(v) At all times provide for its own operating expenses and liabilities from
its own funds.
(vi) (A) Except as contemplated hereby, maintain its assets and transactions
separately from those of the Other Corporations and reflect such assets and
transactions in financial statements separate and distinct from those of the
Other Corporations and evidence such assets and transactions by appropriate
entries in books and records separate and distinct from those of the Other
Corporations; (B) hold itself out to the public under the Seller's own name
as a legal entity separate and distinct from the Other Corporations; and (C)
not hold itself out as having agreed to pay, or as being liable, primarily or
secondarily, for, any obligations of the Other Corporations.
(vii) Not maintain any joint account with any Other Corporation or become
liable as a guarantor or otherwise with respect to any debt or contractual
obligation of any Other Corporation.
(viii) Not make any payment or distribution of assets with respect to any
obligation of any Other Corporation or grant an Adverse Claim on any of its
assets to secure any obligation of any Other Corporation.
(ix) Not make loans, advances or otherwise extend credit to any of the Other
Corporations except as contemplated hereby and by the Originator Purchase
Agreement.
(x) Hold regular duly noticed meetings of its Board of Directors and make
and retain minutes of such meetings.
(xi) Have bills of sale (or similar instruments of assignment) (except with
respect to purchases of Receivables) and, if appropriate, UCC-1 financing
statements, with respect to all assets purchased from any of the Other
Corporations.
(xii) Not engage in any transaction with any of the Other Corporations,
except as permitted by this Agreement and as contemplated by the Originator
Purchase Agreement.
(xiii) Comply with (and cause to be true and correct) each of the facts
and assumptions contained in Part A on pages 3-6 of the true sale and
non-consolidation opinion of Day, Berry & Howard delivered pursuant to
Section 3.01(g) and designated as Exhibit E to this Agreement.
(b) Originator Purchase Agreement. Not amend, waive or modify any provision
of the Originator Purchase Agreement or waive the occurrence of any "Event of
Termination" under the Originator Purchase Agreement, without in each case
the prior written consent of the Agent. The Seller will perform all of its
obligations under the Originator Purchase Agreement in all material respects
and will enforce the Originator Purchase Agreement in accordance with its
terms in all material respects.
(c) Nature of Business. Not engage in any business other than the purchase
of Receivables, Related Security and Collections from the Originator and the
transactions contemplated by this Agreement or create or form any Subsidiary.
(d) Mergers, Etc. Not merge with or into or consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions), all or substantially all of its assets
(whether now owned or hereafter acquired) to, or acquire all or substantially
all of the assets or capital stock or other ownership interest of, or enter
into any joint venture or partnership agreement with, any Person, other than
as contemplated by this Agreement and the Originator Purchase Agreement.
(e) Distributions, Etc. Not declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities
on account of any shares of any class of capital stock of the Seller, or
return any capital to its shareholders as such, or purchase, retire, defease,
redeem or otherwise acquire for value or make any payment in respect of any
shares of any class of capital stock of the Seller or any warrants, rights or
options to acquire any such shares, now or hereafter outstanding; provided,
however, that the Seller may declare and pay cash dividends on its capital
stock to its shareholders so long as (i) no Event of Termination shall then
exist or would occur as a result thereof, (ii) such dividends are in
compliance with all applicable law including the law of the state of
Connecticut, and (iii) such dividends have been approved by all necessary and
appropriate corporate action of the Seller.
(f) Debt. Not incur any debt, other than any debt incurred pursuant to this
Agreement and the Originator Purchase Agreement, including the Deferred
Purchase Price.
(g) Certificate of Incorporation. Not amend or delete Articles Third,
Fourth, Sixth or Seventh of its certificate of incorporation.
(h) Tangible Net Worth. Maintain Tangible Net Worth at all times equal to
at least 3% of the Outstanding Balance of the Receivables at such time.
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent. The servicing,
administration and collection of the Pool Receivables shall be conducted by
such Person (the "Collection Agent") so designated from time to time in
accordance with this Section 6.01. Until the Agent gives notice to the
Seller of a designation of a new Collection Agent, the Originator is hereby
designated as, and hereby agrees to perform the duties and obligations of,
the Collection Agent pursuant to the terms hereof. The Agent, at any time
after the occurrence of an Event of Termination or Incipient Event of
Termination, upon notice to the Seller, may designate as Collection Agent any
Person (including itself) to succeed the Originator or any successor
Collection Agent, on the condition in each case that any such Person so
designated agrees in writing (a) to perform the duties and obligations of the
Collection Agent pursuant to the terms hereof and (b) to adhere to the
provisions of Section 11.07, which agreement shall survive the termination of
this Agreement or such writing. For purposes of satisfying the condition
contained in the preceding sentence, the Agent hereby agrees that if and when
it shall designate itself as the Collection Agent it shall perform the duties
and obligations of the Collection Agent pursuant to the terms hereof. The
Collection Agent may subcontract with Northeast Utilities Service Company and
may, upon 45 days' notice to the Seller, with the prior consent of the Agent,
subcontract with any other Person for the administration and collection of
the Pool Receivables, provided that the Collection Agent shall remain liable
for the performance of the duties and obligations of the Collection Agent
pursuant to the terms hereof. In performing its duties as Collection Agent,
the Collection Agent shall exercise the same care and apply the same policies
as it would exercise and apply if it owned such Receivables and shall act in
the best interests of the Seller, the Purchasers and the Banks.
SECTION 6.02. Duties of Collection Agent. (a) The Collection Agent shall
(unless the Agent directs otherwise) take or cause to be taken only such
actions as shall be necessary or customary to collect each Pool Receivable
from time to time, all in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and solely in accordance
with the Credit and Collection Policy. The Seller and the Agent hereby
appoint the Collection Agent, from time to time designated pursuant to
Section 6.01, as agent for themselves and for the Purchasers and the Banks to
enforce their respective rights and interests in and under the Pool
Receivables, the Related Security and the related Contracts and to monitor
the Seller's compliance with the terms and conditions set forth in this
Agreement.
(b) The Collection Agent shall not extend, amend or otherwise modify the
terms of any Pool Receivable or amend, modify or waive any term or condition
of any Contract related thereto, or commence or settle any legal action to
enforce collection of any Pool Receivable, except in conformance with the
Credit and Collection Policy.
(c) Upon the Agent's request following the occurrence of any Event of
Termination or Incipient Event of Termination, the Seller shall deliver to
the Collection Agent, and the Collection Agent shall hold in trust, keep
confidential and legend appropriately for the Seller and the Agent, acting on
behalf of each Purchaser and each Bank, in accordance with their respective
interests, all computer tapes or disks which evidence or relate to Pool
Receivables and all documents, instruments and other records which evidence
or relate to Pool Receivables.
(d) The Collection Agent shall as soon as practicable upon demand deliver to
the Seller all documents, instruments and other records (including, without
limitation, computer tapes or disks) in its possession which evidence or
relate to Receivables of the Seller other than Pool Receivables, and copies
of documents, instruments and other records in its possession which evidence
or relate to Pool Receivables.
(e) The Collection Agent shall, at any time and from time to time at the
written request of the Agent, furnish to the Agent (within five Business Days
after any such request) a calculation of the amounts set aside for the
Purchasers and the Banks pursuant to Section 2.06(b).
(f) The Collection Agent shall, to the extent permitted by applicable law,
pay interest to the Agent on any amount not paid by the Collection Agent when
required to be paid by it hereunder, at an interest rate per annum equal to
the Alternate Base Rate, payable on demand; provided, however, that such
interest rate shall not at any time exceed the maximum rate permitted by
applicable law. Such interest shall be for the account of, and shall be
distributed to, the Purchasers and the Banks, as the case may be, entitled
thereto ratably in accordance with their respective interests in such overdue
amount and shall be paid by the Collection Agent free and clear of and
without deduction for any taxes of any kind whatsoever.
(g) The Collection Agent's authorization under this Agreement shall
terminate, after the Facility Termination Date and Commitment Termination
Date, upon receipt by each Purchaser and each Bank which has purchased a
Receivable Interest of the allocable Capital and Yield and upon payment in
full of all other amounts payable to the Agent, each Purchaser, each Bank and
the Collection Agent under this Agreement.
SECTION 6.03. Rights of the Agent. (a) The Agent is hereby authorized, at
any time, upon notice to the Seller after the occurrence of an Event of
Termination or Incipient Event of Termination, to direct the Obligors of Pool
Receivables, or any of them (and the Seller shall at the Agent's request and
at the Seller's expense, direct such Obligors), to make payment of all
amounts payable under any Pool Receivable directly to the Designated Account.
Further, the Agent (upon notice to the Seller and at the Seller's expense)
may, at any time after the occurrence of an Event of Termination or Incipient
Event of Termination, notify the Obligors of Pool Receivables, or any of
them, of the ownership of Receivable Interests by the Purchasers and the
Banks.
(b) At any time after the occurrence of an Event of Termination or Incipient
Event of Termination:
(i) The Agent may direct the Obligors of Pool Receivables, or any of them,
that payment of all amounts payable under any Pool Receivable be made
directly to the Agent or its designee.
(ii) The Seller shall, at the Agent's request and at the Seller's expense,
give notice of the ownership of Receivable Interests by the Agent, for the
benefit of the Purchasers and the Banks to each such Obligor and direct that
payments be made directly to the Agent or its designee.
(iii) The Seller and the Originator shall, at the Agent's request and at
the Seller's expense, (A) assemble all of the documents, instruments and
other records (including, without limitation, computer tapes and disks) which
evidence or relate to the Pool Receivables, and the related Contracts and
Related Security, or which are otherwise necessary or desirable to collect
such Pool Receivables, and shall make the same available to the Agent at a
place selected by the Agent or its designee, and (B) segregate all cash,
checks and other instruments received by it from time to time constituting
Collections of Pool Receivables in a manner acceptable to the Agent and
shall, promptly upon receipt, remit all such cash, checks and instruments,
duly endorsed or with duly executed instruments of transfer, to the Agent or
its designee.
(iv) Each of the Seller, each Purchaser and each Bank hereby authorizes the
Agent to take any and all steps in the Seller's name and on behalf of the
Seller necessary or desirable, in the determination of the Agent, to collect
all amounts due under any and all Pool Receivables, including, without
limitation, endorsing the Seller's name on checks and other instruments
representing Collections of Pool Receivables and enforcing such Pool
Receivables and the related Contracts and taking action or causing action to
be taken with respect to any Related Security, including with respect to
transferring possession of the same to the Agent or its designee.
SECTION 6.04. Responsibilities of the Seller and the Originator. Anything
herein to the contrary notwithstanding:
(a) The Seller and the Originator shall remain responsible and liable to
perform all of their respective duties and obligations under the Contracts
related to the Pool Receivables, to the extent set forth therein; the Seller
and the Originator shall perform their respective obligations under the
Contracts related to the Pool Receivables to the same extent as if Receivable
Interests had not been sold;
(b) The exercise by the Agent of any of its rights hereunder shall not
release the Seller or the Originator from any of their respective duties or
obligations with respect to any Pool Receivables or under the Contacts
related to the Pool Receivables;
(c) Neither the Agent nor any Purchaser or Bank shall have any obligation or
liability with respect to any Pool Receivables or related Contracts, nor
shall any of them be obligated to perform any of the obligations of the
Seller or the Originator thereunder;
(d) In the event of any conflict between the provisions of Article VI of
this Agreement and Article VI of the Originator Purchase Agreement, the
provisions of this Agreement shall control; and
(e) The Seller shall promptly notify the Agent of any claim or threatened
claim probable, in the opinion of the management of the Seller, to result in
any liability referred to in Article X.
SECTION 6.05. Further Action Evidencing Purchases. (a) Each of the Seller
and the Originator agrees that from time to time, at its expense, it will
promptly execute and deliver all further instruments and documents, and take
all further action, that may be necessary or that the Agent may reasonably
request in order to perfect, protect or more fully evidence the Receivable
Interests purchased by the Purchasers or the Banks hereunder, or to enable
any of them or the Agent to exercise or enforce any of their respective
rights hereunder. Without limiting the generality of the foregoing, the
Originator will upon the request of the Agent: (i) execute and file such
financing or continuation statements, or amendments thereto or assignments
thereof, and such other instruments or notices, as may be necessary or
appropriate; (ii) following the occurrence of any Event of Termination, mark
conspicuously each invoice evidencing each Pool Receivable and the related
Contract with a legend, acceptable to the Agent, evidencing that an undivided
percentage ownership interest in such Receivable has been sold in accordance
with this Agreement; and (iii) mark its master data processing records
evidencing such Pool Receivables and related Contracts with such legend.
(b) The Seller hereby authorizes the Agent to file or cause to be filed one
or more financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any of the Pool Receivables and the
Related Security now existing or hereafter arising without the signature of
the Seller where permitted by law.
(c) If the Seller fails to perform any of its agreements or obligations
under this Agreement, the Agent may (but shall not be required to) itself
perform, or cause performance of, such agreement or obligation, and the
expenses of the Agent incurred in connection therewith shall be payable by
the Seller as provided in Section 11.06.
SECTION 6.06. Application of Collections. Any payment by an Obligor in
respect of any indebtedness owed by it to the Seller shall, except as
otherwise specified by such Obligor or otherwise required by contract or law
and unless otherwise instructed by the Agent, be applied as a Collection of
any Pool Receivable or Receivables of such Obligor to the extent of any
amounts then due and payable thereunder before being applied to any other
indebtedness of such Obligor.
SECTION 6.07. Indemnities by the Collection Agent. Without limiting any
other rights that the Agent, any Purchaser, any Bank or any of their
respective Affiliates (each, a "Special Indemnified Party") may have
hereunder or under applicable law, and in consideration of its appointment as
Collection Agent, the Collection Agent hereby agrees to indemnify each
Special Indemnified Party from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) (all of the foregoing
being collectively referred to as "Special Indemnified Amounts") arising out
of or resulting from any of the following (excluding, however, (a) Special
Indemnified Amounts to the extent resulting from gross negligence or willful
misconduct on the part of such Special Indemnified Party, (b) recourse for
uncollectible Receivables or (c) any income taxes or any other tax or fee
measured by income incurred by such Special Indemnified Party arising out of
or as a result of this Agreement or the ownership of Receivable Interests or
in respect of any Receivable or any Contract):
(i) any representation or warranty or statement made or deemed made by
the Collection Agent under or in connection with this Agreement which shall
have been incorrect in any material respect when made;
(ii) the failure by the Collection Agent to comply with any applicable
law, rule or regulation with respect to any Pool Receivable or Contract; or
the failure of any Pool Receivable or Contract to conform to any such
applicable law, rule or regulation;
(iii) the failure to have filed, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any
Receivables in, or purporting to be in, the Receivables Pool, the Contracts
and the Related Security and Collections in respect thereof, whether at the
time of any purchase or reinvestment or at any subsequent time;
(iv) any failure of the Collection Agent to perform its duties or
obligations in accordance with the provisions of this Agreement;
(v) the commingling of Collections of Pool Receivables at any time by
the Collection Agent with other funds;
(vi) any action or omission by the Collection Agent reducing or
impairing the rights of the Purchasers or the Banks with respect to any Pool
Receivable or the value of any Pool Receivable;
(vii) any Collection Agent Fees or other costs and expenses payable
to any replacement Collection Agent, to the extent in excess of the
Collection Agent Fees payable to the Collection Agent hereunder; or
(viii) any claim brought by any Person other than a Special
Indemnified Party arising from any activity by the Collection Agent or its
Affiliates in servicing, administering or collecting any Receivable.
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01. Events of Termination. If any of the following events
("Events of Termination") shall occur and be continuing:
(a) The Collection Agent (if other than the Agent or its designee) (i) shall
fail to perform or observe any term, covenant or agreement hereunder (other
than as referred to in clause (ii) of this Section 7.01(a)) and such failure
shall remain unremedied for three Business Days or (ii) shall fail to make
any payment or deposit to be made by it hereunder when due; or
(b) The Seller or the Originator shall fail (i) to transfer to the Agent
when requested by the Agent any rights pursuant to this Agreement which it
has as Collection Agent, (ii) to perform or observe any term, covenant or
agreement contained in Section 5.03(e) or Section 6.03(a), (iii) to make any
payment required under Section 10.01 or (iv) to turn over to the Collection
Agent the amounts referred to in Sections 2.06(e)(i) and (ii); or
(c) Any representation or warranty made or deemed made by the Seller or the
Collection Agent (or any of their respective officers) under or in connection
with this Agreement, any other Transaction Document, any Seller Report or any
other information or report delivered by the Seller or the Collection Agent
pursuant hereto or any Transaction Document shall prove to have been
incorrect in any material respect when made or deemed made or delivered; or
(d) The Seller or the Originator shall fail to perform or observe any other
term, covenant or agreement contained in this Agreement on its part to be
performed or observed and any such failure shall remain unremedied for 10
days after written notice thereof shall have been given to the Seller or the
Originator by the Agent; or
(e) The Seller or the Originator shall fail to pay the principal of or
interest on any obligation of the Seller or the Originator for borrowed money
in an outstanding amount of $10,000,000 or more when due, whether by
acceleration, by required prepayment or otherwise, for a period longer than
any period of grace provided in such obligation, or fail to perform any other
term, condition or covenant contained in any such obligation, the effect of
which is to cause, or to permit the holder of such obligation or others on
its behalf to cause, such obligation then to become due prior to its stated
maturity, unless such failure shall have been cured or effectively waived; or
(f) Any Purchase of a Receivable Interest pursuant hereto or any
reinvestment shall for any reason, except to the extent permitted by the
terms hereof, cease to create a valid and perfected first priority undivided
percentage ownership interest to the extent of such Receivable Interest in
each applicable Pool Receivable and the Related Security and Collections with
respect thereto; or this Agreement shall for any reason cease to evidence the
transfer to the owner thereof of legal and equitable title to, and ownership
of, an undivided percentage ownership interest in Pool Receivables and
Related Security to the extent of the applicable Receivable Interest; or the
security interest created pursuant to Section 2.10 shall for any reason cease
to be a valid and perfected first priority security interest in the
collateral security referred to in that section; or
(g) (i) The Originator or any of its Significant Subsidiaries shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by or against the Originator or any of its Significant
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or
other similar official for it or for any substantial part of its property
and, if instituted against the Originator or any of its Significant
Subsidiaries, either such proceeding shall not be stayed or dismissed for 60
days or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against it or the appointment of
a receiver, trustee, custodian or other similar official for it or for any
substantial part of its property) shall occur; or (ii) the Originator or any
of its Significant Subsidiaries shall take any corporate action to authorize
any of the actions set forth in clause (i) above in this subsection (g); or
(h) The Delinquency Ratio shall at any time exceed 7%, the Default Ratio
shall at any time exceed 8% or the Loss-To-Liquidation Ratio shall at any
time exceed 2%; or
(i) The Net Receivables Pool Balance shall at any time be less than 105% of
the sum of Capital, Yield Reserve, Collection Agent Fee Reserve and Loss and
Dilution Reserve for all Receivable Interests at such time and such condition
shall continue for three Business Days after the Seller shall become aware of
such condition; or
(j) There shall have occurred any event which may materially adversely
affect the ability of the Seller or the Originator to perform its obligations
under this Agreement or the collectibility of the Pool Receivables; or
(k) An "Event of Termination" or "Facility Termination Date" shall occur
under the Originator Purchase Agreement, or the Originator Purchase Agreement
shall cease to be in full force and effect; or
(l) All of the outstanding capital stock of the Seller shall cease to be
owned, directly or indirectly, by the Originator;
then, and in any such event, the Agent may, by notice to the Seller, take
either or both of the following actions: (x) designate the Facility
Termination Date or the Commitment Termination Date; and (y) designate a
Person to succeed the Originator as the Collection Agent (if the Originator
is then serving as the Collection Agent) pursuant to Section 6.01; provided,
that, automatically upon the occurrence of any event (without any requirement
for the passage of time or the giving of notice) described in paragraph (g)
of this Section 7.01, the Facility Termination Date and the Commitment
Termination Date shall occur, the Originator (if the Originator is then
serving as the Collection Agent) shall cease to be the Collection Agent and
the Agent or its designee shall become the Collection Agent. Upon any such
declaration or designation by the Agent, or upon such automatic termination,
the Agent, each Purchaser and each Bank shall have, in addition to the rights
and remedies which they may have under this Agreement, all other rights and
remedies provided after default under the UCC of the applicable jurisdiction
or jurisdictions and other applicable laws, which rights shall be cumulative.
ARTICLE VIII
THE AGENT
SECTION 8.01. Authorization and Action. Each Purchaser and each Bank hereby
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers as are reasonably
incidental thereto.
SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken
or omitted to be taken by it or them as Agent under or in connection with
this Agreement (including, without limitation, any action taken or omitted to
be taken by it or them on behalf of the Purchasers or the Banks if designated
as Collection Agent pursuant to Section 6.01), except for its or their own
gross negligence or willful misconduct. Without limiting the foregoing, the
Agent:
(i) may consult with legal counsel (including counsel for the Seller or
the Originator), independent public accountants and other experts selected by
it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants
or experts;
(ii) makes no warranty or representation to any Purchaser or any Bank
(whether written or oral) and shall not be responsible to any Purchaser or
any Bank for any statements, warranties or representations (whether written
or oral) made in or in connection with this Agreement;
(iii) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of
this Agreement on the part of the Seller or the Collection Agent or to
inspect the property (including the books and records) of the Seller or the
Collection Agent;
(iv) shall not be responsible to any Purchaser or any Bank for the due
execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished
pursuant hereto; and (v) shall incur no liability under or in respect of this
Agreement by acting upon any notice (including notice by telephone), consent,
certificate or other instrument or writing (which may be by telecopier or
telex) believed by it to be genuine and signed or sent by the proper party or
parties.
SECTION 8.03. CNAI and Affiliates. The obligation of Citibank to Purchase
Receivable Interests or make reinvestments under this Agreement may be
satisfied by CNAI or any of its Affiliates. With respect to any Receivable
Interest or interest therein owned by it, CNAI shall have the same rights and
powers under this agreement as any Bank and may exercise the same as though
it were not the Agent. CNAI and any of its Affiliates may generally engage
in any kind of business with the Seller, the Originator or any Obligor, any
of their respective Affiliates and any Person who may do business with or own
securities of the Seller, the Originator or any Obligor or any of their
respective Affiliates, all as if CNAI were not the Agent and without any duty
to account therefor to any Purchaser or any Bank.
SECTION 8.04. Purchasers' and Banks' Purchase Decisions. Each Purchaser and
each Bank acknowledges that it has, independently and without reliance upon
the Agent, any of its Affiliates or any other Purchaser or Bank and based on
such documents and information as it has deemed appropriate, made its own
evaluation and decision to enter into this Agreement and, if it so
determines, to purchase Receivable Interests hereunder. Each Purchaser and
each Bank also acknowledges that it will, independently and without reliance
upon the Agent, any of its Affiliates or any other Purchaser or Bank and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own decisions in taking or not taking action under
this Agreement.
ARTICLE IX
ASSIGNMENT
SECTION 9.01. Assignability. (a) Purchasers. This Agreement and the
Purchasers' rights and obligations herein (including ownership of each
Receivable Interest) shall be assignable by the Purchasers and their
successors and assigns. Each assignor of a Receivable Interest or any
interest therein shall notify the Agent and the Seller of any such
assignment. Each assignor of a Receivable Interest or any interest therein
may, in connection with the assignment or participation, disclose to the
assignee or participant any information relating to the Seller, including the
Receivables, furnished to such assignor by or on behalf of the Seller or by
the Agent; provided that, prior to any such disclosure, the assignee or
participant agrees to preserve the confidentiality of any confidential
information relating to the Seller received by it from any of the foregoing
entities.
(b) Banks. Each Bank may assign to any Eligible Assignee or to any other
Bank all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Bank Commitment and
any Receivable Interests or interests therein owned by it). The parties to
each such assignment shall execute and deliver an assignment to the Agent.
In addition, Citibank or any of its Affiliates may assign any of its rights
(including, without limitation, rights to payment of Capital and Yield) under
this Agreement to any Federal Reserve Bank without notice to or consent of
the Seller or the Agent.
(c) Agent. This Agreement and the rights and obligations of the Agent
herein shall be assignable by the Agent and its successors and assigns.
(d) Seller. The Seller may not assign its rights or obligations hereunder
or any interest herein without the prior written consent of the Agent.
ARTICLE X
INDEMNIFICATION
SECTION 10.01. Indemnities by the Seller. Without limiting any other rights
that the Agent, any Purchaser, any Bank or any of their respective Affiliates
(each an "Indemnified Party") may have hereunder or under applicable law, the
Seller hereby agrees to indemnify each Indemnified Party from and against any
and all damages, losses, claims, liabilities and related costs and expenses,
including reasonable attorneys' fees and disbursements (collectively,
"Indemnified Amounts"), awarded against or incurred by any of them arising
out of or as a result of this Agreement or the ownership of Receivable
Interests or in respect of any Receivable or any Contract, excluding,
however, (a) Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of such Indemnified Party, (b)
recourse (except as otherwise specifically provided in this Agreement) for
uncollectible Receivables or (c) any taxes based on or measured by the income
of any Indemnified Party incurred by such Indemnified Party arising out of or
as a result of this Agreement or the ownership of Receivable Interests or in
respect of any Receivable or any Contract. Without limiting or being limited
by the foregoing, the Seller shall pay on demand to each Indemnified Party
any and all amounts necessary to indemnify such Indemnified Party from and
against any and all Indemnified Amounts relating to or resulting from any of
the following:
(i) any Receivable, at the time of the transfer of an undivided
percentage ownership interest therein, not being an Eligible Receivable;
(ii) reliance on any representation or warranty made or deemed made by
the Seller (or any of its officers) under or in connection with this
Agreement, any Seller Report, the other Transaction Documents or any other
information or report delivered by the Seller pursuant hereto which shall
have been false or incorrect in any material respect when made or deemed
made;
(iii) the failure by the Seller or the Originator to comply with any
applicable law, rule or regulation with respect to any Pool Receivable,
Related Security or the related Contract, or the nonconformity of any Pool
Receivable, Related Security or the related Contract with any such applicable
law, rule or regulation;
(iv) the failure to vest in the Agent, for the benefit of the Purchasers
or the Banks, as the case may be, or to transfer to the Agent, for the
benefit of the Purchasers or the Banks, as the case may be, (a) legal and
equitable title to, and ownership of, an undivided percentage ownership
interest, to the extent of each Receivable Interest owned by it hereunder, in
the Receivables in, or purporting to be in, the Receivables Pool for such
Receivable Interest, or (b) a perfected security interest as provided in
Section 2.10, in each case free and clear of any Adverse Claim;
(v) the failure to file, or any delay in filing, financing statements
or other similar instruments or documents under the UCC of any applicable
jurisdiction or other applicable laws with respect to any Receivables in, or
purporting to be in, the Receivables Pool for any Receivable Interest, any
Contract or Related Security whether at the time of any Purchase or
reinvestment or at any subsequent time;
(vi) any dispute, claim, offset or defense of the Obligor (other than
discharge in bankruptcy of the Obligor) to the payment of any Receivable in,
or purporting to be in, the Receivables Pool (including, without limitation,
a defense based on such Receivables or the related Contract not being a
legal, valid and binding obligation of such Obligor enforce-able against it
in accordance with its terms), or any other claim resulting from the sale of
the merchandise or services related to such Receivable or the furnishing or
failure to furnish such merchandise or services or relating to collection
activities with respect to such Receivable (if such collection activities
were performed by the Seller or any of its Affiliates acting as Collection
Agent);
(vii) any failure of the Seller to perform its duties or obligations
in accordance with the provisions hereof or to perform its duties and
obligations under the Contracts;
(viii) any products liability claim or personal injury or property
damage suit or other similar or related claim or action of whatever sort
arising out of or in connection with merchandise or services which are the
subject of any Contract;
(ix) the commingling of Collections of Pool Receivables at any time with
any funds (provided that this paragraph (ix) will not cover commingling that
occurs after such Collections have been either (1) deposited or otherwise
paid over to the Agent for the account of the Purchasers or the Banks in
accordance with this Agreement or (2) received by CNAI or any of its
Affiliates acting as Collection Agent);
(x) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of Purchases or the ownership of Pool
Receivables or in respect of any Pool Receivable or any Contract;
(xi) any failure of the Seller or the Originator to comply with its
respective covenants contained in Section 5.01; or
(xii) any claim brought by any Person other than an Indemnified
Party arising from any activity by the Seller or any Affiliate of the Seller
in servicing, administering or collecting any Receivable.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement nor consent to any departure by the Seller or the Originator
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Agent, as agent for the Purchasers and the Banks (and, in
the case of any amendment, also signed by the Seller and the Originator), and
then such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by the Collection Agent in addition to the Agent, affect the rights or
duties of the Collection Agent under this Agreement. This Agreement contains
a final and complete integration of all prior expressions by the parties
hereto with respect to the subject matter hereof and shall constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof, superseding all prior oral or written understandings.
SECTION 11.02. Notices, Etc. All notices and other communications hereunder
shall, unless otherwise stated herein, be in writing (which shall include
facsimile communication) and faxed or delivered, to each party hereto, at its
address set forth under its name on the signature pages hereof or at such
other address as shall be designated by such party in a written notice to the
other parties hereto. Notices and communications by facsimile shall be
effective when sent (and shall be followed by hard copy sent by regular
mail), and notices and communications sent by other means shall be effective
when received.
SECTION 11.03. No Waiver; Remedies. No failure on the part of the Agent,
any Purchaser or any Bank to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 11.04. Binding Effect. (a) This Agreement shall be binding upon
and inure to the benefit of the Seller, the Originator, the Agent, the
Purchasers, the Banks and their respective successors and assigns.
(b) This Agreement shall create and constitute the continuing agreement of
the parties hereto in accordance with its terms, and shall remain in full
force and effect until the Facility Termination Date; provided, however, that
(i) the rights of the Purchasers and the Banks to collect the Capital and
Yield in respect of the Receivable Interests owned by them, (ii) the rights
and remedies of the Purchasers and the Banks with respect to any breach of
any representation and warranty made by the Seller pursuant to Article IV or
Section 3.02, (iii) the indemnification provisions of Article X and Section
11.06, (iv) the rights of the Agent and the Collection Agent to be paid the
fees, costs and expenses provided for hereunder and (v) the agreement set
forth in Section 11.07 shall be continuing and shall survive any termination
of this Agreement.
SECTION 11.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO
THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE PURCHASERS AND THE
BANKS IN THE RECEIVABLES, OR REMEDIES HEREUNDER IN RESPECT THEREOF, ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 11.06. Costs, Expenses and Taxes. (a) In addition to the rights of
indemnification granted under Article X hereof, the Seller agrees to pay on
demand all reasonable costs and expenses in connection with the preparation,
execution, delivery and administration (including periodic auditing and the
other activities contemplated in Section 5.01(c)) of this Agreement and the
other documents to be delivered hereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Agent, with
respect thereto and with respect to advising the Agent, CNAI, the Conduit,
Citibank and their respective Affiliates as to their respective rights and
remedies under this Agreement, and all reasonable costs and expenses, if any
(including reasonable counsel fees and expenses), of the Agent, CNAI, the
Purchasers, the Banks and their respective Affiliates, in connection with the
enforcement of this Agreement and the other documents to be delivered
hereunder.
(b) In addition, the Seller shall pay any and all stamp and other taxes and
fees payable or determined to be payable in connection with the execution,
delivery, filing, recording or enforcement of this Agreement or the other
documents to be delivered hereunder, and agrees to save each Indemnified
Party harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
SECTION 11.07. No Proceedings. Each of the Seller, the Originator, the
Agent, the Collection Agent, each Purchaser, each Bank, each assignee of a
Receivable Interest or any interest therein and each entity which enters into
a commitment to purchase Receivable Interests or interests therein hereby
agrees that it will not institute against the Conduit any proceeding of the
type referred to in Section 7.01(g) so long as any commercial paper or other
senior indebtedness issued by the Conduit shall be outstanding or there shall
not have elapsed one year plus one day since the last day on which any such
commercial paper or other senior indebtedness shall have been outstanding.
SECTION 11.08. Confidentiality. (a) By the Seller and the Originator.
Unless otherwise required by applicable law (including, without limitation,
the order of any governmental authority having jurisdiction and authority to
issue such order or upon the request or demand of, or in connection with any
investigation, proceeding or audit by, any governmental authority, if such
request or demand shall have the force of law or be made in connection with
the exercise of such authority's regulatory functions), the Seller and the
Originator agree to maintain the confidentiality of this Agreement (and all
drafts thereof) in communications with third parties and otherwise; provided,
however, that the Agreement may be disclosed to third parties to the extent
such disclosure is (i) required in connection with a sale of securities of
the Originator, (ii) made solely to persons who are legal counsel for the
purchaser or underwriter of such securities, (iii) limited in scope to the
provisions of Articles V, VII, X and, to the extent defined terms are used in
Articles V, VII and X, such terms defined in Article I of this Agreement,
(iv) made pursuant to a written agreement of confidentiality in form and
substance reasonably satisfactory to the Agent, (v) to the Seller's or the
Originator's legal counsel and accountants if they agree to hold it
confidential or (vi) with respect to information generally available to the
public or which becomes available to the public through no fault of the
Seller or the Originator.
(b) By the Agent. Unless otherwise required by applicable law (including,
without limitation, the order of any governmental authority having
jurisdiction and authority to issue such order or upon the request or demand
of, or in connection with any investigation, proceeding or audit by, any
governmental authority or rating agency, if such request or demand shall have
the force of law or be made in connection with the exercise of such
authority's regulatory functions or such agency's normal functions), the
Agent agrees to maintain the confidentiality of any information provided to
the Agent by the Seller or the Originator; provided, however, that such
information may be disclosed to third parties to the extent such disclosure
is (i) made pursuant to a written agreement of confidentiality in form and
substance reasonably satisfactory to the Seller and the Originator or (ii) to
the Agent's legal counsel and accountants if they agree to hold it
confidential or (iii) with respect to information generally available to the
public or which becomes available to the public through no fault of the
Agent.
SECTION 11.09. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of a signature page to
this Agreement by facsimile shall be effective as delivery of a manually
executed counterpart of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first
above written.
SELLER:
CL&P RECEIVABLES CORPORATION
By: s/s Robert C. Aronson
Name: Robert C. Aronson
Title: Assistant Treasurer
107 Selden Street
Berlin, Connecticut 06037
Attention: Assistant Treasurer
Facsimile No.: (860) 665-5457
ORIGINATOR
AND COLLECTION
AGENT:
THE CONNECTICUT LIGHT AND POWER COMPANY
By s/s David R. McHale
Name: David R. McHale
Title: Assistant Treasurer
107 Selden Street
Berlin, Connecticut 06037
Attention: Assistant Treasurer
Facsimile No.: 860-665-5457
PURCHASER:
CORPORATE ASSET FUNDING COMPANY, INC.
By: Citicorp North America, Inc.
as Attorney-in-Fact
By s/s R. P. DiLeo
Name: R. P. DiLeo
Title: Vice President
450 Mamaroneck Avenue
Harrison, NY 10528
Attention: Corporate Asset Funding
Facsimile No. 914-899-7890
BANK:
CITIBANK, N.A.
By: s/s R. P. DiLeo
Name: R. P. DiLeo
Title: Attorney-in-Fact
Percentage: 100%
450 Mamaroneck Avenue
Harrison, N.Y. 10528
Facsimile No. 914-899-7890
AGENT:
CITICORP NORTH AMERICA, INC., as Agent
By s/s R. P. DiLeo
Name: R. P. DiLeo
Title: Vice President
450 Mamaroneck Avenue
Harrison, N.Y. 10528
Attention: Corporate Asset Funding
Facsimile No. 914-899-7890
EXHIBIT A
SPECIAL CONCENTRATION LIMITS
Date: , 19
Citicorp North America, Inc.,
as Agent
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: Corporate Asset Funding Department
Reference is made to the Receivables Purchase and Sale Agreement, dated as of
September 30, 1997 (the terms defined therein being used herein as therein
defined) among CL&P Receivables Corporation, The Connecticut Light and Power
Company, Corporate Asset Funding Company, Inc., Citibank, N.A. and Citicorp
North America, Inc., as Agent.
The Seller hereby designates for the Designated Obligor[s] named below the
Special Concentration Limit[s] set forth below opposite [its] [their
respective] name[s]:
Designated Obligor Special Concentration Limit
s/s s/s
s/s s/s
[etc.]
CL&P RECEIVABLES CORPORATION
By s/s
Name:
Title:
The undersigned hereby approves the above Special Concentration Limit[s], as
of the date hereof.
CITICORP NORTH AMERICA, INC.
as Agent
By s/s
Name:
Title:
EXHIBIT B
FORM OF SELLER REPORT
EXHIBIT C
DESCRIPTION OF TARIFFS
1. The retail rates charged by the Originator to Obligors, as approved from
time to time by the Connecticut Department of Public Utility Control.
2. The Connecticut Light and Power Company Rules and Regulations, effective
July 1, 1993, applicable to its retail rate accounts as approved by the
Connecticut Department of Public Utility Control.
EXHIBIT D
CANCELLATION OF DESIGNATION OF
OBLIGORS AND/OR SPECIAL CONCENTRATION LIMITS
Date: , 19
[Citicorp North America, Inc.,
as Agent
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: Corporate Asset
Funding]
[CL&P Receivables Corporation
107 Selden Street
Berlin, Connecticut]
Reference is made to the Receivables Purchase and Sale Agreement, dated
as of September 30, 1997 (the "Receivables Agreement"; the terms defined
therein being used herein as therein defined) among CL&P Receivables
Corporation, The Connecticut Light and Power Company, Corporate Asset Funding
Company, Inc., Citibank, N.A. and Citicorp North America, Inc., as Agent.
Pursuant to Section 2.01 of the Receivables Agreement, the undersigned
hereby cancels, effective as of the date occurring three days after the date
hereof, the designation of [each of] the following Obligor[s] as a Designated
Obligor:
1.
2.
3.
(etc.)
The undersigned hereby cancels, effective as of the date occurring three
days after the date hereof, the Special Concentration Limit of each of the
following Obligor[s]:
1.
2.
3.
(etc.)
and thus as of the date occurring three days after the date hereof the Normal
Concentration Limit shall apply to the above Obligor[s].
[CITICORP NORTH AMERICA, INC.,
as Agent]
[CL&P RECEIVABLES CORPORATION]
By s/s
Name:
Title:
EXHIBIT E
FORM OF OPINION OF COUNSEL FOR THE SELLER
EXHIBIT F
AUDIT SCOPE
I. Review of 2-3 monthly Seller Reports
A. Agree numerical amounts to source documents
B. Recalculate percentages and ratios
C. Review customer concentrations (cross-agings)
D. Review write-off activity
E. Review AR eligibility
F. Review the aging of outstanding invoices
II. Perform a verification of receivable activity for sample Seller Report
A. Monthly activity
1. Sales
2. Collections
3. Write-offs
4. Debit and Credit memos
B. Statistical analysis
1. Turnover
2. Dilution
3. Loss-to-liquidation
III. If available, supply copy of most recent review of accounting controls
Exhibit 10.49.1
Execution Copy
PURCHASE AND CONTRIBUTION AGREEMENT
Dated as of September 30, 1997
Between
THE CONNECTICUT LIGHT AND POWER COMPANY
As Seller
and
CL&P RECEIVABLES CORPORATION
as Purchaser
TABLE OF CONTENTS
PRELIMINARY STATEMENTS
ARTICLE I DEFINITIONS
SECTION 1.01. Certain Defined Terms
Adverse Claim
Affiliate
Alternate Base Rate
Business Day
Collection Agent
Collection Agent Fee
Collections
Contract
Contributed Receivable
Credit and Collection Policy
Debt
Defaulted Receivable
Deferred Purchase Price
Designated Account
Discount
ERISA
Event of Termination
Facility
Facility Termination Date
Inactive Account
Incipient Event of Termination
Indemnified Amounts
Invested Amount
Obligor
Original Purchase Agreement
Outstanding Balance
Person
Public Disclosure Documents
Purchase
Purchase Date
Purchased Receivable
Receivable
Regulatory Authority
Related Security
Sale Agreement
Seller Report
Settlement Date
Settlement Period
Significant Subsidiary
Sold Receivable
Subsidiary
Tariffs
Transferred Receivable
UCC
SECTION 1.02. Other Terms
ARTICLE II AMOUNTS AND TERMS OF PURCHASES AND
CONTRIBUTIONS
SECTION 2.01. Facility
SECTION 2.02. Making Purchases
SECTION 2.03. Collections
SECTION 2.04. Settlement Procedures
SECTION 2.05. Payments and Computations, Etc.
SECTION 2.06. Contributions
ARTICLE III CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Initial Purchase from the Seller
SECTION 3.02. Conditions Precedent to All Purchases
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller
ARTICLE V COVENANTS
SECTION 5.01. Covenants of the Seller
SECTION 5.02. Grant of Security Interest
SECTION 5.03. Covenant of the Seller and the Purchaser
ARTICLE VI ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent
SECTION 6.02. Duties of Collection Agent
SECTION 6.03. Collection Agent Fee
SECTION 6.04. Certain Rights of the Purchaser
SECTION 6.05. Rights and Remedies
SECTION 6.06. Transfer of Records to Purchaser
ARTICLE VII EVENTS OF TERMINATION
SECTION 7.01. Events of Termination
ARTICLE VIII INDEMNIFICATION
SECTION 8.01. Indemnities by the Seller
ARTICLE IX MISCELLANEOUS
SECTION 9.01. Amendments, Etc.
SECTION 9.02. Notices, Etc.
SECTION 9.03. No Waiver; Remedies
SECTION 9.04. Binding Effect; Assignability
SECTION 9.05. Costs, Expenses and Taxes
SECTION 9.06. No Proceedings
SECTION 9.07. Confidentiality
SECTION 9.08. GOVERNING LAW
SECTION 9.09. Third Party Beneficiary
SECTION 9.10. Execution in Counterparts
PURCHASE AND CONTRIBUTION AGREEMENT
Dated as of September 30, 1997
THE CONNECTICUT LIGHT AND POWER COMPANY, a Connecticut corporation (the
"Seller"), and CL&P RECEIVABLES CORPORATION, a Connecticut corporation (the
"Purchaser"), agree as follows:
PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and used
throughout this Agreement (in addition to those defined above) are defined in
Article I of this Agreement.
(2) The Seller has and will have Receivables that it wishes to sell to the
Purchaser from time to time, and the Purchaser is prepared to purchase such
Receivables on the terms set forth herein.
(3) The Seller also wishes to contribute Receivables not sold to the capital
of the Purchaser on the terms set forth herein.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"Adverse Claim" means a lien, security interest, charge or encumbrance, or
other right or claim of any Person.
"Affiliate" when used with respect to a Person means any other Person
controlling, controlled by or under common control with such Person.
"Alternate Base Rate" means a fluctuating interest rate per annum as shall be
in effect from time to time, which rate per annum shall be at all times equal
to the higher of:
(a) the rate of interest announced publicly by Citibank, N.A. in New York,
New York, from time to time as Citibank, N.A.'s base rate; and
(b) 1/2 of one percent above the latest three-week moving average of
secondary market morning offering rates in the United States for three-month
certificates of deposit of major United States money market banks, such
three-week moving average being determined weekly on each Monday (or, if such
day is not a Business Day, on the next succeeding Business Day) for the
three-week period ending on the previous Friday by Citibank, N.A. on the
basis of such rates reported by certificate of deposit dealers to and
published by the Federal Reserve Bank of New York or, if such publication
shall be suspended or terminated, on the basis of quotations for such rates
received by Citibank, N.A. from three New York certificate of deposit dealers
of recognized standing selected by Citibank, N.A., in either case adjusted to
the nearest 1/4 of one percent or, if there is no nearest 1/4 of one percent,
to the next higher 1/4 of one percent.
"Business Day" means any day on which banks are not authorized or required to
close in New York City.
"Collection Agent" means at any time the Person then authorized pursuant to
Section 6.01 to service, administer and collect Transferred Receivables.
"Collection Agent Fee" has the meaning specified in Section 6.03.
"Collections" means, with respect to any Receivable, all cash collections and
other cash proceeds of such Receivable, including, without limitation, all
cash proceeds of Related Security with respect to such Receivable, and all
funds deemed to have been received by the Seller or any other Person as a
Collection pursuant to Section 2.04.
"Contract" means the Tariffs and any agreement between the Seller and an
Obligor; provided that such agreement does not vary the payment terms of such
Obligor from those in the Tariffs or the Credit and Collection Policy.
"Contributed Receivable" has the meaning specified in Section 2.06.
"Credit and Collection Policy" means those credit and collection policies and
practices of the Seller in effect on the date of this Agreement relating to
the Receivables, as modified in compliance with Section 5.01(f).
"Debt" means (i) indebtedness for borrowed money, (ii) obligations evidenced
by bonds, debentures, notes or other similar instruments, (iii) obligations
to pay the deferred purchase price of property or services, (iv) obligations
as lessee under leases which shall have been or should be, in accordance with
generally accepted accounting principles, recorded as capital leases, (v)
obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (i) through (iv)
above, and (vi) liabilities in respect of unfunded vested benefits under
plans covered by Title IV of ERISA.
"Defaulted Receivable" means a Receivable:
(i) as to which any payment, or part thereof, remains unpaid for 91 days or
more from the original billing date for such payment and which does not
relate to an Inactive Account;
(ii) as to which the Obligor thereof, or any other Person obligated thereon
or owning any Related Security in respect thereof, has taken any action, or
suffered any event to occur, of the type described in Section 7.01(g); or
(iii) which, consistent with the Credit and Collection Policy, would be
written off as uncollectible.
"Deferred Purchase Price" means the portion of the Purchase Price of
Purchased Receivables purchased on any Purchase Date which is not paid in
cash under Section 2.02, which portion, when added to the cumulative amount
of all previous Deferred Purchase Prices (after giving effect to any payments
made on account thereof) shall not exceed the lesser of (a) $100,000,000 and
(b) 15% of the Outstanding Balance of the Transferred Receivables.
"Designated Account" means an account in the name of, and owned by, the
Purchaser or its designee, designated for the purpose of receiving
collections of Transferred Receivables directly from Obligors.
"Discount" means, in respect of any Purchase, 1.65% of the Outstanding
Balance of the Receivables that are the subject of such Purchase; provided,
however, that the foregoing Discount may be revised by agreement of the
parties hereto to reflect changes in collection experience and the
Purchaser's cost of funds.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"Event of Termination" has the meaning specified in Section 7.01.
"Facility" means the willingness of the Purchaser to consider making
Purchases of Receivables from the Seller from time to time pursuant to the
terms of this Agreement.
"Facility Termination Date" means the earliest of (i) July 11, 2001, (ii) the
date of termination of the Facility pursuant to Section 7.01 and (iii) the
date which either the Purchaser or the Seller designates by at least two
Business Days' notice to the other party hereto.
"Inactive Account" means an account of an Obligor which has been sent a final
bill.
"Incipient Event of Termination" means an event which would constitute an
Event of Termination but for the requirement that notice be given or time
elapse or both.
"Indemnified Amounts" has the meaning specified in Section 8.01.
"Invested Amount" means the sum of amounts paid by the Purchaser to the
Seller for each Purchase of Receivables from the Seller pursuant to Section
2.02, reduced from time to time by Collections of such Receivables actually
received by the Purchaser in excess of the applicable portion of the Discount
representing yield (assumed to be 0.8% unless otherwise mutually agreed);
provided, however, that such Invested Amount shall not be reduced by any
Collections to the extent that at any time such Collections are rescinded or
must otherwise be returned for any reason.
"Obligor" means a Person obligated to make payments pursuant to a Contract.
"Original Purchase Agreement" means the Receivables Purchase and Sale
Agreement, dated as of July 11, 1996, among the Seller, Corporate Asset
Funding Company, Inc., Citibank, N.A., and Citicorp North America, Inc., as
agent.
"Outstanding Balance" of any Receivable at any time means the then
outstanding principal balance thereof.
"Person" means an individual, partnership, corporation (including a business
trust), joint stock company, limited liability company, trust, unincorporated
association, joint venture or other entity, or a government or any political
subdivision or agency thereof.
"Public Disclosure Documents" means (i) the Seller's Annual Report on Form
10-K for the year ending December 31, 1996, (ii) the Seller's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997,
(iii) Northeast Utilities' reports on Form 8-K dated January 20, 1997,
February 20, 1997, February 28, 1997, April 11, 1997, June 26, 1997, July 22,
1997 and August 19, 1997 and (iv) the Seller's Registration Statement No.
333-30911 on Form S-1, as amended.
"Purchase" means a purchase by the Purchaser of Receivables from the Seller
pursuant to Article II.
"Purchase Date" means each day on which a Purchase is made pursuant to
Article II.
"Purchase Price" means with respect to a Purchase of Receivables the amount
paid for such Receivables in cash or by Deferred Purchase Price and shall be
equal to the Outstanding Balance of such Receivables minus the Discount for
such Purchase of Receivables.
"Purchased Receivable" means any Receivable included in a Purchase pursuant
to Section 2.02.
"Receivable" means the accounts, general intangibles and other indebtedness
(billed and unbilled) of an Obligor arising from the retail sale of
electricity and related services by the Seller in Connecticut to such Obligor
pursuant to a Contract as booked to Accounts 142 (excluding amounts booked to
Account 142.04) and 173 as defined under the Federal Energy Regulatory
Commission Chart of Accounts as utilized by the Seller, but excluding any
obligation of such Obligor to pay finance charges and other amounts in the
case of late payment.
"Regulatory Authority" means each of the Connecticut Department of Public
Utility Control, Federal Energy Regulatory Commission, and any successor
commission thereto.
"Related Security" means with respect to any Receivable:
(i) all security interests or liens and property subject thereto from time
to time purporting to secure payment of such Receivable, whether pursuant to
the Contract related to such Receivable or otherwise;
(ii) all guarantees, indemnities, warranties, insurance policies and proceeds
and premium refunds thereof and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such Receivable
whether pursuant to the Contract related to such Receivable or otherwise; and
(iii) the Contract and all other books, records and other information
(including, without limitation, computer programs, tapes, discs, punch cards,
data processing software and related property and rights) relating to such
Receivable and the related Obligor.
"Sale Agreement" means that certain Receivables Purchase and Sale Agreement,
dated as of the date hereof, among the Purchaser, as seller, the Conduit (as
defined therein), as purchaser, Citibank, N.A., Citicorp North America, Inc.,
as agent, and the Seller, as collection agent and originator, as amended or
restated from time to time.
"Seller Report" means a report, in form and substance satisfactory to the
Purchaser, furnished by the Collection Agent to the Purchaser pursuant to
Section 6.02(b).
"Settlement Date" means the second Business Day after the end of each
Settlement Period during the term of this Agreement; provided, however, that
following the occurrence of an Event of Termination, Settlement Dates shall
occur on such days as are selected from time to time by the Purchaser or its
designee in a written notice to the Collection Agent.
"Settlement Period" means each period of time during the term of this
Agreement selected by the Purchaser to coincide with the "Settlement Periods"
under the Sale Agreement.
"Significant Subsidiary" means the Purchaser and any Subsidiary having total
assets exceeding 10% of consolidated total assets of the Seller.
"Sold Receivable" has the meaning specified in Section 2.02(a).
"Subsidiary" means any corporation of which securities having ordinary voting
power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
the Seller or the Purchaser, as the case may be, or one or more Subsidiaries,
or by the Seller or the Purchaser, as the case may be, and one or more
Subsidiaries.
"Tariffs" means the tariffs described in Exhibit A, which have been approved
by the governing Regulatory Authority, as hereafter amended or modified by
the governing Regulatory Authority, pursuant to which the Seller provides
electricity to the Obligors and the Obligors are obligated to pay for such
electricity.
"Transferred Receivable" means a Purchased Receivable or a Contributed
Receivable.
"UCC" means the Uniform Commercial Code as from time to time in effect in the
specified jurisdiction.
SECTION 1.02. Other Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles. All terms used in Article 9 of the UCC in the State of New York,
and not specifically defined herein, are used herein as defined in such
Article 9.
ARTICLE II
AMOUNTS AND TERMS OF PURCHASES AND CONTRIBUTIONS
SECTION 2.01. Facility. On the terms and conditions hereinafter set forth
and without recourse (except to the extent specifically provided herein), the
Seller may at its option sell or contribute to the Purchaser all Receivables
originated by it from time to time and the Purchaser may at its option
purchase or accept as a capital contribution from the Seller all Receivables
of the Seller from time to time during the period from the date hereof to the
Facility Termination Date.
SECTION 2.02. Making Purchases.
(a) Initial Purchase. The Seller shall give the Purchaser at least one
Business Day's notice of its request for the initial Purchase hereunder, and
such request for the initial Purchase shall specify the date of such Purchase
(which shall be a Business Day)and the proposed Purchase Price for such
Purchase. The Purchaser shall promptly notify the Seller whether it has
determined to make such Purchase. On the date of such Purchase, the
Purchaser shall, upon satisfaction of the applicable conditions set forth in
Article III, pay the Purchase Price for such Purchase in the manner provided
in Section 2.02(c); provided, however, that because interests in all
Receivables in existence on the date of the initial Purchase (and all
Related Security with respect to such Receivables) (collectively, the "Sold
Receivables") have heretofore been sold by the Seller to the Agent pursuant
to the Original Purchase Agreement and the Purchaser is assuming the Seller's
rights and obligations with respect to the Sold Receivables pursuant to the
Sale Agreement, the purchase price payable for the initial Purchase of
Receivables hereunder shall be reduced by the aggregate purchase price
received by the Seller with respect to the Sold Receivables under the
Original Purchase Agreement.
(b) Subsequent Purchases. On each Business Day following the date of the
initial Purchase, unless either party shall notify the other party to the
contrary, the Seller shall sell to the Purchaser and the Purchaser shall
purchase from the Seller all Receivables originated by the Seller which have
not previously been sold or contributed to the Purchaser; provided, however,
that the Seller may, at its option on any Purchase Date, contribute all or
any of such Receivables to the Purchaser pursuant to Section 2.06, instead of
selling such Receivables to the Purchaser pursuant to this Section 2.02(b).
On the date of each such Purchase, the Purchaser shall, upon satisfaction of
the applicable conditions set forth in Article III, pay the Purchase Price
for such Purchase in the manner provided in Section 2.02(c).
(c) Payment of Purchase Price. The Purchase Price for each Purchase shall
be paid on the Purchase Date therefor by means of one or both of the
following: (a) a deposit in same day funds to the Seller's account designated
by the Seller or (b) an increase in the Deferred Purchase Price (subject at
all times to the limitations contained in the definition thereof). The
allocation of the Purchase Price between such methods of payment shall be
subject in each instance to the approval of the Purchaser and the Seller.
(d) Ownership of Receivables and Related Security. On each Purchase Date,
after giving effect to each Purchase and any contribution of Receivables, the
Purchaser shall own all Receivables originated by the Seller as of such date
(including Receivables which have been previously sold or contributed to the
Purchaser hereunder). The Purchase or contribution of any Receivable shall
include all Related Security with respect to such Receivable.
(e) Assignment and Assumption of Interests Under the Original Purchase
Agreement. The Seller hereby transfers and assigns to the Purchaser as a
capital contribution, and the Purchaser hereby assumes, in each case as of
the date of the initial Purchase hereunder, all of the Seller's remaining
rights and obligations with respect to all Sold Receivables, and the
Purchaser hereby agrees that all such rights and obligations shall be
governed by the terms of the Sale Agreement.
SECTION 2.03. Collections. (a) The Collection Agent shall, on each
Settlement Date, deposit into an account of the Purchaser or the Purchaser's
designee all Collections of Transferred Receivables then held by the
Collection Agent.
(b) In the event that the Seller believes that Collections which are not
Collections of Transferred Receivables have been deposited into an account of
the Purchaser or the Purchaser's designee, the Seller shall so advise the
Purchaser and, on the Business Day following such identification, the
Purchaser shall remit, or shall cause to be remitted to the Seller, all
Collections so deposited which are identified, to the Purchaser's
satisfaction, not to be Collections of Transferred Receivables.
(c) At any time when all amounts then due from the Purchaser under the Sale
Agreement have been paid in full and all amounts required to be set aside by
the Purchaser or the Collection Agent under the Sale Agreement have been so
set aside, all Collections of Transferred Receivables received by the
Purchaser shall be applied first to the reduction of the principal amount of
any Deferred Purchase Price before any such amount is applied to the purchase
of additional Receivables.
SECTION 2.04. Settlement Procedures. (a) If on any day the Outstanding
Balance of any Transferred Receivable is reduced or adjusted as a result of
any defective, rejected, returned, repossessed or foreclosed merchandise or
services or any cash discount or other adjustment made by the Seller, or any
set-off or dispute in respect of any claim by the Obligor thereof against the
Seller (whether such claim arises out of the same or a related transaction or
an unrelated transaction but excluding adjustments, reductions or
cancellations in respect of such Obligor's bankruptcy), the Seller shall be
deemed to have received on such day a Collection of such Transferred
Receivable in the amount of such reduction or adjustment. If the Seller is
not the Collection Agent, the Seller shall pay to the Collection Agent on or
prior to the next Settlement Date all amounts deemed to have been received
pursuant to this subsection.
(b) Upon discovery by the Seller or the Purchaser of a breach of any of the
representations and warranties made by the Seller in Section 4.01(j) with
respect to any Transferred Receivable, such party shall give prompt written
notice thereof to the other party, as soon as practicable and in any event
within three Business Days following such discovery. The Seller shall, upon
not less than two Business Days' notice from the Purchaser or its assignee or
designee, repurchase such Transferred Receivable on the next succeeding
Settlement Date for a repurchase price equal to the Outstanding Balance of
such Transferred Receivable. Each repurchase of a Transferred Receivable
shall include the Related Security with respect to such Transferred
Receivable. The proceeds of any such repurchase shall be deemed to be a
Collection in respect of such Transferred Receivable. If the Seller is not
the Collection Agent, the Seller shall pay to the Collection Agent on or
prior to the next Settlement Date the repurchase price required to be paid
pursuant to this subsection.
(c) Except as stated in subsection (a) or (b) of this Section 2.04 or as
otherwise required by law or the underlying Contract, all Collections from an
Obligor of any Transferred Receivable shall be applied to the Receivables of
such Obligor in the order of the age of such Receivables, starting with the
oldest such Receivable, unless such Obligor designates its payment for
application to specific Receivables.
SECTION 2.05. Payments and Computations, Etc. (a) All amounts to be paid
or deposited by the Seller or the Collection Agent hereunder shall be paid or
deposited no later than 11:00 A.M. (New York City time) on the day when due
in same day funds to the Purchaser's account at Fleet National Bank,
Hartford, Connecticut, ABA # 011500010, Account # 9370212183, or to such
other account as the Purchaser may designate in writing to the Seller from
time to time.
(b) The Seller shall, to the extent permitted by law, pay to the Purchaser
interest on any amount not paid or deposited by the Seller (whether as
Collection Agent or otherwise) when due hereunder at an interest rate per
annum equal to the Alternate Base Rate, payable on demand; provided, however,
that such interest rate shall not at any time exceed the maximum rate
permitted by applicable law.
(c) All computations of interest and all computations of fees hereunder
shall be made on the basis of a year of 360 days for the actual number of
days (including the first but excluding the last day) elapsed. Whenever any
payment or deposit to be made hereunder shall be due on a day other than a
Business Day, such payment or deposit shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation
of such payment or deposit.
SECTION 2.06. Contributions. The Seller may from time to time at its
option, by notice to the Purchaser, contribute Receivables to the Purchaser
as a capital contribution. On the date of each such contribution and after
giving effect thereto, the Purchaser shall own the Receivables so contributed
(collectively, the "Contributed Receivables") and all Related Security with
respect thereto. The foregoing notwithstanding, on the date of the initial
Purchase hereunder the Seller agrees to contribute to the Purchaser all
Receivables which are not included in such initial Purchase as provided in
Section 2.02(e).
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Initial Purchase from the Seller. The
initial Purchase of Receivables from the Seller hereunder is subject to the
conditions precedent that the Purchaser shall have received on or before the
date of such Purchase the following, each (unless otherwise indicated) dated
such date, in form and substance satisfactory to the Purchaser:
(a) Certified copies of the resolutions of the Board of Directors of the
Seller approving this Agreement and certified copies of all documents
evidencing other necessary corporate action and governmental approvals, if
any, with respect to this Agreement.
(b) A certificate of the Secretary or Assistant Secretary of the Seller
certifying the names and true signatures of the officers of the Seller
authorized to sign this Agreement and the other documents to be delivered by
it hereunder.
(c) Acknowledgment copies of proper financing statements or time stamped
receipt copies, duly filed on or before the date of the initial Purchase or
other similar instruments or documents, as the Purchaser may deem necessary
or desirable under the UCC of all appropriate jurisdictions or other
applicable law to perfect the Purchaser's ownership of and security interest
in the Transferred Receivables and Related Security and Collections with
respect thereto.
(d) Acknowledgment copies or time stamped receipt copies of proper
instruments, if any, necessary to release all security interests and other
rights of any Person in the Transferred Receivables, Contracts or Related
Security previously granted by the Seller.
(e) Completed requests for information, dated on or before the date of such
initial Purchase, listing all effective financing statements filed in the
jurisdictions referred to in subsection (c) above that name the Seller as
debtor, together with copies of such other financing statements (none of
which, other than the financing statements filed pursuant to subsection (c),
shall cover any Transferred Receivables, Contracts or Related Security).
SECTION 3.02. Conditions Precedent to All Purchases. Each Purchase
(including the initial Purchase) shall be subject to the further conditions
precedent that:
(a) on or prior to the date of such Purchase, the Collection Agent shall
have delivered to the Purchaser, in form and substance satisfactory to the
Purchaser, a completed Seller Report for the most recently ended reporting
period for which information is required pursuant to Section 6.02(b) and
containing such additional information as may reasonably be requested by the
Purchaser;
(b) the Seller shall have marked its master data processing records and all
other relevant records evidencing all Transferred Receivables and all other
relevant records evidencing the Transferred Receivables which are the subject
of such Purchase with a legend, acceptable to the Purchaser, stating that
such Receivables, the Related Security and Collections with respect thereto,
have been sold or contributed in accordance with this Agreement;
(c) on the date of such Purchase the following statements shall be true (and
the Seller, by accepting the amount of such Purchase, shall be deemed to have
certified that):
(i) the representations and warranties contained in Section 4.01 are correct
on and as of the date of such Purchase as though made on and as of such date,
(ii) no event has occurred and is continuing, or would result from such
Purchase, that constitutes an Event of Termination or would constitute an
Incipient Event of Termination and
(iii) the Purchaser shall not have delivered to the Seller a notice
fixing the Facility Termination Date on or prior to the date of such
Purchase; and
(d) the Purchaser shall have received such other approvals, opinions or
documents as the Purchaser may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller. The Seller
represents and warrants as follows:
(a) The Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of Connecticut, and is duly qualified to do
business, and is in good standing, in every jurisdiction where the nature of
its business requires it to be so qualified, unless the failure to so qualify
would not have a material adverse effect on (i) the interests of the
Purchaser hereunder, (ii) the collectibility of the Transferred Receivables
or (iii) the ability of the Seller or the Collection Agent to perform its
respective obligations hereunder.
(b) The execution, delivery and performance by the Seller of this Agreement
and the other documents to be delivered by it hereunder, including the
Seller's sale and contribution of Receivables hereunder and the Seller's use
of the proceeds of Purchases, (i) are within the Seller's corporate powers,
(ii) have been duly authorized by all necessary corporate action, (iii) do
not contravene (A) the Seller's charter or by-laws, (B) any law, rule or
regulation applicable to the Seller, (C) any contractual restriction binding
on or affecting the Seller or its property or (D) any order, writ, judgment,
award, injunction or decree binding on or affecting the Seller or its
property and (iv) do not result in or require the creation of any lien,
security interest or other charge or encumbrance upon or with respect to any
of its properties (except for the transfer of the Seller's interest in the
Transferred Receivables pursuant to this Agreement). This Agreement has been
duly executed and delivered by the Seller.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Seller of this Agreement
or any other document to be delivered hereunder except for such as have been
accomplished and except for the filing of the UCC Financing Statements
referred to in Article III, all of which, at the time required in Article
III, shall have been duly made and shall be in full force and effect.
(d) This Agreement constitutes the legal, valid and binding obligation of
the Seller enforceable against the Seller in accordance with its terms.
(e) Each sale and contribution made pursuant to this Agreement will
constitute a valid sale, transfer, and assignment in fee simple of the
Transferred Receivables to the Purchaser, enforceable against creditors of,
and purchasers from, the Seller. The Seller shall have no remaining property
interest in any Transferred Receivable.
(f) The balance sheets of the Seller and its subsidiaries as at December 31,
1996, and the related statements of income and retained earnings of the
Seller and its subsidiaries for the fiscal year then ended (the "Financial
Statements"), copies of which have been furnished to the Purchaser, fairly
present the financial condition of the Seller and its subsidiaries as at such
date and the results of the operations of the Seller and its subsidiaries for
the period ended on such date, all in accordance with generally accepted
accounting principles consistently applied.
(g) Except as disclosed in the Financial Statements and the Public
Disclosure Documents, there is no pending or threatened action, suit or
proceeding against or affecting the Seller or any of its subsidiaries before
any court, governmental agency or arbitrator which may materially adversely
affect the financial condition or operations of the Seller or any of its
subsidiaries or the ability of the Seller to perform its obligations under
this Agreement, or which purports to affect the legality, validity or
enforceability of this Agreement.
(h) No proceeds of any Purchase will be used to acquire any security in any
transaction which is subject to Section 13 or 14 of the Securities Exchange
Act of 1934, as amended.
(i) No transaction contemplated hereby requires compliance with any bulk
sales act or similar law.
(j) Each Transferred Receivable, together with the Related Security, is a
bona fide obligation of the Obligor purported to be liable thereon and is
owned (prior to its sale or contribution hereunder) by the Seller free and
clear of any Adverse Claim (other than any Adverse Claim arising solely as
the result of any action taken by the Purchaser). When the Purchaser makes a
Purchase or acquires by contribution any Transferred Receivable, it shall
acquire valid and perfected first priority ownership of each Transferred
Receivable and the Related Security and Collections with respect thereto free
and clear of any Adverse Claim (other than any Adverse Claim arising solely
as the result of any action taken by the Purchaser), and no effective
financing statement or other instrument similar in effect covering any
Transferred Receivable, any interest therein, the Related Security or
Collections with respect thereto is on file in any recording office except
such as may be filed in favor of the Purchaser in accordance with this
Agreement or in connection with any Adverse Claim arising solely as the
result of any action taken by the Purchaser.
(k) Each Seller Report prepared by the Seller (or, if not prepared by the
Seller, to the extent that information contained therein is supplied by the
Seller), information, exhibit, financial statement, document, book, record or
report furnished or to be furnished at any time by the Seller to the
Purchaser in connection with this Agreement is or will be accurate in all
material respects as of its date or (except as otherwise disclosed to the
Purchaser at such time) as of the date so furnished, and no such document
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they were
made, not misleading.
(l) The principal place of business and chief executive office of the Seller
and the office where the Seller keeps its records concerning the Transferred
Receivables are located at the address or addresses referred to in Section
5.01(b).
(m) The Seller is not known by and does not use any tradename or
doing-business-as name in the origination or collection of any of the
Receivables.
(n) With respect to any program used by the Seller in the servicing of the
Receivables, no sublicensing agreement is necessary in connection with the
designation of a new Collection Agent pursuant to Section 6.01 so that such
new Collection Agent shall have the benefit of such programs (it being
understood, however, that the Collection Agent, if other than the Seller,
shall be required to be bound by a confidentiality agreement reasonably
acceptable to the Seller).
(o) The transfers of Transferred Receivables by the Seller to the Purchaser
pursuant to this Agreement, and all other transactions between the Seller and
the Purchaser, have been and will be made in good faith and without intent to
hinder, delay or defraud creditors of the Seller.
ARTICLE V
COVENANTS
SECTION 5.01. Covenants of the Seller. From the date hereof until the first
day following the Facility Termination Date on which all of the Transferred
Receivables are either collected in full or become Defaulted Receivables, the
Seller will:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders and preserve and maintain its
corporate existence, rights, franchises, qualifications and privileges except
to the extent that the failure so to comply with such laws, rules and
regulations or the failure so to preserve and maintain such existence,
rights, franchises, qualifications, and privileges would not materially
adversely affect the collectibility of the Transferred Receivables or the
ability of the Seller to perform its obligations under this Agreement.
(b) Offices, Records and Books of Account. (i) Keep its principal place of
business and chief executive office and the office where it keeps its records
concerning the Transferred Receivables and all Contracts related thereto (and
all original documents relating thereto), at the address of the Seller set
forth under its name on the signature page to this Agreement or (x) in the
case of such records and Contracts, at the Seller's offices in Wethersfield,
Connecticut or (y) upon 30 days' prior written notice to the Purchaser, at
any other locations in jurisdictions where all actions required by Section
5.01(i) shall have been taken and completed; (ii) maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing Transferred Receivables and related
Contracts in the event of the destruction of the originals thereof), and keep
and maintain all documents, books, records and other information reasonably
necessary or advisable for the collection of all Transferred Receivables
(including, without limitation, records adequate to permit the daily
identification of each new Transferred Receivable and all Collections of and
adjustments to each existing Transferred Receivable); and (iii) make a
notation in its books and records, including its computer files, indicating
that the Transferred Receivables have been sold or contributed to the
Purchaser hereunder.
(c) Performance and Compliance with Contracts and Credit and Collection
Policy. At its expense, timely and fully perform and comply with all
material provisions, covenants and other promises required to be observed by
it under the Contracts related to the Transferred Receivables, and timely and
fully comply in all material respects with the Credit and Collection Policy
in regard to each Transferred Receivable and the related Contract.
(d) Sales, Liens, Etc. Except for the sales and contributions of
Receivables contemplated herein, not sell, assign (by operation of law or
otherwise) or otherwise dispose of, or create or suffer to exist any Adverse
Claim upon or with respect to, any Transferred Receivable, Related Security,
related Contract or Collections, or upon or with respect to any account to
which any Collections of any Transferred Receivable are sent, or assign any
right to receive income in respect thereof.
(e) Extension or Amendment of Transferred Receivables. Except as provided
in Section 6.02(c), not extend, amend or otherwise modify the terms of any
Transferred Receivable, or amend, modify or waive any term or condition of
any Contract related thereto.
(f) Change in Business or Credit and Collection Policy. Not make any change
in the character of its business or in the Credit and Collection Policy that
would, in either case, materially adversely affect the collectibility of the
Transferred Receivables or the ability of the Seller to perform its
obligations under this Agreement.
(g) Audits. From time to time during regular business hours as reasonably
requested by the Purchaser or its assigns, permit the Purchaser, or its
agents, representatives or assigns, (i) to examine and make copies of and
abstracts from all books, records and documents (including, without
limitation, computer tapes and disks) in the possession or under the control
of the Seller relating to Transferred Receivables and the Related Security,
including, without limitation, the related Contracts, and (ii) to visit the
offices and properties of the Seller for the purpose of examining such
materials described in clause (i) above, and to discuss matters relating to
Transferred Receivables and the Related Security or the Seller's performance
hereunder or under the Contracts with any of the officers or employees of the
Seller responsible for such matters; provided, that the Purchaser and its
assignees shall be required to maintain the confidentiality of any such
examinations, records and discussions.
(h) Collections. (i) At the request of the Purchaser, made at any time
after the occurrence of an Event of Termination or Incipient Event of
Termination, immediately deposit or cause to be deposited all Collections to
a Designated Account; and (ii) use reasonable commercial efforts to not
deposit or otherwise credit, or cause or permit to be so deposited or
credited, to any Designated Account cash or cash proceeds other than
Collections of Transferred Receivables.
(i) Further Assurances. (i) From time to time, at its expense, promptly
execute and deliver all further instruments and documents, and take all
further actions, that may be necessary or desirable, or that the Purchaser or
its assignee may reasonably request, to perfect, protect or more fully
evidence the sale and contribution of Receivables under this Agreement, or to
enable the Purchaser or its assignee to exercise and enforce its respective
rights and remedies under this Agreement, including, without limitation, upon
the request of the Purchaser or its assignee, (A) executing and filing such
financing or continuation statements, or amendments thereto, and such other
instruments and documents, that may be necessary or desirable to perfect,
protect or evidence such Transferred Receivables; and (B) subject to the
last sentence of Section 5.01(g), delivering to the Purchaser copies of all
Contracts relating to the Transferred Receivables and all records relating to
such Contracts and the Transferred Receivables, whether in hard copy or in
magnetic tape or diskette format (which if in magnetic tape or diskette
format shall be compatible with the Purchaser's computer equipment). In
connection with the foregoing, the Seller hereby authorizes the Purchaser or
its assignee to file financing or continuation statements, and amendments
thereto and assignments thereof, relating to the Transferred Receivables and
the Related Security, the related Contracts and the Collections with respect
thereto without the signature of the Seller where permitted by law. The
Purchaser or assignees making any such filing shall provide a copy thereof to
the Seller. A photocopy or other reproduction of this Agreement shall be
sufficient as a financing statement where permitted by law.
(ii) Perform its obligations under the Contracts related to the Transferred
Receivables to the same extent as if the Transferred Receivables had not been
sold or transferred.
(j) Reporting Requirements. Provide to the Purchaser the following:
(i) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the Seller a
copy of the Seller's Quarterly Report on Form 10-Q for such quarter;
(ii) as soon as available and in any event within 105 days after the end
of each fiscal year of the Seller a copy of the Seller's Annual Report on
Form 10-K, for such fiscal year;
(iii) upon request by the Purchaser, copies of all reports which the
Seller sends to any holders of its publicly held securities and copies of all
reports and registration statements which the Seller files with the
Securities and Exchange Commission or any national securities exchange;
(iv) promptly after the filing or receipt thereof, copies of all reports
and notices with respect to any Reportable Event (as defined in Article IV of
ERISA) which the Seller or any Significant Subsidiary files under ERISA with
the Internal Revenue Service or the Pension Benefit Guaranty Corporation or
the U.S. Department of Labor or which the Seller or any Significant
Subsidiary receives from any of the foregoing in each case in respect of the
assessment of withdrawal liability or event or condition which could, in the
aggregate, result in the imposition of liability on the Seller in excess of
$10,000,000;
(v) as soon as possible and in any event within five days after an
officer of the Seller obtains knowledge of the occurrence of an Event of
Termination or an Incipient Event of Termination, the statement of the chief
financial officer or chief accounting officer or the treasurer or an
assistant treasurer of the Seller setting forth the details of such Event of
Termination or Incipient Event of Termination and the action that the Seller
proposes to take with respect thereto;
(vi) upon the request of the Purchaser, a list of the Receivables which
the Purchaser has purchased hereunder;
(vii) promptly, from time to time, such other information,
documents, records or reports respecting the Receivables or Related Security
or the conditions or operations, financial or otherwise, of the Seller or any
significant Subsidiary as the Purchaser may from time to time reasonably
request in order to protect the Purchaser's interests under or contemplated
by this Agreement;
(viii) on or prior to the 18th day of each month, such Seller Reports
and other reports, information, documents, books or records as the Purchaser
may reasonably request;
(ix) at the time of the delivery of the financial statements provided
for in clauses (i) and (ii) of this paragraph, a certificate of the chief
financial officer or chief accounting officer or the treasurer or an
assistant treasurer of the Seller to the effect that, to the best of such
officer's knowledge, no Event of Termination has occurred and is continuing
or, if any Event of Termination has occurred and is continuing, specifying
the nature and extent thereof;
(x) at least ten Business Days prior to any change in the Seller's
name, a notice setting forth the new name and the effective date thereof; and
(xi) such other information respecting the Transferred Receivables or
the condition or operations, financial or otherwise, of the Seller as the
Purchaser may from time to time reasonably request.
(k) Separate Conduct of Business. (i) Maintain separate corporate records
and books of account from those of the Purchaser; (ii) except as otherwise
contemplated hereby, ensure that all oral and written communications,
including without limitation, letters, invoices, purchase orders, contracts,
statements and applications, will be made solely in its own name; (iii) have
stationery and other business forms and a telephone number separate from
those of the Purchaser; (iv) not hold itself out as having agreed to pay, or
as being liable for, the obligations of the Purchaser; (v) not engage in any
transaction with the Purchaser except as contemplated by this Agreement or as
permitted by the Sale Agreement; (vi) continuously maintain as official
records the resolutions, agreements and other instruments underlying the
transactions contemplated by this Agreement; and (vii) disclose on its annual
financial statements (A) the effects of the transactions contemplated by this
Agreement in accordance with generally accepted accounting principles, (B)
that the Seller has acquired the Receivables from the Purchaser and (C) that
the Seller is a separate corporate entity with creditors who have purchased
or otherwise received ownership and security interests in the Seller's
assets.
SECTION 5.02. Grant of Security Interest. To secure all obligations of the
Seller arising in connection with this Agreement, and each other agreement
entered into in connection with this Agreement, whether now or hereafter
existing, due or to become due, direct or indirect, or absolute or
contingent, including, without limitation, Indemnified Amounts, payments on
account of Collections received or deemed to be received, and any other
amounts due the Purchaser hereunder, the Seller hereby assigns and grants to
Purchaser, a security interest in all of the Seller's right, title and
interest now or hereafter existing in, to and under all Receivables which do
not constitute Transferred Receivables, the Related Security and all
Collections with regard thereto.
SECTION 5.03. Covenant of the Seller and the Purchaser. The Seller and the
Purchaser have structured this Agreement with the intention that each
Purchase or contribution of Receivables hereunder be treated as a sale or
contribution of such Receivables by the Seller to the Purchaser for all
purposes. The Seller and the Purchaser shall record each Purchase or
contribution as a sale, purchase or contribution, as the case may be, on its
books and records, and reflect each Purchase and contribution in its
financial statements as a sale, purchase or contribution, as the case may be.
In the event that, contrary to the mutual intent of the Seller and the
Purchaser, any Purchase of Receivables hereunder is not characterized as a
sale or contribution, the Seller shall, effective as of the date hereof, be
deemed to have granted (and the Seller hereby does grant) to the Purchaser a
first priority security interest in and to any and all Transferred
Receivables and the proceeds thereof to secure the repayment of all amounts
advanced to the Seller hereunder with accrued interest thereon, and this
Agreement shall be deemed to be a security agreement.
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent. The servicing,
administration and collection of the Transferred Receivables shall be
conducted by such Person (the "Collection Agent") so designated hereunder
from time to time. Until the Purchaser or its assignee gives notice to the
Seller of the designation of a new Collection Agent, the Seller is hereby
designated as, and hereby agrees to perform the duties and obligations of,
the Collection Agent pursuant to the terms hereof. The Seller agrees that
such notice may be given at any time in the Purchaser's or assignee's
discretion after the occurrence of an Event of Termination or Incipient Event
of Termination. Upon the Seller's receipt of such notice, the Seller agrees
that it will terminate its activities as Collection Agent hereunder in a
manner which the Purchaser (or its designee) believes will facilitate the
transition of the performance of such activities to the new Collection Agent,
and the Seller shall use its best efforts to assist the Purchaser (or its
designee) to take over the servicing, administration and collection of the
Transferred Receivables, including, without limitation, providing access to
and copies of all computer tapes or disks and other documents or instruments
that evidence or relate to Transferred Receivables maintained in its capacity
as Collection Agent and access to all employees and officers of the Seller
responsible with respect thereto. The Purchaser at any time after giving
such notice may designate as Collection Agent any Person (including itself)
to succeed the Seller or any successor Collection Agent, if such Person shall
consent and agree to the terms hereof. The Collection Agent may subcontract
with Northeast Utilities Service Company and may, with the prior consent of
the Purchaser, subcontract with any other Person for the servicing,
administration or collection of Transferred Receivables. Any such
subcontract shall not affect the Collection Agent's liability for performance
of its duties and obligations pursuant to the terms hereof.
SECTION 6.02. Duties of Collection Agent. (a) The Collection Agent shall
take or cause to be taken all such actions as may be necessary or advisable
to collect each Transferred Receivable from time to time, all in accordance
with applicable laws, rules and regulations, with reasonable care and
diligence, and in accordance with the Credit and Collection Policy. The
Purchaser hereby appoints the Collection Agent, from time to time designated
pursuant to Section 6.01, as agent to enforce its ownership and other rights
in the Transferred Receivables, the Related Security and the Collections with
respect thereto. In performing its duties as Collection Agent, the
Collection Agent shall exercise the same care and apply the same policies as
it would exercise and apply if it owned the Transferred Receivables and shall
act in the best interests of the Purchaser and its assignees.
(b) On or before the 18th day of each month, the Collection Agent shall
prepare and forward to the Purchaser a Seller Report, relating to all then
outstanding Transferred Receivables, and the Related Security and Collections
with respect thereto, in each case, as of the close of business of the
Collection Agent on the last day of the immediately preceding month.
(c) The Collection Agent may not extend, amend or otherwise modify the terms
of any Transferred Receivable or amend, modify or waive any term or condition
of any Contract related thereto, or commence or settle any legal action to
enforce collection of any Transferred Receivable, except in conformance with
the Credit and Collection Policy.
(d) The Seller shall deliver to the Collection Agent, and the Collection
Agent shall hold in trust for the Seller and the Purchaser in accordance with
their respective interests, all documents, instruments and records
(including, without limitation, computer tapes or disks) which evidence or
relate to Transferred Receivables.
(e) The Collection Agent shall, as soon as practicable following receipt,
turn over to the Seller any cash collections or other cash proceeds received
with respect to Receivables not constituting Transferred Receivables, less,
in the event the Seller is not the Collection Agent, all reasonable and
appropriate out-of-pocket costs and expenses of the Collection Agent of
servicing, collecting and administering the Receivables to the extent not
covered by the Collection Agent Fee received by it.
(f) The Collection Agent also shall perform the other obligations of the
"Collection Agent" set forth in this Agreement with respect to the
Transferred Receivables.
SECTION 6.03. Collection Agent Fee. The Purchaser shall pay to the
Collection Agent a periodic collection fee (the "Collection Agent Fee") in an
amount equal to the greater of (i) 1/4 of 1% per annum on the average daily
outstanding Invested Amount with respect to the Purchased Receivables, or
(ii) 110% of the reasonable costs and expenses of the Collection Agent
attributable to collecting the Invested Amount with respect to the Purchased
Receivables. Such fee shall be payable in arrears on each Settlement Date,
commencing November 21, 1997, for the period from the preceding Settlement
Date to such Settlement Date; provided, however, that so long as the Seller
is the Collection Agent, such fee may be paid on the last day of the month in
which such Settlement Date occurs.
SECTION 6.04. Certain Rights of the Purchaser. (a) The Purchaser may, at
any time after the occurrence of an Event of Termination or Incipient Event
of Termination, give notice of ownership and/or direct the Obligors of
Transferred Receivables and any Person obligated on any Related Security, or
any of them, that payment of all amounts payable under any Transferred
Receivable shall be made directly to the Purchaser or its designee or
directly to the Designated Account.
(b) The Seller shall, at any time upon the Purchaser's request and at the
Seller's expense after the occurrence of an Event of Termination or Incipient
Event of Termination, give notice of such ownership to each Obligor of
Transferred Receivables and direct that payments of all amounts payable under
such Transferred Receivables be made directly to the Purchaser or its
designee or directly to the Designated Account.
(c) At the Purchaser's request after the occurrence of an Event of
Termination or Incipient Event of Termination, and at the Seller's expense,
the Seller and the Collection Agent shall (A) assemble all of the documents,
instruments and other records (including, without limitation, computer tapes
and disks) that evidence or relate to the Transferred Receivables, and the
related Contracts and Related Security, or that are otherwise necessary or
desirable to collect the Transferred Receivables, and make the same available
to the Purchaser at a place selected by the Purchaser or its designee and (B)
segregate all cash, checks and other instruments received by it from time to
time constituting Collections of Transferred Receivables in a manner
acceptable to the Purchaser and, promptly upon receipt, remit all such cash,
checks and instruments, duly endorsed or with duly executed instruments of
transfer, to the Purchaser or its designee. The Purchaser shall also have
the right to make copies of all such documents, instruments and other records
at any time, subject to the last sentence of Section 5.01(g).
(d) The Seller authorizes the Purchaser, after the occurrence of an Event of
Termination or Incipient Event of Termination, to take any and all steps in
the Seller's name and on behalf of the Seller that are necessary or
desirable, in the determination of the Purchaser, to collect amounts due
under the Transferred Receivables, including, without limitation, endorsing
the Seller's name on checks and other instruments representing Collections of
Transferred Receivables and enforcing the Transferred Receivables and the
Related Security and related Contracts.
SECTION 6.05. Rights and Remedies. (a) If the Seller or the Collection
Agent fails to perform any of its obligations under this Agreement, the
Purchaser may (but shall not be required to) itself perform, or cause
performance of, such obligation, and, if the Seller (as Collection Agent or
otherwise) fails to so perform, the costs and expenses of the Purchaser
incurred in connection therewith shall be payable by the Seller as provided
in Section 8.01 or Section 9.04 as applicable.
(b) The Seller shall perform all of its obligations under the Contracts
related to the Transferred Receivables to the same extent as if the Seller
had not sold or contributed Receivables hereunder and the exercise by the
Purchaser of its rights hereunder shall not relieve the Seller from such
obligations or its obligations with respect to the Transferred Receivables.
The Purchaser shall not have any obligation or liability with respect to any
Transferred Receivables or related Contracts, nor shall the Purchaser be
obligated to perform any of the obligations of the Seller thereunder.
(c) The Seller shall cooperate with the Collection Agent in collecting
amounts due from Obligors in respect of the Transferred Receivables.
(d) The Seller hereby grants to the Collection Agent an irrevocable power of
attorney, with full power of substitution, coupled with an interest, to take
in the name of the Seller all steps necessary or advisable to endorse,
negotiate or otherwise realize on any writing or other right of any kind held
or transmitted by the Seller or transmitted or received by Purchaser (whether
or not from the Seller) in connection with any Transferred Receivable.
SECTION 6.06. Transfer of Records to Purchaser. Each Purchase and
contribution of Receivables hereunder shall include the transfer to the
Purchaser of all of the Seller's right, title to and interest in the records
relating to such Receivables and shall include the right to use the Seller's
computer software system to access and create such records. Such right shall
be without royalty or payment of any kind, is coupled with an interest, and
shall be irrevocable until all of the Transferred Receivables are either
collected in full or become Defaulted Receivables.
The Seller shall take such action requested by the Purchaser, from time to
time hereafter, that may be necessary or appropriate to ensure that the
Purchaser has an enforceable ownership interest in the records relating to
the Transferred Receivables and rights (whether by ownership, license,
sublicense or otherwise) to the use of the Seller's computer software system
to access and create such records.
In recognition of the Seller's need to have access to the records transferred
to the Purchaser hereunder, the Purchaser hereby grants to the Seller the
right to access such records in connection with any activity arising in the
ordinary course of the Seller's business or in performance of its duties as
Collection Agent, provided that (i) the Seller shall not disrupt or otherwise
interfere with the Purchaser's use of and access to such records during such
period and (ii) the Seller consents to the assignment and delivery of the
records (including any information contained therein relating to the Seller
or its operations) to any assignees or transferees of the Purchaser provided
they agree to hold such records confidential.
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01. Events of Termination. If any of the following events
("Events of Termination") shall occur and be continuing:
(a) The Collection Agent (if the Seller or any of its Affiliates) (i) shall
fail to perform or observe any term, covenant or agreement under this
Agreement (other than as referred to in clause (ii) of this subsection (a))
and such failure shall remain unremedied for three Business Days or (ii)
shall fail to make when due any payment or deposit to be made by it under
this Agreement; or
(b) The Seller shall fail (i) to transfer to the Purchaser when requested
any rights pursuant to this Agreement which the Seller then has as Collection
Agent, or (ii) to make any payment required under Section 2.04(a) or 2.04(b);
or
(c) Any representation or warranty made or deemed made by the Seller (or any
of its officers) under or in connection with this Agreement or any Seller
Report or any other information or report delivered by the Seller pursuant to
this Agreement shall prove to have been incorrect or untrue in any material
respect when made or deemed made or delivered; or
(d) The Seller shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement on its part to be performed or observed
and any such failure shall remain unremedied for 10 days after written notice
thereof shall have been given to the Seller by the Purchaser; or
(e) The Seller shall fail to pay any principal of or premium or interest on
any of its Debt which is outstanding in a principal amount of at least
$10,000,000 in the aggregate when the same becomes due and payable (whether
by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Debt; or any other event shall occur or condition shall exist under any
agreement or instrument relating to any such Debt and shall continue after
the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or to
permit the acceleration of, the maturity of such Debt; or any such Debt shall
be declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), redeemed, purchased or defeased, or
an offer to repay, redeem, purchase or defease such Debt shall be required to
be made, in each case prior to the stated maturity thereof; or
(f) Any Purchase or contribution of Receivables hereunder, the Related
Security and the Collections with respect thereto shall for any reason cease
to constitute valid and perfected ownership of such Receivables, Related
Security and Collections free and clear of any Adverse Claim; or
(g) The Seller or any of its Significant Subsidiaries shall generally not
pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against
the Seller or any of its Significant Subsidiaries seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for
it or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either such
proceeding shall remain undismissed or unstayed for a period of 60 days, or
any of the actions sought in such proceeding (including, without limitation,
the entry of an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or for any substantial
part of its property) shall occur; or the Seller or any of its Significant
Subsidiaries shall take any corporate action to authorize any of the actions
set forth above in this subsection (g); or
(h) An Event of Termination shall have occurred under the Sale Agreement; or
(i) There shall have occurred any event which may materially adversely
affect the collectibility of the Transferred Receivables or the ability of
the Seller to collect Transferred Receivables or otherwise perform its
obligations under this Agreement;
then, and in any such event, the Purchaser may, by notice to the Seller, take
either or both of the following actions: (x) declare the Facility
Termination Date to have occurred (in which case the Facility Termination
Date shall be deemed to have occurred) and (y) without limiting any right
under this Agreement to replace the Collection Agent, designate another
Person to succeed the Seller as the Collection Agent; provided, that,
automatically upon the occurrence of any event (without any requirement for
the passage of time or the giving of notice) described in paragraph (g) of
this Section 7.01, the Facility Termination Date shall occur, the Seller (if
it is then serving as the Collection Agent) shall cease to be the Collection
Agent, and the Purchaser (or its assigns or designees) shall become the
Collection Agent. Upon any such declaration or designation or upon such
automatic termination, the Purchaser shall have, in addition to the rights
and remedies under this Agreement, all other rights and remedies with respect
to the Receivables provided after default under the UCC and under other
applicable law, which rights and remedies shall be cumulative.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Indemnities by the Seller. Without limiting any other rights
which the Purchaser may have hereunder or under applicable law, the Seller
hereby agrees to indemnify the Purchaser and its assigns and transferees
(each, an "Indemnified Party") from and against any and all damages, claims,
losses, liabilities and related costs and expenses, including reasonable
attorneys' fees and disbursements (all of the foregoing being collectively
referred to as "Indemnified Amounts"), awarded against or incurred by any
Indemnified Party arising out of or as a result of:
(i) the characterization in any Seller Report or other statement
made by the Seller of any Receivable as an Eligible Receivable (as defined in
the Sale Agreement) which is not an Eligible Receivable as of the date of
such Seller Report or statement;
(ii) any representation or warranty or statement made or deemed made by
the Seller (or any of its officers) under or in connection with this
Agreement, which shall have been false or incorrect in any material respect
when made;
(iii) the failure by the Seller to comply with any applicable law,
rule or regulation with respect to any Transferred Receivable, Related
Security or the related Contract; or the nonconformity of any Transferred
Receivable, Related Security or the related Contract with any such applicable
law, rule or regulation;
(iv) the failure to vest in the Purchaser absolute ownership of the
Receivables that are, or that purport to be, the subject of a Purchase or
contribution under this Agreement and the Related Security and Collections
in respect thereof, free and clear of any Adverse Claim;
(v) the failure of the Seller to have filed, or any delay in
filing, financing statements or other similar instruments or documents under
the UCC of any applicable jurisdiction or other applicable laws with respect
to any Receivables that are, or that purport to be, the subject of a Purchase
or contribution under this Agreement and the Related Security and Collections
in respect thereof, whether at the time of any Purchase or contribution or at
any subsequent time;
(vi) any dispute, claim, offset or defense of any Obligor (other than
discharge in bankruptcy of such Obligor) to the payment of any Receivable
that is, or that purports to be, the subject of a Purchase or contribution
under this Agreement (including, without limitation, a defense based on such
Receivable or the related Contract not being a legal, valid and binding
obligation of such Obligor enforceable against it in accordance with its
terms), or any other claim resulting from the sale of the merchandise or
services related to such Receivable or the furnishing or failure to furnish
such merchandise or services or relating to collection activities with
respect to such Receivable (if such collection activities were performed by
the Seller acting as Collection Agent) except to the extent that such
dispute, claim, offset or defense results solely from actions or failures to
act of the Purchaser or its assigns;
(vii) any failure of the Seller, as Collection Agent or otherwise,
to perform its duties or obligations in accordance with the provisions hereof
or to perform its duties or obligations under any Contract related to a
Transferred Receivable;
(viii) any products liability claim or personal injury or property
damage suit or other similar or related claim or action of whatever sort
arising out of or in connection with merchandise or services which are the
subject of any Contract;
(ix) the commingling of Collections of Transferred Receivables by the
Seller or a designee of the Seller, as Collection Agent or otherwise, at any
time with other funds of the Seller or an Affiliate of the Seller;
(x) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of Purchases or the ownership of Transferred
Receivables, the Related Security, or Collections with respect thereto or in
respect of any Transferred Receivable, Related Security or Contract, except
to the extent any such investigation, litigation or proceeding relates to a
possible matter involving an Indemnified Party for which neither the Seller
nor any of its Affiliates is at fault;
(xi) any failure of the Seller to comply with its covenants contained in
Section 5.01;
(xii) any Collection Agent Fees or other costs and expenses payable
to any replacement Collection Agent, to the extent in excess of the
Collection Agent Fees payable to the Seller hereunder; or
(xiii) any claim brought by any Person other than an Indemnified
Party arising from any activity by the Seller or any Affiliate of the Seller
in servicing, administering or collecting any Transferred Receivable.
It is expressly agreed and understood by the parties hereto (i) that the
foregoing indemnification is not intended to, and shall not, constitute a
guarantee of the collectibility or payment of the Transferred Receivables and
(ii) that nothing in this Section 8.01 shall require the Seller to indemnify
any Person (A) for Receivables which are not collected, not paid or
uncollectible on account of the insolvency, bankruptcy, or financial
inability to pay of the applicable Obligor, (B) for damages, losses, claims
or liabilities or related costs or expenses resulting from such Person's
gross negligence or willful misconduct, or (C) for any income taxes or
franchise taxes incurred by such Person arising out of or as a result of this
Agreement or in respect of any Transferred Receivable or any Contract.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or consent to any departure by the Seller therefrom shall in
any event be effective unless the same shall be in writing signed by the
Purchaser and, in the case of any amendment, also signed by the Seller, and
then such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. This
Agreement contains a final and complete integration of all prior expressions
by the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof, superseding all prior oral or written understandings.
SECTION 9.02. Notices, Etc. All notices and other communications hereunder
shall, unless otherwise stated herein, be in writing (which shall include
facsimile communication) and faxed or delivered, to each party hereto, at its
address set forth under its name on the signature pages hereof or at such
other address as shall be designated by such party in a written notice to the
other parties hereto. Notices and communications by facsimile shall be
effective when sent (and shall be followed by hard copy sent by regular
mail), and notices and communications sent by other means shall be effective
when received.
SECTION 9.03. No Waiver; Remedies. No failure on the part of the Purchaser
to exercise, and no delay in exercising, any right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 9.04. Binding Effect; Assignability. (a) This Agreement shall be
binding upon and inure to the benefit of the Seller, the Purchaser and their
respective successors and assigns; provided, however, that the Seller may not
assign its rights or obligations hereunder or any interest herein without the
prior written consent of the Purchaser. In connection with any sale or
assignment by the Purchaser of all or a portion of the Transferred
Receivables, the buyer or assignee, as the case may be, shall, to the extent
of its purchase or assignment, have all rights of the Purchaser under this
Agreement (as if such buyer or assignee, as the case may be, were the
Purchaser hereunder) except to the extent specifically provided in the
agreement between the Purchaser and such buyer or assignee, as the case may
be.
(b) This Agreement shall create and constitute the continuing obligations of
the parties hereto in accordance with its terms, and shall remain in full
force and effect until such time, after the Facility Termination Date, when
all of the Transferred Receivables are either collected in full or become
Defaulted Receivables; provided, however, that rights and remedies with
respect to any breach of any representation and warranty made by the Seller
pursuant to Article IV and the provisions of Article VIII and Sections 9.05,
9.06 and 9.07 shall be continuing and shall survive any termination of this
Agreement.
SECTION 9.05. Costs, Expenses and Taxes. (a) In addition to the rights of
indemnification granted to the Purchaser pursuant to Article VIII hereof, the
Seller agrees to pay on demand all costs and expenses in connection with the
preparation, execution and delivery of this Agreement and the other documents
and agreements to be delivered hereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Purchaser with
respect thereto and with respect to advising the Purchaser as to its rights
and remedies under this Agreement, and the Seller agrees to pay all costs and
expenses, if any (including reasonable counsel fees and expenses), in
connection with the enforcement of this Agreement and the other documents to
be delivered hereunder excluding, however, any costs of enforcement or
collection of Transferred Receivables.
(b) In addition, the Seller agrees to pay any and all stamp and other taxes
and fees payable or determined to be payable in connection with the
execution, delivery, filing and recording of this Agreement or the other
documents or agreements to be delivered hereunder, and the Seller agrees to
save each Indemnified Party harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes and fees.
SECTION 9.06. No Proceedings. The Seller hereby agrees that it will not
institute against the Purchaser any proceeding of the type referred to in
Section 7.01(g) so long as there shall not have elapsed one year plus one day
since the later of (i) the Facility Termination Date and (ii) the date on
which all of the Transferred Receivables are either collected in full or
become Defaulted Receivables.
SECTION 9.07. Confidentiality. Unless otherwise required by applicable law,
each party hereto agrees to maintain the confidentiality of this Agreement in
communications with third parties and otherwise; provided that this Agreement
may be disclosed to (i) third parties to the extent such disclosure is made
pursuant to a written agreement of confidentiality in form and substance
reasonably satisfactory to the other party hereto, and (ii) such party's
legal counsel and auditors and the Purchaser's assignees, if they agree in
each case to hold it confidential.
SECTION 9.08. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT (WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF).
SECTION 9.09. Third Party Beneficiary. Each of the parties hereto hereby
acknowledges that the Purchaser may assign all or any portion of its rights
under this Agreement and that such assignees may (except as otherwise agreed
to by such assignees) further assign their rights under this Agreement, and
the Seller hereby consents to any such assignments. All such assignees,
including parties to the Sale Agreement in the case of assignment to such
parties, shall be third party beneficiaries of, and shall be entitled to
enforce the Purchaser's rights and remedies under, this Agreement to the same
extent as if they were parties thereto, except to the extent specifically
limited under the terms of their assignment.
SECTION 9.10. Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed shall be deemed to
be an original and all of which when taken together shall constitute one and
the same agreement. Delivery of an executed counterpart of a signature page
to this Agreement by facsimile shall be effective as delivery of a manually
executed counterpart of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first
above written.
SELLER:
THE CONNECTICUT LIGHT AND
POWER COMPANY
By s/s David R. McHale
Name: David R. McHale
Title: Assistant Treasurer
107 Selden Street
Berlin, Connecticut 06037
Attention: Assistant Treasurer
Facsimile No.: 860-665-5457
PURCHASER:
CL&P RECEIVABLES CORPORATION
By: s/s Robert C. Aronson
Name: Robert C. Aronson
Title: Assistant Treasurer
107 Selden Street
Berlin, Connecticut 06037
Attention: Assistant Treasurer
Facsimile No.: (860) 665-5457
EXHIBIT A
TARIFFS
1. The retail rates charged by the Seller to Obligors, as approved from
time to time by the Connecticut Department of Public Utility Control.
2. The Connecticut Light and Power Company Rules and Regulations, effective
July 1, 1993, applicable to its retail rate accounts as approved by the
Connecticut Department of Public Utility Control.
Exhibit 10.50
U.S. $40,000,000
RECEIVABLES PURCHASE AGREEMENT
Dated as of May 22, 1997
Among
WMECO RECEIVABLES CORPORATION,
as the Seller
and
WESTERN MASSACHUSETTS ELECTRIC COMPANY
as initial Servicer
and
MONTE ROSA CAPITAL CORPORATION
as the Purchaser
and
UNION BANK OF SWITZERLAND, NEW YORK BRANCH
as the Agent
TABLE OF CONTENTS
Section
ARTICLE I
DEFINITIONS
1.01. Certain Defined Terms
1.02. Other Terms
1.03. Computation of Time Periods
ARTICLE II
THE RECEIVABLES FACILITY
2.01. Purchases and Maintenance of Percentage Interests
2.02. Termination or Reduction of the Purchase Limit
2.03. Percentage Interests
2.04. Selection of Purchase Periods
2.05. Non-Liquidation Settlement Procedures
2.06. Liquidity Shortfall Event; Partial Liquidations
2.07. Liquidation Settlement Procedures
2.08. Deemed Collections of Receivables
2.09. Payments and Computations, Etc.
2.10. Fees
2.11. Breakage Fee and Indemnity
2.12. Sharing of Payments, Etc.
2.13. Eurodollar Rate Protection; Illegality
2.14. Increased Costs; Capital Adequacy
2.15. Taxes
2.16. Security Interest
ARTICLE III
CONDITIONS OF PURCHASES
3.01. Conditions Precedent to Initial Purchase
3.02. Conditions Precedent to All Purchases and Reinvestments
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. Representations and Warranties of the Seller
4.02. Representations and Warranties of the Servicer
ARTICLE V
GENERAL COVENANTS OF THE SELLER, WMECO AND THE SERVICER
5.01. General Seller Covenants
5.02. Servicer Covenants
5.03. Separate Corporate Existence of the Seller
ARTICLE VI
ADMINISTRATION, COLLECTION AND MONITORING OF RECEIVABLES
6.01. Appointment and Designation of the Servicer
6.02. Collection of Receivables by the Servicer; Extensions and
Amendments of Receivables
6.03. Distribution and Application of Collections
6.04. Segregation of Collections
6.05. Other Rights of the Agent
6.06. Records; Maintenance of General Trial Balance; Audits
6.07. Receivables Reporting
6.08 Collections
6.09. UCC Matters; Protection and Perfection of Percentage Interests
6.10. Obligations of the Seller with Respect to Receivables
ARTICLE VII
EVENTS OF TERMINATION
7.01. Events of Termination
ARTICLE VIII
THE AGENT
8.01. Authorization and Action
8.02. UCC Filings
8.03. Agent's Reliance, Etc.
8.04. Agent and Affiliates
8.05. Purchase Decision
8.06. Indemnification
8.07. Successor Agent
ARTICLE IX
INDEMNIFICATION
9.01. Indemnities by the Seller
9.02 Indemnities by WMECO
ARTICLE X
MISCELLANEOUS
10.01. Amendments and Waivers
10.02. Notices, Etc.
10.03. No Waiver; Remedies
10.04. Binding Effect; Assignability
10.05. Term of this Agreement
10.06. GOVERNING LAW; SUBMISSION TO JURISDICTION
10.07. Costs, Expenses and Taxes
10.08. No Proceedings
10.09. Execution in Counterparts; Severability; Integration
10.10. WAIVER OF TRIAL BY JURY
10.11. Section Headings
10.12. Confidentiality
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
SCHEDULE I Condition Precedent Documents
SCHEDULE II Intentionally Omitted
SCHEDULE III Tradenames, Fictitious Names and "Doing Business As" Names
SCHEDULE IV Location of the Seller's Chief Executive Office, Principal
Place of Business and Books and Records
EXHIBITS
EXHIBIT A Form of Assignment and Acceptance
EXHIBIT B Methodology re: Unbilled Receivables
EXHIBIT C-1 Form of Bank Notice for Lock-Box Bank
EXHIBIT C-2 Form of Bank Notice for bank at which the Collection Account
is maintained
EXHIBIT D Form of Investor Report
EXHIBIT E-1 Forms of Opinions of Internal Counsel for WMECO
EXHIBIT E-2 Form of Opinion of Outside Counsel for WMECO
EXHIBIT E-3 Form of Opinion of Outside Counsel for the Seller
EXHIBIT F Form of Officer's Certificate
THIS RECEIVABLES PURCHASE AGREEMENT (the "Agreement") is made as of May 22,
1997, among:
(1) WMECO RECEIVABLES CORPORATION, a Connecticut corporation (the "Seller");
(2) WESTERN MASSACHUSETTS ELECTRIC COMPANY, a Massachusetts corporation, as
initial Servicer hereunder ("WMECO");
(3) MONTE ROSA CAPITAL CORPORATION, a Delaware corporation (the
"Purchaser"); and
(4) UNION BANK OF SWITZERLAND, NEW YORK BRANCH ("UBS"), as agent (the
"Agent").
IT IS AGREED as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. (a) Certain capitalized terms used
throughout this Agreement are defined above or in this Section 1.01.
(b) As used in this Agreement and its Exhibits, the following terms shall
have the following meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined).
"Active Receivable" means a Receivable which is not an Inactive Receivable.
"Adverse Claim" means a lien, security interest, charge, encumbrance or other
right or claim of any Person.
"Affected Party" has the meaning assigned to that term in Section 2.14.
"Affiliate" when used with respect to a Person means any other Person
controlling, controlled by or under common control with such Person;
provided, however, that neither the Agent, UBS, any of UBS's branches or
agencies, the Purchaser nor any subsidiary of the Purchaser, shall be deemed
to be an affiliate of the Seller or of WMECO.
"Agent's Account" means a special account (account number USDDAC1 282626) in
the name of the Agent maintained at the Agent's main office at New York, New
York or such other account as may be designated from time to time by the
Agent upon at least five Business Days' prior written notice to the Seller
and the Servicer.
"Alternative Rate" means, with respect to any Percentage Interest for any
Purchase Period, an interest rate per annum equal to the Eurodollar Rate;
provided, however, that the "Alternative Rate" for such Percentage Interest
for such Purchase Period shall be the Base Rate in effect from time to time
during such Purchase Period if (i) such Purchase Period is a period of 1 to
29 days or (ii) the Purchase Price allocated to such Percentage Interest is
less than $1,000,000; and provided, further, that at all times following the
occurrence of an Event of Termination, the "Alternative Rate" shall be the
sum of (a) the Base Rate in effect from time to time, plus (b) 2.0%.
"Assignment and Acceptance" means an assignment and acceptance entered into
by an Owner and an assignee pursuant to Section 10.04, substantially in the
form of Exhibit A.
"Bank Notice" means a notice (a) from the Seller or WMECO to any Lock-Box
Bank, in substantially the form of Exhibit C-1 or in such other form as is
acceptable to the Agent, or (b) from the Purchaser to the bank at which the
Collection Account is maintained, in substantially the form of Exhibit C-2 or
in such other form as is acceptable to the Agent.
"Base Rate" means, on any date, a fluctuating rate of interest per annum
equal to the highest of:
(a) the Prime Rate;
(b) 0.50% above the latest three-week moving average of secondary market
morning offering rates in the United States for three-month certificates of
deposit of major United States money market banks, such three-week moving
average being determined weekly on each Monday (or, if such day is not a
Business Day, on the next succeeding Business Day) for the three-week period
ending on the previous Friday by the Agent on the basis of such rates
reported by certificate of deposit dealers to and published by the Federal
Reserve Bank of New York or, if such publication shall be suspended or
terminated, on the basis of quotations for such rates received by the Agent
from three New York certificate of deposit dealers of recognized standing
selected by the Agent, in either case, adjusted to the nearest 1/4 of one
percent or, if therein is no nearest 1/4 of one percent, to the next higher
1/4 of one percent; and
(c) the Federal Funds Rate, plus 0.50%.
"Benefit Plan" means any employee benefit plan as defined in Section 3(2) of
ERISA in respect of which the Seller or WMECO or any ERISA Affiliate of the
Seller or WMECO is, or at any time during the immediately preceding six years
was, an "employer" as defined in Section 3(5) of ERISA.
"Breakage Fee" has the meaning assigned to that term in Section 2.11.
"Business Day" means a day of the year (other than a Saturday or a Sunday) on
which (i) banks are required to be open in New York City and (ii) if the term
"Business Day" is used in connection with the Eurodollar Rate, dealings in
Dollar deposits are carried on in the London interbank Eurodollar market.
"Change in Late Stage Delinquencies" means the amount, computed as of each
Cut-Off Date as follows:
(i) determine the sum of (A) the Outstanding Balance of Active Receivables
which remain unpaid for more than 120 days past the original billing date
plus (B) the Outstanding Balance for Inactive Receivables which remain unpaid
for a period up to 30 days past the final billing date (hereinafter referred
to as "Late Stage Delinquencies");
(ii) determine the average Late Stage Delinquencies for the twelve most
recent months, as calculated in the twelve most recent Investor Reports;
(iii) subtract the amount determined pursuant to clause (ii) from the amount
determined pursuant to clause (i), which amount shall be the "Change in Late
Stage Delinquencies" for such Cut-Off Date;
provided, that if the amount determined pursuant to clause (iii) is less than
zero, the Change in Late Stage Delinquencies for such Cut-Off Date shall
equal zero.
"Change of Control" means (a) the failure of WMECO to own directly,
beneficially and of record, free and clear of all Adverse Claims, one hundred
percent (100%) of the outstanding shares of capital stock of the Seller on a
fully diluted basis; or (b) any Person, or two or more Persons acting in
concert, shall acquire beneficial ownership (within the meaning of Rule 13d-3
of the Securities and Exchange Commission) of 20% or more of the outstanding
voting shares of WMECO.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning assigned to that term in Section 2.16.
"Collateral Trustee" means that Person acting as "Trustee" under (and as
defined in) the Security Agreement.
"Collection Account" means the account number 9369390302 maintained at Fleet
Bank N.A. in the name of the Purchaser, or such other account as is
designated as the Collection Account pursuant to Section 4.01(j).
"Collection Date" means the date following the Termination Date on which all
Percentage Interests have been reduced to zero in accordance with Section
2.03(a) and the Agent and the Owners have received all amounts due to them in
connection with this Agreement.
"Collections" means, with respect to any Receivable, all cash collections and
other cash proceeds of such Receivable, including, without limitation, all
cash proceeds of Related Security with respect to such Receivable, any
collection of such Receivable deemed to have been received pursuant to
Section 2.08 and all payments required to be made by the Seller pursuant to
Section 2.06 or the last sentence of Section 2.08.
"Commercial Paper Note" means any promissory note issued by the Purchaser
having an original maturity of 270 days or less (including the date of
issuance thereof).
"Concentration Limit" means, for any Reported Group on any Cut-Off Date, 2.0%
(or, if an Obligor identified in clause (i) of the definition of "Reported
Group" has a long term credit rating of at least AA- by Standard & Poor's and
Aa3 by Moody's, the Concentration Limit for such Obligor's Reported Group
shall mean 100%) of the Purchase Limit on such Cut-Off Date or such other
amount or percentage ("Special Concentration Limit") for any such Reported
Group designated by the Agent in a writing delivered to the Seller from time
to time.
"Coverage Ratio" means, on any date of determination, the ratio of (x) the
sum of (i) the Net Receivables Pool Balance plus (ii) the available funds on
deposit in the Collection Account to (y) the sum of the Utilized Amounts for
all Percentage Interests, in each case, as of such date.
"CP Disruption Event" means, at any time for any reason whatsoever, the
Purchaser shall be unable to raise, or shall be precluded or prohibited from
raising, funds through the issuance of Commercial Paper Notes in the United
States' commercial paper market at such time.
"CP Rate" means with respect to any Purchase Period for any Percentage
Interest, the per annum rate equivalent to the "weighted average cost" (as
defined below) related to the issuance of Commercial Paper Notes that are
allocated, in whole or in part, by the Purchaser (or by the Agent) to fund or
maintain such Percentage Interest, all other Percentage Interests held by the
Purchaser hereunder and all interests in receivables or other financial
assets of "Other Pool Sellers" (as defined below) held by the Purchaser;
provided, however, that if any component of such rate is a discount rate, in
calculating the "CP Rate" for such Percentage Interest for such Purchase
Period, the Purchaser shall for such component use the rate resulting from
converting such discount rate to an interest bearing equivalent rate per
annum. As used in this definition, (i) "Other Pool Sellers' means all other
sellers which transfer interests (including security interests) in
receivables or other financial assets to the Purchaser to the extent that
such interests in receivables or other financial assets are aggregated with
the Percentage Interests held by the Purchaser hereunder and funded on a
pooled basis by the Purchaser, and (ii) the Purchaser's "weighted average
cost" shall consist of (x) the actual interest rate paid to purchasers of the
Commercial Paper Notes (which rate shall reflect and give effect to the
commissions of placement agents and dealers in respect of the Commercial
Paper Notes, to the extent such commissions are allocated, in whole or in
part, to such Commercial Paper Notes by the Purchaser (or by the Agent)), (y)
the costs associated with the issuance of Commercial Paper Notes, and (z) the
cost of other borrowings by the Purchaser (other than under any Liquidity
Agreement), including to fund small or odd dollar amounts that are not easily
accommodated in the commercial paper market; and provided, further, that at
all times following the occurrence of an Event of Termination, the "CP Rate"
for any Percentage Interest shall be the Alternative Rate in effect from time
to time.
"Credit and Collection Policy" means those credit and collection policies and
practices of WMECO and the Seller relating to Receivables, as delivered to
the Agent prior to the date hereof, as modified in compliance with this
Agreement.
"Cut-Off Date" means the last day of a calendar month.
"Dealer Fees" means with respect to any Purchase Period for any Percentage
Interest, the rate set forth in a fee letter executed among the Seller, the
Agent and the Purchaser.
"Debt" of any Person means (i) indebtedness of such Person for borrowed
money, (ii) obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (iii) obligations (other than ordinary trade
payables) of such Person to pay the deferred purchase price of property or
services, (iv) obligations of such Person as lessee under leases which shall
have been or should be, in accordance with GAAP, recorded as capital leases,
(v) obligations secured by an Adverse Claim upon property or assets owned by
such Person, even though such Person has not assumed or become liable for the
payment of such obligations and (vi) obligations of such Person under direct
or indirect guaranties in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (iv) above.
"Defaulted Receivable" means a Receivable: (i) as to which, with respect to
Active Receivables, any payment, or part thereof, remains unpaid for more
than 90 days from the billing date for such payment, (ii) as to which, the
Obligor thereon shall generally not be able to pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors,
or any proceeding shall be instituted by or against such Obligor seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition
of it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, or other similar official
for it or for any substantial part of its property, or (iii) which,
consistent with the Credit and Collection Policy, has been or should be
written off as uncollectible on the books of WMECO or the Seller.
"Delinquency Ratio" means the ratio (expressed as a percentage) computed as
of each Cut-Off Date by dividing (i) the aggregate Outstanding Balance of all
Receivables that became Delinquent Receivables during the month ending on
such Cut-Off Date, by (ii) the aggregate Outstanding Balance of all
Receivables on such date.
"Delinquent Receivable" means an Active Receivable that is not a Defaulted
Receivable and as to which any payment or part thereof remains unpaid for
more than 60 days from the original billing date for such payment.
"Designated Obligor" means, at any time, each Obligor; provided, however,
that any Obligor shall cease to be a Designated Obligor upon three Business
Days' notice from the Agent to the Seller.
"Dilution Factors" means, with respect to the Receivables, any credits,
rebates, discounts, allowances, disputes, chargebacks, allowances for early
payments and other allowances or adjustments granted in accordance with the
usual practices of WMECO and the Seller.
"Dilution Ratio" means the ratio (expressed as a percentage) computed as of
each Cut-Off Date by dividing (i) the aggregate reduction as a result of any
of the Dilution Factors in the aggregate original principal balance of the
Receivables during such month, by (ii) the amount of Collections (other than
deemed Collections) received during such month.
"Dilution Reserve Percentage" means, on any day for any Percentage Interest,
the greater of (i) 1.00% and (ii) 2.0 times the average Dilution Ratio for
the three consecutive months ending on the most recent Cut-Off Date.
"Dividend" means any dividend or distribution (in cash, property or
obligations) on any shares of any class of the Seller's capital stock or
warrants, options or other rights with respect to shares of any class of the
Seller's capital stock.
"Dollars" or "$" means lawful money of the United States.
"Eligible Receivable" means, at any time, a Receivable:
(i) the Obligor of which is a Designated Obligor, is a United States
resident, and is not an Affiliate of any of the parties hereto;
(ii) which is not a Defaulted Receivable, a Delinquent Receivable, an
Inactive Receivable or a Hardship Receivable; and if such Receivable is owed
by an Obligor in a Reported Group, the Obligors in such Reported Group are
not the Obligors of any Defaulted Receivables or of any Delinquent
Receivables in the aggregate amount of 25% or more of the aggregate
Outstanding Balance of all Receivables of Obligors in such Reported Group;
(iii) which (A) is required to be paid in full immediately upon the
Obligor's receipt of the original invoice therefor, (B) constitutes the
legal, valid and binding obligation of the Obligor of such Receivable,
enforceable against such Obligor in accordance with its terms and (C) is not
subject to any right of rescission, dispute, offset, counterclaim or defense
whatsoever;
(iv) (A) which is an "account" within the meaning of Section 9-106 of the
UCC of all applicable jurisdictions, (B) which has been invoiced by WMECO
unless such Receivable is an Unbilled Receivable, (C) as to which all action
required to be taken in connection therewith by WMECO for the Obligor to
become obligated to pay the same has been taken, except that Unbilled
Receivables shall not have been invoiced, (D) is denominated and payable only
in Dollars in the United States and (E) no portion of which is payable on
account of sales, excise or similar taxes;
(v) which arises in the ordinary course of WMECO's business in connection
with the sale of electricity and/or related services;
(vi) the sale, assignment or transfer of which by WMECO to the Seller or by
the Seller to the Purchaser (including, without limitation, the sale of an
undivided percentage interest therein) does not contravene or conflict with
any applicable laws, rules or regulations or any contractual or other
restriction, limitation or encumbrance or require the consent of any Person;
(vii) which has not been compromised, adjusted or modified (including by
extension of time or payment or the granting of any discounts, allowances or
credits) for reasons related to the credit of the Obligor of such Receivable;
(viii) which, together with any contract related thereto, does not
contravene in any material respect any laws, rules or regulations applicable
thereto (including, without limitation, laws, rules and regulations relating
to truth in lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy) and with respect to
which no party to any contract related thereto, if applicable, is in
violation of any such law, rule or regulation in any material respect;
(ix) which (A) satisfies all applicable requirements of the Credit and
Collection Policy and (B) complies with such other criteria and requirements
as the Agent may from time to time specify to the Seller following thirty
days' notice;
(x) as to which the Agent has not notified the Seller that the Agent has
determined, in its sole discretion, that such Receivable (or class of
Receivables) is not acceptable for purchase hereunder;
(xi) which is neither evidenced by any promissory note, draft, bond,
debenture or other instrument nor payable pursuant to any contract which
creates a security interest in goods;
(xii) the Obligor of which is located outside of Indiana, Minnesota or New
Jersey unless WMECO, the Servicer and the Seller have qualified to do
business in such state or has filed a Notice of Business Activities Report or
equivalent report with such state for the then current year; and
(xiii) which is free and clear from all liens (other than liens expressly
permitted by this Agreement) and (except as provided herein) as to which the
Seller has good and marketable title.
"ERISA" means, on any day, the U.S. Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA Affiliate" means (i) any corporation which is a member of the same
controlled group of corporations (within the meaning of Section 414(b) of the
Code) as the Seller or WMECO; (ii) a trade or business (whether or not
incorporated) under common control (within the meaning of Section 414(c) of
the Code) with the Seller or WMECO or (iii) a member of the same affiliated
service group (within the meaning of Section 414(m) of the Code) as the
Seller or WMECO, any corporation described in clause (i) above or any trade
or business described in clause (ii) above.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Rate" means, with respect to any Percentage Interest for any
Purchase Period, the per annum rate of interest determined by the Agent to be
equal to the sum of (a) 0.85% and (b) the rate (rounded upward, if necessary,
to the nearest whole multiple of 1/16th of one percent per annum) for
deposits in Dollars for a period approximating such Purchase Period which
appears on the Reuters Screen LIBO Page as of 11:00 A.M. (London time) on the
second Business Day before (and for value on) the first day of such Purchase
Period, divided by the remainder of one minus the Eurodollar Reserve
Percentage (expressed as a decimal) applicable during such Purchase Period.
"Eurodollar Reserve Percentage" means, with respect to any Purchase Period
for any Percentage Interest, the reserve percentage (rounded upwards, if
necessary, to the nearest 1/16th of one percent per annum) applicable during
such Purchase Period (or, if more than one such percentage shall be so
applicable during such Purchase Period, the daily average of such percentages
for those days in such Purchase Period during which any such percentages
shall be in effect) under regulations issued from time to time by the Board
of Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for banks or
other financial institutions subject to such regulations with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities
having a term equal to such Purchase Period.
"Event of Termination" has the meaning assigned to that term in Section 7.01.
"Excess Government Exposure" means, at any time, the excess (if any) of (x)
the aggregate Outstanding Balance of Receivables owed by Obligors that are
governments or governmental subdivisions or agencies, over (y) 6.0% of the
aggregate Purchase Limit at such time.
"Excess Reported Group Exposure" means at any time the amount computed as
follows:
(i) for each Reported Group, determine the excess (if any) of (x) the
aggregate Outstanding Balance of Eligible Receivables owed by Obligors in
such Reported Group as of the most recent Cut-Off Date, over (y) the
Concentration Limit for such Reported Group, determined as of such Cut-Off
Date, and
(ii) determine the sum of the amounts determined pursuant to clause (i) with
respect to all Reported Groups, which sum shall be the "Excess Reported Group
Exposure".
"Excluded Representations" means (i) the last sentence of Section 5.1(e) of
the Purchase and Sale Agreement and (ii) the last sentence of Section 5.1(f)
of the Purchase and Sale Agreement.
"Excluded Taxes" means, with respect to any Person, (i) net income taxes
imposed on such Person by the United States, (ii) net income and franchise
taxes imposed on such Person by the jurisdiction in which such Person is
organized or maintains its booking office for the transactions contemplated
hereby, or (iii) net income or franchise taxes imposed on such Person by a
political subdivision of the jurisdictions referred to in clause (ii).
"Federal Funds Rate" means, for any period, a fluctuating per annum interest
rate for each day during such period equal to the weighted average of the
rates quoted on overnight Federal funds transactions with UBS for such day by
three Federal funds brokers of recognized standing selected by it.
"GAAP" means, at any particular time, generally accepted accounting
principles as in effect at such time in the United States of America,
consistently applied.
"General Trial Balance" means the accounts receivable trial balance computer
tape, containing (i) a list of Obligors and the invoiced Receivables
respectively owed by such Obligors, (ii) the aged Outstanding Balances of
each such Obligor's Receivables, determined as of the most recent Cut-Off
Date, and (iii) the aggregate balances of Unbilled Receivables owed by
Obligors, as allocated to WMECO's residential, commercial or industrial
classes and determined as of the most recent Cut-Off Date, in substantially
the form delivered by WMECO to the Agent in connection with its September 11,
1996 Receivables Purchase and Sale Agreement.
"Gross Charge-Off Ratio" means, on any day, the ratio (expressed as a
percentage) determined by dividing (i) the Outstanding Balance of Receivables
which, consistent with the Credit and Collection Policy, were or should have
been written off the books of WMECO or the Seller as uncollectible during the
month ending on the most recent Cut-Off Date, by (ii) the amount of
Collections (other than deemed Collections) received during such month.
"Gross Loss Proxy" means, on any day, the sum of (i) the Outstanding Balance
of Receivables which, consistent with the Credit and Collection Policy, were
or should have been written off the books of WMECO or the Seller as
uncollectible during the month ending on the most recent Cut-Off Date plus
(ii) the Change in Late Stage Delinquencies as of such Cut-Off Date.
"Gross Loss Proxy Ratio" means, on any day, the ratio (expressed as a
percentage) determined by dividing (i) the Gross Loss Proxy calculated as of
the most recent Cut-Off Date, by (ii) the Outstanding Balance of Receivables
billed during the month ending five months prior to such Cut-Off Date.
"Hardship Receivable" means a Receivable with respect to an account which
WMECO has classified as "hardship" in accordance with the Credit and
Collection Policy.
"Holder" has the meaning assigned thereto in Section 10.12(b).
"Inactive Receivable" means a Receivable owed by an Obligor whose electrical
service has been discontinued by WMECO and to which WMECO has rendered a
final bill.
"Independent Director" means an individual who (i) is not a stockholder
(whether direct, indirect or beneficial), customer or supplier of WMECO or
any of its affiliates; (ii) is not a director, officer, employee, affiliate
or associate of WMECO or any of its affiliates (other than the Seller and a
special purpose, bankruptcy remote subsidiary of The Connecticut Light and
Power Company formed (or to be formed) in connection with the securitization
of that company's trade receivables); (iii) is not a person related to any
person referred to in clauses (i) or (ii); (iv) is not a trustee, conservator
or receiver for any affiliates of WMECO; and (v) has (A) prior experience as
an independent director for a corporation whose charter documents required
the unanimous consent of all independent directors thereof before such
corporation could consent to the institution of bankruptcy or insolvency
proceedings against it or could file a petition seeking relief under any
applicable federal or state law relating to bankruptcy and (B) at least three
years of employment experience with one or more entities that provide, in the
ordinary course of their respective businesses, advisory, management or
placement services to issuers of securitization or structured finance
instruments, agreements or securities.
"Investor Report" means a report, in substantially the form of Exhibit D,
furnished by the Servicer to the Agent for each Owner pursuant to Section
6.07.
"Issuer" means any Person whose principal business consists of issuing
commercial paper notes, medium-term promissory notes or other securities
(including, without limitation, the Commercial Paper Notes) to fund its
acquisition and maintenance of receivables, accounts, instruments, chattel
paper, general intangibles and other similar assets.
"Liquidation Servicing Fee" means, for any Percentage Interest at any time,
an amount equal to the product of (i) the Purchase Price of such Percentage
Interest and (ii) the product of (A) the highest percentage per annum of the
Servicing Fee set forth in Section 2.10(b) and (B) a fraction, the numerator
of which equals 2.0 times the Weighted Average Maturity and the denominator
of which equals 360.
"Liquidation Yield" means, for any Percentage Interest on any date, an amount
equal to the product of (i) the Purchase Price of such Percentage Interest
and (ii) the product of (A) highest Yield Rate applicable to any Percentage
Interest (or, if higher, the Base Rate for such Percentage Interest) on such
date and (B) a fraction, the numerator of which equals 2.0 times the Weighted
Average Maturity and the denominator of which equals 360 (or, if using the
Base Rate as the applicable Yield Rate, 365 or (in the case of a leap year)
366).
"Liquidity Agreement" means any credit agreement, loan agreement, stand-by
credit agreement or loan agreement, letter of credit facility or other
instrument, document or agreement providing for loans, advances or other
extensions of credit from certain Liquidity Lenders parties thereto to the
Purchaser to either provide liquidity support for the Commercial Paper Notes
issued by the Purchaser in connection with this Agreement or to fund the
acquisition and/or maintenance by the Purchaser of Percentage Interests.
"Liquidity Facility Termination Date" means any day upon which the
commitments of the Liquidity Lenders to make loans, advances or other
extensions of credit to the Purchaser under or pursuant to any Liquidity
Agreement to which such Liquidity Lenders are parties shall be terminated for
any reason (whether at the stated maturity or earlier) or shall otherwise
cease to be in full force and effect.
"Liquidity Lender" means any of the financial institutions from time to time
parties to, and extending credit commitments to the Purchaser under, any
Liquidity Agreement.
"Liquidity Shortfall Event" means the occurrence of any of the following
events: (i) any Liquidity Lender defaults on, or is unable for any reason
whatsoever to perform in respect of, its commitment under the Liquidity
Agreement to which it is a party; or (ii) any Liquidity Lender shall cease to
be rated at least A-1+ by Standard & Poor's and P-1 by Moody's, and such
downgraded Liquidity Lender has not been replaced or substituted by a
Replacement Bank within 30 days after such Liquidity Lender was so
downgraded.
"Lock-Box Account" means an account maintained at a Lock-Box Bank for the
purpose of receiving Collections in accordance with Section 6.08.
"Lock-Box Bank" means any of the banks or other financial institutions
designated by the Agent, following an Event of Termination, to receive
payments in respect of Receivables.
"Loss Horizon Ratio" means the ratio (expressed as a percentage) computed as
of each Cut-Off Date by dividing (i) the sum of (A) the Outstanding Balance
of Receivables billed during the three months ending on such Cut-Off Date
plus (B) the product of 0.50 times the Outstanding Balance of Receivables
billed during the month ending three months prior to such Cut-Off Date, by
(ii) the Outstanding Balance of Eligible Receivables as of such Cut-Off Date.
"Loss Reserve" means, at any time for any Percentage Interest, an amount
equal to
LRP x (PP + YR)
---------
1 - LRP
where:
LRP = the Loss Reserve Percentage for such Percentage Interest at such
time.
PP = the Purchase Price of such Percentage Interest at such time.
YR = the Yield Reserve for such Percentage Interest at such time.
"Loss Reserve Percentage" means, on any day for any Percentage Interest, the
greatest of (i) the product of (A) the Gross Loss Proxy Ratio calculated as
of the most recent Cut-Off Date, times (B) the Loss Horizon Ratio as of the
most recent Cut-Off Date, (C) times 2.00, (ii) five times the percentage
which the Concentration Limit (without giving effect to any Special
Concentration Limit) bears to the then aggregate Purchase Price of all
Percentage Interests and (iii) 10%.
"Loss-to-Liquidation Ratio" means the ratio (expressed as a percentage)
computed as of each Cut-Off Date by dividing (i) the aggregate Outstanding
Balance of all Receivables that became Defaulted Receivables during the month
ending on such Cut-Off Date, by (ii) the aggregate amount of Collections
actually received during such month.
"Material Adverse Effect" means a material adverse effect on (i) the
operations of the Seller, WMECO or the Servicer, (ii) the ability of the
Seller, WMECO or the Servicer to perform its obligations hereunder or under
any other Transaction Document or (iii) the credit quality, enforceability or
collectibility of the Receivables.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA which is or was at any time during the current year or
the immediately preceding five years contributed to by the Seller, WMECO or
any ERISA Affiliate on behalf of its employees.
"Net Receivables Pool Balance" means, at any time, (i) the aggregate
Outstanding Balance of all Eligible Receivables at such time, minus (ii) the
Excess Reported Group Exposure, minus (iii) the Excess Government Exposure.
"Obligor" means a Person obligated to make payments to WMECO, which
obligation arises in connection with WMECO's sale of electricity and/or
related services.
"Original Balance" means, for any Receivable, the original principal balance
of such Receivable at its creation.
"Outstanding Balance" means for any Receivable at any time, the then
outstanding principal balance thereof; provided, that the Outstanding Balance
of any Unbilled Receivables shall be calculated in accordance with Exhibit B.
"Owner" means, with respect to each Percentage Interest, upon its purchase,
the Purchaser; provided, however, that upon any assignment thereof pursuant
to Section 10.04, the assignee shall be the Owner of such Percentage Interest
(or portion thereof) so assigned, and the assignor shall cease to be the
Owner of such Percentage Interest (or portion thereof) so assigned.
"Parent" means Northeast Utilities, a Massachusetts business trust.
"Payment Center" means a retail outlet or other company that accepts payments
from Obligors in respect of Receivables, provided that (i) such outlet or
entity has been instructed to deposit such payments on each day to an account
of a payment intermediary, and (ii) such payment intermediary shall have
agreed to wire such payments on each day to the Collection Account (and to no
other account).
"Percentage Interest" means, at any time, an undivided percentage ownership
interest at such time in (i) each and every Receivable existing on the date
such Percentage Interest shall have been purchased and in each and every
Receivable existing or arising after such date but prior to the Termination
Date, (ii) all Related Security with respect to each such Receivable, (iii)
all Collections with respect to each such Receivable, (iv) the Seller's
rights and remedies under the Purchase and Sale Agreement, and (v) all
proceeds of any of the foregoing. Such undivided percentage interest for
such Percentage Interest shall be computed by dividing the Utilized Amount of
such Percentage Interest at such time by the Net Receivables Pool Balance at
such time. Each Percentage Interest shall be determined from time to time
pursuant to the provisions of Section 2.03(a).
"Person" means an individual, partnership, corporation (including a business
trust), limited liability company, joint stock company, bank, financial
institution, trust, unincorporated association, joint venture, government (or
any agency or political subdivision thereof) or other entity.
"Prime Rate" means the per annum rate of interest announced publicly by UBS
in New York, New York as its prime rate, such rate to change as and when such
announced rate changes. The Prime Rate is not intended to be the lowest rate
of interest charged by UBS in connection with extensions of credit to
debtors.
"Public Disclosure Documents" means (i) WMECO's Annual Report on Form 10-K
for the year ending December 31, 1996, (ii) WMECO's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 and (iii) Parent's reports on Form
8-K dated January 17, 1997, January 20, 1997, February 20, 1997, February 28,
1997, March 19, 1997 and April 11, 1997.
"Purchase and Sale Agreement" means the Purchase and Sale Agreement, dated as
of May 22, 1997, among the Seller and WMECO, as the same may be amended,
supplemented or modified from time to time with the prior written consent of
the Agent.
"Purchase Limit" means at any time $40,000,000, as such amount may be reduced
pursuant to Section 2.02 or Section 2.06(a); provided, however, that at all
times on and after the Termination Date, the "Purchase Limit" shall mean the
aggregate Purchase Price for all Percentage Interests.
"Purchase Period" means, with respect to any Percentage Interest, a period
selected by the Agent, after consultation with the Owner(s) of such
Percentage Interest; provided, however, that:
(a) with respect to any Percentage Interest the purchase or maintenance of
which is funded other than through the issuance of Commercial Paper Notes,
the Purchase Period shall be any number of days up to (and including) 29 or
one, two or three months; and
(b) with respect to any Percentage Interest the purchase or maintenance of
which is funded through the issuance of Commercial Paper Notes, the Purchase
Period shall be any number of days up to (and including) 270;
Each Purchase Period in respect of any Percentage Interest shall commence,
initially, on the date of purchase by the Purchaser of such Percentage
Interest and thereafter on the last day of the immediately preceding Purchase
Period. Notwithstanding anything contained herein to the contrary (i) any
Purchase Period which would otherwise end on a day which is not a Business
Day shall be extended to the immediately succeeding Business Day; provided,
however, that if Yield in respect of such Percentage Interest allocated to
such Purchase Period is computed by reference to the Eurodollar Rate and such
succeeding Business Day is in the next calendar month, then such Purchase
Period shall end on the immediately preceding Business Day, (ii) any Purchase
Period which commences before the Termination Date and would otherwise end on
a date occurring after the Termination Date shall end on the Termination
Date, (iii) any Purchase Period as to which Yield accrues at the CP Rate may
be terminated at the election of, and upon notice thereof to the Seller and
each Owner of the Percentage Interests allocated thereto by, the Agent at any
time upon the occurrence and during the continuance of any CP Disruption
Event, and (iv) whenever any Purchase Period as to which Yield accrues at the
Eurodollar Rate commences on the last Business Day in a month or on a day for
which there is no numerical corresponding day in the month in which such
Purchase Period ends, such Purchase Period shall end on the last Business Day
of the month in which such Purchase Period ends.
"Purchase Price" of any Percentage Interest means the amount paid to the
Seller for such Percentage Interest at the time of its acquisition by a
Purchaser pursuant to Section 2.01, reduced from time to time by Collections
received and distributed to the Owners on account of such Purchase Price
pursuant to Sections 2.06 or 2.07 or the last sentence of Section 2.08;
provided, however, that such Purchase Price of such Percentage Interest shall
not be reduced by any distribution of any portion of Collections if at any
time such distribution is rescinded or must be returned for any reason.
"Purchaser" means Monte Rosa Capital Corporation or, upon the assignment of
all of its rights, title, interests, obligations and liabilities as the
Purchaser hereunder in accordance with Section 10.04 (or, in the case of any
subsequent Purchaser, upon the assignment of all of such subsequent
Purchaser's rights, title, interests, obligations and liabilities as the
Purchaser hereunder in accordance with Section 10.04), such other Issuer to
which such assignment was so made; provided, however, that upon any such
assignment by any Issuer (including Monte Rosa Capital Corporation) of all of
its rights, title, interests, obligations and liabilities as the Purchaser
hereunder, such Issuer shall cease to be the Purchaser hereunder.
"Receivable" has the meaning set forth in Appendix A to the Purchase and Sale
Agreement.
"Records" means all documents, books, records and other information
(including without limitation, computer programs, tapes, disks, punch cards,
data processing software and related property and rights) maintained by the
Seller, WMECO or the Servicer with respect to the Receivables and the related
Obligors.
"Reinvested Collections" has the meaning assigned to that term in Section
2.05.
"Reinvestment Termination Date" means that Business Day which the Seller
designates as the Reinvestment Termination Date by notice to the Agent at
least three Business Days prior to such Business Day or, if any of the
conditions precedent in Section 3.02 are not satisfied, that Business Day
which the Agent designates as the Reinvestment Termination Date by notice to
the Seller at least one Business Day prior to such Business Day.
"Related Security" means with respect to any Receivable:
(i) all of the Seller's right, title and interest in the Purchase and Sale
Agreement and under each other Transaction Document;
(ii) all security interests or liens and the Seller's interest in the
property subject thereto from time to time purporting to secure payment of
such Receivable, whether pursuant to a contract related to such Receivable or
otherwise;
(iii) the assignment to the Agent, for the benefit of any Owner, of all UCC
financing statements covering any collateral securing payment of such
Receivable;
(iv) all guarantees, letters of credit, indemnities, warranties, insurance
policies and proceeds and premium refunds thereof and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such Receivable whether pursuant to a contract related to such
Receivable or otherwise;
(v) all Records; and
(vi) all proceeds of the foregoing.
"Replacement Bank" has the meaning assigned to that term in Section 2.06(a).
"Reported Group" means, on any Cut-Off Date, the Obligors identified by the
following process, as described in the most recent Investor Report:
(i) in the Investor Reports delivered in each July and January of each year,
WMECO shall indicate each of the ten Obligors that, as of the preceding April
30 or October 31, as the case may be, were billed for the highest aggregate
amounts of Receivables during the twelve month period ending on such date;
(ii) for each Obligor described in clause (i), WMECO shall, to the best of
its knowledge and ability in accordance with its practices and procedures in
effect on the date hereof, identify those of such Obligor's Affiliates that
are also Obligors (determined as of such Cut-Off Date); and
(iii) group each Obligor described in clause (i) with its Affiliates
described in clause (ii), each of which groups shall collectively constitute
a "Reported Group".
"Required Rating" means at any time BB by Standard & Poor's and Ba2 by
Moody's.
"Required Owners" means, at any time, those Owners owning Percentage
Interests, the aggregate outstanding Purchase Price of which exceeds 50% of
the aggregate outstanding Purchase Price of all Percentage Interests
outstanding hereunder.
"Restricted Payments" has the meaning set forth in Section 5.01(j).
"Reuters Screen LIBO Page" means the display page so designated as page
"LIBO" on the Reuters Monitor Money Rates Service (or such other page as may
replace the LIBO page on such service for the purpose of displaying London
interbank offered rates of major banks).
"Scheduled Termination Date" means September 4, 2001.
"Security Agreement" means that certain Collateral Trust and Security
Agreement of even date herewith among the Purchaser and the Collateral
Trustee, as the same may be amended, supplemented or otherwise modified from
time to time.
"Security Deposit" means a deposit of money by an Obligor with (or for the
account of) WMECO to secure the payment of the Receivables owed by such
Obligor.
"Seller Confidential Information" means information regarding the operations
or financial condition of Parent, WMECO, the Seller or their respective
subsidiaries (including, without limitation, information regarding the
Obligors and the Receivables).
"Servicer" means at any time the Person then authorized pursuant to Article
VI to service, administer and collect Receivables.
"Servicer Default" means the Agent, in its reasonable discretion, determines
that an event has occurred that would reasonably materially and adversely
affect (i) the Servicer's operations, (ii) the Servicer's ability to service
the Receivables or (iii) the credit quality, collectibility or enforceability
of the Receivables.
"Servicing Fee" means a fee equal to one percent (1.0%) per annum of the
average daily amount of the aggregate Outstanding Balance of the Receivables
(as determined by the Agent). Such fee shall be allocated among the
Percentage Interests on each day proportionately according to the Purchase
Price for each Percentage Interest. Such fee shall be payable for the period
from the date hereof until the latest of (i) the Termination Date, (ii) the
date on which all Percentage Interests are reduced to zero, payable on the
last day of each Purchase Period for such Percentage Interest, or (iii) the
date on which all Receivables sold or contributed under the Purchase and Sale
Agreement have been collected or written off; provided, however, that, upon
three Business Days' notice to the Agent, the Servicer (if other than WMECO
or an Affiliate of WMECO) may elect to be paid, as such fee, another
percentage per annum of the average daily amount of Purchase Price of each
Percentage Interest, but in no event in excess of 110% of the costs and
expenses referred to in Section 6.03.
"Servicing Fee Reserve" means, with respect to any Percentage Interest at any
time, the sum of (i) the Liquidation Servicing Fee for such Percentage
Interest at such time, plus (ii) the unpaid Servicing Fee relating to such
Percentage Interest accrued to such time.
"Servicing Fee Reserve Percentage" means, on any day for any Percentage
Interest, the ratio (expressed as a percentage) computed by dividing (i) the
Servicing Fee Reserve related to such Percentage Interest by (ii) the
Purchase Price for such Percentage Interest.
"Settlement Date" means, with respect to any Purchase Period for any
Percentage Interest, the last day of such Purchase Period.
"Special Concentration Limit" has the meaning assigned to that term in the
definition of "Concentration Limit".
"Standard & Poor's" means Standard & Poor's Rating Services, a division of
The McGraw-Hill Companies, Inc.
"Subject Party" has the meaning assigned thereto in Section 10.12(b).
"Termination Date" means the earliest of (i) the Reinvestment Termination
Date, (ii) the date of termination of the Purchase Limit pursuant to Section
2.02, (iii) the date of the declaration or automatic occurrence of the
Termination Date pursuant to Section 7.01, (iv) the occurrence of a Liquidity
Facility Termination Date, and (v) the Scheduled Termination Date.
"Total Reserve Percentage" means, on any day for any Percentage Interest, the
sum of (i) the Loss Reserve Percentage for such Percentage Interest at such
time, (ii) the Dilution Reserve Percentage for such Percentage Interest at
such time, (iii) the Yield Reserve Percentage for such Percentage Interest at
such time and (iv) the Servicing Fee Reserve Percentage for such Percentage
Interest at such time.
"Total Reserves" means, at any time for any Percentage Interest, an amount
equal to
TRP x (PP + YR)
---------
1 - LRP
where:
TRP = the Total Reserve Percentage for such Percentage Interest at such
time.
LRP = the Loss Reserve Percentage for such Percentage Interest at such
time.
PP = the Purchase Price of such Percentage Interest at such time.
YR = the Yield Reserve for such Percentage Interest at such time.
"Transaction Documents" has the meaning set forth in Appendix A to the
Purchase and Sale Agreement.
"Transition Event" means the occurrence of any of the following: (i) an
Event of Termination, (ii) the reduction of the Coverage Ratio to below 102%,
(iii) the Termination Date, and (iv) WMECO's senior secured debt shall be
rated BB or lower by Standard & Poor's or Ba2 or lower by Moody's.
"UCC" means the Uniform Commercial Code as from time to time in effect in the
specified jurisdiction.
"Unbilled Receivable" means a bona fide, enforceable obligation of a customer
for the customer's metered use of electricity that will be billed by WMECO or
the Servicer during WMECO's next monthly billing cycle for that customer.
"United States" means the United States of America.
"Unmatured Termination Event" means an event which, with the giving of notice
or lapse of time or both, will become an Event of Termination.
"Utilized Amount" means, for any Percentage Interest at any time, the sum of
(i) the aggregate Purchase Price of such Percentage Interest at such time and
(ii) the Total Reserves for such Percentage Interest at such time.
"Weighted Average Maturity" means on any day, the number of days equal to (i)
30.0 times (ii) the average of the aggregate Outstanding Balances of
Receivables on the two most recent Cut-Off Dates, divided by (iii) Newly
Generated Receivables. For purposes of this definition, "Newly Generated
Receivables" means, on any day, the amount equal to the sum of (i) the
Outstanding Balance of Receivables billed during the month ending on the most
recent Cut-Off Date, plus (ii) the difference between (A) the Outstanding
Balance of Unbilled Receivables as of the most recent Cut-Off Date minus (B)
the Outstanding Balance of Unbilled Receivables as of the second most recent
Cut-Off Date.
"WMECO" means Western Massachusetts Electric Company, a Massachusetts
corporation, and its permitted successors and assigns.
"WMECO Obligations" has the meaning set forth in Appendix A to the Purchase
and Sale Agreement.
"WRC Purchase Price" has the meaning set forth in Appendix A to the Purchase
and Sale Agreement.
"Yield" means for each Percentage Interest during any Purchase Period, the
product of
YRT x PP x ED
---
DIY
where:
PP = the Purchase Price of such Percentage Interest during such Purchase
Period,
ED = the actual number of days elapsed during such Purchase Period,
YRT = the Yield Rate for such Percentage Interest for such Purchase
Period, and
DIY = the number of days in the year for purposes of calculating Yield,
which number shall be 360 in all cases other than if the applicable Yield
Rate for such Percentage Interest shall be the Base Rate, in which case, such
number shall be 365 or, in the case of a leap year, 366, and
provided, however, that (i) no provision of this Agreement shall require the
payment or permit the collection of Yield in excess of the maximum permitted
by applicable law and (ii) Yield for any Percentage Interest shall not be
considered paid by any distribution if at any time such distribution is
rescinded or must otherwise be returned for any reason.
"Yield Rate" for any Purchase Period for any Percentage Interest means:
(i) to the extent the purchase or the maintenance of such Percentage
Interest is funded other than through the issuance of Commercial Paper Notes,
a rate equal to the applicable Alternative Rate for such Purchase Period, and
(ii) to the extent the purchase or maintenance of such Percentage Interest
is funded through the issuance of Commercial Paper Notes, a rate equal to the
CP Rate, as applicable, for such Purchase Period;
provided, however, that notwithstanding anything contained herein to the
contrary, upon the assignment of any Percentage Interest (or any portion
thereof) by the Purchaser to any other Owner, the Yield Rate at which such
Percentage Interest shall thereafter accrue Yield shall be the Alternative
Rate.
"Yield Reserve" means, for any Percentage Interest at any time, the sum of
(i) the Liquidation Yield for such Percentage Interest, and (ii) the
aggregate amount of all Yield accrued and to accrue during any applicable
Purchase Period (as determined by the Agent in good faith) with respect to
such Percentage Interest.
"Yield Reserve Percentage" means, on any day for any percentage Interest, the
ratio (expressed as a percentage) computed by dividing (i) the Yield Reserve
related to such Percentage Interest by (ii) the Purchase Price for such
Percentage Interest.
SECTION 1.02. Other Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. All terms used in Article
9 of the UCC in the State of New York, and not specifically defined herein,
are used herein as defined in such Article 9.
SECTION 1.03. Computation of Time Periods. Unless otherwise stated in this
Agreement, in the computation of a period of time from a specified date to a
later specified date, the word "from" means "from and including" and the
words "to" and "until" each mean "to but excluding."
ARTICLE II
THE RECEIVABLES FACILITY
SECTION 2.01. Purchases and Maintenance of Percentage Interests. (a) On the
terms and conditions hereinafter set forth, the Purchaser hereby agrees to
purchase Percentage Interests from the Seller from time to time during the
period from the date hereof until (but not including) the Termination Date;
provided, however, that nothing in this Agreement shall be deemed or
construed as a commitment by the Purchaser or any Owner to fund the purchase
or maintenance of Percentage Interests through the issuance of Commercial
Paper Notes, and it is hereby expressly acknowledged and agreed that such
funding is, and shall continue to be, wholly discretionary on the part of the
Purchaser and all applicable Owners. Under no circumstances shall the
Purchaser make any such purchase if, after giving effect to such purchase,
the aggregate Purchase Price of all Percentage Interests hereunder would
exceed the Purchase Limit.
(b) Each purchase of a Percentage Interest hereunder shall be made on notice
from the Seller to the Agent (who shall notify the Purchaser) given not later
than 11:00 A.M. (New York City time) on the second Business Day before the
date of such requested purchase. Each such notice of a proposed purchase of
a Percentage Interest shall be by telephone, telecopier, telex or cable and
shall specify the following with respect to each such Percentage Interest:
(A) the aggregate initial Purchase Price of the Percentage Interest so
requested to be purchased, which Purchase Price shall not be less than
$1,000,000 and shall be an integral multiple of $100,000; (B) the date of
such proposed purchase (which day must be a Business Day); and (C) whether
the Alternative Rate or the CP Rate is requested with respect to such
Percentage Interest. Any notice of a requested purchase as set forth above
shall become effective and shall be binding on the Seller when given by the
Seller.
Promptly upon its receipt of such notice from the Agent, the Purchaser shall
notify the Agent and the Seller as to whether, in the case of any requested
purchase to be funded through the issuance of Commercial Paper, it is willing
to make such a purchase.
(c) On the date of such purchase, the Purchaser shall, upon the satisfaction
of the applicable conditions set forth in Article III, make available to the
Seller in same day funds, at Fleet National Bank, Hartford, Connecticut, ABA
011500010, Account 9370211519, the aggregate Purchase Price of such
Percentage Interest. The Purchaser shall allocate such Purchase Price to
such Purchase Periods as it shall select in accordance with the terms of this
Agreement.
(d) At least two (2) Business Days prior to the last day of each Purchase
Period, the Seller shall notify the Agent (who shall then notify the
Purchaser) as to the following with respect to the succeeding allocation of
the Purchase Price allocated to such Purchase Period then ending, (A) whether
the Alternative Rate or the CP Rate is requested with respect to such
Purchase Price and (B) if more than one rate is requested, the requested
allocation of the Purchase Price as among such rates; provided that the
Purchase Price allocated to each rate must be in a minimum amount of
$1,000,000 and in integral multiples of $100,000, except for any such
Purchase Price allocated to the Base Rate, which Purchase Price may be
allocated thereto in any amount. Such notice shall be given by telephone,
telecopier, telex or cable. If and to the extent the Purchaser elects to
make such Yield Rate(s) available to the Seller (such election to be
submitted to the Agent and the Seller, then, upon the expiration of the then
current Purchase Period, the Purchaser shall reallocate the Purchase Price
previously allocated to such Purchase Period to such other Purchase Periods
as the Agent shall select in accordance with the terms hereof, each accruing
Yield at the applicable Yield Rate requested in accordance with this Section
2.01(d). Notwithstanding anything contained in this Section 2.01(d) to the
contrary, in the event that:
(i) the Seller shall fail to give such notice with respect to any Purchase
Period then ending; or
(ii) in any case where the requested Yield Rate is the CP Rate, the
Purchaser elects not to make the requested Yield Rate available with respect
to the Purchase Price allocated to such Purchase Period then ending (such
election to be promptly submitted to the Agent and the Seller),
and, in any such case, the Purchaser and Seller shall fail to otherwise agree
before the last day of such Purchase Period, then the Yield Rate to be
applicable to the Purchase Price allocated to such Purchase Period then
ending shall be either the CP Rate or the Alternative Rate, as the relevant
Owner of such affected Percentage Interest may elect, and such Purchase Price
shall be allocated to such Purchase Periods as shall be selected by the Agent
in accordance with the terms hereof, but in any event not to exceed five
days.
(e) If at any time after the occurrence and during the continuance of any CP
Disruption Event, the Agent elects to terminate any Purchase Period accruing
Yield at the CP Rate, the Purchase Price allocated to such terminated
Purchase Period shall be allocated to a new Purchase Period to be designated
by the Agent (but in no event to exceed 5 days) and shall accrue Yield at the
Alternative Rate.
(f) The Purchaser shall notify the Agent and the Seller, promptly after the
commencement of any Purchase Period of the amount of the Purchase Price
allocated to such Purchase Period, the duration of such Purchase Period, and
the Yield Rate applicable to such Purchase Period.
SECTION 2.02. Termination or Reduction of the Purchase Limit. The Seller
may, upon at least five Business Days' notice to the Agent, terminate in
whole or reduce in part the unused portion of the Purchase Limit; provided,
however, that each partial reduction of the Purchase Limit shall be in an
aggregate amount equal to $1,000,000 or an integral multiple thereof.
SECTION 2.03. Percentage Interests. (a) Each Percentage Interest shall be
initially computed as of the opening of business of the Servicer on the date
of its purchase. Thereafter until the Termination Date, such Percentage
Interest shall be automatically recomputed as of (i) the opening of business
of the Servicer on any day on which the aggregate Purchase Price of all
Percentage Interests hereunder is increased and (ii) the close of business of
the Servicer on each day. A Percentage Interest shall become zero only when
the Purchase Price thereof, all Yield thereon, all fees and other amounts
owing to the Owner thereof in connection with this Agreement and all
Servicing Fees in respect thereof shall have been paid in full. Each
Percentage Interest shall remain constant from the time as of which any such
computation or recomputation is made until the time as of which the next such
recomputation, if any, shall be made. From and after the Termination Date,
each Percentage Interest shall remain constant until it becomes zero as set
forth in the third sentence of this Section 2.03(a).
(b) The Agent shall maintain books and records in which shall be recorded
(i) the date and amount of each purchase of a Percentage Interest hereunder
and the Owners thereof, (ii) the date and amount of and parties to any
assignment of rights and obligations hereunder pursuant to Section 10.04,
(iii) the amount of any Yield, fees or other amount due and payable or to
become due from the Seller or WMECO to the Agent, any Owner or the Servicer
hereunder and (iv) the amount and date of any reduction in the Purchase Price
of any Percentage Interest. The entries made in the Agent's books and
records as described in this Section 2.03(b) shall be conclusive and binding
for all purposes absent manifest error.
SECTION 2.04. Selection of Purchase Periods. Except as expressly provided
otherwise in this Agreement, the Agent, after consultation with the Purchaser
or the applicable Owner(s), shall designate the duration of all Purchase
Periods (subject to the restrictions set forth in the definition of "Purchase
Period" set forth in Section 1.01) to which any Purchase Price is to be
allocated hereunder and shall allocate Purchase Price accruing Yield on the
same basis (i.e., at the Alternative Rate or the CP Rate) to such Purchase
Periods in such proportions as the Purchaser or the applicable Owner(s), as
the case may be, shall, in their sole discretion, direct. Notwithstanding
anything in this Agreement to the contrary, the outstanding Purchase Price of
all Percentage Interests shall at all times be allocated to a Purchase
Period.
SECTION 2.05. Non-Liquidation Settlement Procedures. On each day prior to
the Termination Date, the Servicer shall: out of Collections in respect of
each Percentage Interest received on such day, (i) set aside on its books and
hold in trust for the Owner of such Percentage Interest an amount equal to
the Yield and Servicing Fee accrued through such day for such Percentage
Interest and not so previously set aside, (ii) set aside on its books and pay
to the Agent and the Owners amounts then due to them hereunder including
without limitation Section 10.07 that have not been paid and (iii) subject to
Section 3.02, reinvest the remainder of such Collections (such reinvested
portion of Collections being "Reinvested Collections"), for the benefit of
such Owner, by recomputation of such Percentage Interest pursuant to Section
2.03 as of the end of such day and the payment of such remainder to the
Seller or such other Person as the Seller shall direct; provided that if for
any reason any portion of such remaining Collections cannot be so reinvested
(including, without limitation, the inability to satisfy the conditions in
Section 3.02) or are not to be reinvested pursuant to Section 2.06(b), the
Servicer shall set aside such portion on its books and hold such portion in
trust for the Owner of such Percentage Interest. The recomputed Percentage
Interest shall constitute the percentage ownership interest in the
Receivables on such day held by such Owner. On each Settlement Date in
respect of each Purchase Period for each Percentage Interest to occur prior
to the Termination Date (and, if the Agent shall so request following a
Transition Event, on each Business Day during such Purchase Period), the
Servicer shall deposit to the Agent's Account the amounts set aside as
described in the first sentence of this Section 2.05 other than (unless the
Agent shall specify otherwise) amounts set aside for Servicing Fee (which
amounts the Servicer shall retain for its own account). It is understood
that funds reinvested as provided in clause (iii) of such sentence shall not
be so deposited. Upon receipt of such funds by the Agent, the Agent shall
distribute them first, to the Owner of such Percentage Interest in full
payment of the accrued Yield for such Percentage Interest and any other
amounts then due to such Owner hereunder, second, to the Servicer in full
payment of the accrued Servicing Fee payable with respect to such Percentage
Interest, and third to the partial liquidation of the Owners' Percentage
Interests as contemplated by Section 2.06.
SECTION 2.06. Liquidity Shortfall Event; Partial Liquidations. (a)
Immediately upon the occurrence of a Liquidity Shortfall Event, the Purchase
Limit hereunder shall be automatically reduced by (1) in the case of a
Liquidity Shortfall Event of the type described in clause (i) of the
definition thereof, the aggregate amount of any such defaulting or downgraded
Liquidity Lender's unused commitment under the Liquidity Agreements to which
it is a party; provided, however, that with respect to any such Liquidity
Shortfall Event of the type described in clause (i) of the definition
thereof, if such defaulting Liquidity Lender is replaced by or is substituted
with another bank or other financial institution acceptable to the Purchaser
(a "Replacement Bank") under the applicable Liquidity Agreement(s) within 30
days after the occurrence of such a Liquidity Shortfall Event, then the
Purchase Limit may be reinstated to the extent of such Replacement Bank's
unused commitment under such Liquidity Agreement (but not to exceed the
original Purchase Limit hereunder); and provided, further, that
notwithstanding anything contained in this Agreement to the contrary, the
Purchaser shall have no obligation to replace or substitute any such
defaulting or downgraded Liquidity Lender with a Replacement Bank under any
Liquidity Agreement, or (2) in the case of a Liquidity Shortfall Event of the
type described in clause (ii) of the definition thereof, the amount of the
liquidity deficiency determined by the Agent to exist as of such date as a
result of such Liquidity Shortfall Event. In addition, within 30 days after
the occurrence of any such Liquidity Shortfall Event, the Seller, either
through the payment of such amount to the Agent for deposit in the Agent's
Account or through a partial liquidation in accordance with Section 2.06(b),
shall reduce the outstanding Purchase Price of all Percentage Interests (to
be determined after the occurrence of such Liquidity Shortfall Event) by such
an amount, if any, as may be necessary to reduce the aggregate outstanding
Purchase Price of all Percentage Interests to an amount which is equal to or
less than the Purchase Limit as so reduced.
(b) The Seller shall be entitled at any time during the term of this
Agreement to request a partial liquidation of the Percentage Interests such
that the aggregate outstanding Purchase Price of all Percentage Interests
shall be reduced to an amount designated by the Seller in such request. Any
such partial liquidation shall be conducted by remitting Collections that are
not Reinvested Collections to the Agent in accordance with the terms and
provisions to be mutually acceptable to the Servicer, the Agent, the Required
Owners and the Collateral Trustee.
(c) If on any day the Coverage Ratio is less than 102%, the Seller (either
through a payment to the Agent for deposit in the Agent's Account or through
a partial liquidation in accordance with Section 2.06(b)), shall make the
payment required to be made pursuant to the last sentence of Section 2.08.
SECTION 2.07. Liquidation Settlement Procedures. On the Termination Date
and on each day thereafter, the Servicer shall set aside and hold in trust
for each Owner of each Percentage Interest, the Collections in respect of
such Percentage Interest received on such day. On each Settlement Date in
respect of each Purchase Period for each Percentage Interest to occur on or
after the Termination Date (and, if both the Termination Date and a
Transition Event shall have occurred and the Agent shall so request, on each
other Business Day during such Purchase Period), the Servicer shall deposit
to the Agent's Account the amounts set aside pursuant to the preceding
sentence with respect to such Percentage Interest, together with any
remaining amounts set aside pursuant to Section 2.05 prior to the Termination
Date, but not to exceed the sum of (a) the accrued Yield for such Percentage
Interest, (b) the Purchase Price of such Percentage Interest, (c) the
aggregate of all other amounts owed by the Seller to the Owner of such
Percentage Interest in connection with this Agreement and (d) the accrued
Servicing Fee payable with respect to such Percentage Interest. The Agent
shall distribute the funds so received to the Owner of such Percentage
Interest first, in full payment of the accrued Yield for such Percentage
Interest (including, without limitation, the Breakage Fee, if any for such
Percentage Interest then due and payable pursuant to the terms hereof),
second, to the extent a Servicer other than WMECO or an Affiliate of WMECO
has been designated by the Agent, in payment of the accrued Servicing Fee
payable to such Servicer with respect to such Percentage Interest, third, in
reduction (to zero) of the Purchase Price of such Percentage Interest, and
fourth, in full payment of any other amounts owed by the Seller or the
Servicer to such Owner in connection with this Agreement. The Agent shall
distribute any remaining funds to the Servicer (if WMECO or an Affiliate of
WMECO) in payment of the accrued Servicing Fee payable to such Person with
respect to such Percentage Interest. If there shall be insufficient funds on
deposit for the Agent to distribute funds in payment in full of the
aforementioned amounts, the Agent shall distribute funds, first, in payment
of the accrued Yield for such Percentage Interest (but, in the case of the
Breakage Fee for such Percentage Interest, only to the extent the Agent shall
elect to pay such Breakage Fee from Collections attributable to such
Percentage Interest under this Section 2.07 rather than from other funds
pursuant to Section 2.11), second, to the extent a Servicer other than WMECO
or an Affiliate of WMECO has been designated by the Agent, in payment of the
accrued Servicing Fee payable to such Person with respect to such Percentage
Interest, third, in reduction of Purchase Price of such Percentage Interest,
fourth, in payment of other amounts payable to such Owner, and fifth, to the
Servicer (if WMECO or an Affiliate of WMECO), in payment of the accrued
Servicing Fee payable to such Person with respect to such Percentage
Interest. Following the Collection Date, the Servicer shall pay to the
Seller any remaining Collections set aside and held by the Servicer pursuant
to the first sentence of this Section 2.07.
SECTION 2.08. Deemed Collections of Receivables. If on any day the
Outstanding Balance of any Receivable is either (a) reduced or adjusted as a
result of any defective, rejected, returned, repossessed or foreclosed
merchandise, any defective, disputed, or rejected services, any discount or
any other adjustment made or performed by the Seller or any other Person
(including, without limitation, those described in the definition of
"Dilution Factors") or (b) reduced or cancelled as a result of a setoff in
respect of any claim by the Obligor thereof against the Seller or any other
Person (whether such claim arises out of the same or a related transaction or
an unrelated transaction), the Seller shall be deemed to have received on
such day a Collection of such Receivable in the amount of such reduction,
cancellation or adjustment. If on any day any of the representations or
warranties in Section 4.01(f) are no longer true with respect to a
Receivable, the Seller shall be deemed to have received on such day a
Collection of such Receivable in full. If on any day the representation and
warranty in Section 4.01(g) is no longer true the Seller shall immediately
pay to the Agent, for the benefit of the Owners, an amount sufficient to make
such representation true and accurate.
SECTION 2.09. Payments and Computations, Etc. (a) All amounts to be paid or
deposited by the Seller, WMECO or the Servicer hereunder shall be paid or
deposited in accordance with the terms hereof no later than 11:00 A.M. (New
York City time) on the day when due in lawful money of the United States in
immediately available funds to the Agent's Account. Each of the Seller,
WMECO and the Servicer shall, to the extent permitted by law, pay to the
Agent interest on all amounts not paid or deposited by it when due hereunder
at 2.0% per annum above the Base Rate as then in effect, payable on demand;
provided, however, that such interest rate shall not at any time exceed the
maximum rate permitted by applicable law. Such interest shall be retained by
the Agent except to the extent that such failure to make a timely payment or
deposit has continued beyond the date for distribution by the Agent of such
overdue amount to the Owner of a Percentage Interest, in which case such
interest accruing after such date shall be for the account of, and
distributed by the Agent to the Owners ratably in accordance with their
respective interests in such overdue amount.
All computations of interest and all computations of Yield, Liquidation
Yield, and fees hereunder shall be made on the basis of a year of 360 days
(other than with respect to any of the foregoing computations made with
respect to the Base Rate, which computations shall be made on the basis of a
365 or, in the case of a leap year, 366-day year) for the actual number of
days (including the first but excluding the last day) elapsed.
(b) Whenever any payment hereunder shall be stated to be due on a day other
than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in
the computation of payment of Yield, interest or any fee payable hereunder,
as the case may be; provided, however, that, if such extension would cause
payment of Yield on, or Purchase Price of, any Percentage Interest on which
Yield accrues at the Eurodollar Rate to be made in the next following month,
such payment shall be made on the next preceding Business Day.
(c) If any purchase of a Percentage Interest requested by the Seller and
approved by the Purchaser and the Agent pursuant to Section 2.01(b) or any
selection of a subsequent Purchase Period and applicable Yield Rate for any
Percentage Interest requested by the Seller and approved by the Agent
pursuant to Section 2.01(d) is, for any reason whatsoever, not made or
effectuated, as the case may be, on the date specified therefor, the Seller
shall indemnify the relevant Owner against any loss, cost or expense incurred
by such Owner, including, without limitation, any loss (including loss of
anticipated profits, net of anticipated profits in the reemployment of such
funds in the manner determined by such Owner), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such Owner to fund or maintain such Percentage Interest during such
Purchase Period.
SECTION 2.10. Fees. (a) The Seller shall pay, or cause WMECO to pay, the
Purchaser and the Agent certain fees in the amounts and on the dates set
forth in a fee letter executed among the Seller, the Agent and the Purchaser.
(b) In consideration of the purchase by the Owners of Percentage Interests
as herein provided, the Seller agrees to pay the Servicing Fee and certain
other amounts, including without limitation certain indemnities provided in
Article IX, relating to the cost of servicing the Receivables; provided that
such fee shall be payable only from Collections pursuant to, and subject to
the priority of payment set forth in, Sections 2.05 and 2.07.
SECTION 2.11. Breakage Fee and Indemnity. (a) In the event there shall
occur a reduction of the Purchase Price of any Percentage Interest or the
termination of the Purchase Period to which such Purchase Price was
allocated, in either case, prior to the date upon which the applicable
Purchase Period was originally scheduled to end, whether pursuant to Section
2.04, 2.06, 2.07, 2.08, 7.01 or otherwise, the Seller shall pay to the Agent,
for the benefit of the Owner of such Percentage Interest, upon such Owner's
demand therefor, a fee (the "Breakage Fee") equal to, in the case of any
reduction of the Purchase Price allocated to a Purchase Period or the early
termination of any such Purchase Period, the excess, if any, of (1) the Yield
that would have accrued during the remainder of such Purchase Period
subsequent to the date of such reduction or termination on that portion of
the Purchase Price allocated to such Purchase Period which is so reduced or
terminated early (such amount being the "Reduction Amount"), had not such
reduction or termination occurred, over (2) the sum of (a) to the extent the
Reduction Amount is allocated to another Purchase Period or Purchase Periods,
the Yield actually accrued on that portion of the Reduction Amount so
allocated during the remainder of such Purchase Period(s), and (b) to the
extent the Reduction Amount is not allocated to another Purchase Period, the
income, if any, actually received by such Owner from investing the portion of
the Reduction Amount not so allocated.
(b) In addition to paying the Breakage Fee as aforesaid, the Seller shall
indemnify and hold the Owners harmless for all losses, costs, liabilities and
expenses which such Owner may incur as a result of the early reduction of the
Purchase Price allocated to any Purchase Period or the early termination of
any such Purchase Period and in respect of which such Owner is not
compensated by the payment of the applicable Breakage Fee in respect thereof.
SECTION 2.12. Sharing of Payments, Etc. If any Owner shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
setoff, or otherwise) on account of Percentage Interests owned by it (other
than pursuant to Section 2.10(a), 2.14, 2.15 or 9.01 and other than as a
result of the differences in the timing of the applications of Collections
pursuant to Section 2.05, 2.06 or 2.07) in excess of its ratable share of
payments on account of Percentage Interests obtained by all of the Owners,
such Owner shall forthwith purchase from the other Owners such participations
in the Percentage Interests owned by them as shall be necessary to cause such
purchasing Owner to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Owner, such purchase from each
Owner shall be rescinded and each such Owner shall repay to the purchasing
Owner the purchase price paid by such purchasing Owner for such participation
to the extent of such recovery, together with an amount equal to such Owner's
ratable share (according to the proportion of (a) the amount of such Owner's
required payment to (b) the total amount so recovered from the purchasing
Owner) of any interest or other amount paid or payable by the purchasing
Owner in respect of the total amount so recovered.
SECTION 2.13. Eurodollar Rate Protection; Illegality.
(a) If the Agent is unable to obtain on a timely basis the information
necessary to determine the Eurodollar Rate for any Percentage Interest for
any Purchase Period in respect of which Yield is to accrue at the Eurodollar
Rate, then
(i) the Agent shall forthwith notify the Purchaser, the Owners and the
Seller that the interest rate cannot be determined for such Percentage
Interest for such Purchase Period, and
(ii) while such circumstances exist, the Agent shall not allocate the
Purchase Price of any additional Percentage Interest purchased during such
period or reallocate the Purchase Price allocated to any Purchase Period
ending during such period, to any Purchase Period in respect of which Yield
is to accrue at the Eurodollar Rate.
(b) If, with respect to any Percentage Interest which accrues Yield at the
Eurodollar Rate, the Purchaser or any of the applicable Owners thereof, as
the case may be, notifies the Agent that it is unable to obtain matching
deposits in the London interbank market to fund its purchase or maintenance
of such Percentage Interest or that the Eurodollar Rate applicable to such
Percentage Interest for any Purchase Period will not adequately reflect the
cost to the Purchaser or such Owner, as the case may be, of funding or
maintaining its respective Percentage Interest for such Purchase Period, then
the Agent shall forthwith so notify the Seller, whereupon the Agent shall
not, while such circumstances exist, allocate the Purchase Price of any
additional Percentage Interest purchased during such period or reallocate the
Purchase Price allocated to any Purchase Period ending during such period, to
any Purchase Period in respect of which Yield is to accrue at the Eurodollar
Rate.
(c) Notwithstanding any other provision of this Agreement, if the Purchaser
or any Owner shall notify the Agent that the introduction of or any change in
or in the interpretation of any law or regulation makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
the Purchaser or such Owner, as the case may be, to fund its purchases or
maintenance of Percentage Interests at the Eurodollar Rate, then (i) as of
the effective date of such notice from the Purchaser or such Owner, as the
case may be, to the Agent, the obligation or ability of the Purchaser or such
Owner, as the case may be, to fund its purchase or maintenance of Percentage
Interests at the Eurodollar Rate shall be suspended until the Purchaser or
such Owner, as the case may be, notifies the Agent that the circumstances
causing such suspension no longer exist and (ii) the Purchase Price of each
Percentage Interest of the Purchaser or such Owner allocated to a Purchase
Period which accrues interest at the Eurodollar Rate shall either (a) if the
Purchaser or such Owner, as the case may be, may lawfully continue to
maintain such Percentage Interest until the last day of the applicable
Purchase Period, be reallocated on the last day of such Purchase Period to
another Purchase Period in respect of which the Purchase Price allocated
thereto accrues Yield at a Yield Rate other than the Eurodollar Rate or (b)
if the Purchaser or such Owner, as the case may be, shall determine that it
may not lawfully continue to maintain such Percentage Interest until the end
of the applicable Purchase Period (at which time it may be reallocated to
another Purchase Period in accordance with Section 2.01(d) and this Section
2.13(c)), be deemed to accrue Yield at the Base Rate from the effective date
of such notice until the end of such Purchase Period.
SECTION 2.14. Increased Costs; Capital Adequacy. (a) If, due to either (i)
the introduction of or any change (other than any change by way of imposition
or increase of reserve requirements included in the Eurodollar Reserve
Percentage) in or in the interpretation of, any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall
be any increase in the cost to the Agent, any Owner or any Affiliate thereof
(each of which shall be an "Affected Party") of agreeing to make, making or
funding purchases of and/or reinvestments in Percentage Interests hereunder
or maintaining Percentage Interests hereunder, then the Seller shall from
time to time, upon demand by such Affected Party, pay to such Affected Party
additional amounts sufficient to compensate such Affected Party for any such
increased costs.
(b) If either (i) the introduction of, or any change in or in the
interpretation of, any law or regulation or (ii) the compliance by any
Affected Party with any guideline or request from any central bank or other
governmental authority issued after the date of this Agreement (whether or
not having the force of law), affects or would affect the amount of capital
required or expected to be maintained by such Affected Party, and such
Affected Party determines that the amount of such capital is increased by or
based upon its obligations hereunder or its purchasing and maintaining
Percentage Interests hereunder or, in each case, under similar financial
arrangements of this type, then, upon demand by such Affected Party (with a
copy of such demand to the Agent), the Seller shall pay to the Agent for the
account of such Affected Party, from time to time as specified by such
Affected Party, additional amounts sufficient to compensate such Affected
Party in the light of such circumstances, to the extent that such Affected
Party reasonably determines such increase in capital to be allocable to such
Affected Party's obligations hereunder or its purchasing, funding or
maintaining Percentage Interests hereunder.
(c) If as a result of any event or circumstance similar to those described
in Section 2.14(a) or 2.14(b), any Affected Party is required to compensate a
bank or other financial institution providing liquidity support, credit
enhancement or other similar support to such Affected Party in connection
with this Agreement or the funding or maintenance of purchases of Percentage
Interests hereunder, then upon demand by such Affected Party (with a copy of
such demand to the Agent), the Seller shall pay to such Affected Party such
additional amount or amounts as may be necessary to reimburse such Affected
Party for any amounts paid by it.
(d) In determining any amount provided for in this Section 2.14, the
Affected Party may use any reasonable averaging and attribution methods. Any
Affected Party making a claim under this Section 2.14 shall submit to the
Seller a certificate as to such additional or increased cost or reduction,
which certificate shall be conclusive absent demonstrable error.
SECTION 2.15. Taxes. (a) Any and all payments by the Seller or the
Servicer hereunder shall be made, in accordance with Section 2.09, free and
clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of the Purchaser, each Owner and
the Agent, Excluded Taxes for such Person (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes". If the Seller or the Servicer shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Owner or the Agent, (i) the Seller shall make an additional
payment to such Owner or the Agent, as the case may be, in an amount
sufficient so that, after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.15),
such Owner or the Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Seller
or the Servicer, as the case may be, shall make such deductions and (iii) the
Seller or the Servicer, as the case may be, shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, the Seller agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
(hereinafter referred to as "Other Taxes").
(c) The Seller will indemnify each Owner and the Agent for the full amount
of Taxes or Other Taxes (including, without limitation, any Taxes or Other
Taxes imposed by any jurisdiction on amounts payable under this Section 2.15)
paid by such Owner or the Agent (as the case may be) and any liability
(including penalties, interest and expenses) arising therefrom or with
respect thereto; provided that an Owner or the Agent, as appropriate, making
a demand for indemnity payment shall provide the Seller, at its address
referred to in Section 10.02, with a certificate from the relevant taxing
authority or from a responsible officer of such Owner or the Agent stating or
otherwise evidencing that such Owner or the Agent has made payment of such
Taxes or Other Taxes and will provide a copy of or extract from
documentation, if available, furnished by such taxing authority evidencing
assertion or payment of such Taxes or Other Taxes. This indemnification
shall be made within ten days from the date such Owner or the Agent (as the
case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes or Other Taxes,
the Seller or the Servicer, as the case may be, will furnish to the Agent, at
its address referred to in Section 10.02, appropriate evidence of payment
thereof.
(e) The Agent and each Owner that is not created or organized under the laws
of the United States or a political subdivision thereof shall, to the extent
that it may then do so under applicable laws and regulations, deliver to the
Seller (with, in the case of each Owner, a copy to the Agent) (i) within 15
days after the date hereof, or, if later, the date on which such Owner
becomes an Owner pursuant to Section 10.04 hereof, two (or such other number
as may from time to time be prescribed by applicable laws or regulations)
duly completed copies of IRS Form 4224 or Form 1001 (or any successor forms
or other certificates or statements which may be required from time to time
by the relevant United States taxing authorities or applicable laws or
regulations), as appropriate, to permit the Seller to make payments hereunder
for the account of the Agent or such Owner, as the case may be, without
deduction or withholding of United States federal income or similar taxes and
(ii) upon the obsolescence of, or after the occurrence of any event requiring
a change in, any form or certificate previously delivered pursuant to this
Section 2.15(e), copies (in such numbers as may from time to time be
prescribed by applicable laws or regulations) of such additional, amended or
successor forms, certificates or statements as may be required under
applicable laws or regulations to permit the Seller to make payments
hereunder for the account of the Agent or such Owner, as the case may be,
without deduction or withholding of United States federal income or similar
taxes.
(f) For any period with respect to which an Owner or the Agent has failed to
provide the Seller with the appropriate form, certificate or statement
described in Section 2.15(e) (other than if such failure is due to a change
in law occurring after the date of this Agreement), the Agent or such Owner,
as the case may be, shall not be entitled to indemnification under Section
2.15(a), 2.15(b) or 2.15(c) with respect to Taxes imposed by the United
States.
(g) Within 30 days of the written request of the Seller therefor, the Agent
and each Owner, as appropriate, shall execute and deliver to the Seller such
certificates, forms or other documents which can be furnished consistent with
the facts and which are reasonably necessary to assist the Seller in applying
for refunds of taxes remitted hereunder.
(h) If, in connection with an agreement or other document providing
liquidity support, credit enhancement or other similar support to any Owner
in connection with this Agreement or the funding or maintenance of purchases
of Percentage Interests hereunder, such Owner is required to compensate a
bank or other financial institution in respect of taxes under circumstances
similar to those described in this Section 2.15 then, within ten days after
demand by such Owner, the Seller shall pay to such Owner such additional
amount or amounts as may be necessary to reimburse such Owner for any amounts
paid by it.
(i) Without prejudice to the survival of any other agreement of the Seller
hereunder, the agreements and obligations of the Seller contained in this
Section 2.15 shall survive the termination of this Agreement.
SECTION 2.16. Security Interest. The Seller hereby grants to the Purchaser,
for its own benefit and for the ratable benefit of the Agent and each of the
Owners, a security interest in (i) all of the Seller's interests in the
Purchase and Sale Agreement and each other Transaction Document, the
Receivables, the Related Security, and the Collections, (ii) the Collection
Account and all funds therein and all investments and other items therein or
attributable thereto, and (iii) all proceeds of the foregoing (the items
described in items (i), (ii) and (iii) being the "Collateral"), to secure
payment of all fees and expenses, indemnity obligations and all other
obligations owed hereunder to the Agent and/or the Owners by the Seller or
the Servicer (whether such obligations are now existing or hereafter
arising). It is understood and agreed that this Section 2.16 does not secure
or guaranty the obligations of an Obligor to pay any Receivable. The
immediately preceding sentence shall not limit the extent to which any other
provision of this Agreement creates a claim against the Seller, WMECO or the
Servicer in respect of any Receivable (for reasons other than the Obligor's
credit problems), or limit the extent to which the Collateral secures such
claim.
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Initial Purchase. The initial
purchase hereunder is subject to the condition precedent that the Agent shall
have received on or before the date of such purchase the items listed in
Schedule I, each (unless otherwise indicated) dated as of the date of
delivery (provided that such date is no later than the date of the initial
purchase), in form and substance satisfactory to the Agent and the
Purchasers.
SECTION 3.02. Conditions Precedent to All Purchases and Reinvestments. Each
purchase (including the initial purchase) from the Seller by the Purchaser
and the right of the Servicer to reinvest in Eligible Receivables on behalf
of the Purchaser those Collections allocable to a Percentage Interest
pursuant to Section 2.05 shall be subject to the further conditions precedent
that: (a) with respect to any such purchase (other than the initial
purchase), on or prior to the date of such purchase, the Servicer shall have
delivered to the Agent, in form and substance satisfactory to the Agent, a
completed Investor Report dated within ten days prior to the date of such
purchase and containing such additional information as may be reasonably
requested by the Agent; (b) on the date of such purchase or reinvestment the
following statements shall be true and the Seller by accepting the amount of
such purchase or by receiving the proceeds of such reinvestment shall be
deemed to have certified that:
(i) The representations and warranties contained in Section 4.01 and Section
4.02 are correct on and as of such day as though made on and as of such date,
and
(ii) The representations and warranties of WMECO under Section 5.1 of the
Purchase and Sale Agreement (other than Excluded Representations) are correct
on and as of such date as though made on and as of such date; and
(iii) No event or condition has occurred and is continuing, or would result
from such purchase or reinvestment, which would (a) cause the Termination
Date to occur or (b) constitute an Event of Termination or would constitute
an Event of Termination but for the requirement that notice be given or time
elapse or both, and
(iv) WMECO's senior secured debt shall be rated at least the Required
Rating, and
(v) No law or regulation shall prohibit, and no order, judgment or decree
of any federal, state or local court or governmental body, agency or
instrumentality shall prohibit or enjoin, the making of such purchase or
reinvestment by the Purchaser or any applicable Owner in accordance with the
provisions hereof, and
(c) the Agent shall have received such other approvals, opinions or documents
as the Agent may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller. The Seller
represents and warrants as follows:
(a) The Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of Connecticut and is duly qualified to do
business, and is in good standing, in every other jurisdiction in which the
failure to be so qualified could reasonably be expected to have a Material
Adverse Effect.
(b) The execution, delivery and performance by the Seller of this Agreement
and all other Transaction Documents to be delivered by it, including the
Seller's use of the proceeds of purchases and reinvestments, are within the
Seller's corporate powers, have been duly authorized by all necessary
corporate action, do not contravene (i) the Seller's charter or by-laws, (ii)
any law, rule or regulation applicable to the Seller, (iii) any contractual
restriction binding on or affecting the Seller or its property or (iv) any
order, writ, judgment, award, injunction or decree binding on or affecting
the Seller or its property, and do not result in or require the creation of
any lien, security interest or other charge or encumbrance upon or with
respect to any of its properties (other than in favor of the Agent for the
benefit of the Owners with respect to the Receivables and the Related
Security and Collections associated therewith); and no transaction
contemplated hereby requires compliance with any bulk sales act or similar
law. This Agreement and each of the other Transaction Documents to which it
is a party have been duly executed and delivered by the Seller.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Seller of this Agreement,
any Transaction Document or any other document or instrument to be delivered
hereunder, except for (i) such items that have been obtained and are in full
force and effect and (ii) the filing of the UCC financing statements
described in Schedule I.
(d) This Agreement and each other Transaction Document or instrument
delivered by it hereunder constitute the legal, valid and binding obligation
of the Seller enforceable against the Seller in accordance with its terms.
(e) No proceeds of any sale of Percentage Interests will be used by it to
acquire any security in any transaction which is subject to Section 13 or 14
of the Securities Exchange Act of 1934, as amended.
(f) Each Receivable, together with any contract related thereto, and the
Collateral shall, at all times, be owned by the Seller free and clear of any
Adverse Claim except as created by this Agreement, and upon each purchase and
reinvestment, the Owner making such purchase or reinvestment, as the case may
be, shall acquire a valid and perfected first priority undivided percentage
ownership interest to the extent of the pertinent Percentage Interest in each
Receivable then existing or thereafter arising and in the Related Security
(other than Security Deposits) and Collections with respect thereto, free and
clear of any Adverse Claim except as provided hereunder. No effective
financing statement or other instrument similar in effect covering any
Receivable, the Related Security, the Collections or the Collateral with
respect thereto shall at any time be on file in any recording office except
such as may be filed in favor of the Purchaser relating to this Agreement or
the Purchase and Sale Agreement.
(g) At all times on or prior to the Termination Date, the Coverage Ratio
shall equal or exceed 102%.
(h) No Investor Report, information, exhibit, financial statement, document,
book, record or report furnished or to be furnished by the Seller or the
Servicer to the Agent or any Owner in connection with this Agreement is or
will be inaccurate in any material respect as of the date it is or shall be
dated or (except as otherwise disclosed to the Agent or such Owner, as the
case may be, at such time) as of the date so furnished, and no such document
contains or will contain any material misstatement of fact or omits or shall
omit to state a material fact or any fact necessary to make the statements
contained therein not misleading. Any Receivable described as an Eligible
Receivable in any Investor Report or such other information, exhibit,
financial statement, document, book, record or report satisfies the
requirements of the definition of "Eligible Receivable." WMECO and the
Servicer have management information systems that are adequate to generate
reliable statistical information with respect to the Receivables, including
such information as is required to be delivered pursuant to the terms of this
Agreement.
(i) The principal place of business and chief executive office of the Seller
and WMECO and the offices where the Seller and WMECO keeps all of the Records
are located at the addresses specified in Schedule IV (or at such other
locations as to which the notice and other requirements specified in Section
6.09 shall have been satisfied). WMECO has places of business in more than
one town in Massachusetts.
(j) All Obligors have been (or, in the case of Obligors with respect to
Unbilled Receivables, will be) instructed to make all payments in respect of
Receivables to WMECO's post office box in Hartford, Connecticut or to a
Payment Center, and such payments are (i) processed by the Servicer in
Wethersfield, Connecticut and (ii) deposited to the Collection Account within
one Business Day of the Servicer's receipt thereof. The Seller will make
commercially reasonable efforts to prevent funds other than Collections from
being deposited to the Collection Account.
(k) All Obligors (other than Obligors in respect of Unbilled Receivables)
are listed on the General Trial Balance. The methodology for determining the
Outstanding Balance of Unbilled Receivables is accurately described in
Exhibit B, and such description does not omit any fact necessary to make the
statements contained therein not misleading. The Outstanding Balance of
Unbilled Receivables shall be calculated in accordance with the methodology
described in Exhibit B.
(l) Except as described in Schedule III, neither the Seller nor WMECO has
any trade names, fictitious names, assumed names or "doing business as" names
other than (with respect to WMECO only) those names with respect to which it
has satisfied its obligations under Section 6.09.
(m) The Seller's pro forma balance sheet as of the date of this Agreement,
certified by its chief financial officer, chief accounting officer, Treasurer
or Assistant Treasurer, copies of which have been furnished to the Purchaser
and the Agent, fairly presents the Seller's assets and liabilities at such
date.
(n) The terms of the Receivables have not been extended or modified, except
as permitted under the Credit and Collection Policy.
(o) The Credit and Collection Policy has not been materially changed in any
way which might reasonably lead to a Material Adverse Effect.
(p) No use of any proceeds of any sale of Percentage Interests by the Seller
will conflict with or contravene any of Regulations G, T, U and X promulgated
by the Board of Governors of the Federal Reserve System.
(q) The Seller has (i) obtained legal and equitable title to the Receivables
and Related Security and has the legal right to sell such Receivables and
such Related Security free and clear of any Adverse Claims (other than in
favor of the Agent either directly or as the assignee of the Seller) and (ii)
given reasonably equivalent value to WMECO for such transfer, and no such
transfer shall have been made on account of an antecedent debt owed by WMECO
to the Seller or shall be voidable under any Section of the Bankruptcy Reform
Act of 1978 (11 U.S.C. Sections 101 et seq.), as amended (the "Bankruptcy
Code").
(r) On the date of the first purchase hereunder (both before and after
giving effect to the purchase on such date), each of the Seller and WMECO
have assets which are greater than its liabilities, and is able to pay its
debts as they become due.
(s) The authorized capital stock of the Seller consists of twenty thousand
(20,000) shares of common stock, without par value ("Seller Common Stock"),
one hundred shares of which are currently issued and outstanding. All of
such outstanding shares of Seller Common Stock are validly issued, fully paid
and nonassessable and are owned (beneficially and of record) by WMECO.
SECTION 4.02. Representations and Warranties of the Servicer. The Servicer
represents and warrants as follows:
(a) The Servicer is a corporation duly incorporated, validly existing and in
good standing under the laws of Massachusetts and is duly qualified to do
business, and is in good standing, in every other jurisdiction in which the
failure to be so qualified could reasonably be expected to have a Material
Adverse Effect.
(b) The execution, delivery and performance by the Servicer of this
Agreement and all other documents to be delivered by it hereunder are within
the Servicer's corporate powers, have been duly authorized by all necessary
corporate action, do not contravene (i) the Servicer's charter or by-laws,
(ii) any law, rule or regulation applicable to the Servicer, (iii) any
contractual restriction binding on or affecting the Servicer or its property
or (iv) any order, writ, judgment, award, injunction or decree binding on or
affecting the Servicer or its property, and do not result in or require the
creation of any lien, security interest or other charge or encumbrance upon
or with respect to any of its properties. The Agreement has been duly
executed and delivered by the Servicer.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Servicer of this Agreement
or any other document or instrument to be delivered hereunder.
(d) This Agreement and each other document or instrument delivered by it
hereunder constitutes the legal, valid and binding obligation of the Servicer
enforceable against the Servicer in accordance with its terms.
(e) No Investor Report (if prepared by the Servicer, or to the extent that
information contained therein is supplied by the Servicer), information,
exhibit, financial statement, document, book, record or report furnished or
to be furnished by the Servicer to the Agent or any Owner in connection with
this Agreement is or will be inaccurate in any material respect as of the
date it is or shall be dated or (except as otherwise disclosed to the Agent
or such Owner, as the case may be, at such time) as of the date so furnished,
and no such document contains or will contain any material misstatement of
fact or omits or shall omit to state a material fact or any fact necessary to
make the statements contained therein not misleading.
(f) All Obligors (other than Obligors in respect of Unbilled Receivables)
are listed on the General Trial Balance. The methodology for determining the
Outstanding Balance of Unbilled Receivables is accurately described in
Exhibit B, and such description does not omit any fact necessary to make the
statements contained therein not misleading. The Outstanding Balance of
Unbilled Receivables shall be calculated in accordance with the methodology
described in Exhibit B.
(g) The terms of the Receivables have not been extended or modified, except
as permitted under the Credit and Collection Policy.
(h) The Credit and Collection Policy has not been materially changed in any
way which might reasonably lead to a Material Adverse Effect.
(i) The Servicer has management information systems that are adequate to
generate reliable statistical information with respect to the Receivables,
including such information as is required to be delivered pursuant to the
terms of this Agreement.
(j) Each Receivable, together with any contract related thereto, and the
Collateral shall, at all times, be owned by the Seller free and clear of any
Adverse Claim except as created by this Agreement, and upon each purchase and
reinvestment, the Owner making such purchase or reinvestment, as the case may
be, shall acquire a valid and perfected first priority undivided percentage
interest to the extent of the pertinent Percentage Interest in each
Receivable then existing or thereafter arising and in the Related Security
(other than Security Deposits) and Collections with respect thereto, free and
clear of any Adverse Claim except as provided hereunder. No effective
financing statement or other instrument similar in effect covering any
Receivable, the Related Security, the Collections or the Collateral with
respect thereto shall at any time be on file in any recording office except
such as may be filed in favor of the Seller or the Purchaser relating to this
Agreement or the Purchase and Sale Agreement.
ARTICLE V
GENERAL COVENANTS OF THE SELLER, WMECO AND THE SERVICER
SECTION 5.01. General Seller Covenants. The Seller covenants as follows:
(a) Compliance with Laws; Preservation of Corporate Existence. The Seller
will comply in all material respects with all applicable laws, and all
governmental rules, regulations and orders and preserve and maintain its
corporate existence, rights, franchises, qualifications and privileges, in
each case to the extent that the failure to do so could reasonably be
expected to cause a Material Adverse Effect.
(b) Sales, Liens, Etc. Except as otherwise provided herein or in any other
Transaction Document, the Seller will not sell, assign (by operation of law
or otherwise) or otherwise dispose of, or create or suffer to exist any
Adverse Claim upon or with respect to, any Receivable, the related contract
(if any), any Collections, any Related Security or the Collateral, or upon or
with respect to any other account to which any Collections of any Receivable
are sent, or assign any right to receive income in respect thereof.
(c) General Reporting Requirements. The Seller will provide (or cause the
Servicer to provide) to the Agent (in sufficient copies for each Owner) the
following:
(i) as soon as available and in any event within 50 days after the end of
each of the first three quarters of each fiscal year of the Seller, the
balance sheet and income statement of the Seller in reasonable detail and
duly certified (subject to year-end adjustments) by the chief financial
officer, chief accounting officer, Treasurer or Assistant Treasurer of the
Seller as having been prepared in accordance with GAAP and on a basis
consistent with the financial statements referred to in Section 6.1(d) of the
Purchase and Sale Agreement;
(ii) as soon as available and in any event within 105 days after the end of
each fiscal year of the Seller, the balance sheet and income statement of the
Seller, in reasonable detail and duly certified by the chief financial
officer, chief accounting officer, Treasurer or Assistant Treasurer of WMECO
and the Seller as having been prepared in accordance with GAAP and on a basis
consistent with the financial statements referred to in Section 6.1(d) of the
Purchase and Sale Agreement;
(iii) promptly after the filing or receiving thereof, copies of all reports
and notices with respect to any Reportable Event defined in Article IV of
ERISA which the Seller files under ERISA with the Internal Revenue Service or
the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or
which the Seller receives from such Corporation;
(iv) as soon as possible and in any event within two days after the
occurrence of each Event of Termination or Unmatured Termination Event, a
statement of the chief financial officer, chief accounting officer, Treasurer
or any Assistant Treasurer of the Seller setting forth details of such Event
of Termination or Unmatured Termination Event, and the action which the
Seller has taken and proposes to take with respect thereto; provided, that in
the case of an event described in Section 7.01(g), such statement shall be
provided to the Agent immediately;
(v) promptly following the Agent's request therefor, such other information
respecting the Receivables or the conditions or operations, financial or
otherwise, of the Parent, the Seller, WMECO, the Servicer or any of their
subsidiaries as the Agent may from time to time reasonably request in writing
in order to protect the interests of the Agent or any Owner in connection
with this Agreement; and
(vi) together with the quarterly and annual financial statements of the
Seller to be delivered pursuant to the immediately preceding clauses (i) and
(ii) respectively, a certificate from the Seller's chief financial officer,
chief accounting officer, Treasurer or any Assistant Treasurer, in the case
of the quarterly financial statements, and independent certified public
accountants, in the case of the annual financial statements, stating, in each
case, (a) that such Person is familiar with the terms of the Transaction
Documents and that in examining such financial statements, such Person did
not become aware of any fact or condition which would constitute an Event of
Termination, except for those, if any, described in reasonable detail or
Unmatured Termination Event in such certificate and (b) that, as of the date
of such financial statements, the representations and warranties of the
Seller set forth in Section 4.01(g) are true and correct.
(d) Merger, Etc. (i) The Seller will not merge or consolidate with, or
convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions), all or substantially all of its assets
(whether now owned or hereafter acquired), or acquire all or substantially
all of the assets or capital stock or other ownership interest of any Person.
(ii) The Seller will not make, incur or suffer to exist an investment in,
equity contribution to, loan, credit or advance to, or payment obligation in
respect of the deferred purchase price of property from, any other Person,
except for advances to WMECO permitted by Section 5.01(j).
(iii) The Seller will not create any direct or indirect subsidiary or
otherwise acquire direct or indirect ownership of any equity interests in any
other Person.
(e) ERISA Matters. The Seller will not (i) engage in any prohibited
transaction (as defined in Section 4975 of the Code and Section 406 of ERISA)
for which an exemption is not available or has not previously been obtained
from the United States Department of Labor; (ii) permit to exist any
accumulated funding deficiency (as defined in Section 302(a) of ERISA and
Section 412(a) of the Code) or funding deficiency with respect to any Benefit
Plan other than a Multiemployer Plan; (iii) fail to make any payments to any
Multiemployer Plan that the Seller may be required to make under the
agreement relating to such Multiemployer Plan or any law pertaining thereto;
(iv) terminate any Benefit Plan so as to result in any liability; or (v)
permit to exist any occurrence of any reportable event described in Title IV
of ERISA which represents a material risk of a liability of the Seller under
ERISA or the Code, if such prohibited transactions, accumulated funding
deficiencies, payments, terminations and reportable events occurring within
any fiscal year of the Seller, in the aggregate, involve a payment of money
or an incurrence of liability by the Seller under Title IV of ERISA in an
amount in excess of $5,000,000.
(f) Marking of Records. At its expense, the Seller will mark (or cause the
Servicer to mark) its master data processing records relating to the
Receivables so that reports generated from such records include the following
legend:
THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO WMECO RECEIVABLES
CORPORATION PURSUANT TO A PURCHASE AND SALE AGREEMENT, DATED AS OF MAY 22,
1997, AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME, BETWEEN WESTERN
MASSACHUSETTS ELECTRIC COMPANY AND WMECO RECEIVABLES CORPORATION; AND
UNDIVIDED, FRACTIONAL OWNERSHIP INTERESTS IN THE RECEIVABLES DESCRIBED HEREIN
HAVE BEEN SOLD BY WMECO RECEIVABLES CORPORATION TO MONTE ROSA CAPITAL
CORPORATION PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF MAY 22,
1997, AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME, AMONG WMECO RECEIVABLES
CORPORATION, WESTERN MASSACHUSETTS ELECTRIC COMPANY, MONTE ROSA CAPITAL
CORPORATION AND UNION BANK OF SWITZERLAND, NEW YORK BRANCH, AS THE AGENT.
(g) The Seller will cause the representation in Section 4.01(j) to be true
at all times.
(h) Change in Transaction Documents. The Seller shall not amend, modify,
waive or terminate, or suffer to exist any matured or unmatured default
under, any terms or conditions of any of the Transaction Documents to which
it is a party without the consent of the Agent.
(i) Performance and Enforcement of Transaction Documents. The Seller shall
timely perform the obligations required to be performed by it under each of
the Transaction Documents. The Seller shall not (i) exercise any of its
rights under the Purchase and Sale Agreement in a manner that could prejudice
the rights or interests of the Agent or the Owners in any way, (ii) exercise
any of its rights or remedies under the Purchase and Sale Agreement during
the continuance of an Event of Termination or Unmatured Termination Event, or
(iii) initiate any action against WMECO in connection with the Purchase and
Sale Agreement, unless in each case the Agent shall have given its prior
written consent. If instructed by the Agent, the Seller shall exercise any
right or remedy available to it, or initiate any action thereunder, pursuant
to the Purchase and Sale Agreement or under applicable law.
(j) Restricted Payments. (i) Except in accordance with this Section
5.01(k), the Seller shall not (A) purchase or redeem any shares of its
capital stock, (B) declare or pay any Dividend or set aside any funds for any
such purpose, (C) prepay, purchase or redeem any subordinated indebtedness of
the Seller, (D) lend or advance any funds or (E) pay the deferred WRC
Purchase Price or repay any other loans or advances to, for or from WMECO or
any of its Affiliates (other than the Seller). Actions of the type described
in this clause (i) are herein collectively called "Restricted Payments".
(ii) Subject to the limitations set forth in clause (iii) below, the Seller
may make Restricted Payments so long as such Restricted Payments are made
only to WMECO and only in one or more of the following ways:
(A) the Seller may make cash payments or deemed payments (including
prepayments) on the WRC Purchase Price in accordance with the terms of the
Purchase and Sale Agreement; and
(B) if no amounts are then outstanding with respect to the WRC Purchase
Price or in regards to any fees, including Servicing Fees, the Seller may (1)
declare and pay Dividends and (2) permit to be outstanding WMECO's
obligations to return funds under Section 3.1 of the Purchase and Sale
Agreement.
(iii) the Seller shall not pay, make or declare any Restricted Payment
(including any Dividend) if, after giving effect thereto, (x) any Event of
Termination or Unmatured Termination Event shall have occurred and be
continuing, (y) the Termination Date has occurred, or (z) the Coverage Ratio
shall be less than 102%.
(k) Priority of Payments. The Seller shall apply Collections in respect of
the Receivables which are payable to the Seller pursuant to Section 2.05 and
2.07 to make payments in the following order of priority: first, the payment
of its expenses (including, without limitation, amounts payable to the Owners
and the Agent hereunder), second, to the extent permitted pursuant to
subsection (k) above, the payment of the outstanding WRC Purchase Price, and
fourth, other legal and valid corporate purposes.
(l) Restrictions on Transaction Documents. The Seller shall not enter into,
execute and deliver, or otherwise become bound by, any agreement, instrument,
document or other arrangement that restricts the right of the Seller to
amend, supplement, amend and restate or otherwise modify, or to extend or
renew, or to waive any right under, this Agreement or any other Transaction
Document.
(m) Debt. The Seller shall not (i) create, incur or permit to exist, any
Debt of the Seller or (ii) cause or permit to be issued for its account any
letters of credit or bankers' acceptances, except in each case for Debt and
other liabilities incurred pursuant to the Transaction Documents.
(n) Segregation. The Seller shall use commercially reasonable efforts to
prevent the deposit into the Collection Account of any funds other than
Collections.
SECTION 5.02. Servicer Covenants. The Servicer covenants as follows:
(a) Compliance with Laws; Preservation of Corporate Existence. The Servicer
will comply in all material respects with all applicable laws, and all
governmental rules, regulations and orders and preserve and maintain its
corporate existence, rights, franchises, qualifications and privileges, in
each case to the extent that the failure to do so could reasonably be
expected to cause a Material Adverse Effect.
(b) Merger, etc. The Servicer will not merge or consolidate with, or
convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions), all or substantially all of its assets
(whether now owned or hereafter acquired), or acquire all or substantially
all of the assets or capital stock or other ownership interest of any Person
(any such transaction, acquisition or other action hereinafter referred to as
a "Reorganization"), except that the Servicer may enter into a Reorganization
if the following conditions are satisfied:
(i) the survivor (such term referring to the survivor of a merger or
consolidation as well as the acquirer of assets, capital stock or other
ownership interests) of such Reorganization is organized under the laws of,
and is resident in, the United States or one of the states therein;
(ii) the senior secured debt of such survivor shall be rated at least BBB-
by Standard & Poor's and Baa3 by Moody's;
(iii) if the Servicer is not the survivor of the Reorganization, such
survivor shall have assumed all of the obligations of the Servicer under or
in connection with this Agreement pursuant to an agreement in form and
substance satisfactory to the Agent;
(iv) if the Servicer is not the survivor of the Reorganization, the Agent
shall have received opinions of counsel satisfactory to the Agent with
respect to the matters described in the forms of opinion attached hereto as
Exhibits E-1 and E-2, mutatis mutandis, and any modifications or additions to
Uniform Commercial Code filings or other security arrangements requested by
the Agent shall have been completed; and
(v) each of Standard & Poor's and Moody's shall have confirmed that such
merger or consolidation will not cause the ratings of the Purchaser's
commercial paper notes to be reduced or withdrawn.
(c) Marking of Records. At its expense, the Servicer will mark its master
data processing records relating to the Receivables so that reports generated
from such records include the legend described in Section 5.01(f).
(d) Restrictions on Transaction Documents. The Servicer shall not enter
into, execute and deliver, or otherwise become bound by, any agreement,
instrument, document or other arrangement that restricts the right of the
Servicer to amend, supplement, amend and restate or otherwise modify, or to
extend or renew, or to waive any right under, this Agreement or any other
Transaction Document.
(e) Segregation. The Servicer shall use commercially reasonable efforts to
prevent the deposit into the Collection Account of any funds other than
Collections. If the Servicer receives notice that funds other than
Collections have been deposited in the Collection Account at a time when a
WMECO Obligation is in default, as provided in Section 7.2(b) of the Purchase
and Sale Agreement the Servicer shall deliver such amount to the Agent to pay
such WMECO Obligation and to otherwise secure payment of the WMECO
Obligations. The Agent shall hold such amount until all WMECO Obligations
(whether fixed or contingent) are paid in full. If the Servicer receives
such notice at a time when no WMECO Obligation is in default, the Servicer
shall promptly remit such amount to WMECO.
(f) Payment Instructions. The Servicer will cause the representation in
Section 4.01(j) to be correct at all times, except that the location of the
post office box and/or processing described in such Section, and the identity
of the Collection Account, may be changed with the consent of the Agent, upon
30 days' prior written notice to the Agent, if (i) the requirements of
Section 6.09 are satisfied, (ii) the Collection Account continues to be a
single-purpose account for the deposit of Collections, (iii) the Collection
Account continues to be in the name of the Purchaser, and under the exclusive
ownership and control of the Purchaser, and (iv) the bank at which the
Collection Account is maintained shall have received, executed and returned a
Bank Notice.
SECTION 5.03. Separate Corporate Existence of the Seller. WMECO and the
Seller hereby acknowledge that the Owners and the Agent are entering into the
transactions contemplated by this Agreement in reliance upon the Seller's
identity as a legal entity separate from WMECO. Therefore, from and after
the date hereof, the Seller and WMECO shall take all reasonable steps to
continue the Seller's identity as a separate legal entity and to make it
apparent to third Persons that the Seller is an entity with assets and
liabilities distinct from those of WMECO and any other Person, and is not a
division of WMECO or any other Person. Without limiting the generality of
the foregoing and in addition to and consistent with the covenant set forth
in Section 5.01(a), the Seller and WMECO shall take such actions and WMECO
shall cause the Seller to take such actions, as shall be required in order
that:
(a) The Seller will be a limited purpose corporation whose primary
activities are restricted in its certificate of incorporation to acquiring
Receivables from WMECO, entering into agreements for the servicing of such
Receivables, selling undivided percentage interests in Receivables hereunder,
and conducting such other activities as it deems necessary or appropriate to
carry out its primary activities;
(b) Not less than two members of the Seller's Board of Directors shall be
Independent Directors. The Seller's Board of Directors shall not approve, or
take any other action to cause, the commencement of a voluntary case or other
proceeding with respect to the Seller under any applicable bankruptcy,
insolvency, reorganization, debt arrangement, dissolution or other similar
law, or the appointment of or taking possession by, a receiver, liquidator,
assignee, trustee, custodian, or other similar official for the Seller
unless, in each case, all of the Independent Directors shall approve the
taking of such action in writing prior to the taking of such action. The
Independent Directors' fiduciary duty shall be to the Seller (and its
creditors) and, to the extent permitted by applicable law, not to the
Seller's shareholders in respect of any decision of the type described in the
preceding sentence. In the event an Independent Director resigns or
otherwise ceases to be a director of the Seller, there shall be selected a
replacement Independent Director, and no act of the Seller requiring the
unanimous consent of its Board of Directors shall be taken until a
replacement Independent Director shall have been so selected and elected.
The Seller's certificate of incorporation shall reflect the requirements of
this Section 5.03(b);
(c) No Independent Director shall at any time serve as a trustee in
bankruptcy for WMECO or any of its Affiliates (other than the Seller);
(d) All employees, consultants and agents of the Seller will be compensated
from the Seller's own bank accounts for services provided to the Seller
except as provided herein in respect of fees payable to the Servicer. The
Seller will engage no agents other than a Servicer for the Receivables, which
Servicer will be fully compensated for its services to the Seller by payment
of the fees payable to the Servicer hereunder;
(e) The Seller will contract with the Servicer to perform for the Seller all
operations required on a daily basis to service its Receivables. The Seller
will pay the Servicer the Servicing Fee provided for herein. The Seller will
not incur any material indirect or overhead expenses for items shared between
the Seller and WMECO or any of its Affiliates (other than the Seller) which
are not reflected in the fees payable to the Servicer hereunder. To the
extent, if any, that the Seller and WMECO or any of its Affiliates (other
than the Seller) share items of expenses not reflected in the fees payable to
the Servicer hereunder, such as legal, auditing and other professional
services, such expenses will be allocated to the extent practical on the
basis of actual use or the value of services rendered, and otherwise on a
basis reasonably related to the actual use or the value of services rendered,
it being understood that WMECO shall pay all expenses relating to the
preparation, negotiation, execution and delivery of this Agreement and each
other Transaction Document, including, without limitation, legal, commitment,
agency and other fees;
(f) The Seller's operating expenses will be paid by the Seller from its own
assets and not by WMECO or any of its Affiliates (other than the Seller);
(g) The Seller will have its own stationery and telephone number;
(h) The Seller's books and records will be maintained separately from those
of WMECO and each of its Affiliates (other than the Seller);
(i) The Seller will have its own financial statements prepared and any
financial statement of WMECO or any of its Affiliates (other than the Seller)
which is consolidated to include the Seller will contain detailed notes
clearly indicating that (A) the Seller has acquired the Receivables from
WMECO, and (B) the Seller is a separate corporate entity with creditors who
have purchased and otherwise received ownership and security interests in the
Seller's assets;
(j) The Seller's assets and liabilities will be maintained in a manner that
facilitates their identification and segregation from those of WMECO or any
of its Affiliates (other than the Seller);
(k) The Seller will strictly observe corporate formalities in its dealings
with WMECO and each of its Affiliates, and funds or other assets of the
Seller will not be commingled with those of WMECO or any of its Affiliates
(other than the Seller). The Seller shall not maintain joint bank accounts
or other depository accounts to which WMECO or any of its Affiliates (other
than the Seller) has independent access (other than WMECO in its capacity as
Servicer). None of the Seller's funds will at any time be pooled with any
funds of WMECO or any of its Affiliates (other than the Seller);
(l) The Seller will maintain arm's length relationships with WMECO and each
of its Affiliates (other than the Seller). If WMECO or any of its Affiliates
(other than the Seller) renders or otherwise furnishes services to the
Seller, such Person will be compensated by the Seller at market rates for
such services. Neither the Seller, on the one hand, nor WMECO or any of its
Affiliates (other than the Seller), on the other hand, will be or will hold
itself out to be responsible for the debts of the other or the decisions or
actions respecting the daily business and affairs of the other; and
(m) The Seller and WMECO will each hold themselves out to the public as
separate entities and conduct business solely in its own name.
ARTICLE VI
ADMINISTRATION, COLLECTION AND MONITORING OF RECEIVABLES
SECTION 6.01. Appointment and Designation of the Servicer. The Seller, the
Purchaser, the Owners and the Agent hereby appoint the Person (the
"Servicer") designated by the Agent from time to time pursuant to this
Section 6.01, as their agent to service, administer and collect the
Receivables and otherwise to enforce their respective rights and interests in
and under the Receivables, the Related Security and any contracts between the
Seller and an Obligor. The Servicer's authorization under this Agreement
shall terminate on the Collection Date. Until the Agent gives notice to the
Seller of a designation of a new Servicer, WMECO is hereby designated as, and
hereby agrees to perform the duties and obligations of, the Servicer pursuant
to the terms hereof. The Agent may, upon the occurrence of a Servicer
Default or other Event of Termination, designate as Servicer any Person to
succeed WMECO any successor Servicer, on the condition in each case that any
such Person so designated shall agree to perform the duties and obligations
of the Servicer pursuant to the terms hereof. The Seller agrees that any
Servicer may take any and all steps in the Seller's name and on behalf of the
Seller necessary or desirable, in the determination of the Servicer, to
collect all amounts due under any and all Receivables, including, without
limitation, endorsing the Seller's name on checks and other instruments
representing Collections and enforcing such Receivables and any related
contracts. The Seller will, upon the request of the Agent, execute such
powers of attorney and other instruments as may be necessary to facilitate
the foregoing. The Servicer may, with the prior consent of the Agent (which
consent is hereby given with respect to Northeast Utilities Service Company),
subcontract with any other Person for servicing, administering or collecting
the Receivables, provided that the Servicer shall remain liable for the
performance of the duties and obligations of the Servicer pursuant to the
terms hereof. Notwithstanding anything to the contrary contained in this
Agreement, the Servicer, if not WMECO or an Affiliate of WMECO, shall have no
obligation to collect, enforce or take any other action described in this
Article VI with respect to any receivable or other indebtedness owing to the
Seller that is not a Receivable other than to deliver to the Seller the
collections and documents with respect to any such receivable or other
indebtedness as described in Sections 6.03 and 6.06(b).
SECTION 6.02. Collection of Receivables by the Servicer; Extensions and
Amendments of Receivables. The Servicer shall take or cause to be taken all
such actions as may be necessary or advisable to collect each Receivable from
time to time, all in accordance with applicable laws, rules and regulations,
with reasonable care and diligence, and in accordance with the Credit and
Collection Policy; provided, however, that, notwithstanding anything to the
contrary contained herein, (a) the Agent shall have the absolute and
unlimited right (subject to applicable requirements of law) to direct the
Servicer (whether the Servicer is WMECO or otherwise) to commence or settle
any legal action, to enforce collection of any Receivable or to foreclose
upon or repossess any Related Security and (b) the Servicer shall not make
the Agent or any Owner a party to any litigation without the express written
consent of the Agent or such Owner, as the case may be. Provided that the
Termination Date shall not have occurred, the Servicer may, in accordance
with the Credit and Collection Policy, (a) extend the maturity or adjust the
Outstanding Balance of any Defaulted Receivable as the Servicer may determine
to be appropriate to maximize Collections thereof, provided, that no such
extension or adjustment shall affect the characterization of such Receivable
as being a Defaulted Receivable, and (b) adjust the Outstanding Balance of
any Receivable to reflect the reductions or cancellations described in the
first sentence of Section 2.08. Except as otherwise permitted pursuant to
the preceding sentence, the Servicer will not extend, amend or otherwise
modify the terms of any Receivable, or, if there exists a contract related to
any Receivable, amend, modify or waive any term or condition of any such
contract.
SECTION 6.03. Distribution and Application of Collections. The Servicer
shall set aside on its books for the account of the Seller and each Owner
their respective allocable shares of the Collections of Receivables in
accordance with Sections 2.05, 2.06, 2.07 and 2.08; provided, however, that
if required by Section 2.05, 2.06 or 2.07 or otherwise instructed by the
Agent following a Transition Event, the Servicer shall segregate such
Collections in accordance with Section 6.04. The Servicer shall as soon as
practicable following receipt turn over to the Seller the collections of any
receivable or other indebtedness owing to the Seller which is not a
Receivable, less, in the event the Seller is not the Servicer, all reasonable
and appropriate out-of-pocket costs and expenses of such Servicer of
servicing, collecting and administering any such receivable or other
indebtedness to the extent not covered by the Servicing Fee received by it.
Any payment by an Obligor in respect of any indebtedness owed by it to the
Seller shall, except as otherwise specified by such Obligor or otherwise
required by contract or law or by instruction of the Agent, be applied as a
Collection of any Receivable of such Obligor (in the order of the age of such
Receivables, starting with the oldest such Receivable) to the extent of any
amounts then due and payable thereunder before being applied to any other
receivable or other indebtedness (other than a Receivable) of such Obligor.
SECTION 6.04. Segregation of Collections. The Servicer shall not be
required (unless required by Section 2.05, 2.06 or 2.07 or otherwise
instructed by the Agent following a Transition Event) to segregate the funds
constituting the Owners' portion of daily Collections prior to the remittance
thereof in accordance with Sections 2.05, 2.06, 2.07 and 2.08. If so
instructed by the Agent following a Transition Event, the Servicer shall (a)
on the first Business Day following its receipt thereof, segregate and
deposit with a bank designated by the Agent (which may be the Agent) each
Owner's allocable share of Collections of Receivables received by the
Servicer; provided, that on any date before the Termination Date, such
segregation shall not apply to Reinvested Collections, and (b) if so
requested by the Agent, provide payment instructions to such bank as directed
by the Agent.
SECTION 6.05. Other Rights of the Agent. At any time following the
occurrence of an Event of Termination or the designation of a Servicer other
than WMECO pursuant to Section 6.01:
(a) The Agent may or, at the request of the Agent, the Seller and the
Servicer shall (in either case, at the Seller's expense) direct the Obligors
of Receivables, or any of them, to pay all amounts payable under any
Receivable directly to the Agent or its designee; and
(b) The Seller and the Servicer shall, at the Agent's request and at the
Seller's expense, (i) assemble all Records and make the same available to the
Agent or its designee at a place selected by the Agent or its designee, and
(ii) segregate all cash, checks and other instruments received by it from
time to time constituting Collections of Receivables in a manner acceptable
to the Agent and, promptly following receipt, remit all such cash, checks and
instruments, duly endorsed or with duly executed instruments of transfer, to
the Agent or its designee.
SECTION 6.06. Records; Maintenance of General Trial Balance; Audits. (a)
The Seller and the Servicer will maintain and implement administrative and
operating procedures (including, without limitation, an ability to recreate
records evidencing the Receivables in the event of the destruction of the
originals thereof), and keep and maintain all documents, books, records and
other information reasonably necessary or advisable for the collection of all
Receivables (including, without limitation, records adequate to permit the
identification of each Receivable and all Collections thereof and adjustments
thereto). The Seller will (and will cause the Servicer to) mark all master
data processing records so that reports generated from such records include
the legend described in Section 5.01(f).
(b) The Servicer shall hold all Records in trust for the Seller and each
Owner in accordance with their respective interests. Subject to the receipt
of contrary instructions from the Agent, WMECO will, upon the designation of
a Servicer other than WMECO, deliver (or cause the Servicer to deliver) all
Records to such Servicer; provided, however, that the Servicer shall as soon
as practicable upon demand deliver to WMECO all records and documents in its
possession relating to receivables and other indebtedness owing to the Seller
other than Receivables, and copies of all Records in its possession relating
to Receivables.
(c) Neither the Servicer nor the Seller will make any change or modification
to the form of the General Trial Balance which is adverse to the interests of
the Purchaser or the Owners. The Servicer will apply all Collections to the
applicable Receivables as provided in Section 6.03 and modify the General
Trial Balance to reflect such Collections, in each case, within one Business
Day following the earliest date on which such Collections are received by the
Servicer or the Seller or (following the occurrence of an Event of
Termination and the establishment of Lock-Box Accounts pursuant to Section
6.08) deposited in a Lock-Box Account. The Servicer will post each new
invoiced Receivable on the General Trial Balance on the day such Receivable
is billed. If at any time the Servicer fails or otherwise ceases to generate
the General Trial Balance, the Agent shall have the right to reconstruct the
General Trial Balance so that a determination of the Percentage Interests can
be made pursuant to Section 2.03. The Seller and the Servicer each agree to
cooperate with such reconstruction of the General Trial Balance, including,
without limitation, the delivery to the Agent, upon the Agent's request, of
copies of all Records. The Seller shall reimburse the Agent for all costs
and expenses incurred in connection with such reconstruction of the General
Trial Balance.
(d) The Seller, WMECO and the Servicer each will, from time to time during
regular business hours as reasonably requested by the Agent, permit the
Agent, or its agents or representatives, (i) to examine and make copies of
and abstracts from all Records and (ii) to visit the offices and properties
of the Seller, WMECO or the Servicer for the purpose of examining such
Records and to discuss matters relating to the Receivables or the Seller's,
WMECO's or the Servicer's performance hereunder with any of the officers or
employees of the Seller, WMECO or the Servicer, as the case may be, having
knowledge of such matters.
SECTION 6.07. Receivables Reporting. Starting with the first month
commencing after the date hereof and continuing through (and including) the
month in which the Collection Date occurs, the Servicer shall on or before
the eighteenth calendar day of each month (or if such eighteenth day is not a
Business Day, on the Business Day immediately preceding such eighteenth day),
prepare and forward to the Agent for each Owner, an Investor Report relating
to all Percentage Interests, as of the close of business of the Servicer on
the last day of the immediately preceding month, which report will include
(without limitation) (i) the information required to compute each element of
the Coverage Ratio and (ii) the aggregate amount billed by WMECO to each
Obligor in a Reported Group.
SECTION 6.08 Collections. The Seller will instruct all Obligors to cause
all Collections to be paid to the Servicer and if the Seller receives any
Collections, the Seller will remit such Collections to the Servicer
(including, without limitation, any Collections deemed to have been received
pursuant to Section 2.08) within one Business Day following the Seller's
receipt thereof. The Seller will not make any change in its instructions to
Obligors regarding payments to be made to the Seller or the Servicer, unless
the Agent shall have received at least ten Business Days' prior written
notice of such change and all actions reasonably requested by the Agent to
protect and perfect the interest of the Agent and the Owners in the
Collections of the Receivables have been taken and completed. If requested
to do so following a Transition Event, the Seller shall instruct the Obligors
to cause all Collections to be paid to a Lock-Box Bank for deposit into a
Lock-Box Account and deliver a Bank Notice to such Lock-Box Bank. Such
notice shall transfer to the Agent exclusive ownership and control of such
Lock-Box Account. The Seller hereby agrees to take any further action
necessary that the Agent may reasonably request to effect such transfer.
Without limiting the foregoing, on or prior to the date of the initial
purchase of a Percentage Interest hereunder, (i) the Seller shall cause to be
established the Collection Account, in the name of the Purchaser, (ii) the
Purchaser shall give a Bank Notice to the bank at which the Collection
Account is maintained and (iii) the Seller shall cause such bank to execute
such notice and return it to the Purchaser. Such notice shall give the bank
standing instructions to remit funds on deposit in the Collection Account to
the Servicer, unless the Purchaser, or the Agent on behalf of the Purchaser,
instructs otherwise, which instruction may only be delivered upon the
occurrence of a Transition Event.
SECTION 6.09. UCC Matters; Protection and Perfection of Percentage
Interests. (a) With respect to each Receivable and the Related Security
therefor (excluding Security Deposits), the Seller shall (i) acquire such
Receivable and Related Security pursuant to and in accordance with the terms
of the Purchase and Sale Agreement, (ii) take all action necessary to
perfect, protect and more fully evidence the Seller's ownership interest in
such Receivables and Related Security, including, without limitation, (A)
filing and maintaining effective financing statements (Form UCC-1) or similar
forms against WMECO in all necessary or appropriate filing offices, and
filing continuation statements, amendments or assignments with respect
thereto in such filing offices, and (B) executing or causing to be executed
such other instruments or notices as may be necessary or appropriate and
(iii) take all additional action that the Agent reasonably may request in
order to perfect, protect and more fully evidence the interest of the parties
to this Agreement in such Receivables and Related Security.
(b) The Seller will keep its principal place of business and chief executive
office, and the office where it keeps the Records, at the addresses of the
Seller specified in Schedule V or, upon 30 days' prior written notice to the
Agent, at such other locations within the United States where all actions
reasonably requested by the Agent, to protect and perfect the interest of the
Agent and the Owners in the Receivables, the Related Security (excluding
Security Deposits) relating thereto, the Collections relating thereto and the
Collateral, have been taken and completed. The Seller will not make any
change to its corporate name or use any tradenames, fictitious names, assumed
names or "doing business as" names other than those described in Schedule
III, unless prior to the effective date of any such name change or use, the
Seller delivers to the Agent such executed financing statements as the Agent
may request to reflect such name change or use, together with such other
documents and instruments as the Agent may reasonably request in connection
therewith. The Seller agrees that from time to time, at its expense, it will
promptly execute and deliver all further instruments and documents, and take
all further action that the Agent may reasonably request in order to perfect,
protect or more fully evidence the interests of the Owners in the
Receivables, the Related Security (excluding Security Deposits) relating
thereto, Collections relating thereto and the Collateral, or to enable any of
them or the Agent to exercise or enforce any of their respective rights
hereunder. Without limiting the generality of the foregoing, the Seller will
upon the request of the Agent execute and file such financing or continuation
statements, or amendments thereto or assignments thereof, and such other
instruments or notices, as may be necessary or appropriate or as the Agent
may request. The Seller hereby authorizes the Purchaser to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relative to all or any of the Receivables, the Related Security, the
Collections and the Collateral now existing or hereafter arising without the
signature of the Seller where permitted by law. A carbon, photographic or
other reproduction of this Agreement or any financing statement covering the
Receivables, the Related Security and Collections relating thereto and the
Collateral (or, in each case, any part thereof) shall be sufficient as a
financing statement. The Seller shall, upon the request of the Agent at any
time after a Transition Event and at the Seller's expense, notify the
Obligors of Receivables, or any of them, of the Owners' interests therein.
If the Seller fails to perform any of its agreements or obligations under
this Section 6.09, the Agent may (but shall not be required to) itself
perform, or cause performance of, such agreement or obligation, and the
expenses of the Agent incurred in connection therewith shall be payable by
the Seller upon the Agent's demand therefor. For purposes of enabling the
Agent to exercise its rights described in the preceding sentence and
elsewhere in this Article VI, the Seller and the Owners hereby authorize the
Agent to take any and all steps in the Seller's name and on behalf of the
Seller and the Owners necessary or desirable, in the determination of the
Agent, to collect all amounts due under any and all Receivables, including,
without limitation, endorsing the Seller's name on checks and other
instruments representing Collections and enforcing rights with respect to
such Receivables and any related contracts. In addition, to the extent that
any Receivables Interest is intended to be or is likely to be outstanding
five years or more after the date of this Agreement, the Seller shall
provide, within six months (but not later than the 30th day) prior to the
expiration of such five year period (and, if applicable, each subsequent five
year period), or more frequently as the Agent reasonably deems advisable, an
opinion of counsel to the Seller as to the continuing validity and perfection
of the Agent's and the Owners' interests in the Receivables and the Related
Security (excluding Security Deposits) and Collections relating thereto.
SECTION 6.10. Obligations of the Seller with Respect to Receivables. The
Seller will cause WMECO to (a) at its expense, regardless of any exercise by
the Agent or any Owner of its rights hereunder, timely and fully perform and
comply with all material provisions, covenants and other promises required to
be observed by it under any contracts or other agreements related to the
Receivables to the same extent as if the Receivables had not been sold under
the Purchase and Sale Agreement and the Percentage Interests had not been
sold hereunder and (b) pay when due any taxes (other than Excluded Taxes),
including without limitation, sales and excise taxes, payable in connection
with the Receivables. In no event shall the Agent or any Owner have any
obligation or liability with respect to any Receivables or related contracts,
if applicable, nor shall any of them be obligated to perform any of the
obligations of the Seller or WMECO thereunder. The Seller and the Servicer
will timely and fully comply in all material respects with the Credit and
Collection Policy in regard to each Receivable and any related contract.
Neither the Seller nor the Servicer will make any change in the character of
its business or in the Credit and Collection Policy, which change would, in
either case, impair the credit quality, enforceability or collectibility of
any Receivable.
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01. Events of Termination. If any of the following events
("Events of Termination") shall occur:
(a) (i) The Servicer (if other than the Agent) shall fail to perform or
observe any term, covenant or agreement hereunder (other than as referred to
in clause (ii) of this Section 7.01(a)) and such failure shall remain
unremedied for five Business Days after written notice thereof shall have
been given by the Agent to the Servicer or (ii) the Servicer (if other than
the Agent), WMECO or the Seller shall fail to make any payment or deposit to
be made by it hereunder when due; or
(b) Any representation or warranty made or deemed to be made by either the
Seller, WMECO or the Servicer (or any of its respective officers) under or in
connection with this Agreement or any other Transaction Document or any
Investor Report or other information or report delivered pursuant hereto
shall prove to have been false or incorrect in any material respect when made
or deemed to have been made and shall not have been remedied for a period of
five Business Days after written notice thereof shall have been given by the
Agent to the Seller; or
(c) WMECO shall fail to perform or observe any term, covenant or agreement
contained in the Transaction Documents on its part to be performed or
observed and such failure shall continue unremedied for five Business Days
after written notice thereof shall have been given by the Agent to WMECO; or
(d) The Seller or the Servicer shall fail to perform or observe any other
term, covenant or agreement contained in this Agreement on its part to be
performed or observed and any such failure shall remain unremedied for five
Business Days after written notice thereof shall have been given by the Agent
to the Seller or the Servicer; or
(e) The Seller or WMECO shall fail to pay any principal of or premium or
interest on any Debt (which, in the case of WMECO, is in an aggregate amount
exceeding $10,000,000), when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise)
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Debt; or any other
default under any agreement or instrument relating to any such Debt or any
other event, shall occur and shall continue after the applicable grace
period, if any, specified in such agreement or instrument if the effect of
such default or event is to accelerate, or to permit the acceleration of, the
maturity of such Debt; or any such Debt shall be declared to be due and
payable or required to be prepaid (other than by a regularly scheduled
required prepayment) prior to the stated maturity thereof; or
(f) Any purchase of a Percentage Interest or reinvestment of Collections
shall for any reason, except to the extent permitted by the terms hereof,
cease to create a valid and perfected first priority undivided percentage
ownership interest to the extent of such Percentage Interest in each
Receivable and the Related Security (excluding Security Deposits) and
Collections with respect thereto, or any other Adverse Claim shall attach to
any Receivables, Related Security or Collections and, provided that the
attachment of any such Adverse Claim securing payment of taxes, assessments
or governmental charges shall not constitute an Event of Termination unless
it shall remain outstanding for fifteen days; or
(g) (i) The Seller, WMECO or the Servicer (if other than the Agent) shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by or against the Seller, WMECO or the Servicer (if other than the
Agent) seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or
other similar official for it or for any substantial part of its property; or
(ii) the Seller, WMECO or the Servicer (if other than the Agent) shall take
any corporate action to authorize any of the actions set forth in clause (i)
above in this Section 7.01(g); or
(h) The Loss-to-Liquidation Ratio for any month shall exceed 6.75%, or the
average Loss-to-Liquidation Ratio for any six consecutive months shall exceed
5.25%, or the Delinquency Ratio for any month shall exceed 6.25%, or the
Gross Charge-Off Ratio for any month shall exceed 2.50%, or the average
Dilution Ratio for any three consecutive months shall exceed 1.00%, or the
Weighted Average Maturity for any month shall exceed 60.0 days; or
(i) WMECO's senior secured debt shall not be rated at least the Required
Rating, or there shall have occurred any event which has a Material Adverse
Effect; or
(j) (i) A regulatory, tax or accounting body has ordered that the activities
of the Purchaser or any Affiliate of the Purchaser contemplated hereby be
terminated or (ii) as a result of any other event or circumstance, the
activities of the Purchaser contemplated hereby may reasonably be expected to
cause the Purchaser, the financial institution then acting as the
administrator or the manager for the Purchaser, or any of their respective
Affiliates to suffer materially adverse regulatory, accounting or tax
consequences; or
(k) the Purchaser shall be unable to issue Commercial Paper Notes for sixty
consecutive days; or
(l) Any Event of Default under (and as defined in) either of the Liquidity
Agreements shall occur or a Liquidity Facility Termination Date shall have
occurred; or
(m) The Coverage Ratio shall be less than 102% for two Business Days; or
(n) A Change of Control shall occur; or
(o) a Servicer Default shall have occurred; or
(p) WMECO or the Seller shall have given notice that it desires to terminate
the Purchase and Sale Agreement pursuant to Section 8.1 thereof, or the
Purchase and Sale Termination Date shall otherwise occur; or
(q) Any litigation (including, without limitation, derivative actions),
arbitration proceedings or governmental proceedings is pending against the
Seller, the Receivables or the Related Security, which has a reasonable
likelihood of having an adverse determination that would have a Material
Adverse Effect;
then, and in any such event, the Agent may, or at the direction of the
Required Owners shall, by notice to the Seller declare the Termination Date
to have occurred, except that, in the case of any event described in clause
(i) of Section 7.01(g), above, the Termination Date shall be deemed to have
occurred automatically upon the occurrence of such event. Upon any such
declaration or automatic occurrence, the Agent and the Owners shall have, in
addition to all other rights and remedies under this Agreement or otherwise,
all other rights and remedies provided under the UCC of the applicable
jurisdiction and other applicable laws, which rights shall be cumulative.
ARTICLE VIII
THE AGENT
SECTION 8.01. Authorization and Action. Each Owner hereby accepts the
appointment of and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. In
addition, each of the Owners and the Agent acknowledge that the Purchaser has
entered into the Security Agreement pursuant to which certain rights of the
Purchaser hereunder were pledged to the Collateral Trustee, and the Agent
hereby agrees to take, or refrain from taking, such actions under or in
connection with this Agreement as the Collateral Trustee shall from time to
time direct in accordance with the terms of the Security Agreement.
Notwithstanding anything contained herein to the contrary, the Agent shall
not be required to take any action which exposes it to personal liability or
which is contrary to this Agreement or to applicable law. The Agent agrees
to give (i) to each Owner, prompt notice of each notice given to it by the
Seller, or by it to the Seller, pursuant to the terms of this Agreement and
(ii) to the Collateral Trustee, prompt notice of the occurrence hereunder of
any Event of Termination or the Termination Date. The appointment and
authority of the Agent hereunder shall terminate on the Collection Date. The
Agent hereby further acknowledges that to the extent it receives or holds any
funds or other amounts or property to which the Purchaser would be entitled,
the Agent shall receive and/or hold such funds as agent for the Collateral
Trustee under and in accordance with the Security Agreement. Notwithstanding
anything to the contrary, the Collateral Trustee is an intended beneficiary
of the provisions of this Section 8.01, and no amendment, supplement or other
modification to this Section which would adversely affect the interest of the
Collateral Trustee under this Section shall be effective without the
Collateral Trustee's consent.
SECTION 8.02. UCC Filings. The Owners, WMECO and the Seller expressly
recognize and agree that the Agent may be listed as the assignee or secured
party of record on the various UCC filings required to be made hereunder in
order to perfect the transfer of the Percentage Interests from the Purchaser
to the other Owners, that such listing shall be for administrative
convenience only in creating a record or nominee owner to take certain
actions hereunder on behalf of such Owners and that such listing will not
affect in any way the status of such Owners as the beneficial Owners of the
Percentage Interests. In addition, such listing shall impose no duties on
the Agent other than those expressly and specifically undertaken in
accordance with this Article VIII. In furtherance of the foregoing, each
Owner shall be entitled to enforce its rights created under this Agreement
without the need to conduct such enforcement through the Agent except as
provided herein.
SECTION 8.03. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable to any Owner for any
action taken or omitted to be taken by it or them as Agent under or in
connection with this Agreement (including, without limitation, the Agent's
servicing, administering or collecting Receivables as Servicer pursuant to
Article VI), except for its or their own gross negligence or willful
misconduct. Without limiting the foregoing, the Agent: (i) may consult with
legal counsel (including counsel for the Seller), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (ii) makes no warranty or
representation to any Owner and shall not be responsible to any Owner for any
statements, warranties or representations made in or in connection with this
Agreement; (iii) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of
this Agreement on the part of the Seller or to inspect the property
(including the books and records) of the Seller; (iv) shall not be
responsible to any Owner for the due execution, legality, validity,
enforceability, genuineness, sufficiency, or value of this Agreement, or any
other instrument or document furnished pursuant hereto; and (v) shall incur
no liability under or in respect of this Agreement by acting upon any notice
(including notice by telephone), consent, certificate or other instrument or
writing (which may be by telex) believed by it to be genuine and signed or
sent by the proper party or parties.
SECTION 8.04. Agent and Affiliates. To the extent that the Agent or any of
its Affiliates shall become an Owner hereunder, the Agent or such Affiliate,
in such capacity, shall have the same rights and powers under this Agreement
as would any Owner hereunder and may exercise the same as though it were not
the Agent. The Agent and its Affiliates may generally engage in any kind of
business with the Seller or any Obligor, any of their respective Affiliates
and any Person who may do business with or own securities of the Seller or
any Obligor or any of their respective Affiliates, all as if it were not the
Agent hereunder and without any duty to account therefor to the Owners.
SECTION 8.05. Purchase Decision. The Purchaser acknowledges that it has,
independently and without reliance upon the Agent or any other Owner and
based on such documents and information as it has deemed appropriate, made
its own evaluation and decision to enter into this Agreement and, if it so
determines, to purchase Percentage Interests hereunder. Each Owner
acknowledges and agrees that it will, independently and without reliance upon
the Agent, the Purchaser or any other Owner, and based on such documents and
information as it shall deem appropriate at the time, make its own decisions
in taking or not taking action under or in connection with this Agreement.
SECTION 8.06. Indemnification. Each Owner agrees to indemnify the Agent (to
the extent not reimbursed by the Seller or the Servicer), ratably according
to its share of the aggregate outstanding Purchase Price of all Percentage
Interests from time to time, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against the Agent in any way relating to
or arising out of this Agreement or any action taken or omitted by the Agent
under this Agreement; provided, however, that an Owner shall not be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements resulting from
the Agent's gross negligence or willful misconduct. Without limitation of
the generality of the foregoing, each Owner agrees to reimburse the Agent,
ratably according to its share of the aggregate outstanding Purchase Price of
all Percentage Interests from time to time, promptly upon demand, for any
out-of-pocket expenses (including reasonable counsel fees) incurred by the
Agent in connection with the administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise)
of, or legal advice in respect of rights or responsibilities under, this
Agreement. The Agent hereby agrees that any amount owing to it by the
Purchaser pursuant to this Section 8.06 shall not be due and payable until
the earliest date on which the Agent would be entitled to initiate
proceedings of the type described in Section 10.08 against the Purchaser, it
being understood, however, that the Purchaser may at any time prepay any
amount owing to the Agent pursuant to this Section 8.06. The indemnities
contained in this Section 8.06 shall be continuing and shall survive the
termination of this Agreement.
SECTION 8.07. Successor Agent. The Agent may resign at any time by giving
thirty days' notice thereof to the Owners, the Seller and the Servicer. Upon
any such resignation, the Owners shall have the right to appoint a successor
Agent approved by the Seller (which approval will not be unreasonably
withheld or delayed). If no successor Agent shall have been so appointed by
the Owners and accepted such appointment within 30 days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on
behalf of the Owners, appoint a successor Agent approved by the Seller (which
approval will not be unreasonably withheld or delayed), which successor Agent
shall be (a) either (i) a commercial bank having a combined capital and
surplus of at least $1,000,000,000 or (ii) an Affiliate of such an
institution and (b) experienced in the types of transactions contemplated by
this Agreement. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all of the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article VIII (including,
without limitation, the indemnities set forth in Section 8.06) shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Indemnities by the Seller. Without limiting any other rights
which the Agent, any Owner or any of their respective Affiliates may have
hereunder or under applicable law, the Seller hereby agrees to indemnify the
Agent, each Owner, and each of their respective Affiliates from and against
any and all damages, losses, claims, liabilities and related costs and
expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing being collectively referred to as "Indemnified Amounts") awarded
against or incurred by any of them arising out of or as a result of this
Agreement or the ownership of Percentage Interests or in respect of any
Receivable or any related contract, excluding, however, (i) Indemnified
Amounts to the extent resulting from gross negligence or willful misconduct
on the part of the Agent, such Owner or such Affiliate, (ii) recourse (except
as otherwise specifically provided in this Agreement) for uncollectible
Receivables or (iii) Excluded Taxes. Without limiting the foregoing, the
Seller shall indemnify the Agent, each Owner and each of their respective
Affiliates for Indemnified Amounts relating to or resulting from:
(i) the transfer of an ownership interest in any Receivable to any Person
other than the Purchaser;
(ii) reliance on any representation or warranty made or deemed made by the
Servicer (so long as the Servicer is WMECO or an Affiliate of WMECO), WMECO
or the Seller (or any of their officers) under or in connection with this
Agreement or any other Transaction Document, which shall have been false or
incorrect in any material respect when made or deemed made or delivered;
(iii) the failure by the Servicer (so long as the Servicer is WMECO or an
Affiliate of WMECO), WMECO or the Seller to comply with any term, provision
or covenant contained in this Agreement or any agreement executed in
connection with this Agreement, or with any applicable law, rule or
regulation with respect to any Receivable, the related contract, if any, or
the Related Security, or the nonconformity of any Receivable, the related
contract, if any, or the Related Security with any such applicable law, rule
or regulation;
(iv) the failure to vest and maintain vested in each Owner or to transfer to
each Owner, legal and equitable title to and ownership of, an undivided
percentage ownership interest, to the extent of each Percentage Interest
owned by it hereunder, in the Receivables, together with all Collections and
Related Security relating thereto, free and clear of any Adverse Claim
whether existing at the time of the purchase of such Percentage Interest or
at any time thereafter;
(v) the failure of the Coverage Ratio to equal or exceed 102% at all times
on or prior to the Termination Date;
(vi) the failure of WMECO or the Seller to file, or any delay in filing,
financing statements or other similar instruments or documents under the UCC
of any applicable jurisdiction or other applicable laws with respect to any
Receivables or Related Security, whether at the time of any purchase of a
Percentage Interest or at any subsequent time;
(vii) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
(including, without limitation, a defense based on such Receivable or the
related contract, if any, not being a legal, valid and binding obligation of
such Obligor enforceable against it in accordance with its terms), or any
other claim resulting from the sale of the merchandise or services related to
such Receivable or the furnishing or failure to furnish such merchandise or
services;
(viii) any failure of the Seller, WMECO or the Servicer (so long as the
Servicer is WMECO or an Affiliate of WMECO) to perform its duties or
obligations in accordance with the provisions of this Agreement or any other
Transaction Document or to perform its duties under any contracts related to
the Receivables;
(ix) any products liability claim or personal injury or property damage suit
or other similar or related claim or action of whatever sort arising out of
or in connection with merchandise or services which are the subject of any
Receivable, related contract or Related Security; or
(x) the failure to pay when due any taxes (other than Excluded Taxes),
including without limitation, sales, excise or personal property taxes
payable in connection with any of the Receivables; or
(xi) any repayment by the Agent or any Owner of any amount previously
distributed in reduction of Purchase Price which the Agent or such Owner
believes in good faith is required to be made; or
(xii) the commingling of Collections of Receivables at any time with other
funds (including without limitation any commingling in the Collection Account
that occurs notwithstanding the Seller's commercially reasonable efforts to
prevent it); or
(xiii) any investigation, litigation or proceeding related to this Agreement
or the use of proceeds of purchases or reinvestments or the ownership of
Percentage Interests or in respect of any Receivable, Related Security or
related contract, if any; or
(xiv) any inability to obtain any judgment in, or utilize the court or other
adjudication system of, any state in which an Obligor may be located as a
result of the failure of the Seller, WMECO or the Servicer to qualify to do
business or file any notice of business activity report or any similar
report; or
(xv) any failure of the Seller to give reasonably equivalent value to WMECO
in consideration of the purchase by the Seller from WMECO of any Receivable,
or any attempt by any Person to void any such transfer under statutory
provisions or common law or equitable action, including, without limitation,
any provision of the Bankruptcy Code; or
(xvi) any claim involving environmental liability that relates to any
property that has been, is now or hereafter will be owned, leased, operated
or otherwise used by Seller, WMECO or the Servicer.
Any amounts subject to the indemnification provisions of this Section 9.01
shall be paid by the Seller to the Agent within two Business Days following
the Agent's written demand therefor.
SECTION 9.02 Indemnities by WMECO. Without limiting any other rights which
the Agent, any Owner or any of their respective Affiliates may have hereunder
or under applicable law, WMECO (in its capacity as the parent of Seller and
as Servicer) hereby agrees to indemnify the Agent, each Owner, and each of
their respective Affiliates from and against all Indemnified Amounts awarded
against or incurred by any of them arising out of or as a result of any of
the following:
(i) reliance on any representation or warranty made or deemed made by the
Servicer (or any of their officers) under or in connection with this
Agreement or any other Transaction Document, which shall have been false or
incorrect in any material respect when made or deemed made or delivered;
(ii) the failure by the Servicer to comply with the term, provision or
covenant contained in this Agreement, any other Transaction Document or any
other agreement executed in connection with this Agreement, or with any
applicable law, rule or regulation with respect to any Receivable, the
related contract, if any, or the Related Security, or the nonconformity of
any Receivable, the related contract, if any, or the Related Security with
any such applicable law, rule or regulation;
(iii) the failure to vest and maintain vested in each Owner or to transfer
to each Owner, legal and equitable title to and ownership of, an undivided
percentage ownership interest, to the extent of each Percentage Interest
owned by it hereunder, in the Receivables, together with all Collections and
Related Security relating thereto, free and clear of any Adverse Claim
whether existing at the time of the purchase of such Percentage Interest or
at any time thereafter;
(iv) the failure of the Coverage Ratio to equal or exceed 102% at all times
on or prior to the Termination Date;
(v) the failure to file, or any delay in filing, financing statements or
other similar instruments or documents under the UCC of any applicable
jurisdiction or other applicable laws with respect to any Receivables or
Related Security, whether at the time of any purchase of a Percentage
Interest or at any subsequent time;
(vi) any failure of the Servicer to perform its duties or obligations under
any contracts related to the Receivables;
(vii) the commingling of Collections of Receivables at any time with other
funds (including without limitation any such commingling that occurs in the
Collection Account that occurs notwithstanding the Servicer's commercially
reasonable efforts to prevent it); or
(viii) the failure of a Lock-Box Bank or the bank at which the Collection
Account is maintained (if other than Union Bank of Switzerland) to remit any
amounts held in the Lock-Box Account or Collection Account, as the case may
be, pursuant to the instructions of the Servicer, the Seller or the Agent,
whether by reason of the exercise of set-off rights or otherwise.
Any amounts subject to the indemnification provisions of this Section 9.02
shall be paid by the Servicer to the Agent within two Business Days following
the Agent's demand therefor.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments and Waivers. (a) Except as provided in Section
10.01(b), no amendment or modification of any provision of this Agreement
shall be effective without the written agreement of WMECO, the Seller, the
Agent, the Required Owners and, to the extent expressly required pursuant to
Section 8.01, the Collateral Trustee, and no termination or waiver of any
provision of this Agreement or consent to any departure therefrom by the
Seller shall be effective without the written concurrence of the Agent and
the Required Owners. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(b) Notwithstanding the provisions of Section 10.01(a), (i) the written
consent of each Owner shall be required for any amendment, modification or
waiver (A) reducing the Purchase Price of, or the Yield on, the Percentage
Interests for any Purchase Period, (B) postponing any date for any payment of
the Purchase Price of, or the Yield on, the Percentage Interests for any
Purchase Period, (C) reducing the percentage specified in the definition of
"Required Owners" or (D) modifying the provisions of this Section 10.01, (ii)
the written consent of the Purchaser shall be required for any amendment,
modification or waiver increasing the Purchase Limit or reducing any fees or
other amounts payable to the Purchaser hereunder for its own account, and
(iii) the written consent of the Agent shall be required for any amendment,
modification or waiver of any provision of this Agreement affecting the
indemnities to, or the rights, duties and obligations of, the Agent or
reducing any fees or other amounts payable to the Agent hereunder for its own
account.
SECTION 10.02. Notices, Etc. All notices and other communications provided
for hereunder shall, unless otherwise stated herein, be in writing (including
telex communication and communication by facsimile copy) and mailed, telexed,
transmitted or delivered, as to each party hereto, at its address set forth
under its name on the signature pages hereof or specified in such party's
Assignment and Acceptance or at such other address as shall be designated by
such party in a written notice to the other parties hereto. All such notices
and communications shall be effective, upon receipt, or in the case of (a)
notice by mail, three days after being deposited in the United States mails,
first class postage prepaid, (b) notice by overnight courier, one Business
Day after being deposited with a national overnight courier service, (c)
notice by telex, when telexed against receipt of answerback, or (d) notice by
facsimile copy, when confirmation of receipt is obtained, except that notices
and communications pursuant to Article II shall not be effective until
received.
SECTION 10.03. No Waiver; Remedies. No failure on the part of the Agent or
any Owner to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
SECTION 10.04. Binding Effect; Assignability. This Agreement shall be
binding upon and inure to the benefit of WMECO, the Seller, the Servicer, the
Agent, the Owners and their respective successors and permitted assigns.
This Agreement and each Owner's rights and obligations hereunder and interest
herein shall be assignable in whole or in part (including by way of the sale
of participation interests therein) by such Owner and its successors and
assigns; provided, however, that the Purchaser may only assign its rights and
obligations as the "Purchaser" hereunder (as distinguished from its rights
and obligations as an "Owner" hereunder), in whole, to another Issuer
acceptable to the Purchaser, and, upon such assignment, such assigning
Purchaser shall cease to be the Purchaser hereunder. Neither WMECO, the
Seller nor the Servicer may assign any of its rights and obligations
hereunder or any interest herein without the prior written consent of the
Owners and the Agent. The parties to each assignment or participation made
pursuant to this Section 10.04 shall execute and deliver to the Agent for its
acceptance and recording in its books and records, an Assignment and
Acceptance or a participation agreement or other transfer instrument
reasonably satisfactory in form and substance to the Agent and the Seller,
and which shall provide that the parties thereto agree to be bound by Section
10.12 of this Agreement. Each such assignment or participation shall be
effective as of the date specified in the applicable Assignment and
Acceptance or other agreement or instrument only after the execution,
delivery, acceptance and recording as described in the preceding sentence.
The Agent shall notify the Seller of any assignment or participation thereof
made pursuant to this Section 10.04. The Purchaser or any Owner may, in
connection with any assignment or participation or any proposed assignment or
participation pursuant to this Section 10.04, disclose to the assignee or
participant or proposed assignee or participant who agrees to abide by the
provisions of Section 10.12 any information relating to the Seller and the
Percentage Interests furnished to such Owner by or on behalf of the Seller or
the Servicer. Notwithstanding the fact that the Purchaser or any Owner, as a
result of its having assigned all of its remaining rights, interests, duties
and obligations hereunder, shall cease to be the Purchaser or an Owner for
purposes hereof, such assigning Purchaser or Owner, as the case may be, shall
continue to be entitled to all rights of indemnity and reimbursement from the
Seller under this Agreement for any indemnifiable or reimbursable costs,
expenses or liabilities incurred or arising out or in connection with such
Person's acting as the Purchaser or an Owner under this Agreement.
SECTION 10.05. Term of this Agreement. This Agreement, including, without
limitation, each of the Seller's and the Servicer's obligation to observe its
respective covenants set forth in Articles V and VI, shall remain in full
force and effect until the Collection Date; provided, however, that the
rights and remedies with respect to any breach of any representation and
warranty made or deemed made by the Seller or the Servicer pursuant to
Articles III and IV and the indemnification and payment provisions of
Articles IX and Article X shall be continuing and shall survive any
termination of this Agreement.
SECTION 10.06. GOVERNING LAW; SUBMISSION TO JURISDICTION. (A) THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION
OF THE INTERESTS OF THE OWNERS IN THE RECEIVABLES, THE RELATED SECURITY AND
THE COLLECTIONS, OR THE REMEDIES HEREUNDER IN RESPECT THEREOF, ARE GOVERNED
BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(B) EACH OF WMECO, THE SELLER AND THE SERVICER HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK, NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OF THE OTHER INSTRUMENTS, DOCUMENTS OR
AGREEMENTS EXECUTED IN CONNECTION HEREWITH, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. EACH OF WMECO, THE SELLER AND THE SERVICER
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING IN THIS SECTION 10.06 SHALL AFFECT THE RIGHT OF THE AGENT OR ANY OF
THE OWNERS TO BRING ANY ACTION OR PROCEEDING AGAINST WMECO, THE SELLER, THE
SERVICER OR ANY OF ITS RESPECTIVE PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
SECTION 10.07. Costs, Expenses and Taxes. (a) In addition to the rights of
indemnification granted to the Agent, the Owners and their Affiliates under
Article IX hereof, the Seller agrees to pay on demand all out-of-pocket costs
and expenses of the Purchasers and the Agent incurred in connection with the
preparation, execution, delivery, administration (including periodic auditing
and amounts paid to any Lock-Box Bank or the bank at which the Collection
Account is maintained in respect of disallowed items, fees and charges or for
any other reason), amendment, modification or syndication of, or any waiver
or consent issued in connection with, this Agreement and the other
Transaction Documents, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Agent and the Purchasers with
respect thereto and with respect to advising the Agent and the Purchasers as
to their respective rights and remedies under this Agreement and the other
documents to be delivered hereunder or in connection herewith, and all costs
and expenses, if any (including reasonable counsel fees and expenses),
incurred by the Agent or the Owners in connection with the enforcement of
this Agreement and the other documents to be delivered hereunder or in
connection herewith.
(b) In addition, the Seller shall pay on demand any and all commissions
(other than Dealer Fees included in the definition of "CP Rate") of placement
agents and dealers in respect of Commercial Paper Notes issued to fund the
purchase or maintenance of any Percentage Interest and any and all stamp,
sales, excise and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording of this
Agreement or the other documents to be delivered hereunder.
(c) In addition, the Seller shall pay on demand all other costs, expenses
and taxes (excluding income taxes) incurred by the Purchaser or any general
or limited partner or shareholder of the Purchaser ("Other Costs"),
including, without limitation, the cost of auditing the Purchaser's books by
certified public accountants, the cost of rating the Purchaser's Commercial
Paper Notes by independent financial rating agencies, the taxes (excluding
income taxes) resulting from the Purchaser's operations, and the reasonable
fees and out-of-pocket expenses of counsel for the Purchaser or any counsel
for any general or limited partner or shareholder of the Purchaser with
respect to (i) advising such Person as to its rights and remedies under this
Agreement and the other documents to be delivered hereunder or in connection
herewith, (ii) the enforcement of this Agreement and the other documents to
be delivered hereunder or in connection herewith or matters relating to the
Purchaser's operations, and (iii) advising such Person as to the issuance of
the Purchaser's Commercial Paper Notes and acting in connection with such
issuance.
SECTION 10.08. No Proceedings. Each of WMECO, the Seller, the Servicer, the
Agent and the Owners hereby agrees that it will not institute against, or
join any other Person in instituting against, the Purchaser or any subsidiary
of the Purchaser any proceedings of the type referred to in clause (i) of
Section 7.01(g) so long as any Commercial Paper Notes or other debt
securities issued by the Purchaser or any of its subsidiaries shall be
outstanding or there shall not have elapsed one year and one day since the
last day on which any such Commercial Paper Notes shall have been
outstanding.
SECTION 10.09. Execution in Counterparts; Severability; Integration. This
Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which when taken together shall
constitute one and the same agreement. In case any provision in or
obligation under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby. This
Agreement contains the final and complete integration of all prior
expressions by the parties hereto with respect to the subject matter hereof
and shall constitute the entire agreement among the parties hereto with
respect to the subject matter hereof, superseding all prior oral or written
understandings other than the fee letters described in Section 2.10(a). Each
of WMECO, the Seller and the Servicer acknowledges and agrees that it is not
intended to have, and shall not assert, any rights, benefits, causes of
action or remedies under or in connection with any instrument, document or
agreement to which it is not a party, or any of the transactions contemplated
thereby or in respect of any acts or omissions by any of the parties thereto,
in each case, whether relating specifically to the transactions contemplated
hereby or otherwise, including, without limitation, any Liquidity Agreements.
SECTION 10.10. WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE AGENT, THE OWNERS, WMECO, THE SELLER AND THE SERVICER
EACH IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED AND/OR DELIVERED IN
CONNECTION HEREWITH OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
SECTION 10.11. Section Headings. Section headings in this Agreement are
included herein for convenience of reference only and shall not affect in any
way the interpretation of any of the provisions hereof.
SECTION 10.12. Confidentiality. (a) Confidentiality of Agreement
Information. Each of WMECO, the Seller and the Servicer agrees to maintain
the confidentiality of this Agreement (and all drafts thereof) and not to
disclose this Agreement or such drafts to third parties (other than to its
directors, officers, employees, accountants or counsel); provided, however,
that the Agreement may be disclosed to third parties to the extent such
disclosure is:
(i) (A) required in connection with a sale of securities of the Seller, (B)
made solely to persons who are legal counsel for the purchaser or underwriter
of such securities, and (C) limited in scope to the provisions of Articles V,
VII, X and, to the extent defined terms are used in Articles V, VII and X,
such terms defined in Article I of this Agreement;
(ii) such disclosure is made pursuant to a written agreement of
confidentiality in form and substance reasonably satisfactory to the Agent;
(iii) with respect to information generally available to the public through
no fault of WMECO, the Seller or Servicer;
(iv) to any federal or state regulatory authority having jurisdiction over
WMECO, the Seller or the Servicer; or
(v) to any other Person to which such delivery or disclosure may be
necessary or appropriate (A) in compliance with any law, rule, regulation or
order applicable to the Seller or the Servicer, or (B) in response to any
subpoena or other legal process.
(b) Confidentiality of Seller Confidential Information. Each of the
Purchaser, the Agent and each Owner (each, a "Subject Party") agrees to
maintain the confidentiality of the Seller Confidential Information and not
to disclose the Seller Confidential Information to third parties (other than
to its directors, officers, employees, accountants or counsel); provided,
however, that the Seller Confidential Information may be disclosed to third
parties to the extent such disclosure is:
(i) to another Subject Party;
(ii) with respect to information generally available to the public through
no fault of such Subject Party;
(iii) to any holder of a Commercial Paper Note (a "Holder") and any
placement agent with respect to Commercial Paper Notes, or in the case of
general information regarding the nature, basic terms and status of the
Purchaser's commercial paper program (including, without limitation, the
amount and nature of the Purchase Limit, the Percentage Interests, the nature
of the Receivables, the nature and amount of the required reserves and the
performance of the Receivables pool), to any prospective Holder;
(iv) to any party providing credit enhancement or liquidity facilities or
any other facilities to any of the Owners, any proposed assignee or
transferee of a Percentage Interest or any part thereof;
(v) to any federal or state regulatory authority having jurisdiction over
the Purchaser, any Owner or the Agent;
(vi) to any internationally recognized rating agency in connection with the
rating by such agency of an Owner; or
(vii) to any other Person to which such delivery or disclosure may be
necessary or appropriate (A) in compliance with any law, rule, regulation or
order applicable to the Purchaser, any Owner or the Agent, (B) in response to
any subpoena or other legal process, or (C) in order to protect or enforce an
Owner's investment in the Percentage Interests.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first
above written.
WMECO RECEIVABLES CORPORATION,
as the Seller
By: s/s Robert C. Aronson
Title: Assistant Treasurer
107 Selden Street
Berlin, CT 06037
Facsimile No.: (860) 665-5457
Confirmation No.: (860) 665-5317
Attention: David McHale
Assistant Treasurer
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By: s/s David R. McHale
Title: Assistant Treasurer
174 Brush Hill Avenue
West Springfield, Massachusetts
Facsimile No.: (413) 787-9363
Confirmation No.: (413) 785-2293
Attention: David McHale
Assistant Treasurer
With a copy to:
107 Selden Street
Berlin, CT 06037
Facsimile No.: (860) 665-5457
Confirmation No.: (860) 665-3249
Attention: David McHale
Assistant Treasurer
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH, as Agent
By: s/s Rick Persaud
Title: Assistant Vice President
By: s/s Marino Zenios
Title: Vice President
Corporate & Institutional Banking
299 Park Avenue
New York, New York 10171
Attention: Asset Securitization Group-
J. Fred Moore
Facsimile No.: (212) 821-3890
Confirmation No.: (212) 821-3294
MONTE ROSA CAPITAL CORPORATION,
as the Purchaser
By: Union Bank of Switzerland, New York
Branch, as its attorney-in-fact
By s/s James F. Moore
Title: Assistant Treasurer
By s/s Desmond Deis
Title: Assistant Treasurer
c/o Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171
Attention: Asset Securitization Group-
J. Fred Moore
Facsimile No.: (212) 821-3890
Confirmation No.: (212) 821-3294
SCHEDULE I
CONDITION PRECEDENT DOCUMENTS
As required by Section 3.01 of the Agreement, each of the following items
must be delivered to the Agent prior to the date of the initial purchase of a
Percentage Interest:
(a) A copy of this Agreement duly executed by the Seller, WMECO, the
Servicer, the Purchaser and the Agent;
(b) a copy of each other Transaction Document executed by the parties
hereto;
(c) Separate certificates of the Secretary or Assistant Secretary of the
Seller and the Clerk or Assistant Clerk of WMECO, certifying (i) the names
and true signatures of the incumbent officers of the Seller or WMECO, as the
case may be, authorized to sign this Agreement and the other documents to be
delivered by it hereunder (on which certificates the Agent and the Owners may
conclusively rely until such time as the Agent shall receive from the Seller
or WMECO, as the case may be, a revised certificate meeting the requirements
of this paragraph (b)), (ii) that the copy of the certificate of
incorporation of the Seller or WMECO, as the case may be, attached thereto is
a complete and correct copy and that such certificate of incorporation has
not been amended, modified or supplemented and is in full force and effect,
(iii) that the copy of the by-laws of the Seller or WMECO, as the case may
be, attached thereto is a complete and correct copy and that such by-laws
have not been amended, modified or supplemented and are in full force and
effect, (iv) the resolutions of the Seller's or WMECO's, as the case may be,
board of directors approving and authorizing the execution, delivery and
performance by the Seller or WMECO, as the case may be, of this Agreement and
the documents related thereto and (v) in the case of such certificate of the
Clerk or Assistant Clerk of WMECO, that the copy of its servicing agreement
with Northeast Utilities Service Company attached thereto is a complete and
correct copy and that such agreement has not been amended, modified or
supplemented and is valid, enforceable and in full force and effect;
(d) Articles/Certificate of Incorporation of each of the Seller and WMECO,
certified by the Secretary of State of the state of its incorporation no more
than 20 days prior to the effective date of this Agreement.
(e) Good standing certificates for each of the Seller and WMECO issued by
the Secretary of State of the state of its incorporation, and dated no more
than 20 days prior to the effective date of this Agreement;
(f) Acknowledgment copies of proper financing statements (the "Facility
Financing Statements"), dated a date reasonably near to the date of the
initial purchase of Percentage Interests, (i) describing the Receivables, the
Related Security and Collections relating thereto and the assets described in
Section 1.7 of the Purchase and Sale Agreement and naming WMECO as the
seller/debtor, the Seller as buyer/secured party and the Purchaser as
assignee, and (ii) describing the assets included in the definition of
Percentage Interest or Section 2.16 and naming the Seller as debtor and the
Purchaser as secured party, or other, similar instruments or documents, as
may be necessary or, in the opinion of the Agent or any Owner, desirable
under the UCC of all appropriate jurisdictions or any comparable law to
perfect the Owners' interests in all Receivables and Related Security;
(g) A pay out letter and related releases (excluding proper financing
statements) with respect to the September, 1996 securitization transaction
between WMECO, the Purchaser and the Agent; and acknowledgment copies of
proper financing statements, if any, necessary to release all other security
interests and other rights of any Person in the Receivables and Related
Security previously granted by the Seller or WMECO;
(h) Certified copies of requests for information or copies (or a similar
search report certified by a party acceptable to the Agent), dated a date
reasonably near to the date of the initial purchase of Percentage Interests,
listing all effective financing statements (including the Facility Financing
Statements) which name the Seller or WMECO (under its present name and any
previous name) as debtor and which are filed in the jurisdictions in which
the Facility Financing Statements were filed, together with copies of such
financing statements (none of which, other than the Facility Financing
Statements, shall cover any Receivables, Related Security, Collections or
other Collateral);
(i) An officer's certificate, dated the date of such initial purchase, in
the form of Exhibit F, executed by an appropriate officer of WMECO;
(j) An opinion of internal counsel to WMECO, in substantially the form of
Exhibit E-1 and as to such other matters as the Agent may reasonably request;
(k) Opinions of outside counsel to WMECO, in substantially the form of
Exhibit E-2 and as to such other matters as the Agent may reasonably request;
(l) An opinion of counsel to the Seller, in substantially the form of
Exhibit E-3 and as to such other matters as the Agent may reasonably request;
(m) A copy of each of the Liquidity Agreements related to this Agreement,
executed by each of the Liquidity Lenders thereunder, the Purchaser and UBS,
as the Liquidity Agent, together with all other instruments, documents and
agreements required to be delivered thereunder;
(n) [Intentionally Deleted]
(o) The Public Disclosure Documents and such other financial reports as may
be requested by the Agent or the Purchaser;
(p) Letters from both Standard & Poor's and Moody's, confirming that the
execution and delivery of this Agreement will not cause the ratings of the
Purchaser's commercial paper notes to be reduced or withdrawn;
(q) A Bank Notice, executed by the Purchaser and the bank at which the
Collection Account is maintained, evidencing the Collection Account opened in
the name of the Purchaser and complying with all of the other requirements of
Section 6.08; and a written agreement of each payment intermediary, executed
for the benefit of the Owners, pursuant to which such payment intermediary
agrees to transfer Collections received in the Payment Centers to the
Collection Account each day;
(r) An Investor Report, dated as of the Cut-Off date immediately preceding
such initial purchase;
(s) A copy of the Credit and Collection Policy, certified by an appropriate
officer of the Company as correct and complete;
(t) A certification from an appropriate officer of WMECO (which may be
combined with the certificate described in clause (i) above) (i) as to the
execution and delivery by each of the parties thereto of the Purchase and
Sale Agreement and all documents, agreements and instruments contemplated
thereby (which evidence shall include copies, either original or facsimile,
of each of such documents, instruments and agreements), (ii) that each of the
conditions precedent to the execution and delivery of the Purchase and Sale
Agreement has been satisfied to the Agent's satisfaction, (iii) that WMECO
shall have contributed not less than $5,000,000 to the capital of Seller,
including a pro forma balance sheet of Seller as of the date of the proposed
initial purchase hereunder, certified to be true and correct by an executive
officer of Seller, and (iv) that the initial purchases under the Purchase and
Sale Agreement have been consummated;
(u) A certificate from an officer of the Seller (in form satisfactory to the
Agent) to the effect that the Trigger Conditions (as defined on the Purchase
and Sale Agreement) do not exist after giving effect to the occurrences
described in clause (t) above; and
(v) A copy, certified as true and complete by an appropriate officer of
WMECO, of the authorizations granted the Securities and Exchange Commission
and the Massachusetts Department of Public Utilities with respect to the
transactions contemplated by the Transaction Documents.
SCHEDULE II
[INTENTIONALLY OMITTED]
SCHEDULE III
TRADENAMES, FICTITIOUS NAMES AND "DOING BUSINESS AS" NAMES
NONE
SCHEDULE IV
LOCATIONS OF SELLER'S AND WMECO'S CHIEF EXECUTIVE OFFICE AND
PRINCIPAL PLACE OF BUSINESS AND
LOCATIONS OF BOOKS AND RECORDS
I. Seller
107 Selden Street
Berlin, Connecticut 06037
II. WMECO
Executive Office Address:
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-0010
Principal Administrative Office Address:
107 Selden Street
Berlin, Connecticut 06037
Processing Office Address:
176 Cumberland Avenue
Wethersfield, Connecticut 06109
EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE
This ASSIGNMENT AND ACCEPTANCE, dated . 19 , is by and between
, a ("Assignor"), and ("Assignee").
Reference is made to the Receivables Purchase Agreement, dated as of May 22,
1997 (the "Receivables Purchase Agreement"), among Western Massachusetts
Electric Company, WMECO Receivables Corporation, Monte Rosa Capital
Corporation and Union Bank of Switzerland, New York Branch (the "Agent").
Capitalized terms used but not defined herein shall have the meanings
assigned to them in the Receivables Purchase Agreement.
The Assignor hereby sells, assigns, transfers and conveys to the Assignee all
of its right, title and interest in, to and under
1 (the "Transferred Percentage Interests") in
accordance with Section 10.04 of the Receivables Purchase Agreement.
From and after the date hereof, the Assignee shall have all of the rights,
and be subject to all of the obligations, of the Assignor with respect to the
Transferred Percentage Interests. The Agent shall be informed by both the
Assignor and the Assignee of such assignment, and shall duly so note on its
records; provided, however, that the failure of the Agent duly to so note
shall not void or otherwise impair this Assignment and Acceptance or limit
the Assignee's obligations under the Receivables Purchase Agreement with
respect to the Transferred Percentage Interests.
Without limiting the foregoing, the Assignee shall be bound by the provisions
of Section 10.12 of the Receivables Purchase Agreement.
THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE RECEIVABLES PURCHASE AGREEMENT AND THE INTERNAL LAWS OF
THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be duly executed and delivered as of the date first above
written.
[ASSIGNOR]
By:
Name:
Title:
[ASSIGNEE]
By:
Name:
Title:
1 [Specify Percentage Interest, or portion thereof, being assigned]
EXHIBIT B
METHODOLOGY RE: UNBILLED RECEIVABLES
Total monthly generation ("MWHR") less a loss factor of around 8% (currently
adjusted annually according to business practices) plus prior months unbilled
MWHRs minus the current months billings in MWHRs equals the current months
unbilled MWHRs. The unbilled MWHRs are allocated by class of customer
(Residential, Commercial, Industrial and Street lights) based on actual MWHRs
billed by class and then an average price per MWHR, which is calculated based
on actual revenues by class divided by actual sales in MWHRs by class, is
applied.
EXHIBIT C-1
FORM OF BANK NOTICE FOR LOCK-BOX BANK
[Letterhead of the WMECO]
, 19
[Name and Address of Bank]
Re: Western Massachusetts Electric Company
Lock-Box No.
Account No.
Gentlemen:
We hereby notify you that we have transferred exclusive ownership and control
of our lock-box number (the "Lock-Box") and the corresponding
account number (the "Account") maintained with you to Union Bank
of Switzerland, New York Branch, 299 Park Avenue, New York, New York 10171
(the "Agent").
We hereby irrevocably instruct you to collect the monies, checks, instruments
and other items of payment mailed to the Lock-Box and deposit into the
Lock-Box Account all such monies, checks, instruments and other items of
payment (unless otherwise instructed by the Agent), and to make all payments
to be made by you out of or in connection with the Account directly to Union
Bank of Switzerland, New York Branch, 299 Park Avenue, New York, New York
10171, account number , for the account of the Agent, unless you
have received contrary instructions from the Agent. If you have received
such contrary instructions, you shall be required to make such payments in
accordance with such instructions.
We also hereby notify you that the Agent shall be irrevocably entitled to
exercise any and all rights in respect of or in connection with the Lock-Box
and the Account, including, without limitation, the right to specify when
payments are to be made out of or in connection with the Lock-Box and the
Account. The monies, checks, instruments and other items of payment mailed
to the Lock-Box and the funds deposited into the Account will not be subject
to deduction, set-off, banker's lien, or any other right in favor of any
person other than the Agent.
Please agree to the terms of, and acknowledge receipt of, this notice by
signing in the space provided below on two copies hereof sent herewith and
send one such signed copy to the Agent, at its address referred to above,
Attention: Asset Securitization Group, and send the other signed copy to the
undersigned at its address at , Attention: .
Very truly yours,
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By s/s
Title:
Agreed and acknowledged:
[NAME OF BANK]
By s/s
Title:
EXHIBIT C-2
FORM OF BANK NOTICE FOR BANK
AT WHICH THE COLLECTION ACCOUNT IS MAINTAINED
[Letterhead of the Purchaser]
, 19
[Name and Address of Bank]
Re: Union Bank of Switzerland, as agent (the "Agent") under the Receivables
Purchase Agreement, dated as of May 22, 1997, among WMECO Receivables
Corporation, Western Massachusetts Electric Company ("WMECO"), Monte Rosa
Capital Corporation (the "Purchaser") and the Agent.
Gentlemen:
By your execution of this letter (where indicated below) you confirm that the
Purchaser has exclusive ownership and control of account number
(the "Account") maintained with you.
We hereby instruct you to transfer all available funds in the Account on each
business day to WMECO's account number at , unless you have
received contrary instructions from the Purchaser or the Agent, on behalf of
the Purchaser. If you have received such contrary instructions, you shall be
required to transfer funds in the Account only in accordance with such
instructions.
You also hereby confirm that the Purchaser or the Agent, on behalf of the
Purchaser, shall be irrevocably entitled to exercise any and all rights in
respect of or in connection with the Account, including, without limitation,
the right to specify when payments are to be made out of or in connection
with the Account. The funds deposited into the Account will not be subject
to deduction, set-off, banker's lien, or any other right in favor of any
person other than the Purchaser.
Please agree to the terms of, and acknowledge receipt of, this notice by
signing in the space provided below on two copies hereof sent herewith and
send one such signed copy to WMECO, at its address at 107 Selden Street,
Berlin, Connecticut 06037, Attention: David McHale, and send the other signed
copy to the undersigned, care of the Agent at the Agent's address at 299 Park
Avenue, New York, New York 10171, Attention: Asset Securitization Group.
Very truly yours,
MONTE ROSA CAPITAL CORPORATION
By: Union Bank of Switzerland, New York Branch, as its attorney-in-fact
By s/s
Title:
By s/s
Title:
Agreed and acknowledged:
[NAME OF BANK]
By s/s
Title:
EXHIBIT D
FORM OF INVESTOR REPORT
Attached.
EXHIBIT E-1
FORMS OF OPINIONS OF INTERNAL COUNSEL FOR WMECO
ATTACHED
EXHIBIT E-2
FORM OF OPINION OF OUTSIDE COUNSEL FOR WMECO
ATTACHED
EXHIBIT E-3
FORM OF OPINION OF OUTSIDE COUNSEL FOR THE SELLER
ATTACHED
OFFICER'S CERTIFICATE
I, , of Western Massachusetts Electric Company, a
Massachusetts corporation ("WMECO") hereby certify pursuant to Section 3.01
and Schedule I(i) of the Receivables Purchase and Sale Agreement, dated as of
May 22, 1997, among WMECO, as initial Servicer, WMECO Receivables Corporation
("WRC"), as Seller, Monte Rosa Capital Corporation, as Purchaser ("MRCC"),
and Union Bank of Switzerland, New York Branch, as Agent (the "Receivables
Purchase Agreement") (capitalized terms used but not defined herein have the
meanings set forth in the Receivables Purchase Agreement), that, on the date
hereof:
(a) the representations and warranties contained in Section 4.01 and Section
4.02 of the Receivables Purchase Agreement are true and correct in all
material respects on the date hereof, except to the extent that such
representations relate solely to an earlier date (in which case, such
representations and warranties were true and correct in all material respects
and as of such date),
(b) the conditions precedent to the initial purchase under the Receivables
Purchase Agreement, as listed in Schedule I (per Section 3.01) of the
Receivables Purchase Agreement, have been performed or complied with on or
before the date hereof,
(c) no event has occurred and is continuing, or would result from the
purchase from WMECO by MRCC of Percentage Interests under the Receivables
Purchase Agreement, that would: (i) cause the Termination Date to occur or
(ii) constitute an Event of Termination or would constitute an Event of
Termination but for the requirement that notice be given or time elapse or
both,
(d) except as disclosed in the Public Disclosure Documents, since December
31, 1996, there has been no material adverse change in the operations or
consolidated financial condition of the Parent or WMECO from that shown in
the financial statements described in Section 4.01 of the Receivables
Purchase Agreement,
(e) the Collection Account, which is maintained in the name of the
Purchaser, complies with the requirements of Section 6.08 of the Receivables
Purchase Agreement,
(f) WMECO holds all of the issued and outstanding shares of WRC and has
contributed at least $5,000,000 (in the form of Receivables) to WRC as
capital. Attached hereto is a pro forma balance sheet of the Seller after
giving effect to the initial funding under the Receivables Purchase
Agreement,
(g) attached hereto is a correct and complete copy of the Credit and
Collection Policy,
(h) the Trigger Conditions do not exist and will not result from WMECO's
sale and contribution of Receivables to WRC on the Initial Closing Date (as
defined in the Purchase and Sale Agreement), and
(i) attached hereto are true and complete copies of the authorizations
granted by the Securities and Exchange Commission and the Massachusetts
Department of Public Utilities with respect to the transactions contemplated
by the Transaction Documents.
IN WITNESS WHEREOF, I have signed this certificate as of this 22nd day of
May, 1997.
Name:
Title:
Exhibit 10.50.1
PURCHASE AND SALE AGREEMENT
Dated as of May 22, 1997
among
WMECO RECEIVABLES CORPORATION,
as purchaser hereunder
and
WESTERN MASSACHUSETTS ELECTRIC COMPANY,
as the Seller and as the initial Servicer
TABLE OF CONTENTS
ARTICLE I
AGREEMENT TO PURCHASE AND SELL
1.1 Agreement To Purchase and Sell
1.2 Timing of Purchases
1.3 Consideration for Purchases
1.4 Contributions
1.5 The "Purchase and Sale Termination Date"
1.6 Servicer
1.7 True Sales; Security Interests
1.8 Application of Collections
1.9 Obligations of WMECO with Respect to the Receivables
1.10 Subordination
ARTICLE II
CALCULATION OF WRC PURCHASE PRICE
2.1 Calculation of WRC Purchase Price
ARTICLE III
PAYMENT OF WRC PURCHASE PRICE
3.1 Purchase Price Payment
3.2 Settlement as to Specific Receivables and Dilution
ARTICLE IV
CONDITIONS OF PURCHASES AND SALES
4.1 Conditions Precedent to Initial Purchase
4.2 Certification as to Representations and Warranties
4.3 Conditions Precedent to Initial Sale
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF WMECO
5.1 WMECO Representations and Warranties
ARTICLE VI
COVENANTS OF WMECO
6.1 General Covenants
ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE RECEIVABLES
7.1 Rights of WRC
7.2 Responsibilities of WMECO
7.3 UCC Matters; Protection and Perfection of Percentage Interests
ARTICLE VIII
PURCHASE AND SALE TERMINATION
8.1 Termination
8.2 Remedies
ARTICLE IX
INDEMNIFICATION
9.1 Indemnities by WMECO
ARTICLE X
MISCELLANEOUS
10.1 Amendments, etc.
10.2 Notices, etc.
10.3 No Waiver; Cumulative Remedies
10.4 Binding Effect; Assignability
10.5 GOVERNING LAW; SUBMISSION TO JURISDICTION
10.6 Costs, Expenses and Taxes
10.7 Waiver of Jury Trial
10.8 Captions and Cross References; Incorporation by Reference
10.9 Execution in Counterparts; Severability; Integration
10.10 Reliance on Corporate Separateness
10.11 Term of this Agreement
10.12 No Proceedings
10.13 Confidentiality
APPENDIX A Definitions
EXHIBIT A - Form of WMECO Sale and Transfer Certificate
EXHIBIT B - Office Locations
EXHIBIT C - Trade Names
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of May 22,
1997, is among WESTERN MASSACHUSETTS ELECTRIC COMPANY, a Massachusetts
corporation ("WMECO"), as Seller and as the initial Servicer, and WMECO
RECEIVABLES CORPORATION, a Connecticut corporation, as purchaser hereunder
("WRC").
Definitions
Unless otherwise indicated, certain terms that are capitalized and used
throughout this Agreement are defined in Appendix A. All references herein
to months are to calendar months unless otherwise expressly indicated.
Recitals
1. WRC is a special purpose corporation, all of the issued and outstanding
shares of which are owned by WMECO.
2. WMECO generates Receivables in the ordinary course of its business.
3. WMECO, in order to finance its business, wishes to sell Receivables to
WRC, and WRC is willing, on the terms and subject to the conditions set forth
herein, to purchase Receivables from WMECO.
4. WMECO and WRC each intends this transaction to be a true sale of
Receivables by WMECO to WRC providing WRC with the full benefits of ownership
of the Receivables, and WMECO and WRC do not intend the transactions
hereunder to be, or for any purpose to be, characterized as a loan from WRC
to WMECO.
5. WRC intends to sell Percentage Interests in the Receivables from time to
time pursuant to the Receivables Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
AGREEMENT TO PURCHASE AND SELL
1.1 Agreement To Purchase and Sell. On the terms and subject to the
conditions set forth in this Agreement (including Article IV), WMECO agrees
to sell to WRC, and WRC agrees to purchase from WMECO, from time to time on
or after the Initial Closing Date, but before the Purchase and Sale
Termination Date, all of WMECO's right, title and interest in and to:
(a) each Receivable that was owing on the closing of WMECO's business
on the day preceding the Initial Closing Date (other than Contributed
Receivables);
(b) each Receivable created by WMECO from and including the closing of
WMECO's business on the day preceding the Initial Closing Date, to and
including the Purchase and Sale Termination Date (other than Contributed
Receivables);
(c) all rights to, but not the obligations under, all Related Security;
(d) all monies due or to become due with respect to the Receivables
described in clauses (a) and (b); and
(e) all proceeds (as defined in the applicable UCC) of Receivables and
Related Security described in clauses (a), (b) and (c) above, including,
without limitation, all Collections and other funds which either are received
by WMECO, WRC or the Servicer from or on behalf of the Obligors in payment of
any amounts owed in respect of the Receivables, or are applied to such
amounts owed by the Obligors (including, without limitation, insurance
payments that WMECO applies in the ordinary course of its business to amounts
owed in respect of any Receivable).
The items described in clauses (c), (d) and (e) above are collectively called
the "Related Assets". All purchases hereunder shall be made without
recourse, but shall be made pursuant to, and in reliance upon, the
representations, warranties and covenants of WMECO set forth in this
Agreement and each other Transaction Document. No obligation or liability to
any Obligor on any Receivable is intended to be assumed by WRC hereunder, and
any such assumption is expressly disclaimed. WRC's foregoing commitment to
purchase Receivables is herein called the "Facility."
1.2 Timing of Purchases.
(a) Initial Closing Date Purchases. WMECO's entire right, title and
interest in (i) each Receivable that existed on the closing of WMECO's
business on the day preceding the Initial Closing Date (other than
Contributed Receivables), and (ii) all Related Assets with respect thereto
automatically shall be deemed to be sold to WRC on the Initial Closing Date.
(b) Regular Purchases. Commencing on the Initial Closing Date, until
the Purchase and Sale Termination Date, each Receivable originated by WMECO
(other than Contributed Receivables) and the Related Assets with respect
thereto shall be sold to WRC immediately (and without further action) upon
the creation of such Receivable.
1.3 Consideration for Purchases. On the terms and subject to the
conditions set forth in this Agreement, WRC agrees to make WRC Purchase Price
payments to WMECO in accordance with Article III.
1.4 Contributions. From time to time, upon written notice to WRC and
the Agent, WMECO may elect to contribute Receivables to WRC. Any such
contribution shall be effective concurrently with the origination of the
Receivables to be contributed and shall include the Related Assets with
respect thereto.
1.5 The "Purchase and Sale Termination Date" shall be the date of the
termination of this Agreement pursuant to Section 8.1.
1.6 Servicer. WMECO shall act as the initial Servicer of the
Receivables as provided herein and in the Receivables Purchase Agreement.
WMECO shall perform its obligations as Servicer under the Receivables
Purchase Agreement, and WRC shall pay to the Servicer the Servicing Fee. WRC
may, upon notice to WMECO, with the prior written consent of the Purchaser
and the Agent, designate any Person to succeed WMECO as the Servicer. Upon
any such designation of any Person to succeed WMECO or any successor Servicer
pursuant hereto, WMECO agrees that it will terminate its activities as the
Servicer hereunder in a manner which WRC and the Agent believe will
facilitate the transition of the performance of such activities to the new
Servicer. Under the terms of the Receivables Purchase Agreement, WRC
undertakes certain liabilities with respect to the Servicer's performance.
Such undertakings shall not impair any claim WRC may have against the
Servicer under the Transaction Documents for the Servicer's breach thereof.
1.7 True Sales; Security Interests. (a) WMECO and WRC intend the
transfers of Receivables hereunder to be true sales by WMECO to WRC that are
absolute and irrevocable and that provide WRC with the full benefits of
ownership of the Receivables, and neither WMECO nor WRC intends the
transactions contemplated hereunder to be, or for any purpose to be
characterized as, loans from WRC to WMECO. It is, further, not the intention
of the parties hereto that the conveyance of the Specified Assets be deemed a
grant of a security interest in the Specified Assets by WMECO to WRC to
secure a debt or other obligation of WMECO. However, in the event that,
notwithstanding the intent of the parties, any Specified Assets are property
of WMECO's estate, then (i) this Agreement also shall be deemed to be and
hereby is a security agreement within the meaning of the UCC, and (ii) the
conveyance by WMECO provided for in this Agreement shall be deemed to be a
grant by WMECO to WRC of, and WMECO hereby grants to WRC, a security interest
in and to all of WMECO's right, title and interest in, to and under the
Specified Assets to secure (1) the rights of WRC and its assigns hereunder
and (2) a loan by WRC to WMECO in the amount of the related WRC Purchase
Price of such assets. WMECO and WRC shall, to the extent consistent with
this Agreement, take such actions as may be necessary to ensure that, if this
Agreement were deemed to create a security interest in the Specified Assets,
such security interest would be deemed to be a perfected security interest of
first priority in favor of WRC under applicable law and will be maintained as
such throughout the term of this Agreement. It is understood and agreed that
this Section 1.7(a) does not secure or guaranty the obligations of an Obligor
to pay any Receivable. The immediately preceding sentence shall not limit
the extent to which any other provision of this Agreement creates a claim
against WMECO in respect of any Receivable (for reasons other than the
Obligor's credit problems), or limit the extent to which the Specified Assets
secure such claim.
(b) To secure the WMECO Obligations, WMECO hereby grants to WRC, for
its own benefit and the benefit of its assigns, a security interest in all
right, title and interest (if any) of WMECO in the Collection Account and all
items therein or attributable thereto (including without limitation all
funds, interest, dividends, moneys, investments, securities and any other
property received, receivable or otherwise distributed in respect of or in
exchange for any or all of the foregoing). WMECO and WRC shall, to the
extent consistent with this Agreement, take such actions as may be necessary
to ensure that such security interest is a perfected security interest of
first priority in favor of WRC under applicable law and will be maintained as
such throughout the term of this Agreement. It is understood and agreed that
this Section 1.7 (b) does not secure or guaranty the obligations of an
Obligor to pay any Receivable. The immediately preceding sentence shall not
limit the extent to which any other provision of this Agreement creates a
claim against WMECO in respect of any Receivable (for reasons other than the
Obligor's credit problems), or limit the extent of the collateral securing
such claim.
1.8 Application of Collections. Any payment by an Obligor in respect
of any indebtedness owed by it to WMECO shall, except as otherwise specified
by such Obligor or otherwise required by contract or law or by instruction of
the Agent, be applied as a Collection of any Receivable of such Obligor (in
the order of the age of such Receivables, starting with the oldest such
Receivable) to the extent of any amounts then due and payable thereunder
before being applied to any other receivable or other indebtedness (other
than a Receivable) of such Obligor.
1.9 Obligations of WMECO with Respect to the Receivables. WMECO will
(a) at its expense, regardless of any exercise by WRC or its assigns of its
rights hereunder, timely and fully perform and comply with all material
provisions, covenants and other promises required to be observed by it under
any contracts or other agreements related to the Receivables to the same
extent as if the Receivables had not been sold hereunder and (b) pay when due
any taxes (other than Excluded Taxes), including without limitation, sales
and excise taxes, payable in connection with the Receivables. In no event
shall WRC or its assigns have any obligation or liability with respect to any
Receivables or related contracts, if applicable, nor shall any of them be
obligated to perform any of the obligations of WMECO thereunder. WMECO will
timely and fully comply in all material respects with the Credit and
Collection Policy in regard to each Receivable and any related contract.
WMECO will not make any change in the character of its business or in the
Credit and Collection Policy, which change would, in either case, impair the
credit quality, enforceability or collectibility of any Receivable.
1.10 Subordination.
(a) The payment and performance of the Subordinated Obligations is
hereby subordinated to the Senior Obligations of WRC and, except as set forth
in this Section 1.10, WMECO will not ask, demand, sue for, take or receive
from WRC, by setoff or in any other manner, the whole or any part of any
Subordinated Obligations, unless and until such Senior Obligations shall have
been fully paid and satisfied (the temporary reduction of outstanding Senior
Obligations not being deemed to constitute full payment or satisfaction
thereof).
(b) Notwithstanding clause (a) above and subject to clause (c) below,
WRC may pay the WRC Purchase Price and other Restricted Payments as provided
in Section 3.1 (all such payments being herein called "Permitted Payments").
(c) Prior to payment in full by WRC of its Senior Obligations, WMECO
shall have no right to sue for or otherwise exercise any remedies with
respect to any Permitted Payment, or otherwise take any action against WRC or
WRC's property with respect to any Permitted Payment.
(d) Should any payment or distribution be received by WMECO upon or
with respect to the Subordinated Obligations (other than Permitted Payments)
prior to the satisfaction of all of the Senior Obligations, WMECO shall
receive and hold the same in trust, as trustee, for the benefit of the
holders of Senior Obligations, and shall forthwith deliver the same to the
Agent (in the form received, except where endorsement or assignment by WMECO
is necessary), for application to the Senior Obligations, whether or not then
due.
(e) In the event of any Bankruptcy Proceeding with respect to WRC, (i)
WMECO shall promptly file a claim or claims, in the form required in such
Bankruptcy Proceeding, for the full outstanding amount of the Subordinated
Obligations, and shall use commercially reasonable efforts to cause such
claim or claims to be approved and all payments or other distributions in
respect thereof to be made directly to the Agent (for the benefit of the
holders of Senior Obligations) until all Senior Obligations shall have been
paid and performed in full and in cash, and (ii) WMECO shall not be
subrogated to the rights of any such holder to receive payments or
distributions from WRC until one year and one day after payment in full and
in cash of all Senior Obligations.
(f) If at any time any payment (in whole or in part) made with respect
to any Senior Obligation is rescinded or must be restored or returned
(whether in connection with any Bankruptcy Proceeding or otherwise), the
subordination provisions contained in this Section 1.10 shall continue to be
effective or shall be reinstated, as the case may be, as though such payment
had not been made.
(g) The subordination provisions contained in this Section 1.10 shall
not be impaired by amendment or modification to the Transaction Documents or
any lack of diligence in the enforcement, collection or protection of, or
realization on, the Senior Obligations or any security therefor.
ARTICLE II
CALCULATION OF WRC PURCHASE PRICE
2.1 Calculation of WRC Purchase Price.
(a) The purchase price (the "WRC Purchase Price") for each Receivable
and its Related Assets shall equal the Outstanding Balance of such Receivable
multiplied by the Discount Percentage.
(b) The initial "Discount Percentage" shall equal 98.88%. The Discount
Percentage shall be redetermined and set forth in the Investor Reports for
each March, June, September and December. Each change in the Discount
Percentage shall be effective for purchases commencing on the first day of
the month following the month in which such Investor Report is delivered.
The Discount Percentage shall equal the result of (i) 100% minus (ii) the sum
of
(x) the discount rate equivalent of a per annum interest rate equal to
the sum of 1.25% plus WRC's weighted average cost of funds (excluding
Contributed Receivables and other equity capital) during the preceding three
Measurement Periods, plus
(y) the percentage equivalent of a ratio computed by dividing (A) the
aggregate Outstanding Balance of Receivables that were written off during the
preceding three Measurement Periods by (B) the sum of the Collections during
such three preceding Measurement Periods.
ARTICLE III
PAYMENT OF WRC PURCHASE PRICE
3.1 Purchase Price Payment.
(a) On the Initial Closing Date, WRC shall pay WMECO the WRC Purchase
Price for the Receivables and Related Assets sold on that date. Otherwise,
on each Adjustment Date WRC and WMECO shall settle as to the WRC Purchase
Price for Receivables and Related Assets sold during the related Measurement
Period. Notwithstanding such monthly settlement arrangement, on each Business
Day the Servicer will, on behalf of WRC, transfer to WMECO (for WMECO's own
account except as provided in Section 3.1(b)) all Collections (other than
Collections required to be used for other purposes under the Receivables
Purchase Agreement) received on each Business Day and such Collections shall
be applied by WMECO to any outstanding WRC Purchase Price. On each Adjustment
Date, the Servicer, WRC and WMECO shall determine the aggregate amount of
such transfers made during the related Measurement Period and the aggregate
WRC Purchase Price for Receivables and Related Assets sold during that
Measurement Period. The amounts transferred shall then be deemed to have
been applied:
first, as a payment of deferred WRC Purchase Price for Receivables sold
during any earlier Measurement Period and their Related Assets; and
second, as a payment of the aggregate WRC Purchase Price for Receivables
sold during the related Measurement Period and their Related Assets.
(b) Any portion of the WRC Purchase Price for Receivables and Related
Assets sold during any Measurement Period which is not paid pursuant to
priority second above shall be treated as deferred WRC Purchase Price and
shall be payable from time to time as provided in subsection (a); provided
that any unpaid deferred WRC Purchase Price shall be due and payable on the
date that falls nine months after the Purchase and Sale Termination Date. If
it is determined on any Adjustment Date that Collections paid by the Servicer
to WMECO pursuant to Section 3.1(a) during the related Measurement Period
exceeded the sum of (i) the WRC Purchase Price payable for such Measurement
Period plus (ii) amounts owed by WRC at the start of such Measurement Period
for WRC Purchase Price accrued during previous Measurement Periods, WMECO
shall remit such excess to WRC in immediately available funds on the next
succeeding Business Day following WRC's request therefor. WRC may also elect
to declare a dividend (in an amount up to such excess) to WMECO, subject to
such restrictions as are set forth in Section 5.01(k) of the Receivables
Purchase Agreement.
(c) The Servicer (based on information provided to it by WRC) shall at
all times maintain information sufficient to determine the net amount owed by
WRC to WMECO, or by WMECO to WRC, in respect of such WRC Purchase Price;
provided, that nothing in this Section 3.1 shall be construed to require the
Servicer or any Affiliate thereof to deliver to WMECO, WRC or the Agent, a
report setting forth any calculation under this Section 3.1, except (i) for
the delivery of an Investor Report in accordance with Section 6.07 of the
Receivables Purchase Agreement and (ii) to the extent requested by WRC or the
Agent (x) at any time after the occurrence and during the continuance of a
Servicer Default or a Transition Event, or (y) on the Termination Date.
3.2 Settlement as to Specific Receivables and Dilution. (a) If on the
day of any purchase or contribution of Receivables from WMECO hereunder, any
of the representations or warranties relating to title set forth in Section
5.1(h) is not true with respect to such Receivable, then subject to
subsection (c) below, the WRC Purchase Price that otherwise would be paid to
WMECO with respect to Receivables subsequently generated by WMECO shall be
decreased by an amount equal to the Outstanding Balance of such Receivable;
provided, that if WRC thereafter receives payment on account of Collections
due with respect to such Receivable, WRC promptly shall deliver such funds to
WMECO.
(b) If, on any day, the Outstanding Balance of any Receivable purchased or
contributed hereunder is reduced or adjusted on account of any defective,
rejected, returned, repossessed or foreclosed merchandise, any defective,
disputed or rejected services, any discount or any other adjustment made or
performed by WMECO or any other Person (including, without limitation, those
described in the definition of "Dilution Factors") or as a result of a setoff
in respect of any claim by the Obligor thereof against WMECO or any of its
Affiliates (whether such claim arises out of the same or a related
transaction or an unrelated transaction) as indicated on the books of WRC
(or, for periods prior to the Initial Closing Date, the books of WMECO),
then, subject to subsection (c) below, the WRC Purchase Price that otherwise
would be paid to WMECO with respect to Receivables subsequently generated by
WMECO shall be decreased by the amount of such net reduction.
(c) If any decrease is required in the WRC Purchase Price of subsequently
generated Receivables pursuant to subsection (a) or (b) above at any time (i)
when an Event of Termination (or an event or condition that would constitute
an Event of Termination but for the requirement that notice be given or time
elapse or both) exists or (ii) on or after the Purchase and Sale Termination
Date, then, in lieu of such reduction, the amount by which the WRC Purchase
Price should have been so reduced shall be deposited by WMECO in same day
funds into the Collection Account for application by the Servicer to the same
extent as if Collections of the applicable Receivable in such amount had
actually been received on such date.
(d) Each Investor Report (other than the Investor Report delivered on the
Initial Closing Date) shall include, in respect of the Receivables previously
generated by WMECO (including the Contributed Receivables), a calculation of
the aggregate reductions described in subsection (a) or (b) of this Section
3.2 relating to such Receivables since the last Investor Report delivered
hereunder.
ARTICLE IV
CONDITIONS OF PURCHASES AND SALES
4.1 Conditions Precedent to Initial Purchase. The initial purchase
hereunder is subject to the condition precedent that WRC shall have received,
on or before the Initial Closing Date, the following, each (unless otherwise
indicated) dated the Initial Closing Date or such earlier date satisfactory
to WRC and the Agent, and each in form and substance satisfactory to WRC:
(a) A copy of this Agreement duly executed by WMECO;
(b) A certificate of the Clerk or Assistant Clerk of WMECO, certifying (i)
the names and true signatures of the incumbent officers of WMECO authorized
to sign this Agreement and the other documents to be delivered by it
hereunder, (ii) that the copy of the certificate of incorporation of WMECO
attached thereto is a complete and correct copy and that such certificate of
incorporation has not been amended, modified or supplemented and is in full
force and effect, (iii) that the copy of the by-laws of WMECO, attached
thereto, is a complete and correct copy and that such by-laws have not been
amended, modified or supplemented and are in full force and effect, (iv) the
resolutions of WMECO's board of directors approving and authorizing the
execution, delivery and performance by WMECO of this Agreement and the
documents related thereto and (v) that the copy of its servicing agreement
with Northeast Utilities Service Company attached thereto is a complete and
correct copy and that such agreement has not been amended, modified or
supplemented and is valid, enforceable and in full force and effect;
(c) Articles/Certificate of Incorporation of WMECO, certified by the
Secretary of State of Massachusetts no more than 20 days prior to the
effective date of this Agreement.
(d) Good standing certificates for WMECO issued by the Secretary of State of
Massachusetts, and dated no more than 20 days prior to the effective date of
this Agreement;
(e) Originals of such financing statements (Form UCC-1) that have been duly
executed and name WMECO as the debtor/seller and WRC as the secured
party/purchaser (and the Purchaser, as assignee of WRC) as may be necessary
or, in WRC's or the Agent's reasonable opinion, desirable under the UCC of
all appropriate jurisdictions or any comparable law of all appropriate
jurisdictions to perfect WRC's ownership and/or security interest in the
Receivables, the Related Assets and the assets described in Section 1.7 ;
(f) Acknowledgment copies (or in the case of releases executed by the Agent
or the Purchaser, executed copies) of proper UCC filings, if any, necessary
to release all security interests and other rights of any Person in the
Receivables and Related Assets previously granted by WMECO;
(g) A written search report from a Person satisfactory to WRC listing all
effective financing statements that name WMECO as debtor or assignor and that
are filed in the jurisdictions in which filings were made pursuant to the
foregoing subsection (e), together with copies of such financing statements
(none of which, except for those described in the foregoing subsection (e),
shall cover any Receivables, Related Assets or assets of the type described
in Section 1.7 except for those in respect of which appropriately executed
termination statements shall have been delivered to the Agent at the
Closing), and tax and judgment lien search reports from a Person satisfactory
to WRC showing no evidence of such liens filed against WMECO;
(h) A favorable opinion of Day, Berry & Howard, counsel to WMECO, in form
and substance satisfactory to the Agent and WRC;
(i) Evidence (i) of the execution and delivery by each of the parties
thereto of each of the Transaction Documents to be executed and delivered in
connection herewith and (ii) that each of the conditions precedent to the
execution, delivery and effectiveness of the Transaction Documents has been
satisfied to WRC's satisfaction;
(j) A certificate from an officer of WMECO to the effect that the Servicer
and WMECO have placed on the most recent, and have taken all steps reasonably
necessary to ensure that there shall be placed on each subsequent, data
processing report that it generates which are of the type that a proposed
purchaser or lender would use to evaluate the Receivables, the following
legend (or the substantive equivalent thereof): "THE RECEIVABLES DESCRIBED
HEREIN HAVE BEEN SOLD TO WMECO RECEIVABLES CORPORATION PURSUANT TO A PURCHASE
AND SALE AGREEMENT, DATED AS OF MAY 22, 1997, AS AMENDED OR SUPPLEMENTED FROM
TIME TO TIME, BETWEEN WESTERN MASSACHUSETTS ELECTRIC COMPANY AND WMECO
RECEIVABLES CORPORATION; AND UNDIVIDED, FRACTIONAL OWNERSHIP INTERESTS IN THE
RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD BY WMECO RECEIVABLES CORPORATION
TO MONTE ROSA CAPITAL CORPORATION PURSUANT TO A RECEIVABLES PURCHASE
AGREEMENT, DATED AS OF MAY 22, 1997, AS AMENDED OR SUPPLEMENTED FROM TIME TO
TIME, AMONG WMECO RECEIVABLES CORPORATION, WESTERN MASSACHUSETTS ELECTRIC
COMPANY, MONTE ROSA CAPITAL CORPORATION AND UNION BANK OF SWITZERLAND, NEW
YORK BRANCH, AS THE AGENT";
(k) The Public Disclosure Documents and such other financial reports as may
be requested by the Agent, WRC or the Purchaser;
(l) A copy of the Credit and Collection Policy, certified by an appropriate
officer of WMECO as correct and complete;
(m) A transition agreement, in form and substance satisfactory to the Agent,
terminating the existing receivables purchase agreement among WMECO, the
Purchaser and the Agent; and
(n) Such other documents as WRC or the Agent shall reasonably request.
4.2 Certification as to Representations and Warranties. WMECO, by accepting
the WRC Purchase Price related to each purchase of Receivables (including any
portion thereof paid to WMECO on a daily basis pursuant to Section 3.1),
shall be deemed to have certified that the representations and warranties
contained in Article V (other than, in the case of any purchase after the
date hereof, the Excluded Representations) are true and correct on and as of
such day, with the same effect as though made on and as of such day.
4.3 Conditions Precedent to Initial Sale. The initial sale hereunder is
subject to the condition precedent that WMECO shall have received, on or
before the Initial Closing Date, (i) a copy of this Agreement duly executed
by WRC, and (ii) such other documents as WMECO shall reasonably request;
provided that WMECO's acceptance of any WRC Purchase Price shall be
conclusive evidence that such conditions have been satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF WMECO
5.1 WMECO Representations and Warranties. In order to induce WRC to enter
into this Agreement and to make purchases hereunder, WMECO hereby makes the
representations and warranties set forth in this Article V:
(a) WMECO is a corporation duly incorporated, validly existing and in good
standing under the laws of Massachusetts and is duly qualified to do
business, and is in good standing, in every other jurisdiction in which the
failure to be so qualified could reasonably be expected to have a Material
Adverse Effect.
(b) The execution, delivery and performance by WMECO of this Agreement and
all other Transaction Documents, including WMECO's use of the proceeds of
sales hereunder and reinvestments, are within WMECO's corporate powers, have
been duly authorized by all necessary corporate action, do not contravene (i)
WMECO's charter or by-laws, (ii) any law, rule or regulation applicable to
WMECO, (iii) any contractual restriction binding on or affecting WMECO or its
property or (iv) any order, writ, judgment, award, injunction or decree
binding on or affecting WMECO or its property, and do not result in or
require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties (other than in
favor of WRC or the Purchaser with respect to the Receivables and the Related
Security and Collections associated therewith); and no transaction
contemplated hereby requires compliance with any bulk sales act or similar
law. This Agreement has been duly executed and delivered by WMECO.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by WMECO of this Agreement or any
other Transaction Document or instrument to be delivered hereunder, except
for such filings as have been made and such approvals as have been obtained
and except for the filing of the UCC financing statements referred to in
Article IV.
(d) This Agreement and each other Transaction Document or instrument
delivered by it hereunder constitutes the legal, valid and binding obligation
of WMECO enforceable against WMECO in accordance with its terms.
(e) The consolidated balance sheets of each of the Parent and WMECO as at
December 31, 1996, and the related statements of income, shareholders' equity
and cash flows for the fiscal year then ended, copies of which have been
furnished to the Agent, fairly present the consolidated financial condition
of the Parent and WMECO and their consolidated subsidiaries as at such date
and the consolidated results of the operations of the Parent, WMECO and their
consolidated subsidiaries for the period ended on such date, all in
accordance with GAAP. Since December 31, 1996, except as disclosed in the
Public Disclosure Documents, there has been no change in any such condition
or operations which has had, or could reasonably be expected to have, a
Material Adverse Effect. Since December 31, 1996, except as disclosed in the
Public Disclosure Documents, there has been no change in any such condition
or operations that has had, or reasonably could be expected to have, a
material adverse effect on the operations or financial condition of the
Parent.
(f) Except as disclosed in the Public Disclosure Documents, (i) there is no
pending or threatened action or proceeding affecting the Parent, WMECO or any
of their subsidiaries before any court, governmental agency or arbitrator
that has had, or reasonably could be expected to have, a Material Adverse
Effect, (ii) none of the Parent, WMECO or any of their subsidiaries is in
default with respect to any order of any court, arbitrator or governmental
body except defaults, if any, which are not material (and cannot reasonably
be expected to become material) to the business or operations of WMECO or any
of its subsidiaries and which have not had (and cannot reasonably be expected
to have) a Material Adverse Effect, and (iii) no other condition exists that
has caused, or could reasonably be expected to cause, a Material Adverse
Effect. Except as disclosed in the Public Disclosure Documents, (i) there is
no pending or threatened action or proceeding affecting the Parent or any of
its subsidiaries before any court, governmental agency or arbitrator that has
had, or could reasonably be expected to have, a Material Parent Effect, and
(ii) neither the Parent nor any of its subsidiaries is in default with
respect to any order of any court, arbitrator or governmental body.
(g) No proceeds of any sale of Receivables hereunder will be used by WMECO
to acquire any security in any transaction which is subject to Section 13 or
14 of the Securities Exchange Act of 1934, as amended.
(h) Each Receivable, together with any contract related thereto, and the
Specified Assets shall, at all times prior to its sale or contribution
hereunder, be owned by WMECO free and clear of any Adverse Claim except as
created by this Agreement, and upon each purchase or contribution hereunder,
WRC shall acquire valid and perfected first priority ownership of each
Receivable then being sold or contributed and in the Related Security (other
than Security Deposits) and Collections with respect thereto, free and clear
of any Adverse Claim except as provided hereunder and in the Receivables
Purchase Agreement. No Adverse Claim arising against or through WMECO shall
at any time attach, or be purported to attach, to Receivables transferred to
WRC or Related Security or Collections with respect thereto. No effective
financing statement or other instrument similar in effect covering any
Receivable, the Related Security, the Collections or the Specified Assets
with respect thereto shall at any time be on file in any recording office
except such as may be filed in favor of WRC or the Purchaser.
(i) No Investor Report, information, exhibit, financial statement, document,
book, record or report furnished or to be furnished by WMECO to the Agent or
WRC in connection with this Agreement or the Receivables Purchase Agreement
is or will be inaccurate in any material respect as of the date it is or
shall be dated or (except as otherwise disclosed to the Agent or WRC, as the
case may be, at such time) as of the date so furnished, and no such document
contains or will contain any material misstatement of fact or omits or shall
omit to state a material fact or any fact necessary to make the statements
contained therein not misleading. Any Receivable described as an Eligible
Receivable in any Investor Report or such other information, exhibit,
financial statement, document, book, record or report satisfies the
requirements of the definition of "Eligible Receivable" in the Receivables
Purchase Agreement. WMECO has management information systems that are
adequate to generate reliable statistical information with respect to the
Receivables, including such information as is required to be delivered
pursuant to the terms of this Agreement.
(j) The principal place of business and chief executive office of WMECO and
the offices where WMECO keeps all of the Records are located at the addresses
specified in Exhibit B (or at such other locations as to which the notice and
other requirements specified in Section 7.3 shall have been satisfied).
WMECO has places of business in more than one town in Massachusetts.
(k) All Obligors have been (or, in the case of Obligors with respect to
Unbilled Receivables, will be) instructed to make all payments in respect of
Receivables to WMECO's post office box in Hartford, Connecticut or to a
Payment Center, and such payments are (i) processed by the Servicer in
Wethersfield, Connecticut and (ii) deposited to the Collection Account within
one Business Day of the Servicer's receipt thereof. WMECO will make
commercially reasonable efforts to prevent funds other than Collections from
being deposited to the Collection Account.
(l) All Obligors (other than Obligors in respect of Unbilled Receivables)
are listed on the General Trial Balance. WMECO's methodology for determining
the Outstanding Balance of Unbilled Receivables is accurately described in
Exhibit B of the Receivables Purchase Agreement and such description does not
omit any fact necessary to make the statements contained therein not
misleading. The Outstanding Balance of Unbilled Receivables shall be
calculated in accordance with the methodology described in Exhibit B of the
Receivables Purchase Agreement.
(m) Except as described in Exhibit C, WMECO has no trade names, fictitious
names, assumed names or "doing business as" names other than those names with
respect to which it has satisfied its obligations under Section 7.3.
(n) On the date of each purchase hereunder (both before and after giving
effect to the purchase on such date), WMECO will have assets which are
greater than the amount of its liabilities, and will be able to pay its debts
as they become due.
(o) The terms of the Receivables have not been extended or modified, except
as permitted under the Credit and Collection Policy.
(p) The Credit and Collection Policy has not been materially changed in any
way which might reasonably lead to a Material Adverse Effect.
(q) No sale or contribution of any Receivables or any Related Security to
WRC by WMECO has been made on account of an antecedent debt owed by WMECO to
WRC or constitutes a fraudulent transfer or fraudulent conveyance or is
otherwise void or voidable under similar laws or principles, the doctrine of
equitable subordination or for any other reason. The transfers of
Receivables and Related Security by WMECO to WRC pursuant to this Agreement,
and all other transactions between WMECO and WRC, have been and will be made
in good faith and without intent to hinder, delay or defraud creditors of
WMECO, and WMECO acknowledges that it has received and will receive
reasonably equivalent value for the purchases by (and contributions to) WRC
of Receivables and Related Security hereunder. The purchase and contribution
of Receivables and Related Security by WRC from WMECO constitutes a true sale
or contribution of such Receivables and Related Security under applicable
state law.
(r) No use of any proceeds of any sale of Specified Assets by WMECO will
conflict with or contravene any of Regulations G, T, U and X promulgated by
the Board of Governors of the Federal Reserve System.
ARTICLE VI
COVENANTS OF WMECO
6.1 General Covenants. WMECO covenants as follows:
(a) Compliance with Laws; Preservation of Corporate Existence. WMECO will
comply in all material respects with all applicable laws, and all
governmental rules, regulations and orders and preserve and maintain its
corporate existence, rights, franchises, qualifications and privileges, in
each case to the extent that the failure to do so could reasonably be
expected to cause a Material Adverse Effect.
(b) Location of Records. WMECO will keep its principal place of business
and chief executive office, and the offices where it keeps its records
concerning or related to Receivables, at the address(es) referred to in
Exhibit B or, upon 30 days' prior written notice to WRC and the Agent, at
such other locations in jurisdictions where all action required by Section
7.3 shall have been taken and completed.
(c) Sales, Liens, Etc. Except as otherwise provided herein, WMECO will not
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
create or (except as provided by the Receivables Purchase Agreement) suffer
to exist any Adverse Claim upon or with respect to, any Receivable, the
related contract (if any), any Collections, any Related Security or the
Specified Assets, or upon or with respect to any other account to which any
Collections of any Receivable are sent, or assign any right to receive income
in respect thereof.
(d) General Reporting Requirements. WMECO will provide (or cause the
Servicer to provide) to the Agent (in sufficient copies for each Owner) and
WRC the following:
(i) as soon as available and in any event within 50 days after the end of
each of the first three quarters of each fiscal year of WMECO, a copy of
WMECO's Quarterly Report on Form 10-Q submitted to the Securities and
Exchange Commission with respect to such quarter, containing financial
statements in reasonable detail and duly certified (subject to year-end audit
adjustments) by the chief financial officer, chief accounting officer,
Treasurer or Assistant Treasurer of WMECO as having been prepared in
accordance with GAAP and on a basis consistent with the financial statements
referred to in Section 5.1(e); and
(ii) as soon as available and in any event within 105 days after the end of
each fiscal year of WMECO, a copy of WMECO's Annual Report on Form 10-K
submitted to the Securities and Exchange Commission with respect to such
year, containing financial statements certified by a nationally-recognized
independent public accountant;
(iii) promptly after the sending or filing thereof, copies of all reports
which WMECO sends to any of its public securityholders and copies of all
reports and registration statements which WMECO files with the Securities and
Exchange Commission or any national securities exchange other than
registration statements relating to employee benefit plans and to
registrations of securities for selling securityholders;
(iv) promptly after the filing or receiving thereof, copies of all reports
and notices with respect to any Reportable Event defined in Article IV of
ERISA which WMECO or any subsidiary of WMECO files under ERISA with the
Internal Revenue Service or the Pension Benefit Guaranty Corporation or the
U.S. Department of Labor or which WMECO or any subsidiary of WMECO receives
from such corporation;
(v) as soon as possible and in any event within two days after the
occurrence of each Event of Termination or each event which, with the giving
of notice or lapse of time or both, would constitute an Event of Termination,
a statement of the chief financial officer, chief accounting officer,
Treasurer or any Assistant Treasurer of WMECO setting forth details of such
Event of Termination or other event, and the action which WMECO has taken and
proposes to take with respect thereto; provided, that in the case of an event
described in Section 7.01(g) of the Receivables Purchase Agreement such
statement shall be provided to the Agent immediately;
(vi) promptly following the Agent's request therefor, such other information
respecting the Receivables or the conditions or operations, financial or
otherwise, of the Parent, WMECO, the Servicer or any of their subsidiaries as
the Agent may from time to time reasonably request in writing in order to
protect the interests of the Agent or WRC in connection with this Agreement;
(vii) to the extent not otherwise provided pursuant to the immediately
foregoing clauses (i)-(vi), promptly after the sending or receipt thereof,
copies of all reports and notices (other than routine borrowing requests and
confirmations under established lines) which WMECO sends to or receives from
any creditor or group of creditors of WMECO or any representative or agent
for any creditor or group of creditors of WMECO, in each case, in respect of
which the Debt owing to such creditor or group of creditors exceeds
$10,000,000 in the aggregate; and
(viii) together with the quarterly and annual financial statements to be
delivered by WMECO pursuant to the immediately preceding clauses (i) and (ii)
respectively, a certificate from WMECO's chief financial officer, chief
accounting officer, Treasurer or any Assistant Treasurer, in the case of the
quarterly financial statements, and independent certified public accountants,
in the case of the annual financial statements, stating, in each case, that
such Person is familiar with the terms of this Agreement and each other
Transaction Document and that in examining such financial statements, such
Person did not become aware of any fact or condition which would constitute
(or which with the giving of notice or passage of time, or both, would
constitute) an Event of Termination, except for those, if any, described in
reasonable detail in such certificate.
(e) Merger, Etc. WMECO will not merge or consolidate with, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions), all or substantially all of its assets (whether now
owned or hereafter acquired), or acquire all or substantially all of the
assets or capital stock or other ownership interest of any Person (any such
transaction, acquisition or other action hereinafter referred to as a
"Reorganization"), except that WMECO may enter into a Reorganization if the
following conditions are satisfied:
(i) the survivor (such term referring to the survivor of a merger or
consolidation as well as the acquirer of assets, capital stock or other
ownership interests) of such Reorganization is organized under the laws of,
and is resident in, the United States or one of the states therein;
(ii) the senior secured debt of such survivor shall be rated at least BBB-
by Standard & Poor's and Baa3 by Moody's;
(iii) if WMECO is not the survivor of the Reorganization, such survivor
shall have assumed all of the obligations of WMECO under or in connection
with the Transaction Documents pursuant to an agreement in form and substance
satisfactory to the Agent;
(iv) if WMECO is not the survivor of the Reorganization, the Agent shall
have received opinions of counsel satisfactory to the Agent with respect to
the matters covered by the opinions delivered pursuant to Section 4.1(g) and
(h), and any modifications or additions to Uniform Commercial Code filings or
other security arrangements requested by the Agent shall have been completed;
and
(v) each of Standard & Poor's and Moody's shall have confirmed that such
merger or consolidation will not cause the ratings of the Purchaser's
commercial paper notes to be reduced or withdrawn.
(f) ERISA Matters. WMECO will not (i) engage or permit any ERISA Affiliate
to engage in any prohibited transaction (as defined in Section 4975 of the
Code and Section 406 of ERISA) for which an exemption is not available or has
not previously been obtained from the United States Department of Labor; (ii)
permit to exist any accumulated funding deficiency (as defined in Section
302(a) of ERISA and Section 412(a) of the Code) or funding deficiency with
respect to any Benefit Plan other than a Multiemployer Plan; (iii) fail to
make any payments to any Multiemployer Plan that WMECO or any ERISA Affiliate
may be required to make under the agreement relating to such Multiemployer
Plan or any law pertaining thereto; (iv) terminate any Benefit Plan so as to
result in any liability; or (v) permit to exist any occurrence of any
reportable event described in Title IV of ERISA which represents a material
risk of a liability of WMECO or any ERISA Affiliate under ERISA or the Code,
if such prohibited transactions, accumulated funding deficiencies, payments,
terminations and reportable events occurring within any fiscal year of WMECO,
in the aggregate, involve a payment of money or an incurrence of liability by
WMECO or any ERISA Affiliate under Title IV of ERISA in an amount in excess
of $5,000,000.
(g) Marking of Records. At its expense, WMECO will mark (or cause the
Servicer to mark) its master data processing records relating to the
Receivables so that reports generated from such records include the following
legend:
"THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO WMECO RECEIVABLES
CORPORATION PURSUANT TO A PURCHASE AND SALE AGREEMENT, DATED AS OF MAY 22,
1997, AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME, BETWEEN WESTERN
MASSACHUSETTS ELECTRIC COMPANY AND WMECO RECEIVABLES CORPORATION; AND
UNDIVIDED, FRACTIONAL OWNERSHIP INTERESTS IN THE RECEIVABLES DESCRIBED HEREIN
HAVE BEEN SOLD BY WMECO RECEIVABLES CORPORATION TO MONTE ROSA CAPITAL
CORPORATION PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF MAY 22,
1997, AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME, AMONG WMECO RECEIVABLES
CORPORATION, WESTERN MASSACHUSETTS ELECTRIC COMPANY, MONTE ROSA CAPITAL
CORPORATION AND UNION BANK OF SWITZERLAND, NEW YORK BRANCH, AS THE AGENT";
(h) Payment Instructions. WMECO will cause the representation in Section
5.1(k) to be true at all times, except that the location of the post office
box and/or processing described in Section 5.1(k), and the identity of the
Collection Account, may be changed with the consent of the Agent, upon 30
days' prior written notice to the Agent, if (i)the requirements of Section
7.3 are satisfied, (ii) the Collection Account continues to be a
single-purpose account for the deposit of Collections, (iii) the Collection
Account continues to be in the name of the Purchaser, and under the exclusive
ownership and control of the Purchaser, and (iv) the bank at which the
Collection Account is maintained shall have received, executed and returned a
Bank Notice. If at any time WMECO receives any Collections, WMECO shall
remit such Collections immediately to the Collection Account.
(i) Separate Corporate Existence of WRC. WMECO shall take such actions as
shall be required in order that:
(i) WRC's operating expenses will be paid by WRC from its own assets
and not by WMECO or any of its Affiliates (other than WRC);
(ii) WMECO's books and records will be maintained separately from those
of WRC;
(iii) WRC will have its own financial statements prepared, and any
financial statement of WMECO which is consolidated to include WRC will
contain detailed notes clearly stating that (A) all of WRC's assets are owned
by WRC, and (B) WRC is a separate corporate entity with creditors who have
purchased and otherwise received ownership and security interests in WRC's
assets;
(iv) WMECO will strictly observe corporate formalities in its dealing
with WRC, and funds or other assets of WRC will not be commingled with those
of WMECO;
(v) WMECO will maintain arm's-length relationships with WRC, and WMECO
will be compensated at market rates for any services it renders or otherwise
furnishes to WRC; and
(vi) WMECO will not be, and will not hold itself out to be, responsible
for the debts of WRC or the decisions or actions in respect of the daily
business and affairs of WRC.
(j) Certain Agreements Regarding Receivables.
(i) Except as otherwise permitted in Section 6.02 of the Receivables
Purchase Agreement, WMECO will not purport to (i) reduce the Outstanding
Balance of any Receivable, (ii) otherwise extend, amend or modify the terms
of any Receivable in any material respect, or (iii) amend, modify or waive,
in any material respect, any term or condition of any contract related
thereto (which term or condition relates to payments under, or the
enforcement of, such contract).
(ii) WMECO will not make any change in the character of its business or
materially alter its Credit and Collection Policy, which change would, in
either case, materially change the credit standing required of Obligors or
potential Obligors or impair, in any material respect, the collectibility of
the Receivables generated by it.
(iii) WMECO will not take any action to cause or permit any Receivable
generated by it to become evidenced by any "instrument" or "chattel paper"
(as defined in the applicable UCC) unless such "instrument" or "chattel
paper" shall be delivered to WRC (which in turn shall deliver the same to the
Purchaser (or the Agent on its behalf)).
(iv) WMECO will not make any changes in its instructions to Obligors
regarding Collections or change the bank at which the Collection Account is
maintained unless the requirements of Section 6.09 of the Receivables
Purchase Agreement have been met.
(k) Accounting of Purchases. In its financial statements, WMECO will
account for the transactions contemplated hereby as sales of the Specified
Assets by WMECO to WRC.
ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE RECEIVABLES
7.1 Rights of WRC. WMECO hereby authorizes WRC, the Servicer or their
respective successors, assigns or designees to take any and all steps in
WMECO's name necessary or desirable, in their respective determination, to
collect all amounts due under any and all Receivables, including, without
limitation, endorsing the name of WMECO on checks and other instruments
representing Collections and enforcing such Receivables and the provisions of
any related contracts that concern payment and/or enforcement of rights to
payment.
7.2 Responsibilities of WMECO. Anything herein to the contrary
notwithstanding:
(a) If requested by WRC or the Agent to do so following the occurrence of a
Transition Event, WMECO shall direct, all Obligors to make payments of
Receivables directly to a Lock-Box Account (or to wire payments of
Receivables directly to a Lock-Box Account) at a Lock-Box Bank, and WMECO
shall deliver to such Lock-Box Bank a Bank Notice. WMECO shall, upon the
request of the Agent at any time after a Transition Event and at WMECO's
expense, notify any or all of the Obligors of the Owners' interests therein.
If WMECO shall fail to give any such direction or notice promptly following
the direction of WRC or the Agent, WRC or the Agent may (but shall not be
required to) itself give such notice, and the expenses of WRC or the Agent
incurred in connection therewith shall be payable by WMECO or the Agent on
demand therefor by WRC or the Agent.
(b) WMECO shall use commercially reasonable efforts to prevent funds other
than Collections in the Collection Account. In the event WMECO is aware that
any other amount is so deposited in the Collection Account, WMECO shall
promptly notify WRC, the Agent and the Servicer. If the Servicer receives
such notice at a time when a WMECO Obligation is in default, the Servicer
shall deliver such amount to the Agent to pay such WMECO Obligation and to
otherwise secure payment of the WMECO Obligations. The Agent shall hold such
amount until all WMECO Obligations (whether fixed or contingent) are paid in
full. If the Servicer receives such notice at a time when no WMECO
Obligation is in default, the Servicer shall promptly remit such amount to
WMECO.
(c) WMECO agrees to transfer directly to the Collection Account, within one
Business Day of receipt thereof, any Collections or any other payment with
respect to the Receivables or Related Security that it receives, in the form
so received, and agrees that all such Collections and payments shall be
deemed to be received in trust for WRC and its assigns (including the
Purchaser and the Agent) and such Collections shall be maintained and
segregated separate and apart from all other funds and moneys of WMECO until
delivery of such Collections and payments to the Collection Account for
allocation in accordance with Article II of the Receivables Purchase
Agreement;
(d) WMECO shall perform its obligations hereunder, and the exercise by WRC
or its designee of its rights hereunder shall not relieve WMECO from such
obligations.
(e) Neither WRC, the Servicer, the Purchaser nor the Agent shall have any
obligation or liability to any Obligor or any other third Person with respect
to any Receivables, contracts related thereto or any other related
agreements, nor shall WRC, the Servicer, the Purchaser or the Agent be
obligated to perform any of the obligations of WMECO thereunder.
(f) WMECO hereby grants to the Servicer an irrevocable power of attorney,
with full power of substitution, coupled with an interest, to take in the
name of WMECO all steps necessary or advisable to endorse, negotiate or
otherwise realize on any document or other right of any kind held or
transmitted by WMECO or transmitted or received by WRC (whether or not from
WMECO) in connection with any Receivable. WMECO shall execute and deliver
such additional documents as WRC or the Agent shall reasonably request to
evidence the power of attorney created by this Section.
7.3 UCC Matters; Protection and Perfection of Percentage Interests. WMECO
will keep its principal place of business and chief executive office, and the
office where it keeps the Records, at the addresses of the Seller specified
in Exhibit B or, upon 30 days' prior written notice to the Agent, at such
other locations within the United States where all actions reasonably
requested by the Agent to protect and perfect the interest of WRC, the Agent
and the Owners in the Receivables, the Related Security (excluding Security
Deposits) relating thereto, the Collections and the Specified Assets, have
been taken and completed. WMECO will not make any change to its corporate
name or use any tradenames, fictitious names, assumed names or "doing
business as" names other than those described in Exhibit C, unless prior to
the effective date of any such name change or use, WMECO delivers to the
Agent such executed financing statements as the Agent may request to reflect
such name change or use, together with such other documents and instruments
as the Agent may reasonably request in connection therewith.
WMECO agrees that from time to time, at its expense, it will promptly execute
and deliver all further instruments and documents, and take all further
action that WRC or the Agent may reasonably request in order to perfect,
protect or more fully evidence the interests of WRC, the Agent or the Owners
in the Specified Assets, or to enable any of them to exercise or enforce any
of their respective rights hereunder or under any other Transaction Document.
Without limiting the generality of the foregoing, WMECO will upon the request
of WRC or the Agent execute and file such financing or continuation
statements, or amendments thereto or assignments thereof, and such other
instruments or notices, as may be necessary or appropriate or as WRC or the
Agent may request. WMECO hereby authorizes WRC or the Purchaser to file one
or more financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any of the Specified Assets now
existing or hereafter arising without the signature of WMECO where permitted
by law. A carbon, photographic or other reproduction of this Agreement or
any financing statement covering the Specified Assets (or, in each case, any
part thereof) shall be sufficient as a financing statement where permitted by
applicable law.
If WMECO fails to perform any of its agreements or obligations under this
Section 7.3, WRC or the Agent may (but shall not be required to) itself
perform, or cause performance of, such agreement or obligation, and the
expenses of WRC or the Agent incurred in connection therewith shall be
payable by WMECO upon demand by WRC or the Agent therefor. For purposes of
enabling WRC and the Agent to exercise their rights described in the
preceding sentence and elsewhere in this Agreement, WMECO hereby authorizes
WRC and the Agent to take any and all steps in WMECO's name and on behalf of
WMECO necessary or desirable, in the determination of WRC or the Agent, to
collect all amounts due under any and all Receivables, including, without
limitation, endorsing WMECO's name on checks and other instruments
representing Collections and enforcing rights with respect to Receivables and
any related contracts. In addition, to the extent that any Receivables are
likely to be outstanding five years or more after the date of this Agreement,
WMECO shall provide, within six months (but not later than the 30th day)
prior to the expiration of such five year period (and, if applicable, each
subsequent five year period), or more frequently as WRC or the Agent
reasonably deems advisable, an opinion of counsel to WMECO as to the
continuing validity and perfection of interests of WRC, the Agent and the
Owners in the Specified Assets.
ARTICLE VIII
PURCHASE AND SALE TERMINATION
8.1 Termination.
(a) Optional Termination. Upon at least 10 days' prior written notice to
the other party hereto and the Agent, WMECO or WRC may declare the Purchase
and Sale Termination Date to have occurred; provided that WMECO shall have
paid to the Agent (for WRC's account) all obligations incurred by WRC under
Section 2.11 of the Receivables Purchase Agreement in connection with, or as
a direct or indirect consequence of, such declaration.
(b) Upon the occurrence of the Termination Date under the Receivables
Purchase Agreement, the Purchase and Sale Termination Date shall be deemed to
have occurred, without further action by any Person; provided that (unless an
Event of Termination under Section 7.01(g) of the Receivables Purchase
Agreement shall have occurred) the parties hereto may elect, by written
notice to the Agent, to continue to sell Receivables hereunder following the
occurrence of an Event of Termination.
(c) If the Trigger Conditions exist for a period of more than five
consecutive Business Days, the Purchase and Sale Termination Date shall be
deemed to have occurred, without further action by any Person. The "Trigger
Conditions" shall exist on any day if, after giving effect to any increase in
(or payments on) the outstanding amount of the deferred WRC Purchase Price on
such day, the sum of (x) the remaining unpaid balance of the deferred WRC
Purchase Price plus (y) the aggregate Purchase Price of all Percentage
Interests would exceed 91% of the aggregate Outstanding Balance of all
Receivables.
8.2 Remedies. Upon any termination of the Facility pursuant to Section 8.1,
WRC shall have, in addition to all other rights and remedies under this
Agreement or otherwise, all other rights and remedies provided under the UCC
of each applicable jurisdiction and other applicable laws, which rights shall
be cumulative. Without limiting the foregoing, the occurrence of the
Purchase and Sale Termination Date shall not deny WRC any remedy in addition
to termination of the Facility to which WRC may be otherwise appropriately
entitled, whether at law or equity.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnities by WMECO. Without limiting any other rights which WRC may
have hereunder or under applicable law, WMECO hereby agrees to indemnify WRC
and each of its officers, directors, employees and agents and their
respective successors, transferees and assigns (each of the foregoing Persons
being individually called a "Purchase and Sale Indemnified Party"), forthwith
on demand, from and against any and all damages, losses, claims, judgments,
liabilities and related costs and expenses, including reasonable attorneys'
fees and disbursements (all of the foregoing being collectively called
"Purchase and Sale Indemnified Amounts") awarded against or incurred by any
of them arising out of or as a result of this Agreement, any other
Transaction Document, the ownership or funding of any Receivable or other
asset described in Section 1.1, or arising out of the claims asserted against
a Purchase and Sale Indemnified Party relating to the transactions
contemplated herein or therein or the use of proceeds herefrom or therefrom,
excluding, however, (i) Purchase and Sale Indemnified Amounts to the extent
resulting from gross negligence or willful misconduct on the part of any
Purchase and Sale Indemnified Party, (ii) recourse (except as otherwise
specifically provided in this Agreement) for uncollectible Receivables, or
(iii) Excluded Taxes. Without limiting the foregoing, WMECO indemnifies each
Purchase and Sale Indemnified Party for Purchase and Sale Indemnified Amounts
relating to or resulting from:
(a) the transfer by WMECO of an interest in any Receivable to any Person
other than WRC;
(b) reliance on any representation or warranty made by WMECO (or any of its
officers) under or in connection with this Agreement or any other Transaction
Document, or any information or report delivered by WMECO pursuant hereto or
thereto which shall have been false or incorrect in any material respect when
made or deemed made or delivered;
(c) the failure by WMECO to comply with any term, provision or covenant
contained in this Agreement or any other Transaction Documents, or with any
applicable law, rule or regulation with respect to any Receivable or a
related contract, if any, or the Related Security, or the nonconformity of
any Receivable or related contract, if any, or the Related Security, with any
such applicable law, rule or regulation;
(d) the failure to vest and maintain vested in WRC or to transfer to WRC
legal and equitable title to and ownership of the Receivables and the
Collections and Related Security with respect thereto, free and clear of any
Adverse Claim (other than the interests of the Agent and the Owners created
by the Receivables Purchase Agreement), whether existing at the time of the
purchase of such Receivables or at any time thereafter;
(e) the failure to file, or any delay in filing, financing statements or
other similar instruments or documents under the UCC of any applicable
jurisdiction or other applicable laws with respect to any Receivables and
Related Security, whether at the time of any purchase or at any subsequent
time;
(f) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of an Obligor to the payment of any Receivable
(including, without limitation, a defense based on such Receivable or a
related contract, if any, not being a legal, valid and binding obligation of
such Obligor enforceable against it in accordance with its terms), or any
other claim resulting from the services related to any such Receivable or the
furnishing of or failure to furnish such services;
(g) any failure of WMECO, individually or as the Servicer, to perform its
duties or obligations in accordance with the provisions of any contracts
related to the Receivables;
(h) any and all amounts paid or payable by WRC pursuant to Sections 2.09(c),
2.10(a), 2.11, 2.13, 2.14, 2.15 and 10.07 of the Receivables Purchase
Agreement;
(i) any product liability claim or personal injury or property damage suit
or similar or related claim or action arising out of or in connection with
services or merchandise that are the subject of any Receivable or any other
lawsuit or claim relating to any Receivable, related contract or Related
Security;
(j) the failure to pay when due any taxes (other than Excluded Taxes),
including without limitation, any sales, excise or personal property taxes
payable in connection with any of the Receivables;
(k) any repayment by WRC, the Agent or any Owner of any amount previously
distributed which WRC, the Agent or such Owner believes in good faith is
required to be made;
(l) the commingling of Collections of Receivables at any time with other
funds (including without limitation any commingling in the Collection Account
that occurs notwithstanding WMECO's commercially reasonable efforts to
prevent it);
(m) any investigation, litigation or proceeding related to this Agreement or
the use of proceeds of purchases or the ownership of any Receivable, Related
Security or related contract, if any;
(n) the failure of a Lock-Box Bank or the bank at which the Collection
Account is maintained (if other than Union Bank of Switzerland) to remit any
amounts held in the Lock-Box Account or Collection Account, as the case may
be, pursuant to the instructions of the Servicer, WRC or the Agent, whether
by reason of the exercise of set-off rights or otherwise;
(o) any inability to obtain any judgment in, or utilize the court or other
adjudication system of, any state in which an Obligor may be located as a
result of the failure of WMECO to qualify to do business or file any notice
of business activity report or any similar report;
(p) any attempt by any Person to void any transfer of any Receivable or
Related Security from WMECO to WRC hereunder under statutory provisions or
common law or equitable action, including, without limitation, any provision
of the Bankruptcy Reform Act of 1978 (18 U.S.C. Section 101 et seq.), as
amended;
(q) any claim involving environmental liability that relates to any property
that has been, is now or hereafter will be owned, leased, operated or
otherwise used by WMECO; and
(r) any violation of any provision of ERISA, the engaging by WMECO or any
ERISA Affiliate in any prohibited transaction for which WMECO or such
affiliate may be liable for excise taxes under the Code or otherwise liable
under ERISA and for which an exemption is not available or has not been
previously obtained from the United States Department of Labor, the existence
of any accumulated funding deficiency, as defined in Section 302(a) of ERISA
and Section 412(a) of the Code, with respect to any Benefit Plan other than a
Multiemployer Plan; the failure by WMECO or any ERISA Affiliate to make a
payment to any Multiemployer Plan that WMECO or any ERISA Affiliate is
required to make or any other contribution failure with respect to any
Benefit Plan sufficient to give rise to a lien under Section 302(f) of ERISA,
the termination by WMECO or any ERISA Affiliate of any Benefit Plan or the
withdrawal by WMECO or any ERISA Affiliate from any Multiemployer Plan; any
attempt by the Pension Benefit Guaranty Corporation to terminate any Benefit
Plan.
If for any reason the indemnification provided above in this Section 9.1 is
unavailable to a Purchase and Sale Indemnified Party or is insufficient to
hold such Purchase and Sale Indemnified Party harmless, then WMECO shall
contribute to the amount paid or payable by such Purchase and Sale
Indemnified Party to the maximum extent permitted under applicable law.
ARTICLE X
MISCELLANEOUS
10.1 Amendments, etc. (a) Subject to Section 5.01(i) of the Receivables
Purchase Agreement, the provisions of this Agreement may from time to time be
amended, modified or waived, if such amendment, modification or waiver is in
writing and consented to by WRC, the Servicer and WMECO (with respect to an
amendment) or by WRC (with respect to a waiver or consent by it).
(b) No failure or delay on the part of WRC, the Servicer, WMECO or any third
party beneficiary in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such power
or right preclude any other or further exercise thereof or the exercise of
any other power or right. No notice to or demand on WRC, the Servicer or
WMECO in any case shall entitle it to any notice or demand in similar or
other circumstances. No waiver or approval by WRC or the Servicer under this
Agreement shall, except as may otherwise be stated in such waiver or
approval, be applicable to subsequent transactions. No waiver or approval
under this Agreement shall require any similar or dissimilar waiver or
approval thereafter to be granted hereunder.
(c) The Transaction Documents contain a final and complete integration of
all prior expressions by the parties hereto with respect to the subject
matter thereof and shall constitute the entire agreement among the parties
hereto with respect to the subject matter thereof, superseding all prior oral
or written understandings.
10.2 Notices, etc. All notices and other communications provided for
hereunder shall, unless otherwise stated herein, be in writing (including
communication by facsimile copy) and mailed, transmitted or delivered, as to
each party hereto, at its address set forth under its name on the signature
pages hereof or at such other address as shall be designated by such party in
a written notice to the other parties hereto. All such notices and
communications shall be effective, upon receipt, or in the case of (a) notice
by mail, three days after being deposited in the United States mails, first
class postage prepaid, (b) notice by overnight courier, one Business Day
after being deposited with a national overnight courier service, or (c)
notice by facsimile copy, when confirmation of receipt is obtained.
10.3 No Waiver; Cumulative Remedies. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law. Without
limiting the foregoing, WMECO hereby authorizes WRC, at any time and from
time to time, to the fullest extent permitted by law, to setoff, against any
obligations of WMECO to WRC arising in connection with the Transaction
Documents (including without limitation amounts payable pursuant to Section
9.1) that are then due and payable or that are not then due and payable but
are accruing in respect of any then current Measurement Period, any and all
indebtedness at any time owing by WRC to or for the credit or the account of
WMECO.
10.4 Binding Effect; Assignability. (a) This Agreement shall be binding
upon and inure to the benefit of WRC and WMECO and their respective
successors and permitted assigns. WMECO may not assign any of its rights
hereunder or any interest herein without the prior written consent of WRC and
the Agent, except as otherwise herein specifically provided. This Agreement
shall create and constitute the continuing obligations of the parties hereto
in accordance with its terms, and shall remain in full force and effect until
such time as the parties hereto shall agree. The rights and remedies with
respect to any breach of any representation and warranty made by WMECO
pursuant to Article V and the indemnification and payment provisions of
Article IX and Section 10.6 shall be continuing and shall survive any
termination of this Agreement.
(b) Without limiting the foregoing, WMECO hereby acknowledges and agrees
that WRC has transferred an undivided ownership interest, and has granted a
security interest, to the Agent and the Purchaser in all its right, title and
interest under this Agreement and the assets transferred pursuant hereto. In
furtherance of the foregoing, WMECO hereby agrees that:
(i) the Agent, the Purchaser and their respective successors and assigns
shall be entitled to the benefit of all representations and warranties,
covenants and agreements of WMECO contained in this Agreement, and
(ii) the Agent, the Purchaser and their respective successors and assigns
may exercise directly any of the rights and remedies provided under this
Agreement, or under applicable law or otherwise in respect of any obligation
of WMECO to WRC hereunder, to the same extent as WRC might have done.
10.5 GOVERNING LAW; SUBMISSION TO JURISDICTION. (A) THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS
OF WRC IN THE RECEIVABLES, THE RELATED SECURITY AND THE COLLECTIONS, OR THE
REMEDIES HEREUNDER IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(B) EACH OF THE PARTIES HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK FOR
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING IN THIS SECTION 10.5 SHALL AFFECT THE RIGHT OF WRC OR ITS SUCCESSORS
AND ASSIGNS TO BRING ANY ACTION OR PROCEEDING AGAINST WMECO OR ANY OF ITS
RESPECTIVE PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
10.6 Costs, Expenses and Taxes. In addition to the rights of
indemnification granted to WRC under Article IX hereof, WMECO agrees to pay
on demand all out-of-pocket costs and expenses of WRC and the Agent incurred
in connection with the preparation, execution, delivery, administration
(including periodic auditing and amounts paid to any Lock-Box Bank or the
bank at which the Collection Account is maintained in respect of disallowed
items, fees or charges or for any other reason), amendment, modification or
syndication of, or any waiver or consent issued in connection with, this
Agreement and the other Transaction Documents, including, without limitation,
the reasonable fees and out-of-pocket expenses of counsel for WRC or the
Agent with respect thereto and with respect to advising WRC or the Agent as
to its respective rights and remedies under this Agreement and the other
documents to be delivered hereunder or in connection herewith, and all costs
and expenses, if any (including reasonable counsel fees and expenses),
incurred by WRC or the Agent in connection with the enforcement of this
Agreement and the other documents to be delivered hereunder or in connection
herewith.
10.7 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH
PARTY HERETO IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR ANY MATTER ARISING HEREUNDER OR
THEREUNDER.
10.8 Captions and Cross References; Incorporation by Reference. The various
captions (including, without limitation, the table of contents) in this
Agreement are included for convenience only and shall not affect the meaning
or interpretation of any provision of this Agreement. Unless otherwise
specified herein, references in this Agreement to any Section or Exhibit are
to such Section or Exhibit of this Agreement, as the case may be. Appendix A
and the Exhibits hereto are hereby incorporated by reference into and made a
part of this Agreement.
10.9 Execution in Counterparts; Severability; Integration. This Agreement
may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed shall be deemed to
be an original and all of which when taken together shall constitute one and
the same agreement. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction,
shall not in any way be affected or impaired thereby. This Agreement
contains the final and complete integration of all prior expressions by the
parties hereto with respect to the subject matter hereof and shall constitute
the entire agreement among the parties hereto with respect to the subject
matter hereof, superseding all prior oral or written understandings. Each of
the parties hereto acknowledges and agrees that it is not intended to have,
and shall not assert, any rights, benefits, causes of action or remedies
under or in connection with any instrument, document or agreement to which it
is not a party, or any of the transactions contemplated thereby or in respect
of any acts or omissions by any of the parties thereto, in each case, whether
relating specifically to the transactions contemplated hereby or otherwise.
10.10 Reliance on Corporate Separateness. WMECO acknowledges that the
Purchaser and the Agent are entering into the Receivables Purchase Agreement
in reliance upon WRC's identity as a legal entity separate from WMECO.
10.11 Term of this Agreement. This Agreement, including, without
limitation, WMECO's obligation to observe its respective covenants set forth
in Article VII, shall remain in full force and effect until the Collection
Date; provided, however, that the rights and remedies with respect to any
breach of any representation and warranty made or deemed made by WMECO
pursuant to Article V and the indemnification and payment provisions of
Articles IX and Article X shall be continuing and shall survive any
termination of this Agreement.
10.12 No Proceedings. WMECO hereby agrees that it will not institute
against, or join any other Person in instituting against, WRC or any
subsidiary of WRC any proceedings of the type referred to in clause (i) of
Section 7.01(g) of the Receivables Purchase Agreement so long as any
Commercial Paper Notes or other debt securities issued by the Purchaser or
any of its subsidiaries shall be outstanding or there shall not have elapsed
one year and one day since the last day on which any such Commercial Paper
Notes shall have been outstanding.
10.13 Confidentiality. (a) Confidentiality of Agreement Information. Each
of WMECO and WRC agrees to maintain the confidentiality of this Agreement and
all other Transaction Documents (and all drafts thereof) and not to disclose
this Agreement and all other Transaction Documents or such drafts to third
parties (other than to its directors, officers, employees, accountants or
counsel); provided, however, that the Agreement and all other Transaction
Documents may be disclosed to third parties to the extent such disclosure is:
(i) (A) required in connection with a sale of securities of WMECO, (B) made
solely to persons who are legal counsel for the purchaser or underwriter of
such securities, and (C) limited in scope to the provisions of Articles V,
VII, X of the Receivables Purchase Agreement or Articles VI, VIII, X and, to
the extent defined terms are used in such Articles, such terms defined in
Article I of the Receivables Purchase Agreement or Appendix A of this
Agreement;
(ii) made pursuant to a written agreement of confidentiality in form and
substance reasonably satisfactory to the Agent;
(iii) with respect to information generally available to the public through
no fault of WMECO or WRC;
(iv) to any federal or state regulatory authority having jurisdiction over
WMECO or WRC; or
(v) to any other Person to which such delivery or disclosure may be
necessary or appropriate (A) in compliance with any law, rule, regulation or
order applicable to WMECO or WRC, or (B) in response to any subpoena or other
legal process.
(b) Confidentiality of WMECO Confidential Information. WRC agrees to
maintain the confidentiality of the Seller Confidential Information and not
to disclose the Seller Confidential Information to third parties (other than
to its directors, officers, employees, accountants or counsel); provided,
however, that the Seller Confidential Information may be disclosed to third
parties to the extent such disclosure is:
(i) to the Purchaser, the Agent and each Owner;
(ii) with respect to information generally available to the public through
no fault of WRC;
(iii) to any holder of a Commercial Paper Note (a "Holder") and any
placement agent with respect to Commercial Paper Notes, or in the case of
general information regarding the nature, basic terms and status of the
Purchaser's commercial paper program to any prospective Holder;
(iv) to any party providing credit enhancement or liquidity facilities or
any other facilities to any of the Owners, any proposed assignee or
transferee of a Percentage Interest or any part thereof;
(v) to any federal or state regulatory authority having jurisdiction over
WRC, the Purchaser, any Owner or the Agent;
(vi) to any internationally recognized rating agency in connection with the
rating by such agency of an Owner; or
(vii) to any other Person to which such delivery or disclosure may be
necessary or appropriate (A) in compliance with any law, rule, regulation or
order applicable to WRC, the Agent or any Owner, (B) in response to any
subpoena or other legal process, or (C) in order to protect or enforce an
Owner's investment in the Percentage Interests.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first
above written.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By: s/s David D. McHale
Name: David D. McHale
Title: Assistant Treasurer
Address: 174 Brush Hill Avenue
West Springfield,
Massachusetts
Attention: David McHale
Assistant Treasurer
Facsimile: (413) 787-9363
Confirmation: (413) 785-2293
with a copy to:
107 Selden Street
Berlin, CT 06037
Attention: David McHale,
Assistant Treasurer
Facsimile: (860) 665-5457
Confirmation: (860) 665-3249
WMECO RECEIVABLES CORPORATION
By: s/s Robert C. Aronson
Name: Robert C. Aronson
Title: Assistant Treasurer
Address: 107 Selden Street
Berlin, CT 06037
Attention: Treasurer
Facsimile: (860) 665-5457
Confirmation: (860) 665-5317
APPENDIX A
DEFINITIONS
This is Appendix A to the Purchase and Sale Agreement dated as of May
22, 1997, between WESTERN MASSACHUSETTS ELECTRIC COMPANY, individually and as
the initial Servicer, and WMECO RECEIVABLES CORPORATION, as the Purchaser (as
amended, supplemented or otherwise modified from time to time, the "Purchase
and Sale Agreement").
1.1. Definitions. As used in the Purchase and Sale Agreement, the
following terms have the meanings as indicated:
"Adverse Claim" has the meaning set forth in the Receivables Purchase
Agreement.
"Adjustment Date" means, with respect to any Measurement Period, a day
selected by the Servicer (which day will not be more than ten Business Days
after the end of such period).
"Affiliate" has the meaning set forth in the Receivables Purchase
Agreement.
"Agent" has the meaning set forth in the preamble to the Receivables
Purchase Agreement.
"Bank Notice" has the meaning set forth in the Receivables Purchase
Agreement.
"Bankruptcy Proceeding" means a proceeding of the type described in
Section 7.01(g) of the Receivables Purchase Agreement.
"Benefit Plan" has the meaning set forth in the Receivables Purchase
Agreement.
"Business Day" means a day of the year (other than a Saturday or a
Sunday) on which banks are required to be open in New York.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Account" has the meaning set forth in the Receivables
Purchase Agreement.
"Collection Date" has the meaning set forth in the Receivables Purchase
Agreement.
"Collections" has the meaning set forth in the Receivables Purchase
Agreement.
"Commercial Paper Notes" has the meaning set forth in the Receivables
Purchase Agreement.
"Contributed Receivables" means all Receivables transferred by WMECO to
WRC in accordance with Section 1.4 of the Purchase and Sale Agreement.
"Credit and Collection Policy" has the meaning set forth in the
Receivables Purchase Agreement.
"Debt" has the meaning set forth in the Receivables Purchase Agreement.
"Dilution Factors" has the meaning set forth in the Receivables Purchase
Agreement.
"Discount Percentage" is defined in Section 2.1 of the Purchase and Sale
Agreement.
"ERISA" has the meaning set forth in the Receivables Purchase Agreement.
"ERISA Affiliate" has the meaning set forth in the Receivables Purchase
Agreement.
"Event of Termination" has the meaning set forth in the Receivables
Purchase Agreement.
"Excluded Taxes" has the meaning set forth in the Receivables Purchase
Agreement.
"Facility" has the meaning set forth in Section 1.1 of the Purchase and
Sale Agreement.
"GAAP" has the meaning set forth in the Receivables Purchase Agreement.
"General Trial Balance" has the meaning set forth in the Receivables
Purchase Agreement.
"Initial Closing Date" means a Business Day (prior to the Reinvestment
Termination Date) selected by WMECO on two Business Days' prior written
notice to WRC and the Agent.
"Investor Report" has the meaning set forth in the Receivables Purchase
Agreement.
"Lock-Box Account" has the meaning set forth in the Receivables Purchase
Agreement.
"Lock-Box Bank" has the meaning set forth in the Receivables Purchase
Agreement.
"Material Adverse Effect" has the meaning set forth in the Receivables
Purchase Agreement.
"Material Parent Effect" means a material adverse effect on the
operations or financial condition of (i) Parent or (ii) Parent and its
subsidiaries.
"Measurement Date" means (i) the Initial Closing Date and (ii) the first
day of each calendar month following thereafter.
"Measurement Period" means the period from and including a Measurement
Date to but excluding the next Measurement Date.
"Multiemployer Plan" has the meaning specified in the Receivables
Purchase Agreement.
"Net Receivables Pool Balance" has the meaning specified in the
Receivables Purchase Agreement.
"Obligations" means all obligations of WRC, the Servicer (so long as the
Servicer is WMECO or an Affiliate of WMECO) and WMECO arising in connection
with the Transaction Documents, in each case howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or
hereafter existing, or due or to become due.
"Obligor" has the meaning specified in the Receivables Purchase
Agreement.
"Outstanding Balance" has the meaning set forth in the Receivables
Purchase Agreement.
"Owners" has the meaning set forth in the Receivables Purchase
Agreement.
"Parent" has the meaning set forth in the Receivables Purchase
Agreement.
"Payment Center" has the meaning set forth in the Receivables Purchase
Agreement.
"Percentage Interest" has the meaning set forth in the Receivables
Purchase Agreement.
"Permitted Payments" has the meaning set forth in Section 1.10 of the
Purchase and Sale Agreement.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, bank,
financial institution, trust, unincorporated association, joint venture,
government (or any agency or political subdivision thereof) or other entity.
"Public Disclosure Documents" has the meaning set forth in the
Receivables Purchase Agreement.
"Purchase and Sale Indemnified Amounts" has the meaning set forth in
Section 9.1 of the Purchase and Sale Agreement.
"Purchase and Sale Indemnified Party" has the meaning set forth in
Section 9.1 of the Purchase and Sale Agreement.
"Purchase and Sale Termination Date" has the meaning set forth in
Section 8.1 of the Purchase and Sale Agreement.
"Purchase and Sale Termination Event" has the meaning set forth in
Section 8.1 of the Purchase and Sale Agreement.
"Purchase Price" has the meaning set forth in the Receivables Purchase
Agreement.
"Purchaser" has the meaning set forth in the Receivables Purchase
Agreement.
"Receivable" means the billed and unbilled indebtedness of any Obligor
owed (prior to giving effect to the transfer contemplated hereby) to WMECO,
whether constituting an account, chattel paper, instrument or general
intangible, as booked to Accounts 142.01 and 173 under the Federal Energy
Regulatory Commission Chart of Accounts as utilized by WMECO, but excluding
the right to payment of any interest or finance charges or taxes with respect
thereto.
"Receivables Purchase Agreement" means the Receivables Purchase
Agreement dated as of May 22, 1997 among WRC, WMECO as the initial Servicer
thereunder, the Purchaser and UBS, as the Agent, as amended, supplemented or
otherwise modified from time to time.
"Records" means all documents, books, records and other information
(including without limitation, computer programs, tapes, disks, punch cards,
data processing software and related property and rights) maintained by WMECO
with respect to the Receivables and the related Obligors.
"Reinvestment Termination Date" has the meaning set forth in the
Receivables Purchase Agreement.
"Related Assets" is defined in Section 1.1.
"Related Security" means, with respect to any Receivable:
(a) all security interests or liens (and property subject thereto) from
time to time purporting to secure payment of such Receivable, whether
pursuant to a contract related to such Receivable or otherwise;
(b) all guarantees, letters of credit, indemnities, warranties,
insurance policies and proceeds and premium refunds thereof and other
agreements or arrangements of whatever character from time to time supporting
or securing payment of such Receivable whether pursuant to a contract related
to such Receivable or otherwise;
(c) all Records; and
(d) all proceeds of the foregoing.
"Restricted Payments" has the meaning set forth in the Receivables
Purchase Agreement.
"Security Deposit" has the meaning set forth in the Receivables Purchase
Agreement.
"Seller Confidential Information" has the meaning set forth in the
Receivables Purchase Agreement.
"Senior Obligations" means all Obligations which may now or hereafter be
owing to the Agent, the Owners or the Persons described in Section 9.1 of the
Receivables Purchase Agreement.
"Servicer" has the meaning set forth in the Receivables Purchase
Agreement.
"Servicer Default" has the meaning set forth in the Receivables Purchase
Agreement.
"Servicing Fee" has the meaning set forth in the Receivables Purchase
Agreement.
"Specified Assets" means the Receivables and the Related Assets.
"Subordinated Obligations" means all Obligations of WRC which may now or
hereafter be owing to WMECO and its successors or assigns (including without
limitation the obligation to pay WRC Purchase Price).
"Termination Date" has the meaning set forth in the Receivables Purchase
Agreement.
"Transaction Documents" means the Receivables Purchase Agreement, the
fee letter referred to in Section 2.10 of the Receivables Purchase Agreement,
the WMECO Sale and Transfer Certificate, the Purchase and Sale Agreement, and
all other instruments, certificates, agreements, reports or documents
delivered under or in connection with the Receivables Purchase Agreement or
the Purchase and Sale Agreement (except any Liquidity Agreement (as defined
in the Receivables Purchase Agreement)), as any of the foregoing may be
amended, supplemented, amended and restated, or otherwise modified from time
to time in accordance with the Purchase and Sale Agreement and the
Receivables Purchase Agreement.
"Transition Event" has the meaning set forth in the Receivables Purchase
Agreement.
"Trigger Conditions" has the meaning set forth in Section 8.1(c) of the
Purchase and Sale Agreement.
"UBS" has the meaning set forth in the Receivables Purchase Agreement.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the applicable jurisdiction or jurisdictions.
"Unbilled Receivable" has the meaning set forth in the Receivables
Purchase Agreement.
"WMECO" means Western Massachusetts Electric Company, a Massachusetts
corporation, its permitted successors and assigns.
"WMECO Obligations" means all obligations of WMECO (as Seller or as
Servicer) under or in connection with the Transaction Documents (including
without limitation all indemnity obligations), whether now existing or
hereafter arising.
"WMECO Sale and Transfer Certificate" means the sale and transfer
certificate, in substantially the form of Exhibit A to the Purchase and Sale
Agreement, evidencing WRC's ownership of the Receivables, as the same may be
amended, supplemented, amended and restated, or otherwise modified from time
to time in accordance with the Purchase and Sale Agreement.
"WRC" means WMECO Receivables Corporation, a Connecticut corporation,
its permitted successors and assigns.
"WRC Purchase Price" has the meaning set forth in Section 2.1 of the
Purchase and Sale Agreement.
1.2. Other Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. All terms used in Article 9 of
the UCC in the State of New York, and not specifically defined herein, are
used herein as defined in such Article 9.
1.3. Computation of Time Periods. Unless otherwise stated in this
Agreement, in the computation of a period of time from a specified date to a
later specified date, the word "from" means "from and including" and the
words "to" and "until" each means "to but excluding."
1.4 "Other Definitional Provisions" (a) Each term defined in the
singular form in Sections 1.1 or elsewhere in this Appendix A, shall mean the
plural thereof when the plural form of such term is used herein or in any
Transaction Document or other document delivered pursuant thereto, and each
term defined in the plural form in Sections 1.1 shall mean the singular
thereof when the singular form of such term is used herein or therein;
(b) The words "hereof," "herein," "hereunder" and similar terms when
used in this Appendix A or in any Transaction Document shall refer thereto as
a whole and not to any particular provision thereof, and article, section,
subsection, schedule and exhibit references in any Transaction Document are
references to articles, sections, subsections, schedules and exhibits to such
Transaction Document unless otherwise specified.
EXHIBIT A
to Purchase and Sale Agreement
FORM OF WMECO SALE AND TRANSFER CERTIFICATE
EXHIBIT B
to Purchase and Sale Agreement
LOCATIONS OF WRC'S AND WMECO'S
CHIEF EXECUTIVE OFFICE AND
PRINCIPAL PLACE OF BUSINESS AND
LOCATIONS OF BOOKS AND RECORDS
I. WRC
107 Selden Street
Berlin, Connecticut 06037
II. WMECO
Executive Office Address:
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-0010
Principal Administrative Office Address:
107 Selden Street
Berlin, Connecticut 06037
Processing Office Address:
176 Cumberland Avenue
Wethersfield, Connecticut 06109
EXHIBIT C
to Purchase and Sale Agreement
TRADENAMES, FICTITIOUS NAMES AND
"DOING BUSINESS AS" NAMES
Northeast Utilities Wholesale Power Co.
Northfield Mountain Energy Co.
Exhibit 10.51.1
AMENDMENT NO. 1 TO MASTER LEASE AGREEMENT
THIS AMENDMENT NO. 1 TO MASTER LEASE AGREEMENT (the "Amendment" ) is
made as of the 29th day of August, 1997, by and between GENERAL ELECTRIC
CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS (
"Lessor" ), and THE CONNECTICUT LIGHT AND POWER COMPANY ( "Lessee" ).
The parties have heretofore entered into that certain Master Lease
Agreement dated as of June 21, 1996 (the "Lease" ). Pursuant to the Lease,
the parties have executed those certain Equipment Schedules Nos. 001 and 002,
each dated June 21, 1996 (the "Equipment Schedules" ).
The parties desire to amend the Lease and the Equipment Schedules as
hereinafter set forth.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) in
hand paid, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The Lease is amended as follows:
(a) In Section IV(b), each reference to "chief financial officer"
is changed to "Treasurer, Assistant Treasurer or any Vice President."
(b) In Section XVI(c)(2), Clauses (ii) and (iii) are deleted and
the following substituted in lieu thereof: "(ii) 0.31:1.00 for fiscal year
1997, and (iii) 0.32:1.00 for fiscal year 1998 and each fiscal year
thereafter."
(c) In Section XVI(c)(3), Clauses (i) and (ii) are deleted and the
following substituted in lieu thereof:
"(i) 1.25:1.00 for the fourth quarter of fiscal year 1997, (ii)
1.50:1.00 for the first and second quarters of fiscal year 1998, (iii)
2.00:1.00 for the third quarter of fiscal year 1998, (iv) 2.50:1.00 for the
fourth quarter of fiscal year 1998, (v) 2.50:1.00 for the first and second
quarters of fiscal year 1999, and (vi) 3.50:1.00 for the third and fourth
quarters of fiscal year 1999 and each fiscal year thereafter."
(d) Section XVII(b) is amended by adding the following language to
the end thereof:
", and (not later than August 31, 1997) Lessee shall purchase and grant
to Lessor a first priority security interest in two certificates of deposit
issued by KeyBank National Association or such other commercial bank as
reasonably is acceptable to Lessor, each in the original principal amount of
Seven Million Five Hundred Thousand Dollars ($7,500,000.00) for an initial
term of six (6) months providing for automatic renewal upon the expiration of
the initial and subsequent renewal terms (collectively, the "Certificates of
Deposit" ) and all proceeds and replacements thereof (the "Collateral" ),
and Lessee shall cause such Certificates of Deposit to be delivered to Lessor
to be held as collateral security hereunder and shall execute and deliver to
Lessor a Collateral Assignment Agreement in substantially the form attached
hereto as Exhibit No. 2, such Uniform Commercial Code financing statements
(to be filed at Lessee's expense) and other documents and instruments as
reasonably may be required by Lessor to perfect the security interest of
Lessor in the Collateral. At its option, Lessee may notify Lessor to renew
the Certificates of Deposit for a period other than six (6) months but not
less than one (1) month and, provided that no Default has then occurred,
Lessor agrees to renew the Certificates of Deposit for the term specified by
Lessee. At such time as Lessee's credit rating by Standard & Poor's Ratings
Group, a Division of McGraw-Hill, Inc. ( "S&P" ) is BBB- or better or by
Moody's Investors Service, Inc. ( "Moody's" ) is Baa3 or better, then Lessor
shall release one of the Certificates of Deposit and shall terminate its
security interest therein. At such time as Lessee's credit rating by both
S&P is BBB- or better and by Moody's is Baa3 or better, then Lessor shall
release the second Certificate of Deposit and shall terminate its security
interest therein."
2. The Equipment Schedules are amended by deleting the second sentence
of the definition of the term "Interest Rate" in Paragraph C, and
substituting the following in lieu thereof:
"If during the Basic Term, Lessee's credit rating for senior secured
debt is downgraded or upgraded by either Standard & Poor s Ratings Group, a
Division of McGraw-Hill, Inc. ( "S&P" ) or Moody's Investors Service, Inc. (
"Moody's"), then the Interest Rate shall mean that percentage per annum
calculated as the sum of (x) the LIBOR Rate redetermined monthly, plus (y)
one hundred (100) basis points if Lessee carries both a S&P BBB and Moody's
Baa2 credit rating; one hundred twenty-five (125) basis points if Lessee
carries both a S&P BBB- and Moody's Baa3 credit rating; one hundred
fifty-five (155) basis points if Lessee carries either a S&P BB+ or higher
credit rating, or Moody's Ba1 or higher credit rating (but does not satisfy
either of the combined credit rating standards previously set forth in this
clause (y)); one hundred eighty (180) basis points if Lessee carries either a
S&P BB or Moody's Ba2 credit rating; two hundred five (205) basis points if
Lessee carries either a S&P BB- or Moody's Ba3 credit rating; and two hundred
thirty (230) basis points if Lessee carries either a S&P B+ or lower credit
rating or Moody's B1 or lower credit rating."
3. The effectiveness of the amendments set forth herein is conditioned
upon payment by Lessee to Lessor of a fee in the amount of $161,023.00.
Except as expressly set forth herein, the terms and conditions of the Lease
and the Equipment Schedules remain unmodified and in full force and effect.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF CONNECTICUT (WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to
Master Lease Agreement to be executed by their duly authorized
representatives of the date first above written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL THE CONNECTICUT LIGHT AND POWER
CORPORATION, FOR ITSELF AND COMPANY
AS AGENT FOR CERTAIN
PARTICIPANTS
By: /s/Dennis Grove By: /s/David R. McHale
Name: Dennis Grove Name: David R. McHale
Title: Credit Manager Title: Assistant Treasurer
EXHIBIT NO. 2
COLLATERAL ASSIGNMENT AGREEMENT
THE CONNECTICUT LIGHT AND POWER COMPANY ("Lessee") does hereby assign, pledge
and grant a security interest to GENERAL ELECTRIC CAPITAL CORPORATION, FOR
ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS, its successors and assigns
("Lessor"), in all of its right, title and interest in and to the
Certificates of Deposit referenced in Schedule A now or hereafter attached
hereto, and all additions, substitutions, replacements and renewals thereof
(the "Certificates"), issued by KeyBank National Association (the "Financial
Institution"), together with all funds (including principal and accrued
interest) now and at any time hereafter represented by the Certificates and
all rights, powers and privileges incident to the Certificates, and all
proceeds (cash and non-cash) thereof (but without power of disposition) (the
"Collateral") as security and collateral for (i) the prompt payment of all
indebtedness, liabilities and obligations of the Lessee to Lessor due or
becoming due under that certain Master Lease Agreement dated as of June 21,
1996 (and any extensions, amendments, modifications or supplements thereto)
(the "Lease"), by and between Lessor, as lessor, and the Lessee, as lessee,
and (ii) the prompt performance as and when due of all terms, conditions and
provisions of the Lease (hereafter collectively referred to as the
"Obligations").
Lessor is hereby authorized to execute at any time and from time to time
on behalf of the Lessee, so long as the collateral assignment effected herein
remains effective, all of the powers, privileges and rights incident to or
granted with ownership of the Certificates, including, without limitation,
the right to renew the Certificates or to extend their maturities upon any
terms satisfactory to Lessor which are substantially similar to the terms of
the original Certificates of Deposit and at such interest rates as are
generally offered by the Financial Institution for certificates of deposit in
the amount and for the term of the renewal Certificates of Deposit. At the
end of the initial six (6) month term of the Certificates of Deposit, and at
the end of each subsequent renewal thereof, at its option, Lessee may notify
Lessor to renew the Certificates of Deposit for any period other than six (6)
months, but not less than one (1) month.
The Lessee hereby consents that at any time and from time to time and
with or without further consideration, Lessor may, without notice to and
further consent of the Lessee and without in any manner affecting, impairing,
lessening and releasing this Assignment, renew, extend, change the manner,
time, place and terms of payment or, sell, exchange, release, surrender,
realize upon, modify, waive, grant indulgences with respect to and otherwise
deal with in any manner: (a) all or any part of the Obligations; (b) all or
any part of any property at any time securing all or any part of the
Obligations; and (c) any party (including, without limitation, the Lessee) at
any time primarily or secondarily liable for all or any part of the
Obligations.
Notwithstanding this Assignment, all interest accruing with respect to
the Certificates shall be paid directly by the Financial Institution to the
Lessee, unless and until Lessor provides written notice to the Financial
Institution of the occurrence of an Event of Default (as hereinafter
defined).
After the occurrence of a Default (as such term is defined in the Lease)
(an "Event of Default"), Lessor may and is hereby authorized to endorse,
present for payment, redeem, demand for, withdraw and receive from the
Financial Institution, and the Financial Institution is hereby authorized and
directed to pay to Lessor, any and all funds now or hereafter represented by
the Certificates at such times and in such amounts as Lessor, in its sole
discretion, shall determine for the purpose of applying the same to the
payment of the Obligations pursuant to Section XI(b) of the Lease. Lessor
may at any time and from time to time take any and all actions with respect
to the Certificates (and the funds represented thereby) as authorized herein,
by the terms of the Lease or by law, including (without limitation)
exercising the rights of a secured party with respect to the Collateral.
This Assignment is to remain in full force and effect until notice in
writing is given to the Financial Institution by Lessor that such Assignment
has been terminated, and until the Financial Institution receives such notice
it is hereby authorized and directed to pay only to Lessor any funds now or
hereafter represented by the Certificates. In making payment of such funds,
the Financial Institution may conclusively rely upon the endorsement on the
Certificates of any officer of Lessor, and under no circumstances shall the
Financial Institution be required to determine whether any conditions of
payment to Lessor have been satisfied.
Lessor agrees to cause the Financial Institution and any successor
thereto to execute the Acknowledgment in substantially the form attached
hereto as Exhibit A.
Dated as of August 29, 1997.
THE CONNECTICUT LIGHT AND POWER COMPANY
Lessee
By:/s/David R. McHale(SEAL)
Name:David R. McHale
Title:Assistant Treasurer
LESSOR ACCEPTS THE FOREGOING ASSIGNMENT AND AGREES TO REASSIGN TO THE LESSEE
THE INTEREST ASSIGNED HEREIN UPON THE INDEFEASIBLE SATISFACTION IN FULL OF
THE OBLIGATIONS.
GENERAL ELECTRIC CAPITAL
CORPORATION, FOR ITSELF AND AS
AGENT FOR CERTAIN PARTICIPANTS
By:/s/Dennis Grove(SEAL)
Name:Dennis Grove
Title:Credit Manager
ACKNOWLEDGMENT
Receipt of the above Agreement and authorization and instruction to pay
GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN
PARTICIPANTS ("Lessor"), is hereby acknowledged and accepted; and for
valuable consideration the undersigned agrees (1) not to offset against any
such payment to Lessor any amount owed by any other person to the
undersigned; (2) not to issue a replacement for the Certificates or otherwise
to take any action with respect to the Certificates inconsistent with the
security interest of Lessor without the express written consent of Lessor;
(3) to pay to Lessee, by wire transfer to such account as may be specified in
writing by Lessee, by wire transfer to such account as may be specified in
writing by Lessee, from time to time, all interest accruing with respect to
the Certificates, unless and until Lessor provides written notice to us of
the occurrence of an Event of Default, and (without the prior written consent
of Lessor) not to pay to Lessee any other funds now or hereafter represented
by the Certificates or to honor any instructions received from Lessee with
respect to the Certificates; and (4) to pay to Lessor any and all funds now
or hereafter represented by the Certificates upon demand by Lessor in
accordance with the terms of the Certificates. Our records reflect no other
assignment of the described Certificates. The present balance of all funds
represented by the Certificates is $15,000,000.00.
The undersigned agrees to provide a written computation of the interest
payments made to Lessee hereunder not later than two (2) days after any such
payment, such to be sent to: Ms. Donna Kramer, Northeast Utilities Service
Company, P.O. Box 270, Hartford, Connecticut 06141-0270.
KEYBANK NATIONAL ASSOCIATION
Financial Institution
By:/s/Gerald N. Scalzetto(SEAL)
Name:Gerald N. Scalzetto
Title:Vice President
Schedule A to Collateral Assignment Agreement
Certificate of Deposit No. 20733150 in the original principal amount of
$7,500,000.00; issue date: September 3, 1997; initial maturity date: March
3, 1998, term renewing per instruction of Lessor.
Certificate of Deposit No. 20733168 in the original principal amount of
$7,500,000.00; issue date: September 3, 1997; initial maturity date: March
3, 1998, term renewing per instruction of Lessor.
Financial and Statistical Table of Contents
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12 Management's Discussion and Analysis
22 Company Report
22 Report of Independent Public Accountants
23 Consolidated Financial Statements
31 Notes to Consolidated Financial Statements
and related schedules
Northeast Utilities 1997 Annual Report 11
<PAGE>
Management's Discussion and Analysis
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Financial Condition
- --------------------------------------------------------------------------------
Overview
The length of the ongoing outages at the three Millstone nuclear plants
(Millstone) and the high costs of the recovery efforts weakened NU's 1997
earnings, balance sheet and cash flows and will continue to have an adverse
impact on NU's financial condition until the units are returned to service.
NU's earnings fell sharply in 1997 for the second consecutive year, primarily
as a result of costs associated with the ongoing Millstone outages. NU lost
$1.05 per common share in 1997, compared with a profit of 1 cent a share in 1996
and $2.24 a share in 1995.
The poorer financial results in 1997 were due primarily to the fact that all
three Millstone units were off line for the entire year in 1997 and spending
associated with the recovery efforts was significantly higher in 1997 than it
was in 1996. Millstone 3 operated for nearly three months in 1996 and Millstone
2 for nearly two months. As a result, the cost of replacing power ordinarily
generated by the Millstone units rose by approximately $80 million in 1997. The
total operation and maintenance (O&M) costs at Millstone were approximately $163
million higher in 1997.
The higher Millstone costs have caused the NU system, primarily The
Connecticut Light and Power Company (CL&P) and Western Massachusetts Electric
Company (WMECO), to focus closely on maintaining adequate liquidity and reducing
nonnuclear O&M costs. In 1997 and early 1998, CL&P and WMECO successfully sold
$260 million in first mortgage bonds and renegotiated more than $400 million of
bank credit lines. Additionally, nonnuclear O&M expenses in 1997 were reduced by
about $50 million from 1996. Tight cost controls will continue to be essential
in 1998 to CL&P's and WMECO's efforts to meet the financial covenants contained
in their $313.75 million revolving credit arrangement.
In 1998, management expects Millstone-related expenses to fall significantly,
assuming Millstone 3 and Millstone 2 are returned to service at dates close to
current estimates, although the O&M expenses at Millstone 3 and Millstone 2 will
be considerably higher than before the station was placed on the Nuclear
Regulatory Commission's (NRC's) watch list. The actual level of 1998 nuclear
spending at Millstone will depend on when the units return to operation and the
cost of restoring them to service. The company hopes to restart Millstone 3, the
newest and largest unit at the site, in the early spring of 1998 and Millstone 2
three to four months after Millstone 3. The company cannot restart the Millstone
units until it receives formal approval from the NRC. As part of an effort to
reduce spending in 1998, Millstone 1 has been placed in extended maintenance
status. Management will review its options with respect to Millstone 1 in 1998,
including restart, early retirement and other options.
Rate reductions in all three states served by NU's operating companies are
likely to offset a portion of the benefit of lower Millstone-related costs. On
December 1, 1997, Public Service Company of New Hampshire (PSNH) rates were
reduced 6.87 percent as a result of an interim rate order issued by the New
Hampshire Public Utilities Commission (NHPUC). On March 1, 1998, CL&P rates were
reduced by approximately 1.4 percent to reflect the removal of Millstone 1 from
rates, and additional noncash reductions were made to revenue requirements as a
result of an interim rate order issued by the Connecticut Department of Public
Utility Control (DPUC). Also on March 1, 1998, WMECO reduced retail rates by 10
percent in compliance with industry restructuring legislation passed in November
1997 by the Massachusetts Legislature. Rate cases involving CL&P and PSNH may
result in additional rate adjustments later in 1998. CL&P's revenues could be
further reduced if substantial delays in restarting Millstone 3 and Millstone 2
result in a DPUC decision to remove those units from rates.
In addition to focusing on maintaining liquidity, management also must
attend to industry restructuring efforts throughout the NU system's service
territory. A temporary restraining order issued by a U.S. District Court is
currently blocking the NHPUC from implementing a February 1997 restructuring
order that would have resulted in a write-off by PSNH of more than $400 million.
Management hopes to negotiate an alternative restructuring proposal in 1998 that
will produce significant PSNH rate reductions and allow retail customers to
choose their electric suppliers, but still give PSNH and North Atlantic Energy
Corporation (NAEC) an opportunity to maintain an adequate financial condition
and earn fair returns on their investments.
The 1997 Massachusetts legislation allowed full retail choice on March 1,
1998. WMECO expects to recover fully its stranded costs through a combination of
securitization and divestiture of its nonnuclear generating assets.
In Connecticut, restructuring legislation is being considered in the
legislative session that began in February 1998.
Restructuring also is likely to cause other NU subsidiaries to auction their
nuclear and/or nonnuclear generating units. Despite these potential
requirements, management believes that it could be advantageous for the NU
system to remain in the generation business, which could be accomplished by
acquiring ownership interests in facilities inside and outside New England.
12 Northeast Utilities 1997 Annual Report
<PAGE>
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NU's earnings in 1997 also were affected by a $25 million reserve for
anticipated losses on the sale of investments by Charter Oak Energy, Inc., NU's
independent power development subsidiary.
Presently, NU is New England's largest electric utility system with 1.7
million customers in Connecticut, New Hampshire and Massachusetts. In 1997, NU
experienced modest economic growth in its retail sales that was offset by the
effects of mild winter weather. In 1998, management expects that the regional
economy will continue to experience modest growth.
Millstone
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Outages
The NU system has a 100 percent ownership interest in Millstone 1 and 2 and a 68
percent ownership interest in Millstone 3. Millstone 1, 2 and 3 have been out of
service since November 4, 1995, February 21, 1996, and March 30, 1996,
respectively.
Subsequent to its January 31, 1996, announcement that Millstone had been
placed on its watch list, the NRC stated that the units cannot return to service
until independent, third-party verification teams have reviewed the actions
taken to improve the design, configuration and employee concerns issues that
prompted the NRC to place the units on its watch list. The actual date of the
return to service for each of the units is dependent upon the completion of
independent inspections, reviews by the NRC and a vote by the NRC commissioners.
In January 1998, NU declared Millstone 3 physically ready for restart, which
meant that almost all of the restart-required physical work had been completed
in the plant. The NRC currently is conducting a series of inspections to
determine, among other things, whether the plant has effective leadership and
corrective action and employee concerns programs. The Independent Corrective
Action Verification Program, an NRC-ordered independent review of the plant's
design and licensing bases, is expected to be completed in March 1998.
In 1997, the NU system's share of nonfuel O&M costs expensed for Millstone
totaled approximately $566 million, including $73 million reserved for future
restart costs. The 1997 costs are net of $63 million of costs which were
reserved in 1996. In 1996, the NU system's share of nonfuel O&M costs expensed
for Millstone totaled approximately $403 million, including $63 million reserved
for future restart costs. Management will continue to evaluate the costs to be
incurred in 1998 to determine whether adjustments to the existing reserves are
required.
Replacement power costs attributable to the Millstone outages totaled
approximately $340 million in 1997 compared to $260 million expensed in 1996.
These costs for 1998 are forecasted to average approximately $9 million per
month for Millstone 3, $9 million per month for Millstone 2 and $6 million per
month for Millstone 1 while the plants are out of service.
CL&P, WMECO and PSNH have been, and will continue to be, expensing all of the
costs to restart the units including replacement power and nonfuel O&M expenses.
See "Connecticut Rate Matters" for issues related to the recovery of Millstone 1
costs.
NU and its subsidiaries are involved in several class action lawsuits and
other litigation in connection with their nuclear operations. See the "Notes to
Consolidated Financial Statements," Note 7B, for further information on this
litigation.
Millstone 1
Management will review its options with respect to Millstone 1 during 1998. The
issues that management will consider in evaluating its options include the costs
to restart the unit, the economic benefits of the unit's continued operation and
certain Connecticut state law issues. In the CL&P four year rate review
proceeding (discussed in detail under "Rate Matters"), the DPUC noted that CL&P
may not be able to recover its remaining investment in Millstone 1 if the DPUC
were to determine that the unit had been prematurely shut down due to management
imprudence. Additionally, there is a Connecticut statute which may limit CL&P's
ability to collect decommissioning charges in the future if Millstone 1 were to
be prematurely retired.
CL&P's net unrecovered Millstone 1 plant cost and the unrecovered
decommissioning costs at December 31, 1997, were approximately $216 million and
$198 million, respectively.
Capacity
During 1996 and continuing into 1997, the NU system companies took measures to
improve their capacity position, including obtaining additional generating
capacity, improving the availability of NU's generating units and improving the
NU system's transmission capability. During 1997, NU spent approximately $58
million to ensure the availability of adequate generating capacity in
Connecticut and Massachusetts, of which $40 million was expensed. In 1998, NU
does not anticipate the need to take additional measures to ensure adequate
generating capacity.
Northeast Utilities 1997 Annual Report 13
<PAGE>
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Liquidity and Capital Resources
- --------------------------------------------------------------------------------
Cash provided from operations decreased approximately $438 million in 1997,
compared to 1996, primarily due to higher cash expenditures related to the
Millstone outages, and the pay down in 1997 of the 1996 year end accounts
payable balance. The 1996 year end accounts payable balance was relatively high
due to costs related to a severe December storm and costs associated with the
Millstone outages that had been incurred but not yet paid by the end of 1996.
Net cash used for financing activities decreased approximately $224 million,
primarily due to suspension of the NU common dividend early in 1997 and an
increase in short-term borrowings.
CL&P and WMECO established facilities in 1996 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. As of December 31, 1997, CL&P
and WMECO sold approximately $70 million and $20 million of receivables,
respectively, to third- party purchasers.
NU's, CL&P's and WMECO's three-year revolving credit agreement was amended in
May 1997 (the Credit Agreement). Under the Credit Agreement, CL&P and WMECO are
able to borrow up to approximately $225 million and $90 million, respectively,
subject to a total borrowing limit of $313.75 million for all three borrowers.
NU will be able to borrow up to $50 million when NU, CL&P and WMECO have each
maintained a consolidated operating income to consolidated interest expense
ratio of at least 2.50 to 1 for two consecutive fiscal quarters. Currently, the
companies cannot meet this requirement. At December 31, 1997, CL&P and WMECO had
$35 million and $15 million outstanding, respectively, under the Credit
Agreement.
In February 1998, because of borrowing restrictions on NU in the Credit
Agreement, NU entered into a separate $25 million, 364-day revolving credit
facility with one bank.
Each major subsidiary of NU finances its own needs. Neither CL&P nor WMECO
has any financing agreements containing cross defaults based on financial
defaults by NU, PSNH or NAEC. Similarly, neither PSNH nor NAEC has any financing
agreements containing cross defaults based on financial defaults by NU, CL&P or
WMECO. Nevertheless, it is possible that investors will take negative operating
results or regulatory developments at one company in the NU system into account
when evaluating other companies in the NU system. That could, as a practical
matter and despite the contractual and legal separations among the NU companies,
negatively affect each company's access to financial markets.
In December 1997 and January 1998, Moody's Investors Service (Moody's) and
Standard & Poor's (S&P), respectively, downgraded the senior secured debt of
CL&P, WMECO and NU, as well as the preferred stock of CL&P and WMECO. This was
the fourth time Moody's and S&P have downgraded CL&P and WMECO securities since
the Millstone units went on the NRC watch list in 1996. All of the NU system's
securities are rated below investment grade and remain under review for further
downgrade. Although CL&P and WMECO do not have any plans to issue debt in the
near term, rating agency downgrades generally increase the future cost of
borrowing funds because lenders will want to be compensated for increased risk.
Additionally, this could affect the terms and ability of the NU system companies
to extend existing agreements.
The downgrade by Moody's of WMECO's first mortgage bonds to Ba2 in December
1997 brought those ratings to a level at which the sponsor of WMECO's accounts
receivable program can take various actions, in its discretion, which would have
the practical effect of limiting WMECO's ability to utilize the facility. The
WMECO accounts receivable program could be terminated if WMECO's first mortgage
bond credit ratings experience one more level of downgrade. CL&P's accounts
receivables program could be terminated if its senior secured debt is downgraded
two more steps from its current ratings.
The NU system companies' ability to borrow under their financing arrangements
is dependent on their satisfaction of contractual borrowing conditions. The
financial covenants that must be satisfied to permit CL&P and WMECO to borrow
under the Credit Agreement are particularly restrictive and become more
restrictive throughout 1998. Spending levels in 1998, particularly for the first
half of the year while the Millstone units are expected to be out of service,
will be constrained to levels intended to assure that the financial covenants in
CL&P's and WMECO's Credit Agreement are satisfied. However, there is no
assurance that these financial covenants will be met as the system may encounter
additional unexpected costs from such areas as storms, reduced revenues from
regulatory actions or the effect of weather on sales levels.
14 Northeast Utilities 1997 Annual Report
<PAGE>
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If the return to service of Millstone 3 or Millstone 2 is delayed
substantially beyond the present restart estimates, if some borrowing facilities
become unavailable because of difficulties in meeting borrowing conditions or
renegotiating extensions, if the system encounters additional significant costs,
or any other significant deviations from management's current assumptions, the
currently available borrowing facilities could be insufficient to meet all of
the NU system's cash requirements. In those circumstances, management would take
even more stringent actions to reduce costs and cash outflows and would attempt
to take other actions to obtain additional sources of funds. The availability of
these funds would be dependent upon the general market conditions and the NU
system's credit and financial condition at that time.
Restructuring
- --------------------------------------------------------------------------------
The NU system companies continue to operate under cost-of-service based
regulation, however, future rates and the recovery of strandable costs are
issues under various restructuring initiatives in each of the NU system
companies' service territories. Strandable costs are expenditures or commitments
that have been made to meet public service obligations with the expectation that
they would be recovered from customers in the future. The NU system companies
have exposure to strandable costs for their investments in high-cost nuclear
generating plants, state-mandated purchased power obligations and significant
regulatory assets. The NU system companies' exposure to strandable investments
and purchased power obligations exceeds their shareholder's equity. The NU
system's financial strength and resulting ability to compete in a restructured
environment will be negatively affected if the NU system companies are unable to
recover their past investments and commitments. Even if the NU system companies
are given the opportunity to recover a large portion of their strandable costs,
earnings prospects in a restructured environment will be affected in ways which
cannot be estimated at this time.
The NU system companies are seeking to mitigate the impacts of restructuring
by proposing stable, lower rates while pursuing customer choice options and full
recovery of their strandable costs. The NU system companies' strategy to recover
strandable costs includes efforts to promote state legislation that will
authorize the issuance of rate reduction bonds that would refinance these
investments and which would be repaid through non-bypassable charges to
customers. Management is unable to predict the ultimate outcome of these
initiatives which will be subject to regulatory and legislative approvals.
Management believes it is entitled to full recovery of its prudently incurred
costs, including regulatory assets and other strandable costs. See the "Notes to
Consolidated Financial Statements," Note 7A, for the potential accounting
impacts of restructuring.
New Hampshire
In February 1997, the NHPUC issued orders to restructure the state's electric
utility industry and set interim stranded cost charges for PSNH. In the orders,
the NHPUC announced a departure from cost-based ratemaking and adopted a
market-priced approach to stranded cost recovery. PSNH, NU, NAEC, and Northeast
Utilities Service Company (NUSCO) filed for a temporary restraining order,
preliminary and permanent injunctive relief and a declaratory judgment in the
United States District Court of New Hampshire. The case subsequently was
transferred to the United States District Court of Rhode Island (District Court)
where a temporary restraining order was granted, staying, indefinitely, the
enforcement of the NHPUC's restructuring orders as they affected PSNH. Certain
appeals to the preliminary ruling have been denied and proceedings in the
District Court are expected to resume.
The NHPUC conducted rehearing proceedings in 1997 to decide the appropriate
methodology to be used to determine PSNH's interim stranded costs and to set
PSNH's interim stranded cost charges utilizing the determined methodology. The
NHPUC has not indicated when it will issue a decision in these proceedings. On
December 15, 1997, the NHPUC officially announced that industry restructuring
would not take place on January 1, 1998.
As part of the rehearing proceedings, PSNH proposed a new methodology to
quantify its stranded costs. Under this proposal, PSNH would divest its owned
generation and purchased power obligations via auction. To the extent that the
auction fails to produce sufficient revenues to cover the net book value of
owned generation and contractual payment obligations of purchased power, the
difference would be recovered from customers through a non-bypassable
distribution charge. The new proposal also relies upon securitization of certain
assets to further reduce rates.
On February 20, 1998, PSNH forwarded a settlement offer to representatives
from the state of New Hampshire that was consistent with PSNH's proposal in the
rehearing proceedings including, among other things, a 20 percent rate reduction
at the beginning of 1999, an auction of PSNH's nonnuclear generating units and
securtization of approximately $1.15 billion of PSNH's stranded costs.
Northeast Utilities 1997 Annual Report 15
<PAGE>
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Massachusetts
On November 25, 1997, Massachusetts enacted a comprehensive electric utility
industry restructuring bill. The bill provides that each Massachusetts electric
company, including WMECO, will decrease its rates by 10 percent and allow all
its customers to choose their electric supplier on March 1, 1998. The statute
requires a further 5 percent rate reduction, adjusted for inflation, by
September 1, 1999.
In addition, the legislation provides, among other things, for: (i) recovery
of strandable costs through a "transition charge" to customers, subject to
review by the Department of Telecommunications and Energy (DTE), formerly the
Department of Public Utilities (DPU, collectively the DTE), (ii) a possible
limitation on WMECO's return on equity should its transition cost charge go
above a certain level, (iii) securitization of allowed strandable costs, and
(iv) divestiture of nonnuclear generation. WMECO hopes it will be able to
complete securitization in 1998.
The statute also provides that an electric company must transfer or separate
ownership of generation, transmission and distribution facilities into
independent affiliates or functionally separate such facilities within 30
business days after federal approval. Additionally, marketing companies formed
by an electric company are to be separate from the electric company and separate
from generation, transmission or distribution affiliates.
On December 31, 1997, WMECO filed its restructuring plan with the DTE
consistent with the Massachusetts restructuring legislation. The plan sets out
the process by which WMECO, as of March 1, 1998, initiated a 10 percent rate
reduction for all customer rate classes and allowed customers to choose their
energy supplier. WMECO intends to mitigate its strandable costs through several
steps, including divesting WMECO's nonnuclear generating plants at an auction to
be held as soon as June 30, 1998, and securitization of approximately $500
million of stranded costs. NU intends to participate through a nonregulated
affiliate in the competitive bid process for WMECO's generation resources. Any
proceeds in excess of book value received from the divestiture of these units
will be used to mitigate stranded costs. As required by the legislation, WMECO
will continue to operate and maintain the transmission and local distribution
network and deliver electricity to all customers. On February 20, 1998, the DTE
issued an order approving, in all material respects, WMECO's restructuring plan
on an interim basis. A final decision is expected in 1998.
Because WMECO is obligated to reduce rates on March 1, 1998, before the means
of financing for restructuring are completed, WMECO's cash flows and financial
condition will be negatively affected. These impacts would become significant if
there are material delays in, or significantly reduced proceeds from, the
divestiture of nonnuclear generation and securitization.
Connecticut
Massachusetts and New Hampshire have been at the forefront of the restructuring
movement in New England with very different approaches as previously discussed.
In Connecticut, legislators have proposed broad restructuring legislation which
will be considered in the spring of 1998.
Rate Matters
- --------------------------------------------------------------------------------
Connecticut
In July 1996, the DPUC approved a rate settlement agreement with CL&P (the
Settlement). Under the Settlement, CL&P froze base rates until at least December
31, 1997, and agreed to accelerate the amortization of regulatory assets during
the period that the rate freeze remains in effect. The Settlement provided that
CL&P's target return on equity (ROE) would be 10.7 percent but did not alter
CL&P's allowed ROE of 11.7 percent. If CL&P's actual ROE for a calendar year
exceeds 10.7 percent after the target regulatory asset amortization ($68 million
in 1997) and after adjustment for any incremental NRC billings and any rate
disallowances for nuclear operations, then CL&P shall retain two-thirds of any
surplus and use the remaining one-third to provide a reduction in bills. CL&P's
actual ROE, as adjusted, fell below the target ROE for 1996 and 1997 and,
therefore, the accelerated amortization of regulatory assets was reduced to the
minimum amounts allowed under the Settlement ($73 million in 1996 and $54
million in 1997). For each full year that the rate freeze remains in effect,
CL&P agreed to amortize an additional $44 million of regulatory assets.
On July 30, 1997, the DPUC issued a decision in its prudence review of
nuclear cost recovery issues disallowing CL&P's recovery of all of the
replacement power costs associated with the ongoing outages at Millstone. CL&P
has expensed, and will continue to expense, replacement power costs for the
Millstone outages as they are incurred.
16 Northeast Utilities 1997 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
The DPUC is required to review a utility's rates every four years if there
has not been a rate proceeding during such period. In 1997, the DPUC conducted
such a review of CL&P's rates, including an analysis of the possibility of
removing one or more of the Millstone nuclear units from CL&P's rate base. On
December 31, 1997, the DPUC issued its ruling in this matter. The decision did
not effect a change in CL&P's rates, but set forth findings and conclusions that
could be used to do so in additional proceedings. The most significant
conclusion was that Millstone 1 should be removed from CL&P's rate base, which
would cause an annual revenue reduction of approximately $30.5 million. The
decision stated that the DPUC would open an interim rate case immediately to
remove Millstone 1 from CL&P's rates and simultaneously to remove an additional
$110.5 million of other expenses from rates related to perceived overearnings.
In February 1998, the DPUC issued a decision reducing CL&P's rates by
approximately 1.4 percent to reflect the removal of Millstone 1 from rates. This
reduction reflects the removal from rates of O&M, depreciation and investment
return related to Millstone 1, net of replacement power costs. In addition, the
decision requires CL&P to accelerate the amortization of regulatory assets by
$110.5 million, which includes the $44 million from the 1996 Settlement. The
interim rate reduction became effective on March 1, 1998.
CL&P also was directed to file a full rate case on June 1, 1998, to address
potential overearnings amounting to an additional $150 million in 1998. The
effective date of any rate order will be September 28, 1998. In addition, the
DPUC has scheduled a hearing for April 1, 1998, to determine the status of
Millstone 3 and Millstone 2. A similar restart status hearing is anticipated for
June 1, 1998. If the units are not operating by those dates, the DPUC will
consider their removal from rates.
The DPUC also will consider CL&P's analyses of the economic benefits of the
continued operation of Millstone 1 and Millstone 2 in the context of CL&P's next
integrated resource planning proceeding, which begins in April 1998.
New Hampshire
PSNH's Rate Agreement provides for seven base rate increases and a comprehensive
fuel and purchased power adjustment clause (FPPAC). In June 1996, the final base
rate increase of 5.5 percent went into effect. Although the FPPAC continues for
an additional four years beyond the end of the fixed rate period, there is
uncertainty regarding how it will function after that time.
On May 2, 1997, PSNH made a rate filing with the NHPUC requesting base rates
to remain at their current level after May 31, 1997. By order dated November 6,
1997, the NHPUC ordered a temporary rate reduction for PSNH at a revenue level
6.87 percent lower than current rates. The NHPUC also set an interim return on
equity of 11 percent. The temporary rates became effective December 1, 1997. A
final decision, which will be reconciled to July 1, 1997, is not expected to be
issued until September 1998. A portion of this reduction was offset by an
increase to rates through the FPPAC.
On February 10, 1998, the NHPUC ordered an FPPAC rate for the period December
1, 1997, through May 31, 1998, which increased customer bills by approximately 6
percent. This rate continues to defer recovery of a substantial portion of costs
for the future. In addition, recovery of the Seabrook deferred return
(approximately $127 million annually) is scheduled to begin in June 1998. See
the "Notes to Consolidated Financial Statements," Note 1K, for further
information on the FPPAC.
Massachusetts
In April 1996, the DTE approved a settlement (the Agreement) that included the
continuation through February 1998 of a 2.4 percent rate reduction instituted in
June 1994. Additionally, the Agreement terminated certain pending and potential
reviews of WMECO's generating plant performance and accelerated its amortization
of strandable generation assets by approximately $6 million in 1996 and $10
million in 1997.
On August 20, 1997, WMECO filed with the DTE a joint motion for approval of a
settlement agreement with the Massachusetts Attorney General for a fuel
adjustment clause (FAC) which would allow for a lower rate to WMECO customers
for the billing months of September 1997 through February 1998. WMECO is not
recovering replacement power costs during this period and has indicated that it
would not seek recovery of any replacement power costs associated with the
Millstone outages. WMECO has been expensing and will continue to expense these
costs. The Massachusetts restructuring legislation effectively eliminates the
FAC, effective March 1, 1998.
Northeast Utilities 1997 Annual Report 17
<PAGE>
- --------------------------------------------------------------------------------
Nuclear Decommissioning
- --------------------------------------------------------------------------------
Connecticut Yankee
The NU system has a 49 percent ownership interest in the Connecticut Yankee
nuclear generating facility (CY or the plant). On December 4, 1996, the Board of
Directors of Connecticut Yankee Atomic Power Company voted unanimously to cease
permanently the production of power at the plant. The decision to retire CY from
commercial operation was based on an economic analysis of the costs of operating
it compared to the costs of closing it and incurring replacement power costs
over the remaining period of the plant's operating license, which would have
expired in 2007. The economic analysis showed that closing the plant and
incurring replacement power costs produced substantial savings.
CY has undertaken a number of regulatory filings intended to implement the
decommissioning. In late December 1996, CY filed an amendment to its power
contracts with the FERC to clarify the obligations of its purchasing utilities
following the decision to cease power production. At December 31, 1997, NU's
share of these obligations was approximately $304 million, including the cost of
decommissioning and the recovery of existing assets. Management expects that
CL&P, PSNH and WMECO each will continue to be allowed to recover such FERC
approved costs from their customers. Accordingly, NU has recognized its share of
the estimated costs as a regulatory asset, with a corresponding obligation, on
its balance sheet.
Maine Yankee
The NU system has a 20 percent ownership interest in the Maine Yankee (MY)
nuclear generating facility. On August 6, 1997, the Board of Directors of Maine
Yankee Atomic Power Company (MYAPC) voted unanimously to retire MY. On January
14, 1998, FERC released a draft order on the MYAPC application to amend its
power contracts with the owner/purchasers and revise its decommissioning and
other charges. FERC has accepted the proposed application for filing and made
the amendments and the proposed charges under the contracts effective on January
15, 1998, subject to refund after hearings. At December 31, 1997, the NU
system's share of the estimated remaining obligation, including decommissioning,
amounted to approximately $173 million. Under the terms of the contracts with
MYAPC, the shareholders' sponsor companies, including CL&P, PSNH and WMECO, are
responsible for their proportionate share of the costs of the unit, including
decommissioning. Management expects that CL&P, PSNH and WMECO will be allowed to
recover these costs from their customers. Accordingly, NU has recognized these
costs as a regulatory asset, with a corresponding obligation on its balance
sheet.
Millstone and Seabrook
NU's estimated cost to decommission its shares of the Millstone plants and
Seabrook is approximately $1.48 billion in year end 1997 dollars. These costs
are being recognized over the lives of the respective units with a portion
currently being recovered through rates. As of December 31, 1997, the market
value of the contributions already made to the decommissioning trusts, including
their investment returns, was approximately $503 million.
See the "Notes to Consolidated Financial Statements," Note 2, for further
information on nuclear decommissioning, including the NU system's share of costs
to decommission the other regional nuclear generating units.
Environmental Matters
- --------------------------------------------------------------------------------
NU's subsidiaries are potentially liable for environmental cleanup costs at a
number of sites inside and outside their service territories. To date, the
future estimated environmental remediation liability has not been material with
respect to the earnings or financial position of the NU system. At December 31,
1997, NU's subsidiaries had recorded an environmental reserve of approximately
$16 million. See the "Notes to Consolidated Financial Statements," Note 7C, for
further information on environmental matters.
Year 2000 Issue
- --------------------------------------------------------------------------------
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the change of the
century occurs, date-sensitive systems may recognize the year 2000 as 1900, or
not recognize it at all. This inability to recognize or properly treat the year
2000 may cause NU's systems to process critical financial and operational
information incorrectly. The company has assessed and continues to assess the
impact of the Year 2000 issue on its operating and reporting systems. The
assessment of the nuclear operating systems is continuing and is expected to be
completed in the summer of 1998.
The NU system will utilize both internal and external resources to reprogram
or replace and test the software for Year 2000 modifications. The total
estimated remaining cost of the Year 2000 project is $37 million and is being
funded through operating cash flows. This estimate does not include any costs
for the replacement or repair of equipment or devices that may be identified
during the assessment process. The majority of these costs will be expensed as
incurred over the next two years. To date, the company has
18 Northeast Utilities 1997 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
incurred and expensed approximately $4 million related to the assessment of, 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 plan is not successful, there could be a significant
disruption of the NU system's operations.
Risk-Management Instruments
- --------------------------------------------------------------------------------
The following discussion about the NU system's risk-management activities
includes forward looking statements that involve risk and uncertainties. Actual
results could differ materially from those projected in the forward looking
statements.
This analysis presents the hypothetical loss in earnings related to the fuel
price and interest rate market risks not covered by the risk-management
instruments at December 31, 1997. 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 does not use these risk-management
instruments for speculative purposes. For more information on NU's use of
risk-management instruments, see the "Notes to Consolidated Financial
Statements," Notes 1O and 8.
Fuel Price Risk-Management Instruments
In the generation of electricity, the most significant variable cost component
is the cost of fuel. Typically, most of CL&P's fuel purchases are protected by a
regulatory fuel price adjustment clause. However, for a specific, well-defined
volume of fuel that is excluded from the fuel price adjustment clause
(unprotected volume), CL&P employs fuel price risk-management instruments to
protect itself against the risk of rising fuel prices, thereby limiting fuel
costs and protecting its profit margins. These risks are created by the sale of
long-term, fixed-price electricity contracts to wholesale customers and the
purchase or generation of replacement power related to the ongoing Millstone
nuclear outages.
At December 31, 1997, CL&P had outstanding agreements with a total notional
value of approximately $327 million. The settlement amounts associated with the
instruments reduced fuel expense by approximately $8 million.
CL&P has had experience using various fuel price risk-management instruments
since 1994, most of which have been in the form of fuel price swaps. At December
31, 1997, approximately 30 percent of the unprotected volume was covered by fuel
price risk-management instruments (hedge ratio) for 1997. This effectively fixed
or bounded the fuel cost and thus eliminated the market price risk for this
covered volume of fuel. At December 31, 1997, CL&P had a hedge ratio of 44
percent for 1998.
At December 31, 1997, the 56 percent uncovered volume of fuel for 1998, as a
result of not being hedged, is subject to changes in actual market prices.
Therefore, assuming a hypothetical 10 percent increase in the average 1997 price
of fuel in 1998, the result would be a negative pretax impact on earnings of
approximately $12.4 million.
This analysis is based on the broad assumption that the entire uncovered
volume of fuel remains constant and will be purchased on the spot market. This
assumption is subject to change as the uncovered volume of fuel likely will
change during the next year. Other assumptions used in this analysis,
projections of the fuel mix, the amount of long-term sales contracts or the
projected Millstone restart dates, also are subject to change.
Interest Rate Risk-Management Instruments
Several NU subsidiaries hold variable rate long-term notes, exposing the NU
system to interest rate risk. In order to hedge some of this risk, interest rate
risk-management instruments have been entered into on NAEC's $200 million
variable rate note, effectively fixing the interest on this note at 7.823
percent. The remaining variable notes remain unhedged.
At December 31, 1997, NU had a hedge ratio on its long-term variable rate
notes of 21 percent, which is expected to be the same for 1998. The remaining 79
percent of NU's variable notes are unhedged and, as a result, are subject to
actual market rates for 1998. Thus, a 10 percent increase in market interest
rates above the 1997 weighted average variable rate during 1998 would result in
a $3.6 million pretax annual decrease in earnings.
For purposes of this analysis, the hedge ratio for long-term variable rate
notes is calculated by dividing the amount of the hedged long-term note by the
total of all long-term variable notes held at December 31, 1997.
Northeast Utilities 1997 Annual Report 19
<PAGE>
- --------------------------------------------------------------------------------
Results of Operations
- --------------------------------------------------------------------------------
The components of significant income statement variances for the past two years
are provided in the table below. The relative magnitude of how revenues earned
in 1997 and retained earnings were used by NU's continuing operations in 1997 is
illustrated in the chart on page 21.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Income Statement Variances
(Millions of Dollars)
- ------------------------------------------------------------------------------------------
1997 over/(under) 1996 1996 over/(under) 1995
Amount Percent Amount Percent
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 43 1% $ 42 1%
Fuel, purchased and net interchange power 154 13 230 25
Other operation (50) (4) 191 20
Maintenance 86 21 127 44
Amortization of regulatory assets, net 8 7 (6) (5)
Federal and state income taxes (72) (a) (192) (73)
Deferred nuclear plants return
(other and borrowed funds) (3) (13) (13) (36)
Other income, net (69) (a) 20 (a)
Interest on long-term debt (3) (1) (30) (10)
Other interest (4) (53) 1 15
Preferred dividends of subsidiaries (3) (10) (6) (14)
Net income (138) (a) (281) (99)
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Percentage greater than 100
Operating Revenues
Total operating revenues increased in 1997, primarily due to higher fuel
recoveries and higher conservation recoveries. Fuel recoveries increased $32
million, primarily due to higher fuel revenues for CL&P as a result of a lower
fuel rate in 1996. Conservation recoveries increased by $17 million, primarily
due to a 1996 reserve for overrecoveries of CL&P demand-side management costs.
Retail kilowatt hour sales were 0.3 percent lower in 1997 as a result of mild
winter weather.
Total operating revenues increased in 1996, primarily due to higher retail
sales, regulatory decisions and higher other revenues, partially offset by lower
fuel recoveries and lower wholesale revenues. Retail sales increased 1.6 percent
($40 million), primarily due to modest economic growth in 1996. Regulatory
decisions increased revenues by $22 million, primarily due to retail rate
increases for CL&P in mid-1995 and PSNH in mid-1995 and 1996, partially offset
by 1996 reserves for CL&P overrecoveries of demand-side management costs. Other
revenues increased $31 million and included higher recognition in 1996 of
reimbursable conservation services and higher transmission revenues. Fuel
recoveries decreased $40 million, primarily due to lower FPPAC revenues for PSNH
as a result of a customer refund ordered by the NHPUC, partially offset by
higher base fuel revenues for PSNH as a result of the PSNH rate increases.
Wholesale revenues decreased $13 million, primarily due to higher recognition in
1995 of lump-sum payments for the termination of a CL&P long-term contract and
capacity sales contracts that expired in 1995.
Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense increased in 1997, primarily
due to replacement power costs associated with the Millstone outages and the
expensing in 1997 of replacement power costs incurred in 1996.
Fuel, purchased and net interchange power expense increased in 1996,
primarily due to replacement power costs associated with the Millstone outages
and the write-off of the generation utilization adjustment clause (GUAC) balance
under the CL&P Settlement.
20 Northeast Utilities 1997 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Other Operation and Maintenance
Other operation and maintenance expenses increased in 1997, primarily due to
higher costs associated with the Millstone restart effort ($163 million,
including a net increase of $10 million in reserves for future costs), higher
costs as a result of Seabrook outages ($23 million) and higher capacity charges
from Maine Yankee ($16 million), partially offset by lower recognition of
nuclear refueling outage costs primarily as a result of the 1996 CL&P Rate
Settlement ($72 million), lower capacity charges from Connecticut Yankee as a
result of a property tax refund ($35 million), lower administrative and general
expenses ($41 million) primarily due to lower pensions and benefit costs, and
lower storm expenses.
Other operation and maintenance expenses increased in 1996, primarily due to
higher costs associated with the Millstone restart effort ($179 million,
including $63 million of reserves for future costs) and 1996 costs to ensure
adequate generating capacity in Connecticut ($39 million). In addition, 1996
costs reflect higher storm and reliability expenditures, higher recognition of
conservation expenses and higher marketing costs.
Amortization of Regulatory Assets, Net
Amortization of regulatory assets, net increased in 1997, primarily due to the
completion of the CL&P cogeneration deferrals in 1996, increased amortization in
1997, and the beginning of the amortization of NAEC's Seabrook deferred return
in December 1997, partially offset by the completion of CL&P's Seabrook
amortization and WMECO's Millstone 3 amortization in 1996.
Amortization of regulatory assets, net decreased in 1996, primarily due to
the completion of the Millstone 3 phase-in plans in 1995, partially offset by
lower CL&P cogeneration deferrals and the accelerated amortization of regulatory
assets as a result of the 1996 CL&P Settlement.
Federal and State Income Taxes
Federal and state income taxes decreased in 1997, primarily due to lower book
taxable income.
Federal and state income taxes decreased in 1996, primarily due to lower book
taxable income, partially offset by 1995 tax benefits from a favorable tax
ruling and the expiration of the 1991 federal statute of limitations. Income tax
expense totaled approximately $70 million in 1996, despite relatively low pretax
earnings, due to the tax effect of differences for certain items, particularly
depreciation and the amortization of PSNH acquisition costs.
Deferred Nuclear Plants Return
The change in deferred nuclear plants return in 1997 was not significant.
Deferred nuclear plants return decreased in 1996, primarily due to additional
Seabrook investment being phased into rates, partially offset by a one-time
adjustment to NAEC's Seabrook deferred return balance of approximately $5
million in 1995.
Other Income, Net
Other income, net decreased in 1997, primarily due to a $25 million reserve for
anticipated losses on the sale of investments by Charter Oak Energy (COE),
equity losses on COE investments, costs associated with the accounts receivable
facility, nonutility marketing and advertising costs and lower miscellaneous
income.
Other income, net increased in 1996, primarily due to higher interest income
on temporary cash investments in 1996, the 1995 write-down of CL&P's wholesale
investment in Millstone 3 and a 1995 increase to the environmental reserve.
Interest on Long-Term Debt
The change in interest on long-term debt in 1997 was not significant. Interest
on long-term debt decreased in 1996, primarily due to reacquisitions and
retirements of long-term debt in 1995.
Other Interest
Other interest expense decreased in 1997 due to 1996 interest expense associated
with an FPPAC refund for PSNH.
Preferred Dividends of Subsidiaries
The change in preferred dividends of subsidiaries was not significant in 1997.
Preferred dividends of subsidiaries decreased in 1996, primarily due to a 1995
charge to earnings for premiums on redeemed preferred stock and a reduction in
preferred stock levels.
- --------------------------------------------------------------------------------
1997 Use of Revenue and Retained Earnings
- --------------------------------------------------------------------------------
[The following table was originally a pie chart in the printed materials.]
Energy Costs 32%
Nonfuel Operation and Maintenance Expenses 28%
Depreciation, Amortization and Other Expenses 13%
Wages and Benefits 12%
Interest Charges 7%
Taxes 6%
Common and Preferred Dividends 2%
- --------------------------------------------------------------------------------
Northeast Utilities 1997 Annual Report 21
<PAGE>
Company Report
- --------------------------------------------------------------------------------
The consolidated financial statements of Northeast Utilities and subsidiaries
and other sections of this Annual Report were prepared by the company. These
financial statements, which were audited by Arthur Andersen LLP, were prepared
in accordance with generally accepted accounting principles using estimates and
judgment, where required, and giving consideration to materiality.
The company has endeavored to establish a control environment that encourages
the maintenance of high standards of conduct in all of its business activities.
The company maintains a system of internal controls over financial reporting
which is designed to provide reasonable assurance to the company's management
and Board of Trustees regarding the preparation of reliable, published financial
statements. The system is supported by an organization of trained management
personnel, policies and procedures, and a comprehensive program of internal
audits. Through established programs, the company regularly communicates to its
management employees their internal control responsibilities and policies
prohibiting conflict of interest.
The Audit Committee of the Board of Trustees is composed entirely of outside
trustees. This committee meets periodically with management, the internal
auditors and the independent auditors to review the activities of each and to
discuss audit matters, financial reporting and the adequacy of internal
controls.
Because of inherent limitations in any system of internal controls, errors or
irregularities may occur and not be detected. The company believes, however,
that its system of internal accounting controls and control environment provide
reasonable assurance that its assets are safeguarded from loss or unauthorized
use and that its financial records, which are the basis for the preparation of
all financial statements, are reliable.
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders
of Northeast Utilities:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of Northeast Utilities (a Massachusetts trust) and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, common shareholders' equity, cash flows and income taxes
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northeast Utilities and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 20, 1998
22 Northeast Utilities 1997 Annual Report
<PAGE>
Consolidated Statements of Income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
For the Years Ended December 31,
- ---------------------------------------------------------------------------------------------
(Thousands of Dollars, except share information) 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues ............................... $ 3,834,806 $ 3,792,148 $ 3,750,560
- ---------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power ..... 1,293,518 1,139,848 909,244
Other ......................................... 1,107,097 1,157,278 966,845
Maintenance ...................................... 501,693 415,532 288,927
Depreciation ..................................... 354,329 359,507 354,293
Amortization of regulatory assets, net ........... 130,900 122,573 128,413
Federal and state income taxes
(See Consolidated Statements of Income Taxes).. 8,596 68,261 261,287
Taxes other than income taxes .................... 253,637 257,577 249,463
- ---------------------------------------------------------------------------------------------
Total operating expenses ...................... 3,649,770 3,520,576 3,158,472
- ---------------------------------------------------------------------------------------------
Operating Income ................................. 185,036 271,572 592,088
- ---------------------------------------------------------------------------------------------
Other Income:
Deferred nuclear plants return -- other funds .... 7,288 8,988 14,196
Equity in earnings of regional nuclear generating
and transmission companies .................... 11,306 13,155 13,208
Other, net ....................................... (38,473) 30,932 10,954
Minority interest in income of subsidiary ........ (9,300) (9,300) (8,732)
Income taxes ..................................... 10,702 (1,747) (683)
- ---------------------------------------------------------------------------------------------
Other (loss)/income, net ...................... (18,477) 42,028 28,943
- ---------------------------------------------------------------------------------------------
Income before interest charges ................ 166,559 313,600 621,031
- ---------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt ....................... 282,095 285,463 315,862
Other interest ................................... 3,561 7,649 6,666
Deferred nuclear plants return -- borrowed funds.. (13,675) (15,119) (23,310)
- ---------------------------------------------------------------------------------------------
Interest charges, net ......................... 271,981 277,993 299,218
- ---------------------------------------------------------------------------------------------
(Loss)/Income after interest charges .......... (105,422) 35,607 321,813
Preferred Dividends of Subsidiaries .............. 30,286 33,776 39,379
- ---------------------------------------------------------------------------------------------
Net (Loss)/Income ................................ $ (135,708) $ 1,831 $ 282,434
=============================================================================================
(Loss)/Earnings Per Common Share ................. $ (1.05) $ 0.01 $ 2.24
=============================================================================================
Common Shares Outstanding (average) .............. 129,567,708 127,960,382 126,083,645
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Northeast Utilities 1997 Annual Report 23
<PAGE>
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
At December 31,
- ----------------------------------------------------------------------------------------------
(Thousands of Dollars) 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Utility Plant, at cost:
Electric (Note 1H) ........................................... $ 9,869,561 $ 9,685,155
Other ........................................................ 186,130 192,303
- ----------------------------------------------------------------------------------------------
10,055,691 9,877,458
Less: Accumulated provision for depreciation ................. 4,330,599 3,979,864
- ----------------------------------------------------------------------------------------------
5,725,092 5,897,594
Unamortized PSNH acquisition costs (Note 1J) .................... 402,285 491,709
Construction work in progress ................................... 141,077 146,438
Nuclear fuel, net ............................................... 194,704 196,424
- ----------------------------------------------------------------------------------------------
Total net utility plant ...................................... 6,463,158 6,732,165
- ---------------------------------------------------------------------------------------------
Other Property and Investments:
Nuclear decommissioning trusts, at market ....................... 502,749 403,544
Investments in regional nuclear generating companies, at equity.. 86,955 85,340
Investments in transmission companies, at equity ................ 19,635 21,186
Investments in Charter Oak Energy, Inc. ......................... -- 57,188
Other, at cost .................................................. 95,362 43,372
- ----------------------------------------------------------------------------------------------
704,701 610,630
- ----------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents ....................................... 143,403 194,197
Investments in securitizable assets (Note 6) .................... 230,905 --
Receivables, less accumulated provision for uncollectible
accounts of $2,052,000 in 1997 and $17,062,000
in 1996 (Note 6) ............................................. 214,914 477,021
Accrued utility revenues (Note 6) .............................. 36,885 127,162
Fuel, materials and supplies, at average cost ................... 212,721 211,414
Recoverable energy costs, net -- current portion ................ 59,959 1,804
Investments in Charter Oak Energy, Inc. held for sale (Note 7G).. 33,391 --
Prepayments and other ........................................... 38,495 55,318
- ----------------------------------------------------------------------------------------------
970,673 1,066,916
- ----------------------------------------------------------------------------------------------
Deferred Charges:
Regulatory assets (Note 1H) ..................................... 2,173,278 2,221,839
Unamortized debt expense ........................................ 38,758 38,146
Other ........................................................... 63,844 72,052
- ----------------------------------------------------------------------------------------------
2,275,880 2,332,037
- ----------------------------------------------------------------------------------------------
Total Assets .................................................... $ 10,414,412 $ 10,741,748
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
24 Northeast Utilities 1997 Annual Report
<PAGE>
Consolidated Balance Sheets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
At December 31,
- ----------------------------------------------------------------------------------------------
(Thousands of Dollars) 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalization and Liabilities
Capitalization: (See Consolidated Statements of Capitalization)
Common shareholders' equity (See Note (a) -- Consolidated
Statements of Common Shareholders' Equity):
Common shares, $5 par value -- authorized 225,000,000 shares;
136,842,170 shares issued and 130,182,736 shares outstanding
in 1997 and 136,051,938 shares issued and 128,444,373 shares
outstanding in 1996 ........................................ $ 684,211 $ 680,260
Capital surplus, paid in ..................................... 932,493 940,446
Deferred contribution plan -- employee stock ownership
plan (ESOP) ................................................ (154,141) (176,091)
Retained earnings ............................................ 664,678 832,520
- ----------------------------------------------------------------------------------------------
Total common shareholders' equity ............................ 2,127,241 2,277,135
Preferred stock not subject to mandatory redemption ............. 136,200 136,200
Preferred stock subject to mandatory redemption ................. 245,750 276,000
Long-term debt .................................................. 3,645,659 3,613,681
- ----------------------------------------------------------------------------------------------
Total capitalization ......................................... 6,154,850 6,303,016
- ----------------------------------------------------------------------------------------------
Minority Interest in Consolidated Subsidiaries .................. 100,000 99,972
- ----------------------------------------------------------------------------------------------
Obligations Under Capital Leases (Note 4) ....................... 30,427 186,860
- ----------------------------------------------------------------------------------------------
Current Liabilities:
Notes payable to banks .......................................... 50,000 38,750
Long-term debt and preferred stock-- current portion ............ 274,810 319,503
Obligations under capital leases-- current portion .............. 177,304 19,305
Accounts payable ................................................ 402,870 507,139
Accrued taxes ................................................... 46,016 7,050
Accrued interest ................................................ 30,786 51,386
Accrued pension benefits ........................................ 77,186 99,699
Nuclear compliance (Note 7B) .................................... 73,000 63,200
Other ........................................................... 88,396 98,570
- ----------------------------------------------------------------------------------------------
1,220,368 1,204,602
- ----------------------------------------------------------------------------------------------
Deferred Credits:
Accumulated deferred income taxes ............................... 1,954,357 2,044,123
Accumulated deferred investment tax credits ..................... 158,837 168,444
Deferred contractual obligations (Note 2) ....................... 525,076 440,495
Other ........................................................... 270,497 294,236
- ----------------------------------------------------------------------------------------------
2,908,767 2,947,298
- ----------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 7)
Total Capitalization and Liabilities ............................ $ 10,414,412 $ 10,741,748
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Northeast Utilities 1997 Annual Report 25
<PAGE>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the Years Ended December 31,
- --------------------------------------------------------------------------------------------------
(Thousands of Dollars) 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
(Loss)/Income before preferred dividends of subsidiaries ...... $(105,422) $ 35,607 $ 321,813
Adjustments to reconcile to net cash from operating activities:
Depreciation .............................................. 354,329 359,507 354,293
Deferred income taxes and investment tax credits, net ..... 22,381 45,730 164,208
Deferred nuclear plants return, net of amortization ....... (13,781) (14,948) 71,788
Amortization of deferred demand-side
management costs, net ................................... 38,029 26,941 (937)
Recoverable energy costs, net of amortization ............. (54,102) (14,289) (27,874)
Amortization of PSNH acquisition costs .................... 56,557 56,884 55,547
Amortization of deferred cogeneration costs, net .......... 32,700 25,957 (55,341)
Deferred nuclear refueling outage, net of amortization .... (36,514) 51,831 (29,569)
Other sources of cash ..................................... 141,041 164,915 147,348
Other uses of cash ........................................ (86,202) (41,589) (67,838)
Changes in working capital:
Receivables and accrued utility revenues .................. 262,384 (31,992) (72,081)
Fuel, materials and supplies .............................. (1,307) (10,834) (10,518)
Accounts payable .......................................... (104,269) 188,101 38,096
Accrued taxes ............................................. 38,966 (68,168) 17,686
Sale of receivables and accrued utility revenues (Note 6).. 90,000 -- --
Investments in securitizable assets (Note 6) .............. (230,905) -- --
Nuclear compliance, net (Note 7B) ......................... 9,800 63,200 --
Other working capital (excludes cash) ..................... (36,464) (21,383) (2,458)
- --------------------------------------------------------------------------------------------------
Net cash flows from operating activities ...................... 377,221 815,470 904,163
- --------------------------------------------------------------------------------------------------
Financing Activities:
Issuance of common shares ..................................... 6,502 10,622 31,976
Issuance of long-term debt .................................... 260,000 222,150 225,100
Issuance of Monthly Income Preferred Securities ............... -- -- 100,000
Net increase/(decrease) in short-term debt .................... 11,250 (60,250) (91,000)
Reacquisitions and retirements of long-term debt .............. (288,793) (248,142) (425,500)
Reacquisitions and retirements of preferred stock ............. (25,000) (36,500) (140,675)
Cash dividends on preferred stock ............................. (30,286) (33,776) (39,379)
Cash dividends on common shares ............................... (32,134) (176,277) (221,701)
- --------------------------------------------------------------------------------------------------
Net cash flows used for financing activities .................. (98,461) (322,173) (561,179)
- --------------------------------------------------------------------------------------------------
Investment Activities:
Investment in plant:
Electric and other utility plant .......................... (233,399) (222,829) (231,408)
Nuclear fuel .............................................. (6,852) (14,529) (18,261)
- --------------------------------------------------------------------------------------------------
Net cash flows used for investments in plant .................. (240,251) (237,358) (249,669)
Investment in nuclear decommissioning trusts .................. (61,046) (65,716) (60,642)
Other investment activities, net .............................. (28,257) (25,064) (30,761)
- --------------------------------------------------------------------------------------------------
Net cash flows used for investments ........................... (329,554) (328,138) (341,072)
- --------------------------------------------------------------------------------------------------
Net (Decrease)/Increase in Cash for the Period ................ (50,794) 165,159 1,912
Cash and cash equivalents -- beginning of period .............. 194,197 29,038 27,126
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents -- end of period .................... $ 143,403 $ 194,197 $ 29,038
- --------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information:
Cash paid/(refunded) during the year for:
Interest, net of amounts capitalized .......................... $ 291,335 $ 268,129 $ 321,148
==================================================================================================
Income taxes .................................................. $ (26,387) $ 64,189 $ 108,928
==================================================================================================
Increase in obligations:
Niantic Bay Fuel Trust and other capital leases ........... $ 3,475 $ 3,524 $ 41,388
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
26 Northeast Utilities 1997 Annual Report
<PAGE>
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Deferred
Contribution
Common Capital Surplus, Plan -- ESOP Retained
Shares (a) Paid In (Note 5D) Earnings (b) Total
- -----------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 ................. $671,051 $904,371 $(213,324) $946,988 $2,309,086
- -----------------------------------------------------------------------------------------------------------------------
Net income for 1995 ..................... 282,434 282,434
Cash dividends on common shares --
$1.76 per share .................... (221,701) (221,701)
Loss on retirement of preferred stock ... (381) (381)
Issuance of 1,400,940 common shares,
$5 par value ....................... 7,005 24,971 31,976
Allocation of benefits -- ESOP .......... 70 15,172 15,242
Capital stock expenses, net ............. 6,896 6,896
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 ............... 678,056 936,308 (198,152) 1,007,340 2,423,552
- -----------------------------------------------------------------------------------------------------------------------
Net income for 1996 ..................... 1,831 1,831
Cash dividends on common shares --
$1.38 per share .................... (176,277) (176,277)
Loss on retirement of preferred stock ... (374) (374)
Issuance of 440,772 common shares,
$5 par value ....................... 2,204 8,418 10,622
Allocation of benefits -- ESOP .......... (8,103) 22,061 13,958
Capital stock expenses, net ............. 3,077 3,077
Currency translation adjustments ........ 746 746
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 ............... 680,260 940,446 (176,091) 832,520 2,277,135
- -----------------------------------------------------------------------------------------------------------------------
Net loss for 1997 ....................... (135,708) (135,708)
Cash dividends on common shares --
$0.25 per share .................... (32,134) (32,134)
Issuance of 790,232 common shares,
$5 par value ....................... 3,951 2,551 6,502
Allocation of benefits -- ESOP .......... (12,238) 21,950 9,712
Capital stock expenses, net ............. 2,592 2,592
Currency translation adjustments ........ (858) (858)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 ............... $684,211 $932,493 $(154,141) $664,678 $2,127,241
=======================================================================================================================
</TABLE>
(a) NU issued 8,430,910 warrants as part of its acquisition of PSNH. These
warrants, which expired on June 5, 1997, entitled the holder to purchase one
share of NU common stock at an exercise price of $24 per share. As of June
5, 1997, 464,678 shares had been purchased through the exercise of warrants.
(b) Certain consolidated subsidiaries have dividend restrictions imposed by
their long-term debt agreements. These restrictions also limit the amount of
retained earnings available for NU common dividends. At December 31, 1997,
these restrictions totaled approximately $559.6 million.
The accompanying notes are an integral part of these financial statements.
Northeast Utilities 1997 Annual Report 27
<PAGE>
Consolidated Statements of Capitalization
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
At December 31,
- --------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars) 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Shareholders' Equity (See Consolidated Balance Sheets) ................................ $2,127,241 $2,277,135
- --------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock of Subsidiaries:
$25 par value -- authorized 36,600,000 shares at December 31, 1997 and 1996;
4,840,000 shares outstanding in 1997 and 5,840,000 shares outstanding in 1996
$50 par value -- authorized 9,000,000 shares at December 31, 1997 and 1996;
5,424,000 shares outstanding in 1997 and 1996
$100 par value -- authorized 1,000,000 shares at December 31, 1997 and 1996;
200,000 shares outstanding in 1997 and 1996
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Dividend Rates Current Redemption Prices (a) Current Shares Outstanding
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Not Subject to Mandatory Redemption:
$50 par value -- $1.90 to $3.28 $50.50 to $54.00 2,324,000 .......... 116,200 116,200
$100 par value -- $7.72 $103.51 200,000 .......... 20,000 20,000
- --------------------------------------------------------------------------------------------------------------------------
Total Preferred Stock Not Subject to Mandatory Redemption .................................... 136,200 136,200
- --------------------------------------------------------------------------------------------------------------------------
Subject to Mandatory Redemption: (b)
$25 par value -- $1.90 to $2.65 $25.00 to $25.64 4,840,000 .......... 121,000 146,000
$50 par value -- $2.65 to $3.615 $51.00 to $52.41 3,100,000 .......... 155,000 155,000
- --------------------------------------------------------------------------------------------------------------------------
Total Preferred Stock Subject to Mandatory Redemption ........................................ 276,000 301,000
- --------------------------------------------------------------------------------------------------------------------------
Less: Preferred Stock to be redeemed within one year ......................................... 30,250 25,000
- --------------------------------------------------------------------------------------------------------------------------
Preferred Stock Subject to Mandatory Redemption, net ......................................... 245,750 276,000
- --------------------------------------------------------------------------------------------------------------------------
Long-Term Debt: (c)
First Mortgage Bonds --
Maturity Interest Rates
- --------------------------------------------------------------------------------------------------------------------------
1997 5.75% to 7.625% ............................................................. -- 207,988
1998 6.50% to 9.17% .............................................................. 199,800 199,800
1999 5.50% to 7.25% .............................................................. 279,000 279,000
2000 5.75% to 6.875% ............................................................. 260,000 260,000
2001 7.375% to 7.875% ............................................................ 220,000 160,000
2002 7.75% to 9.05% .............................................................. 580,000 400,000
2004 6.125% ...................................................................... 140,000 140,000
2019-2023 7.375% to 7.50% ............................................................. 120,000 120,000
2024-2025 7.375% to 8.50% ............................................................. 430,000 430,000
- --------------------------------------------------------------------------------------------------------------------------
Total First Mortgage Bonds ............................................................... 2,228,800 2,196,788
- --------------------------------------------------------------------------------------------------------------------------
Other Long-Term Debt -- (d)
Pollution Control Notes and Other Notes --
2000 Adjustable Rate (e) and 7.67% ............................................... 218,033 224,182
2005-2006 8.38% to 8.58% .............................................................. 194,000 210,000
2013-2018 Adjustable Rate ............................................................. 33,400 33,400
2020 Adjustable Rate ............................................................. 15,300 15,300
2021-2022 7.50% to 7.65% and Adjustable Rate .......................................... 552,485 552,485
2028 Adjustable Rate ............................................................. 369,300 369,300
2031 Adjustable Rate ............................................................. 62,000 62,000
- --------------------------------------------------------------------------------------------------------------------------
Total Pollution Control Notes and Other Notes ............................................ 1,444,518 1,466,667
Fees and interest due for spent nuclear fuel disposal costs (Note 1P) ........................ 205,502 195,023
Other ........................................................................................ 18,513 57,169
- --------------------------------------------------------------------------------------------------------------------------
Total Other Long-Term Debt ................................................................... 1,668,533 1,718,859
- --------------------------------------------------------------------------------------------------------------------------
Unamortized premium and discount, net ........................................................ (7,113) (7,463)
- --------------------------------------------------------------------------------------------------------------------------
Total Long-Term Debt ......................................................................... 3,890,220 3,908,184
Less: Amounts due within one year ........................................................... 244,561 294,503
- --------------------------------------------------------------------------------------------------------------------------
Long-Term Debt, net .......................................................................... 3,645,659 3,613,681
- --------------------------------------------------------------------------------------------------------------------------
Total Capitalization ......................................................................... $6,154,850 $6,303,016
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
28 Northeast Utilities 1997 Annual Report
<PAGE>
Notes to Consolidated Statements of Capitalization
- --------------------------------------------------------------------------------
(a) Each of these series is subject to certain refunding limitations for the
first five years after issuance. Redemption prices reduce in future years.
(b) Changes in Preferred Stock Subject to Mandatory Redemption:
- --------------------------------------------------------------------------------
(Thousands of Dollars)
- --------------------------------------------------------------------------------
Balance at January 1, 1995 ................................. $ 379,675
Reacquisitions and Retirements .......................... (75,675)
- -------------------------------------------------------------------------------
Balance at December 31, 1995 ............................... 304,000
Reacquisitions and Retirements .......................... (3,000)
- -------------------------------------------------------------------------------
Balance at December 31, 1996 ............................... 301,000
Reacquisitions and Retirements .......................... (25,000)
- -------------------------------------------------------------------------------
Balance at December 31, 1997 ............................... $ 276,000
===============================================================================
The minimum sinking-fund requirements of the series subject each year to
mandatory redemption aggregate approximately $30.3 million in 1998, $46.3
million each year in 1999, 2000 and 2001 and $21.3 million in 2002. In case of
default on sinking-fund payments, no payments may be made on any junior stock by
way of dividends or otherwise (other than in shares of junior stock) so long as
the default continues. If a subsidiary is in arrears in the payment of dividends
on any outstanding shares of preferred stock, the subsidiary is prohibited from
redeeming or purchasing less than all of the outstanding preferred stock.
(c) Long-term debt maturities and cash sinking-fund requirements, excluding fees
and interest due for spent nuclear fuel disposal costs, on debt outstanding at
December 31, 1997, for the years 1998 through 2002 are approximately $244.6
million, $375.9 million, $557.8 million, $313.2 million and $375.4 million,
respectively.
In addition, there are annual one percent sinking- and improvement-fund
requirements of approximately $1.5 million each year for 1998 and 1999 and $900
thousand each year for 2000 through 2002 for certain series of Western
Massachusetts Electric Company (WMECO) first mortgage bonds. The WMECO sinking-
and improvement-fund requirements may be satisfied by the deposit of cash or
bonds or by certification of property additions. The one percent sinking- and
improvement-fund requirements for The Connecticut Light and Power Company (CL&P)
first mortgage bonds are no longer required, as of 1997, as determined by a
majority of bond holders. Essentially all utility plant of CL&P, WMECO, Public
Service Company of New Hampshire (PSNH) and North Atlantic Energy Corporation
(NAEC), wholly owned subsidiaries of NU, is subject to the liens of each
company's respective first mortgage bond indenture.
NAEC's first mortgage bonds also are secured by payments made to NAEC by PSNH
under the terms of the Seabrook Power Contracts.
CL&P and WMECO have secured $369.3 million of pollution-control notes with
second mortgage liens on Millstone 1, junior to the liens of their respective
first mortgage bond indentures.
CL&P and WMECO have issued $225 million and $90 million, respectively, of
first mortgage bonds as collateral to enable them to borrow under a three-year
revolving credit agreement. At December 31, 1997, CL&P and WMECO had $35 million
and $15 million, respectively, in borrowings under this agreement. PSNH's
Revolving Credit Facility has a second lien, junior to the lien of its first
mortgage bond indenture, on all PSNH property located in New Hampshire, which
will expire in April 1999. At December 31, 1997, PSNH had no borrowings under
the Revolving Credit Facility. For further information on these borrowing
facilities, see Note 3, "Short-Term Debt."
CL&P has $62 million of tax-exempt Pollution Control Revenue Bonds (PCRBs)
with a bond insurance and liquidity facility secured by first mortgage bonds.
Concurrent with the issuance of PSNH's Series A and B first mortgage bonds,
PSNH entered into financing arrangements with the Business Finance Authority
(BFA) of the state of New Hampshire. Pursuant to these arrangements, the BFA
issued seven series of PCRBs and loaned the proceeds to PSNH. At December 31,
1997, $516.5 million of the PCRBs were outstanding. PSNH's obligation to repay
each series of PCRBs is secured by a series of first mortgage bonds that were
issued under its indenture. Each such series of first mortgage bonds contains
terms and provisions with respect to maturity, principal payment, interest rate
and redemption that correspond to those of the applicable series of PCRBs. For
financial reporting purposes, these bonds would not be considered outstanding
unless PSNH fails to meet its obligations under the PCRBs.
(d) The average effective interest rates on the variable-rate pollution control
notes ranged from 3.4 percent to 5.6 percent for 1997 and 3.2 percent to 5.5
percent for 1996.
(e) Interest-rate management instruments with financial institutions effectively
fix the interest rate of NAEC's $200 million variable-rate bank note at 7.823
percent. For further information, see Note 8, "Market Risk Management."
Northeast Utilities 1997 Annual Report 29
<PAGE>
Consolidated Statements of Income Taxes
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
For the Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
(Thousands of Dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The components of the federal and state income tax provisions
(credited)/charged to operations are:
Current income taxes:
Federal ............................................................ $ (22,760) $ 13,500 $ 53,862
State .............................................................. (1,727) 10,778 43,900
- ----------------------------------------------------------------------------------------------------------
Total current ......................................................... (24,487) 24,278 97,762
- ----------------------------------------------------------------------------------------------------------
Deferred income taxes, net:
Federal ............................................................ 43,777 70,117 167,091
State .............................................................. (11,801) (14,793) 7,224
- ----------------------------------------------------------------------------------------------------------
Total deferred ........................................................ 31,976 55,324 174,315
- ----------------------------------------------------------------------------------------------------------
Investment tax credits, net ........................................... (9,595) (9,594) (10,107)
- ----------------------------------------------------------------------------------------------------------
Total income tax (credit)/expense ..................................... $ (2,106) $ 70,008 $ 261,970
==========================================================================================================
The components of total income tax expense are classified as follows:
Income taxes charged to operating expenses ......................... $ 8,596 $ 68,261 $ 261,287
Other income taxes ................................................. (10,702) 1,747 683
- ----------------------------------------------------------------------------------------------------------
Total income tax (credit)/expense ..................................... $ (2,106) $ 70,008 $ 261,970
- ----------------------------------------------------------------------------------------------------------
Deferred income taxes comprise the tax effects of temporary
differences as follows:
Depreciation, leased nuclear fuel, settlement credits
and disposal costs ................................................. $ 32,932 $ 18,401 $ 82,318
Energy adjustment clauses .......................................... 5,916 (8,268) 26,851
Nuclear plant deferrals ............................................ 13,989 (15,549) 2,666
Contractual settlements ............................................ 1,754 2,513 (9,496)
Bond redemptions ................................................... (4,260) (4,685) 9,224
Amortization of New Hampshire regulatory settlement ................ 11,501 11,501 11,501
Deferred tax asset associated with net operating losses ............ -- 96,756 57,543
Nuclear compliance reserves ........................................ (5,697) (26,102) --
Demand-side management ............................................. (12,169) (14,954) 765
State net operating loss carryforward .............................. (7,670) -- --
Other .............................................................. (4,320) (4,289) (7,057)
- ----------------------------------------------------------------------------------------------------------
Deferred income taxes, net ............................................ $ 31,976 $ 55,324 $ 174,315
==========================================================================================================
A reconciliation between income tax expense and the expected tax
expense at 35 percent of pretax income:
Expected federal income tax ........................................... $ (37,635) $ 36,965 $ 204,324
Tax effect of differences:
Depreciation ....................................................... 22,049 24,337 25,639
Deferred nuclear plants return ..................................... (2,551) (3,146) (4,969)
Amortization of regulatory assets .................................. 5,498 7,910 20,389
Amortization of PSNH acquisition costs ............................. 31,298 31,410 31,522
Seabrook intercompany loss ......................................... (4,616) (7,503) (13,048)
Investment tax credit amortization ................................. (9,595) (9,594) (10,107)
State income taxes, net of federal benefit ......................... (8,463) (2,610) 33,231
Sale of Seabrook 2 steam generator ................................. -- (2,516) --
Adjustment for prior years' taxes .................................. (1,712) (962) (20,312)
Employee stock ownership plan ...................................... (4,648) (4,007) (2,192)
Dividends received deduction ....................................... (1,563) (3,027) (3,936)
Loss reserve on sale of investment ................................. 8,750 -- --
Other, net ......................................................... 1,082 2,751 1,429
- ----------------------------------------------------------------------------------------------------------
Total income tax (credit)/expense ..................................... $ (2,106) $ 70,008 $ 261,970
==========================================================================================================
</TABLE>
The accompanying notes are in integral part of these financial statements.
30 Northeast Utilities 1997 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
A. About Northeast Utilities
Northeast Utilities (NU or the company) is the parent company of the Northeast
Utilities system (the NU system). The NU system furnishes franchised retail
electric service in Connecticut, New Hampshire and western Massachusetts through
four wholly owned subsidiaries: CL&P, PSNH, WMECO and Holyoke Water Power
Company (HWP). A fifth wholly owned subsidiary, NAEC, sells all of its
entitlement to the capacity and output of the Seabrook nuclear power plant
(Seabrook) to PSNH. In addition to its franchised retail service, the NU system
furnishes firm and other wholesale electric services to various municipalities
and other utilities, and participates in limited retail access programs,
providing off-system retail electric service. The NU system serves about 30
percent of New England's electric needs and is one of the 25 largest electric
utility systems in the country as measured by revenues.
Several wholly owned subsidiaries of NU provide support services for the NU
system companies and, in some cases, for other New England utilities. Northeast
Utilities Service Company (NUSCO) provides centralized accounting,
administrative, information resources, engineering, financial, legal,
operational, planning, purchasing and other services to the NU system companies.
Northeast Nuclear Energy Company (NNECO) acts as agent for the NU system
companies and other New England utilities in operating the Millstone nuclear
generating facilities. North Atlantic Energy Service Corporation (NAESCO) has
operational responsibility for Seabrook. Three other subsidiaries construct,
acquire or lease some of the property and facilities used by the NU system
companies. In addition, CL&P and WMECO each have established a special purpose
subsidiary whose business consists of the purchase and resale of receivables.
Charter Oak Energy, Inc. (COE), HEC, Inc. (HEC), Mode 1 Communications, Inc.
(Mode 1), and Select Energy, Inc., (formerly NUSCO Energy Partners, Inc.) are
other NU system companies which engage in a variety of activities.
Directly and through subsidiaries, COE has investments in cogeneration,
small-power production and other forms of nonutility generation as permitted
under the Public Utility Regulatory Policy Act, and in exempt wholesale
generators and foreign utility companies as permitted under the Energy Policy
Act of 1992 (Energy Act). These investments are accounted for on either a cost
or equity basis based upon COE's level of participation. NU has put COE up for
sale. For further information regarding the sale of COE, see Management's
Discussion and Analysis of Financial Condition and Results of Operations (MD&A),
and Note 7G, "Commitments and Contingencies -- Sale of COE."
HEC provides energy management services for the NU system's and other
utilities' commercial, industrial and institutional electric customers. Mode 1
and Select Energy, Inc. develop and invest in telecommunications and in
energy-related activities, respectively.
B. Presentation
The consolidated financial statements of the company include the accounts of all
wholly owned subsidiaries. Significant intercompany transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Certain reclassifications of prior years' data have been made to conform with
the current year's presentation.
C. Public Utility Regulation
NU is registered with the Securities and Exchange Commission (SEC) as a holding
company under the Public Utility Holding Company Act of 1935 (1935 Act). NU and
its subsidiaries are subject to the provisions of the 1935 Act. Arrangements
among the NU system companies, outside agencies and other utilities covering
interconnections, interchange of electric power and sales of utility property
are subject to regulation by the Federal Energy Regulatory Commission (FERC)
and/or the SEC. The operating subsidiaries are subject to further regulation for
rates, accounting and other matters by the FERC and/or applicable state
regulatory commissions.
For information regarding proposed changes in the nature of industry
regulation, see Note 7A, "Commitments and Contingencies -- Restructuring and
Rate Matters."
D. New Accounting Standards
The Financial Accounting Standards Board (FASB) issued two new accounting
standards in February 1997: Statement of Financial Accounting Standards (SFAS)
128, "Earnings per Share" and SFAS 129, "Disclosure of Information about Capital
Structure." SFAS 128 establishes standards for computing and presenting earnings
per share (EPS) and is effective for 1997. The adoption of SFAS 128 did not have
a material impact on the company's EPS calculation and presentation. SFAS 129
establishes standards for disclosing information about an entity's capital
structure. NU's current disclosures are consistent with the requirements of SFAS
129.
Northeast Utilities 1997 Annual Report 31
<PAGE>
- --------------------------------------------------------------------------------
During June 1997, the FASB issued SFAS 130, "Report ing Comprehensive Income"
and SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 130 establishes standards for the reporting and disclosure of
comprehensive income. To date, the NU system companies have not had material
transactions that would be required to be reported as comprehensive income. SFAS
131 determines the standards for reporting and disclosing qualitative and
quantitative information about a company's operating segments. This information
includes segment profit or loss, certain segment revenue and expense items and
segment assets and a reconciliation of these segment disclosures to
corresponding amounts in the company's general purpose financial statements. The
NU system currently evaluates management performance using a cost-based budget,
and the information required by SFAS 131 is not available. Therefore, these
disclosure requirements are not applicable. Management believes that the
implementation of SFAS 130 and SFAS 131 will not have a material impact on NU's
current disclosures.
See Note 6, "Sale of Customer Receivables and Accrued Utility Revenues," and
Note 7C, "Commitments and Contingencies -- Environmental Matters," for
information on other newly issued accounting and reporting standards related to
those specific areas.
E. Investments and Jointly Owned Electric Utility Plant
Regional Nuclear Generating Companies: CL&P, PSNH and WMECO own common stock of
four regional nuclear generating companies (Yankee companies). The NU system's
investments in the Yankee companies are accounted for on the equity basis due to
NU's ability to exercise significant influence over their operating and
financial policies. The Yankee companies, with the NU system's equity
investments and ownership interests are:
- --------------------------------------------------------------------------------
(Thousands of Dollars Except for Percentages)
- --------------------------------------------------------------------------------
Connecticut Yankee Atomic
Power Company (CYAPC) ....................... $54,671 49.0%
Yankee Atomic Electric
Company (YAEC) .............................. 8,020 38.5
Maine Yankee Atomic
Power Company (MYAPC) ....................... 15,699 20.0
Vermont Yankee Nuclear
Power Corporation (VYNPC) ................... 8,565 16.0
- -------------------------------------------------------------------------------
Total Equity Investment ........................ $86,955
================================================================================
Each Yankee company owns a single nuclear generating unit. Under the terms of
the contracts with the Yankee companies, the shareholders-sponsors are
responsible for their proportionate share of the costs of each unit, including
decommissioning. The energy and capacity costs from VYNPC and nuclear
decommissioning costs of the Yankee companies that have been shut down are
billed as purchased power to CL&P, PSNH and WMECO.
The electricity produced by the Vermont Yankee nuclear generating facility
(VY) is committed substantially on the basis of ownership interests and is
billed pursuant to contractual agreements. YAEC's, CYAPC's and MYAPC's nuclear
power plants were shut down permanently on February 26, 1992, December 4, 1996,
and August 6, 1997, respectively. Under ownership agreements with the Yankee
companies, CL&P, PSNH and WMECO may be asked to provide direct or indirect
financial support for one or more of the companies. For more information on the
Yankee companies, see Note 2, "Nuclear Decommissioning," and Note 7F,
"Commitments and Contingencies -- Long-Term Contractual Arrangements."
Millstone: CL&P and WMECO together own 100 percent of both Millstone 1, a
660-megawatt (MW) nuclear generating unit and Millstone 2, a 870-MW nuclear
generating unit. CL&P, PSNH and WMECO together have a 68.02 percent joint
ownership interest in Millstone 3, a 1,154-MW nuclear generating unit.
The three Millstone units are out of service. NU hopes to return Millstone 3
to service in early spring of 1998 and Millstone 2 three to four months after
Millstone 3. Millstone 1 has been placed in extended maintenance status.
Management is reviewing its options with respect to Millstone 1, including
restart, early retirement and other options. In a draft ruling issued in
February 1998, the Connecticut Department of Public Utility Control (DPUC)
determined that Millstone 1 was no longer "used and useful" and ordered it
removed from rate base.
In 1996, one of the joint owners of Millstone 3, Vermont Electric Generation
and Transmission Cooperative, Inc. (VEG&T), filed for bankruptcy. The subsequent
liquidation resulted in the offering of VEG&T's 0.035 percent share of Millstone
3 for sale to the joint owners of Millstone 3. None of the non-NU joint owners
accepted the offer. During 1998, CL&P expects to make the necessary regulatory
filings to acquire ownership of VEG&T's share of Millstone 3.
For more information regarding the DPUC's action, see the MD&A. For more
information regarding the Millstone units see Note 2, "Nuclear Decommissioning,"
and Note 7B, "Commitments and Contingencies -- Nuclear Performance."
32 Northeast Utilities 1997 Annual Report
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Seabrook 1: CL&P and NAEC together have a 40.04 percent joint ownership
interest in Seabrook 1, a 1,148-MW nuclear generating unit. NAEC sells all of
its share of the power generated by Seabrook 1 to PSNH under two long-term
contracts (the Seabrook Power Contracts).
Plant-in-service and the accumulated provision for depreciation for the NU
system's share of the three Millstone units and Seabrook 1 are as follows:
- --------------------------------------------------------------------------------
At December 31,
- --------------------------------------------------------------------------------
(Millions of Dollars) 1997 1996
- --------------------------------------------------------------------------------
Plant-in-service
Millstone 1 .............................................. $ 478.7 $ 474.7
Millstone 2 .............................................. 857.1 851.8
Millstone 3 .............................................. 2,404.3 2,402.4
Seabrook 1 ............................................... 897.5 892.4
Accumulated provision for depreciation
Millstone 1 .............................................. $ 212.1 $ 196.6
Millstone 2 .............................................. 306.7 275.8
Millstone 3 .............................................. 695.1 633.3
Seabrook 1 ............................................... 150.0 131.7
================================================================================
The NU system's share of Millstone and Seabrook 1 expenses are included in the
corresponding operating expenses on the accompanying Consolidated Statements of
Income.
Hydro-Quebec: NU has a 22.66 percent equity ownership interest, totaling
approximately $19.6 million, in two companies that transmit electricity imported
from the Hydro-Quebec system in Canada. The two companies own and operate
transmission and terminal facilities which have the capability of importing up
to 2,000 MW from the Hydro-Quebec system. See Note 7F, "Commitments and
Contingencies -- Long-Term Contractual Arrangements," for additional
information.
F. Depreciation
The provision for depreciation is calculated using the straight-line method
based on estimated remaining lives of depreciable utility plant-in-service,
adjusted for salvage value and removal costs, as approved by the appropriate
regulatory agency.
Except for major facilities, depreciation rates are applied to the average
plant-in-service during the period. Major facilities are depreciated from the
time they are placed in service. When plant is retired from service, the
original cost of plant, including costs of removal, less salvage, is charged to
the accumulated provision for depreciation. The depreciation rates for the
several classes of electric plant-in-service are equivalent to a composite rate
of 3.8 percent in 1997, 1996 and 1995. See Note 2, "Nuclear Decommissioning,"
for information on nuclear plant decommissioning.
The NU system's nonnuclear generating facilities have limited service lives.
Plant may be retired in place or dismantled based upon expected future needs,
the economics of the closure and environmental concerns. The costs of closure
and removal are incremental costs and, for financial reporting purposes, are
accrued over the life of the asset as part of depreciation. At December 31, 1997
and 1996, the accumulated provision for depreciation included approximately
$83.2 million and $77.3 million, respectively, accrued for the cost of removal,
net of salvage for nonnuclear generation property.
G. Revenues
Other than revenues under fixed-rate agreements nego-tiated with certain
wholesale, commercial and industrial customers and limited retail access
programs, utility revenues are based on authorized rates applied to each
customer's use of electricity. In general, rates can be changed only through a
formal proceeding before the appropriate regulatory commission. Regulatory
commissions also have authority over the terms and conditions of nontraditional
rate-making arrangements. At the end of each accounting period, CL&P, PSNH and
WMECO accrue an estimate for the amount of energy delivered but unbilled.
For information on rate proceedings and their potential impact on CL&P and
PSNH, see the MD&A.
H. Regulatory Accounting and Assets
The accounting policies of the operating companies and the accompanying
consolidated financial statements conform to generally accepted accounting
principles applicable to rate-regulated enterprises and reflect the effects of
the ratemaking process in accordance with SFAS 71, "Accounting for the Effects
of Certain Types of Regulation." Assuming a cost-of-service based regulatory
structure, regulators may permit incurred costs, normally treated as expenses,
to be deferred and recovered through future revenues. Through their actions,
regulators also may reduce or eliminate the value of an asset, or create a
liability. If any portion of the operating companies' operations were no longer
subject to the provisions of SFAS 71, as a result of a change in the
cost-of-service based regulatory structure or the effects of competition, the
company would be required to write off all of its related regulatory assets and
liabilities unless there is a formal transition plan which provides for the
recovery, through established rates, for the collection of approved stranded
costs and to maintain the cost-of-service basis for the remaining regulated
operations. At the time of transition, the operating companies would be required
to determine any impairment to the carrying costs of deregulated plant and
inventory assets.
Northeast Utilities 1997 Annual Report 33
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Management anticipates that restructuring programs will be implemented within
each of the NU system operating companies' respective jurisdictions during the
next few years. In a restructured environment, the companies' generation
businesses no longer will be rate regulated on a cost-of-service basis. The
majority of NU's regulatory assets are related to its generation business.
The staff of the SEC has had concerns regarding the appropriateness of the
utilities' ability to continue application of SFAS 71 for the generation portion
of their business in a restructured environment. The SEC referred the issue to
the Emerging Issues Task Force (EITF) of the FASB which reached a consensus and
issued "Deregulation of the Pricing of Electricity-Issues Related to the
Application of FASB Statements No. 71 and 101" (EITF 97-4). The EITF concluded:
(1) the future recognition of regulatory assets for the portion of the business
that no longer qualifies for application of SFAS 71 depends on the regulators'
treatment of the recovery of those costs and other stranded assets from cash
flows of other portions of the business still considered to be regulated, and
(2) a utility should discontinue the application of SFAS 71 when a legislative
and regulatory plan has been enacted, which would include transition plans into
a competitive environment, and when the stranded costs which are subject to
future rate recovery are determined. EITF 97-4 became effective in August 1997.
Electric utility industry restructuring within the state of Massachusetts
will be effective March 1, 1998. WMECO has submitted its proposed restructuring
plan to the Massachusetts Department of Telecommunications and Energy (DTE),
formerly the Massachusetts Department of Public Utilities. If the DTE approves
the plan in its current form, WMECO would discontinue the application of SFAS
71. However, the restructuring legislation enacted by the state of Massachusetts
specifically provides for future deferrals and the cost recovery of
generation-related assets as contemplated under the plan. As such, WMECO is not
expected to have to write off either its generation-related assets or related
regulatory assets. WMECO's generation-related regulatory assets were valued at
approximately $188 million at December 31, 1997.
The issue of restructuring the electric utility industry in New Hampshire is
currently the focus of negotiations and proceedings within the federal and state
court systems. Management believes that PSNH's use of regulatory accounting
remains appropriate while this issue remains in litigation.
The Connecticut General Assembly is addressing a proposal for electric
industry restructuring in the state of Connecticut during 1998. As the terms and
conditions to be contained within the restructuring plan cannot be determined at
this time, management believes that its use of regulatory accounting within this
jurisdiction remains appropriate.
The company expects that its transmission and distribution business within
each of its jurisdictions will continue to be rate regulated on a
cost-of-service basis and, accordingly, CL&P, WMECO and PSNH will continue to
apply SFAS 71 to this portion of their business.
For further information on the NU system companies' respective regulatory
environments and the potential impacts of restructuring, see Note 7A,
"Commitments and Contingencies -- Restructuring and Rate Matters" and the MD&A.
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," requires the evaluation of long-lived
assets, including regulatory assets, for impairment when certain events occur or
when conditions exist that indicate the carrying amounts of assets may not be
recoverable. SFAS 121 requires that any long-lived assets which are no longer
probable of recovery through future revenues be revalued based on estimated
future cash flows. If this revaluation is less than the book value of the asset,
an impairment loss would be charged to earnings.
Management continues to believe it is probable that the operating companies
will recover their investments in long-lived assets through future revenues.
This conclusion may change in the future as the implementation of restructuring
plans within the NU system companies' respective jurisdictions will generally
require the formation of separate generation entities that will be subject to
competitive market conditions. As a result, the NU system companies will be
required to assess the carrying amounts of their long-lived assets in accordance
with SFAS 121. The components of the NU system companies' regulatory assets are
as follows:
- --------------------------------------------------------------------------------
At December 31,
- --------------------------------------------------------------------------------
(Thousands of Dollars) 1997 1996
- --------------------------------------------------------------------------------
Income taxes, net (Note1I) ......................... $ 938,564 $1,012,343
Recoverable energy costs,
net (Note 1K) ................................... 324,809 328,863
Deferred costs -- nuclear
plants (Note 1L) ................................ 199,753 185,078
Unrecovered contractual
obligations (Note 2) ............................ 515,076 435,495
Deferred demand-side
management costs (Note 1M) ...................... 52,100 90,129
Cogeneration costs (Note 1N) ....................... 33,505 66,205
Seabrook deferral (Note 1L) ........................ 8,376 --
Other .............................................. 101,095 103,726
- --------------------------------------------------------------------------------
$2,173,278 $2,221,839
================================================================================
34 Northeast Utilities 1997 Annual Report
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I. Income Taxes
The tax effect of temporary differences (differences between the periods in
which transactions affect income in the financial statements and the periods in
which they affect the determination of taxable income) is accounted for in
accordance with the ratemaking treatment of the applicable regulatory
commissions. See the Consolidated Statements of Income Taxes for the components
of income tax expense.
The tax effect of temporary differences, including timing differences accrued
under previously approved accounting standards, that give rise to the
accumulated deferred tax obligation is as follows:
- --------------------------------------------------------------------------------
At December 31,
- --------------------------------------------------------------------------------
(Thousands of Dollars) 1997 1996
- --------------------------------------------------------------------------------
Accelerated depreciation and
other plant-related
differences ................................. $ 1,567,597 $ 1,640,068
Net operating loss
carryforwards ............................... (102,492) (94,149)
Regulatory assets --
income tax gross up ......................... 395,619 423,363
Other .......................................... 93,633 74,841
- -------------------------------------------------------------------------------
$ 1,954,357 $ 2,044,123
===============================================================================
At December 31, 1997, PSNH had a net operating loss (NOL) carryforward of
approximately $293 million that can be used against PSNH's federal taxable
income and which, if unused, expires between the years 2000 and 2006. CL&P had a
state of Connecticut NOL carryforward of approximately $131 million that can be
used against CL&P and its affiliates' combined Connecticut taxable income and
which, if unused, expires in the year 2002. PSNH also had Investment Tax Credit
(ITC) carryforwards of $40 million which, if unused, expire between the years
1998 and 2004. For a portion of the carryforward amounts indicated above, the
reorganization of PSNH under Chapter 11 of the United States Bankruptcy Code
limits the annual amount of PSNH NOL and ITC carryforwards that may be used.
Approximately $31 million of the NOL and $9 million of the ITC carryforwards are
subject to this limitation.
J. Unamortized PSNH Acquisition Costs
The unamortized PSNH acquisition costs represent the aggregate value placed by
the 1989 rate agreement with the state of New Hampshire (Rate Agreement) on
PSNH's assets in excess of the net book value of PSNH's non-Seabrook assets,
plus the $700 million value assigned to Seabrook by the Rate Agreement, as part
of the bankruptcy resolution on June 5, 1992 (Acquisition Date). The Rate
Agreement provides for the recovery through rates, with a return, of the
unamortized PSNH acquisition costs. The Rate Agreement provides that $425
million of the unamortized PSNH acquisition costs be amortized over the first
seven years after PSNH's May 16, 1991 reorganization from bankruptcy
(Reorganization Date) with the remaining amount to be amortized over the 20-year
period after the Reorganization Date. The unrecovered balance of PSNH
acquisition costs at December 31, 1997, was approximately $402.3 million. In
accordance with the Rate Agreement, approximately $32.9 million of this amount
will be recovered through rates by June 1, 1998, and the remaining amount of
approximately $369.4 million will be recovered through rates by 2011. As of
December 31, 1997, PSNH has collected approximately $591 million of acquisition
costs through rates.
K. Recoverable Energy Costs
Energy Act: Under the Energy Act, CL&P, PSNH, WMECO and NAEC are assessed for
their proportionate shares of the costs of decontaminating and decommissioning
uranium enrichment plants owned by the United States Department of Energy (D&D
assessment). The Energy Act requires that regulators treat D&D assessments as a
reasonable and necessary current cost of fuel, to be fully recovered in rates
like any other fuel cost. CL&P, PSNH, WMECO and NAEC are currently recovering
these costs through rates. As of December 31, 1997, the company's total D&D
deferrals were approximately $63.7 million.
CL&P: During 1997, CL&P implemented an energy adjustment clause (EAC) under
which fuel prices above or below base-rate levels are charged or credited to
customers. The EAC replaced CL&P's fuel adjustment and generation utilization
adjustment clauses and is designed to reconcile and adjust the difference
between actual fuel costs and the fuel revenue collected through base rates on a
six-month basis.
For the period January 1, 1997 through June 30, 1997, CL&P agreed to a zero
EAC rate. For the period July 1, 1997 through December 31, 1997, the DPUC
approved an EAC rate through which CL&P recovered approximately $11.5 million of
deferred fuel costs. While this proceeding did not include provisions for the
recovery of approximately $18 million of costs related to the early closing of
CYAPC's nuclear generating unit, it did allow for the recovery of costs, subject
to refund, related to the closure of MYAPC's nuclear generating unit. CL&P has
appealed the DPUC's ruling related to CYAPC replacement power costs.
During December 1997, the DPUC approved an EAC rate for the period January 1,
1998 through June 30, 1998. During this period, CL&P will recover approximately
$27.9 million of deferred fuel costs.
Northeast Utilities 1997 Annual Report 35
<PAGE>
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At December 31, 1997, CL&P's net recoverable energy costs, excluding current
net recoverable energy costs, were approximately $104.8 million, which includes
approximately $50.1 million of costs related to CL&P's share of the D&D
assessment.
PSNH: The Rate Agreement includes a comprehensive fuel and purchased power
adjustment clause (FPPAC) permitting PSNH to pass through to retail customers,
for a ten-year period that began in May 1991, the retail portion of differences
between the fuel and purchased power costs assumed in the Rate Agreement and
PSNH's actual costs, which include the costs related to the Seabrook Power
Contracts and the Clean Air Act Amendment. The cost components of the FPPAC are
subject to a prudence review by the New Hampshire Public Utilities Commission
(NHPUC).
Under the Rate Agreement, the deferred Seabrook return is being deferred by
PSNH and subsequently will be billed and collected by PSNH through the FPPAC.
PSNH began to defer the amount of these costs on December 1, 1997, and will
continue to do so for the period from December 1, 1997 through May 31, 1998.
Beginning on June 1, 1998, these costs will be recovered from PSNH customers
over a 36-month period. At December 31, 1997, PSNH has deferred approximately
$8.4 million of these costs.
On February 10, 1998, the NHPUC established a FPPAC rate for the period
December 1, 1997 through May 31, 1998. The new FPPAC rate increased customer
billings by approximately six percent. This rate continues to defer a
substantial portion of these costs.
At December 31, 1997, PSNH's net recoverable energy costs, excluding current
net recoverable energy costs, were approximately $191.7 million. This amount
includes approximately $172.9 million of deferred small power producer costs.
WMECO: WMECO has a fuel adjustment clause (FAC) which includes energy costs
along with capacity and transmission charges and credits that result from
short-term transactions with other utilities and from certain FERC-approved
contracts among the NU system's operating companies. The Massachusetts
restructuring legislation will effectively eliminate the FAC, effective March 1,
1998.
On August 20, 1997, WMECO filed with the DTE a joint motion for approval of a
settlement agreement with the Massachusetts Attorney General which allowed WMECO
to recover approximately $15.3 million of fuel costs for the period September
1997 through February 1998.
At December 31, 1997, WMECO's net recoverable energy costs were approximately
$26.3 million, which includes approximately $11.3 million of costs related to
WMECO's share of the D&D assessment.
For further information on recoverable energy costs, see the MD&A.
L. Deferred Costs -- Nuclear Plants
As of May 1, 1996, NAEC phased into rates 100 percent of the recoverable portion
of its investment in Seabrook 1. This plan is in compliance with SFAS 92,
"Regulated Enterprises -- Accounting for Phase-in Plans." From the Acquisition
Date through November 1997, NAEC recorded $203.9 million of deferred return on
its investment in Seabrook 1. At November 30, 1997, NAEC's utility plant
included $84.1 million of deferred return that was transferred as part of the
Seabrook plant assets to NAEC on the Acquisition Date. Beginning on December 1,
1997, the deferred return, including the portion transferred to NAEC, is
currently being billed through the Seabrook Power Contracts to PSNH and will be
fully recovered from customers by May 2001.
M. Demand-Side Management (DSM)
CL&P's DSM costs are recovered in base rates through a Conservation Adjustment
Mechanism. CL&P is allowed to recover DSM costs in excess of costs reflected in
base rates over periods ranging from approximately four to ten years.
During April 1997, the DPUC approved CL&P's DSM budget of $36 million for
1997. In October 1997, CL&P and other interested parties filed a stipulation
with the DPUC requesting that the DPUC approve certain programs and establish a
budget level of $32.7 million for 1998 and $28.8 million for 1999. The $52.1
million of DSM costs on CL&P's books as of December 31, 1997, currently being
collected, will be fully recovered by 2000.
N. CL&P Cogeneration Costs
Beginning on July 1, 1996, the deferred cogeneration balance of approximately
$86 million is being amortized over a five year period. An additional $9 million
of amortization was applied to the deferred balance in 1997, as required under a
settlement agreement which CL&P reached with the DPUC. CL&P continues to apply
any savings associated with the renegotiation of a certain contract with a
cogeneration facility to the deferred balance. Under current expectations, CL&P
expects complete amortization of the deferred balance by December 31, 1998. At
December 31, 1997, CL&P's deferred cogeneration costs balance was approximately
$33.5 million.
O. Market Risk-Management Policies
The company utilizes market risk-management instruments, including swaps,
collars, puts and calls, to hedge well-defined risks associated with variable
interest rates and changes in
36 Northeast Utilities 1997 Annual Report
<PAGE>
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fuel prices. To qualify for hedge treatment, the underlying hedged item must
expose the company to risks associated with market fluctuations and the market
risk-management instrument used must be designated as a hedge and must reduce
the company's exposure to market fluctuations throughout the period.
Amounts receivable or payable under fuel-price management instruments are
recognized in operating revenues when realized. Amounts receivable or payable
under interest-rate management instruments are accrued and offset against
interest expense. The company does not use market risk-management instruments
for speculative purposes. For further information, see Note 8, "Market Risk
Management."
P. Spent Nuclear Fuel Disposal Costs
Under the Nuclear Waste Policy Act of 1982, CL&P, PSNH, WMECO and NAEC must pay
the United States Department of Energy (DOE) for the disposal of spent nuclear
fuel and high-level radioactive waste. The DOE is responsible for the selection
and development of repositories for, and the disposal of, spent nuclear fuel
and high-level radioactive waste. Fees for nuclear fuel burned on or after April
7, 1983, are billed currently to customers and paid to the DOE on a quarterly
basis. For nuclear fuel used to generate electricity prior to April 7, 1983
(prior-period fuel), payment must be made prior to the first delivery of spent
fuel to the DOE. Until such payment is made, the outstanding balance will
continue to accrue interest at the three-month Treasury Bill Yield Rate. At
December 31, 1997, fees due to the DOE for the disposal of prior-period fuel
were approximately $205.5 million, including interest costs of $123.4 million.
The DOE was originally scheduled to begin accepting delivery of spent fuel in
1998. However, delays in identifying a permanent storage site have continually
postponed plans for the DOE's long-term storage and disposal site. Extended
delays or a default by the DOE could lead to consideration of costly
alternatives. The company has primary responsibility for the interim storage of
its spent nuclear fuel. Current capability to store spent fuel at Millstone 1, 2
and Seabrook are estimated to be adequate until the years 2004 for Millstone 1
and 2 and 2010 for Seabrook. Storage facilities for Millstone 3 are expected to
be adequate for the projected life of the unit. Meeting spent fuel storage
requirements beyond these periods could require new and separate storage
facilities, the costs for which have not been determined.
In November 1997, the U.S. District Court of Appeals for the D.C. Circuit
ruled that the lack of an interim storage facility does not excuse the DOE from
meeting its contractual obligation to begin accepting spent nuclear fuel no
later than January 31, 1998. Currently, the DOE has not taken the spent nuclear
fuel as scheduled and, as a result, may have to pay contract damages. The
ultimate outcome of this legal proceeding is uncertain at this time.
Q. Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and short-term cash investments
which are highly liquid in nature and have original maturities of three months
or less.
2. Nuclear Decommissioning
Millstone and Seabrook: The NU system's nuclear power plants have service lives
that are expected to end during the years 2010 through 2026. Upon retirement,
these units must be decommissioned. Current decommissioning studies concluded
that complete and immediate dismantlement at retirement continues to be the most
viable and economic method of decommissioning the three Millstone units and
Seabrook 1. Decommissioning studies are reviewed and updated periodically to
reflect changes in decommissioning requirements, costs, technology and
inflation.
The estimated cost of decommissioning Millstone 1 and 2, in year-end 1997
dollars, is $482.6 million and $432.2 million, respectively. The NU system's
ownership share of the estimated cost of decommissioning Millstone 3 and
Seabrook 1 in year-end 1997 dollars, is $377.4 million and $189.4 million,
respectively. The Millstone units and Seabrook 1 decommissioning costs will be
increased annually by their respective escalation rates. Nuclear decommissioning
costs are accrued over the expected service life of the units and are included
in depreciation expense on the Consolidated Statements of Income. Nuclear
decommissioning costs amounted to $48.8 million in 1997, $47.8 million in 1996
and $38.9 million in 1995. Nuclear decommissioning, as a cost of removal, is
included in the accumulated provision for depreciation on the Consolidated
Balance Sheets. At December 31, 1997 and 1996, the balance in the accumulated
reserve for depreciation amounted to $540.8 million and $435.7 million,
respectively.
CL&P and WMECO have established external decommissioning trusts through a
trustee for their portions of the costs of decommissioning Millstone 1, 2 and 3.
PSNH makes payments to an independent decommissioning trust for its portion of
the costs of decommissioning Millstone 3. CL&P's and NAEC's portions of the cost
of decommissioning Seabrook 1 are paid to an independent decommissioning
financing fund managed by the state of New Hampshire. Funding of the estimated
decommissioning costs assumes levelized collections for the Millstone units and
escalated collections for Seabrook 1 and after-tax earnings on the Millstone and
Seabrook decommissioning funds of approximately 5.5 percent and 6.5 percent,
respectively.
Northeast Utilities 1997 Annual Report 37
<PAGE>
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As of December 31, 1997, CL&P, PSNH and WMECO collected through rates $277.9
million, $2.6 million and $59.7 million, respectively, toward the future
decommissioning costs of their share of the Millstone units, of which $302.6
million has been transferred to external decommissioning trusts. As of December
31, 1997, CL&P and NAEC (including payments made prior to the Acquisition Date
by PSNH) paid approximately $2.9 million and $21.1 million, respectively, into
Seabrook 1's decommissioning financing fund. Earnings on the decommissioning
trusts and financing fund increase the decommissioning trust balance and the
accumulated reserve for depreciation. Unrealized gains and losses associated
with the decommissioning trusts and financing fund also impact the balance of
the trusts and the accumulated reserve for depreciation.
Changes in requirements or technology, the timing of funding or dismantling
or adoption of a decommissioning method other than immediate dismantlement would
change decommissioning cost estimates and the amounts required to be recovered.
CL&P, PSNH and WMECO attempt to recover sufficient amounts through their allowed
rates to cover their expected decommissioning costs. Only the portion of
currently estimated total decommissioning costs that has been accepted by
regulatory agencies is reflected in rates of the NU system companies. Based on
present estimates and assuming its nuclear units operate to the end of their
respective license periods, the NU system expects that the decommissioning
trusts and financing fund will be substantially funded when the units are
retired from service.
Millstone 1 has been placed in extended maintenance status while management
is reviewing its options with respect to the unit. These include restart, early
retirement and other options. Relating to management's consideration of the
option to immediately retire Millstone 1 are certain Connecticut state law
issues. In its four-year rate review proceeding, the DPUC noted that CL&P may
not be able to obtain its remaining investment in Millstone 1 if it were to
determine that the unit had been prematurely shut down due to management
imprudence. Additionally, there is a Connecticut statute which may limit CL&P's
ability to collect future decommissioning charges related to Millstone 1 if
Millstone 1 were to be terminated before the end of its expected life.
At December 31, 1997, CL&P's net unrecovered Millstone 1 plant costs were
$215.7 million and the remaining unrecovered decommissioning costs were
approximately $198 million.
Yankee Companies: VYNPC owns and operates a nuclear generating unit with a
service life that is expected to end in 2012. The NU system's ownership share of
estimated costs, in year-end 1997 dollars, of decommissioning this unit is $80.8
million.
On August 6, 1997, the board of directors of MYAPC voted unanimously to cease
permanently the production of power at its nuclear generating facility (MY). The
NU system companies had relied on MY for approximately one percent of their
capacity. During November 1997, MYAPC filed an amendment to its power contracts
clarifying the obligations of its purchasing utilities following the decision to
cease power production. During January 1998, the FERC accepted the amendments
and proposed rates, subject to refund. At December 31, 1997, the remaining
estimated obligation, including decommissioning, amounted to approximately
$867.2 million, of which the NU system's share was approximately $173.4 million.
On December 4, 1996, the board of directors of CYAPC voted unanimously to
cease permanently the production of power at its nuclear generating plant (CY).
During 1996, the NU system companies had relied on CY for approximately three
percent of their capacity. During late December 1996, CYAPC filed an amendment
to its power contracts clarifying the obligations of its purchasing utilities
following the decision to cease power production. On February 27, 1997, the FERC
approved an order for hearing which, among other things, accepted CYAPC's
contract amendment. The new rates became effective March 1, 1997, subject to
refund. At December 31, 1997, the remaining estimated obligation, including
decommissioning, amounted to $619.9 million, of which the NU system's share was
approximately $303.7 million.
YAEC is in the process of decommissioning its nuclear facility. At December
31, 1997, the estimated remaining costs, including decommissioning, amounted to
$124.4 million, of which the NU system's share was approximately $47.9 million.
Under the terms of the contracts with MYAPC, CYAPC and YAEC, the
shareholder-sponsor companies, including CL&P, WMECO and PSNH, are responsible
for their proportionate share of the costs of the units, including
decommissioning. Management expects that CL&P, PSNH and WMECO each will continue
to be allowed to recover these costs from their customers. Accordingly, CL&P,
PSNH and WMECO have recognized these costs as regulatory assets, with
corresponding obligations.
38 Northeast Utilities 1997 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Proposed Accounting: The staff of the SEC has questioned certain current
accounting practices of the electric utility industry, including NU, regarding
the recognition, measurement and classification of decommissioning costs for
nuclear generating units in the financial statements. In response to these
questions, the FASB has agreed to review the accounting for closure and removal
costs, including decommissioning. If current electric utility industry
accounting practices for nuclear power plant decommissioning are changed, the
annual provision for decommissioning could increase relative to 1997, and the
estimated cost for decommissioning could be recorded as a liability (rather than
as accumulated depreciation), with recognition of an increase in the cost of the
related nuclear power plant. Management believes that the operating companies
each will continue to be allowed to recover decommissioning costs through rates.
3. Short-Term Debt
Limits: The amount of short-term borrowings that may be incurred by the NU
system's utility companies is subject to periodic approval by either the SEC
under the 1935 Act or by their respective state regulators. SEC authorization
allowed CL&P, WMECO and NAEC, as of January 1, 1998, to incur total short-term
borrowings up to a maximum of $375 million, $150 million and $60 million,
respectively. In addition, the charter of WMECO contains a provision which
restricts the total amount of unsecured debt that it may borrow at any one time.
As of January 1, 1998, this charter provision allowed WMECO to incur unsecured
borrowings, whether short-term or long-term, up to a maximum of approximately
$114 million. PSNH was authorized under a waiver from the NHPUC to incur
short-term borrowings up to a maximum of $125 million effective May 1997.
Credit Agreements: In May 1997, because of the potential for NU and CL&P to
violate their various financial ratio tests, NU amended the three-year revolving
credit agreement (Credit Agreement) with a group of 12 banks. Under the amended
Credit Agreement, CL&P and WMECO are able to borrow, subject to the availability
of first mortgage bond collateral, up to $313.75 million and $150 million,
respectively. At December 31, 1997, CL&P and WMECO have issued first mortgage
bonds to enable borrowings under this facility up to a maximum of $225 million
and $90 million, respectively. NU, which cannot issue first mortgage bonds, will
be able to borrow up to $50 million if NU consolidated, CL&P and WMECO each meet
certain interest coverage tests for two consecutive quarters. In addition, CL&P
and WMECO each must meet certain minimum quarterly financial ratios to access
the Credit Agreement. Both CL&P and WMECO satisfied these tests for the quarter
ending December 31, 1997. The overall limit for all of the borrowing system
companies under the entire Credit Agreement is $313.75 million. The companies
are obligated to pay a facility fee of .50 percent per annum of each bank's
total commitment under this Credit Agreement, which will expire in November
1999. At December 31, 1997 and 1996, there were $50 million and $27.5 million,
respectively, in borrowings under this Credit Agreement.
In February 1998, because of borrowing restrictions on NU in the amended
Credit Agreement, NU entered into a separate $25 million 364-day revolving
credit facility (Credit Facility) with one bank. NU is obligated to pay a
facility fee of .625 percent per annum on the unused commitment.
In addition to the Credit Agreement and Credit Facility, NU, CL&P, WMECO, HWP
and The Rocky River Realty Company (RRR) have various revolving credit lines
through separate bilateral credit agreements. Under this facility, four banks
maintain commitments to the respective companies totaling $56.25 million. NU,
CL&P and WMECO may borrow up to the aggregate $56.25 million, whereas HWP and
RRR may borrow up to their SEC or board authorized short-term debt limit of $5
million and $22 million, respectively. Under the terms of this facility, the
companies are obligated to pay a facility fee of .15 percent per annum of each
bank's total commitment. These commitments will expire in December 1998. At
December 31, 1997 and 1996, there were no borrowings and $11.3 million in
borrowings, respectively, under this facility.
PSNH has a $125 million revolving credit agreement that will expire in April
1999. The revolving credit agreement is with a group of 16 banks. PSNH is
obligated to pay a facility fee of .50 percent per annum on the commitment of
$125 million. At December 31, 1997 and 1996, there were no borrowings under the
facility.
Under the credit facilities discussed above, with the exception of the $25
million NU Credit Facility, the NU system companies may borrow funds on a
short-term revolving basis under their respective agreements, using either
fixed-rate loans or standby loans. Fixed rates are set using competitive
bidding. Standby loans are based upon several alternative variable rates. Loans
advanced under the $25 million NU Credit Facility are on a standby basis only.
The weighted average annual interest rate on the NU system companies' notes
payable to banks outstanding on December 31, 1997 and 1996 was 6.95 percent and
8.3 percent, respectively. Maturities of short-term debt obligations were for
periods of three months or less.
For further information on short-term debt, including the ability to access
these agreements, see the MD&A.
Northeast Utilities 1997 Annual Report 39
<PAGE>
- --------------------------------------------------------------------------------
4. Leases
CL&P and WMECO may finance up to $400 million of nuclear fuel for Millstone 1
and 2 and their respective shares of the nuclear fuel for Millstone 3 under the
Niantic Bay Fuel Trust (NBFT) capital lease agreement which is scheduled to
expire July 31, 1998. The NBFT capital lease agreement, which was amended in
February 1998, requires CL&P and WMECO to secure their obligation to repay the
NBFT with up to $90 million of first mortgage bonds. CL&P and WMECO will issue
these bonds by May 1998.
CL&P and WMECO make quarterly lease payments for the cost of nuclear fuel
consumed in the reactors based on a units-of-production method at rates which
reflect estimated kilowatt hours of energy provided plus financing costs
associated with the fuel in the reactors. Upon permanent discharge from the
reactors, ownership of the nuclear fuel transfers to CL&P and WMECO. The NU
system companies also have entered into lease agreements, some of which are
capital leases, for the use of data processing and office equipment, vehicles,
gas turbines, nuclear control room simulators and office space. The provisions
of these lease agreements generally provide for renewal options.
Capital lease rental payments charged to operating expense were $19.0 million
in 1997, $28.2 million in 1996 and $75.9 million in 1995. Interest included in
capital lease rental payments was $13.6 million in 1997, $14.1 million in 1996
and $15.0 million in 1995. Operating lease rental payments charged to expense
were $17.3 million in 1997, $18.3 million in 1996 and $20.9 million in 1995.
Future minimum rental payments, excluding executory costs such as property
taxes, state use taxes, insurance and maintenance, under long-term noncancelable
leases, as of December 31, 1997, are:
- --------------------------------------------------------------------------------
(Thousands of Dollars)
- --------------------------------------------------------------------------------
Capital Operating
Year Leases Leases
- --------------------------------------------------------------------------------
1998 ................................................... $181,000 $ 25,800
1999 ................................................... 8,500 23,200
2000 ................................................... 7,900 21,000
2001 ................................................... 5,800 16,500
2002 ................................................... 3,200 8,000
After 2002 ............................................. 54,900 26,600
- --------------------------------------------------------------------------------
Future minimum
lease payments ...................................... 261,300 $121,100
========
- --------------------------------------------------------------------------------
Less amount
representing interest ............................... 53,300
- --------------------------------------------------------------------------------
Present value of future
minimum lease payments .............................. $208,000
================================================================================
5. Employee Benefits
A. Pension Benefits
The NU system's subsidiaries participate in a uniform noncontributory defined
benefit retirement plan covering all regular NU system employees. Benefits are
based on years of service and the employees' highest eligible compensation
during 60 consecutive months of employment. Total pension (credit)/cost, part of
which was (credited)/charged to utility plant, approximated $(22.5) million in
1997, $9.1 million in 1996 and $0.4 million in 1995. Pension (credit)/costs for
1997, 1996 and 1995 included approximately $(2.6) million, $7.8 million and $6.8
million, respectively, related to workforce reduction programs.
Currently, the subsidiaries annually fund an amount at least equal to that
which will satisfy the requirements of the Employee Retirement Income Security
Act and the Internal Revenue Code. Pension costs are determined using
market-related values of pension assets. Pension assets are invested primarily
in domestic and international equity securities and bonds.
The components of net pension (credit)/cost are:
- --------------------------------------------------------------------------------
For the Years Ended December 31,
- --------------------------------------------------------------------------------
(Thousands of Dollars) 1997 1996 1995
- --------------------------------------------------------------------------------
Service cost ............................ $ 32,298 $ 43,206 $ 35,771
Interest cost ........................... 98,621 94,722 89,351
Return on plan assets ................... (337,198) (232,604) (310,997)
Net amortization ........................ 183,752 103,745 186,310
- -------------------------------------------------------------------------------
Net pension
(credit)/cost ........................ $ (22,527) $ 9,069 $ 435
===============================================================================
For calculating pension costs, the following assumptions were used:
- --------------------------------------------------------------------------------
For the Years Ended December 31,
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Discount rate .................................... 7.75% 7.50% 8.25%
Expected long-term
rate of return ................................ 9.25 8.75 8.50
Compensation/progression
rate .......................................... 4.75 4.75 5.00
===============================================================================
40 Northeast Utilities 1997 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
The following table represents the plan's funded status reconciled to the
Consolidated Balance Sheets:
- --------------------------------------------------------------------------------
At December 31,
- --------------------------------------------------------------------------------
(Thousands of Dollars) 1997 1996
- --------------------------------------------------------------------------------
Accumulated benefit obligation
including vested benefits at
December 31, 1997 and 1996
of $(1,003,157,000) and
$(943,696,000), respectively .................. $(1,106,850) $(1,037,908)
- -------------------------------------------------------------------------------
Projected benefit
obligation .................................... $(1,392,833) $(1,321,146)
Market value of plan assets ...................... 1,919,414 1,660,404
- -------------------------------------------------------------------------------
Market value in excess of
projected benefit obligation .................. 526,581 339,258
Unrecognized transition
amount ........................................ (10,562) (12,105)
Unrecognized prior service cost .................. 29,711 31,802
Unrecognized net gain ............................ (622,916) (458,654)
- -------------------------------------------------------------------------------
Accrued pension liability ........................ $ (77,186) $ (99,699)
===============================================================================
The following actuarial assumptions were used in calculating the plan's year-end
funded status:
- --------------------------------------------------------------------------------
At December 31,
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Discount rate .............................................. 7.25% 7.75%
Compensation/progression rate .............................. 4.25 4.75
================================================================================
B. Postretirement Benefits Other Than Pensions
The NU system's subsidiaries provide certain health care benefits, primarily
medical and dental, and life insurance benefits through a benefit plan to
retired employees (referred to as SFAS 106 benefits). These benefits are
available for employees retiring from the NU system who have met specified
service requirements. For current employees and certain retirees, the total SFAS
106 benefit is limited to two times the 1993 per-retiree health care cost. The
SFAS 106 obligation has been calculated based on this assumption. Total SFAS 106
benefit costs, part of which were deferred or charged to utility plant,
approximated $28.3 million in 1997, $39.2 million in 1996 and $44.1 million in
1995. NU's subsidiaries are funding SFAS 106 postretirement costs through
external trusts. The subsidiaries are funding, on an annual basis, amounts that
have been rate-recovered and which also are tax deductible under the Internal
Revenue Code. The trust assets are invested primarily in equity securities and
bonds.
The components of health care and life insurance cost are:
- --------------------------------------------------------------------------------
For the Years Ended December 31,
- --------------------------------------------------------------------------------
(Thousands of Dollars) 1997 1996 1995
- --------------------------------------------------------------------------------
Service cost ............................... $ 5,746 $ 7,457 $ 7,137
Interest cost .............................. 20,556 22,698 24,693
Return on plan assets ...................... (21,452) (9,330) (7,812)
Amortization of
unrecognized
transition obligation ................... 15,134 15,134 15,134
Other amortization, net .................... 8,327 3,194 4,924
- -------------------------------------------------------------------------------
Net health care and life
insurance cost .......................... $ 28,311 $ 39,153 $ 44,076
===============================================================================
For calculating SFAS 106 benefit costs, the following assumptions were used:
- --------------------------------------------------------------------------------
For the Years Ended December 31,
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Discount rate ....................................... 7.75% 7.50% 8.00%
Long-term rate of return --
Health assets, net of tax ........................ 6.00 5.25 5.00
Life assets ...................................... 9.25 8.75 8.50
===============================================================================
The following table represents the plan's funded status reconciled to the
Consolidated Balance Sheets:
- --------------------------------------------------------------------------------
At December 31,
- --------------------------------------------------------------------------------
(Thousands of Dollars) 1997 1996
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation of:
Retirees ............................................ $(214,624) $(226,774)
Fully eligible active
employees ......................................... (529) (323)
Active employees
not eligible to retire ............................ (70,806) (78,985)
- -------------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation .................................. (285,959) (306,082)
Market value of plan assets ............................ 129,434 105,086
- -------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation in excess
of plan assets ...................................... (156,525) (200,996)
Unrecognized transition
obligation .......................................... 227,015 242,149
Unrecognized net gain .................................. (70,391) (41,457)
- -------------------------------------------------------------------------------
Prepaid/(accrued) postretirement
benefit obligation .................................. $ 99 $ (304)
===============================================================================
Northeast Utilities 1997 Annual Report 41
<PAGE>
- --------------------------------------------------------------------------------
The following actuarial assumptions were used in calculating the plan's year-end
funded status:
- --------------------------------------------------------------------------------
At December 31,
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Discount rate ................................................ 7.25% 7.75%
Health care cost trend rate (a) .............................. 5.76 7.23
================================================================================
(a) The annual growth in per capita cost of covered health care benefits was
assumed to decrease to 4.40 percent by 2001.
The effect of increasing the assumed health care cost trend rate by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1997, by $16.1 million and the aggregate
of the service and interest cost components of net periodic postretirement
benefit cost for the year then ended by $1.3 million. The trust holding the
health plan assets is subject to federal income taxes at a 39.6 percent tax
rate.
CL&P, PSNH and WMECO currently are recovering SFAS 106 costs through rates.
C. 401(k) Savings Plan
NU maintains a 401(k) Savings Plan for substantially all NU system employees.
This savings plan provides for employee contributions up to specified limits.
The company matches, with company stock, employee contributions up to a maximum
of three percent of eligible compensation. The matching contributions made by
the company were $12.0 million for 1997, $11.8 million for 1996 and $12.1
million for 1995.
D. ESOP
NU maintains an ESOP for purposes of allocating shares to employees
participating in the NU system's 401(k) plan. Under this arrangement, NU issued
unsecured notes during 1991 and 1992 totaling $250 million, the proceeds of
which were lent to the ESOP trust for purchase of approximately 10.8 million
newly issued NU common shares (ESOP shares). NU makes principal and interest
payments on the ESOP notes at the same rate that ESOP shares are allocated to
employees.
In 1997 and 1996, the ESOP trust issued approximately 948,000 and 953,000 of
NU common shares, respectively, to satisfy plan obligations to employees
totaling approximately $21.9 million and $22.1 million, respectively. These
costs were charged to the 401(k) plan. As of December 31, 1997 and 1996, the
total allocated ESOP shares were 4,140,751 and 3,192,620, respectively, and
total unallocated ESOP shares were 6,659,434 and 7,607,565, respectively. The
fair market value of unallocated ESOP shares as of December 31, 1997 and 1996
was approximately $78.7 million and $99.8 million, respectively.
During 1997, the ESOP trust used approximately $3 million in dividends and
$41 million in contributions from NU to meet principal and interest payments on
ESOP notes. During March 1997, NU's Board of Trustees suspended the quarterly
dividend on NU's common shares indefinitely, beginning with the second quarter
of 1997. Future principal and interest payments on ESOP notes will be fully
supported by contributions from NU until the dividend is restored.
E. Stock-Based Compensation
During 1997, certain key officers of the company were awarded nonvested stock
grants, totaling 25,700 shares, under which the officers pay nothing to receive
these shares. These officers must stay in employment of the company for a
specified period to receive the shares. During 1996, the same key officers of
the company were awarded nonvested stock grants, for a total of approximately
43,000 shares, for which again no payment was required. Under the 1996 programs,
certain shares became vested immediately with certain restrictions and others
became vested upon the meeting of specified performance goals within a limited
time period. Dividends accruing on the shares of each award are reinvested in
additional shares subject to the same provisions and restrictions. Under these
programs, approximately 3,400 shares were vested at December 31, 1997, and
December 31, 1996.
During August 1997, the company's Board of Trustees approved the granting of
500,000 stock options to the new Chief Executive Officer to purchase common
shares of NU common stock. The exercise price of these options is $9.625 per
share, which equaled the fair value of the company's common stock at the date of
grant. The exercise period for the options granted is ten years from the date of
grant, with vesting from the date of grant as follows: 50 percent after two
years, 75 percent after three years and 100 percent after four years.
The company accounts for its nonvested stock grants and stock options using
the intrinsic-value based method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25) under which
approximately $238 thousand and $136 thousand of compensation costs were
recognized in 1997 and 1996, respectively, for the nonvested stock grants. No
compensation costs have been recognized for the stock options award as the
exercise price was equal to the market value of the stock on the date of grant.
In October 1995 the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation," which defines a fair-value based method of accounting for
stock-based compensation. SFAS 123 allows companies to continue accounting for
stock-based compensation using APB 25 but requires pro forma net income and
earnings per share disclosures as if the fair-value based method of accounting
under SFAS 123 had been used.
42 Northeast Utilities 1997 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Had compensation costs of the options award been determined under the fair
value alternative method as stated in SFAS 123, the company's pro forma net loss
for the year ended December 31, 1997, would have been increased by approximately
$73 thousand. The resulting pro forma impact on the company's loss per share for
the year was not material. The fair value of the options as of the date of grant
was determined using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 6.41 percent, expected life of 10.0
years, expected volatility of 31.89 percent and a dividend yield of 7.42
percent.
6. Sale of Customer Receivables and Accrued Utility Revenues
During 1996, CL&P and WMECO entered into agreements to sell up to $200 million
and $40 million, respectively, of undivided ownership interests in eligible
customer receivables and accrued utility revenues (receivables).
The FASB issued SFAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," in June 1996. SFAS 125
became effective on January 1, 1997, and establishes, in part, criteria for
concluding whether a transfer of financial assets in exchange for consideration
should be accounted for as a sale or as a secured borrowing. By October 31,
1997, both CL&P and WMECO had restructured their respective sales agreements to
comply with the conditions of SFAS 125 and account for transactions occurring
under these programs as sales of assets. CL&P and WMECO have each established a
special purpose, wholly owned subsidiary whose business consists of the purchase
and resale of receivables. For receivables sold, both CL&P and WMECO have
retained collection responsibilities as agent for the purchaser under each
company's respective agreements. As collections reduce previously sold
receivables, new receivables may be sold. At December 31, 1997, approximately
$70 million and $20 million of receivables had been sold to third-party
purchasers by CL&P and WMECO, respectively, through the use of each company's
special purpose, wholly owned subsidiary, CL&P Receivables Corporation (CRC) and
WMECO Receivables Corporation (WRC). All receivables transferred to both CRC and
WRC are assets owned by CRC and WRC and are not available to pay CL&P's or
WMECO's creditors.
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 December 31,
1997, approximately $7.2 million and $3.0 million of assets had been designated
as collateral by CRC and WRC, respectively. These amounts represent the
formula-based amount of credit exposure at December 31, 1997. Historical losses
for bad debt for both CL&P and WMECO have been substantially less.
During December 1997, Moody's Investors Service downgraded the rating on
WMECO's first mortgage bonds. This downgrade brought WMECO's bond ratings to a
level at which the sponsor of WMECO's accounts receivable program can take
various actions, in its discretion, which would have the practical effect of
limiting WMECO's ability to utilize the facility. To date, the sponsor has not
notified WMECO that it will elect to exercise those rights, and the program is
functioning in its normal mode. The WMECO accounts receivable program could be
terminated if WMECO's first mortgage bond credit ratings experience one more
level of downgrade. CL&P's accounts receivable program could be terminated if
its senior secured debt is downgraded two more steps from its current ratings.
Concentrations of credit risk to the respective purchasers under each
company's agreements with respect to the receivables are limited due to CL&P's
and WMECO's diverse customer base within their respective service territories.
For additional information on accounts receivable programs and CL&P's and
WMECO's ability to utilize these programs, see the MD&A.
Northeast Utilities 1997 Annual Report 43
<PAGE>
- --------------------------------------------------------------------------------
7. Commitments and Contingencies
A. Restructuring and Rate Matters
New Hampshire: The 1996 restructuring legislation that the NHPUC is charged with
implementing provides that the NHPUC may not adopt a restructuring plan that
imposes a severe financial hardship on a utility. Management believes that PSNH
is entitled to full recovery of its prudently incurred costs, including
regulatory assets and other strandable costs. It bases this belief both on the
general nature of public utility industry cost-of-service based regulation and
the specific circumstances of the resolution of PSNH's previous bankruptcy
proceedings and its acquisition by NU, including the recoveries provided by the
Rate Agreement and related agreements.
On February 28, 1997, the NHPUC issued its decision related to restructuring
the state's electric utility industry and setting interim stranded cost charges
for PSNH pursuant to legislation enacted in New Hampshire in 1996. In the
decision, the NHPUC announced a departure from cost-based ratemaking and instead
adopted a market-priced approach to ratemaking and stranded cost recovery.
Accordingly, unless the NHPUC modifies its position or the litigation described
below results in necessary modifications to the final plan which leads
management to conclude that the ratemaking approach utilized in the NHPUC's
restructuring decision will not go into effect, PSNH no longer will be subject
to the provisions of SFAS 71. That would result in PSNH writing off from its
balance sheet substantially all of its regulatory assets. The amount of the
potential write-off triggered by the order is currently estimated at over $400
million, after taxes. PSNH does not believe that under the decision, it would be
required to recognize any additional loss resulting from the impairment of the
value of its other long-lived assets under the provisions of SFAS 121.
On March 3, 1997, PSNH, NU, NAEC and NUSCO filed for a temporary restraining
order, preliminary and permanent injunctive relief and for declaratory judgment
in the United States District Court for New Hampshire (District Court). The case
was subsequently transferred to Rhode Island. On March 10, 1997, the Chief Judge
of the Rhode Island federal court issued a temporary restraining order which
stayed the NHPUC's February 28, 1997, decision to the extent it established a
rate-setting methodology that is not designed to recover PSNH's costs of
providing service and would require PSNH to write off any regulatory assets.
During 1997, a mediation process ended without a resolution. The District
Court had suspended the procedural schedule associated with this court
proceeding pending the resolution of appeals of certain preliminary rulings by
the U.S. Circuit Court of Appeals for the First Circuit (First Circuit). On
February 3, 1998, the First Circuit denied the appeals taken by would-be
intervenors in PSNH's federal court proceeding concerning the NHPUC's final plan
on restructuring. The First Circuit affirmed a previous court decision stating
that the opposing interests in this case were adequately represented by the
NHPUC or by PSNH. As a result of this decision, the proceedings in the District
Court may resume. On February 17, 1998, the NHPUC filed a petition for rehearing
with the First Circuit. The temporary restraining order issued by the District
Court in March 1997 will remain in effect until further orders by either court.
During 1997, the NHPUC reopened its proceeding to reconsider certain limited
matters in its restructuring orders. The scope of the PSNH-specific rehearing
proceedings included alternative rate-setting methodologies proposed by the
intervenors; to decide the appropriate methodology to be used to determine
PSNH's interim stranded costs; and to set PSNH's interim stranded cost charges
utilizing the determined methodology. In testimony filed with the NHPUC in
November 1997, PSNH proposed a new methodology to quantify its strandable costs.
Under this proposal, PSNH would divest all owned generation and purchased-power
obligations via auction. To the extent that the auction fails to produce
sufficient revenues to cover the net book value of owned generation and
contractual payment obligations of purchased power, the difference would be
recovered from customers through a non-bypassable distribution charge. The new
proposal also relies upon securitization of certain assets to further reduce
rates.
On December 15, 1997, the NHPUC officially announced that industry
restructuring would not take place on January 1, 1998. Management believes that
industry restructuring will not take place in New Hampshire until the courts
resolve the issues brought before them, or the parties involved reach a
settlement.
44 Northeast Utilities 1997 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
PSNH and NAEC are parties to a variety of financing agreements providing that
the credit thereunder can be terminated or accelerated if they do not maintain
specified minimum ratios of common equity to capitalization (as defined in each
agreement). In addition, PSNH and NAEC are parties to a variety of financing
agreements providing in effect that the credit thereunder can be terminated or
accelerated if there are actions taken, either by PSNH or NAEC or by the state
of New Hampshire, that deprive PSNH and/or NAEC of the benefits of the Rate
Agreement and/or the Seabrook Power Contracts.
If the NHPUC's February 28, 1997 decision were to become effective, it would,
unless PSNH and NAEC receive waivers from their respective lenders, result in
(i) write-offs that would cause PSNH's common equity to fall below the
contractual minimums, (ii) reductions in income that would cause PSNH's income
to fall below the contractual minimums, (iii) potential violation of the
contractual provisions with respect to actions depriving PSNH and NAEC of the
benefits of the Rate Agreement and (iv) the potential for cross defaults to
other PSNH and NAEC financing documents. Substantially all of PSNH's and NAEC's
debt obligations would be affected.
If these events transpired and if the creditors holding PSNH and NAEC debt
obligations decide to exercise their rights to demand payment, then either
creditors or PSNH and NAEC could initiate proceedings under Chapter 11 of the
bankruptcy laws.
As a result of the NHPUC decision and the potential consequences discussed
above, the reports of our auditors on the individual financial statements of
PSNH and NAEC contain explanatory paragraphs. Those explanatory paragraphs
indicate that a substantial doubt exists currently about the ability of PSNH and
NAEC to continue as going concerns. The accounts of PSNH and NAEC are included
in the accompanying consolidated financial statements on the basis of a going
concern. While the effect of the implementation of that decision would have a
material adverse impact on NU's financial position, results of operations and
cash flows, it would not in and of itself result in defaults under borrowing or
other financial agreements of NU or its other subsidiaries.
On May 2, 1997, PSNH made a rate filing with the NHPUC. For information
regarding this rate proceeding, see the MD&A.
Massachusetts: During November 1997, the state of Massachusetts enacted a
comprehensive electric utility industry restructuring bill (legislation). On
December 31, 1997, WMECO filed its restructuring plan with the DTE, as required
by the legislation. The WMECO restructuring plan describes the process by which
WMECO will, beginning March 1, 1998, initiate a ten percent rate reduction for
all customer rate classes and allow customers to choose their energy supplier.
As part of the plan, the DTE authorized recovery of certain strandable,
above-market costs (strandable costs). The legislation gives the DTE the
authority to determine the amount of strandable costs that will be eligible for
recovery by utilities. Costs which will qualify as strandable costs and be
eligible for recovery include, but are not limited to, certain above-market
costs associated with generating facilities, costs associated with long-term
commitments to purchase power at above-market prices from small power producers
and nonutility generators, and regulatory assets and associated liabilities
related to the generation portion of WMECO's business.
Under the statute, if a distribution company claims that it is unable to meet
a price reduction of ten percent initially and 15 percent by September 1, 1999,
the distribution company may so state to the DTE and the DTE is provided with
the authority to "explore all possible mechanisms and options within the limits
of the constitution" to achieve the mandated rate reductions. The statute
indicates that allowing a substitute company to provide standard offer service
is one option that can be considered by the DTE.
The costs of transitioning to competition will be mitigated through several
steps, including divesting WMECO's nonnuclear generating assets at an auction to
be held as soon as June 1998, and securitization of approximately $500 million
in strandable costs by September 30, 1998. NU presently expects to participate,
through a competitive affiliate, in the competitive bid process for WMECO's
generation resources. Any net proceeds in excess of book value received from the
divestiture of these units will be used to mitigate strandable costs. As
required by the legislation, WMECO will continue to operate and maintain its
transmission and local distribution network and deliver electricity to all
customers.
As noted above, the legislation has authorized Massachusetts utilities to
finance a portion of the strandable costs through securitization, using rate
reduction bonds. A separate transition charge will be collected over the life of
the bonds to recover principal, interest and issuance costs.
Northeast Utilities 1997 Annual Report 45
<PAGE>
- --------------------------------------------------------------------------------
WMECO's ability to recover its strandable costs will depend on several
factors, which include, but are not limited to, continuous recovery of the costs
over the transitional period supported by the legislation, the aggregate amount
of strandable costs which the company will be allowed to recover and the market
price of electricity. Management believes that the company will recover its
strandable costs. However, a change in one or more of these factors could affect
the recovery of strandable costs and may result in a loss to the company.
Connecticut: Although CL&P continues to operate under cost-of-service based
regulation, legislative restructuring initiatives during 1997 and 1998 in its
jurisdiction has created some uncertainty with respect to future rates and the
recovery of strandable investments and certain future costs such as purchase
power obligations. Management is unable to predict the ultimate outcome of
restructuring initiatives, however, it continues to believe that it is probable
that CL&P will fully recover its prudently incurred costs, including regulatory
assets and strandable investments based on the general nature of public utility
cost-of-service regulation.
For further information on restructuring, see Note 1H, "Summary of
Significant Accounting Policies -- Regulatory Accounting and Assets" and the
MD&A.
The DPUC is required to review a utility's rates every four years if there
has not been a rate proceeding during such period. The DPUC has conducted such a
review. For information regarding this review and other rate matters, see the
MD&A.
FERC Rate Proceedings: For information regarding the FERC rate proceedings
for CYAPC and MYAPC, see Note 2, "Nuclear Decommissioning."
B. Nuclear Performance
Millstone: The three Millstone units are managed by NNECO. Millstone 1, 2 and 3
have been out of service since November 4, 1995, February 21, 1996, and March
30, 1996, respectively, and are on the Nuclear Regulatory Commission's (NRC)
watch list. The company has restructured its nuclear organization and is
currently implementing comprehensive plans to restart the units.
Subsequent to its January 31, 1996, announcement that Millstone had been
placed on its watch list, the NRC stated that the units cannot return to service
until independent, third-party verification teams have reviewed the actions
taken to improve the design, configuration and employee concerns issues that
prompted the NRC to place the units on its watch list. The actual date of the
return to service for each of the units is dependent upon the completion of
independent inspections and reviews by the NRC and a vote by the NRC
commissioners. NU hopes to return Millstone 3 to service in early spring of 1998
and Millstone 2 three to four months after Millstone 3. Millstone 1 is currently
in extended maintenance status.
In 1997, NU's share of nonfuel O&M costs expensed for Millstone totaled $566
million, including $73 million reserved for future restart costs.
Budgeted nuclear spending levels at Millstone for 1998 will be reduced from
1997 levels, although they will be considerably higher than before the station
was placed on the NRC's watch list. The actual level of 1998 spending will
depend on when the units return to operation and the cost of restoring them to
service. The total cost to restart the units cannot be precisely estimated at
this time. Management will continue to evaluate the costs to be incurred in 1998
to determine whether adjustments to the existing reserves are required.
Management cannot predict when the NRC will allow any of the Millstone units
to return to service and thus cannot precisely estimate the total replacement
power costs the companies ultimately will incur. Replacement power costs
incurred by NU attributable to the Millstone outages averaged approximately $28
million per month during 1997, and for 1998 are projected to average
approximately $9 million per month for Millstone 3, $9 million per month for
Millstone 2 and $6 million per month for Millstone 1 while the plants remain out
of service. CL&P, WMECO and PSNH will continue to expense their replacement
power costs in 1998.
Based on the current estimates of expenditures and restart dates, management
believes the NU system has sufficient resources to fund the restoration of the
Millstone units and related replacement power costs. If the return to service of
Millstone 3 or 2 is delayed substantially beyond the present restart estimates,
if some financing facilities become unavailable because of difficulties in
meeting borrowing conditions or renegotiating extensions, if CL&P and WMECO
encounter additional significant costs or if any other significant deviations
from management's assumptions occur, CL&P and WMECO could be unable to meet
their cash requirements. In those circumstances, management would take even more
stringent actions to reduce costs and cash outflows and attempt to obtain
additional sources of funds. The availability of these funds would be dependent
upon general market conditions and CL&P's and WMECO's respective credit and
financial conditions at that time.
For information concerning the ability of CL&P and WMECO to access its
borrowing facilities, see the MD&A.
Litigation: Several class-action lawsuits have been filed against the company
and certain present and former officers and employees of NU in connection with
the company's nuclear operations. Management cannot estimate the potential
outcome of these suits, but believes these suits are without merit and intends
to defend itself vigorously in all these actions.
46 Northeast Utilities 1997 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
CL&P and WMECO, through NNECO as agent, operate Millstone 3 at cost, and
without profit, under a sharing agreement that obligates them to utilize good
utility operating practice and requires the joint owners to share the risk of
employee negligence and other risks of operation and maintenance pro-rata in
accordance with their ownership shares. This agreement also provides that CL&P
and WMECO would be liable only for damages to the non-NU owners for a deliberate
violation of the agreement pursuant to authorized corporate action.
On August 7, 1997, the non-NU owners of Millstone 3 filed demands for
arbitration with CL&P and WMECO as well as lawsuits in Massachusetts Superior
Court against NU and its current and former trustees. The non-NU owners raise a
number of contract, tort and statutory claims arising out of the operation of
Millstone 3. The arbitrations and lawsuits seek to recover compensatory damages,
punitive damages, treble damages and attorneys' fees. Owners representing
approximately two-thirds of the non-NU interests in Millstone 3 claimed
compensatory damages in excess of $200 million. In addition, one of the lawsuits
seeks to restrain NU from disposing of its shares of the stock of WMECO and HWP,
pending the outcome of the lawsuit. Management cannot estimate the potential
outcome of these suits but believes there is no legal basis for the claims and
intends to defend against them vigorously. To date, no reserves have been
established for this litigation. At December 31, 1997, the costs related to this
litigation were estimated to be approximately $100 million for incremental O&M
costs and approximately $100 million for replacement power costs. These costs
are likely to increase as long as Millstone 3 remains out of service.
The Connecticut Municipal Electric Energy Cooperative (CMEEC) and CL&P have
been negotiating since May 1996 over issues related to the operation of
Millstone 1 and 2. CMEEC has failed to make payments on its accrued obligations
since October 1996, claiming that CL&P materially breached its contractual
obligations. CL&P has denied the allegations and requested payment. The matter
has gone to arbitration which has been scheduled for July 1998.
CL&P has filed an application with the Connecticut Superior Court in Hartford
requesting the court to grant interim relief to CL&P. CL&P has asked the court
to enforce the contract provisions by ordering CMEEC to pay the outstanding
obligations under the contract (approximately $25 million) and to continue
making payments (approximately $1.8 million per month) during the arbitration
process.
On December 9, 1997, the Superior Court judge issued a decision denying
CL&P's request for an interim payment order. Management cannot predict the
outcome of this litigation and has taken steps to assert its legal rights. CL&P
has requested reargument, in order to present evidence, and has requested that
the Connecticut Superior Court vacate its order. CL&P is prepared to appeal to a
higher court, if necessary, after the reargument.
C. Environmental Matters
The NU system is subject to regulation by federal, state and local authorities
with respect to air and water quality, the handling and disposal of toxic
substances and hazardous and solid wastes, and the handling and use of chemical
products. The NU system has an active environmental auditing and training
program and believes that it is in substantial compliance with current
environmental laws and regulations. However, the NU system is subject to certain
pending enforcement actions and governmental investigations in the environmental
area. Management cannot predict the outcome of these enforcement actions and
investigations.
Environmental requirements could hinder the construction of new generating
units, transmission and distribution lines, substations and other facilities.
Changing environmental requirements could also require extensive and costly
modifications to the NU system's existing generating units and transmission and
distribution systems, and could raise operating costs significantly. As a
result, the NU system may incur significant additional environmental costs,
greater than amounts included in cost of removal and other reserves, in
connection with the generation and transmission of electricity and the storage,
transportation and disposal of byproducts and wastes. The NU system also may
encounter significantly increased costs to remedy the environmental effects of
prior waste handling activities. The cumulative long-term cost impact of
increasingly stringent environmental requirements cannot be estimated
accurately.
The NU system has recorded a liability based upon currently available
information for what it believes are its estimated environmental remediation
costs that the NU
system's subsidiaries expect to incur for waste disposal sites. In most cases,
additional future environmental cleanup costs are not reasonably estimable due
to a number of factors, including the unknown magnitude of possible
contamination, the appropriate remediation methods, the possible effects of
future legislation or regulation and the possible effects of technological
changes. At December 31, 1997, the net liability recorded by the NU system for
its estimated environmental remediation costs, excluding any possible insurance
recoveries or recoveries from third parties, amounted to approximately $16.2
million, which management has determined to be the most probable amount within
the range of $16.2 million to $28.0 million.
Northeast Utilities 1997 Annual Report 47
<PAGE>
- --------------------------------------------------------------------------------
During 1997, NU adopted Statement of Position 96-1, "Environmental
Remediation Liabilities" (SOP). The principal objective of the SOP is to improve
the manner in which existing authoritative accounting literature is applied by
entities to specific situations of recognizing, measuring and disclosing
environmental remediation liabilities. The adoption of the SOP resulted in an
increase of approximately $1.5 million to NU's environmental reserve in 1997.
The NU system cannot estimate the potential liability for future claims,
including environmental remediation costs, that may be brought against it.
However, considering known facts, existing laws and regulatory practices,
management does not believe the matters disclosed above will have a material
effect on the NU system's financial position or future results of operations.
D. Nuclear Insurance Contingencies
Under certain circumstances, in the event of a nuclear incident at one of the
nuclear facilities in the country covered by the federal government's
third-party liability indemnification program, an owner of a nuclear unit could
be assessed in proportion to its ownership interest in each of its nuclear units
up to $75.5 million. Payments of this assessment would be limited to $10.0
million in any one year per nuclear incident based upon the owner's pro rata
ownership interest in each of its nuclear units. In addition, the owner would be
subject to an additional five percent or $3.8 million, in proportion to its
ownership interests in each of its nuclear units, if the sum of all claims and
costs from any one nuclear incident exceeds the maximum amount of financial
protection. Based upon its ownership interests in Millstone 1, 2 and 3 and in
Seabrook 1, the NU system's maximum liability, including any additional
assessments, would be $244.2 million per incident, of which payments would be
limited to $30.8 million per year. In addition, through power purchase contracts
with MYAPC, VYNPC and CYAPC, the NU system would be responsible for up to an
additional $67.4 million per incident, of which payments would be limited to
$8.5 million per year.
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. The maximum potential assessment against the
system with respect to losses arising during the current policy year is
approximately $17.1 million under the primary property insurance program.
Insurance has been purchased to cover certain extra costs incurred in
obtaining replacement power during prolonged accidental outages and the excess
cost of repair, replacement or decontamination or premature decommissioning of
utility property resulting from insured occurrences. The 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 are approximately $13.8 million under
the replacement power policies and $24.6 million under the excess property
damage, decontamination and decommissioning policies. The cost of a nuclear
incident could exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on an industry basis
for coverage of worker claims. All participating reactor operators insured under
this coverage are subject to retrospective assessments of $3 million per
reactor. The maximum potential assessment against the NU system with respect to
losses arising during the current policy period is approximately $13.0 million.
Effective January 1, 1998, a new worker policy was purchased which is not
subject to retrospective assessments.
E. Construction Program
The construction program is subject to periodic review and revision by
management. The NU system companies currently forecast construction expenditures
of approximately $2.0 billion for the years 1998-2002, including $267 million
for 1998. In addition, the NU system companies estimate that nuclear fuel
requirements, including nuclear fuel financed through the NBFT, will be
approximately $360.7 million for the years 1998-2002, including $60.6 million
for 1998. See Note 4, "Leases," for additional information about the financing
of nuclear fuel.
F. Long-Term Contractual Arrangements
Yankee Companies: The NU system companies rely on VY for approximately 1.7
percent of their capacity under long-term contracts. Under the terms of their
agreements, the NU system companies pay their ownership (or entitlement) shares
of costs, which include depreciation, O&M expenses, taxes, the estimated cost of
decommissioning and a return on invested capital. These costs are recorded as
purchased power expense and are recovered through the companies' rates. The
total cost of purchases under contracts with VYNPC amounted to $24.2 million in
1997, $25.5 million in 1996 and $25.3 million in 1995.
48 Northeast Utilities 1997 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
The other Yankee generating facilities, MY, CY and Yankee Rowe, were
permanently shut down as of August 6, 1997, December 4, 1996, and February 26,
1992, respectively. See Note 1E, "Summary of Significant Accounting Policies --
Investments and Jointly Owned Electric Utility Plant," for further information
on the Yankee companies, and Note 2, "Nuclear Decommissioning," regarding the
related decommissioning obligations.
Nonutility Generators: CL&P, PSNH and WMECO have entered into various
arrangements for the purchase of capacity and energy from nonutiltiy generators
(NUGs). These arrangements have terms from 10 to 30 years, currently expiring in
the years 1998 through 2028, and require the companies to purchase energy at
specified prices or formula rates. For the twelve month period ending December
31, 1997, approximately 14 percent of NU system electricity requirements was met
by NUGs. The total cost of purchases under these arrangements amounted to $447.6
million in 1997, $441.6 million in 1996 and $434.7 million in 1995. These costs
may be deferred for eventual recovery through rates.
New Hampshire Electric Cooperative: PSNH entered into a buy-back agreement to
purchase the capacity and energy of the New Hampshire Electric Cooperative,
Inc.'s (NHEC) share of Seabrook 1 and to pay all of NHEC's Seabrook 1 costs for
a ten-year period, which began on July 1, 1990. The total cost of purchases
under this agreement was $23.4 million in 1997, $14.6 million in 1996 and $15.8
million in 1995. The total cost of these purchases has been collected through
the FPPAC in accordance with the Rate Agreement. In connection with the
agreement, NHEC agreed to continue as a firm-requirements customer of PSNH for
15 years.
Hydro-Quebec: Along with other New England utilities, CL&P, PSNH, WMECO and
HWP have entered into agreements to support transmission and terminal facilities
to import electricity from the Hydro-Quebec system in Canada. CL&P, PSNH, WMECO
and HWP are obligated to pay, over a 30-year period ending in 2020, their
proportionate shares of the annual O&M and capital costs of these facilities.
Estimated Annual Costs: The estimated annual costs of the NU system's
significant long-term contractual arrangements are as follows:
- --------------------------------------------------------------------------------
(Millions of Dollars) 1998 1999 2000 2001 2002
- --------------------------------------------------------------------------------
VYNPC .................................. $ 28.7 $ 28.9 $ 27.7 $ 30.3 $ 31.5
NUGs ................................... 455.5 471.1 477.5 488.5 498.9
NHEC ................................... 30.0 30.0 14.6 -- --
Hydro-Quebec ........................... 32.6 31.6 30.9 30.0 29.3
================================================================================
For additional information regarding the recovery of purchased power costs, see
Note 1K, "Summary of Significant Accounting Policies -- Recoverable Energy
Costs."
G. Sale of COE
During 1997, the NU Board of Trustees approved the offering for sale of COE.
COE's revenues and earnings historically have not been material to NU. During
the fourth quarter of 1997, management established a reserve of $25 million to
reflect the anticipated loss from the sale of a COE investment. NU had a net
investment in COE of approximately $33.4 million and $57.2 million, as of
December 31, 1997 and 1996, respectively.
8. Market Risk Management
Fuel Price Management: CL&P uses swap, collar, put and call instruments with
financial institutions to hedge against some of the fuel price risk created by
long-term negotiated energy contracts and nuclear replacement power generation
and fuel purchases. These agreements minimize exposure associated with rising
fuel prices by managing a portion of CL&P's cost of fuel for these negotiated
energy contracts and nuclear replacement power generation and fuel purchases. As
of December 31, 1997, CL&P had outstanding agreements with a total notional
value of approximately $327 million, and a negative mark-to-market position of
approximately $21 million.
The terms of the 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 the 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 December 31, 1997, cash collateral in the amount of $15.4 million was posted
under these terms.
Northeast Utilities 1997 Annual Report 49
<PAGE>
- --------------------------------------------------------------------------------
Interest Rate Management: NAEC uses swap instruments with financial
institutions to hedge against interest rate risk associated with its $200
million variable-rate bank note. The interest-rate management instruments
employed eliminate the exposure associated with rising interest rates, and
effectively fix the interest rate for this borrowing arrangement. Under the
agreements, NAEC exchanges quarterly payments based on a differential between a
fixed contractual interest rate and the three-month LIBOR rate at a given time.
As of December 31, 1997, NAEC had outstanding agreements with a total notional
value of $200 million and a positive mark-to-market position of approximately
$104 thousand.
Credit Risk: These agreements have been made with various financial
institutions, each of which is rated "A3" or better by Moody's rating group.
Each respective company will be exposed to credit risk on their respective
market 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.
9. Minority Interest in Consolidated Subsidiary
CL&P Capital LP (CL&P LP, a subsidiary of CL&P) had previously issued $100
million of cumulative 9.3 percent Monthly Income Preferred Securities (MIPS),
Series A. CL&P has the sole ownership interest in CL&P LP, as a general partner,
and is the guarantor of the MIPS securities. Subsequent to the MIPS issuance,
CL&P LP loaned the proceeds of the MIPS issuance, along with CL&P's $3.1 million
capital contribution, back to CL&P in the form of an unsecured debenture. CL&P
consolidates CL&P LP for financial reporting purposes. Upon consolidation, the
unsecured debenture is eliminated, and the MIPS securities are accounted for as
minority interests.
10. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each of the following financial instruments:
Cash and nuclear decommissioning trusts: The carrying amounts approximate
fair value.
SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities,"
requires investments in debt and equity securities to be presented at fair
value. As a result of this requirement, the investments held in the NU system
companies' nuclear decommissioning trusts were adjusted to market by
approximately $69.6 million as of December 31, 1997, and $31.4 million as of
December 31, 1996, with corresponding offsets to the accumulated provision for
depreciation. The amounts adjusted in 1997 and in 1996 represent cumulative
gross unrealized holding gains. The cumulative gross unrealized holding losses
were immaterial for both 1997 and 1996.
Preferred stock and long-term debt: The fair value of the system's fixed-rate
securities is based upon the quoted market price for those issues or similar
issues. Adjustable rate securities are assumed to have a fair value equal to
their carrying value. The carrying amounts of the system's financial instruments
and the estimated fair values are as follows:
- --------------------------------------------------------------------------------
At December 31, 1997
- --------------------------------------------------------------------------------
Carrying Fair
(Thousands of Dollars) Amount Value
- --------------------------------------------------------------------------------
Preferred stock not subject
to mandatory redemption ......................... $ 136,200 $ 79,141
Preferred stock subject to
mandatory redemption ............................ 276,000 255,180
Long-term debt --
First Mortgage Bonds ............................ 2,228,800 2,210,423
Other long-term debt ............................ 1,668,533 1,691,362
MIPS ............................................... 100,000 100,760
================================================================================
- --------------------------------------------------------------------------------
At December 31, 1997
- --------------------------------------------------------------------------------
Carrying Fair
(Thousands of Dollars) Amount Value
- --------------------------------------------------------------------------------
Preferred stock not subject
to mandatory redemption ......................... $ 136,200 $ 127,045
Preferred stock subject to
mandatory redemption ............................ 301,000 264,304
Long-term debt --
First Mortgage Bonds ............................ 2,196,788 2,163,031
Other long-term debt ............................ 1,718,859 1,741,818
MIPS ............................................... 100,000 108,520
================================================================================
The fair values shown above have been reported to meet disclosure requirements
and do not purport to represent the amounts at which those obligations would be
settled.
50 Northeast Utilities 1997 Annual Report
<PAGE>
Consolidated Statements of Quarterly Financial Data
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1997 Quarter Ended (a)
- ------------------------------------------------------------------------------------------------
(Thousands of Dollars, except per share data) March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues ............................ $ 975,368 $903,323 $977,127 $978,988
================================================================================================
Operating Income .............................. $ 86,006 $ 6,120 $ 25,448 $ 67,462
================================================================================================
Net Income/(Loss) ............................. $ 17,505 $(64,439) $(51,745) $(37,029)
================================================================================================
Earnings/(Loss) Per Common Share .............. $ 0.14 $ (0.50) $ (0.40) $ (0.29)
================================================================================================
1996
================================================================================================
Operating Revenues ............................ $1,028,202 $871,904 $955,518 $936,524
================================================================================================
Operating Income/(Loss) ....................... $ 133,261 $ 81,819 $ 68,032 $(11,540)
================================================================================================
Net Income/(Loss) ............................. $ 65,502 $ 11,666 $ 1,033 $(76,370)
================================================================================================
Earnings/(Loss) Per Common Share .............. $ 0.51 $ 0.09 $ 0.01 $ (0.60)
================================================================================================
</TABLE>
Consolidated Generation Statistics
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Source of Electric Energy: (kWh-millions)
Nuclear -- Steam (b) .............. 3,778 9,405 18,235 19,443 22,965
Fossil -- Steam ................... 13,155 9,188 9,162 8,292 7,676
Hydro -- Conventional ............. 1,260 1,544 1,099 1,239 1,140
Hydro -- Pumped Storage ........... 959 1,217 1,209 1,195 1,269
Internal Combustion ............... 184 206 37 13 8
Energy Used for Pumping ........... (1,327) (1,668) (1,674) (1,629) (1,749)
- ------------------------------------------------------------------------------------
Net Generation .................... 18,009 19,892 28,068 28,553 31,309
- ------------------------------------------------------------------------------------
Purchased and Net Interchange ..... 24,377 22,111 14,256 14,028 10,499
Company Use and Unaccounted for ... (2,802) (2,473) (2,706) (2,535) (2,591)
- ------------------------------------------------------------------------------------
Net Energy Sold ................... 39,584 39,530 39,618 40,046 39,217
====================================================================================
System Capability -- MW (b)(c) .... 8,312.0 8,894.0 8,394.8 8,494.8 7,795.3
System Peak Demand -- MW .......... 6,455.5 5,946.9 6,358.2 6,338.5 6,191.0
Nuclear Capacity -- MW (b)(c) ..... 2,785.0 3,117.8 3,239.6 3,272.6 3,110.0
Nuclear Contribution to Total
Energy Requirements (%) (b) ..... 13.0 28.0 52.0 54.0 62.1
Nuclear Capacity Factor (%) (d) ... 19.6 38.0 69.9 67.5 80.8
====================================================================================
</TABLE>
(a) Reclassifications of prior data have been made to conform with the current
presentation.
(b) Includes the NU system's entitlements in regional nuclear generating
companies, net of capacity sales and purchases.
(c) Millstone 1, 2 and 3 have been out of service since November 4, 1995,
February 21, 1996, and March 30, 1996, respectively. The company has
restructured its nuclear organization and is currently implementing
comprehensive plans to restart the units. The actual date of the return to
service for each of the units is dependent upon the completion of
independent inspections and reviews by the NRC and a vote by the NRC
commissioners. NU hopes to return Millstone 3 to service in early spring of
1998 and Millstone 2 three to four months after Millstone 3. Millstone 1 is
currently in extended maintenance status.
(d) Represents the average capacity factor for the nuclear units operated by the
NU system.
Northeast Utilities 1997 Annual Report 51
<PAGE>
Selected Consolidated Financial Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars, except percentages
and per share data) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Net Utility Plant (a) ................. $ 6,463,158 $ 6,732,165 $ 7,000,837 $ 7,282,421 $ 7,439,159
Total Assets .......................... 10,414,412 10,741,748 10,559,574 10,584,880 10,668,164
Total Capitalization (b) .............. 6,429,660 6,622,519 6,820,624 7,035,989 7,309,898
Obligations Under Capital Leases (b) .. 207,731 206,165 230,482 239,121 243,760
- ------------------------------------------------------------------------------------------------------------------
Income Data:
Operating Revenues .................... $ 3,834,806 $ 3,792,148 $ 3,750,560 $ 3,642,742 $ 3,629,093
Net (Loss)/Income ..................... (135,708) 1,831 282,434 286,874 249,953(c)
- ------------------------------------------------------------------------------------------------------------------
Common Share Data:
(Loss)/Earnings per Share ............. $(1.05) $0.01 $2.24 $2.30 $2.02(c)
Dividends per Share (d) ............... $0.25 $1.38 $1.76 $1.76 $1.76
Number of Shares
Outstanding -- Average .............. 129,567,708 127,960,382 126,083,645 124,678,192 123,947,631
Market Price -- High .................. $14 1/4 $25 1/4 $25 3/8 $25 3/4 $28 7/8
Market Price -- Low ................... $7 5/8 $9 1/2 $21 $20 3/8 $22
Market Price -- Closing (end of year).. $11 13/16 $13 1/8 $24 1/4 $21 5/8 $23 3/4
Book Value per Share (end of year) .... $16.34 $17.73 $19.08 $18.47 $17.89
Rate of Return Earned on Average
Common Equity (%) ................... (6.2) 0.1 12.0 12.7 11.4
Market-to-Book Ratio (end of year) .... 0.7 0.8 1.3 1.2 1.3
- ------------------------------------------------------------------------------------------------------------------
Capitalization:
Common Shareholders' Equity ........... 33% 34% 36% 33% 30%
Preferred Stock (b)(e) ................ 6 7 7 9 9
Long-Term Debt (b) .................... 61 59 57 58 61
- ------------------------------------------------------------------------------------------------------------------
Total Capitalization .................. 100% 100% 100% 100% 100%
==================================================================================================================
</TABLE>
(a) Includes the reclassification of the unamortized PSNH acquisition costs to
net utility plant.
(b) Includes portions due within one year.
(c) Includes the cumulative effect of change in accounting for municipal
property tax expense, which increased earnings for common shares and
earnings per common share by $51.7 million and $0.42, respectively.
(d) Quarterly dividends were suspended effective March 25, 1997.
(e) Excludes $100 million of Monthly Income Preferred Securities.
52 Northeast Utilities 1997 Annual Report
<PAGE>
Consolidated Sales Statistics
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 (a) 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues: (thousands)
Residential ....................... $1,499,394 $1,501,465 $1,469,988 $1,430,239 $1,385,818
Commercial ........................ 1,266,449 1,246,822 1,230,608 1,173,808(b) 1,043,125
Industrial ........................ 560,782 565,900 583,204 559,801(b) 649,876
Other Utilities ................... 329,764 315,577 303,004 330,801 383,129
Streetlighting and Railroads ...... 48,867 48,053 47,510 45,943 45,480
Non-Franchised Sales .............. 21,476 8,360 -- -- --
Miscellaneous ..................... 47,446 23,513 50,353 44,140 60,008
- ---------------------------------------------------------------------------------------------------------------------------
Total Electric .................. 3,774,178 3,709,690 3,684,667 3,584,732 3,567,436
Other ............................. 60,628 82,458 65,893 58,010 61,657
- ---------------------------------------------------------------------------------------------------------------------------
Total ........................... $3,834,806 $3,792,148 $3,750,560 $3,642,742 $3,629,093
===========================================================================================================================
Sales: (kWh - millions)
Residential ....................... 12,099 12,241 12,005 12,231 11,988
Commercial ........................ 12,091 12,012 11,737 11,649(b) 10,304
Industrial ........................ 6,801 6,820 6,842 6,729(b) 7,572
Other Utilities ................... 8,034 8,032 8,718 9,123 9,046
Streetlighting and Railroads ...... 318 319 316 314 307
Non-Franchised Sales .............. 241 50 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total ........................... 39,584 39,474 39,618 40,046 39,217
===========================================================================================================================
Customers: (average)
Residential ....................... 1,535,134 1,532,015 1,526,127 1,513,987 1,503,182
Commercial ........................ 159,350 157,347 156,652 154,703(b) 155,487
Industrial ........................ 7,804 7,792 7,861 7,813(b) 6,272
Other ............................. 3,929 3,916 3,878 3,818 3,793
- ---------------------------------------------------------------------------------------------------------------------------
Total ........................... 1,706,217 1,701,070 1,694,518 1,680,321 1,668,734
===========================================================================================================================
Average Annual Use
per Residential Customer (kWh) .. 7,898 8,005 7,880(c) 8,152 7,987
===========================================================================================================================
Average Annual Bill
per Residential Customer ........ $ 978.72 $ 980.19 $ 964.88(c) $ 953.23 $ 923.32
===========================================================================================================================
Average Revenue per kWh:
Residential ....................... 12.39(cents) 12.27(cents) 12.24(cents) 11.69(cents) 11.56(cents)
Commercial ........................ 10.47 10.38 10.49 10.08 10.12
Industrial ........................ 8.25 8.30 8.52 8.32 8.58
===========================================================================================================================
</TABLE>
(a) Effective January 1, 1994, the accounting for unbilled revenues was revised
to report unbilled revenues by customer class.
(b) Effective January 1, 1994, approximately 1,300 customers previously
classified as commercial customers were reclassified to industrial
customers.
(c) Effective January 1, 1996, the amounts shown reflect billed and unbilled
sales. 1995 has been restated to reflect this change.
Northeast Utilities 1997 Annual Report 53
<PAGE>
Northeast Utilities System Officers*
- --------------------------------------------------------------------------------
As of February 24, 1998
Chairman, President and Chief Executive Officer
Michael G. Morris
Group Presidents
Bruce D. Kenyon
Nuclear Group
Hugh C. MacKenzie
Retail Business Group
Executive Vice Presidents
Ted C. Feigenbaum
Nuclear Group
John H. Forsgren
Chief Financial Officer
Senior Vice Presidents
Cheryl W. Grise
Chief Administrative Officer
Robert P. Wax
Secretary and General Counsel
Vice Presidents
David B. Amerine
Nuclear Engineering and Support
David H. Boguslawski
Energy Delivery
Michael H. Brothers
Nuclear Operations
Gregory B. Butler
Governmental Affairs
Ronald G. Chevalier
Fossil/Hydro Engineering and Operations
David M. Goebel+
Nuclear Oversight
Barry Ilberman
Human Resources and General Services
John B. Keane
Treasurer
Mary Jo Keating
Corporate Communications
Keith R. Marvin
Chief Information Officer
John T. Muro
Retail Marketing
John W. Noyes
Business Strategy
John J. Roman
Controller
Frank C. Rothen
Nuclear Work Services
Frank P. Sabatino
Wholesale Marketing
Lisa J. Thibdaue
Rates, Regulatory Affairs and Compliance
Dennis E. Welch
Environmental, Safety and Ethics
Roger C. Zaklukiewicz
Transmission and Distribution
Other Officer
Bruce L. Drawbridge
Director of Services -- NAESCO
Electric Operating Company Officers
William T. Frain, Jr.
President and Chief Operating Officer -- PSNH
Robert G. Abair
Vice President and Chief Administrative Officer -- WMECO
Robert J. Kost
Vice President-Western Region -- CL&P
Kerry J. Kuhlman
Vice President-Central Region -- CL&P
Gary A. Long
Vice President-Customer Service and Economic Development -- PSNH
Paul E. Ramsey
Vice President-Customer Operations -- PSNH
Richard L. Tower
Vice President-Eastern Region -- CL&P
Assistant Controllers
Deborah L. Canyock
Management Information and Budgeting Services
Lori A. Mahler
Accounting Services
Michael J. Mahoney
Rate Regulation
Assistant Treasurers
Robert C. Aronson
Treasury Operations
David R. McHale
Finance
Assistant Secretaries and Clerks
Theresa Hopkins Allsop
Robert A. Bersak -- PSNH
O. Kay Comendul
Thomas V. Foley, Clerk -- HWP
Patricia A. Wood, Clerk -- WMECO
Margaret L. Morton
HEC Inc., Officers
Thomas W. Philbin
President
H. Donald Burbank
Vice President -- Customer Service
David S. Dayton
Vice President
Linda A. Jensen
Vice President -- Finance, Treasurer and Clerk
James B. Redden
Vice President -- Operations
* All officers shown are for Northeast Utilities Service Company, unless
otherwise indicated.
+ Mr. Goebel resigned from the company effective March 12, 1998.
54 Northeast Utilities 1997 Annual Report
<PAGE>
Northeast Utilities Officers and Trustees
- --------------------------------------------------------------------------------
As of February 24, 1998
Officers
Michael G. Morris
Chairman of the Board, President and Chief Executive Officer
Bruce D. Kenyon
President -- Nuclear Group
Hugh C. MacKenzie
President -- Retail Business Group
John H. Forsgren
Executive Vice President and Chief Financial Officer
Robert P. Wax
Senior Vice President Secretary and General Counsel
John B. Keane
Vice President and Treasurer
John J. Roman
Vice President and Controller
Theresa Hopkins Allsop
Assistant Secretary
O. Kay Comendul
Assistant Secretary
Robert C. Aronson
Assistant Treasurer -- Treasury Operations
David R. McHale
Assistant Treasurer -- Finance
Trustees
Cotton Mather Cleveland (B, C, D, G)
President
Mather Associates
(a firm specializing in human resources and organizational development)
William F. Conway (A,G)
President
William F. Conway & Associates, Inc.
(a managing consulting firm to the nuclear power industry)
John F. Curley (B, F)
Private Investor
E. Gail de Planque (A, E, G)
Former Commissioner United States Nuclear Regulatory Commission
Elizabeth T. Kennan (A, B, D, E, F)
President Emeritus
Mount Holyoke College
Michael G. Morris (E, F)
Chairman of the Board, President and Chief Executive Officer Northeast Utilities
William J. Pape II (B, C, G)
Publisher
Waterbury Republican-American
(newspaper)
Robert E. Patricelli (B, F)
Chairman, President and Chief Executive Officer
Women's Health USA, Inc.
(provides women's health care services)
John F. Swope (A, C, E)
Attorney
John F. Turner (A, C, D, G)
President and Chief Executive Officer
The Conservation Fund
(a national nonprofit organization dedicated to land and water conservation and
economic development)
A - Audit Committee
B - Compensation Committee
C - Corporate Affairs Committee
D - Corporate Governance Committee
E - Executive Committee
F - Finance Committee
G - Nuclear Committee
Northeast Utilities 1997 Annual Report 55
<PAGE>
Shareholder Information
- --------------------------------------------------------------------------------
Shareholders
As of January 31, 1998, there were 98,923 common shareholders of record of
Northeast Utilities holding an aggregate of 136,849,710 common shares.
Common Share Information
The common shares of Northeast Utilities are listed on the New York Stock
Exchange. The ticker symbol is "NU," although it is frequently presented as
"Noeast Util" and/or "NE Util," in various financial publications. The high and
low sales prices and dividends paid for the past two years, by quarters, are
shown in the chart below.
Quarterly Dividend
Year Quarter High Low Per Share
- -----------------------------------------------------------
1997 First $14 1/4 $7 5/8 $0.25
Second 9 7/8 7 3/4 0.00
Third 10 3/16 9 0.00
Fourth 13 15/16 9 1/2 0.00
1996 First $25 1/4 $19 $0.44
Second 20 1/4 11 7/8 0.44
Third 13 3/8 11 1/2 0.25
Fourth 13 1/2 9 1/2 0.25
Dividend Reinvestment Plan
The company has a Dividend Reinvestment Plan under which common shareholders may
purchase additional common shares.
Northeast Utilities Service Company, Shareholder Services, P.O. Box 5006,
Hartford, Connecticut 06102-5006, is the company's dividend-paying agent and
administers its Dividend Reinvestment Plan.
Transfer Agents and Registrars
Northeast Utilities Service Company
Shareholder Services
P.O. Box 5006
Hartford, Connecticut 06102-5006
State Street Bank and Trust Company
Corporate Stock Transfer Department
P.O. Box 8200
Boston, Massachusetts 02266-8200
Annual Meeting
The Annual Meeting of Shareholders of Northeast Utilities will be held at 10:30
a.m. on May 12, 1998, at the Wayfarer Inn, Bedford, New Hampshire.
Form 10-K
Northeast Utilities will provide shareholders a copy of its 1997 Annual Report
to the Securities and Exchange Commission on Form 10-K, including the financial
statements and schedules thereto, without charge, upon receipt of a written
request sent to:
Theresa Hopkins Allsop
Assistant Secretary
Northeast Utilities
P.O. Box 270
Hartford, Connecticut 06141-0270
- --------------------------------------------------------------------------------
Northeast Utilities is the parent company of the NU system (collectively
referred to as NU). NU is among the 25 largest electric utility systems in the
country and the largest in New England, with about 9,015 employees serving
approximately 1.7 million customers in Connecticut, New Hampshire and western
Massachusetts.
Current NU subsidiaries are listed below:
Electric Operating Subsidiaries
The Connecticut Light and Power Company
Holyoke Water Power Company
Public Service Company of New Hampshire
Western Massachusetts Electric Company
North Atlantic Energy Corporation
Nonutility Subsidiaries
Charter Oak Energy, Inc.
(independent power production)
HEC Inc.
(energy management)
Mode 1 Communications, Inc.
(telecommunications)
Select Energy, Inc.
(diversification activities)
Support Subsidiaries
North Atlantic Energy Service Corporation
(Seabrook nuclear operations)
Northeast Nuclear Energy Company
(Millstone nuclear operations)
Northeast Utilities Service Company
(systemwide service)
Realty Subsidiaries
The Quinnehtuk Company
The Rocky River Realty Company
- --------------------------------------------------------------------------------
56 Northeast Utilities 1997 Annual Report
1997 Annual Report
The Connecticut Light and Power Company and Subsidiaries
Index
Contents Page
Consolidated Balance Sheets....................................... 2-3
Consolidated Statements of Income................................. 4
Consolidated Statements of Cash Flows............................. 5
Consolidated Statements of Common Stockholder's Equity............ 6
Notes to Consolidated Financial Statements........................ 7
Report of Independent Public Accountants.......................... 41
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 42
Selected Financial Data........................................... 54
Statements of Quarterly Financial Data............................ 54
Statistics........................................................ 55
Preferred Stockholder and Bondholder Information.................. Back Cover
PART I. FINANCIAL INFORMATION
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric (Note 1H)....................................... $ 6,411,018 $ 6,283,736
Less: Accumulated provision for depreciation.......... 2,902,673 2,665,519
------------- -------------
3,508,345 3,618,217
Construction work in progress............................ 93,692 95,873
Nuclear fuel, net........................................ 135,076 133,050
------------- -------------
Total net utility plant.............................. 3,737,113 3,847,140
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market................ 369,162 296,960
Investments in regional nuclear generating
companies, at equity.................................... 58,061 56,925
Other, at cost........................................... 66,625 16,565
------------- -------------
493,848 370,450
------------- -------------
Current Assets:
Cash..................................................... 459 404
Notes receivable from affiliated companies............... - 109,050
Investments in securitizable assets (Note 10)............ 205,625 -
Receivables, less accumulated provision for
uncollectible accounts of $300,000 in 1997
and of $13,240,000 in 1996 (Note 10)................... 50,671 226,112
Accounts receivable from affiliated companies............ 3,150 3,481
Taxes receivable......................................... 70,311 40,134
Accrued utility revenues (Note 10)....................... - 78,451
Fuel, materials and supplies, at average cost............ 81,878 79,937
Recoverable energy costs, net--current portion........... 28,073 25,436
Prepayments and other.................................... 79,632 63,344
------------- -------------
519,799 626,349
------------- -------------
Deferred Charges:
Regulatory assets (Note 1H).............................. 1,292,818 1,370,781
Unamortized debt expense................................. 19,286 17,033
Other.................................................... 18,359 12,283
------------- -------------
1,330,463 1,400,097
------------- -------------
Total Assets......................................... $ 6,081,223 $ 6,244,036
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
At December 31, 1997 1996
- ----------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$10 par value. Authorized
24,500,000 shares; outstanding 12,222,930
shares in 1997 and 1996................................ $ 122,229 $ 122,229
Capital surplus, paid in................................ 641,333 639,657
Retained earnings....................................... 385,823 551,410
------------- -------------
Total common stockholder's equity.............. 1,149,385 1,313,296
Cumulative preferred stock--
$50 par value - authorized 9,000,000 shares;
outstanding 5,424,000 shares in 1997 and 1996;
$25 par value - authorized 8,000,000 shares;
outstanding no shares in 1997 and 1996
Not subject to mandatory redemption.................... 116,200 116,200
Subject to mandatory redemption........................ 151,250 155,000
Long-term debt.......................................... 2,023,316 1,834,405
------------- -------------
Total capitalization........................... 3,440,151 3,418,901
------------- -------------
Minority Interest in Consolidated Subsidiary (Note 13).... 100,000 100,000
------------- -------------
Obligations Under Capital Leases (Note 2)................. 18,042 143,347
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 35,000 -
Notes payable to affiliated company..................... 61,300 -
Long-term debt and preferred stock--current
portion................................................ 23,761 204,116
Obligations under capital leases--current
portion................................................ 140,076 12,361
Accounts payable........................................ 124,427 160,945
Accounts payable to affiliated companies................ 92,963 78,481
Accrued taxes........................................... 33,017 28,707
Accrued interest........................................ 14,650 31,513
Nuclear compliance (Note 11B)........................... 58,700 50,500
Other................................................... 23,495 34,433
------------- -------------
607,389 601,056
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,324,066 1,365,641
Accumulated deferred investment tax credits............. 127,713 135,080
Deferred contractual obligations (Note 3)............... 348,406 305,627
Other................................................... 115,456 174,384
------------- -------------
1,915,641 1,980,732
------------- -------------
Commitments and Contingencies (Note 11)
Total Capitalization and Liabilities........... $ 6,081,223 $ 6,244,036
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues................................... $2,465,587 $2,397,460 $2,387,069
----------- ----------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power....... 977,543 831,079 608,600
Other........................................... 734,620 778,174 614,382
Maintenance........................................ 355,772 300,005 192,607
Depreciation....................................... 238,667 247,109 242,496
Amortization of regulatory assets, net............. 61,648 57,432 54,217
Federal and state income taxes (Note 8)............ (62,856) (20,174) 178,346
Taxes other than income taxes...................... 172,592 174,062 172,395
----------- ----------- -----------
Total operating expenses..................... 2,477,986 2,367,687 2,063,043
----------- ----------- -----------
Operating (Loss)/Income.............................. (12,399) 29,773 324,026
----------- ----------- -----------
Other Income:
Equity in earnings of regional nuclear
generating companies............................. 5,672 6,619 6,545
Other, net......................................... (1,856) 20,710 14,585
Minority interest in income of subsidiary (Note 13) (9,300) (9,300) (8,732)
Income taxes....................................... 7,573 160 (2,978)
----------- ----------- -----------
Other income, net............................ 2,089 18,189 9,420
----------- ----------- -----------
(Loss)/Income before interest charges........ (10,310) 47,962 333,446
----------- ----------- -----------
Interest Charges:
Interest on long-term debt......................... 132,127 127,198 124,350
Other interest..................................... 1,940 1,001 3,880
----------- ----------- -----------
Interest charges, net........................ 134,067 128,199 128,230
----------- ----------- -----------
Net (Loss)/Income.................................... $ (144,377) $ (80,237) $ 205,216
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities:
Net(Loss)/Income............................................ $(144,377) $ (80,237) $ 205,216
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 238,667 247,109 242,496
Deferred income taxes and investment tax credits, net..... (13,821) (60,773) 49,520
Deferred nuclear plants return, net of amortization....... (281) 7,746 95,559
Amortization of deferred demand-side-management costs, net 38,029 26,941 (937)
Recoverable energy costs, net of amortization............. (9,533) (35,567) (16,169)
Amortization of deferred cogeneration costs, net.......... 32,700 25,957 (55,341)
Deferred nuclear refueling outage, net of amortization ... (45,333) 45,643 (20,712)
Other sources of cash..................................... 64,013 75,552 86,956
Other uses of cash........................................ (50,136) (23,862) (53,745)
Changes in working capital:
Receivables and accrued utility revenues.................. 184,223 (22,378) (33,032)
Fuel, materials and supplies.............................. (1,941) (11,455) (4,479)
Accounts payable.......................................... (22,036) 83,951 9,605
Accrued taxes............................................. 4,310 (23,561) 25,855
Sale of receivables and accrued utility revenues (Note 10) 70,000 - -
Investment in securitizable assets (Note 10)............. (205,625) - -
Nuclear compliance, net (Note 11B)........................ 8,200 50,500 -
Other working capital (excludes cash)..................... (74,266) (5,385) (1,869)
---------- ---------- ----------
Net cash flows from operating activities...................... 72,793 300,181 528,923
---------- ---------- ----------
Financing Activities:
Issuance of long-term debt.................................. 200,000 222,000 -
Issuance of Monthly Income
Preferred Securities....................................... - - 100,000
Net increase/(decrease) in short-term debt.................. 96,300 (51,750) (127,000)
Reacquisitions and retirements of long-term debt............ (204,116) (14,329) (10,866)
Reacquisitions and retirements of preferred stock........... - - (125,000)
Cash dividends on preferred stock........................... (15,221) (15,221) (21,185)
Cash dividends on common stock.............................. (5,989) (138,608) (164,154)
---------- ---------- ----------
Net cash flows from/(used for) financing activities........... 70,974 2,092 (348,205)
---------- ---------- ----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (155,550) (140,086) (131,858)
Nuclear fuel.............................................. (702) 553 (1,543)
---------- ---------- ----------
Net cash flows used for investments in plant................ (156,252) (139,533) (133,401)
Investment in NU system money pool.......................... 109,050 (109,050) -
Investment in nuclear decommissioning trusts................ (45,314) (50,998) (47,826)
Other investment activities, net............................ (51,196) (2,625) 581
---------- ---------- ----------
Net cash flows used for investments........................... (143,712) (302,206) (180,646)
---------- ---------- ----------
Net Increase In Cash For The Period........................... 55 67 72
Cash - beginning of period.................................... 404 337 265
---------- ---------- ----------
Cash - end of period.......................................... $ 459 $ 404 $ 337
========== ========== ==========
Supplemental Cash Flow Information:
Cash paid/(refunded) during the year for:
Interest, net of amounts capitalized........................ $ 145,962 $ 114,458 $ 117,074
========== ========== ==========
Income taxes................................................ $ (22,338) $ 77,790 $ 137,706
========== ========== ==========
Increase in obligations:
Niantic Bay Fuel Trust and other capital leases............. $ 2,815 $ 2,855 $ 33,537
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Capital Retained
Common Surplus, Earnings
Stock Paid In (a) Total
- ------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Balance at January 1, 1995.......... $122,229 $632,117 $ 765,724 $1,520,070
Net income for 1995............. 205,216 205,216
Cash dividends on preferred
stock......................... (21,185) (21,185)
Cash dividends on common stock.. (164,154) (164,154)
Loss on the retirement of
preferred stock............... (125) (125)
Capital stock expenses, net..... 5,864 5,864
--------- --------- ---------- -----------
Balance at December 31, 1995........ 122,229 637,981 785,476 1,545,686
Net loss for 1996............... (80,237) (80,237)
Cash dividends on preferred
stock......................... (15,221) (15,221)
Cash dividends on common stock.. (138,608) (138,608)
Capital stock expenses, net..... 1,676 1,676
--------- --------- ---------- -----------
Balance at December 31, 1996........ 122,229 639,657 551,410 1,313,296
Net loss for 1997............... (144,377) (144,377)
Cash dividends on preferred
stock......................... (15,221) (15,221)
Cash dividends on common stock.. (5,989) (5,989)
Capital stock expenses, net..... 1,676 1,676
--------- --------- ---------- -----------
Balance at December 31, 1997........ $122,229 $641,333 $ 385,823 $1,149,385
========= ========= ========== ===========
</TABLE>
(a) The company has dividend restrictions imposed by its long-term debt
agreements. At December 31, 1997, these restrictions totaled
approximately $540 million.
The accompanying notes are an integral part of these financial statements.
The Connecticut Light and Power Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STAATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ABOUT THE CONNECTICUT LIGHT AND POWER COMPANY
The Connecticut Light and Power Company and subsidiaries (the company
or CL&P), Western Massachusetts Electric Company (WMECO), Holyoke Water
Power Company (HWP), Public Service Company of New Hampshire (PSNH) and
North Atlantic Energy Corporation (NAEC) are the operating subsidiaries
comprising the Northeast Utilities system (the NU system) and are
wholly owned by Northeast Utilities (NU).
The NU system furnishes franchised retail electric service in
Connecticut, New Hampshire and western Massachusetts through CL&P,
PSNH, WMECO and HWP. A fifth wholly owned subsidiary, NAEC, sells all
of its entitlement to the capacity and output of the Seabrook nuclear
power plant (Seabrook) to PSNH. In addition to its franchised retail
service, the NU system furnishes firm and other wholesale electric
services to various municipalities and other utilities, and
participates in limited retail access programs, providing off-system
retail electric service. The NU system serves about 30 percent of New
England's electric needs and is one of the 25 largest electric utility
systems in the country as measured by revenues.
Other wholly owned subsidiaries of NU provide support services for
the NU system companies and, in some cases, for other New England
utilities. Northeast Utilities Service Company (NUSCO) provides
centralized accounting, administrative, information resources,
engineering, financial, legal, operational, planning, purchasing and
other services to the NU system companies. Northeast Nuclear Energy
Company (NNECO) acts as agent for the NU system companies and other
New England utilities in operating the Millstone nuclear generating
facilities. North Atlantic Energy Service Corporation (NAESCO) acts
as agent for CL&P and NAEC and has operational responsibilities for
Seabrook. In addition, CL&P and WMECO each have established a special
purpose subsidiary whose business consists of the purchase and resale
of receivables.
B. PRESENTATION
The consolidated financial statements of CL&P include the accounts of
all wholly owned subsidiaries. Significant intercompany transactions
have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications of prior years' data have been made to
conform with the current year's presentation.
All transactions among affiliated companies are on a recovery of cost
basis which may include amounts representing a return on equity and are
subject to approval by various federal and state regulatory agencies.
For more information on significant subsidiaries of CL&P, see Note 10,
"Sale of Customer Receivables and Accrued Utility Revenues," and Note
13, "Minority Interest in Consolidated Subsidiary."
C. PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as
a holding company under the Public Utility Holding Company Act of 1935
(1935 Act). NU and its subsidiaries, including CL&P, are
subject to the provisions of the 1935 Act. Arrangements among the NU
system companies, outside agencies and other utilities covering
interconnections, interchange of electric power and sales of utility
property are subject to regulation by the Federal Energy Regulatory
Commission (FERC) and/or the SEC. CL&P is subject to further
regulation for rates, accounting and other matters by the FERC and/or
applicable state regulatory commissions.
For information regarding proposed changes in the nature of industry
regulation, see Note 1H, "Summary of Significant Accounting Policies -
Regulatory Accounting and Assets," and Management's Discussion and
Analysis of Financial Condition and Results of Operations (MD&A).
D. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS), SFAS 129, "Disclosure of
Information about Capital Structure," in February 1997. SFAS 129
establishes standards for disclosing information about an entity's
capital structure. CL&P's current disclosures are consistent with the
requirements of SFAS 129.
During June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income" and SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS 130 establishes standards for the reporting
and disclosure of comprehensive income. To date, CL&P has not had
material transactions that would be required to be reported as
comprehensive income. SFAS 131 determines the standards for reporting
and disclosing qualitative and quantitative information about a
company's operating segments. This information includes segment profit
or loss, certain segment revenue and expense items and segment assets
and a reconciliation of these segment disclosures to corresponding
amounts in the company's general purpose financial statements. CL&P
currently evaluates management performance using a cost-based budget
and the information required by SFAS 131 is not available. Therefore,
these disclosure requirements are not applicable. Management believes
that the implementation of SFAS 130 and SFAS 131 will not have a
material impact on CL&P's current disclosures.
See Note 10, "Sale of Customer Receivables and Accrued Utility
Revenues," and Note 11C, "Commitments and Contingencies - Environmental
Matters," for information on other newly adopted accounting and
reporting standards related to those specific areas.
E. INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
Regional Nuclear Generating Companies: CL&P owns common stock of four
regional nuclear generating companies (Yankee companies). The Yankee
companies, with CL&P's ownership interests are:
Connecticut Yankee Atomic Power Company(CYAPC) ................. 34.5%
Yankee Atomic Electric Company (YAEC) .......................... 24.5
Maine Yankee Atomic Power Company (MYAPC) ...................... 12.0
Vermont Yankee Nuclear Power Corporation (VYNPC) ............... 9.5
CL&P's investments in the Yankee companies are accounted for on the
equity basis due to the company's ability to exercise significant
influence over their operating and financial policies.
CL&P's investments in the Yankee companies at December 31, 1997 are:
(Thousands of Dollars)
CYAPC ............................................. $38,358
YAEC .............................................. 5,128
MYAPC ............................................. 9,449
VYNPC ............................................. 5,126
$58,061
Each Yankee company owns a single nuclear generating unit. Under the
terms of the contracts with the Yankee companies, the shareholders-
sponsors are responsible for their proportionate share of the costs of
each unit, including decommissioning. The energy and capacity costs
from VYNPC and nuclear decommissioning costs of the Yankee companies
that have been shut down are billed as purchased power to CL&P.
The electricity produced by the Vermont Yankee nuclear generating
facility (VY) is committed substantially on the basis of ownership
interests and is billed pursuant to contractual agreements. YAEC's,
CYAPC's and MYAPC's nuclear power plants were shut down permanently on
February 26, 1992, December 4, 1996, and August 6, 1997, respectively.
Under ownership agreements with the Yankee companies, CL&P may be asked
to provide direct or indirect financial support for one or more of the
companies. For more information on the Yankee companies, see Note 3,
"Nuclear Decommissioning," and Note 11F, "Commitments and Contingencies
- Long-Term Contractual Arrangements."
Millstone 1: CL&P has an 81.0 percent joint ownership interest in
Millstone 1, a 660-megawatt (MW) nuclear generating unit. As of
December 31, 1997 and 1996, plant-in-service included approximately
$387.7 million and $384.5 million, respectively, and the accumulated
provision for depreciation included approximately $172.0 million and
$159.4 million, respectively, for CL&P's share of Millstone 1. CL&P's
share of Millstone 1 expenses is included in the corresponding
operating expenses on the accompanying Consolidated Statements of
Income.
Millstone 2: CL&P has an 81.0 percent joint ownership interest in
Millstone 2, an 870-MW nuclear generating unit. As of December 31, 1997
and 1996, plant-in-service included approximately $694.7 million and
$690.4 million, respectively, and the accumulated provision for
depreciation included approximately $249.1 million and $224.1 million,
respectively, for CL&P's share of Millstone 2. CL&P's share of
Millstone 2 expenses is included in the corresponding operating
expenses on the accompanying Consolidated Statements of Income.
Millstone 3: CL&P has a 52.93 percent joint ownership interest in
Millstone 3, a 1,154-MW nuclear generating unit. As of December 31,
1997 and 1996, plant-in-service included approximately $1.9 billion
each year and the accumulated provision for depreciation included
approximately $552.7 million and $504.1 million, respectively, for
CL&P's share of Millstone 3. CL&P's share of Millstone 3 expenses is
included in the corresponding operating expenses on the accompanying
Consolidated Statements of Income.
The three Millstone units are out of service. NU hopes to return
Millstone 3 to service in the early spring of 1998 and Millstone 2
three to four months after Millstone 3. Millstone 1 has been placed in
extended maintenance status. Management is reviewing its options with
respect to Millstone 1, including restart, early retirement and other
options. In a draft ruling issued in February 1998, the Connecticut
Department of Public Utility Control (DPUC) determined that Millstone 1
was no longer "used and useful" and ordered it removed from rate base.
In 1996, one of the joint owners of Millstone 3, Vermont Electric
Generation and Transmission Cooperative, Inc. (VEG&T), filed for
bankruptcy. The subsequent liquidation resulted in the offering of
VEG&T's 0.035 percent share of Millstone 3 for sale to the joint
owners of Millstone 3. None of the non-NU joint owners accepted the
offer. During 1998, CL&P expects to make the necessary regulatory
filings to acquire ownership of VEG&T's share of Millstone 3.
For more information regarding the DPUC's action, see the MD&A. For
more information regarding the Millstone units see Note 3, "Nuclear
Decommissioning," and Note 11B, "Commitments and Contingencies -
Nuclear Performance."
Seabrook 1: CL&P has a 4.06 percent joint ownership interest in
Seabrook 1, a 1,148-MW nuclear generating unit. As of December 31,
1997 and 1996, plant-in-service included approximately $174.3 million
and $173.7 million, respectively, and the accumulated provision for
depreciation included approximately $33.9 million and $29.7 million,
respectively, for CL&P's share of Seabrook 1. CL&P's share of Seabrook
1 expenses is included in the corresponding operating expenses on the
accompanying Consolidated Statements of Income.
F. DEPRECIATION
The provision for depreciation is calculated using the straight-line
method based on estimated remaining lives of depreciable utility plant-
in-service, adjusted for salvage value and removal costs, as approved
by the appropriate regulatory agency.
Except for major facilities, depreciation rates are applied to the
average plant-in-service during the period. Major facilities are
depreciated from the time they are placed in service. When plant is
retired from service, the original cost of plant, including costs of
removal, less salvage, is charged to the accumulated provision for
depreciation. The depreciation rates for the several classes of
electric plant-in-service are equivalent to a composite rate of 3.8
percent in 1997 and 4.0 percent in 1996 and 1995. See Note 3, "Nuclear
Decommissioning," for information on nuclear decommissioning.
CL&P's nonnuclear generating facilities have limited service lives.
Plant may be retired in place or dismantled based upon expected future
needs, the economics of the closure and environmental concerns. The
costs of closure and removal are incremental costs and, for financial
reporting purposes, are accrued over the life of the asset as part of
depreciation. At December 31, 1997 and 1996, the accumulated provision
for depreciation included approximately $45.8 million and $43.0
million, respectively, accrued for the cost of removal, net of salvage
for nonnuclear generation property.
G. REVENUES
Other than revenues under fixed-rate agreements negotiated with certain
wholesale, commercial and industrial customers and limited retail
access programs, utility revenues are based on authorized rates applied
to each customer's use of electricity. In general, rates can be changed
only through a formal proceeding before the appropriate regulatory
commission. Regulatory commissions also have authority over the terms
and conditions of nontraditional rate making arrangements. At the end
of each accounting period, CL&P accrues an estimate for the amount of
energy delivered but unbilled.
For information on rate proceedings and their potential impact on CL&P,
see the MD&A.
H. REGULATORY ACCOUNTING AND ASSETS
The accounting policies of CL&P and the accompanying consolidated
financial statements conform to generally accepted accounting
principles applicable to rate-regulated enterprises and reflect
the effects of the ratemaking process in accordance with SFAS 71,
"Accounting for the Effects of Certain Types of Regulation." Assuming
a cost-of-service based regulatory structure, regulators may permit
incurred costs, normally treated as expenses, to be deferred and
recovered through future revenues. Through their actions, regulators
also may reduce or eliminate the value of an asset, or create a
liability. If any portion of CL&P's operations were no longer
subject to the provisions of SFAS 71, as a result of a change in the
cost-of-service based regulatory structure or the effects of
competition, CL&P would be required to write off all of its related
regulatory assets and liabilities unless there is a formal transition
plan which provides for the recovery, through established rates, for
the collection of approved stranded costs and to maintain the
cost-of-service basis for the remaining regulated operations. At
the time of transition, CL&P would be required to determine any
impairment of the carrying costs of deregulated plant and inventory
assets.
Management anticipates that a restructuring program will be
implemented within Connecticut during the next few years. In a
restructured environment, CL&P's generation business no longer will
be rate regulated on a cost-of-service basis. The majority of CL&P's
regulatory assets are related to its generation business.
The staff of the SEC has had concerns regarding the appropriateness of
the utilities' ability to continue application of SFAS 71 for the
generation portion of their business in a restructured environment.
The SEC referred the issue to the Emerging Issues Task Force (EITF) of
the FASB which reached a consensus and issued "Deregulation of the
Pricing of Electricity - Issues Related to the Application of FASB
Statements No. 71 and 101," (EITF 97-4). The EITF concluded: (1) the
future recognition of regulatory assets for the portion of the business
that no longer qualifies for application of SFAS 71 depends on the
regulators' treatment of the recovery of those costs and other stranded
assets from cash flows of other portions of the business still
considered to be regulated, and (2) a utility should discontinue the
application of SFAS 71 when a legislative and regulatory plan has been
enacted, which would include transition plans into a competitive
environment, and when the stranded costs which are subject to future
rate recovery are determined. EITF 97-4 became effective in August
1997.
The Connecticut General Assembly is addressing a proposal for electric
industry restructuring in the state of Connecticut during 1998. As the
terms and conditions to be contained within the restructuring plan
cannot be determined at this time, management believes that its use of
regulatory accounting remains appropriate.
CL&P expects that its transmission and distribution business will
continue to be rate-regulated on a cost-of-service basis and,
accordingly, CL&P will continue to apply SFAS 71 to this portion of
its business.
For further information on CL&P's regulatory environment and the
potential impacts of restructuring, see Note 11A, "Commitments and
Contingencies - Restructuring and Rate Matters" and the MD&A.
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," requires the evaluation of long-
lived assets, including regulatory assets, for impairment when certain
events occur or when conditions exist that indicate the carrying
amounts of assets may not be recoverable. SFAS 121 requires that any
long-lived assets which are no longer probable of recovery through
future revenues be revalued based on estimated future cash flows.
If this revaluation is less than the book value of the asset, an
impairment loss would be charged to earnings.
Management continues to believe that it is probable that CL&P will
recover its investments in long-lived assets through future revenues.
This conclusion may change in the future as the implementation of
restructuring plans in the state of Connecticut will generally require
the formation of a separate generation entity that will be subject to
competitive market conditions. As a result, CL&P will be required to
assess the carrying amounts of its long-lived assets in accordance with
SFAS 121.
The components of CL&P's regulatory assets are as follows:
At December 31, 1997 1996
(Thousands of Dollars)
Income taxes, net (Note 1I) ................ $709,896 $ 753,390
Recoverable energy costs,
net (Note 1J) ............................ 104,796 97,900
Deferred demand-side management
costs (Note 1K) .......................... 52,100 90,129
Cogeneration costs (Note 1L) ............... 33,505 66,205
Unrecovered contractual
obligations (Note 3) ..................... 338,406 300,627
Other ...................................... 54,115 62,530
$1,292,818 $1,370,781
I. INCOME TAXES
The tax effect of temporary differences (differences between the
periods in which transactions affect income in the financial statements
and the periods in which they affect the determination of taxable
income) is accounted for in accordance with the ratemaking treatment of
the applicable regulatory commissions. See Note 8, "Income Tax Expense"
for the components of income tax expense.
The tax effect of temporary differences, including timing differences
accrued under previously approved accounting standards, which give rise
to the accumulated deferred tax obligation is as follows:
At December 31, 1997 1996
(Thousands of Dollars)
Accelerated depreciation and other
plant-related differences ................ $1,056,690 $1,032,857
Regulatory assets - income tax
gross up ................................. 304,276 313,420
Net operating loss carryforwards ........... (7,670) -
Other ...................................... (29,230) 19,364
$1,324,066 $1,365,641
At December 31, 1997, CL&P had a state of Connecticut net operating
loss carryforward of approximately $131 million which can be used
against CL&P and its affiliates' combined Connecticut taxable income
and which, if unused, expires in the year 2002.
J. RECOVERABLE ENERGY COSTS
Under the Energy Policy Act of 1992 (Energy Act), CL&P is assessed
for its proportionate share of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (D&D assessment). The Energy Act requires that
regulators treat D&D assessments as a reasonable and necessary current
cost of fuel, to be fully recovered in rates like any other fuel cost.
CL&P is currently recovering these costs through rates. As of December
31, 1997, CL&P's total D&D deferrals were approximately $50.1 million.
During 1997, CL&P implemented an energy adjustment clause (EAC) under
which fuel prices above or below base-rate levels are charged or
credited to customers. The EAC replaced CL&P's fuel adjustment and
generation utilization adjustment clauses and is designed to reconcile
and adjust the difference between actual fuel costs and the fuel
revenue collected through base rates on a six-month basis.
For the period January 1, 1997 through June 30, 1997, CL&P agreed
to a zero EAC rate. For the period July 1, 1997 through December 31,
1997, the DPUC approved an EAC rate through which CL&P recovered
approximately $11.5 million of deferred fuel costs. While this
proceeding did not include provisions for the recovery of approximately
$18 million of costs related to the early closing of CYAPC's nuclear
generating unit, it did allow for the recovery of costs, subject to
refund, related to the closure of MYAPC's nuclear generating unit.
CL&P has appealed the DPUC's ruling related to CYAPC replacement power
costs.
During December 1997, the DPUC approved an EAC rate for the period
January 1, 1998 through June 30, 1998. During this period, CL&P will
recover approximately $27.9 million of deferred fuel costs.
At December 31, 1997, CL&P's net recoverable energy costs, excluding
current net recoverable energy costs, were approximately $104.8
million.
For further information on recoverable energy costs, see the MD&A.
K. DEMAND-SIDE MANAGEMENT (DSM)
CL&P's DSM costs are recovered in base rates through a Conservation
Adjustment Mechanism. CL&P is allowed to recover DSM costs in
excess of costs reflected in base rates over periods ranging from
approximately four to ten years.
During April 1997, the DPUC approved CL&P's DSM budget of $36 million
for 1997. In October 1997, CL&P and other interested parties filed a
stipulation with the DPUC requesting that the DPUC approve certain
programs and establish a budget level of $32.7 million for 1998 and
$28.8 million for 1999. The $52.1 million of DSM costs on CL&P's
books as of December 31, 1997, currently being collected, will be
fully recovered by 2000.
L. COGENERATION COSTS
Beginning on July 1, 1996, the deferred cogeneration balance of
approximately $86 million is being amortized over a five year period.
An additional $9 million of amortization was applied to the deferred
balance in 1997, as required under a settlement agreement which CL&P
reached with the DPUC. CL&P continues to apply any savings associated
with the renegotiation of a certain contract with a cogeneration
facility to the deferred balance. Under current expectations, CL&P
expects complete amortization of the deferred balance by December 31,
1998. At December 31, 1997, CL&P's deferred cogeneration costs balance
was approximately $33.5 million.
M. SPENT NUCLEAR FUEL DISPOSAL COSTS
Under the Nuclear Waste Policy Act of 1982, CL&P must pay the United
States Department of Energy (DOE) for the disposal of spent nuclear
fuel and high-level radioactive waste. The DOE is responsible for the
selection and development of repositories for, and the disposal of,
spent nuclear fuel and high-level radioactive waste. Fees for nuclear
fuel burned on or after April 7, 1983, are billed currently to
customers and paid to the DOE on a quarterly basis. For nuclear fuel
used to generate electricity prior to April 7, 1983 (prior-period
fuel), payment must be made prior to the first delivery of spent fuel
to the DOE. Until such payment is made, the outstanding balance will
continue to accrue interest at the three-month Treasury Bill Yield
Rate. At December 31, 1997, fees due to the DOE for the disposal of
prior-period fuel were approximately $166.5 million, including interest
costs of $99.9 million.
The DOE was originally scheduled to begin accepting delivery of spent
fuel in 1998. However, delays in identifying a permanent storage site
have continually postponed plans for the DOE's long-term storage and
disposal site. Extended delays or a default by the DOE could lead
to consideration of costly alternatives. The company has primary
responsibility for the interim storage of its spent nuclear fuel.
Current capability to store spent fuel at Millstone 1 and 2 are
estimated to be adequate until 2004 and at Seabrook until 2010.
Storage facilities for Millstone 3 are expected to be adequate
for the projected life of the unit. Meeting spent fuel storage
requirements beyond these periods could require new and separate
storage facilities, the costs for which have not been determined.
In November 1997, the U.S. District Court of Appeals for the D.C.
Circuit ruled that the lack of an interim storage facility does not
excuse the DOE from meeting its contractual obligation to begin
accepting spent nuclear fuel no later than January 31, 1998.
Currently, the DOE has not taken the spent nuclear fuel as scheduled
and, as a result, may have to pay contract damages. The ultimate
outcome of this legal proceeding is uncertain at this time.
N. MARKET RISK-MANAGEMENT POLICIES
CL&P utilizes market risk-management instruments, including swaps,
collars, puts and calls, to hedge well-defined risks associated with
changes in fuel prices. To qualify for hedge treatment, the underlying
hedged item must expose CL&P to risks associated with market
fluctuations and the market-risk management instrument used must be
designated as a hedge and must reduce the company's exposure to market
fluctuations throughout the period.
Amounts receivable or payable under fuel-price management instruments
are recognized in operating revenues when realized. CL&P does not use
market risk-management instruments for speculative purposes. For
further information, see Note 12, "Market Risk Management."
2. LEASES
CL&P and WMECO may finance up to $400 million of nuclear fuel for Millstone
1 and 2 and their respective shares of the nuclear fuel for Millstone 3
under the Niantic Bay Fuel Trust (NBFT) capital lease agreement which is
scheduled to expire July 31, 1998. The NBFT capital lease agreement, which
was amended in February 1998, requires CL&P and WMECO to secure their
obligation to repay the NBFT with up to $90 million of first mortgage
bonds. CL&P and WMECO will issue these bonds by May 1998.
CL&P and WMECO make quarterly lease payments for the cost of nuclear fuel
consumed in the reactors based on a units-of-production method at rates
which reflect estimated kilowatt hours of energy provided plus financing
costs associated with the fuel in the reactors. Upon permanent discharge
from the reactors, ownership of the nuclear fuel transfers to CL&P and
WMECO.
CL&P has also entered into lease agreements, some of which are capital
leases, for the use of data processing and office equipment, vehicles, gas
turbines, nuclear control room simulators and office space. The provisions
of these lease agreements generally provide for renewal options. The
following rental payments have been charged to expense:
Year Capital Leases Operating Leases
1997................ $10,457,000 $19,749,000
1996................ 17,993,000 22,032,000
1995................ 56,307,000 23,793,000
Interest included in capital lease rental payments was $9,948,000 in 1997,
$10,144,000 in 1996 and $10,587,000 in 1995.
Future minimum rental payments, excluding executory costs such as property
taxes, state use taxes, insurance and maintenance, under long-term
noncancelable leases as of December 31, 1997, are:
Year Capital Leases Operating Leases
(Thousands of Dollars)
1998................ $142,500 $ 22,700
1999................ 2,900 21,300
2000................ 2,900 19,900
2001................ 2,900 14,400
2002................ 3,000 6,200
After 2002.......... 54,300 22,800
Future minimum lease
payments.......... 208,500 $107,300
Less amount
representing
interest.......... 50,400
Present value of
future minimum
lease payments.... $158,100
Rocky River Reality Company (RRR) provides real estate support services,
including the leasing of properties and facilities, used by NU system
companies, including CL&P. During 1997, RRR repurchased certain notes that
were secured by real estate leases between RRR as lessor and NUSCO as
lessee. The repayment of these notes triggered the acceleration of rent
and CL&P was subsequently billed by NUSCO and paid its proportionate share
of the accelerated lease obligation. At December 31, 1997, CL&P has
recorded long-term prepaid rent of approximately $11.1 million. This asset
is being amortized on a straight line basis and will be fully amortized in
2017.
3. NUCLEAR DECOMMISSIONING
Millstone and Seabrook: CL&P's nuclear power plants have service lives
that are expected to end during the years 2010 through 2026. Upon
retirement, these units must be decommissioned. Current decommissioning
studies concluded that complete and immediate dismantlement at retirement
continues to be the most viable and economic method of decommissioning
the three Millstone units and Seabrook 1. Decommissioning studies are
reviewed and updated periodically to reflect changes in decommissioning
requirements, costs, technology and inflation.
The estimated cost of decommissioning CL&P's ownership share of
Millstone 1 and 2, in year-end 1997 dollars, is $390.9 million and
$350.2 million, respectively. CL&P's ownership share of the estimated
cost of decommissioning Millstone 3 and Seabrook 1 in year-end 1997
dollars, is $294.0 million and $19.2 million, respectively. The Millstone
units and Seabrook 1 decommissioning costs will be increased annually by
their respective escalation rates. Nuclear decommissioning costs are
accrued over the expected service life of the units and are included in
depreciation expense on the Consolidated Statements of Income. Nuclear
decommissioning costs amounted to $37.8 million each year in 1997 and 1996
and $30.5 million in 1995. Nuclear decommissioning, as a cost of removal,
is included in the accumulated provision for depreciation on the
Consolidated Balance Sheets. At December 31, 1997 and 1996, the balance
in the accumulated reserve for depreciation amounted to $407.3 million and
$329.1 million, respectively.
CL&P has established external decommissioning trusts through a trustee
for its portion of the costs of decommissioning Millstone 1, 2 and 3.
CL&P's portion of the cost of decommissioning Seabrook 1 is paid to an
independent decommissioning financing fund managed by the state of New
Hampshire. Funding of the estimated decommissioning costs assumes
levelized collections for the Millstone units and escalated collections
for Seabrook 1 and after-tax earnings on the Millstone and Seabrook
decommissioning funds of approximately 5.5 percent and 6.5 percent,
respectively.
As of December 31, 1997, CL&P has collected through rates $277.9 million
toward the future decommissioning costs of its share of the Millstone
units, of which $240.3 million has been transferred to external
decommissioning trusts. As of December 31, 1997, CL&P has paid
approximately $2.9 million into Seabrook 1's decommissioning financing
fund. Earnings on the decommissioning trusts and financing fund increase
the decommissioning trust and the accumulated reserve for depreciation.
Unrealized gains and losses associated with the decommissioning trusts
and financing fund also impact the balance of the trusts and the
accumulated reserve for depreciation.
Changes in requirements or technology, the timing of funding or dismantling
or adoption of a decommissioning method other than immediate dismantlement
would change decommissioning cost estimates and the amounts required to be
recovered. CL&P attempts to recover sufficient amounts through its allowed
rates to cover its expected decommissioning costs. Only the portion of
currently estimated total decommissioning costs that has been accepted by
regulatory agencies is reflected in CL&P's rates. Based on present
estimates and assuming its nuclear units operate to the end of their
respective license periods, CL&P expects that the decommissioning trusts
and financing fund will be substantially funded when the units are retired
from service.
Millstone 1 has been placed in extended maintenance status while management
is reviewing its options with respect to the unit. These include restart,
early retirement and other options. Relating to management's consideration
of the option to immediately retire Millstone 1 are certain Connecticut
state law issues. In its four-year rate review proceeding, the DPUC noted
that CL&P may not be able to obtain its remaining investment in Millstone 1
if it were to determine that the unit had been prematurely shut down due to
management imprudence. Additionally, there is a Connecticut statute which
may limit CL&P's ability to collect future decommissioning charges related
to Millstone 1 if Millstone 1 were to be terminated before the end of its
expected life.
At December 31, 1997, CL&P's net unrecovered Millstone 1 plant costs were
$215.7 million and the remaining unrecovered decommissioning costs were
approximately $198 million.
Yankee Companies: VYNPC owns and operates a nuclear generating unit with a
service life that is expected to end in 2012. CL&P's ownership share of
estimated costs, in year-end 1997 dollars, of decommissioning this unit is
$48.0 million.
On August 6, 1997, the board of directors of MYAPC voted unanimously
to cease permanently the production of power at its nuclear generating
facility (MY). The NU system companies had relied on MY for approximately
one percent of their capacity. During November 1997, MYAPC filed an
amendment to its power contracts clarifying the obligations of its
purchasing utilities following the decision to cease power production.
During January 1998, the FERC accepted the amendments and proposed
rates, subject to refund. At December 31, 1997, the remaining estimated
obligation, including decommissioning, amounted to approximately $867.2
million, of which CL&P's share was approximately $104.0 million.
On December 4, 1996, the board of directors of CYAPC voted unanimously
to cease permanently the production of power at its nuclear generating
plant (CY). During 1996, the NU system companies had relied on CY for
approximately three percent of their capacity. During late December 1996,
CYAPC filed an amendment to its power contracts clarifying the obligations
of its purchasing utilities following the decision to cease power
production. On February 27, 1997, the FERC approved an order for hearing
which, among other things, accepted CYAPC's contract amendment. The new
rates became effective March 1, 1997, subject to refund. At December 31,
1997, the remaining estimated obligation, including decommissioning,
amounted to $619.9 million, of which CL&P's share was approximately
$213.8 million.
YAEC is in the process of decommissioning its nuclear facility.
At December 31, 1997, the estimated remaining costs, including
decommissioning, amounted to $124.4 million, of which CL&P's share
was approximately $30.5 million.
Under the terms of the contracts with MYAPC, CYAPC and YAEC, the
shareholder-sponsor companies, including CL&P, are responsible for their
proportionate share of the costs of the units, including decommissioning.
Management expects that CL&P will continue to be allowed to recover these
costs from its customers. Accordingly, CL&P has recognized these costs
as regulatory assets with corresponding obligations.
Proposed Accounting: The staff of the SEC has questioned certain
current accounting practices of the electric utility industry, including
CL&P, regarding the recognition, measurement and classification of
decommissioning costs for nuclear generating units in the financial
statements. In response to these questions, the FASB has agreed to review
the accounting for closure and removal costs, including decommissioning.
If current electric utility industry accounting practices for nuclear power
plant decommissioning are changed, the annual provision for decommissioning
could increase relative to 1997, and the estimated cost for decommissioning
could be recorded as a liability (rather than as accumulated depreciation),
with recognition of an increase in the cost of the related nuclear power
plant. Management believes that CL&P will continue to be allowed to recover
decommissioning costs through rates.
4. SHORT-TERM DEBT
Limits: The amount of short-term borrowings that may be incurred by CL&P is
subject to periodic approval by either the SEC under the 1935 Act or by the
DPUC. SEC authorization allowed CL&P, as of January 1, 1998, to incur
total short-term borrowings up to a maximum of $375 million.
Credit Agreements: In May 1997, because of the potential for NU and CL&P
to violate their various financial ratio tests, NU amended the three-year
revolving credit agreement (Credit Agreement) with a group of 12 banks.
Under the amended Credit Agreement, CL&P and WMECO are able to borrow,
subject to the availability of first mortgage bond collateral, up to
$313.75 million and $150 million, respectively. At December 31, 1997, CL&P
and WMECO have issued first mortgage bonds to enable borrowings under this
facility up to a maximum of $225 million and $90 million, respectively.
NU, which cannot issue first mortgage bonds, will be able to borrow up to
$50 million if NU consolidated, CL&P and WMECO each meet certain interest
coverage tests for two consecutive quarters. In addition, CL&P and WMECO
each must meet certain minimum quarterly financial ratios to access the
Credit Agreement. Both CL&P and WMECO satisfied these tests for the
quarter ending December 31, 1997. The overall limit for all of the
borrowing system companies under the entire Credit Agreement is $313.75
million. The companies are obligated to pay a facility fee of .50 percent
per annum of each bank's total commitment under this Credit Agreement which
will expire in November 1999. At December 31, 1997 and 1996, there were
$50 million and $27.5 million, respectively, in borrowings under this
Credit Agreement. Of these amounts, CL&P had $35 million borrowed in 1997
and nothing borrowed in 1996.
In addition to the Credit Agreement, NU, CL&P, WMECO, HWP and RRR have
various revolving credit lines through separate bilateral credit
agreements. Under this facility, four banks maintain commitments to the
respective companies totaling $56.25 million. NU, CL&P and WMECO may borrow
up to the aggregate $56.25 million, whereas HWP and RRR may borrow up to
their SEC or board authorized short-term debt limit of $5 million and $22
million, respectively. Under the terms of this facility, the companies are
obligated to pay a facility fee of .15 percent per annum of each bank's
total commitment. These commitments will expire in December 1998. At
December 31, 1997 and 1996, there were no borrowings and $11.3 million in
borrowings, respectively, under this facility, all of which had been
borrowed by other NU system companies.
Under the credit facilities discussed above, CL&P may borrow funds on a
short-term revolving basis under its agreement, using either fixed-rate
loans or standby loans. Fixed rates are set using competitive bidding.
Standby loans are based upon several alternative variable rates. The
weighted average annual interest rate on CL&P's notes payable to banks
outstanding on December 31, 1997 was 6.95 percent. CL&P had no borrowings
under these facilities at December 31, 1996.
Money Pool: Certain subsidiaries of NU, including CL&P, are members of the
Northeast Utilities System Money Pool (Pool). The Pool provides a more
efficient use of the cash resources of the system, and reduces outside
short-term borrowings. NUSCO administers the Pool as agent for the member
companies. Short-term borrowing needs of the member companies are first
met with available funds of other member companies, including funds
borrowed by NU parent. NU parent may lend to the Pool but may not borrow.
Funds may be withdrawn from or repaid to the Pool at any time without prior
notice. Investing and borrowing subsidiaries receive or pay interest based
on the average daily Federal Funds rate. Borrowings based on loans from NU
parent, however, bear interest at NU parent's cost and must be repaid based
upon the terms of NU parent's original borrowing. At December 31, 1997,
CL&P had $61.3 million of borrowings outstanding from the Pool. At December
31, 1996, CL&P had no borrowings outstanding from the Pool. The interest
rate on borrowings from the Pool on December 31, 1997 was 5.8 percent.
Maturities of short-term debt obligations were for periods of three months
or less. For further information on short-term debt, including the ability
to access these agreements, see the MD&A.
5. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock not subject to mandatory redemption are:
December 31, Shares
1997 Outstanding
Redemption December 31, December 31,
Description Price 1997 1997 996 1995
(Thousands of Dollars)
$1.90 Series of 1947.... $52.50 163,912 $ 8,196 $ 8,196 $ 8,196
$2.00 Series of 1947.... 54.00 336,088 16,804 16,804 16,804
$2.04 Series of 1949.... 52.00 100,000 5,000 5,000 5,000
$2.06 Series E of 1954.. 51.00 200,000 10,000 10,000 10,000
$2.09 Series F of 1955.. 51.00 100,000 5,000 5,000 5,000
$2.20 Series of 1949.... 52.50 200,000 10,000 10,000 10,000
$3.24 Series G of 1968.. 51.84 300,000 15,000 15,000 15,000
3.90% Series of 1949.... 50.50 160,000 8,000 8,000 8,000
4.50% Series of 1956.... 50.75 104,000 5,200 5,200 5,200
4.50% Series of 1963.... 50.50 160,000 8,000 8,000 8,000
4.96% Series of 1958.... 50.50 100,000 5,000 5,000 5,000
5.28% Series of 1967.... 51.43 200,000 10,000 10,000 10,000
6.56% Series of 1968.... 51.44 200,000 10,000 10,000 10,000
Total preferred stock
not subject to
mandatory redemption... $116,200 $116,200 $116,200
All or any part of each outstanding series of such preferred stock may be
redeemed by CL&P at any time at established redemption prices plus accrued
dividends to the date of redemption.
6. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock subject to mandatory redemption are:
December 31, Shares
1997 Outstanding
Redemption December 31, December 31,
Description Price* 1997 1997 1996 1995
(Thousands of Dollars)
7.23% Series of 1992... $52.41 1,500,000 $ 75,000 $ 75,000 $ 75,000
5.30% Series of 1993... 51.00 1,600,000 80,000 80,000 80,000
155,000 155,000 155,000
Less preferred stock
to be redeemed
within one year....... 75,000 3,750 - -
Total preferred stock
subject to mandatory
redemption............ $151,250 $155,000 $155,000
*Each of these series is subject to certain refunding limitations for the
first five years after they were issued. Redemption prices reduce in future
years.
The following table details redemption and sinking fund activity for preferred
stock subject to mandatory redemption:
Minimum
Annual
Sinking-Fund Shares Reacquired
Series Requirement 1997 1996 1995
(Thousand of Dollars)
9.00% Series of 1989 $ - - - 3,000,000
7.23% Series of 1992 (1) 3,750 - - -
5.30% Series of 1993 (2) 16,000 - - -
(1) Sinking fund requirements commence September 1, 1998.
(2) Sinking fund requirements commence October 1, 1999.
The minimum sinking-fund provisions of the series subject to mandatory
redemption, for the years 1998 through 2002, aggregate approximately $3.8
million in 1998, and $19.8 million for 1999 through 2002. There were no
minimum sinking-fund provisions in 1997. In case of default on sinking-
fund payments, no payments may be made on any junior stock by way of
dividends or otherwise (other than in shares of junior stock) so long as
the default continues. If CL&P is in arrears in the payment of dividends
on any outstanding shares of preferred stock, CL&P would be
prohibited from redeeming or purchasing less than all of the preferred
stock outstanding. All or part of each of the series named above may be
redeemed by CL&P at any time at established redemption prices plus
accrued dividends to the date of redemption, subject to certain refunding
limitations.
7. LONG-TERM DEBT
Details of long-term debt outstanding are:
December 31,
1997 1996
(Thousands of Dollars)
First Mortgage Bonds:
7 5/8% Series UU due 1997........... $ - $ 193,288
6 1/2% Series T due 1998........... 20,000 20,000
7 1/4% Series VV due 1999........... 99,000 99,000
5 1/2% Series A due 1999........... 140,000 140,000
5 3/4% Series XX due 2000........... 200,000 200,000
7 7/8% Series A due 2001........... 160,000 160,000
7 3/4% Series C due 2002........... 200,000 -
6 1/8% Series B due 2004........... 140,000 140,000
7 3/8% Series TT due 2019........... 20,000 20,000
7 1/2% Series YY due 2023........... 100,000 100,000
8 1/2% Series C due 2024........... 115,000 115,000
7 7/8% Series D due 2024........... 140,000 140,000
7 3/8% Series ZZ due 2025........... 125,000 125,000
Total First Mortgage Bonds..... 1,459,000 1,452,288
Pollution Control Notes:
Variable rate, due 2016-2022.......... 46,400 46,400
Variable tax exempt, due 2028-2031.... 377,500 377,500
Fees and interest due for spent
fuel disposal costs (Note 1M)......... 166,458 157,968
Other................................... 86 10,915
Less amounts due within one year........ 20,011 204,116
Unamortized premium and discount, net... (6,117) (6,550)
Long-term debt, net................... $2,023,316 $1,834,405
Long-term debt and cash sinking-fund requirements on debt outstanding at
December 31, 1997 for the years 1998 through 2002 are approximately $20.0
million, $239.0 million, $200.0 million, $160.0 million and $200.0 million,
respectively. The one-percent sinking- and improvement-fund requirements
for CL&P first mortgage bonds are no longer required, as of 1997, as
determined by a majority of bondholders.
All or any part of each outstanding series of first mortgage bonds may be
redeemed by CL&P at any time at established redemption prices plus accrued
interest to the date of redemption, except certain series which are subject
to certain refunding limitations during their respective initial five-year
redemption periods.
Essentially all of CL&P's utility plant is subject to the lien of its
first mortgage bond indenture. As of December 31, 1997 and 1996, CL&P
has secured $315.5 million of pollution control notes with second mortgage
liens on Millstone 1, junior to the lien of its first mortgage bond
indenture. The average effective interest rate on the variable-rate
pollution control notes ranged from 3.6 percent to 3.7 percent for 1997
and from 3.4 percent to 3.6 percent for 1996.
CL&P has $62 million of tax-exempt Pollution Control Revenue Bonds with a
bond insurance and liquidity facility secured by First Mortgage Bonds.
8. INCOME TAX EXPENSE
The components of the federal and state income tax provisions (credited)/
charged to operations are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Current income taxes:
Federal............................... $(53,339) $ 30,650 $ 93,906
State................................. (3,270) 9,789 37,898
Total current....................... (56,609) 40,439 131,804
Deferred income taxes, net:
Federal............................... 5,862 (38,680) 52,075
State................................. (12,316) (14,726) 5,085
Total deferred...................... (6,454) (53,406) 57,160
Investment tax credits, net............. (7,366) (7,367) (7,640)
Total income tax
(credit)/expense.................... $(70,429) $(20,334) $181,324
The components of total income tax expense are classified as
follows:
Income taxes charged to
operating expenses.................... $(62,856) $(20,174) $178,346
Other income taxes...................... (7,573) (160) 2,978
Total income tax
(credit)/expense........................ $(70,429) $(20,334) $181,324
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Depreciation, leased nuclear fuel,
settlement credits and
disposal costs........................ $ 11,991 $ 3,981 $44,278
Energy adjustment clauses............... (14,039) (1,654) 23,302
Demand-side management.................. (12,408) (17,099) 1,310
Nuclear plant deferrals................. 14,007 (18,861) (8,055)
Bond redemptions........................ (1,339) (1,789) (2,255)
Contractual settlements................. 1,754 2,513 (9,496)
Nuclear compliance reserves............. (4,759) (21,131) -
Pension accruals........................ 6,524 2,944 5,382
State net operating loss
carryforwards......................... (7,670) - -
Other................................... (515) (2,310) 2,694
Deferred income taxes, net.............. $ (6,454) $(53,406) $57,160
A reconciliation between income tax expense and the expected tax expense at
the applicable statutory rate is as follows:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Expected federal income tax at
35 percent of pretax income........... $(75,182) $(35,931) $135,289
Tax effect of differences:
State income taxes, net of
federal benefit..................... (9,516) (3,209) 27,939
Depreciation.......................... 19,701 21,313 23,517
Deferred nuclear plants return........ (30) (444) (1,639)
Amortization of
regulatory assets .................. 3,901 8,601 20,218
Property tax.......................... - - (159)
Investment tax credit
amortization........................ (7,366) (7,367) (7,640)
Adjustment for prior years'
taxes............................... (10) - (10,442)
Other, net............................ (1,927) (3,297) (5,759)
Total income tax
(credits)/expense..................... $(70,429) $(20,334) $181,324
9. EMPLOYEE BENEFITS
A. PENSION BENEFITS
The NU system's subsidiaries participate in a uniform noncontributory
defined benefit retirement plan covering all regular NU system
employees. Benefits are based on years of service and the employees'
highest eligible compensation during 60 consecutive months of
employment. CL&P's direct portion of the NU system's pension
credit, part of which was credited to utility plant, approximated
$22.5 million in 1997, $8.8 million in 1996 and $10.4 million in 1995.
The company's pension (credit)/costs for 1997, 1996 and 1995 included
approximately $(949) thousand, $2.8 million and $0.1 million,
respectively, related to workforce reduction programs.
Currently, CL&P annually funds an amount at least equal to that which
will satisfy the requirements of the Employee Retirement Income
Security Act and the Internal Revenue Code. Pension costs are
determined using market-related values of pension assets. Pension
assets are invested primarily in domestic and international equity
securities and bonds.
The components of net pension credit for CL&P are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Service cost....................... $ 7,888 $ 11,896 $ 7,543
Interest cost...................... 37,939 37,226 37,110
Return on plan assets.............. (148,830) (103,248) (138,582)
Net amortization................... 80,507 45,300 83,516
Net pension credit................. $(22,496) $ (8,826) $(10,413)
For calculating pension cost, the following assumptions were used:
For the Years Ended December 31, 1997 1996 1995
Discount rate...................... 7.75% 7.50% 8.25%
Expected long-term
rate of return................... 9.25 8.75 8.50
Compensation/progression
rate............................. 4.75 4.75 5.00
The following table represents the plan's funded status reconciled to
the Consolidated Balance Sheets:
At December 31, 1997 1996
(Thousands of Dollars)
Accumulated benefit obligation,
including vested benefits at
December 31, 1997 and 1996 of
$(420,499,000) and $(405,340,000),
respectively...................... $(451,802) $(434,473)
Projected benefit obligation........ $(531,564) $(514,989)
Market value of plan assets......... 846,366 736,448
Market value in excess of projected
benefit obligation................ 314,802 221,459
Unrecognized transition amount...... (6,445) (7,365)
Unrecognized prior service costs.... 3,524 3,818
Unrecognized net gain............... (269,560) (198,088)
Prepaid pension asset............... $ 42,321 $ 19,824
The following actuarial assumptions were used in calculating the
plan's year-end funded status:
At December 31, 1997 1996
Discount rate....................... 7.25% 7.75%
Compensation/progression rate....... 4.25 4.75
B. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The NU system's subsidiaries provide certain health care benefits,
primarily medical and dental, and life insurance benefits through a
benefit plan to retired employees (referred to as SFAS 106 benefits).
These benefits are available for employees retiring from the NU system
who have met specified service requirements. For current employees
and certain retirees, the total SFAS 106 benefit is limited to two
times the 1993 per-retiree health care cost. The SFAS 106 obligation
has been calculated based on this assumption. CL&P's direct portion of
SFAS 106 costs, part of which were deferred or charged to utility
plant, approximated $12.8 million in 1997, $17.9 million in 1996 and
$20.7 million in 1995.
During 1997 and 1996, CL&P funded SFAS 106 postretirement costs
through external trusts. CL&P is funding, on an annual basis, amounts
that have been rate-recovered and which also are tax deductible under
the Internal Revenue Code. The trust assets are invested primarily in
equity securities and bonds.
The components of health care and life insurance cost are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Service cost ........................ $ 1,692 $ 2,270 $ 2,248
Interest cost ....................... 9,152 10,211 11,510
Return on plan assets ............... (7,755) (2,904) (1,015)
Amortization of unrecognized
transition obligation ............. 7,344 7,344 7,344
Other amortization, net ............. 2,370 956 602
Net health care and life
insurance cost .................... $12,803 $17,877 $20,689
For calculating SFAS 106 benefit costs, the following assumptions
were used:
For the Years Ended December 31, 1997 1996 1995
Discount rate ....................... 7.75% 7.50% 8.00%
Long-term rate of return -
Health assets, net of tax ......... 6.00 5.25 5.00
Life assets ....................... 9.25 8.75 8.50
The following table represents the plan's funded status reconciled to
the Consolidated Balance Sheets:
At December 31, 1997 1996
(Thousands of Dollars)
Accumulated postretirement
benefit obligation of:
Retirees ........................... $(102,282) $(109,299)
Fully eligible active employees .... (219) (165)
Active employees not eligible
to retire ........................ (24,075) (27,913)
Total accumulated postretirement
benefit obligation ................ (126,576) (137,377)
Market value of plan assets ......... 46,055 38,783
Accumulated postretirement benefit
obligation in excess of
plan assets ....................... (80,521) (98,594)
Unrecognized transition amount ...... 110,162 117,506
Unrecognized net gain ............... (29,641) (18,912)
Accrued postretirement benefit
liability ......................... $ - $ -
The following actuarial assumptions were used in calculating the plan's
year-end funded status:
At December 31, 1997 1996
Discount rate ....................... 7.25% 7.75%
Health care cost trend rate (a) ..... 5.76 7.23
(a) The annual growth in per capita cost of covered health care
benefits was assumed to decrease to 4.40 percent by 2001.
The effect of increasing the assumed health care cost trend rate by
one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1997, by $7.3
million and the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year then ended by
$563 thousand. The trust holding the health plan assets is subject to
federal income taxes at a 39.6 percent tax rate. CL&P currently is
recovering SFAS 106 costs through rates.
10. SALE OF CUSTOMER RECEIVABLES AND ACCRUED UTILITY REVENUES
During 1996, CL&P entered into an agreement to sell up to $200 million of
undivided ownership interests in eligible customer receivables and accrued
utility revenues (receivables).
The FASB issued SFAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," in June 1996. SFAS
125 became effective on January 1, 1997, and establishes, in part, criteria
for concluding whether a transfer of financial assets in exchange for
consideration should be accounted for as a sale or as a secured borrowing.
During October 1997, CL&P restructured its sales agreement to comply
with the conditions of SFAS 125 and account for transactions occurring
under this program as sales of assets. CL&P has established a special
purpose, wholly owned subsidiary whose business consists of the purchase
and resale of receivables. For receivables sold, CL&P has retained
collection responsibilities as agent for the purchaser under CL&P's
agreement. As collections reduce previously sold receivables, new
receivables may be sold. At December 31, 1997, approximately $70 million
of receivables had been sold to a third-party purchaser by CL&P through the
use of CL&P's special purpose, wholly owned subsidiary, CL&P
Receivables Corporation (CRC). All receivables transferred to CRC are
assets owned by CRC and are not available to pay CL&P's creditors.
For CRC's sales agreement with its third-party purchaser, the receivables
are sold with limited recourse. CRC's sales agreement provides for a
formula-based loss reserve in which additional receivables may be assigned
to the third-party purchaser for costs such as bad debt. The third-party
purchaser absorbs the excess amount in the event that actual loss
experience exceeds the loss reserve. At December 31, 1997, approximately
$7.2 million of assets had been designated as collateral by CRC. This
amount represents the formula-based amount of credit exposure at December
31, 1997. Historical losses for bad debt for CL&P have been substantially
less.
CL&P's accounts receivable program could be terminated if its senior
secured debt is downgraded two more steps from its current ratings.
Concentrations of credit risk to the purchaser under the company's
agreement with respect to the receivables are limited due to CL&P's
diverse customer base within its service territory.
For additional information on the accounts receivable program and CL&P's
ability to utilize this program, see the MD&A.
11. COMMITMENTS AND CONTINGENCIES
A. RESTRUCTURING AND RATE MATTERS
Although CL&P continues to operate under cost-of-service based
regulation, legislative restructuring initiatives during 1997 and 1998
in its jurisdiction has created some uncertainty with respect to future
rates and the recovery of strandable investments and certain future
costs such as purchase power obligations. Management is unable to
predict the ultimate outcome of restructuring initiatives, however, it
continues to believe that it is probable that CL&P will fully recover
its prudently incurred costs, including regulatory assets and
strandable investments based on the general nature of public utility
cost-of-service regulation.
For further information on restructuring, see Note 1H, "Summary of
Significant Accounting Policies - Regulatory Accounting and Assets,"
and the MD&A.
The DPUC is required to review a utility's rates every four years if
there had not been a rate proceeding during such period. The DPUC has
conducted such a review. For information regarding this review and
other rate matters, see the MD&A.
For information regarding the FERC rate proceedings for CYAPC and
MYAPC, see Note 3, "Nuclear Decommissioning."
B. NUCLEAR PERFORMANCE
Millstone: The three Millstone units are managed by NNECO. Millstone
1, 2 and 3 have been out of service since November 4, 1995, February
21, 1996, and March 30, 1996, respectively, and are on the Nuclear
Regulatory Commission's (NRC) watch list. NU has restructured its
nuclear organization and is currently implementing comprehensive plans
to restart the units.
Subsequent to its January 31, 1996 announcement that Millstone had been
placed on its watch list, the NRC stated that the units cannot return
to service until independent, third-party verification teams have
reviewed the actions taken to improve the design, configuration and
employee concerns issues that prompted the NRC to place the units on
its watch list. The actual date of the return to service for each of
the units is dependent upon the completion of independent inspections
and reviews by the NRC and a vote by the NRC commissioners. NU hopes to
return Millstone 3 to service in the early spring of 1998 and Millstone
2 three to four months after Millstone 3. Millstone 1 is currently in
extended maintenance status.
In 1997, CL&P's share of nonfuel O&M costs expensed for Millstone
totaled $455 million, including $59 million reserved for future restart
costs.
Budgeted nuclear spending levels at Millstone for 1998 will be reduced
from 1997 levels, although they will be considerably higher than before
the station was placed on the NRC's watch list. The actual level of
1998 spending will depend on when the units return to operation and the
cost of restoring them to service. The total cost to restart the units
cannot be precisely estimated at this time. Management will continue
to evaluate the costs to be incurred in 1998 to determine whether
adjustments to the existing reserves are required.
Management cannot predict when the NRC will allow any of the Millstone
units to return to service and thus cannot precisely estimate the total
replacement power costs CL&P will ultimately incur. Replacement power
costs incurred by CL&P attributable to the Millstone outages averaged
approximately $23 million per month during 1997, and for 1998 are
projected to average approximately $7 million per month for Millstone
3, $7 million per month for Millstone 2 and $5 million per month for
Millstone 1 while the plants remain out of service. CL&P will continue
to expense its replacement power costs in 1998.
Based on the current estimates of expenditures and restart dates,
management believes the NU system has sufficient resources to fund the
restoration of the Millstone units and related replacement power costs.
If the return to service of Millstone 3 or 2 is delayed substantially
beyond the present restart estimates, if some financing facilities
become unavailable because of difficulties in meeting borrowing
conditions or renegotiating extensions, if CL&P and WMECO encounter
additional significant costs or if any other significant deviations
from management's assumptions occur, CL&P and WMECO could be unable to
meet their cash requirements. In those circumstances, management would
take even more stringent actions to reduce costs and cash outflows and
attempt to obtain additional sources of funds. The availability of
these funds would be dependent upon general market conditions and
CL&P's and WMECO's respective credit and financial conditions at that
time.
For information concerning the ability of CL&P to access its borrowing
facilities, see the MD&A.
Litigation: CL&P and WMECO, through NNECO as agent, operate Millstone
3 at cost, and without profit, under a sharing agreement that obligates
them to utilize good utility operating practice and requires the joint
owners to share the risk of employee negligence and other risks of
operation and maintenance pro-rata in accordance with their ownership
shares. This agreement also provides that CL&P and WMECO would be
liable only for damages to the non-NU owners for a deliberate violation
of the agreement pursuant to authorized corporate action.
On August 7, 1997, the non-NU owners of Millstone 3 filed demands for
arbitration with CL&P and WMECO as well as lawsuits in Massachusetts
Superior Court against NU and its current and former trustees. The
non-NU owners raise a number of contract, tort and statutory claims
arising out of the operation of Millstone 3. The arbitrations and
lawsuits seek to recover compensatory damages, punitive damages, treble
damages and attorneys' fees. Owners representing approximately two-
thirds of the non-NU interests in Millstone 3 claimed compensatory
damages in excess of $200 million. In addition, one of the lawsuits
seeks to restrain NU from disposing of its shares of the stock of WMECO
and HWP, pending the outcome of the lawsuit. Management cannot estimate
the potential outcome of these suits but believes there is no legal
basis for the claims and intends to defend against them vigorously.
To date, no reserves have been established for this litigation. At
December 31, 1997, the NU system's costs related to this litigation
were estimated to be approximately $100 million for incremental O&M
costs and approximately $100 million for replacement power costs.
These costs are likely to increase as long as Millstone 3 remains out
of service.
The Connecticut Municipal Electric Energy Cooperative (CMEEC) and CL&P
have been negotiating since May 1996 over issues related to the
operation of Millstone 1 and 2. CMEEC has failed to make payments on
its accrued obligations since October 1996, claiming that CL&P
materially breached its contractual obligations. CL&P has denied the
allegations and requested payment. The matter has gone to arbitration
which has been scheduled for July 1998.
CL&P has filed an application with the Connecticut Superior Court in
Hartford requesting the court to grant interim relief to CL&P. CL&P
has asked the court to enforce the contract provisions by ordering
CMEEC to pay the outstanding obligations under the contract
(approximately $25 million) and to continue making payments
(approximately $1.8 million per month) during the arbitration
process.
On December 9, 1997, the Superior Court judge issued a decision denying
CL&P's request for an interim payment order. Management cannot predict
the outcome of this litigation and has taken steps to assert its legal
rights. CL&P has requested reargument, in order to present evidence,
and has requested that the Connecticut Superior Court vacate its order.
CL&P is prepared to appeal to a higher court, if necessary, after the
reargument.
C. ENVIRONMENTAL MATTERS
The NU system is subject to regulation by federal, state and local
authorities with respect to air and water quality, the handling and
disposal of toxic substances and hazardous and solid wastes, and the
handling and use of chemical products. The NU system has an active
environmental auditing and training program and believes that it is in
substantial compliance with current environmental laws and regulations.
However, the NU system is subject to certain pending enforcement
actions and governmental investigations in the environmental area.
Management cannot predict the outcome of these enforcement actions
and investigations.
Environmental requirements could hinder the construction of new
generating units, transmission and distribution lines, substations
and other facilities. Changing environmental requirements could
also require extensive and costly modifications to CL&P's existing
generating units and transmission and distribution systems, and could
raise operating costs significantly. As a result, CL&P may incur
significant additional environmental costs, greater than amounts
included in cost of removal and other reserves, in connection with
the generation and transmission of electricity and the storage,
transportation and disposal of byproducts and wastes. CL&P may also
encounter significantly increased costs to remedy the environmental
effects of prior waste handling activities. The cumulative long-term
cost impact of increasingly stringent environmental requirements cannot
be estimated accurately.
CL&P has recorded a liability based upon currently available
information for what it believes are its estimated environmental
remediation costs that it expects to incur for waste disposal sites.
In most cases, additional future environmental cleanup costs are not
reasonably estimable due to a number of factors, including the unknown
magnitude of possible contamination, the appropriate remediation
methods, the possible effects of future legislation or regulation and
the possible effects of technological changes. At December 31, 1997,
the net liability recorded by CL&P for its estimated environmental
remediation costs, excluding any possible insurance recoveries or
recoveries from third parties, amounted to approximately $6.4 million,
which management has determined to be the most probable amount within
the range of $6.4 million to $16.4 million.
During 1997, CL&P adopted Statement of Position 96-1, "Environmental
Remediation Liabilities" (SOP). The principal objective of the SOP
is to improve the manner in which existing authoritative accounting
literature is applied by entities to specific situations of
recognizing, measuring and disclosing environmental remediation
liabilities. The adoption of the SOP resulted in an increase of
approximately $395 thousand to CL&P's environmental reserve in 1997.
CL&P cannot estimate the potential liability for future claims,
including environmental remediation costs, that may be brought against
it. However, considering known facts, existing laws and regulatory
practices, management does not believe the matters disclosed above will
have a material effect on CL&P's financial position or future results
of operations.
D. NUCLEAR INSURANCE CONTINGENCIES
Under certain circumstances, in the event of a nuclear incident at
one of the nuclear facilities in the country covered by the federal
government's third-party liability indemnification program, an owner
of a nuclear unit could be assessed in proportion to its ownership
interest in each of its nuclear units up to $75.5 million. Payments
of this assessment would be limited to $10.0 million in any one year
per nuclear incident based upon the owner's pro rata ownership interest
in each of its nuclear units. In addition, the owner would be subject
to an additional five percent or $3.8 million, in proportion to its
ownership interests in each of its nuclear units, if the sum of all
claims and costs from any one nuclear incident exceeds the maximum
amount of financial protection. Based upon its ownership interests in
Millstone 1, 2 and 3 and in Seabrook 1, CL&P's maximum liability,
including any additional assessments, would be $173.6 million per
incident, of which payments would be limited to $21.9 million per year.
In addition, through power purchase contracts with MYAPC, VYNPC, and
CYAPC, CL&P would be responsible for up to an additional $44.4 million
per incident, of which payments would be limited to $5.6 million per
year.
Insurance has been purchased to cover the primary cost of repair,
replacement or decontamination of utility property resulting from
insured occurrences. CL&P is subject to retroactive assessments if
losses exceed the accumulated funds available to the insurer. The
maximum potential assessment against CL&P with respect to losses
arising during the current policy year is approximately $11.5 million
under the primary property insurance program.
Insurance has been purchased to cover certain extra costs incurred in
obtaining replacement power during prolonged accidental outages and the
excess cost of repair, replacement or decontamination or premature
decommissioning of utility property resulting from insured occurrences.
CL&P is subject to retroactive assessments if losses exceed the
accumulated funds available to the insurer. The maximum potential
assessments against CL&P with respect to losses arising during current
policy years are approximately $9.5 million under the replacement power
policies and $15.6 million under the excess property damage,
decontamination and decommissioning policies. The cost of a nuclear
incident could exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on an industry
basis for coverage of worker claims. All participating reactor
operators insured under this coverage are subject to retrospective
assessments of $3 million per reactor. The maximum potential
assessment against CL&P with respect to losses arising during the
current policy period is approximately $8.9 million. Effective
January 1, 1998, a new worker policy was purchased which is not
subject to retrospective assessments.
E. CONSTRUCTION PROGRAM
The construction program is subject to periodic review and revision by
management. CL&P currently forecasts construction expenditures of
approximately $1.3 billion for the years 1998-2002, including $164.9
million for 1998. In addition, CL&P estimates that nuclear fuel
requirements, including nuclear fuel financed through the NBFT, will be
approximately $247.7 million for the years 1998-2002, including $37.6
million for 1998. See Note 2, "Leases," for additional information
about the financing of nuclear fuel.
F. LONG-TERM CONTRACTUAL ARRANGEMENTS
Yankee Companies: CL&P, WMECO and PSNH rely on VY for approximately
1.7 percent of their capacity under long-term contracts. Under the
terms of their agreements, the NU system companies pay their ownership
(or entitlement) shares of costs which include depreciation, O&M
expenses, taxes, the estimated cost of decommissioning and a return on
invested capital. These costs are recorded as purchased power expense
and are recovered through the company's rates. CL&P's total cost of
purchases under contracts with VYNPC amounted to $14.1 million in 1997,
$14.8 million in 1996 and $14.7 million in 1995.
The other Yankee generating facilities, MY, CY and Yankee Rowe, were
permanently shutdown as of August 6, 1997, December 4, 1996 and
February 26, 1992, respectively. See Note 1E, "Summary of Significant
Accounting Policies - Investments and Jointly Owned Electric Utility
Plant," for further information on the Yankee companies, and Note 3,
"Nuclear Decommissioning," regarding the related decommissioning
obligations.
Nonutility Generators: CL&P has entered into various arrangements for
the purchase of capacity and energy from nonutility generators (NUGs).
These arrangements have terms from 10 to 30 years, currently expiring
in the years 2001 through 2028, and require CL&P to purchase energy at
specified prices or formula rates. For the 12-month period ending
December 31, 1997, approximately 14 percent of NU system electricity
requirements was met by NUGs. CL&P's total cost of purchases under
these arrangements amounted to $283.2 million in 1997, $279.5 million
in 1996 and $282.2 million in 1995. These costs may be deferred for
eventual recovery through rates.
Hydro-Quebec: Along with other New England utilities, CL&P, PSNH,
WMECO and HWP have entered into agreements to support transmission and
terminal facilities to import electricity from the Hydro-Quebec system
in Canada. CL&P is obligated to pay, over a 30-year period ending in
2020, its proportionate share of the annual O&M and capital costs of
these facilities.
Estimated Annual Costs: The estimated annual costs of CL&P's
significant long-term contractual arrangements are as follows:
1998 1999 2000 2001 2002
(Millions of Dollars)
VYNPC ............. $ 16.8 $ 16.9 $ 16.2 $ 17.7 $ 18.4
NUGs ............. 281.0 291.5 290.9 295.5 299.6
Hydro-Quebec ...... 18.5 17.9 17.6 17.1 16.7
For additional information regarding the recovery of purchased power costs,
see Note 1J, "Summary of Significant Accounting Policies - Recoverable
Energy Costs."
12. MARKET RISK MANAGEMENT
CL&P uses swap, collar, put and call instruments with financial
institutions to hedge against some of the fuel price risk created by
long-term negotiated energy contracts and nuclear replacement power
generation and fuel purchases. These agreements minimize exposure
associated with rising fuel prices by managing a portion of CL&P's cost
of fuel for these negotiated energy contracts and nuclear replacement
power generation and fuel purchases. As of December 31, 1997, CL&P had
outstanding agreements with a total notional value of approximately $327
million, and a negative mark-to-market position of approximately $21
million.
The terms of the 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 the 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 December 31, 1997, cash collateral in the amount
of $15.4 million was posted under these terms, which is included in other,
at cost, on the accompanying Consolidated Balance Sheets.
These agreements have been made with various financial institutions, each
of which is rated "A1" or better by Moody's rating group. CL&P will be
exposed to credit risk on its fuel price 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.
13. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY
CL&P Capital LP (CL&P LP, a subsidiary of CL&P) had previously issued $100
million of cumulative 9.3 percent Monthly Income Preferred Securities
(MIPS), Series A. CL&P has the sole ownership interest in CL&P LP, as a
general partner, and is the guarantor of the MIPS securities. Subsequent
to the MIPS issuance, CL&P LP loaned the proceeds of the MIPS issuance,
along with CL&P's $3.1 million capital contribution, back to CL&P in the
form of an unsecured debenture. CL&P consolidates CL&P LP for financial
reporting purposes. Upon consolidation, the unsecured debenture is
eliminated and the MIPS securities are accounted for as minority interests.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each of the following financial instruments:
Cash and nuclear decommissioning trusts: The carrying amounts approximate
fair value.
SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires investments in debt and equity securities to be
presented at fair value. As a result of this requirement, the investments
held in CL&P's nuclear decommissioning trusts were adjusted to market by
approximately $49.2 million as of December 31, 1997, and $22.3 million
as of December 31, 1996, with corresponding offsets to the accumulated
provision for depreciation. The amounts adjusted in 1997 and 1996 represent
cumulative gross unrealized holding gains. The cumulative gross unrealized
holding losses were immaterial for both 1997 and 1996.
Preferred stock and long-term debt: The fair value of CL&P's fixed rate
securities is based upon the quoted market price for those issues or
similar issues. Adjustable rate securities are assumed to have a fair
value equal to their carrying value.
The carrying amounts of CL&P's financial instruments and the estimated fair
values are as follows:
Carrying Fair
At December 31, 1997 Amount Value
(Thousands of Dollars)
Preferred stock not subject
to mandatory redemption................ $ 116,200 $ 62,889
Preferred stock subject to
mandatory redemption................... 155,000 135,600
Long-term debt -
First Mortgage Bonds................... 1,459,000 1,435,772
Other long-term debt................... 590,443 590,443
MIPS..................................... 100,000 100,760
Carrying Fair
At December 31, 1996 Amount Value
(Thousands of Dollars)
Preferred stock not subject
to mandatory redemption................ $ 116,200 $ 111,845
Preferred stock subject to
mandatory redemption................... 155,000 120,900
Long-term debt -
First Mortgage Bonds................... 1,452,288 1,410,665
Other long-term debt................... 592,783 592,783
MIPS ...................................... 100,000 108,520
The fair values shown above have been reported to meet disclosure
requirements and do not purport to represent the amounts at which those
obligations would be settled.
To the Board of Directors
of The Connecticut Light and Power Company:
We have audited the accompanying consolidated balance sheets of The
Connecticut Light and Power Company and Subsidiaries (a Connecticut
corporation and a wholly owned subsidiary of Northeast Utilities) as of
December 31, 1997 and 1996, and the related consolidated statements of
income, common stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Connecticut Light
and Power Company and Subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 20, 1998
THE CONNECTICUT LIGHT AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section contains management's assessment of CL&P's (the company) financial
condition and the principal factors having an impact on the results of
operations. The company is a wholly-owned subsidiary of Northeast Utilities
(NU). This discussion should be read in conjunction with the company's
consolidated financial statements and footnotes.
FINANCIAL CONDITION
OVERVIEW
The length of the ongoing outages at the three Millstone nuclear plants
(Millstone) and the high costs of the recovery efforts weakened CL&P's 1997 net
income, balance sheet and cash flows and will continue to have an adverse impact
on the company's financial condition until the units are returned to service.
CL&P had a net loss of approximately $144 million in 1997, compared to a net
loss of approximately $80 million in 1996. The poorer financial results in 1997
were due primarily to the fact that all three Millstone units were off line for
the entire year in 1997 and spending associated with the recovery efforts was
significantly higher in 1997 than it was in 1996. Millstone 3 operated for
nearly three months in 1996 and Millstone 2 for nearly two months. As a result,
the cost of replacing power ordinarily generated by the Millstone units rose by
approximately $65 million in 1997. The total operation and maintenance (O&M)
costs at Millstone were approximately $133 million higher in 1997.
The higher Millstone costs have caused CL&P to focus closely on maintaining
adequate liquidity and reducing nonnuclear O&M costs. In June 1997, CL&P
successfully sold $200 million in first mortgage bonds. CL&P's access to $225
million of revolving credit lines was renegotiated in the first half of 1997.
Also helping to maintain liquidity was the renegotiation in early 1998 of a $100
million credit line used by Niantic Bay Fuel Trust (NBFT) to purchase nuclear
fuel for Millstone. Additionally, nonnuclear O&M expenses in 1997 were reduced
by about $30 million from 1996. Tight cost controls will continue to be
essential in 1998 to CL&P's efforts to meet the financial covenants contained in
the $313.75 million revolving credit arrangement available to CL&P and Western
Massachusetts Electric Company (WMECO).
In 1998, management expects Millstone-related expenses to fall significantly,
assuming Millstone 3 and Millstone 2 are returned to service at dates close to
current estimates, although the O&M expenses at Millstone 3 and 2 will be
considerably higher than before the station was placed on the Nuclear Regulatory
Commission's (NRC's) watch list. The actual level of 1998 nuclear spending at
Millstone will depend on when the units return to operation and the cost of
restoring them to service. The company hopes to restart Millstone 3, the newest
and largest unit at the site, in the early spring of 1998 and Millstone 2 three
to four months after Millstone 3. The company cannot restart the Millstone units
until it receives formal approval from the NRC. As part of an effort to reduce
spending in 1998, Millstone 1 has been placed in extended maintenance status.
Management will review its options with respect to Millstone 1 in 1998,
including restart, early retirement and other options.
Rate reductions to customers served by CL&P are likely to offset a portion of
the benefit of lower Millstone-related costs. On March 1, 1998, CL&P's rates
were reduced by approximately 1.4 percent to reflect the removal of Millstone 1
from rates, and additional non cash reductions were made to revenue requirements
as a result of an interim rate order issued by the Connecticut Department of
Public Utility Control (DPUC). A pending CL&P rate case may result in
additional rate adjustments later in 1998. CL&P's revenues could be further
reduced if substantial delays in restarting Millstone 3 and Millstone 2 result
in a DPUC decision to remove those units from rates.
In addition to focusing on maintaining liquidity, management also must attend to
industry restructuring efforts in Connecticut. Restructuring legislation is
being considered in the Connecticut legislative session that began in February
1998.
In 1997, CL&P experienced modest economic growth in its retail sales that was
offset by the effects of mild winter weather. In 1998, management expects that
the Connecticut economy will continue to experience modest growth.
MILLSTONE
OUTAGES
CL&P has an 81-percent ownership interest in Millstone units 1 and 2 and a
52.93-percent ownership interest in Millstone unit 3. Millstone 1, 2 and 3 have
been out of service since November 4, 1995, February 21, 1996, and March 30,
1996, respectively.
Subsequent to its January 31, 1996, announcement that Millstone had been placed
on its watch list, the NRC has stated that the units cannot return to service
until independent, third-party verification teams have reviewed the actions
taken to improve the design, configuration and employee concern issues that
prompted the NRC to place the units on its watch list. The actual date of the
return to service for each of the units is dependent upon the completion of
independent inspections, reviews by the NRC and a vote by the NRC Commissioners.
In January 1998, NU declared Millstone 3 physically ready for restart, which
meant that almost all of the restart-required physical work had been completed
in the plant. The NRC currently is conducting a series of inspections to
determine, among other things, whether the plant has effective leadership and
corrective action and employee concerns programs. The Independent Corrective
Action Verification Program, an NRC-ordered independent review of the plant's
design and licensing bases, is expected to be completed in March 1998.
In 1997, CL&P's share of nonfuel O&M costs expensed for Millstone totaled
approximately $455 million, including $59 million reserved for future restart
costs. The 1997 costs are net of $50 million of costs which were reserved in
1996. In 1996, the CL&P's share of nonfuel O&M costs expensed for Millstone
totaled approximately $322 million, including $50 million reserved for future
restart costs. Management will continue to evaluate the costs to be incurred in
1998 to determine whether adjustments to the existing reserves are required.
CL&P's portion of replacement power costs attributable to the Millstone outages
totaled approximately $281 million in 1997 compared to $216 million expensed in
1996. These costs for 1998 are forecasted to average approximately $7 million
per month for Millstone 3, $7 million per month for Millstone 2 and $5 million
per month for Millstone 1 while the plants are out of service.
CL&P has been, and will continue to be, expensing all of the costs to restart
the units including replacement power and nonfuel O&M expenses. See "Rate
Matters" for issues related to the recovery of Millstone 1 costs.
NU and its subsidiaries are involved in several class action lawsuits and other
litigation in connection with their nuclear operations. See the "Notes to
Consolidated Financial Statements," Note 11B, for further information on this
litigation.
MILLSTONE 1
Management will review its options with respect to Millstone 1 during 1998. The
issues that management will consider in evaluating its options include the costs
to restart the unit, the economic benefits of the unit's continued operation and
certain Connecticut state law issues. In the CL&P four year rate review
proceeding, (discussed in detail under "Rate Matters"), the DPUC noted that CL&P
may not be able to recover its remaining investment in Millstone 1 if the DPUC
were to determine that the unit had been prematurely shut down due to management
imprudence. Additionally, there is a Connecticut statute which may limit CL&P's
ability to collect decommissioning charges in the future if Millstone 1 were to
be prematurely retired.
CL&P's net unrecovered Millstone 1 plant cost and the unrecovered
decommissioning costs at December 31, 1997, were approximately $216 million and
$198 million, respectively.
CAPACITY
During 1996 and continuing into 1997, CL&P took measures to improve its capacity
position, including obtaining additional generating capacity, improving the
availability of CL&P's generating units and improving its transmission
capability. During 1997, CL&P spent approximately $48 million to ensure
availability of adequate generating capacity in Connecticut, of
which $35 million was expensed. In 1998, CL&P does not anticipate the need
to take additional measures to ensure adequate generating capacity.
CL&P could incur up to an additional $50 million in 1998 for incremental
capacity purchases to meet NEPOOL requirements as a result of the Millstone
outages.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $227 million in 1997,
compared to 1996, primarily due to higher cash expenditures related to the
Millstone outages, and the pay down in 1997 of the 1996 year end accounts
payable balance. The 1996 year end accounts payable balance was relatively high
due to costs related to a severe December storm and costs associated with the
Millstone outages that had been incurred but not yet paid by the end of 1996.
Net cash from financing activities increased approximately $69 million,
primarily due to an increase in short-term borrowings and lower cash dividends
on common shares, partially offset by higher long-term debt retirements. Cash
used for investments decreased approximately $158 million, primarily due to
lower investments in the NU system Money Pool, partially offset by higher
capital expenditures and an increase in special deposits.
CL&P established facilities in 1996 under which it may sell, from time to time,
up to $200 million of its accounts receivable and accrued utility revenues. As
of December 31, 1997, CL&P sold approximately $70 million of receivables to
third-party purchasers.
NU's, CL&P's and WMECO's three-year revolving credit agreement (Credit
Agreement) was amended in May 1997 (the Credit Agreement). Under the
Credit Agreement, CL&P and WMECO are able to borrow up to approximately $225
million and $90 million, respectively, subject to a total borrowing limit of
$313.75 million for all three borrowers. NU will be able to borrow up to $50
million when NU, CL&P and WMECO have each maintained a consolidated operating
income to consolidated interest expense ratio of at least 2.50 to 1 for two
consecutive fiscal quarters. Currently, the companies cannot meet this
requirement. At December 31, 1997, CL&P had $35 million outstanding under the
Credit Agreement.
Each major subsidiary of NU finances its own needs. Neither CL&P nor WMECO has
any financing agreements containing cross defaults based on financial defaults
by NU, Public Service Company of New Hampshire (PSNH) or North Atlantic Energy
Corporation (NAEC). Nevertheless, it is possible that investors will take
negative operating results or regulatory developments for one subsidiary of NU
into account when evaluating the other NU subsidiaries. That could, as a
practical matter and despite the contractual and legal separations among NU and
its subsidiaries, negatively affect the company's access to financial markets.
In December 1997 and January 1998, Moody's Investors Service (Moody's) and
Standard & Poor's (S&P), respectively, downgraded the senior secured debt of
CL&P, WMECO and NU, as well as the preferred stock of CL&P and WMECO. This was
the fourth time Moody's and S&P have downgraded CL&P and WMECO securities since
the Millstone units went on the NRC watch list in 1996. All of NU system's
securities are rated below investment grade and remain under review for further
downgrade. CL&P's accounts receivable program could be terminated if its senior
secured debt is downgraded two more steps from its current ratings. Although
CL&P does not have any plans to issue debt in the near term, rating agency
downgrades generally increase the future cost of borrowing funds because lenders
will want to be compensated for increased risk. Additionally, this could affect
the terms and ability of the company to extend existing agreements.
CL&P's ability to borrow under the financing arrangements is dependent on the
satisfaction of contractual borrowing conditions. The financial covenants that
must be satisfied to permit CL&P and WMECO to borrow under the Credit
Agreement are particularly restrictive and become more restrictive throughout
1998. Spending levels in 1998, particularly for the first half of the year while
the Millstone units are expected to be out of service, will be constrained to
levels intended to assure that the financial covenants in CL&P's and WMECO's
Credit Agreement are satisfied. However, there is no assurance that these
financial covenants will be met as the system may encounter additional
unexpected costs from such areas as storms, reduced revenues from regulatory
actions or the effect of weather on sales levels.
If the return to service of Millstone 3 or Millstone 2 is delayed substantially
beyond the present restart estimates, if some borrowing facilities become
unavailable because of difficulties in meeting borrowing conditions or
renegotiating extensions, if the system encounters additional significant costs,
or any other significant deviations from management's current assumptions, the
currently available borrowing facilities could be insufficient to meet all of
CL&P's cash requirements. In those circumstances, management would take even
more stringent actions to reduce costs and cash outflows and would attempt to
take other actions to obtain additional sources of funds. The availability of
these funds would be dependent upon the general market conditions and CL&P's
credit and financial condition at that time.
RESTRUCTURING
CL&P continues to operate under cost-of-service based regulation, however,
future rates and the recovery of strandable costs are issues that
are being considered as part of broad restructuring legislation in the
current Connecticut legislative session. Strandable costs are expenditures or
commitments that have been made to meet public service obligations with the
expectation that they would be recovered from customers in the future. CL&P
has had exposure to strandable costs for its investments in high-cost nuclear
generating plants, state-mandated purchased power obligations and significant
regulatory assets. The company's exposure to strandable investments and
purchased power obligations exceeds its shareholder's equity. CL&P's financial
strength and resulting ability to compete in a restructured environment will be
negatively affected if the company is unable to recover its past investments and
commitments. Even if the company is given the opportunity to recover a large
portion of its strandable costs, earnings prospects in a restructured
environment will be affected in ways which cannot be estimated at this time.
The company is seeking to mitigate the impacts of restructuring by proposing
stable, lower rates, while pursuing customer choice options and full recovery
of its strandable costs. The company's strategy to recover strandable costs
includes efforts to promote state legislation that will authorize the issuance
of rate reduction bonds that would refinance these investments and which would
be repaid through non-bypassable charges to customers. Management is unable
to predict the ultimate outcome of these initiatives which will be subject to
regulatory and legislative approvals. Management believes it is entitled to
full recovery of its prudently incurred costs, including regulatory assets and
other strandable costs. See the "Notes to Consolidated Financial Statements,"
Note 1H, for the potential accounting impacts of restructuring.
RATE MATTERS
In July 1996, the DPUC approved a rate settlement agreement with CL&P (the
Settlement). Under the Settlement, CL&P froze base rates until at least
December 31, 1997, and agreed to accelerate the amortization of regulatory
assets during the period that the rate freeze remains in effect. The Settlement
provided that CL&P's target return on equity (ROE) would be 10.7 percent but
did not alter CL&P's allowed ROE of 11.7 percent. If CL&P's actual ROE for
a calendar year exceeds 10.7 percent after the target regulatory asset
amortization ($68 million in 1997) and after adjustment for any incremental
NRC billings and any rate disallowances for nuclear operations, then CL&P shall
retain two-thirds of any surplus and use the remaining one-third to provide a
reduction in bills. CL&P's actual ROE, as adjusted, fell below the target ROE
for 1996 and 1997 and, therefore, the accelerated amortization of regulatory
assets was reduced to the minimum amounts allowed under the Settlement ($73
million in 1996 and $54 million in 1997). For each full year that the rate
freeze remains in effect, CL&P agreed to amortize an additional $44 million
of regulatory assets.
On July 30, 1997, the DPUC issued a decision in its prudence review of nuclear
cost recovery issues disallowing CL&P's recovery of all of the replacement power
costs associated with the ongoing outages at Millstone. CL&P has expensed, and
will continue to expense, replacement power costs for the Millstone outages as
they are incurred.
The DPUC is required to review a utility's rates every four years if there has
not been a rate proceeding during such period. In 1997, the DPUC conducted such
a review of CL&P's rates, including an analysis of the possibility of removing
one or more of the Millstone nuclear units from CL&P's rate base. On December
31, 1997, the DPUC issued its ruling in this matter. The decision did not effect
a change in CL&P's rates, but set forth findings and conclusions that could be
used to do so in additional proceedings. The most significant conclusion was
that Millstone 1 should be removed from CL&P's rate base, which would cause an
annual revenue reduction of approximately $30.5 million. The decision stated
that the DPUC would open an interim rate case immediately to remove Millstone 1
from CL&P's rates and simultaneously to remove an additional $110.5 million of
other expenses from rates related to perceived overearnings. On February 25,
1998, the DPUC issued a decision reducing CL&P's rates by approximately 1.4
percent to reflect the removal of Millstone 1 from rates. This reduction
reflects the removal from rates of O&M, depreciation and investment return
related to Millstone 1, net of replacement power costs. In addition, the
decision requires CL&P to accelerate the amortization of regulatory assets
by $110.5 million, which includes the $44 million from the 1996 Settlement.
The interim rate reduction became effective on March 1, 1998.
CL&P also was directed to file a full rate case on June 1, 1998, to address
potential overearnings amounting to an additional $150 million in 1998. The
effective date of any rate order will be September 28, 1998. In addition, the
DPUC has scheduled hearings for April 1, 1998 to determine the status of
Millstone 3 and Millstone 2. If the units are not operating by that date, the
DPUC will consider their removal from rates. A similar restart status hearing
is anticipated for June 1, 1998.
The DPUC also will consider CL&P's analyses of the economic benefits of the
continued operation of Millstone 1 and 2 in the context of CL&P's next
integrated resource planning proceeding, which begins in April 1998.
NUCLEAR DECOMMISSIONING
CONNECTICUT YANKEE
CL&P has a 34.5 percent ownership interest in the Connecticut Yankee nuclear
generating facility (CY or the plant). On December 4, 1996, the Board of
Directors of Connecticut Yankee Atomic Power Company voted unanimously to cease
permanently the production of power at the plant. The decision to retire CY from
commercial operation was based on an economic analysis of the costs of operating
it compared to the costs of closing it and incurring replacement power costs
over the remaining period of the plant's operating license, which would have
expired in 2007. The economic analysis showed that closing the plant and
incurring replacement power costs produced substantial savings.
CY has undertaken a number of regulatory filings intended to implement the
decommissioning. In late December 1996, CY filed an amendment to its power
contracts with the FERC to clarify the obligations of its purchasing utilities
following the decision to cease power production. At December 31, 1997, CL&P's
share of these obligations was approximately $214 million, including the cost of
decommissioning and the recovery of existing assets. Management expects that the
company will continue to be allowed to recover such FERC approved costs from its
customers. Accordingly, CL&P has recognized its share of the estimated costs as
a regulatory asset, with a corresponding obligation, on its balance sheets.
MAINE YANKEE
CL&P has a 12 percent ownership interest in the Maine Yankee (MY) nuclear
generating facility. On August 6, 1997, the Board of Directors of Maine Yankee
Atomic Power Company (MYAPC) voted unanimously to retire MY. On January 14,
1998, FERC released a draft order on the MYAPC application to amend its power
contracts with the owner/purchasers and revise its decommissioning and other
charges. FERC has accepted the proposed application for filing and made the
amendments and the proposed charges under the contracts effective on January 15,
1998, subject to refund after hearings. At December 31, 1997, CL&P's share of
the estimated remaining obligation, including decommissioning, amounted to
approximately $104 million. Under the terms of the contracts with MYAPC, the
shareholders' sponsor companies, including CL&P, are responsible for their
proportionate share of the costs of the unit, including decommissioning.
Management expects that CL&P will be allowed to recover these costs from it's
customers. Accordingly, CL&P has recognized these costs as a regulatory asset,
with a corresponding obligation on its balance sheet.
MILLSTONE AND SEABROOK
CL&P's estimated cost to decommission its shares of the Millstone plants and
Seabrook is approximately $1.1 billion in year end 1997 dollars. These costs are
being recognized over the lives of the respective units with a portion currently
being recovered through rates. As of December 31, 1997, CL&P's share of the
market value of the contributions already made to the decommissioning trusts,
including their investment returns, was approximately $369 million.
See the "Notes to Consolidated Financial Statements," Note 3, for further
information on nuclear decommissioning, including the CL&P's share of costs to
decommission the other regional nuclear generating units.
ENVIRONMENTAL MATTERS
CL&P is potentially liable for environmental cleanup costs at a number of sites
inside and outside its service territory. To date, the future estimated
environmental remediation liability has not been material with respect to the
earnings or financial position of CL&P. At December 31, 1997, CL&P had recorded
an environmental reserve of approximately $6.4 million. See the "Notes to
Consolidated Financial Statements," Note 11C, for further information on
environmental matters.
YEAR 2000 ISSUE
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the change of the
century occurs, date-sensitive systems may recognize the year 2000 as 1900, or
not recognize it at all. This inability to recognize or properly treat the year
2000 may cause NU's systems to process critical financial and operational
information incorrectly. The NU system has assessed and continues to assess the
impact of the Year 2000 issue on its operating and reporting systems. The
assessment of the nuclear operating systems is continuing and is expected to be
completed in the summer of 1998.
The NU system will utilize both internal and external resources to reprogram or
replace, and test the software for Year 2000 modifications. The total estimated
remaining cost of the Year 2000 project for the NU system is $37 million and is
being funded through operating cash flows. This estimate does not include any
costs for the replacement or repair of equipment or devices that may be
identified during the assessment process. The majority of these costs will be
expensed as incurred over the next two years. To date, the NU system has
incurred and expensed approximately $4 million related to the assessment of and
preliminary efforts in connection with its Year 2000 project.
The costs of the project and the date on which the NU system 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 plan is not successful, there could be a significant
disruption of the company's operations.
RISK-MANAGEMENT INSTRUMENTS
The following discussion about the company's risk-management activities includes
forward-looking statements that involve risk and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements.
This analysis presents the hypothetical loss in earnings related to the fuel
price and interest rate market risks not covered by the risk-management
instruments at December 31, 1997. The company uses swaps, collars, puts, and
calls to manage the market risk exposures associated with changes in fuel prices
and variable interest rates. The company does not use these risk-management
instruments for speculative purposes. For more information on CL&P's use of
risk management instruments, see the "Notes to Consolidated Financial
Statements," Notes 12.
In the generation of electricity, the most significant variable cost component
is the cost of fuel. Typically, most of CL&P's fuel purchases are protected by
a regulatory fuel price adjustment clause. However, for a specific, well-defined
volume of fuel that is excluded from the fuel price adjustment clause
(unprotected volume), CL&P employs fuel price risk-management instruments to
protect itself against the risk of rising fuel prices, thereby limiting fuel
costs and protecting its profit margins. These risks are created by the sale of
long-term, fixed-price electricity contracts to wholesale customers and the
purchase or generation of replacement power related to the ongoing Millstone
nuclear outages.
At December 31, 1997, CL&P had outstanding agreements with a total notional
value of approximately $327 million. The settlement amounts associated with the
instruments reduced fuel expense by approximately $7.8 million.
CL&P has had experience using various fuel price risk-management instruments
since 1994, most of which have been in the form of fuel price swaps. At
December 31, 1997 approximately 30 percent of the unprotected volume was covered
by fuel price risk-management instrument (hedge ratio) for 1997. This
effectively fixed or bounded the fuel cost and thus eliminated the market price
risk for this covered volume of fuel. At December 31, 1997, the company had a
hedge ratio of 44 percent for 1998.
At December 31, 1997, the 56 percent uncovered volume of fuel for 1998, as a
result of not being hedged, is subject to changes in actual market prices.
Therefore, assuming a hypothetical 10 percent increase in the average 1997 price
of fuel in 1998, the result would be a negative pre-tax impact on earnings of
approximately $12.4 million.
This analysis is based on the broad assumption that the entire uncovered volume
of fuel remains constant and will be purchased on the spot market. This
assumption is subject to change as the uncovered volume of fuel likely will
change during the next year. Other assumptions used in this analysis,
projections of the fuel mix, the amount of long-term sales contracts or
the projected Millstone restart dates, also are subject to change.
RESULTS OF OPERATIONS
Income Statement Variances
(Millions of Dollars)
1997 over/(under) 1996 1996 over/(under) 1995
Amount Percent Amount Percent
Operating revenues $ 68 3% $ 10 - %
Fuel, purchased and net
interchange power 146 18 222 37
Other operation (44) (6) 164 27
Maintenance 56 19 107 56
Amortization of regulatory
assets, net 4 7 3 6
Federal and state income
taxes (50) (a) (202) (a)
Other income, net (23) (a) 6 42
Net income (64) (80) (285) (a)
(a) Percentage greater than 100
OPERATING REVENUES
Total operating revenues increased in 1997, primarily due to higher fuel
recoveries and higher conservation recoveries. Fuel recoveries increased $33
million, primarily due to a higher fuel adjustment clause rate in 1997.
Conservation recoveries increased by $17 million primarily due to a 1996 reserve
for over-recoveries of demand-side management costs. Retail kilowatt hour sales
were essentially unchanged in 1997.
Total operating revenues increased in 1996, primarily due to higher retail sales
and regulatory decisions, partially offset by lower fuel recoveries and lower
wholesale revenues. Retail sales increased 1.8 percent ($29 million) primarily
due to modest economic growth in 1996. Regulatory decisions increased revenues
by $15 million primarily due to the mid-1995 retail rate increase, partially
offset by 1996 reserves for over-recoveries of demand-side management costs.
Fuel recoveries decreased $24 million primarily due to lower average fossil fuel
prices. Wholesale revenues decreased $18 million primarily due to higher
recognition in 1995 of lump-sum payments for the termination of a long-term
contract and capacity sales contracts that expired in 1995.
FUEL, PURCHASED AND NET INTERCHANGE POWER
Fuel, purchased and net interchange power expense increased in 1997, primarily
due to replacement power costs associated with the Millstone outages and the
expensing in 1997 of replacement power costs incurred in 1996.
Fuel, purchased and net interchange power expense increased in 1996, primarily
due to replacement power due to the nuclear outages and the 1996 write-off of
the generation utilization adjustment clause (GUAC) balances under the
Settlement, partially offset by lower nuclear generation and the timing of the
recognition of costs under the company's fuel clauses.
OTHER OPERATION AND MAINTENANCE
Other operation and maintenance expenses increased in 1997, primarily due to
higher costs associated with the Millstone restart effort ($133 million,
including a net increase of $9 million in reserves for future costs) and higher
charges from Maine Yankee ($9 million), partially offset by lower recognition of
nuclear refueling outage costs primarily as a result of the 1996 Rate Settlement
($72 million), lower capacity charges from Connecticut Yankee as a result of a
property tax refund ($27 million), lower administrative and general expenses
($23 million) primarily due to lower pensions and benefit costs and lower storm
expenses.
Other operation and maintenance expenses increased in 1996, primarily due to
higher costs associated with the Millstone restart effort ($143 million,
including $50 million of reserves for future costs) and 1996 costs to ensure
adequate generating capacity ($39 million). In addition, 1996 costs reflect
higher storm and reliability expenditures, higher recognition of conservation
expenses and higher marketing costs.
AMORTIZATION OF REGULATORY ASSETS, NET
Amortization of regulatory assets, net increased in 1997, primarily due to the
completion of cogeneration deferrals in 1996 and increased amortization in 1997,
partially offset by the completion of CL&P's Seabrook amortization in 1996.
Amortization of regulatory assets, net increased in 1996, primarily due to lower
cogeneration deferrals and the accelerated amortization of regulatory assets as
a result of the Settlement, partially offset by the completion of the Millstone
3 phase-in amortization in 1995.
FEDERAL AND STATE INCOME TAXES
Federal and state income taxes decreased in 1997 and 1996, primarily due to
lower book taxable income.
OTHER INCOME, NET
Other income, net decreased in 1997, primarily due to costs associated with the
accounts receivable facility, nonutility marketing and advertising costs and
lower miscellaneous income.
Other income, net increased in 1996, primarily due to higher income on temporary
cash investments in 1996.
SELECTED FINANCIAL DATA(a)
1997 1996 1995 1994 1993
(Thousands of Dollars)
Operating Revenues.$2,465,587 $2,397,460 $2,387,069 $2,328,052 $2,366,050
Operating (Loss)
/Income.......... (12,399) 29,773 324,026 286,948 241,655
Net(Loss)/Income... (144,377) (80,237) 205,216 198,288 191,449(b)
Cash Dividends on
Common Stock..... 5,989 138,608 164,154 159,388 160,365
Total Assets....... 6,081,223 6,244,036 6,045,631 6,217,457 6,397,405
Long-Term Debt (c). 2,043,327 2,038,521 1,822,018 1,823,690 2,057,280
Preferred Stock
Not Subject to
Mandatory
Redemption....... 116,200 116,200 116,200 166,200 166,200
Preferred Stock
Subject to
Mandatory
Redemption(c).... 155,000 155,000 155,000 230,000 230,000
Obligations Under
Capital Leases(c) 158,118 155,708 172,264 175,969 177,418
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
Quarter Ended(a)
1997 March 31 June 30 September 30 December 31
(Thousands of Dollars)
Operating Revenues $624,908 $ 574,841 $ 627,712 $ 638,126
Operating Income/
(Loss) $ 23,148 $ (33,587) $ (15,552) $ 13,592
Net Loss $ (6,431) $ (64,089) $ (50,077) $ (23,780)
1996
Operating Revenues $659,355 $ 542,999 $ 599,505 $ 595,601
Operating Income/
(Loss) $ 59,977 $ 15,197 $ 593 $ (45,994)
Net Income/(Loss) $ 32,851 $(10,700) $ (26,938) $ (75,450)
(a) Reclassifications of prior data have been made to conform with
the current presentation.
(b) Includes the cumulative effect of change in accounting for municipal
property tax expense, which increased earnings for common shares by
$47.7 million.
(c) Includes portion due within one year.
STATISTICS
Gross Electric Average
Utility Plant Annual
December 31, Use Per Electric
(Thousands of kWh Sales Residential Customers Employees
Dollars) (Millions) Customer (kWh) (Average) (December 31)
1997 $6,639,786 26,766 8,526 1,103,309 2,163
1996 6,512,659 26,043 8,639 1,099,340 2,194
1995 6,389,190 26,366 8,506(a) 1,094,527 2,270
1994 6,327,967 26,975 8,775 1,086,400 2,587
1993 6,214,401 26,107 8,519 1,078,925 2,676
(a) Effective January 1, 1996, the amounts shown reflect billed and
unbilled sales. 1995 has been restated to reflect this change.
1997 Annual Report
Western Massachusetts Electric Company
Index
Contents Page
Consolidated Balance Sheets......................................... 2-3
Consolidated Statements of Income................................... 4
Consolidated Statements of Cash Flows............................... 5
Consolidated Statements of Common Stockholder's Equity.............. 6
Notes to Consolidated Financial Statements.......................... 7
Report of Independent Public Accountants............................ 38
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 39
Selected Financial Data............................................. 49
Statements of Quarterly Financial Data.............................. 49
Statistics.......................................................... 50
Preferred Stockholder and Bondholder Information.................... Back Cover
PART I. FINANCIAL INFORMATION
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
At December 31, 1997 1996
- ----------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric (Note 1H)....................................... $ 1,284,288 $ 1,257,097
Less: Accumulated provision for depreciation.......... 559,119 503,989
------------- ------------
725,169 753,108
Construction work in progress............................ 19,038 15,968
Nuclear fuel, net........................................ 30,907 30,296
------------- ------------
Total net utility plant.............................. 775,114 799,372
------------- ------------
Other Property and Investments:
Nuclear decommissioning trusts, at market................ 102,708 83,611
Investments in regional nuclear generating
companies, at equity.................................... 15,741 15,448
Other, at cost........................................... 4,900 4,367
------------- ------------
123,349 103,426
------------- ------------
Current Assets:
Cash..................................................... 105 67
Investments in securitizable assets (Note 10)............ 25,280 -
Receivables, less accumulated provision for
uncollectible accounts of $50,000 in 1997
and of $2,121,000 in 1996 (Note 10).................... 2,739 40,168
Accounts receivable from affiliated companies............ 3,933 3,525
Taxes receivable......................................... 10,768 1,778
Accrued utility revenues (Note 10)....................... - 12,394
Fuel, materials and supplies, at average cost............ 5,860 5,317
Prepayments and other.................................... 14,945 12,262
------------- ------------
63,630 75,511
------------- ------------
Deferred Charges:
Regulatory assets (Note 1H).............................. 211,377 210,852
Unamortized debt expense................................. 2,695 1,866
Other.................................................... 2,963 888
------------- ------------
217,035 213,606
------------- ------------
Total Assets......................................... $ 1,179,128 $ 1,191,915
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
At December 31, 1997 1996
- ---------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$25 par value--authorized and
outstanding 1,072,471 shares in 1997 and 1996.......... $ 26,812 $ 26,812
Capital surplus, paid in................................ 151,171 150,911
Retained earnings....................................... 50,225 97,045
------------- ------------
Total common stockholder's equity.............. 228,208 274,768
Cumulative preferred stock--
$100 par value-- authorized 1,000,000 shares;
outstanding 200,000 shares in 1997 and 1996;
$25 par value--authorized 3,600,000 shares;
outstanding 840,000 shares in 1997 and 1996
Preferred stock not subject to mandatory redemption..... 20,000 20,000
Preferred stock subject to mandatory redemption......... 19,500 21,000
Long-term debt.......................................... 386,849 334,742
------------- ------------
Total capitalization........................... 654,557 650,510
------------- ------------
Obligations Under Capital Leases (Note 8)................. 217 29,269
------------- ------------
Current Liabilities:
Notes payable to banks.................................. 15,000 -
Notes payable to affiliated company..................... 14,350 47,400
Long-term debt and preferred stock--current
portion................................................ 11,300 14,700
Obligations under capital leases--current
portion................................................ 32,670 2,965
Accounts payable........................................ 30,571 26,698
Accounts payable to affiliated companies................ 21,209 20,256
Accrued taxes........................................... 522 2,659
Accrued interest........................................ 3,318 5,643
Nuclear compliance (Note 11B)........................... 13,800 11,800
Other................................................... 2,446 4,754
------------- ------------
145,186 136,875
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 241,036 245,253
Accumulated deferred investment tax credits............. 23,364 24,833
Deferred contractual obligations (Note 2)............... 93,628 84,598
Other................................................... 21,140 20,577
------------- ------------
379,168 375,261
------------- ------------
Commitments and Contingencies (Note 11)
------------- ------------
Total Capitalization and Liabilities........... $ 1,179,128 $ 1,191,915
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues............................. $ 426,447 $ 421,337 $ 420,434
---------- ---------- ----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power. 140,976 115,691 86,738
Other..................................... 155,399 148,697 143,000
Maintenance.................................. 81,466 56,201 37,447
Depreciation................................. 39,753 39,710 37,924
Amortization of regulatory assets, net....... 6,428 9,170 19,562
Federal and state income taxes (Note 7)...... (15,926) 5,995 14,060
Taxes other than income taxes................ 19,316 19,850 18,639
---------- ---------- ----------
Total operating expenses............... 427,412 395,314 357,370
---------- ---------- ----------
Operating (Loss)/Income........................ (965) 26,023 63,064
---------- ---------- ----------
Other Income:
Equity in earnings of regional nuclear
generating companies....................... 1,524 1,800 1,771
Other, net................................... (1,106) 1,153 1,232
Income taxes................................. 1,026 1,068 262
---------- ---------- ----------
Other income, net...................... 1,444 4,021 3,265
---------- ---------- ----------
Income before interest charges......... 479 30,044 66,329
---------- ---------- ----------
Interest Charges:
Interest on long-term debt................... 26,046 24,094 26,840
Other interest............................... 3,109 2,028 356
---------- ---------- ----------
Interest charges, net.................. 29,155 26,122 27,196
---------- ---------- ----------
Net (Loss)/Income.............................. $ (28,676) $ 3,922 $ 39,133
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities:
Net (Loss)/Income........................................... $ (28,676) $ 3,922 $ 39,133
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 39,753 39,710 37,924
Deferred income taxes and investment tax credits, net..... (2,040) (3,439) 3,418
Deferred Millstone 3 return............................... - - 7,146
Recoverable energy costs, net of amortization............. (8,184) (10,517) 1,285
Amortization of nuclear refueling outage, net of deferrals 8,819 6,188 (8,857)
Other sources of cash..................................... 27,804 21,248 32,266
Other uses of cash........................................ (21,215) (10,270) (8,039)
Changes in working capital:
Receivables and accrued utility revenues.................. 29,415 (1,853) (1,933)
Fuel, materials and supplies.............................. (543) (203) (285)
Accounts payable.......................................... 4,826 20,875 (11,669)
Sale of receivables and accrued utility revenues (Note 10) 20,000 - -
Investment in securitizable assets (Note 10).............. (25,280) - -
Accrued taxes............................................. (2,137) (805) (3,474)
Nuclear compliance, net (Note 11B)........................ 2,000 11,800 -
Other working capital (excludes cash)..................... (16,882) (8,144) 1,256
----------- ----------- -----------
Net cash flows from operating activities...................... 27,660 68,512 88,171
----------- ----------- -----------
Financing Activities:
Issuance of long-term debt.................................. 60,000 - -
Net (decrease)/increase in short-term debt.................. (18,050) 23,350 24,050
Reacquisitions and retirements of long-term debt............ (14,700) - (34,550)
Reacquisitions and retirements of preferred stock........... - (36,500) (15,675)
Cash dividends on preferred stock........................... (3,140) (5,305) (4,944)
Cash dividends on common stock.............................. (15,004) (16,494) (30,223)
----------- ----------- -----------
Net cash flows from/(used for) financing activities........... 9,106 (34,949) (61,342)
----------- ----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (26,249) (23,468) (27,084)
Nuclear fuel.............................................. (8) 541 75
----------- ----------- -----------
Net cash flows used for investments in plant................ (26,257) (22,927) (27,009)
NU System Money Pool........................................ - - 8,750
Investment in nuclear decommissioning trusts................ (9,645) (9,794) (8,503)
Other investment activities, net............................ (826) (977) 46
----------- ----------- -----------
Net cash flows used for investments........................... (36,728) (33,698) (26,716)
----------- ----------- -----------
Net Increase/(Decrease) In Cash For The Period................ 38 (135) 113
Cash - beginning of period.................................... 67 202 89
----------- ----------- -----------
Cash - end of period.......................................... $ 105 $ 67 $ 202
=========== =========== ===========
Supplemental Cash Flow Information:
Cash paid/(refunded) during the year for:
Interest, net of amounts capitalized........................ $ 28,711 $ 21,725 $ 25,551
=========== =========== ===========
Income taxes................................................ $ (1,121) $ 7,816 $ 14,385
=========== =========== ===========
Increase in obligations:
Niantic Bay Fuel Trust...................................... $ 660 $ 669 $ 7,851
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Capital Retained
Common Surplus, Earnings
Stock Paid In (a) Total
- ---------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Balance at January 1, 1995............... $26,812 $149,683 $111,586 $288,081
Net income for 1995.................. 39,133 39,133
Cash dividends on preferred
stock.............................. (4,944) (4,944)
Cash dividends on common stock....... (30,223) (30,223)
Loss on the retirement of preferred
stock.............................. (256) (256)
Capital stock expenses, net.......... 499 499
-------- --------- --------- ---------
Balance at December 31, 1995............. 26,812 150,182 115,296 292,290
Net income for 1996.................. 3,922 3,922
Cash dividends on preferred
stock.............................. (5,305) (5,305)
Cash dividends on common stock....... (16,494) (16,494)
Loss on the retirement of preferred
stock.............................. (374) (374)
Capital stock expenses, net.......... 729 729
-------- --------- --------- ---------
Balance at December 31, 1996............. 26,812 150,911 97,045 274,768
Net loss for 1997.................... (28,676) (28,676)
Cash dividends on preferred
stock.............................. (3,140) (3,140)
Cash dividends on common stock....... (15,004) (15,004)
Capital stock expenses, net.......... 260 260
-------- --------- --------- ---------
Balance at December 31, 1997............. $26,812 $151,171 $ 50,225 $228,208
======== ========= ========= =========
</TABLE>
(a) The company has dividend restrictions imposed by its long-term debt
agreements. At December 31, 1997, these restrictions totaled
approximately $21.5 million.
The accompanying notes are an integral part of these financial statements.
Western Massachusetts Electric Company and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ABOUT WESTERN MASSACHUSETTS ELECTRIC COMPANY
Western Massachusetts Electric Company and subsidiary (WMECO or the
company), The Connecticut Light and Power Company (CL&P), Holyoke Water
Power Company (HWP), Public Service Company of New Hampshire (PSNH) and
North Atlantic Energy Corporation (NAEC) are the operating subsidiaries
comprising the Northeast Utilities system (the NU system) and are wholly
owned by Northeast Utilities (NU).
The NU system furnishes franchised retail electric service in
Connecticut, New Hampshire and western Massachusetts through CL&P, PSNH,
WMECO and HWP. The fifth wholly owned subsidiary, NAEC, sells all of
its entitlement to the capacity and output of the Seabrook nuclear power
plant (Seabrook) to PSNH. In addition to its franchised retail service,
the NU system furnishes firm and other wholesale electric services to
various municipalities and other utilities, and participates in limited
retail access programs, providing off-system retail electric service.
The NU system serves about 30 percent of New England's electric needs
and is one of the 25 largest electric utility systems in the country as
measured by revenues.
Other wholly owned subsidiaries of NU provide support services for the
NU system companies and, in some cases, for other New England utilities.
Northeast Utilities Service Company (NUSCO) provides centralized
accounting, administrative, information resources, engineering,
financial, legal, operational, planning, purchasing and other services
to the NU system companies. Northeast Nuclear Energy Company (NNECO)
acts as agent for the NU system companies and other New England
utilities in operating the Millstone nuclear generating facilities. In
addition, CL&P and WMECO each have established a special purpose
subsidiary whose business consists of the purchase and resale of
receivables. For information regarding WMECO's subsidiary, see Note 10,
"Sale of Customer Receivables and Accrued Utility Revenues."
B. PRESENTATION
The consolidated financial statements of WMECO include the accounts of
its wholly owned subsidiary. Significant intercompany transactions have
been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain reclassifications of prior years' data have been made to conform
with the current year's presentation.
All transactions among affiliated companies are on a recovery of cost
basis which may include amounts representing a return on equity and are
subject to approval by various federal and state regulatory agencies.
C. PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as a
holding company under the Public Utility Holding Company Act of 1935
(1935 Act). NU and its subsidiaries, including WMECO, are subject to
the provisions of the 1935 Act. Arrangements among the NU system
companies, outside agencies and other utilities covering inter-
connections, interchange of electric power and sales of utility property
are subject to regulation by the Federal Energy Regulatory Commission
(FERC) and/or the SEC. WMECO is subject to further regulation for
rates, accounting, and other matters by the FERC and/or the applicable
state regulatory commissions.
For information regarding proposed changes in the nature of industry
regulation, see Note 11A, "Commitments and Contingencies - Restructuring
and Rate Matters."
D. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) 129, "Disclosure of Information
about Capital Structure." SFAS 129 establishes standards for disclosing
information about an entity's capital structure. WMECO's current
disclosures are consistent with the requirements of SFAS 129.
During June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income" and SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS 130 establishes standards for the reporting
and disclosure of comprehensive income. To date, WMECO has not had
material transactions that would be required to be reported as
comprehensive income. SFAS 131 determines the standards for reporting
and disclosing qualitative and quantitative information about a
company's operating segments. This information includes segment profit
or loss, certain segment revenue and expense items and segment assets
and a reconciliation of these segment disclosures to corresponding
amounts in the company's general purpose financial statements. WMECO
currently evaluates management performance using a cost-based budget,
and the information required by SFAS 131 is not available. Therefore,
these disclosure requirements are not applicable. Management believes
that the implementation of SFAS 130 and SFAS 131 will not have a
material impact on WMECO's current disclosures.
See Note 10, "Sale of Customer Receivables and Accrued Utility
Revenues," and Note 11C, "Commitments and Contingencies -- Environmental
Matters," for information on other newly issued accounting and reporting
standards related to those specific areas.
E. INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
Regional Nuclear Generating Companies: WMECO owns common stock of four
regional nuclear generating companies (Yankee companies). WMECO's
investments in the Yankee companies are accounted for on the equity
basis due to WMECO's ability to exercise significant influence over
their operating and financial policies. The Yankee companies, with
WMECO's ownership interests, are:
Connecticut Yankee Atomic Power Company (CYAPC) ................. 9.5%
Yankee Atomic Electric Company (YAEC) ........................... 7.0
Maine Yankee Atomic Power Company (MYAPC) ....................... 3.0
Vermont Yankee Nuclear Power Corporation (VYNPC) ................ 2.5
WMECO's investments in the Yankee companies at December 31, 1997 are:
(Thousands of Dollars)
CYAPC ................................................. $10,552
YAEC .................................................. 1,465
MYAPC ................................................. 2,370
VYNPC ................................................. 1,354
$15,741
Each Yankee company owns a single nuclear generating unit. Under the
terms of the contracts with the Yankee companies, the shareholders-
sponsors are responsible for their proportionate share of the costs of
each unit, including decommissioning. The energy and capacity costs
from VYNPC and nuclear decommissioning costs of the Yankee companies
that have been shut down are billed as purchased power to WMECO.
The electricity produced by the Vermont Yankee nuclear generating
facility (VY) is committed substantially on the basis of ownership
interests and is billed pursuant to contractual agreements. YAEC's,
CYAPC's and MYAPC's nuclear power plants were shut down permanently on
February 26, 1992, December 4, 1996, and August 6, 1997, respectively.
Under ownership agreements with the Yankee companies, WMECO may be asked
to provide direct or indirect financial support for one or more of the
companies. For more information on the Yankee companies, see Note 2,
"Nuclear Decommissioning," and Note 11F, "Commitments and Contingencies
--Long-Term Contractual Arrangements."
Millstone 1: WMECO has a 19 percent joint-ownership interest in
Millstone 1, a 660-megawatt (MW) nuclear generating unit. As of
December 31, 1997 and 1996, plant-in-service included approximately $91
million and $90.2 million, respectively, and the accumulated provision
for depreciation included approximately $40.1 million and $37.2 million,
respectively, for WMECO's share of Millstone 1. WMECO's share of
Millstone 1 expenses is included in the corresponding operating expenses
on the accompanying Consolidated Statements of Income.
Millstone 2: WMECO has a 19 percent joint-ownership interest in
Millstone 2, a 870-MW nuclear generating unit. As of December 31, 1997
and 1996, plant-in-service included approximately $162.4 million and
$161.4 million, respectively, and the accumulated provision for
depreciation included approximately $57.6 million and $51.7 million,
respectively, for WMECO's share of Millstone 2. WMECO's share of
Millstone 2 expenses is included in the corresponding operating expenses
on the accompanying Consolidated Statements of Income.
Millstone 3: WMECO has a 12.24 percent joint-ownership interest in
Millstone 3, a 1,154-MW nuclear generating unit. As of December 31,
1997 and 1996, plant-in-service included approximately $378.7 million
and $377.7 million, respectively, and the accumulated provision for
depreciation included approximately $110.1 million and $99.8 million,
respectively, for WMECO's share of Millstone 3. WMECO's share of
Millstone 3 expenses is included in the corresponding operating expenses
on the accompanying Consolidated Statements of Income.
The three Millstone units are out of service. NU hopes to return
Millstone 3 to service in the early spring of 1998 and Millstone 2 three
to four months after Millstone 3. Millstone 1 has been placed in
extended maintenance status. Management is reviewing its options with
respect to Millstone 1, including restart, early retirement and other
options. In a draft ruling issued in February 1998, the Connecticut
Department of Public Utility Control (DPUC) determined that Millstone 1
was no longer "used and useful" and ordered it removed from rate base.
For more information regarding the Millstone units, see Note 2, "Nuclear
Decommissioning," and Note 11B, "Commitments and Contingencies - Nuclear
Performance."
F. DEPRECIATION
The provision for depreciation is calculated using the straight-line
method based on estimated remaining lives of depreciable utility
plant-in-service, adjusted for salvage value and removal costs, as
approved by the appropriate regulatory agency.
Except for major facilities, depreciation rates are applied to the
average plant-in-service during the period. Major facilities are
depreciated from the time they are placed in service. When plant is
retired from service, the original cost of plant, including costs of
removal, less salvage, is charged to the accumulated provision for
depreciation. The depreciation rates for the several classes of electric
plant-in-service are equivalent to a composite rate of 3.2 percent in
1997 and 1996 and 3.1 percent in 1995. See Note 2, "Nuclear
Decommissioning," for information on nuclear plant decommissioning.
WMECO's nonnuclear generating facilities have limited service lives.
Plant may be retired in place or dismantled based upon expected future
needs, the economics of the closure and environmental concerns. The
costs of closure and removal are incremental costs and, for financial
reporting purposes, are accrued over the life of the asset as part of
depreciation. At December 31, 1997 and 1996, the accumulated provision
for depreciation included approximately $3.2 million, respectively,
accrued for the cost of removal, net of salvage for nonnuclear
generation property.
G. REVENUES
Other than revenues under fixed-rate agreements negotiated with certain
wholesale, commercial and industrial customers, utility revenues are
based on authorized rates applied to each customer's use of electricity.
In general, rates can be changed only through a formal proceeding before
the appropriate regulatory commission. Regulatory commissions also have
authority over the terms and conditions of nontraditional rate making
arrangements. At the end of each accounting period, WMECO accrues an
estimate for the amount of energy delivered but unbilled.
H. REGULATORY ACCOUNTING AND ASSETS
The accounting policies of WMECO and the accompanying consolidated
financial statements conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of the
ratemaking process in accordance with SFAS 71, "Accounting for the
Effects of Certain Types of Regulation." Assuming a cost-of-service
based regulatory structure, regulators may permit incurred costs,
normally treated as expenses, to be deferred and recovered through
future revenues. Through their actions, regulators also may reduce or
eliminate the value of an asset, or create a liability. If any portion
of WMECO's operations were no longer subject to the provisions of SFAS
71, as a result of a change in the cost-of-service based regulatory
structure or the effects of competition, WMECO would be required to
write off related regulatory assets and liabilities unless there is a
formal transition plan which provides for the recovery, through
established rates, for the collection of approved stranded costs and to
maintain the cost-of-service basis for the remaining regulated
operations. At the time of transition, WMECO would be required to
determine any impairment to the carrying costs of deregulated plant and
inventory assets.
The staff of the SEC has had concerns regarding the appropriateness of
the utilities' ability to continue application of SFAS 71 for the
generation portion of their business in a restructured environment. The
SEC referred the issue to the Emerging Issues Task Force (EITF) of the
FASB which reached a consensus and issued "Deregulation of the Pricing
of Electricity - Issues Related to the Application of FASB Statements
No. 71 and 101," (EITF 97-4). The EITF concluded: (1) the future
recognition of regulatory assets for the portion of the business that no
longer qualifies for application of SFAS 71 depends on the regulators'
treatment of the recovery of those costs and other stranded assets from
cash flows of other portions of the business still considered to be
regulated, and (2) a utility should discontinue the application of SFAS
71 when a legislative and regulatory plan has been enacted, which would
include transition plans into a competitive environment, and when the
stranded costs which are subject to future rate recovery are determined.
EITF 97-4 became effective in August 1997.
Electric utility industry restructuring within the state of
Massachusetts will be effective March 1, 1998. WMECO has submitted its
proposed restructuring plan to the Massachusetts Department of
Telecommunications and Energy (DTE), formerly the Massachusetts
Department of Public Utilities. If the DTE approves the plan in its
current form, WMECO would discontinue the application of SFAS 71.
However, the restructuring legislation enacted by the state of
Massachusetts specifically provides for future deferrals and the cost
recovery of generation-related assets as contemplated under the plan.
As such, WMECO is not expected to have to write off either its
generation-related assets or related regulatory assets. WMECO's
generation-related regulatory assets were valued at approximately $188
million at December 31, 1997. The majority of WMECO's regulatory assets
are related to its generation business.
For more information on the WMECO's regulatory environment and the
impacts of restructuring, see Note 11A, "Commitments and Contingencies-
Restructuring and Rate Matters," and Management's Discussion and
Analysis of Financial Condition and Results of Operations (MD&A).
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," requires the evaluation of long-
lived assets, including regulatory assets, for impairment when certain
events occur or when conditions exist that indicate the carrying amounts
of assets may not be recoverable. SFAS 121 requires that any long-lived
assets which are no longer probable of recovery through future revenues
be revalued based on estimated future cash flows. If this revaluation is
less than the book value of the asset, an impairment loss would be
charged to earnings.
Management continues to believe it is probable that WMECO will recover
its investments in long-lived assets through future revenues. This
conclusion may change in the future as the implementation of
restructuring plans within Massachusetts will generally require the
formation of a separate generation entity that will be subject to
competitive market conditions. As a result, WMECO will be required to
assess the carrying amounts of its long-lived assets in accordance with
SFAS 121.
The components of WMECO's regulatory assets are as follows:
At December 31, 1997 1996
(Thousands of Dollars)
Income taxes, net (Note 1I) ..................... $ 63,716 $ 71,519
Unrecovered contractual obligations
(Note 2) ...................................... 93,628 84,598
Recoverable energy costs (Note 1J) .............. 26,270 17,510
Other ........................................... 27,763 37,225
$211,377 $210,852
I. INCOME TAXES
The tax effect of temporary differences (differences between the periods
in which transactions affect income in the financial statements and the
periods in which they affect the determination of taxable income) is
accounted for in accordance with the ratemaking treatment of the
applicable regulatory commissions. See Note 7, "Income Tax Expense" for
the components of income tax expense.
The tax effect of temporary differences, including timing differences
accrued under previously approved accounting standards, which give rise
to the accumulated deferred tax obligation is as follows:
At December 31, 1997 1996
(Thousands of Dollars)
Accelerated depreciation and
other plant-related differences ................. $223,038 $218,389
Regulatory assets - income tax gross up ......... 30,175 29,457
Other ........................................... (12,177) (2,593)
$241,036 $245,253
J. RECOVERABLE ENERGY COSTS
Under the Energy Policy Act of 1992 (Energy Act), WMECO is assessed for
its proportionate share of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (D&D assessment). The Energy Act requires that
regulators treat D&D assessments as a reasonable and necessary current
cost of fuel, to be fully recovered in rates, like any other fuel cost.
WMECO is currently recovering these costs through rates. As of December
31, 1997, WMECO's total D&D deferrals were approximately $11.3 million.
WMECO has a fuel adjustment clause (FAC) which includes energy costs
along with capacity and transmission charges and credits that result
from short-term transactions with other utilities and from certain FERC-
approved contracts among the NU system's operating companies. The
Massachusetts restructuring legislation will effectively eliminate the
FAC, effective March 1, 1998.
On August 20, 1997, WMECO filed with the DTE a joint motion for approval
of a settlement agreement with the Massachusetts Attorney General which
allowed WMECO to recover approximately $15.3 million of fuel costs for
the period September 1997 through February 1998. Under the current FAC
rate, WMECO continues to defer significant costs for future recovery.
At December 31, 1997, WMECO's net recoverable energy costs were
approximately $26.3 million, which includes approximately $11.3 million
of costs related to WMECO's share of the D&D assessment.
For additional information regarding recoverable energy costs see the
MD&A.
K. SPENT NUCLEAR FUEL DISPOSAL COSTS
Under the Nuclear Waste Policy Act of 1982, WMECO must pay the United
States Department of Energy (DOE) for the disposal of spent nuclear fuel
and high-level radioactive waste. The DOE is responsible for the
selection and development of repositories for, and the disposal of,
spent nuclear fuel and high-level radioactive waste. Fees for nuclear
fuel burned on or after April 7, 1983, are billed currently to customers
and paid to the DOE on a quarterly basis. For nuclear fuel used to
generate electricity prior to April 7, 1983 (prior-period fuel), payment
must be made prior to the first delivery of spent fuel to the DOE.
Until such payment is made, the outstanding balance will continue to
accrue interest at the three-month Treasury Bill Yield Rate. At
December 31, 1997, fees due to the DOE for the disposal of prior-period
fuel were approximately $39.0 million, including interest costs of $23.4
million.
The DOE was originally scheduled to begin accepting delivery of spent
fuel in 1998. However, delays in identifying a permanent storage site
have continually postponed plans for the DOE's long-term storage and
disposal site. Extended delays or a default by the DOE could lead to
consideration of costly alternatives. The company has primary
responsibility for the interim storage of its spent nuclear fuel.
Current capability to store spent fuel at Millstone 1 and 2 are
estimated to be adequate until 2004. Storage facilities for Millstone 3
are expected to be adequate for the projected life of the unit. Meeting
spent fuel storage requirements beyond these periods could require new
and separate storage facilities, the costs for which have not been
determined.
In November 1997, the U.S. District Court of Appeals for the D.C.
Circuit ruled that the lack of an interim storage facility does not
excuse the DOE from meeting its contractual obligation to begin
accepting spent nuclear fuel no later than January 31, 1998. Currently,
the DOE has not taken the spent nuclear fuel as scheduled and, as a
result, may have to pay contract damages. The ultimate outcome of this
legal proceeding is uncertain at this time.
2. NUCLEAR DECOMMISSIONING
Millstone: WMECO's nuclear power plants have service lives that are
expected to end during the years 2010 through 2025. Upon retirement, these
units must be decommissioned. Current decommissioning studies concluded that
complete and immediate dismantlement at retirement continues to be the most
viable and economic method of decommissioning the three Millstone units.
Decommissioning studies are reviewed and updated periodically to reflect
changes in decommissioning requirements, costs, technology and inflation.
The estimated cost of decommissioning WMECO's ownership share of
Millstone 1, 2 and 3, in year-end 1997 dollars, is $91.7 million, $82.1
million and $67.8 million, respectively. The Millstone units decommissioning
costs will be increased annually by their respective escalation rates.
Nuclear decommissioning costs are accrued over the expected service life of
the units and are included in depreciation expense on the Consolidated
Statements of Income. Nuclear decommissioning costs amounted to $6.2 million
in 1997 and 1996 and $5.0 million in 1995. Nuclear decommissioning, as a
cost of removal, is included in the accumulated provision for depreciation
on the Consolidated Balance Sheets. At December 31, 1997 and 1996, the
balance in the accumulated reserve for depreciation amounted to $102.7
million and $83.6 million, respectively.
WMECO has established external decommissioning trusts through a trustee for
its portion of the costs of decommissioning Millstone 1, 2 and 3. Funding
of the estimated decommissioning costs assumes levelized collections for the
Millstone units and after-tax earnings on the Millstone decommissioning
funds of approximately 5.5 percent.
As of December 31, 1997, WMECO has collected, through rates, $59.7 million
toward the future decommissioning costs of its share of the Millstone units,
all of which has been transferred to external decommissioning trusts.
Earnings on the decommissioning trusts increase the decommissioning trust
balance and the accumulated reserve for depreciation. Unrealized gains and
losses associated with the decommissioning trusts also impact the balance of
the trust and the accumulated reserve for depreciation.
Changes in requirements or technology, the timing of funding or dismantling,
or adoption of a decommissioning method other than immediate dismantlement
would change decommissioning cost estimates and the amounts required to be
recovered. WMECO attempts to recover sufficient amounts through its allowed
rates to cover its expected decommissioning costs. Only the portion of
currently estimated total decommissioning costs that has been accepted by
regulatory agencies is reflected in rates of WMECO. Based on present
estimates and assuming its nuclear units operate to the end of their
respective license periods, WMECO expects that the decommissioning trusts
will be substantially funded when the units are retired from service.
Millstone 1 has been placed in extended status while management is reviewing
its options with respect to the unit. These include restart, early
retirement and other options. Relating to management's consideration of the
option to immediately retire Millstone 1 are certain Connecticut state law
issues which relate to WMECO as minority owner. In its four-year rate review
proceeding, the DPUC noted that CL&P may not be able to obtain its remaining
investment in Millstone 1 if it were to determine that the unit had been
prematurely shut down due to management imprudence. Additionally, there is
a Connecticut statute which may limit CL&P's ability to collect future
decommissioning charges related to Millstone 1 if Millstone 1 were to be
terminated before the end of its expected life.
At December 31, 1997, WMECO's net unrecovered Millstone 1 plant costs were
$50.9 million and the remaining unrecovered decommissioning costs were
approximately $44 million.
Yankee Companies: VYNPC owns and operates a nuclear generating unit with a
service life that is expected to end in 2012. WMECO's ownership share of
estimated costs, in year-end 1997 dollars, of decommissioning this unit is
$12.6 million.
On August 6, 1997, the board of directors of MYAPC voted unanimously to
cease permanently the production of power at its nuclear generating facility
(MY). The NU system companies had relied on MY for approximately one
percent of their capacity. During November 1997, MYAPC filed an amendment
to its power contracts clarifying the obligations of its purchasing
utilities following the decision to cease power production. During January
1998, the FERC accepted the amendments and proposed rates, subject to
refund. At December 31, 1997, the remaining estimated obligation, including
decommissioning, amounted to approximately $867.2 million, of which WMECO's
share was approximately $26.0 million.
On December 4, 1996, the board of directors of CYAPC voted unanimously to
cease permanently the production of power at its nuclear generating plant
(CY). During 1996, the NU system companies had relied on CY for
approximately three percent of their capacity. During late December 1996,
CYAPC filed an amendment to its power contracts clarifying the obligations
of its purchasing utilities following the decision to cease power
production. On February 27, 1997, the FERC approved an order for hearing
which, among other things, accepted CYAPC's contract amendment. The new
rates became effective March 1, 1997, subject to refund. At December 31,
1997, the remaining estimated obligation, including decommissioning,
amounted to $619.9 million, of which WMECO's share was approximately $58.9
million.
YAEC is in the process of decommissioning its nuclear facility. At December
31, 1997, the estimated remaining costs, including decommissioning, amounted
to $124.4 million, of which WMECO's share was approximately $8.7 million.
Under the terms of the contracts with MYAPC, CYAPC and YAEC, the
shareholder-sponsor companies, including WMECO, are responsible for their
proportionate share of the costs of the units, including decommissioning.
Management expects that WMECO will continue to be allowed to recover these
costs from its customers. Accordingly, WMECO has recognized these costs as
regulatory assets, with corresponding obligations.
Proposed Accounting: The staff of the SEC has questioned certain current
accounting practices of the electric utility industry, including WMECO,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating units in the financial statements. In response
to these questions, the FASB has agreed to review the accounting for closure
and removal costs, including decommissioning. If current electric utility
industry accounting practices for nuclear power plant decommissioning are
changed, the annual provision for decommissioning could increase relative to
1997, and the estimated cost for decommissioning could be recorded as a
liability (rather than as accumulated depreciation), with recognition of an
increase in the cost of the related nuclear power plant. Management
believes that WMECO will continue to be allowed to recover decommissioning
costs through rates.
3. SHORT-TERM DEBT
Limits: The amount of short-term debt borrowings that may be incurred by
WMECO is subject to periodic approval by either the SEC under the 1935 Act
or by the DTE. SEC authorization allowed WMECO, as of January 1, 1998, to
incur short-term borrowings up to a maximum of $150 million. In addition,
the charter of WMECO contains a provision which restricts the total amount
of unsecured debt that it may borrow at any one time. As of January 1,
1998, this charter provision allowed WMECO to incur unsecured borrowings,
whether short-term or long-term, up to a maximum of approximately $114
million.
Credit Agreements: In May 1997, because of the potential for NU and CL&P to
violate their various financial ratio tests, NU amended the three-year
revolving credit agreement (Credit Agreement) with a group of 12 banks.
Under the amended Credit Agreement, CL&P and WMECO are able to borrow,
subject to the availability of first mortgage bond collateral, up to $313.75
million and $150 million, respectively. At December 31, 1997, CL&P and
WMECO have issued first mortgage bonds to enable borrowings under this
facility up to a maximum of $225 million and $90 million, respectively.
NU, which cannot issue first mortgage bonds, will be able to borrow up to
$50 million if NU consolidated, CL&P and WMECO each meet certain interest
coverage tests for two consecutive quarters. In addition, CL&P and WMECO
each must meet certain minimum quarterly financial ratios to access the
Credit Agreement. Both CL&P and WMECO satisfied these tests for the quarter
ending December 31, 1997. The overall limit for all of the borrowing system
companies under the entire Credit Agreement is $313.75 million. The
companies are obligated to pay a facility fee of .50 percent per annum of
each bank's total commitment under this Credit Agreement which will expire
in November 1999. At December 31, 1997 and 1996, there were $50 million and
$27.5 million, respectively, in borrowings under this Credit Agreement. Of
these borrowings, $15 million were borrowed by WMECO in 1997 and none were
borrowed by WMECO in 1996.
In addition to the Credit Agreement, NU, CL&P, WMECO, HWP and The Rocky
River Realty Company (RRR) have various revolving credit lines through
separate bilateral credit agreements. Under this facility, four banks
maintain commitments to the respective companies totaling $56.25 million.
NU, CL&P and WMECO may borrow up to the aggregate $56.25 million, whereas
HWP and RRR may borrow up to their SEC or board authorized short-term debt
limit of $5 million and $22 million, respectively. Under the terms of this
facility, the companies are obligated to pay a facility fee of .15 percent
per annum of each bank's total commitment. These commitments will expire in
December 1998. At December 31, 1997 and 1996, there were no borrowings
and $11.3 million in borrowings, respectively, under this facility.
Under the credit facilities discussed above, WMECO may borrow funds on a
short-term revolving basis under its respective agreements, using either
fixed-rate loans or standby loans. Fixed rates are set using competitive
bidding. Standby loans are based upon several alternative variable rates.
The weighted average annual interest rate on WMECO's notes payable to banks
outstanding on December 31, 1997 was 6.95 percent. WMECO had no borrowings
under these facilities at December 31, 1996.
Money Pool: Certain subsidiaries of NU, including WMECO, are members of the
Northeast Utilities System Money Pool (Pool). The Pool provides a more
efficient use of the cash resources of the system, and reduces outside
short-term borrowings. NUSCO administers the Pool as agent for the member
companies. Short-term borrowing needs of the member companies are first met
with available funds of other member companies, including funds borrowed by
NU parent. NU parent may lend to the Pool but may not borrow. Funds may be
withdrawn from or repaid to the Pool at any time without prior notice.
Investing and borrowing subsidiaries receive or pay interest based on the
average daily Federal Funds rate. However, borrowings based on loans from
NU parent bear interest at NU parent's cost and must be repaid based upon
the terms of NU parent's original borrowing. At December 31, 1997 and 1996,
WMECO had $14.4 million and $47.4 million, respectively, of borrowings
outstanding from the Pool. The interest rate on borrowings from the Pool at
December 31, 1997 and 1996 was 5.8 percent and 6.3 percent, respectively.
Maturities of short-term debt obligations were for periods of three months
or less.
For further information on short-term debt, including the ability to access
these agreements, see the MD&A.
4. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock not subject to mandatory redemptions are:
December 31, Shares
1997 Outstanding
Redemption December 31, December 31,
Description Price 1997 1997 1996 1995
(Thousands of Dollars)
7.72% Series B
of 1971 ...........$103.51 200,000 $20,000 $20,000 $20,000
1988 Adjustable
Rate DARTS ........ - - - - 33,500
Total preferred
stock not subject
to mandatory
redemption ........ $20,000 $20,000 $53,500
All or any part of each outstanding series of preferred stock may be
redeemed by the company at any time at established redemption prices plus
accrued dividends to the date of redemption.
5. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock subject to mandatory redemption are:
December 31 Shares
1997 Outstanding
Redemption December 31, December 31,
Description Price* 1997 1997 1996 1995
(Thousands of Dollars)
7.60% Series
of 1987 ........... $25.64 840,000 $21,000 $21,000 $24,000
Less preferred stock to be
redeemed within one
year, net of reacquired
stock .............. 60,000 1,500 - 1,500
Total preferred stock
subject to mandatory
redemption ......... $19,500 $21,000 $22,500
*Redemption price reduces in future years.
The minimum sinking-fund provisions of the 1987 Series subject to mandatory
redemption at December 31, 1997, for the years 1998 through 2002 is $1.5
million per year. In case of default on sinking-fund payments, no payments
may be made on any junior stock by way of dividends or otherwise (other than
in shares of junior stock) so long as the default continues. If the company
is in arrears in the payment of dividends on any outstanding shares of
preferred stock, the company would be prohibited from redemption or purchase
of less than all of the preferred stock outstanding. All or part of the
7.60% Series of 1987 may be redeemed by the company at any time at an
established redemption price plus accrued dividends to the date of
redemption subject to certain refunding limitations.
6. LONG-TERM DEBT
Details of long-term debt outstanding are:
December 31,
1997 1996
(Thousands of Dollars)
First Mortgage Bonds:
5 3/4% Series F, due 1997................. $ - $ 14,700
6 3/4% Series G, due 1998................. 9,800 9,800
6 1/4% Series X, due 1999................. 40,000 40,000
6 7/8% Series W, due 2000................. 60,000 60,000
7 3/8% Series B, due 2001................. 60,000 -
7 3/4% Series V, due 2002................. 85,000 85,000
7 3/4% Series Y, due 2024................. 50,000 50,000
Total First Mortgage Bonds.......................... 304,800 259,500
Pollution Control Notes:
Tax Exempt Variable Series A, due 2028............. 53,800 53,800
Fees and interest due for spent
fuel disposal costs (Note 1K)..................... 39,045 37,055
Less: Amounts due within one year.................. 9,800 14,700
Unamortized premium and discounts, net.............. (996) (913)
Long-term debt, net................................. $ 386,849 $334,742
Long-term debt maturities and cash sinking-fund requirements on debt
outstanding at December 31, 1997 for the years 1998 through 2002 are
approximately $9.8 million, $40 million, $60 million, $60 million and $85
million, respectively. In addition, there are annual one-percent sinking-
and improvement-fund requirements, currently amounting to $1.5 million for
1998 and 1999 and $900 thousand for 2000 through 2002. Such sinking- and
improvement-fund requirements may be satisfied by the deposit of cash or
bonds by certification of property additions.
All or any part of each outstanding series of first mortgage bonds may be
redeemed by WMECO at any time at established redemption prices plus accrued
interest to the date of redemption, except certain series which are subject
to certain refunding limitations during their respective initial five-year
redemption periods.
Essentially all of WMECO's utility plant is subject to the lien of its
first mortgage bond indenture. As of December 31, 1997 and 1996, WMECO has
secured $53.8 million of pollution control notes with second mortgage liens
on Millstone 1, junior to the liens of its first mortgage bond indenture.
The average effective interest rate on the variable-rate pollution control
notes was 3.5 percent for 1997 and 3.3 percent for 1996.
7. INCOME TAX EXPENSE
The components of the federal and state income tax provisions
(credited)/charged to operations are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Current income taxes:
Federal............................ $(14,277) $7,007 $ 7,419
State.............................. (635) 1,358 2,961
Total current.................... (14,912) 8,365 10,380
Deferred income taxes, net:
Federal............................ (652) (1,805) 4,130
State.............................. 81 (165) 1,003
Total deferred................... (571) (1,970) 5,133
Investment tax credits, net.......... (1,469) (1,468) (1,715)
Total income tax (credit)/
expense............................ $(16,952) $4,927 $13,798
The components of total income tax expense are classified as follows:
Income taxes charged to
operating expenses................. $(15,926) $5,995 $14,060
Other income taxes .................. (1,026) (1,068) (262)
Total income tax (credit)/
expense............................ $(16,952) $4,927 $13,798
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Depreciation, leased nuclear
fuel, settlement credits,
and disposal costs....................$ 1,407 $ 32 $9,066
Energy adjustment clause................ 3,115 4,102 (1,549)
Expenses associated with
nuclear outages....................... (1,078) (4,633) -
Demand side management.................. 321 1,557 (1,184)
Nuclear plant deferrals................. (3,431) (2,258) 2,468
Pension................................. 999 (57) (482)
Bond redemptions........................ (535) (502) (572)
Other................................... (1,369) (211) (2,614)
Deferred income taxes, net.............. $ (571) $(1,970) $5,133
A reconciliation between income tax expense and the expected tax expense at the
applicable statutory rate is as follows:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Expected federal income tax at
35 percent of pretax income for...... $(15,970) $2,946 $18,526
Tax effect of differences:
Depreciation......................... 1,352 2,280 2,173
Amortization of regulatory assets.... 1,916 1,029 1,665
Investment tax credit amortization... (1,469) (1,468) (1,715)
State income taxes, net of
federal benefit.................... (309) 776 2,577
Adjustment for prior years' taxes.... (967) - (7,702)
Dividends received reduction......... (408) (378) (481)
Other, net........................... (1,097) (258) (1,245)
Total income tax (credit)/expense...... $(16,952) $4,927 $13,798
8. LEASES
WMECO and CL&P may finance up to $400 million of nuclear fuel for Millstone
1 and 2 and their respective shares of the nuclear fuel for Millstone 3
under the Niantic Bay Fuel Trust (NBFT) capital lease agreement which is
scheduled to expire July 31, 1998. The NBFT capital lease agreement, which
was amended in February 1998, requires CL&P and WMECO to secure their
obligation to repay the NBFT with up to $90 million of first mortgage bonds.
CL&P and WMECO will issue these bonds by May 1998.
WMECO and CL&P make quarterly lease payments for the cost of nuclear fuel
consumed in the reactors based on a units-of-production method at rates
which reflect estimated kilowatt hours of energy provided plus financing
costs associated with the fuel in the reactors. Upon permanent discharge
from the reactors, ownership of the nuclear fuel transfers to WMECO and
CL&P. WMECO has also entered into lease agreements, some of which may be
capital leases, for the use of data processing and office equipment,
vehicles, nuclear control room simulators and office space. The provisions
of these lease agreements generally provide for renewal options. The
following rental payments have been charged to expense:
Year Capital Leases Operating Leases
1997 ................... $ 1,820,000 $5,968,000
1996 ................... 3,598,000 6,410,000
1995 ................... 12,553,000 6,398,000
Interest included in capital lease rental payments was $1,820,000 in 1997,
$1,858,000 in 1996, and $1,954,000 in 1995.
Future minimum rental payments, excluding executory costs such as property
taxes, state use taxes, insurance and maintenance, under long-term
noncancelable leases, as of December 31, 1997, are:
Year Capital Leases Operating Leases
(Thousands of Dollars)
1998........................... $32,700 $ 3,700
1999........................... 36 3,400
2000.......................... 36 3,100
2001........................... 36 2,800
2002........................... 36 2,500
After 2002..................... 70 18,600
Future minimum lease
payments..................... 32,914 $34,100
Less amount
representing
interest..................... 14
Present value of
future minimum
lease payments............... $32,900
9. EMPLOYEE BENEFITS
A. PENSION BENEFITS
The NU system's subsidiaries participate in a uniform noncontributory
defined benefit retirement plan covering all regular NU system
employees. Benefits are based on years of service and the employees'
highest eligible compensation during 60 consecutive months of
employment. WMECO's direct portion of the NU system's pension
credit, part of which was credited to utility plant, approximated
$(5.7) million in 1997, $(2.0) million in 1996 and $(2.7) million in
1995. WMECO's pension (credits)/costs for 1997, 1996 and 1995 included
approximately $(529) thousand, $1.0 million and $0.0 million,
respectively, related to workforce reduction programs.
Currently, WMECO funds annually an amount at least equal to that which
will satisfy the requirements of the Employee Retirement Income
Security Act and the Internal Revenue Code. Pension costs are
determined using market-related values of pension assets. Pension
assets are invested primarily in domestic and international equity
securities and bonds.
The components of net pension credit for WMECO are:
For the Years Ended December 31, 1997 1996 1995
(Thousand of Dollars)
Service cost....................... $ 1,346 $ 2,932 $ 1,645
Interest cost...................... 7,858 7,786 7,757
Return on plan assets.............. (31,874) (22,174) (29,798)
Net amortization................... 16,944 9,458 17,669
Net pension (credit)............... $(5,726) $(1,998) $(2,727)
For calculating pension cost, the following assumptions were used:
For the Years Ended December 31, 1997 1996 1995
Discount rate...................... 7.75% 7.50% 8.25%
Expected long-term rate
of return........................ 9.25 8.75 8.50
Compensation/progression rate...... 4.75 4.75 5.00
The following table represents the plan's funded status reconciled to
the Consolidated Balance Sheets:
At December 31, 1997 1996
(Thousands of Dollars)
Accumulated benefit obligation,
including vested benefits at
December 31, 1997 and 1996 of
$(87,278,000) and $(85,094,000),
respectively ....................... $( 93,555) $( 91,170)
Projected benefit obligation.......... $(109,536) $(107,816)
Market value of plan assets........... 181,028 157,863
Market value in excess of
projected benefit obligation........ 71,492 50,047
Unrecognized transition amount........ (1,727) (1,963)
Unrecognized prior service costs...... 1,142 1,213
Unrecognized net gain................. (62,370) (46,486)
Prepaid pension asset ................ $ 8,537 $ 2,811
The following actuarial assumptions were used in calculating
the plan's year-end funded status:
At December 31, 1997 1996
Discount rate.................................. 7.25% 7.75%
Compensation/progression rate.................. 4.25 4.75
B. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The NU system's subsidiaries provide certain health care benefits,
primarily medical and dental, and life insurance benefits through a
benefit plan to retired employees (referred to as SFAS 106 benefits).
These benefits are available for employees retiring from the company
who have met specified service requirements. For current employees
and certain retirees, the total SFAS 106 benefit is limited to two
times the 1993 per-retiree health care cost. The SFAS 106 obligation
has been calculated based on this assumption. WMECO's direct portion
of SFAS 106 benefits, part of which were deferred or charged to
utility plant, approximated $2.8 million in 1997, $3.8 million in
1996, and $4.4 million in 1995. WMECO is funding SFAS 106
postretirement costs through external trusts. WMECO is funding, on an
annual basis, amounts that have been rate-recovered and which also
are tax deductible under the Internal Revenue Code. The trust assets
are invested primarily in equity securities and bonds.
The components of health care and life insurance costs are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Service cost....................... $ 355 $ 490 $ 490
Interest cost...................... 2,011 2,236 2,544
Return on plan assets.............. (2,088) (883) (718)
Amortization of unrecognized
transition obligation............ 1,641 1,641 1,641
Other amortization, net............ 868 353 473
Net health care and life
insurance cost................... $2,787 $3,837 $4,430
For calculating WMECO's SFAS 106 benefit costs, the following
assumptions were used:
For the Years Ended December 31, 1997 1996 1995
Discount rate....................... 7.75% 7.50% 8.00%
Long-term rate of return -
Health assets, net of tax......... 6.00 5.25 5.00
Life assets....................... 9.25 8.75 8.50
The following table represents the plan's funded status
reconciled to the Consolidated Balance Sheets:
At December 31, 1997 1996
(Thousands of Dollars)
Accumulated postretirement benefit
obligation of:
Retirees..................................... $(23,123) $(24,614)
Fully eligible active employees.............. (84) (28)
Active employees not eligible to retire...... (4,619) (5,449)
Total accumulated postretirement
benefit obligation.......................... (27,826) (30,091)
Market value of plan assets................... 12,838 10,215
Accumulated postretirement benefit
obligation in excess of plan assets......... (14,988) (19,876)
Unrecognized transition amount................ 24,618 26,259
Unrecognized net gain......................... (9,630) (6,765)
Accrued postretirement benefit liability...... $ - $ (382)
The following actuarial assumptions were used in calculating the
plan's year-end funded status:
At December 31, 1997 1996
Discount rate................................. 7.25% 7.75%
Health care cost trend rate (a)............... 5.76 7.23
(a) The annual growth in per capita cost of covered health care
benefits was assumed to decrease to 4.40 percent by 2001.
The effect of increasing the assumed health care cost trend rate by
one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1997, by $1.7
million and the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year then ended by
$131 thousand. The trust holding the health plan assets is subject to
federal income taxes at a 39.6 percent tax rate.
WMECO currently is recovering SFAS 106 costs through rates.
10. SALE OF CUSTOMER RECEIVABLES AND ACCRUED UTILITY REVENUES
During 1996, WMECO entered into an agreement to sell up to $40 million of
undivided ownership interests in eligible customer receivables and accrued
utility revenues (receivables).
The FASB issued SFAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," in June, 1996. SFAS
125 became effective on January 1, 1997, and establishes, in part, criteria
for concluding whether a transfer of financial assets in exchange for
consideration should be accounted for as a sale or as a secured borrowing.
During May 1997, WMECO had restructured its sales agreement to comply with
the conditions of SFAS 125 and account for transactions occurring under
this program as a sale of assets. WMECO established a special purpose,
wholly owned subsidiary whose business consists of the purchase and resale
of receivables. For receivables sold, WMECO has retained collection
responsibilities as agent for the purchaser under WMECO's agreement. As
collections reduce previously sold receivables, new receivables may be
sold. At December 31, 1997, approximately $20 million of receivables had
been sold to a third-party purchaser by WMECO, through the use of its
special purpose, wholly owned subsidiary, WMECO Receivables Corporation
(WRC). All receivables transferred to WRC are assets owned by WRC and are
not available to pay WMECO's creditors.
For WRC's sales agreement with the third-party purchaser, the receivables
were sold with limited recourse. WRC's sales agreement provides for a
formula-based loss reserve in which additional receivables may be assigned
to the third-party purchaser for costs such as bad debt. The third-party
purchaser absorbs the excess amount in the event that actual loss
experience exceeds the loss reserve. At December 31, 1997 approximately
$3.0 million of assets had been designated as collateral by WRC. This
amount represents the formula-based amount of credit exposure at December
31, 1997. Historical losses for bad debt for WMECO have been substantially
less.
During December 1997, Moody's Investors Service downgraded the rating on
WMECO's first mortgage bonds. This downgrade brought WMECO's bond ratings
to a level at which the sponsor of WMECO's accounts receivable program can
take various actions, in its discretion, which would have the practical
effect of limiting WMECO's ability to utilize the facility. To date, the
sponsor has not notified WMECO that it will elect to exercise those rights,
and the program is functioning in its normal mode. The WMECO accounts
receivable program is terminable if WMECO's first mortgage bond credit
ratings experience one more level of downgrade. CL&P's accounts receivable
program could be terminated if its senior secured debt is downgraded two
more steps from its current ratings.
Concentrations of credit risk to the purchaser under WMECO's agreement with
respect to the receivables are limited due to WMECO's diverse customer base
within its service territory.
For additional information on the accounts receivable program and WMECO's
ability to utilize this program, see the MD&A.
11. COMMITMENTS AND CONTINGENCIES
A. RESTRUCTURING AND RATE MATTERS
During November 1997, the state of Massachusetts enacted a
comprehensive electric utility industry restructuring bill
(legislation). On December 31, 1997, WMECO filed its restructuring
plan with the DTE, as required by the legislation. The WMECO
restructuring plan describes the process by which WMECO will,
beginning March 1, 1998, initiate a ten percent rate reduction for all
customer rate classes and allow customers to choose their energy
supplier. As part of the plan, the DTE authorized recovery of certain
strandable above-market costs (strandable costs). The legislation
gives the DTE the authority to determine the amount of strandable
costs that will be eligible for recovery by utilities. Costs which
will qualify as strandable costs and be eligible for recovery include,
but are not limited to, certain above-market costs associated with
generating facilities, costs associated with long-term commitments to
purchase power at above-market prices from small power producers and
nonutility generators, and regulatory assets and associated
liabilities related to the generation portion of WMECO's business.
Under the statute, if a distribution company claims that it is unable
to meet a price reduction of ten percent initially and 15 percent by
September 1, 1999, the distribution company may so state to the DTE
and the DTE is provided with the authority to "explore all possible
mechanisms and options within the limits of the constitution" to
achieve the mandated rate reductions. The statute indicates that
allowing a substitute company to provide standard offer service is one
option that can be considered by the DTE.
The costs of transitioning to competition will be mitigated through
several steps, including divesting WMECO's non-nuclear generating
assets at an auction to be held as soon as June 1998, and
securitization of approximately $500 million in strandable costs by
September 30, 1998. NU presently expects to participate, through a
competitive affiliate, in the competitive bid process for WMECO's
generation resources. Any net proceeds in excess of book value
received from the divestiture of these units will be used to mitigate
strandable costs. As required by the legislation, WMECO will continue
to operate and maintain its transmission and local distribution
network and deliver electricity to all customers.
As noted above, the legislation has authorized Massachusetts utilities
to finance a portion of the strandable costs through securitization,
using rate reduction bonds. A separate transition charge will be
collected over the life of the bonds to recover principal, interest
and issuance costs.
WMECO's ability to recover its strandable costs will depend on several
factors, which include, but are not limited to, continuous recovery of
the costs over the transitional period supported by the legislation,
the aggregate amount of strandable costs which the company will be
allowed to recover and the market price of electricity. Management
believes that the company will recover its strandable costs. However,
a change in one or more of these factors could affect the recovery of
strandable costs and may result in a loss to the company.
FERC Rate Proceedings: For information regarding the FERC rate
proceedings for CYAPC and MYAPC, see Note 2, "Nuclear
Decommissioning."
B. NUCLEAR PERFORMANCE
Millstone: The three Millstone units are managed by NNECO. Millstone
1, 2 and 3 have been out of service since November 4, 1995, February
21, 1996, and March 30, 1996, respectively, and are on the Nuclear
Regulatory Commission's (NRC) watch list. NU has restructured its
nuclear organization and is currently implementing comprehensive plans
to restart the units.
Subsequent to its January 31, 1996 announcement that Millstone had
been placed on its watch list, the NRC stated that the units cannot
return to service until independent, third-party verification teams
have reviewed the actions taken to improve the design, configuration
and employee concerns issues that prompted the NRC to place the units
on its watch list. The actual date of the return to service for each
of the units is dependent upon the completion of independent
inspections and reviews by the NRC and a vote by the NRC
commissioners. NU hopes to return Millstone 3 to service in the
early spring of 1998 and Millstone 2 three to four months after
Millstone 3. Millstone 1 is currently in extended maintenance
status.
In 1997, WMECO's share of nonfuel O&M costs expensed for Millstone
totaled $106 million, including $14 million reserved for future
restart costs.
Budgeted nuclear spending levels at Millstone for 1998 will be
reduced from 1997 levels, although they will be considerably higher
than before the station was placed on the NRC's watch list. The
actual level of 1998 spending will depend on when the units return to
operation and the cost of restoring them to service. The total cost
to restart the units cannot be precisely estimated at this time.
Management will continue to evaluate the costs to be incurred in 1998
to determine whether adjustments to the existing reserves are
required.
Management cannot predict when the NRC will allow any of the
Millstone units to return to service and thus cannot precisely
estimate the total replacement power costs WMECO will ultimately
incur. Replacement power costs incurred by WMECO attributable to the
Millstone outages averaged approximately $5 million per month during
1997, and for 1998 are projected to average approximately $2 million
per month for Millstone 3, $2 million per month for Millstone 2 and
$1 million per month for Millstone 1 while the plants remain out of
service. WMECO will continue to expense its replacement power costs
in 1998.
Based on the current estimates of expenditures and restart dates,
management believes the NU system has sufficient resources to fund
the restoration of the Millstone units and related replacement power
costs. If the return to service of Millstone 3 or 2 is delayed
substantially beyond the present restart estimates, if some financing
facilities become unavailable because of difficulties in meeting
borrowing conditions or renegotiating extensions, if CL&P and WMECO
encounter additional significant costs or if any other significant
deviations from management's assumptions occur, CL&P and WMECO could
be unable to meet their cash requirements. In those circumstances,
management would take even more stringent actions to reduce costs and
cash outflows and attempt to obtain additional sources of funds. The
availability of these funds would be dependent upon general market
conditions and CL&P's and WMECO's respective credit and financial
conditions at that time.
For information concerning the ability of WMECO to access its
borrowing facilities, see the MD&A.
Litigation: CL&P and WMECO, through NNECO as agent, operate
Millstone 3 at cost, and without profit, under a sharing agreement
that obligates them to utilize good utility operating practice and
requires the joint owners to share the risk of employee negligence and
other risks of operation and maintenance pro-rata in accordance with
their ownership shares. This agreement also provides that CL&P and
WMECO would be liable only for damages to the non-NU owners for a
deliberate violation of the agreement pursuant to authorized corporate
action.
On August 7, 1997, the non-NU owners of Millstone 3 filed demands for
arbitration with CL&P and WMECO as well as lawsuits in Massachusetts
Superior Court against NU and its current and former trustees. The
non-NU owners raise a number of contract, tort and statutory claims
arising out of the operation of Millstone 3. The arbitrations and
lawsuits seek to recover compensatory damages, punitive damages,
treble damages and attorneys' fees. Owners representing approximately
two-thirds of the non-NU interests in Millstone 3 claimed compensatory
damages in excess of $200 million. In addition, one of the lawsuits
seeks to restrain NU from disposing of its shares of the stock of
WMECO and HWP, pending the outcome of the lawsuit. Management cannot
estimate the potential outcome of these suits but believes there is no
legal basis for the claims and intends to defend against them
vigorously. To date, no reserves have been established for this
litigation. At December 31, 1997, the costs related to this
litigation for the NU system were estimated to be approximately $100
million for incremental O&M costs and approximately $100 million for
replacement power costs. These costs are likely to increase as long
as Millstone 3 remains out of service.
C. ENVIRONMENTAL MATTERS
The NU system is subject to regulation by federal, state and
local authorities with respect to air and water quality, the handling
and disposal of toxic substances and hazardous and solid wastes, and
the handling and use of chemical products. The NU system has an active
environmental auditing and training program and believes that it is in
substantial compliance with current environmental laws and
regulations. However, the NU system is subject to certain enforcement
actions and governmental investigations in the environmental area.
Management cannot predict the outcome of these enforcement acts and
investigations.
Environmental requirements could hinder the construction of new
generating units, transmission and distribution lines, substations,
and other facilities. Changing environmental requirements could also
require extensive and costly modifications to WMECO's existing
generating units, and transmission and distribution systems, and could
raise operating costs significantly. As a result, WMECO may incur
significant additional environmental costs, greater than amounts
included in cost of removal and other reserves, in connection with the
generation and transmission of electricity and the storage,
transportation and disposal of by-products and wastes. WMECO may also
encounter significantly increased costs to remedy the environmental
effects of prior waste handling activities. The cumulative long-term
cost impact of increasingly stringent environmental requirements
cannot be estimated accurately.
WMECO has recorded a liability based upon currently available
information for what it believes are its estimated environmental
remediation costs that it expects to incur for waste disposal sites.
In most cases, additional future environmental cleanup costs are not
reasonably estimable due to a number of factors, including the unknown
magnitude of possible contamination, the appropriate remediation
methods, the possible effects of future legislation or regulation and
the possible effects of technological changes. At December 31, 1997,
the net liability recorded by WMECO for its estimated environmental
remediation costs, excluding any possible insurance recoveries or
recoveries from third parties, amounted to approximately $1.6 million,
which management has determined to be the most probable amount within
the range of $1.6 million to $2.6 million.
During 1997, WMECO adopted Statement of Position 96-1,
"Environmental Remediation Liabilities" (SOP). The principal
objective of the SOP is to improve the manner in which existing
authoritative accounting literature is applied by entities to specific
situations of recognizing, measuring and disclosing environmental
remediation liabilities. The adoption of the SOP resulted in an
increase of approximately $370 thousand to WMECO's environmental
reserve in 1997.
WMECO cannot estimate the potential liability for future claims,
including environmental remediation costs, that may be brought against
it. However, considering known facts, existing laws and regulatory
practices, management does not believe the matters disclosed above
will have a material effect on WMECO's financial position or future
results of operations.
D. NUCLEAR INSURANCE CONTINGENCIES
Under certain circumstances, in the event of a nuclear incident at
one of the nuclear facilities in the country covered by the federal
government's third-party liability indemnification program, an owner
of a nuclear unit could be assessed in proportion to its ownership
interest in each of its nuclear units up to $75.5 million. Payments
of this assessment would be limited to $10.0 million in any one year
per nuclear incident based upon the owner's pro rata ownership
interest in each of its nuclear units. In addition, the owner would
be subject to an additional five percent or $3.8 million, in
proportion to its ownership interests in each of its nuclear units,
if the sum of all claims and costs from any one nuclear incident
exceeds the maximum amount of financial protection. Based upon its
ownership interests in Millstone 1, 2 and 3, WMECO's maximum
liability, including any additional assessments, would be $39.8
million per incident, of which payments would be limited to $5
million per year. In addition, through power purchase contracts
with MYAPC, VYNPC, and CYAPC, WMECO would be responsible for up to
an additional $11.9 million per incident, of which payments would be
limited to $1.5 million per year.
Insurance has been purchased to cover the primary cost of repair,
replacement or decontamination of utility property resulting from
insured occurrences. WMECO is subject to retroactive assessments if
losses exceed the accumulated funds available to the insurer. The
maximum potential assessment against WMECO with respect to losses
arising during the current policy year is approximately $2.7 million
under the primary property insurance program.
Insurance has been purchased to cover certain extra costs incurred in
obtaining replacement power during prolonged accidental outages and
the excess cost of repair, replacement, or decontamination or
premature decommissioning of utility property resulting from insured
occurrences. WMECO is subject to retroactive assessments if losses
exceed the accumulated funds available to the insurer. The maximum
potential assessments against WMECO with respect to losses arising
during current policy years are approximately $2.2 million under the
replacement power policies and $3.8 million under the excess property
damage, decontamination and decommissioning policies. The cost of a
nuclear incident could exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on an industry
basis for coverage of worker claims. All participating reactor
operators insured under this coverage are subject to retrospective
assessments of $3 million per reactor. The maximum potential
assessment against WMECO with respect to losses arising during the
current policy period is approximately $2.2 million. Effective
January 1, 1998, a new worker policy was purchased which is not
subject to retrospective assessments.
E. CONSTRUCTION PROGRAM
The construction program is subject to periodic review and
revision by management. WMECO currently forecasts construction
expenditures of approximately $185 million for the years 1998-2002,
including $27 million for 1998. In addition, WMECO estimates that
nuclear fuel requirements, including nuclear fuel financed through the
NBFT, will be approximately $56.4 million for the years 1998-2002,
including $8.4 million for 1998. See Note 8, "Leases" for additional
information about the financing of nuclear fuel.
F. LONG-TERM CONTRACTUAL ARRANGEMENTS
Yankee Companies: The NU system companies rely on VY for
approximately 1.7 percent of their capacity under long-term contracts.
Under the terms of their agreements, the NU system companies pay their
ownership (or entitlement) shares of costs, which include
depreciation, O&M expenses, taxes, the estimated cost of
decommissioning and a return on invested capital. These costs are
recorded as purchased power expense and are recovered through the
companies' rates. WMECO's total cost of purchases under contracts
with VYNPC amounted to $3.9 million in 1997, $4.1 million in 1996 and
1995.
The other Yankee generating facilities, MY, CY and Yankee Rowe, were
permanently shut down as of August 6, 1997, December 4, 1996 and
February 26, 1992, respectively. See Note 1E, "Summary of Significant
Accounting Policies--Investments and Jointly Owned Electric Utility
Plant," for further information on the Yankee companies, and Note 2,
"Nuclear Decommissioning," regarding the related decommissioning
obligations.
Nonutility Generators: WMECO has entered into various arrangements
for the purchase of capacity and energy from nonutility generators
(NUGs). These arrangements have terms from 15 to 25 years, currently
expiring in the years 2008 through 2013, and requires WMECO to
purchase energy at specified prices or formula rates. For the 12
months ending December 31, 1997, approximately 14 percent of NU system
electricity requirements were met by NUGs. WMECO's total cost of
purchases under these arrangements amounted to $31.2 million in 1997,
$29.5 million in 1996, and $28.6 million in 1995. These costs may be
deferred for eventual recovery through rates.
Hydro-Quebec: Along with other New England utilities, WMECO, CL&P,
PSNH and HWP have entered into agreements to support transmission and
terminal facilities to import electricity from the Hydro-Quebec system
in Canada. WMECO is obligated to pay, over a 30-year period ending in
2020, its proportionate share of the annual O&M and capital costs of
these facilities.
Estimated Annual Costs: The estimated annual costs of WMECO's
significant long-term contractual arrangements are as follows:
1998 1999 2000 2001 2002
(Millions of Dollars)
VYNPC ....................... $ 4.9 $ 4.9 $ 4.8 $ 5.2 $ 5.4
NUGs ........................ 35.1 36.8 39.5 41.6 43.8
Hydro-Quebec ................ 3.8 3.6 3.6 3.5 3.4
For additional information regarding the recovery of purchased
power costs, see Note 1J, "Summary of Significant Accounting Policies
- Recoverable Energy Costs."
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each of the following financial instruments:
Cash and nuclear decommissioning trusts: The carrying amounts approximate
fair value.
SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires investments in debt and equity securities to be
presented at fair value. As a result of this requirement, the investments
held in WMECO's nuclear decommissioning trust were adjusted to market by
approximately $17.9 million as of December 31, 1997, and $8.4 million as of
December 31, 1996, with a corresponding offset to the accumulated provision
for depreciation. The amounts adjusted in 1997 and 1996 represent
cumulative gross unrealized holding gains. The cumulative gross unrealized
holding losses were immaterial for both 1997 and 1996.
Preferred stock and long-term debt: The fair value of WMECO's fixed-rate
securities is based upon the quoted market price for those issues or
similar issues. Adjustable rate securities are assumed to have a fair
value equal to their carrying value.
The carrying amount of WMECO's financial instruments and the estimated fair
values are as follows:
Carrying Fair
At December 31, 1997 Amount Value
(Thousands of Dollars)
Preferred stock not subject to
mandatory redemption........................... $ 20,000 $ 16,252
Preferred stock subject to
mandatory redemption............................ 21,000 20,580
Long-term debt - First Mortgage Bonds............ 304,800 302,627
Other long-term debt............................. 92,845 92,845
Carrying Fair
At December 31, 1996 Amount Value
(Thousands of Dollars)
Preferred stock not subject to
mandatory redemption........................... $ 20,000 $ 15,200
Preferred stock subject to
mandatory redemption............................ 21,000 18,404
Long-term debt - First Mortgage Bonds............ 259,500 260,440
Other long-term debt............................. 90,855 90,855
The fair values shown above have been reported to meet the disclosure
requirements and do not purport to represent the amounts at which those
obligations would be settled.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of Western Massachusetts Electric Company:
We have audited the accompanying consolidated balance sheets of Western
Massachusetts Electric Company (a Massachusetts corporation and a wholly owned
subsidiary of Northeast Utilities) and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, common stockholder's
equity and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Western Massachusetts
Electric Company and subsidiary as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 20, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section contains management's assessment of WMECO's (the company) financial
condition and the principal factors having an impact on the results of
operations. The company is a wholly-owned subsidiary of Northeast Utilities
(NU). This discussion should be read in conjunction with the company's
consolidated financial statements and footnotes.
FINANCIAL CONDITION
OVERVIEW
The length of the ongoing outages at the three Millstone nuclear plants
(Millstone) and the high costs of the recovery efforts weakened WMECO's 1997 net
income, balance sheet and cash flows and will continue to have an adverse impact
on the company's financial condition until the units are returned to service.
WMECO had a net loss of approximately $29 million in 1997, compared to net
income of approximately $4 million in 1996. The poorer financial results in
1997 were due primarily to the fact that all three Millstone units were off line
for the entire year in 1997 and spending associated with the recovery efforts
was significantly higher in 1997 than it was in 1996. Millstone 3 operated for
nearly three months in 1996 and Millstone 2 for nearly two months. As a result,
the cost of replacing power ordinarily generated by the Millstone units rose by
approximately $15 million in 1997. The total operation and maintenance (O&M)
costs at Millstone were approximately $30 million higher in 1997.
The higher Millstone costs have caused WMECO to focus closely on maintaining
adequate liquidity and reducing non nuclear O&M costs. In July 1997, WMECO
successfully sold $60 million of first mortgage bonds. WMECO's access to $90
million of revolving credit lines was renegotiated in the first half of 1997.
Also helping to maintain liquidity was the renegotiation in early 1998 of a $100
million credit line used by Niantic Bay Fuel Trust (NBFT) to purchase nuclear
fuel for Millstone. Additionally, non nuclear O&M expenses in 1997 were reduced
by about $5 million from 1996. Tight cost controls will continue to be
essential in 1998 to WMECO's efforts to meet the financial covenants contained
in the $313.75 million revolving credit arrangement available to WMECO and The
Connecticut Light and Power Company (CL&P).
In 1998, management expects Millstone-related expenses to fall significantly,
assuming Millstone 3 and Millstone 2 are returned to service at dates close to
current estimates, although the O&M expenses at Millstone 3 and 2 will be
considerably higher than before the station was placed on the Nuclear Regulatory
Commission's (NRC's) watch list. The actual level of 1998 nuclear spending at
Millstone will depend on when the units return to operation and the cost of
restoring them to service. The company hopes to restart Millstone 3, the newest
and largest unit at the site, in early spring of 1998 and Millstone 2 three to
four months after Millstone 3. The company cannot restart the Millstone units
until it receives formal approval from the NRC. As part of an effort to reduce
spending in 1998, Millstone 1 has been placed in extended maintenance status.
Management will review its options with respect to Millstone 1 in 1998,
including restart, early retirement and other options.
Rate reductions to customers served by the company are likely to offset a
portion of the benefit of lower Millstone-related costs. On March 1, 1998,
WMECO reduced retail rates by 10 percent in compliance with industry
restructuring legislation passed in November 1997 by the Massachusetts
Legislature.
The 1997 Massachusetts legislation allowed full retail choice on March 1, 1998.
WMECO expects to recover fully its stranded costs through a combination of
securitization and divestiture of its non-nuclear generating assets.
MILLSTONE
OUTAGES
WMECO has a 19-percent ownership interest in Millstone units 1 and 2 and a
12.24-percent ownership interest in Millstone unit 3. Millstone 1, 2 and 3 have
been out of service since November 4, 1995, February 21, 1996, and March 30,
1996, respectively.
Subsequent to its January 31, 1996, announcement that Millstone had been placed
on its watch list, the NRC has stated that the units cannot return to service
until independent, third-party verification teams have reviewed the actions
taken to improve the design, configuration and employee concern issues that
prompted the NRC to place the units on its watch list. The actual date of the
return to service for each of the units is dependent upon the completion of
independent inspections, reviews by the NRC and a vote by the NRC Commissioners.
In January 1998, NU declared Millstone 3 physically ready for restart, which
meant that almost all of the restart-required physical work had been completed
in the plant. The NRC currently is conducting a series of inspections to
determine, among other things, whether the plant has effective leadership and
corrective action and employee concerns programs. The Independent Corrective
Action Verification Program, an NRC-ordered independent review of the plant's
design and licensing bases, is expected to be completed in March 1998.
In 1997, WMECO's share of nonfuel O&M costs expensed for Millstone totaled
approximately $106 million, including $14 million reserved for future restart
costs. The 1997 costs are net of $12 million of costs which were reserved in
1996. In 1996, WMECO'S share of nonfuel O&M costs expensed for Millstone
totaled approximately $76 million, including $12 million reserved for future
restart costs. Management will continue to evaluate the costs to be incurred in
1998 to determine whether adjustments to the existing reserves are required.
Replacement power costs attributable to the Millstone outages totaled
approximately $56 million in 1997 compared to $41 million expensed in 1996.
These costs for 1998 are forecasted to average approximately $2 million per
month for Millstone 3, $2 million per month for Millstone 2 and $1 million per
month for Millstone 1 while the plants are out of service.
The company has been, and will continue to be, expensing all of the costs to
restart the units including replacement power and nonfuel O&M expenses.
NU and its subsidiaries are involved in several class action lawsuits and other
litigation in connection with their nuclear operations. See the "Notes to
Consolidated Financial Statements," Note 11B, for further information on this
litigation.
MILLSTONE 1
Management will review its options with respect to Millstone 1 during 1998. The
issues that management will consider in evaluating its options include the costs
to restart the unit and the economic benefits of the unit's continued operation.
CAPACITY
During 1996 and continuing into 1997, WMECO took measures to improve its
capacity position, including obtaining additional generating capacity, improving
the availability of the company's generating units and improving the company
transmission capability. During 1997, WMECO spent approximately $10 million to
ensure availability of adequate generating generating capacityin Connecticut,
of which $6 million was expensed. During 1998 these costs are expected to be
approximately $11 million.(DO WE WANT TO SAY WHY 1998 IS SO MUCH LOIn 1998,
WMECO does not anticipate the need to take additional measures to ensure
adequate generating capacity.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $41 million in 1997,
compared to 1996, primarily due to higher cash expenditures related to the
Millstone outages, and the pay down in 1997 of the 1996 year end accounts
payable balance. The 1996 year end accounts payable balance was relatively high
due to costs related to a severe December storm and costs associated with the
Millstone outages that had been incurred but not yet paid by the end of 1996.
Net cash from financing activities increased approximately $44 million,
primarily due to the issuance of long-term debt in 1997 and lower reacquisitions
and retirements of long-term debt and preferred stock, partially offset by the
repayment of short-term debt.
WMECO established facilities in 1996 under which they may sell, from time to
time, up to $40 million, of its accounts receivable and accrued utility
revenues. As of December 31, 1997, WMECO sold approximately $20 million of
receivables to third-party purchasers.
NU's, WMECO's and CL&P's three-year revolving credit agreement (Credit
Agreement) was amended in May 1997 (the Credit Agreement). Under the Revolving
Credit Agreement, CL&P and WMECO are able to borrow up to approximately $225
million and $90 million, respectively, subject to a total borrowing limit of
$313.75 million for all three borrowers. NU will be able to borrow up to $50
million when NU, CL&P and WMECO have each maintained a consolidated operating
income to consolidated interest expense ratio of at least 2.50 to 1 for two
consecutive fiscal quarters. Currently, the companies cannot meet this
requirement. At December 31, 1997, WMECO had $15 million outstanding under the
New Credit Agreement.
Each major subsidiary of NU finances its own needs. Neither CL&P nor WMECO has
any financing agreements containing cross defaults based on financial defaults
by NU, Public Service Company of New Hampshire (PSNH) or North Atlantic Energy
Corporation (NAEC). Nevertheless, it is possible that investors will take
negative operating results or regulatory developments for one subsidiary of NU
into account when evaluating the other NU subsidiaries. That could, as a
practical matter and despite the contractual and legal separations among NU and
its subsidiaries, negatively affect the company's access to financial markets.
In December 1997 and January 1998, Moody's Investors Service (Moody's) and
Standard & Poor's (S&P), respectively, downgraded the senior secured debt of
CL&P, WMECO and NU, as well as the preferred stock of CL&P and WMECO. This was
the fourth time Moody's and S&P have downgraded CL&P and WMECO securities since
the Millstone units went on the NRC watch list in 1996. All of the NU system's
securities are rated below investment grade and remain under review for further
downgrade. Although WMECO does not have any plans to issue debt in the near
term, rating agency downgrades generally increase the future cost of borrowing
funds because lenders will want to be compensated for increased risk.
Additionally, this could also affect the terms and ability of the company to
extend existing agreements.
The downgrade by Moody's of WMECO's first mortgage bonds to Ba2 in December 1997
brought those ratings to a level at which the sponsor of WMECO's accounts
receivable program can take various actions, in its discretion, which would have
the practical effect of limiting WMECO's ability to utilize the facility. The
WMECO accounts receivable program could be terminated if WMECO's first mortgage
bond credit ratings experience one more level of downgrade.
WMECO's ability to borrow under the financing arrangements is dependent on the
satisfaction of contractual borrowing conditions. The financial covenants that
must be satisfied to permit WMECO to borrow under the New Credit Agreement are
particularly restrictive and become more restrictive throughout 1998. Spending
levels in 1998, particularly for the first half of the year while the Millstone
units are expected to be out of service, have been, and will be constrained to
levels intended to assure that the financial covenants in WMECO's Credit
Agreement are satisfied. However, there is no assurance that these financial
covenants will be met as the system may encounter additional unexpected costs
from such areas as storms, reduced revenues from regulatory actions or the
effect of weather on sales levels.
If the return to service of Millstone 3 or Millstone 2 is delayed substantially
beyond the present restart estimates, if some borrowing facilities become
unavailable because of difficulties in meeting borrowing conditions or
renegotiating extensions, if the system encounters additional significant costs,
or any other significant deviations from management's current assumptions, the
currently available borrowing facilities could be insufficient to meet all of
WMECO's cash requirements. In those circumstances, management would take even
more stringent actions to reduce costs and cash outflows and would attempt to
take other actions to obtain additional sources of funds. The availability of
these funds would be dependent upon the general market conditions and WMECO's
credit and financial condition at that time.
RESTRUCTURING
On November 25, 1997, Massachusetts enacted a comprehensive electric utility
industry restructuring bill. The bill provides that each Massachusetts electric
company, including WMECO, will decrease its rates by 10 percent and allow all
its customers to choose their retail electric supplier on March 1, 1998. The
statute requires a further 5 percent rate reduction, adjusted for inflation, by
September 1, 1999.
In addition, the legislation provides, among other things, for: (i) recovery of
stranded costs through a "transition charge" to customers, subject to review by
the Department of Telecommunications and Energy (DTE), formerly the Department
of Public Utilities (DPU, collectively the DTE), (ii) a possible limitation on
WMECO's return on equity should its transition cost charge go above a certain
level, (iii) securitization of allowed strandable costs, and (iv) divestiture of
nonnuclear generation. WMECO hopes it will be able to complete securitization in
1998.
The statute also provides that an electric company must transfer or separate
ownership of generation, transmission and distribution facilities into
independent affiliates or functionally separate such facilities within 30
business days after federal approval. Additionally, marketing companies formed
by an electric company are to be separate from the electric company and separate
from generation, transmission or distribution affiliates.
Under the statute, if a distribution company claims that it is unable to
meet a price reduction of 10% initially and 15% by September 1, 1999, the
distribution company may so state to the DTE and the DTE is provided with the
authority to "explore all possible mechanisms and options within the limits of
the constitution" to achieve the mandated rate reductions." The statute
indicates that allowing a substitute company to provide standard offer service
is one option that can be considered by the DTE.
On December 31, 1997, WMECO filed its restructuring plan with the DTE
consistent with the Massachusetts restructuring legislation. The plan sets out
the process by which WMECO, as of March 1, 1998, initiated a 10 percent rate
reduction for all customer rate classes and allowed customers to choose their
energy supplier. WMECO intends to mitigate its strandable costs through several
steps, including divesting WMECO's nonnuclear generating plants at an auction to
be held as soon as June 30, 1998, and securitization of approximately $500
million of stranded costs. NU intends to participate through a nonregulated
affiliate in the competitive bid process for WMECO's generation resources. Any
proceeds in excess of book value received from the divestiture of these units
will be used to mitigate stranded costs. As required by the legislation, WMECO
will continue to operate and maintain the transmission and local distribution
network and deliver electricity to all customers. On February 20, 1998, the DTE
issued an order approving, in all material respects, WMECO's restructuring plan
on an interim basis. A final decision is expected in 1998.
Because WMECO is obligated to reduce rates on March 1, 1998, before the means of
financing for restructuring are completed, WMECO's cash flows and financial
condition will be negatively affected. These impacts would become significant if
there are material delays in, or significantly reduced proceeds from, the
divestiture of nonnuclear generation and securitization.
RATE MATTERS
In April, 1996, the DTE approved a settlement (the Agreement) that included the
continuation through February 1998 of a 2.4 percent rate reduction instituted in
June 1994. Additionally, the Agreement terminated certain pending and potential
reviews of WMECO's generating plant performance and accelerated its amortization
of strandable generation assets by approximately $6 million in 1996 and $10
million in 1997.
On August 20, 1997, WMECO filed with the DTE a joint motion for approval of a
settlement agreement with the Massachusetts Attorney General for a fuel
adjustment clause (FAC) which would allow for a lower rate to WMECO customers
for the billing months of September 1997 through February 1998. WMECO is not
recovering replacement power costs during this period and has indicated that it
would not seek recovery of any of replacement power costs associated with the
Millstone outages. WMECO has been expensing and will continue to expense these
costs. The Massachusetts restructuring legislation effectively eliminates the
FAC, effective March 1, 1998.
NUCLEAR DECOMMISSIONING
CONNECTICUT YANKEE
WMECO has a 9.5 percent ownership interest in the Connecticut Yankee nuclear
generating facility (CY or the plant). On December 4, 1996, the Board of
Directors of Connecticut Yankee Atomic Power Company voted unanimously to cease
permanently the production of power at the plant. The decision to retire CY from
commercial operation was based on an economic analysis of the costs of operating
it compared to the costs of closing it and incurring replacement power costs
over the remaining period of the plant's operating license, which would have
expired in 2007. The economic analysis showed that closing the plant and
incurring replacement power costs produced substantial savings.
CY has undertaken a number of regulatory filings intended to implement the
decommissioning. In late December 1996, CY filed an amendment to its power
contracts with the FERC to clarify the obligations of its purchasing utilities
following the decision to cease power production. At December 31, 1997, WMECO's
share of these obligations was approximately $59 million, including the cost of
decommissioning and the recovery of existing assets. Management expects that the
company will continue to be allowed to recover such FERC approved costs from its
customers. Accordingly, WMECO has recognized its share of the estimated costs
as a regulatory asset, with a corresponding obligation, on its balance sheets.
MAINE YANKEE (MY)
WMECO has a 3 percent ownership interest in the Maine Yankee (MY) nuclear
generating facility. On August 6, 1997, the Board of Directors of Maine Yankee
Atomic Power Company (MYAPC) voted unanimously to retire MY. On January 14,
1998, FERC released a draft order on the MYAPC application to amend its power
contracts with the owner/purchasers and revise its decommissioning and other
charges. FERC has accepted the proposed application for filing and made the
amendments and the proposed charges under the contracts effective on January 15,
1998, subject to refund after hearings. At December 31, 1997, WMECO'S share of
the estimated remaining obligation, including decommissioning, amounted to
approximately $26 million. Under the terms of the contracts with MYAPC, the
shareholders' sponsor companies, including WMECO, are responsible for their
proportionate share of the costs of the unit, including decommissioning.
Management expects that WMECO will be allowed to recover these costs from its
customers. Accordingly, WMECO has recognized these costs as a regulatory asset,
with a corresponding obligation on its balance sheet.
MILLSTONE
WMECO's estimated cost to decommission its share of the Millstone plants is
approximately $242 million in year end 1997 dollars. These costs are being
recognized over the lives of the respective units with a portion being currently
recovered through rates. As of December 31, 1997, the market value of the
contributions already made to the decommissioning trusts, including their
investment returns, was approximately $103 million. See the "Notes to
Consolidated Financial Statements," Note 2, for further information on nuclear
decommissioning.
ENVIRONMENTAL MATTERS
WMECO is potentially liable for environmental cleanup costs at a number of sites
inside and outside its service territory. To date, the future estimated
environmental remediation liability has not been material with respect to the
earnings or financial position of WMECO. At December 31, 1997, WMECO had
recorded an environmental reserve of approximately $1.4 million. See the "Notes
to Consolidated Financial Statements," Note 11C, for further information on
environmental matters.
YEAR 2000 ISSUE
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the change of the
century occurs, date-sensitive systems may recognize the year 2000 as 1900, or
not recognize it at all. This inability to recognize or properly treat the year
2000 may cause NU's systems to process critical financial and operational
information incorrectly. The NU system has assessed and continues to assess the
impact of the Year 2000 issue on its operating and reporting systems. The
assessment of the nuclear operating systems is continuing and is expected to be
completed in the summer of 1998.
The NU System will utilize both internal and external resources to reprogram or
replace, and test the software for Year 2000 modifications. The total estimated
remaining cost of the Year 2000 project for the NU system is $37 million and is
being funded through operating cash flows. This estimate does not include any
costs for the replacement or repair of equipment or devices that may be
identified during the assessment process. The majority of these costs will be
expensed as incurred over the next two years. To date, the NU system has
incurred and expensed approximately $4 million related to the assessment of and
preliminary efforts in connection with its Year 2000 project.
The costs of the project and the date on which the NU system 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 plan is not successful, there could be a significant
disruption of the company's operations.
RESULTS OF OPERATIONS
Income Statement Variances
Millions of Dollars
1997 over/(under) 1996 1996 over/(under) 1995
Amount Percent Amount Percent
Operating revenues $ 5 1% $ 1 - %
Fuel, purchased and net
interchange power 25 22 29 33
Other operation 7 5 6 4
Maintenance 25 45 19 50
Amortization of regulatory
assets, net (3) (30) (10) (53)
Federal and state
income taxes (22) (a) (9) (64)
Other income, net (2) (a) - -
Interest on long-term debt 2 8 (3) (10)
Net income (33) (a) (35) (90)
(a) Percentage greater than 100
OPERATING REVENUES
Total operating revenues increased in 1997, primarily due to higher transmission
and capacity revenues and higher retail revenues. Retail revenues were higher
due to lower price discounts to customers, partially offset by lower retail
sales. Retail kilowatt-hour sales were 1 percent lower in 1997 primarily as a
result of mild winter weather.
Total operating revenues increased in 1996, primarily due to higher retail
sales, partially offset by lower fuel and conservation recoveries. Retail
kilowatt-hour sales increased 2.7 percent ($9 million) primarily due to modest
economic growth in 1996. Fuel recoveries decreased $6 million, primarily due to
the timing of the recovery of costs under the company's fuel clause.
Conservation recoveries decreased approximately $6 million primarily due to
lower demand side management costs.
FUEL, PURCHASED AND NET INTERCHANGE POWER
Fuel, purchased and net interchange power expense increased in 1997, primarily
due to replacement power costs associated with the Millstone outages.
Fuel, purchased and net interchange power expense increased in 1996, primarily
due to higher replacement power associated with the Millstone outages, partially
offset by the timing of the recognition of costs under the company's fuel clause
and lower nuclear generation.
OTHER OPERATION AND MAINTENANCE
Other operation and maintenance expenses increased in 1997, primarily due to
higher costs associated with the Millstone restart effort ($30 million,
including a net increase of $2 million in reserves for future costs), higher
capacity charges from Maine Yankee ($2 million) and higher costs to ensure
adequate capacity ($6 million), partially offset by lower capacity charges from
Connecticut Yankee as a result of a property tax refund ($4 million) and lower
administrative and general expenses ($5 million) primarily due to lower pensions
and benefit costs.
Other operation and maintenance expenses increased in 1996, primarily due to
higher costs associated with the Millstone restart effort ($33 million,
including $12 million of reserves for future costs), partially offset by lower
costs for demand side management programs and a 1995 work stoppage.
AMORTIZATION OF REGULATORY ASSETS, NET
Amortization of regulatory assets, net decreased in 1997, primarily due to the
completion of the amortization of the Millstone 3 unuseful investment in 1996.
Amortization of regulatory assets, net decreased in 1996, primarily due to the
completion of the amortization of the Millstone 3 phase-in plans in 1995 and
unuseful investment in June, 1996, partially offset by higher amortization as a
result of the 1996 rate settlement.
FEDERAL AND STATE INCOME TAXES
Federal and state income taxes decreased in 1997, primarily due to lower book
taxable income.
Federal and state income taxes decreased in 1996, primarily due to lower book
taxable income, partially offset by 1995 tax benefits from a favorable tax
ruling and the expiration of the 1991 federal statute of limitations.
OTHER INCOME, NET
Other income, net decreased in 1997, primarily due to costs associated with the
accounts receivable facility.
INTEREST ON LONG-TERM DEBT
Interest on long-term debt increased in 1997 due to the issuance of additional
long-term debt. Interest on long-term debt decreased in 1996, primarily due to
lower average interest rates as a result of refinancing activities and lower
average 1996 debt levels.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (a) 1997 1996 1995 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Operating Revenues......... $ 426,447 $ 421,337 $ 420,434 $ 421,477 $ 415,055
Operating (Loss) Income.... (965) 26,023 63,064 70,940 60,348
Net (Loss) Income.......... (28,676) 3,922 39,133 49,457 40,594(b)
Cash Dividends on
Common Stock............. 15,004 16,494 30,223 29,514 28,785
Total Assets............... 1,179,128 1,191,915 1,142,346 1,183,618 1,204,642
Long-Term Debt (c)......... 396,649 349,442 347,470 379,969 393,232
Preferred Stock Not
Subject to Mandatory
Redemption............... 20,000 20,000 53,500 68,500 73,500
Preferred Stock Subject
to Mandatory
Redemption(c)............ 21,000 21,000 24,000 24,675 27,000
Obligations Under
Capital Leases(c)........ 32,887 32,234 36,011 36,797 36,902
</TABLE>
(a) Reclassifications of prior data have been made to conform with the current
presentation.
(b)Includes the cumulative effect of change in accounting for municipal
property tax expense, which increased earnings for common shares by $3.9
million.
(c) Includes portion due within one year.
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
Quarter Ended (a)
1997 March 31 June 30 Sept. 30 Dec. 31
Operating Revenues.............. $106,054 $104,130 $111,166 $105,097
Operating Income (Loss)......... $ 3,865 $ (8,160) $ (2,277) $ 5,607
Net Income (Loss)............... $ (1,843) $(14,858) $ (9,455) $ (2,520)
1996
Operating Revenues.............. $114,797 $102,602 $ 99,866 $104,072
Operating Income (Loss)......... $ 13,692 $ 9,377 $ 4,327 $ (1,373)
Net Income (Loss)............... $ 8,109 $ 4,016 $ (396) $ (7,807)
STATISTICS
Gross Electric Average
Utility Plant Annual
December 31, Use Per Electric
(Thousands kWh Sales Residential Customers Employees
of Dollars) (Millions) Customer (kWh) (Average) (December 31)
1997 $1,334,233 4,300 7,121 195,324 507
1996 1,303,361 4,626 7,335 194,705 497
1995 1,285,269 4,846 7,105* 193,964 527
1994 1,271,513 4,978 7,433 193,187 617
1993 1,242,927 4,715 7,351 192,542 657
*Effective January 1, 1996, the amounts shown reflect billed and unbilled
sales. 1995 has been restated to reflect this change.
1997 Annual Report
Public Service Company of New Hampshire
Index
Contents Page
Balance Sheets.......................................................... 2
Statements of Income.................................................... 4
Statements of Cash Flows................................................ 5
Statements of Common Stockholder's Equity............................... 6
Notes to Financial Statements........................................... 7
Report of Independent Public Accountants................................ 40
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 42
Selected Financial Data................................................. 50
Statistics.............................................................. 52
Statements of Quarterly Financial Data.................................. 52
Preferred Stockholder and Bondholder Information.....................Back Cover
PART I. FINANCIAL INFORMATION
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric (Note 1H, Note 2).............................. $ 1,898,319 $ 1,877,955
Less: Accumulated provision for depreciation......... 590,056 552,780
------------- -------------
1,308,263 1,325,175
Unamortized acquisition costs (Note 1J)................. 402,285 491,709
Construction work in progress........................... 10,716 11,032
Nuclear fuel, net....................................... 1,308 1,313
------------- -------------
Total net utility plant............................. 1,722,572 1,829,229
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 4,332 3,229
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 19,169 19,578
Other, at cost.......................................... 3,773 1,835
------------- -------------
27,274 24,642
------------- -------------
Current Assets:
Cash and cash equivalents............................... 94,459 1,015
Notes receivable from affiliated companies.............. - 18,250
Receivables, less accumulated provision for
uncollectible accounts of $1,702,000 in 1997
and of $1,700,000 in 1996............................. 89,338 105,381
Accounts receivable from affiliated companies........... 38,520 32,452
Accrued utility revenues................................ 36,885 36,317
Fuel, materials, and supplies, at average cost.......... 40,161 44,852
Recoverable energy costs net--current portion........... 31,886 -
Prepayments and other................................... 11,271 24,629
------------- -------------
342,520 262,896
------------- -------------
Deferred Charges:
Regulatory assets (Note 1H)............................. 695,418 684,504
Deferred receivable from affiliated company (Note 10G).. 32,472 33,284
Unamortized debt expense................................ 11,749 12,731
Other................................................... 5,154 3,926
------------- -------------
744,793 734,445
------------- -------------
Total Assets........................................ $ 2,837,159 $ 2,851,212
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------
(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................................ 423,713 423,058
Retained earnings....................................... 170,188 174,691
------------- -------------
Total common stockholder's equity.............. 593,902 597,750
Preferred stock subject to mandatory redemption......... 75,000 100,000
Long-term debt.......................................... 516,485 686,485
------------- -------------
Total capitalization........................... 1,185,387 1,384,235
------------- -------------
Obligations Under Seabrook Power Contracts
and Other Capital Leases (Note 2 and Note 3)............. 799,450 871,707
------------- -------------
Current Liabilities:
Long-term debt and preferred stock--current portion..... 195,000 25,000
Obligations under Seabrook Power Contracts and other
capital leases--current portion........................ 122,363 42,910
Accounts payable........................................ 21,231 37,675
Accounts payable to affiliated companies................ 32,677 31,130
Accrued taxes........................................... 69,445 81
Accrued interest........................................ 7,197 7,992
Accrued pension benefits................................ 46,061 44,790
Other................................................... 9,917 37,516
------------- -------------
503,891 227,094
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 204,219 258,317
Accumulated deferred investment tax credits............. 3,972 4,511
Deferred contractual obligations (Note 4)............... 83,042 50,271
Deferred revenue from affiliated company................ 32,472 33,284
Other................................................... 24,726 21,793
------------- -------------
348,431 368,176
------------- -------------
Commitments and Contingencies (Note 10)
------------- -------------
Total Capitalization and Liabilities........... $ 2,837,159 $ 2,851,212
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues................................. $1,108,459 $1,110,169 $ 979,971
----------- ----------- ----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power..... 326,745 356,679 257,008
Other......................................... 367,963 327,237 313,604
Maintenance...................................... 38,320 45,728 42,244
Depreciation..................................... 44,377 42,983 44,337
Amortization of regulatory assets, net........... 56,557 56,884 55,547
Federal and state income taxes (Note 9).......... 86,600 80,340 69,817
Taxes other than income taxes.................... 43,623 45,123 41,786
----------- ----------- ----------
Total operating expenses................... 964,185 954,974 824,343
----------- ----------- ----------
Operating Income................................... 144,274 155,195 155,628
----------- ----------- ----------
Other Income:
Equity in earnings of regional nuclear
generating companies and subsidary company..... 1,373 2,075 1,645
Other, net....................................... 698 8,075 3,162
Income taxes..................................... (2,391) (7,723) (770)
----------- ----------- ----------
Other (loss)/income, net................... (320) 2,427 4,037
----------- ----------- ----------
Income before interest charges............. 143,954 157,622 159,665
----------- ----------- ----------
Interest Charges:
Interest on long-term debt....................... 51,259 57,557 76,320
Other interest................................... 273 3,163 90
----------- ----------- ----------
Interest charges, net...................... 51,532 60,720 76,410
----------- ----------- ----------
Net Income......................................... $ 92,422 $ 96,902 $ 83,255
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities:
Net Income.................................................. $ 92,422 $ 96,902 $ 83,255
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 44,377 42,983 44,337
Deferred income taxes and investment tax credits, net..... 21,795 94,646 69,986
Recoverable energy costs, net of amortization............. (12,336) 31,663 (15,266)
Amortization of acquisition costs......................... 56,557 56,884 55,547
Deferred Seabrook capital costs (Note 1K)................. (8,376) - -
Other sources of cash..................................... 51,054 65,922 15,973
Other uses of cash........................................ (67,590) (51,188) -
Changes in working capital:
Receivables and accrued utility revenues.................. 9,407 (36,907) (10,506)
Fuel, materials and supplies.............................. 4,691 (3,135) (4,264)
Accounts payable.......................................... (14,897) (7,714) 2,375
Accrued taxes............................................. 69,364 (717) (3,506)
Other working capital (excludes cash)..................... (13,765) (12,659) 16
----------- ----------- -----------
Net cash flows from operating activities...................... 232,703 276,680 237,947
----------- ----------- -----------
Financing Activities:
Reacquisitions and retirements of long-term debt............ - (172,500) (141,000)
Reacquisitions and retirements of preferred stock........... (25,000) - -
Cash dividends on preferred stock........................... (11,925) (13,250) (13,250)
Cash dividends on common stock.............................. (85,000) (52,000) (52,000)
----------- ----------- -----------
Net cash flows used for financing activities.................. (121,925) (237,750) (206,250)
----------- ----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (33,570) (37,480) (46,672)
Nuclear fuel.............................................. 5 129 (184)
----------- ----------- -----------
Net cash flows used for investments in plant................ (33,565) (37,351) (46,856)
NU System Money Pool........................................ 18,250 850 15,900
Investment in nuclear decommissioning trusts................ (490) (521) (489)
Other investment activities, net............................ (1,529) (1,010) (431)
----------- ----------- -----------
Net cash flows used for investments........................... (17,334) (38,032) (31,876)
----------- ----------- -----------
Net Increase/(Decrease) in Cash For The Period................ 93,444 898 (179)
Cash and cash equivalents - beginning of period............... 1,015 117 296
----------- ----------- -----------
Cash and cash equivalents - end of period..................... $ 94,459 $ 1,015 $ 117
=========== =========== ===========
Supplemental Cash Flow Information:
Cash paid/(refunded) during the year for:
Interest, net of amounts capitalized........................ $ 51,775 $ 58,835 $ 74,543
=========== =========== ===========
Income taxes................................................ $ 10,612 $ (457) $ 1,369
=========== =========== ===========
Increase in obligations:
Seabrook Power Contracts and other capital leases........... $ 6,197 $ 93 $ 28,028
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Capital
Common Surplus, Retained
Stock Paid In Earnings Total
- ---------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Balance at January 1, 1995............... $ 1 $421,784 $125,034 $546,819
Net income for 1995.................. 83,255 83,255
Cash dividends on preferred stock.... (13,250) (13,250)
Cash dividends on common stock....... (52,000) (52,000)
Capital stock expenses, net.......... 601 601
-------- --------- --------- ---------
Balance at December 31, 1995............. 1 422,385 143,039 565,425
Net income for 1996.................. 96,902 96,902
Cash dividends on preferred stock.... (13,250) (13,250)
Cash dividends on common stock....... (52,000) (52,000)
Capital stock expenses, net.......... 673 673
-------- --------- --------- ---------
Balance at December 31, 1996............. 1 423,058 174,691 597,750
Net income for 1997.................. 92,422 92,422
Cash dividends on preferred stock.... (11,925) (11,925)
Cash dividends on common stock....... (85,000) (85,000)
Capital stock expenses, net.......... 655 655
-------- --------- --------- ---------
Balance at December 31, 1997............. $ 1 $423,713 $170,188 $593,902
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Public Service Company of New Hampshire
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ABOUT PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Public Service Company of New Hampshire (PSNH or the company), The
Connecticut Light and Power Company (CL&P), Western Massachusetts
Electric Company (WMECO), North Atlantic Energy Corporation (NAEC),
and Holyoke Water Power Company (HWP) are the operating subsidiaries
comprising the Northeast Utilities system (the NU system) and are
wholly owned by Northeast Utilities (NU).
The NU system furnishes franchised retail electric service in
Connecticut, New Hampshire, and western Massachusetts through CL&P,
PSNH, WMECO, and HWP. A fifth subsidiary, NAEC, sells all of its
entitlement to the capacity and output of the Seabrook nuclear
generating unit (Seabrook, a 1,148-megawatt (MW) nuclear generating
unit) to PSNH under two long-term contracts (the Seabrook Power
Contracts). In addition to its franchised retail service, the NU
system furnishes firm and other wholesale electric services to various
municipalities and other utilities, and participates in limited retail
access programs, providing off-system retail electric service. The NU
system serves about 30 percent of New England's electric needs and is
one of the 25 largest electric utility systems in the country as
measured by revenues.
Other wholly owned subsidiaries of NU provide support services for
the NU system companies and, in some cases, for other New England
utilities. Northeast Utilities Service Company (NUSCO) provides
centralized accounting, administrative, information resources,
engineering, financial, legal, operational, planning, purchasing and
other services to the NU system companies. North Atlantic Energy
Service Corporation (NAESCO) acts as agent for CL&P and NAEC, and has
operational responsibilities for Seabrook. Northeast Nuclear Energy
Company (NNECO) acts as agent for the NU system companies and other
New England utilities in operating the Millstone nuclear generating
facilities.
B. PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications of prior years' data have been made to
conform with the current year's presentation.
All transactions among affiliated companies are on a recovery of cost
basis which may include amounts representing a return on equity and are
subject to approval by various federal and state regulatory agencies.
C. PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as
a holding company under the Public Utility Holding Company Act of 1935
(1935 Act). NU and its subsidiaries, including PSNH, are subject to
the provisions of the 1935 Act. Arrangements among the NU system
companies, outside agencies and other utilities covering inter-
connections, interchange of electric power and sales of utility
property are subject to regulation by the Federal Energy Regulatory
Commission (FERC) and/or the SEC. PSNH is subject to further
regulation for rates, accounting and other matters by the FERC and/or
the applicable state regulatory commissions.
For information regarding proposed changes in the nature of industry
regulation, see Note 10A, "Commitments and Contingencies -
Restructuring and Rate Matters."
D. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued a new accounting
standard in February 1997: Statement of Financial Accounting Standards
(SFAS) 129, "Disclosure of Information about Capital Structure." SFAS
129 establishes standards for disclosing information about an entity's
capital structure. PSNH's current disclosures are consistent with the
requirements of SFAS 129.
During June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income" and SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS 130 establishes standards for the reporting
and disclosure of comprehensive income. To date, the NU system
companies have not had material transactions that would be required to
be reported as comprehensive income. SFAS 131 determines the standards
for reporting and disclosing qualitative and quantitative information
about a company's operating segments. This information includes segment
profit or loss, certain segment revenue and expense items and segment
assets and a reconciliation of these segment disclosures to
corresponding amounts in the company's general purpose financial
statements. Management performance is currently evaluated using a
cost-based budget and the information required by SFAS 131 is not
available. Therefore, these disclosure requirements are not
applicable. Management believes that the implementation of
SFAS 130 and SFAS 131 will not have a material impact on PSNH's
current disclosures.
See Note 10C, "Commitments and Contingencies-Environmental Matters,"
for information on other newly issued accounting and reporting
standards related to this area.
E. INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
Regional Nuclear Generating Companies: PSNH owns common stock of four
regional nuclear generating companies (Yankee companies). PSNH's
investments in the Yankee companies are accounted for on the equity
basis due to PSNH's ability to exercise significant influence over
their operating and financial policies. The Yankee companies, with
PSNH's ownership interests, are:
Connecticut Yankee Atomic Power Company (CYAPC) ................. 5.0%
Yankee Atomic Electric Company (YAEC) ........................... 7.0
Maine Yankee Atomic Power Company (MYAPC) ....................... 5.0
Vermont Yankee Nuclear Power Corporation (VYNPC) ................ 4.0
PSNH's equity investments in the Yankee companies at December 31, 1997
are:
(Thousands of Dollars)
CYAPC .............................................. $ 5,761
YAEC ............................................... 1,427
MYAPC .............................................. 3,880
VYNPC .............................................. 2,085
$13,153
Each Yankee company owns a single nuclear generating unit. Under the
terms of the contracts with the Yankee companies, the shareholders-
sponsors, including PSNH, are responsible for their proportionate
share of the costs of each unit, including decommissioning. The
energy and capacity costs from VYNPC and nuclear decommissioning
costs of the Yankee companies that have been shut down are billed
as purchased power to PSNH.
The electricity produced by the Vermont Yankee nuclear generating
facility (VY) is committed substantially on the basis of ownership
interests and is billed pursuant to contractual agreements. YAEC's,
CYAPC's and MYAPC's nuclear power plants were shut down permanently on
February 26, 1992, December 4, 1996, and August 6, 1997, respectively.
Under ownership agreements with the Yankee companies, PSNH may be asked
to provide direct or indirect financial support for one or more of the
companies. For more information on the Yankee companies, see Note 4,
"Nuclear Decommissioning," and Note 10F, "Commitments and Contingencies
- Long-Term Contractual Arrangements."
Millstone 3: PSNH has a 2.85 percent joint ownership interest in
Millstone 3, a 1,154-MW nuclear generating unit. As of December 31,
1997 and 1996, plant-in-service included approximately $118.7 million
and the accumulated provision for depreciation included approximately
$32.3 million and $29.4 million, respectively, for PSNH's share of
Millstone 3. PSNH's share of Millstone 3 expenses is included in the
corresponding operating expenses on the accompanying Statements of
Income. The Millstone 3 unit is out of service. NU hopes to return
Millstone 3 to service in early spring of 1998. For more information
on the Millstone 3 unit, see Note 10B, "Commitments and Contingencies -
Nuclear Performance."
Wyman Unit 4: PSNH has a 3.14 percent ownership interest in Wyman
Unit 4 (Wyman), a 632-MW oil-fired generating unit. At December 31,
1997 and 1996, plant-in-service included approximately $6.0 million,
respectively and the accumulated provision for depreciation included
approximately $3.9 million and $3.7 million, respectively, for PSNH's
share of Wyman. PSNH's share of Wyman expenses is included in the
corresponding operating expenses on the accompanying Statements of
Income.
F. DEPRECIATION
The provision for depreciation is calculated using the straight-line
method based on estimated remaining lives of depreciable utility
plant-in-service, adjusted for salvage value and removal costs, as
approved by the appropriate regulatory agencies.
Except for major facilities, depreciation rates are applied to the
average plant-in-service during the period. Major facilities are
depreciated from the time they are placed in service. When plant is
retired from service, the original cost of plant, including costs of
removal, less salvage, is charged to the accumulated provision for
depreciation. The depreciation rates for the several classes of
electric plant-in-service are equivalent to a composite rate of 3.7
percent in 1997 and 1996, and 3.8 percent in 1995. See Note 4,
"Nuclear Decommissioning," for information on nuclear plant
decommissioning.
PSNH's non-nuclear generating facilities have limited service lives.
Plant may be retired in place or dismantled based upon expected future
needs, the economics of the closure and environmental concerns. The
costs of closure and removal are incremental costs and, for financial
reporting purposes, are accrued over the life of the asset as part of
depreciation. At December 31, 1997 and 1996, the accumulated provision
for depreciation included approximately $34.2 million and $31.1
million, respectively, accrued for the cost of removal, net of salvage
for nonnuclear generation property.
G. REVENUES
Other than revenues under fixed-rate agreements negotiated with certain
wholesale, industrial and commercial customers and limited retail
access programs, utility revenues are based on authorized rates applied
to each customer's use of electricity. In general, rates can be changed
only through a formal proceeding before the appropriate regulatory
commission. Regulatory commissions also have authority over the terms
and conditions of nontraditional rate making arrangements. At the end
of each accounting period, PSNH accrues an estimate for the amount of
energy delivered but unbilled.
For information on the PSNH rate proceeding and its impact on PSNH, see
Management's Discussion and Analysis of Financial Condition and Results
of Operations (MD&A).
H. REGULATORY ACCOUNTING AND ASSETS
The accounting policies of PSNH and the accompanying financial
statements conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of
the ratemaking process in accordance with SFAS 71, "Accounting for the
Effects of Certain Types of Regulation." Assuming a cost-of-service
based regulatory structure, regulators may permit incurred costs,
normally treated as expenses, to be deferred and recovered through
future revenues. Through their actions, regulators also may reduce or
eliminate the value of an asset, or create a liability. If any portion
of PSNH's operations were no longer subject to the provisions of SFAS
71, as a result of a change in the cost-of-service based regulatory
structure or the effects of competition, PSNH would be required to
write off all of its related regulatory assets and liabilities unless
there is a formal transition plan which provides for the recovery,
through established rates, for the collection of approved stranded
costs and to maintain the cost-of-service basis for the remaining
regulated operations. At the time of transition, PSNH would be
required to determine any impairment to the carrying costs of
deregulated plant and inventory assets.
Management anticipates that a restructuring program will be implemented
within New Hampshire during the next few years. In a restructured
environment, PSNH's generation business no longer will be rate
regulated on a cost-of-service basis. The majority of PSNH's
regulatory assets are related to its generation business.
The staff of the SEC has had concerns regarding the appropriateness of
the utilities' ability to continue application of SFAS 71 for the
generation portion of their business in a restructured environment.
The SEC referred the issue to the Emerging Issues Task Force (EITF) of
the FASB which reached a consensus and issued "Deregulation of the
Pricing of Electricity - Issues Related to the Application of FASB
Statements No. 71 and 101," (EITF 97-4). The EITF concluded: (1) the
future recognition of regulatory assets for the portion of the business
that no longer qualifies for application of SFAS 71 depends on the
regulators' treatment of the recovery of those costs and other
stranded assets from cash flows of other portions of the business still
considered to be regulated, and (2) a utility should discontinue the
application of SFAS 71 when a legislative and regulatory plan has been
enacted, which would include transition plans into a competitive
environment, and when the stranded costs which are subject to future
rate recovery are determined. EITF 97-4 became effective in August
1997.
The issue of restructuring the electric utility industry in New
Hampshire is currently the focus of negotiations and proceedings within
the federal and state court systems . Management believes that PSNH's
use of regulatory accounting remains appropriate while this issue
remains in litigation.
PSNH expects that its transmission and distribution business will
continue to be rate-regulated on a cost-of-service basis, and
accordingly, will continue to apply SFAS 71 to this portion of its
business.
For more information on PSNH's regulatory environment and the
potential impacts of restructuring, see Note 10A, "Commitments
and Contingencies - Restructuring and Rate Matters," and the MD&A.
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," requires the evaluation of long-
lived assets, including regulatory assets, for impairment when certain
events occur or when conditions exist that indicate the carrying
amounts of assets may not be recoverable. SFAS 121 requires that any
long-lived assets which are no longer probable of recovery through
future revenues be revalued based on estimated future cash flows.
If this revaluation is less than the book value of the asset, an
impairment loss would be charged to earnings.
Management continues to believe that it is probable that PSNH will
recover its investments in long-lived assets through future revenues.
This conclusion may change in the future as the implementation of
restructuring plans within the state of New Hampshire will generally
require the formation of a separate generation entity which will be
subject to competitive market conditions. As a result, PSNH will be
required to assess the carrying amounts of its long-lived assets in
accordance with SFAS 121.
The components of PSNH's regulatory assets are as follows:
At December 31, 1997 1996
(Thousands of Dollars)
Recoverable energy costs, net
(Note 1K) ......................... $191,686 $211,236
Income taxes, net (Note 1I) ......... 128,244 151,431
Unrecovered contractual
obligations (Note 4) .............. 83,042 50,271
Deferred costs, nuclear
plants (Note 2) ................... 281,856 269,233
Seabrook deferral (Note 1K) ......... 8,376 -
Other ............................... 2,214 2,333
$695,418 $684,504
I. INCOME TAXES
The tax effect of temporary differences (differences between the
periods in which transactions affect income in the financial statements
and the periods in which they affect the determination of taxable
income) is accounted for in accordance with the ratemaking treatment
of the applicable regulatory commissions. See Note 9, "Income Tax
Expense" for the components of income tax expense.
The tax effect of temporary differences, including timing differences
accrued under previously approved accounting standards, that give rise
to the accumulated deferred tax obligation is as follows:
At December 31, 1997 1996
(Thousands of Dollars)
Accelerated depreciation and
other plant-related differences ... $103,985 $225,263
Net operating loss (NOL)
carryforwards ..................... (94,822) (94,149)
Regulatory assets - income tax
gross up .......................... 49,101 68,652
Other ............................... 145,955 58,551
$204,219 $258,317
At December 31, 1997, PSNH had a NOL carryforward of approximately
$293 million, that can be used against PSNH's federal taxable income
and which, if unused, expires between the years 2000 and 2006. PSNH
also had Investment Tax Credit (ITC) carryforwards of $40 million which
if unused, expires between the years 1998 and 2004. For a portion of
the carryforward amounts indicated above, the reorganization of PSNH
under Chapter 11 of the United States Bankruptcy Code limits the annual
amount of NOL and ITC carryforwards that may be used. Approximately
$31 million of the NOL and $9 million of the ITC carryforwards are
subject to this limitation.
See Note 10A, "Commitments and Contingencies - Restructuring and Rate
Matters," for the possible impacts on PSNH from the NHPUC's decision
related to industry restructuring.
J. UNAMORTIZED ACQUISITION COSTS
The unamortized PSNH acquisition costs represent the aggregate value
placed by the 1989 rate agreement with the state of New Hampshire (Rate
Agreement) on PSNH's assets in excess of the net book value of PSNH's
non-Seabrook assets, plus the $700 million value assigned to Seabrook
by the Rate Agreement, as part of the bankruptcy resolution on June 5,
1992 (Acquisition Date). The Rate Agreement provides for the recovery
through rates, with a return, of the unamortized PSNH acquisition
costs. The Rate Agreement provides that $425 million of the
unamortized PSNH acquisition costs be amortized over the first
seven years after PSNH's May 16, 1991 reorganization from bankruptcy
(Reorganization Date) with the remaining amount to be amortized
over the 20-year period after the Reorganization Date. The
unrecovered balance of PSNH acquisition costs at December 31, 1997,
was approximately $402.3 million. In accordance with the Rate
Agreement, approximately $32.9 million of this amount will be
recovered through rates by June 1, 1998, and the remaining amount
of approximately $369.4 million will be recovered through rates by
2011. As of December 31, 1997, PSNH has collected approximately
$591 million of acquisition costs through rates.
K. RECOVERABLE ENERGY COSTS
Under the Energy Policy Act of 1992 (Energy Act), PSNH is assessed
for its proportionate share of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (D&D assessment). The Energy Act requires that
regulators treat D&D assessments as a reasonable and necessary current
cost of fuel, to be fully recovered in rates like any other fuel cost.
PSNH is currently recovering these costs through rates. As of December
31, 1997, PSNH's total D&D deferrals were approximately $300 thousand.
The Rate Agreement includes a comprehensive fuel and purchased power
adjustment clause (FPPAC) permitting PSNH to pass through to retail
customers, for a ten-year period that began in May 1991, the retail
portion of differences between the fuel and purchased power costs
assumed in the Rate Agreement and PSNH's actual costs, which include
the costs related to the Seabrook Power Contracts and the Clean Air Act
Amendment. The cost components of the FPPAC are subject to a prudence
review by the New Hampshire Public Utilities Commission (NHPUC).
Under the Rate Agreement, charges made by NAEC through the Seabrook
Power Contracts, including the deferred Seabrook capital expenses, are
being deferred by PSNH and subsequently will be subsequently billed and
collected by PSNH through the FPPAC. PSNH began to defer the amount
of these costs on December 1, 1997 and will continue to do so for
the period December 1, 1997 through May 31, 1998. Beginning on
June 1, 1998, these costs will be recovered over a 36-month period.
At December 31, 1997, PSNH has deferred approximately $8.4 million
of these costs, which balance is recorded in PSNH's deferred costs,
nuclear plants.
On February 10, 1998, the NHPUC established a FPPAC rate for the period
December 1, 1997 through May 31, 1998. The new FPPAC rate increased
customer billings by approximately six percent. This rate continues to
defer a substantial portion of these costs.
At December 31, 1997, PSNH's net recoverable energy costs, excluding
current net recoverable energy costs, were approximately $191.7
million. This amount includes approximately $172.9 million of
deferred small power producer costs.
See Note 10A, "Commitments and Contingencies - Restructuring and
Rate Matters" for the possible impacts on PSNH of the NHPUC's
decision related to industry restructuring.
L. SPENT NUCLEAR FUEL DISPOSAL COSTS
Under the Nuclear Waste Policy Act of 1982, PSNH must pay the United
States Department of Energy (DOE) for the disposal of spent nuclear
fuel and high-level radioactive waste. The DOE is responsible for the
selection and development of repositories for, and the disposal of,
spent nuclear fuel and high-level radioactive waste. Fees are billed
currently to customers and paid to the DOE on a quarterly basis.
The DOE was originally scheduled to begin accepting delivery of spent
fuel in 1998. However, delays in identifying a permanent storage site
have continually postponed plans for the DOE's long-term storage and
disposal site. Extended delays or a default by the DOE could lead to
consideration of costly alternatives. The company has primary
responsibility for the interim storage of its spent nuclear fuel.
Current capability to store spent fuel at Seabrook are estimated to be
adequate until the year 2010. Meeting spent fuel storage requirements
beyond this period could require new and separate storage facilities,
the costs for which have not been determined. Storage facilities for
Millstone 3 are expected to be adequate for the projected life of the
unit.
In November 1997, the U.S. District Court of Appeals for the D.C.
Circuit ruled that the lack of an interim storage facility does not
excuse the DOE from meeting its contractual obligation to begin
accepting spent nuclear fuel no later than January 31, 1998.
Currently, the DOE has not taken the spent nuclear fuel as scheduled
and, as a result, may have to pay contract damages. The ultimate
outcome of this legal proceeding is uncertain at this time.
M. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and short-term cash
investments which are highly liquid in nature and have original
maturities of three months or less.
2. SEABROOK POWER CONTRACTS
PSNH and NAEC have entered into two power contracts that obligate PSNH to
purchase NAEC's 35.98 percent ownership of the capacity and output of
Seabrook for the term of Seabrook's Nuclear Regulatory Commission (NRC)
operating license. Under these power contracts, PSNH is obligated to pay
NAEC's cost of service during this period, regardless of whether Seabrook 1
is operating. NAEC's cost of service includes all of its Seabrook-related
costs, including operation and maintenance (O&M) expenses, fuel expense,
income and property tax expense, depreciation expense, certain overhead and
other costs and a return on its allowed investment.
PSNH has included its right to buy power from NAEC on its Balance Sheets
as part of utility plant and regulatory assets with a corresponding
obligation. At December 31, 1997, this right was valued at approximately
$917.1 million.
The contracts established the value of the initial investment in Seabrook
(initial investment) at $700 million. As prescribed by the Rate Agreement,
as of May 1, 1996, NAEC phased into rates 100 percent of its investment in
Seabrook 1. This plan is in compliance with SFAS 92,"Regulated Enterprises-
Accounting for Phase-in Plans." From the Acquisition Date through November
1997, NAEC recorded $203.9 million of deferred return on its investment in
Seabrook 1. At November 30, 1997, NAEC's utility plant included $84.1
million of deferred return that was transferred as part of the Seabrook
plant assets to NAEC on the Acquisition Date. Beginning on December 1,
1997, the deferred return, including the portion transferred to NAEC, is
currently being billed through the Seabrook Power Contracts to PSNH and
will be fully recovered from customers by May 2001. NAEC depreciated its
initial investment over the term of Seabrook 1's operating license (39
years), and any subsequent plant additions are depreciated on a straight-
line basis over the remaining term of the power contracts at the time the
subsequent additions are placed in service.
If Seabrook 1 is shut down prior to the expiration of the NRC operating
license, PSNH will be unconditionally required to pay NAEC termination
costs for 39 years, less the period during which Seabrook 1 has operated.
These termination costs will reimburse NAEC for its share of Seabrook 1
shut-down and decommissioning costs, and will pay NAEC a return of and on
any undepreciated balance of its initial investment over the remaining term
of the power contracts, and the return of and on any capital additions to
the plant made after the Acquisition Date over a period of five years after
shut down (net of any tax benefits to NAEC attributable the cancellation).
Contract payments charged to operating expenses are approximately:
Year Contract Payments
(Thousands of Dollars)
1997................................. $188,000
1996................................. 159,000
1995................................. 154,000
Interest included in the contract payment was $57 million in 1997, $55
million in 1996, and $51 million in 1995.
Future minimum payments, excluding executory costs, such as property taxes,
state use taxes, insurance and maintenance, under the terms of the
contracts, as of December 31, 1997, are approximately:
Year Seabrook Power Contracts
(Thousands of Dollars)
1998 ................................ $199,000
1999 ................................ 184,000
2000 ................................ 183,000
2001 ................................ 108,000
2002 ................................ 69,100
After 2002............................. 1,077,000
Future minimum payments................ 1,820,100
Less amount representing
interest............................. 903,000
Present value of Seabrook Power
Contracts payments .................. $ 917,100
See Note 10A, "Commitments and Contingencies - Restructuring and Rate
Matters" for the possible impacts the NHPUC's restructuring decision may
have on the Seabrook Power Contracts.
3. LEASES
PSNH has entered into lease agreements, some of which are capital leases,
for the use of data processing and office equipment, vehicles and office
space. The provisions of these lease agreements generally provide for
renewal options. The following rental payments have been charged to
expense:
Year Capital Leases Operating Leases
1997........................... $1,579,000 $5,657,000
1996........................... 1,105,000 4,884,000
1995........................... 1,103,000 5,291,000
Interest included in capital lease rental payments was $272,000 in 1997,
$292,000 in 1996, and $351,000 in 1995.
Future minimum rental payments, excluding executory costs, such as property
taxes, state use taxes, insurance and maintenance, under long-term
noncancellable leases, as of December 31, 1997, are:
Year Capital Leases Operating Leases
(Thousands of Dollars)
1998........................... $1,500 $ 6,100
1999........................... 1,200 5,300
2000........................... 1,000 4,700
2001........................... 1,000 4,200
2002........................... 100 2,200
After 2002 .................... 500 5,100
Future minimum lease
payments .................... 5,300 $27,600
Less amount representing
interest ..................... 600
Present value of future
minimum lease payments ...... $4,700
4. NUCLEAR DECOMMISSIONING
Millstone and Seabrook: Millstone 3 and Seabrook 1 have service lives that
are expected to end during the years 2025 and 2026, respectively. Upon
retirement, these units must be decommissioned. Current decommissioning
studies concluded that complete and immediate dismantlement at retirement
continues to be the most viable and economic method of decommissioning
Millstone 3 and Seabrook 1. Decommissioning studies are reviewed and
updated periodically to reflect changes in decommissioning requirements,
costs, technology and inflation.
The estimated cost of decommissioning PSNH's 2.85 percent ownership share
of Millstone 3 and NAEC's 35.98 percent share of Seabrook 1, in year-end
1997 dollars, is $15.6 million and $170.2 million, respectively. Millstone
3 and Seabrook 1 decommissioning costs will be increased annually by their
respective escalation rates. PSNH's Millstone 3 decommissioning costs are
accrued over the expected service life of the unit and are included in
depreciation expense on its Statements of Income. Nuclear decommissioning
costs related to PSNH's share of Millstone 3 amounted to $0.4 million in
1997 and 1996, and $0.3 million in 1995. Nuclear decommissioning, as a
cost of removal, is included in the accumulated provision for depreciation
on PSNH's Balance Sheets. At December 31, 1997 and 1996, the balance in
the accumulated reserve for depreciation amounted to $4.3 million and $3.2
million, respectively.
PSNH makes payments to an independent decommissioning trust for its portion
of the costs of decommissioning Millstone 3. NAEC's portion of the cost
of decommissioning Seabrook 1 is paid to an independent decommissioning
financing fund managed by the state of New Hampshire. Funding of the
estimated decommissioning costs assumes levelized collections for Millstone
3 and escalated collections for Seabrook 1, and after-tax earnings on the
Millstone and Seabrook decommissioning funds of approximately 5.5 percent
and 6.5 percent, respectively. Under the terms of the Rate Agreement, PSNH
is obligated to pay NAEC's share of Seabrook's decommissioning costs, even
if the unit is shut down prior to the expiration of its operating license.
Accordingly, NAEC bills PSNH directly for its share of the costs of
decommissioning Seabrook 1. PSNH records its Seabrook decommissioning
costs as a component of purchased power expense on its Statements of
Income. Under the Rate Agreement, PSNH's Seabrook decommissioning costs
are recovered through base rates.
As of December 31, 1997, PSNH collected through rates approximately
$2.6 million toward the future decommissioning costs of its share of
Millstone 3, which has been transferred to the external decommissioning
trust. As of December 31, 1997, NAEC has paid approximately $21.1 million
(including payments made prior to the Acquisition Date by PSNH),
into Seabrook 1's decommissioning financing fund. Earnings on the
decommissioning trust and financing fund increase the decommissioning
trust balance and the accumulated reserve for depreciation. Unrealized
gains and losses associated with the decommissioning trust and financing
fund also impact the balance of the trust, and the accumulated reserve
for depreciation.
Changes in requirements or technology, the timing of funding or
dismantling, or adoption of a decommissioning method other than immediate
dismantlement would change decommissioning cost estimates and the amounts
required to be recovered. PSNH attempts to recover sufficient amounts
through its allowed rates to cover its expected decommissioning costs.
Only the portion of currently estimated total decommissioning costs that
has been accepted by regulatory agencies is reflected in rates of PSNH.
Based on present estimates and assuming its nuclear units operate to
the end of their respective licensing periods, PSNH expects that the
decommissioning trust and financing fund will be substantially funded
when the units are retired from service.
Yankee Companies: VYNPC owns and operates a nuclear generating unit with
a service life that is expected to end in 2012. PSNH's ownership share of
estimated costs, in year-end 1997 dollars, of decommissioning the unit
owned and operated by VYNPC is $20.2 million.
On August 6, 1997, the board of directors of MYAPC voted unanimously
to cease permanently the production of power at its nuclear generating
facility (MY). The NU system companies had relied on MY for approximately
one percent of their capacity. During November 1997, MYAPC filed an
amendment to its power contracts clarifying the obligations of its
purchasing utilities following the decision to cease power production.
During January 1998, the FERC accepted the amendments and proposed rates,
subject to refund. At December 31, 1997, the remaining estimated
obligation, including decommissioning, amounted to approximately $867.2
million, of which PSNH's share was approximately $43.4 million.
On December 4, 1996, the board of directors of CYAPC voted unanimously
to cease permanently the production of power at its nuclear generating
plant (CY). During 1996, the NU system companies had relied on CY for
approximately three percent of their capacity. During late December 1996,
CYAPC filed an amendment to its power contracts clarifying the obligations
of its purchasing utilities following the decision to cease power
production. On February 27, 1997, the FERC approved an order for hearing
which, among other things, accepted CYAPC's contract amendment. The
new rates became effective March 1, 1997, subject to refund. At
December 31, 1997, the remaining estimated obligation, including
decommissioning, amounted to $619.9 million, of which PSNH's share
was approximately $31.0 million.
YAEC is in the process of decommissioning its nuclear facility.
At December 31, 1997, the estimated remaining costs, including
decommissioning, amounted to $124.4 million, of which PSNH's share
was approximately $8.7 million.
Under the terms of the contracts with MYAPC, CYAPC and YAEC, the
shareholder-sponsor companies, including PSNH, are responsible for their
proportionate share of the costs of the units, including decommissioning.
Management expects that PSNH will continue to be allowed to recover these
costs from its customers. Accordingly, PSNH has recognized these costs
as regulatory assets, with corresponding obligations.
Proposed Accounting: The staff of the SEC has questioned certain
current accounting practices of the electric utility industry,
including PSNH, regarding the recognition, measurement and classification
of decommissioning costs for nuclear generating units in the financial
statements. In response to these questions, the FASB has agreed to
review the accounting for closure and removal costs, including
decommissioning. If current electric utility industry accounting
practices for nuclear power plant decommissioning are changed, the annual
provision for decommissioning could increase relative to 1997, and the
estimated cost for decommissioning could be recorded as a liability
(rather than as accumulated depreciation), with recognition of an increase
in the cost of the related nuclear power plant. Management believes that
PSNH will continue to be allowed to recover decommissioning costs through
rates.
5. SHORT-TERM DEBT
The amount of short-term borrowings that may be incurred by PSNH is subject
to periodic approval by the SEC under the 1935 Act or by the NHPUC.
Effective May 1997, PSNH was authorized under a waiver from the NHPUC, to
incur short-term borrowings up to a maximum of $125 million.
PSNH has a $125 million revolving credit agreement that will expire in
April 1999. The revolving credit agreement is with a group of 16 banks.
PSNH is obligated to pay a facility fee of .50 percent per annum on the
commitment of $125 million. At December 31, 1997 and 1996, there were no
borrowings under the facility.
Under the credit facility discussed above, PSNH may borrow funds on a
short-term revolving basis under its agreement, using either fixed-rate
loans or standby loans. Fixed rates are set using competitive bidding.
Standby loans are based upon several alternative variable rates.
Money Pool: Certain subsidiaries of NU, including PSNH, are members of the
Northeast Utilities System Money Pool (Pool). The Pool provides a more
efficient use of the cash resources of the system, and reduces outside
short-term borrowings. NUSCO administers the Pool as agent for the member
companies. Short-term borrowing needs of the member companies are first
met with available funds of other member companies, including funds
borrowed by NU parent. NU parent may lend to the Pool but may not borrow.
Funds may be withdrawn from or repaid to the Pool at any time without prior
notice. Investing and borrowing subsidiaries receive or pay interest based
on the average daily Federal Funds rate. However, borrowings based on
loans from NU parent bear interest at NU parent's cost and must be repaid
based upon the terms of NU parent's original borrowing. At December 31,
1997 and 1996, PSNH had no outstanding borrowings from the Pool.
Maturities of PSNH's short-term debt obligations are for periods of three
months or less. For further information on short-term debt, see the MD&A.
6. EMPLOYEE BENEFITS
A. PENSION BENEFITS
The NU system subsidiaries participate in a uniform noncontributory
defined benefit retirement plan covering all regular NU system
employees. Benefits are based on years of service and employees'
highest eligible compensation during 60 consecutive months of
employment. PSNH's direct portion of the NU system's pension cost,
part of which was charged to utility plant, approximated $1.3 million
in 1997, $6.2 million in 1996, and $2.3 million in 1995. Pension
(credits)/costs for 1997 and 1996 included approximately $(1.0) million
and $1.9 million, respectively, related to workforce reduction
programs.
Currently, PSNH funds annually an amount at least equal to that which
will satisfy the requirements of the Employee Retirement Income
Security Act and the Internal Revenue Code. Pension costs are
determined using market-related values of pension assets. Pension
assets are invested primarily in domestic and international equity
securities and bonds.
The components of net pension cost for PSNH are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Service cost........................... $ 2,987 $ 6,161 $ 3,462
Interest cost.......................... 13,398 12,808 11,923
Return on plan assets.................. (34,622) (24,393) (33,156)
Net amortization....................... 19,508 11,608 20,108
Net pension cost....................... $ 1,271 $ 6,184 $ 2,337
For calculating pension cost, the following assumptions were
used:
For the Years Ended December 31, 1997 1996 1995
Discount rate.......................... 7.75% 7.50% 8.25%
Expected long-term rate of return...... 9.25 8.75 8.50
Compensation/progression rate.......... 4.75 4.75 5.00
The following table represents the plan's funded status
reconciled to the Balance Sheets:
At December 31, 1997 1996
(Thousands of Dollars)
Accumulated benefit obligation,
including vested benefits at
December 31, 1997 and 1996 of
$(140,089,000) and $(131,624,000),
respectively......................... $(152,709) $(143,377)
Projected benefit obligation .......... (187,968) (179,192)
Market value of plan assets ........... 195,612 173,035
Market value in excess of (less than)
projected benefit obligation ........ 7,644 (6,157)
Unrecognized transition amount ........ 4,003 4,337
Unrecognized prior service costs ...... 7,597 8,135
Unrecognized net gain ................. (65,305) (51,105)
Accrued pension liability ............. $(46,061) $ (44,790)
The following actuarial assumptions were used in calculating the
plan's year-end funded status:
For the Years Ended December 31, 1997 1996
Discount rate.......................... 7.25% 7.75%
Compensation/progression rate.......... 4.25 4.75
B. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The NU system subsidiaries provide certain health care benefits,
primarily medical and dental, and life insurance benefits through a
benefit plan to retired employees (referred to as SFAS 106 benefits).
These benefits are available for employees retiring from the NU system
who have met specified service requirements. For current employees and
certain retirees, the total SFAS 106 benefit is limited to two times
the 1993 per-retiree health care cost. The SFAS 106 obligation has been
calculated based on this assumption. PSNH's direct portion of SFAS 106
benefits, part of which was deferred or charged to utility plant,
approximated $4.9 million in 1997, $6.2 million in 1996, and $7.2
million in 1995.
PSNH is funding SFAS 106 postretirement costs through external trusts.
PSNH is funding, on an annual basis, amounts that have been rate-
recovered and which also are tax-deductible under the Internal Revenue
Code. The trust assets are invested primarily in equity securities and
bonds.
The components of health care and life insurance cost are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Service cost .......................... $ 802 $ 914 $ 933
Interest cost ......................... 3,352 3,559 4,063
Return on plan assets ................. (3,753) (1,720) (1,694)
Amortization of unrecognized
transition obligation ............... 2,941 2,941 2,941
Other amortization, net ............... 1,541 547 998
Net health care and life
insurance cost ...................... $4,883 $6,241 $7,241
For calculating PSNH's SFAS 106 benefit costs, the following
assumptions were used:
For the Years Ended December 31, 1997 1996 1995
Discount rate ......................... 7.75% 7.50% 8.00%
Long-term rate of return -
Health assets, net of tax .......... 6.00 5.25 5.00
Life assets ........................ 9.25 8.75 8.50
The following table represents the plan's funded status reconciled to
the Balance Sheets:
At December 31, 1997 1996
(Thousands of Dollars)
Accumulated postretirement benefit
obligation of:
Retirees ........................... $(36,790) $(38,245)
Fully eligible active
employees ........................ (31) (22)
Active employees not
eligible to retire ............... (9,788) (9,696)
Total accumulated post-
retirement benefit
obligation .......................... (46,609) (47,963)
Market value of plan assets ........... 22,908 17,882
Accumulated postretirement
benefit obligation in
excess of plan assets ............... (23,701) (30,081)
Unrecognized transition
amount .............................. 44,108 47,049
Unrecognized net gain ................. (20,407) (17,139)
Accrued postretirement benefit
liability ........................... $ - $ (171)
The following actuarial assumptions were used in calculating
the plan's year-end funded status:
At December 31, 1997 1996
Discount rate ......................... 7.25% 7.75%
Health care cost trend rate (a) ....... 5.76 7.23
(a) The annual growth in per capita cost of covered health care
benefits was assumed to decrease to 4.40 percent by 2001.
The effect of increasing the assumed health care cost trend rate by
one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1997, by $3.1
million and the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year then ended by
$245 thousand. The trust holding the health plan assets is subject to
federal income taxes at a 39.6 percent tax rate.
PSNH currently is recovering SFAS 106 costs through rates.
7. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock subject to mandatory redemption are:
Shares
Outstanding December 31,
Description December 31, 1997 1997 1996 1995
(Thousands of Dollars)
10.60%
Series A of 1991 ..... 4,000,000 $100,000 $125,000 $125,000
Less preferred stock
to be redeemed
within one year .... 1,000,000 25,000 25,000 -
Total preferred stock
subject to
mandatory redemption $ 75,000 $100,000 $125,000
In case of default on dividends or sinking-fund payments, no payments may
be made on any junior stock by way of dividends or otherwise (other than
in shares of junior stock) so long as the default continues. If PSNH is
in arrears in the payment of dividends on any outstanding shares of
preferred stock, PSNH would be prohibited from redemption or purchase
of less than all of the preferred stock outstanding. The Series A
Preferred Stock is not subject to optional redemption by PSNH. It is
subject to an annual sinking fund requirement of $25 million, which
began on June 30, 1997, sufficient to retire annually 1,000,000 shares
at $25 per share.
8. LONG-TERM DEBT
Details of long-term debt outstanding are:
At December 31,
1997 1996
(Thousands of Dollars)
First Mortgage Bonds:
9.17% Series B, due 1998.............. $170,000 $170,000
Total First Mortgage Bonds............ 170,000 170,000
Pollution Control Revenue Bonds:
7.65% Tax-Exempt Series A, due 2021....... 66,000 66,000
7.50% Tax-Exempt Series B, due 2021....... 108,985 108,985
7.65% Tax-Exempt Series C, due 2021....... 112,500 112,500
Adjustable Rate, Taxable, Series D,
due 2021 ................................ 39,500 39,500
Adjustable Rate, Taxable, Series E,
due 2021 ................................ 69,700 69,700
Adjustable Rate, Tax-Exempt, Series D,
due 2021 ................................ 75,000 75,000
Adjustable Rate, Tax-Exempt, Series E
due 2021 ................................ 44,800 44,800
Less: Amounts due within one year ........ 170,000 -
Long-term debt, net ................ $516,485 $686,485
Long-term debt maturities and cash sinking-fund requirements on debt
outstanding at December 31, 1997 aggregate approximately $170 million for
1998. There are neither sinking-fund requirements nor debt maturities
existing for the years 1999 through 2002. Also, there are annual renewal
and replacement fund requirements equal to 2.25 percent of the average
of net depreciable utility property owned by PSNH at the reorganization
date, plus cumulative gross property additions thereafter. PSNH expects
to meet these future fund requirements by certifying property additions.
Any deficiency would need to be satisfied by the deposit of cash or bonds.
Essentially, all utility plant of PSNH is subject to the lien of its first
mortgage bond indenture. PSNH's Revolving Credit Facility has a second
lien, junior to the lien of its first mortgage bond indenture, on all PSNH
property located in New Hampshire which will expire in April 1999. At
December 31, 1997, there were no borrowings under the Revolving Credit
Facility.
Concurrent with the issuance of PSNH's Series A and B First Mortgage
Bonds, PSNH entered into financing arrangements with the Business Finance
Authority of the state of New Hampshire (BFA). Pursuant to these
arrangements, the BFA issued seven series of Pollution Control Revenue
Bonds (PCRBs) and loaned the proceeds to PSNH. At December 31, 1997,
approximately $516.5 million of PCRBs were outstanding. The average
effective interest rates on the variable-rate pollution control notes
ranged from 3.8 percent to 5.6 percent for 1997, and from 3.5 percent to
5.5 percent for 1996. PSNH's obligation to repay each series of PCRBs is
secured by a series of First Mortgage Bonds that were issued under its
indenture. Each such series of First Mortgage Bonds contains terms and
provisions with respect to maturity, principal payment, interest rate,
and redemption that correspond to those of the applicable series of PCRBs.
For financial reporting purposes, these bonds would not be considered
outstanding unless PSNH fails to meet its obligations under the PCRBs.
The PCRBs, except for Series D and E, are redeemable on or after May 1,
2001, at the option of the company with accrued interest and at specified
premiums. Under current interest rate elections by PSNH, the Series D
and E PCRBs are redeemable, at par plus accrued interest at the end of
each interest-rate period. Future interest-rate elections by PSNH could
significantly defer or eliminate the availability of optional redemptions
by PSNH, and could affect costs as well.
9. INCOME TAX EXPENSE
The components of the federal and state income tax provisions charged to
operations are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Current income taxes:
Federal ................................. $67,148 $(4,978) $(1,166)
State ................................... 48 (1,605) 1,767
Total current ......................... 67,196 (6,583) 601
Deferred income taxes, net:
Federal ................................. 21,118 94,922 72,147
State ................................... 1,217 272 (1,606)
Total deferred ....................... 22,335 95,194 70,541
Investment tax credits, net ............... (540) (548) (555)
Total income tax expense .................. $88,991 $88,063 $70,587
The components of total income tax expense are classified as follows:
Income taxes charged to operating
expenses ................................. $86,600 $80,340 $69,817
Other income taxes ........................ 2,391 7,723 770
Total income tax expense .................. $88,991 $88,063 $70,587
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Depreciation .............................. $(1,937) $(1,055) $ 1,294
Deferred tax asset associated
with NOL ................................ - 96,756 57,543
Energy adjustment clauses ................. 16,839 (10,716) 5,098
Amortization of regulatory
settlement .............................. 11,501 11,501 11,501
Other ..................................... (4,068) (1,292) (4,895)
Deferred income taxes, net ................ $22,335 $95,194 $70,541
A reconciliation between income tax expense and the expected tax expense at
the applicable statutory rate is as follows:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Expected federal income tax at
35 percent of pretax income ............. $63,495 $64,616 $53,845
Tax effect of differences:
Depreciation ............................ 1,890 1,896 1,868
Amortization of acquisition costs ....... 31,298 31,410 31,522
Seabrook intercompany loss .............. (4,616) (7,504) (13,048)
Investment tax credit amortization ...... (540) (548) (555)
State income taxes, net of
federal benefit ....................... 1,095 (867) 105
Other, net .............................. (3,631) (940) (3,150)
Total income tax expense .................. $88,991 $88,063 $70,587
10. COMMITMENTS AND CONTINGENCIES
A. RESTRUCTURING AND RATE MATTERS
The 1996 restructuring legislation that the NHPUC is charged with
implementing provides that the NHPUC may not adopt a restructuring
plan that imposes a severe financial hardship on a utility. Management
believes that PSNH is entitled to full recovery of its prudently
incurred costs, including regulatory assets and other strandable
costs. It bases this belief both on the general nature of public
utility industry cost-of-service based regulation and the specific
circumstances of the resolution of PSNH's previous bankruptcy
proceedings and its acquisition by NU, including the recoveries
provided by the Rate Agreement and related agreements.
On February 28, 1997, the NHPUC issued its decision related to
restructuring the state's electric utility industry and setting interim
stranded cost charges for PSNH pursuant to legislation enacted in New
Hampshire in 1996. In the decision, the NHPUC announced a departure
from cost-based ratemaking and instead adopted a market-priced approach
to ratemaking and stranded cost recovery. Accordingly, unless the
NHPUC modifies its position or the litigation described below results
in necessary modifications to the final plan which leads management
to conclude that the ratemaking approach utilized in the NHPUC's
restructuring decision will not go into effect, PSNH no longer will be
subject to the provisions of SFAS 71. That would result in PSNH
writing off from its balance sheet substantially all of its regulatory
assets. The amount of the potential write-off triggered by the order
is currently estimated at over $400 million, after taxes. PSNH does
not believe that under the decision, it would be required to recognize
any additional loss resulting from the impairment of the value of its
other long-lived assets under the provisions of SFAS 121.
On March 3, 1997, PSNH, NU, NAEC and NUSCO filed for a temporary
restraining order, preliminary and permanent injunctive relief and for
declaratory judgment in the United States District Court for New
Hampshire (District Court). The case was subsequently transferred to
Rhode Island. On March 10, 1997, the Chief Judge of the Rhode Island
federal court issued a temporary restraining order which stayed the
NHPUC's February 28, 1997 decision to the extent it established a
rate-setting methodology that is not designed to recover PSNH's costs
of providing service and would require PSNH to write off any regulatory
assets.
During 1997, a mediation process ended without a resolution. The
District Court had suspended the procedural schedule associated with
this court proceeding pending the resolution of appeals of certain
preliminary rulings by the U.S. Circuit Court of Appeals for the First
Circuit (First Circuit). On February 3, 1998, the First Circuit denied
the appeals taken by would-be intervenors in PSNH's federal court
proceeding concerning the NHPUC's final plan on restructuring. The
First Circuit affirmed a previous court decision stating that the
opposing interests in this case were adequately represented by the
NHPUC or by PSNH. As a result of this decision, the proceedings in
the District Court may resume. On February 17, 1998, the NHPUC filed
a petition for rehearing with the First Circuit. The temporary
restraining order issued by the District Court in March 1997 will
remain in effect until further orders by either court.
During 1997, the NHPUC reopened its proceeding to reconsider certain
limited matters in its restructuring orders. The scope of the PSNH-
specific rehearing proceedings included alternative rate-setting
methodologies proposed by the intervenors; to decide the appropriate
methodology to be used to determine PSNH's interim stranded costs; and
to set PSNH's interim stranded cost charges utilizing the determined
methodology. In testimony filed with the NHPUC in November 1997, PSNH
proposed a new methodology to quantify its strandable costs. Under
this proposal, PSNH would divest all owned generation and purchased-
power obligations via auction. To the extent that the auction fails to
produce sufficient revenues to cover the net book value of owned
generation and contractual payment obligations of purchased-power, the
difference would be recovered from customers through a non-bypassable
distribution charge. The new proposal also relies upon securitization
of certain assets to further reduce rates.
On December 15, 1997, the NHPUC officially announced that industry
restructuring would not take place on January 1, 1998. Management
believes that industry restructuring will not take place in New
Hampshire until the courts resolve the issues brought before them, or
the parties involved reach a settlement.
PSNH and NAEC are parties to a variety of financing agreements
providing that the credit thereunder can be terminated or accelerated
if they do not maintain specified minimum ratios of common equity to
capitalization (as defined in each agreement). In addition, PSNH and
NAEC are parties to a variety of financing agreements providing in
effect that the credit thereunder can be terminated or accelerated if
there are actions taken, either by PSNH or NAEC or by the state of New
Hampshire, that deprive PSNH and/or NAEC of the benefits of the Rate
Agreement and/or the Seabrook Power Contracts.
If the NHPUC's February 28, 1997 decision were to become effective, it
would, unless PSNH and NAEC receive waivers from their respective
lenders, result in (i) write-offs that would cause PSNH's common equity
to fall below the contractual minimums (ii) reductions in income that
would cause PSNH's income to fall below the contractual minimums, (iii)
potential violation of the contractual provisions with respect to
actions depriving PSNH and NAEC of the benefits of the Rate Agreement
and (iv) the potential for cross defaults to other PSNH and NAEC
financing documents. Substantially all of PSNH's and NAEC's debt
obligations would be affected.
If these events transpired and if the creditors holding PSNH and NAEC
debt obligations decide to exercise their rights to demand payment then
either creditors or PSNH and NAEC could initiate proceedings under
Chapter 11 of the bankruptcy laws.
As a result of the NHPUC decision and the potential consequences
discussed above, the reports of our auditors on the individual
financial statements of PSNH and NAEC contain explanatory paragraphs.
Those explanatory paragraphs indicate that a substantial doubt exists
currently about the ability of PSNH and NAEC to continue as going
concerns. The accounts of PSNH and NAEC are included in the
consolidated financial statements of NU on the basis of a going
concern. While the effect of the implementation of that decision
would have a material adverse impact on NU's financial position,
results of operations, and cash flows, it would not in and of itself
result in defaults under borrowing or other financial agreements of\
NU or its other subsidiaries.
On May 2, 1997, PSNH made a rate filing with the NHPUC. For
information regarding this rate proceeding, see the MD&A.
For information regarding the FERC rate proceedings for CYAPC and
MYAPC, see Note 4, "Nuclear Decommissioning."
B. NUCLEAR PERFORMANCE
Millstone: The three Millstone units are managed by NNECO.
Millstone 1, 2 and 3 have been out of service since November 4, 1995,
February 21, 1996 and March 30, 1996, respectively, and are on the
NRC's watch list. PSNH's ownership interest in the Millstone units
is limited to a 2.85 percent joint ownership interest in Millstone 3.
NU has restructured its nuclear organization and is currently
implementing comprehensive plans to restart the units.
Subsequent to its January 31, 1996 announcement that Millstone had been
placed on its watch list, the NRC stated that the units cannot return
to service until independent, third-party verification teams have
reviewed the actions taken to improve the design, configuration and
employee concerns issues that prompted the NRC to place the units on
its watch list. The actual date of the return to service for each of
the units is dependent upon the completion of independent inspections
and reviews by the NRC and a vote by the NRC commissioners. NU hopes
to return Millstone 3 to service in early spring of 1998 and Millstone
2 three to four months after Millstone 3. Millstone 1 is currently in
extended maintenance status.
In 1997, NU's share of nonfuel O&M costs expensed for Millstone totaled
$566 million, including $73 million reserved for future restart costs.
PSNH's share of nonfuel O&M costs was approximately $5 million.
Budgeted nuclear spending levels at Millstone for 1998 will be reduced
from 1997 levels, although they will be considerably higher than before
the station was placed on the NRC's watch list. The actual level of
1998 spending will depend on when the units return to operation and the
cost of restoring them to service. The total cost to restart the units
cannot be precisely estimated at this time. Management will continue
to evaluate the costs to be incurred in 1998 to determine whether
adjustments to the existing reserves are required.
Management cannot predict when the NRC will allow any of the Millstone
units to return to service and thus cannot precisely estimate the total
replacement power costs the NU system companies will ultimately incur.
Replacement power costs incurred by NU attributable to the Millstone
outages averaged approximately $28 million per month during 1997, and
for 1998 are projected to average approximately $9 million per month
for Millstone 3, $9 million per month for Millstone 2, and $6 million
per month for Millstone 1 while the plants remain out of service. To
date, PSNH's share of replacement power costs has not been material.
PSNH's share of replacement power costs is not expected to be material
for 1998, while Millstone 3 is out of service. CL&P, WMECO and PSNH
will continue to expense their replacement power costs in 1998.
Based on the current estimates of expenditures and restart dates,
management believes the NU system has sufficient resources to fund the
restoration of the Millstone units and related replacement power costs.
If the return to service of Millstone 3 or 2 is delayed substantially
beyond the present restart estimates, if some financing facilities
become unavailable because of difficulties in meeting borrowing
conditions or renegotiating extensions, if CL&P and WMECO encounter
additional significant costs or if any other significant deviations
from management's assumptions occur, CL&P and WMECO could be unable to
meet their cash requirements. In those circumstances, management would
take even more stringent actions to reduce costs and cash outflows and
attempt to obtain additional sources of funds. The availability of
these funds would be dependent upon general market conditions and
CL&P's and WMECO's respective credit and financial conditions at that
time.
Litigation: On August 7, 1997, the non-NU owners of Millstone 3 filed
demands for arbitration with CL&P and WMECO as well as lawsuits in
Massachusetts Superior Court against NU and its current and former
trustees. The non-NU owners raise a number of contract, tort and
statutory claims arising out of the operation of Millstone 3. The
arbitrations and lawsuits seek to recover compensatory damages,
punitive damages, treble damages and attorneys' fees. Owners
representing approximately two-thirds of the non-NU interests in
Millstone 3 claimed compensatory damages in excess of $200 million.
In addition, one of the lawsuits seeks to restrain NU from disposing
of its shares of the stock of WMECO and HWP, pending the outcome of
the lawsuit. Management cannot estimate the potential outcome of these
suits but believes there is no legal basis for the claims and intends
to defend against them vigorously. To date, no reserves have been
established for this litigation. At December 31, 1997, the costs
related to this litigation for the NU system were estimated to be
$100 million for incremental O&M costs and approximately $100 million
for replacement power costs. These costs are likely to increase as
long as Millstone 3 remains out of service.
C. ENVIRONMENTAL MATTERS
The NU system is subject to regulation by federal, state and local
authorities with respect to air and water quality, the handling and
disposal of toxic substances and hazardous and solid wastes, and the
handling and use of chemical products. The NU system has an active
environmental auditing and training program and believes that it is in
substantial compliance with current environmental laws and regulations.
However, the NU system is subject to certain pending enforcement
actions and governmental investigations in the environmental area.
Management cannot predict the outcome of these enforcement actions and
investigations.
Environmental requirements could hinder the construction of new
generating units, transmission and distribution lines, substations and
other facilities. Changing environmental requirements could also
require extensive and costly modifications to PSNH's existing
generating units, and transmission and distribution systems, and could
raise operating costs significantly. As a result, PSNH may incur
significant additional environmental costs, greater than amounts
included in cost of removal and other reserves, in connection with the
generation and transmission of electricity and the storage,
transportation and disposal of by-products and wastes. PSNH may also
encounter significantly increased costs to remedy the environmental
effects of prior waste handling activities. The cumulative long-term
cost impact of increasingly stringent environmental requirements cannot
be estimated accurately.
PSNH has recorded a liability based upon currently available
information for what it believes are its estimated environmental
remediation costs that it expects to incur for waste disposal sites.
In most cases, additional future environmental cleanup costs are not
reasonably estimable due to a number of factors, including the unknown
magnitude of possible contamination, the appropriate remediation
methods, the possible effects of future legislation or regulation and
the possible effects of technological changes. At December 31, 1997,
the net liability recorded by PSNH for its estimated environmental
remediation costs, excluding any possible insurance recoveries or
recoveries from third parties, amounted to approximately $5.6 million,
which management has determined to be the most probable amount.
During 1997, PSNH adopted Statement of Position 96-1, "Environmental
Remediation Liabilities" (SOP). The principal objective of the SOP
is to improve the manner in which existing authoritative accounting
literature is applied by entities to specific situations of
recognizing, measuring and disclosing environmental remediation
liabilities. The adoption of the SOP resulted in an increase of
approximately $400 thousand to PSNH's environmental reserve in 1997.
PSNH cannot estimate the potential liability for future claims,
including environmental remediation costs, that may be brought against
it. However, considering known facts, existing laws, and regulatory
practices, management does not believe the matters disclosed above will
have a material effect on PSNH's financial position or future results
of operations.
D. NUCLEAR INSURANCE CONTINGENCIES
Under certain circumstances, in the event of a nuclear incident at
one of the nuclear facilities in the country covered by the federal
government's third-party liability indemnification program, an owner
of a nuclear unit could be assessed in proportion to its ownership
interest in each of its nuclear units up to $75.5 million. Payments of
this assessment would be limited to $10.0 million in any one year per
nuclear incident based upon the owner's pro rata ownership interest in
each of its nuclear units. In addition, the owner would be subject to
an additional five percent or $3.8 million, in proportion to its
ownership interests in each of its nuclear units, if the sum of all
claims and costs from any one nuclear incident exceeds the maximum
amount of financial protection. Under the terms of the Seabrook Power
Contracts with NAEC, PSNH could be obligated to pay for any assessment
charged to NAEC as a "cost of service." Based on its ownership
interest in Millstone 3 and NAEC's ownership interest in Seabrook 1,
PSNH's maximum liability, including any additional assessments, would
be $30.8 million per incident of which payments would be limited to
$3.9 million per year. In addition, through power purchase contracts
with MYAPC, VYNPC and CYAPC, PSNH would be responsible for up to an
additional $11.1 million per incident, of which payments would be
limited to a maximum of $1.4 million per year.
Insurance has been purchased to cover the primary cost of repair,
replacement or decontamination of utility property resulting from
insured occurrences at Millstone 3 and CY. PSNH is subject to
retroactive assessments if losses exceed the accumulated funds
available to the insurer. The maximum potential assessment against
PSNH with respect to losses arising during the current policy year
is approximately $0.4 million under the primary property insurance
program.
Insurance has been purchased to cover certain extra costs incurred in
obtaining replacement power during prolonged accidental outages and
the excess cost of repair, replacement, or decontamination or premature
decommissioning of utility property resulting from insured occurrences.
PSNH is subject to retroactive assessments if losses exceed the
accumulated funds available to the insurer. The maximum potential
assessments against PSNH (including costs resulting from PSNH's
contracts with NAEC), with respect to losses arising during current
policy years are approximately $2.2 million under the replacement
power policies and $5.2 million under the excess property damage,
decontamination and decommissioning policies. Although PSNH has
purchased the limits of coverage currently available from the
conventional nuclear insurance pools, the cost of a nuclear incident
could exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on an industry
basis for coverage of worker claims. All participating reactor
operators insured under this coverage are subject to retrospective
assessments of $3 million per reactor. The maximum potential assessment
against PSNH (including costs resulting from the Seabrook Power
Contracts with NAEC), with respect to losses arising during the current
policy period is approximately $1.8 million. Effective January 1,
1998, a new worker policy was purchased which is not subject to
retrospective assessments.
E. CONSTRUCTION PROGRAM
The construction program is subject to periodic review and revision by
management. PSNH currently forecasts construction expenditures of
approximately $302.6 million for the years 1998-2002, including
approximately $41.9 million for 1998. In addition, PSNH estimates that
nuclear fuel requirements, for its share of Millstone 3, will be $5.1
million for the years 1998-2002, including $1.7 million for 1998.
F. LONG-TERM CONTRACTUAL ARRANGEMENTS
Yankee Companies: PSNH, CL&P and WMECO rely on VY for approximately
1.7 percent of their capacity under long-term contracts. Under the
terms of their agreements, the NU system companies pay their ownership
(or entitlement) shares of costs, which include depreciation, O&M
expenses, taxes, the estimated cost of decommissioning and a return on
invested capital. These costs are recorded as purchased power expense
and are recovered through the companies' rates. PSNH's total cost of
purchases under contracts with VYNPC, amounted to $6.2 million in 1997,
$6.5 million in 1996 and 1995.
The other Yankee generating facilities, MY, CY and Yankee Rowe, were
permanently shutdown as of August 6, 1997, December 4, 1996, and
February 26, 1992, respectively. See Note 1E, "Summary of Significant
Accounting Policies-Investments and Jointly Owned Electric Utility
Plant," for more information on the Yankee companies. See Note 4,
"Nuclear Decommissioning," regarding information on the related
decommissioning studies.
Nonutility Generators (NUGs): PSNH has requirements under various
arrangements for the purchase of capacity and energy from NUGs. These
arrangements have terms from 20 to 30 years, currently expiring in
the years 1998 through 2023, and require PSNH to purchase energy at
specified prices or formula rates. For the 12 months ending December
31, 1997, approximately 14 percent of the NU system electricity
requirements were met by NUGs. PSNH's total cost of purchases under
these arrangements amounted to $133.1 million in 1997, $132.6 million
in 1996, and $124.0 million in 1995. These costs may be deferred for
eventual recovery through rates. For additional information, see Note
1K, "Summary of Significant Accounting Policies-Recoverable Energy
Costs."
New Hampshire Electric Cooperative: PSNH entered into a buy-back
agreement to purchase the capacity and energy of the New Hampshire
Electric Cooperative, Inc.'s (NHEC) share of Seabrook 1 and to pay all
of NHEC's Seabrook 1 costs for a ten-year period, which began on July
1, 1990. The total cost of purchases under this agreement was $23.4
million in 1997, $14.6 million in 1996, and $15.8 million in 1995.
The total cost of these purchases has been collected through the
FPPAC in accordance with the Rate Agreement. In connection with the
agreement, NHEC agreed to continue as a firm-requirements customer of
PSNH for 15 years.
Hydro-Quebec: Along with other New England utilities, PSNH, CL&P,
WMECO, and HWP have entered into agreements to support transmission and
terminal facilities to import electricity from the Hydro-Quebec system
in Canada. PSNH is obligated to pay, over a 30-year period ending in
2020, its proportionate share of the annual O&M and capital costs of
these facilities.
Estimated Annual Costs: The estimated annual costs of PSNH's
significant long-term contractual arrangements are as follows:
1998 1999 2000 2001 2002
(Millions of Dollars)
VYNPC ........................ $ 7.1 $ 7.1 $ 6.7 $ 7.4 $ 7.7
NUGs ......................... 139.4 142.9 147.1 151.3 155.5
NHEC ......................... 30.0 30.0 14.6 - -
Hydro-Quebec ................. 10.2 9.8 9.7 9.4 9.2
For additional information regarding the recovery of purchased power
costs, see Note 1K, "Summary of Significant Accounting Policies -
Recoverable Energy Costs."
G. DEFERRED RECEIVABLE FROM AFFILIATED COMPANY
At the time PSNH emerged from bankruptcy on May 16, 1991, in accordance
with the phase-in under the Rate Agreement, it began accruing a
deferred return on a portion of its Seabrook investment. From May 16,
1991 to the Acquisition Date, PSNH accrued a deferred return of $50.9
million. On the Acquisition Date, PSNH sold the $50.9 million deferred
return to NAEC as part of the Seabrook-related assets.
At the time PSNH transferred the deferred return to NAEC, it realized,
for income tax purposes, a gain that is deferred under the consolidated
income tax rules. Beginning December 1, 1997, this gain is being
restored for income tax purposes, as the deferred return of $50.9
million, and the associated income taxes of $32.9 million, are being
collected by NAEC through the Seabrook Power Contracts. As NAEC
recovers the $32.9 million in years eight through ten of the Rate
Agreement, it will be obligated to make these corresponding payments
to PSNH.
On the Acquisition Date, PSNH recorded the $32.9 million of income
taxes associated with the deferred return as a deferred receivable from
NAEC, with a corresponding entry to deferred revenue, on its Balance
Sheet. In 1993, due to changes in tax rates, this amount was adjusted
to $33.2 million.
For further information related to the phase-in of the Seabrook power
plant, see Note 2, "Seabrook Power Contracts."
See Note 10A, "Commitments and Contingencies - Restructuring and Rate
Matters" for the possible impacts of the NHPUC's decision related to
industry restructuring on this intercompany transaction between PSNH
and NAEC.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each of the following financial instruments:
Cash and nuclear decommissioning trusts: The carrying amounts approximate
fair value.
SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires investments in debt and equity securities to be
presented at fair value. Unrealized gains and losses resulting from the
use of SFAS 115 accounting have not been material.
Preferred stock and long-term debt: The fair value of PSNH's fixed-rate
securities is based upon the quoted market price for those issues or
similar issues. Adjustable rate securities are assumed to have a fair
value equal to their carrying value. The carrying amounts of PSNH's
financial instruments and the estimated fair values are as follows:
Carrying Fair
At December 31, 1997 Amount Value
(Thousands of Dollars)
Preferred stock subject to
mandatory redemption..................... $100,000 $ 99,000
Long-term debt - First Mortgage Bonds...... $170,000 $170,425
Other long-term debt....................... $516,485 $537,599
Carrying Fair
At December 31, 1996 Amount Value
(Thousands of Dollars)
Preferred stock subject to
mandatory redemption..................... $125,000 $125,000
Long-term debt - First Mortgage Bonds...... 170,000 175,729
Other long-term debt....................... 516,485 523,536
The fair values shown above have been reported to meet the disclosure
requirements and do not purport to represent the amounts at which those
obligations would be settled.
To the Board of Directors
of Public Service Company of New Hampshire:
We have audited the accompanying balance sheets of Public Service Company
of New Hampshire (a New Hampshire corporation and a wholly owned subsidiary
of Northeast Utilities) as of December 31, 1997 and 1996, and the related
statements of income, common stockholder's equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Public Service Company
of New Hampshire as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 10A, on
February 28, 1997 the State of New Hampshire Public Utilities Commission
(the NHPUC) issued an order outlining its final plan to restructure the
electric utility industry. The final plan announced a departure from cost-
based rate making, which, if implemented, would require the company to
discontinue the application of Financial Accounting Standard No. 71,
"Accounting for the Effects of Certain Types of Regulation," (FAS 71).
The implementation of the final plan, including the effect of the
discontinuation of FAS 71, would result in after tax write-off of over
$400 million. Such a write-off would cause the company to be in technical
default under financial covenants imposed by lenders, which, would, if not
waived or renegotiated, give rise to the rights of lenders to accelerate
the repayment of approximately $686 million of the company's indebtedness
and approximately $495 million of an affiliated company's indebtedness.
These conditions raise substantial doubt about the company's ability to
continue as a going concern. The financial statements referred to above
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of Public Service Company of New
Hampshire's (PSNH or the company) financial condition and the principal factors
having an impact on the results of operations. The company is a wholly-owned
subsidiary of Northeast Utilities (NU). This discussion should be read in
conjunction with the company's financial statements and footnotes.
FINANCIAL CONDITION
OVERVIEW
Net income was approximately $92 million for 1997 compared to approximately $97
million for 1996. The decrease in net income was primarily due to higher
operation expenses.
Retail kilowatt-hour sales were essentially unchanged in 1997.
A significant issue facing PSNH in 1998 is the industry restructuring efforts in
New Hampshire. A temporary restraining order issued by a U.S. District Court is
currently blocking the New Hampshire Public Utilities Commission (NHPUC) from
implementing a February 1997 restructuring order that would have resulted in a
write-off by PSNH of more than $400 million. Management hopes to negotiate an
alternative restructuring proposal in 1998 that will produce significant PSNH
rate reductions and allow retail customers to choose their electric suppliers,
but still give PSNH and North Atlantic Energy Corporation (NAEC) an opportunity
to maintain an adequate financial condition and earn fair returns on their
investments.
RESTRUCTURING
In February, 1997, the NHPUC issued orders to restructure the state's electric
utility industry and set interim stranded cost charges for PSNH. In the orders,
the NHPUC announced a departure from cost-based ratemaking and adopted a market-
priced approach to stranded cost recovery. PSNH, NU, NAEC and Northeast
Utilities Service Company (NUSCO) filed for a temporary restraining order,
preliminary and permanent injunctive relief and a declaratory judgment in the
United States District Court of New Hampshire. The case subsequently was
transferred to the United States District Court of Rhode Island (District Court)
where a temporary restraining order was granted, staying, indefinitely, the
enforcement of the NHPUC's restructuring orders as they affected PSNH. Certain
appeals to the preliminary ruling have been denied and proceedings in the
District Court are expected to resume.
The NHPUC conducted rehearing proceedings in 1997 to decide the appropriate
methodology to be used to determine PSNH's interim stranded costs and to set
PSNH's interim stranded cost charges utilizing the determined methodology. The
NHPUC has not indicated when it will issue a decision in these proceedings.
On December 15, 1997, the NHPUC officially announced that industry restructuring
would not take place on January 1, 1998. On December 24, 1997, the Governor's
office filed a motion with the NHPUC formally requesting that certain issues
concerning the rate agreement (Rate Agreement) between NU, PSNH and the state of
New Hampshire, entered into in 1989 in connection with NU's reorganization plan
to resolve PSNH's bankruptcy, be transferred to the New Hampshire Supreme Court
for decision. The motion recommends that the NHPUC not issue any new rulings
concerning the Rate Agreement pending such Supreme Court decision. On February
20, 1998, the NHPUC petitioned the New Hampshire Supreme Court to review two
issues regarding the Rate Agreement; (i) whether the Rate Agreement creates
private rights which would allow PSNH to seek damages under a contract theory if
PSNH receives less than the full amount it claims as strandable costs under the
Rate Agreement, and (ii) if yes, against whom and under what conditions such
rights be enforceable. The Supreme Court first must determine whether it will
accept the NHPUC's petition.
As part of the rehearing proceedings, PSNH proposed a new methodology to
quantify its stranded costs. Under this proposal, PSNH would divest its owned
generation and purchased power obligations via auction. To the extent that
the auction fails to produce sufficient revenues to cover the net book value
of owned generation and contractual payment obligations of purchased power,
the difference would be recovered from customers through a non-bypassable
distribution charge. The new proposal also relies upon securitization of
certain assets to further reduce rates.
On February 20, 1998, PSNH forwarded a settlement offer to representatives from
the state of New Hampshire that was consistent with PSNH's proposal in the
rehearing proceedings, including among other things, a 20 percent rate reduction
at the beginning of 1999, an auction of PSNH's non nuclear generating units and
securitization of approximately $1.15 billion of PSNH's stranded costs.
See the "Notes to Financial Statements," Note 10A, for the potential accounting
impacts of restructuring.
RATE MATTERS
PSNH's Rate Agreement provided for seven base rate increases and a comprehensive
fuel and purchased power adjustment clause (FPPAC). In June 1996, the final
base rate increase of 5.5 percent went into effect. Although the FPPAC
continues for an additional four years beyond the end of the fixed rate period,
there is uncertainty regarding how it will continue to function. The costs
associated with purchases by PSNH from certain non-utility generators (NUGs) at
prices above the level assumed in rates are deferred and recovered through the
FPPAC. At December 31, 1997, NUG deferrals totaled approximately $173 million.
On May 2, 1997, PSNH made a rate filing with the NHPUC requesting base rates to
remain at their current level after May 31, 1997. By order dated November 6,
1997, the NHPUC ordered a temporary rate reduction for PSNH at a revenue level
6.87 percent lower than current rates. The NHPUC also set an interim return on
equity of 11 percent. The temporary rates became effective December 1, 1997. A
final decision, which will be reconciled to July 1, 1997, is not expected to be
issued until September, 1998. A portion of this reduction was offset by an
increase to rates through the FPPAC.
On February 10, 1998, the NHPUC ordered an FPPAC rate for the period December 1,
1997 through May 31, 1998, which increased customer bills by approximately 6
percent. Prior to this increase, the FPPAC rate had been a credit to reflect
a customer refund ordered by the NHPUC beginning in June 1996. This rate
continues to defer recovery of a substantial portion of costs for the future.
In addition, recovery of the Seabrook deferred return (approximately $127
million annually) is scheduled to begin in June 1998. On March 13, 1998, PSNH
filed a proposed change to its rates, effective June 1, 1998. Public hearings
on the proposed rate change are scheduled to take place in May 1998.
The NHPUC also confirmed in its February 10, 1998 decision that it would
disallow approximately $3 million in replacement power costs related to outages
at Connecticut Yankee, Maine Yankee and Vermont Yankee and require PSNH to set
aside $10 million as a reserve for potential overpayments due to the fact that
PSNH has not required small power producers to reduce deliveries during so-
called "light-loading" periods, pending the NHPUC's review of this matter. The
decision also alleges various breaches of the Rate Agreement and ordered PSNH to
meet with the State to discuss these matters. Finally, the decision indicated
that the NHPUC would open a proceeding to review whether the proceeds from the
sale of steam generators (approximately $20.9 million for NAEC's share) related
to the canceled Unit II at Seabrook station should flow through rates to reduce
customer bills.
See the "Notes to Financial Statements," Note 1K, for further information on
the FPPAC.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $44 million in 1997,
compared to 1996, primarily due to lower recoveries through the FPPAC as a
result of a customer refund ordered by the NHPUC and higher costs due to
the Seabrook outage that are not being recovered currently, partially offset
by higher working capital. Cash used for financing activities decreased
approximately $116 million in 1997, compared to 1996, due primarily to the
repayment of long-term debt in 1996, partially offset by the higher payment
of cash dividends on common stock and the repayment of preferred stock in 1997.
Cash used for investments decreased approximately $21 million in 1997, compared
to 1996, primarily due to a decrease in investments in the NU system Money Pool.
PSNH has a $125 million revolving credit agreement that will expire in April
1999. At December 31, 1997 there were no borrowings under the facility.
PSNH has a first mortgage bond maturity of $170 million, plus accrued interest,
on May 14, 1998. PSNH expects to meet that maturity with cash on hand and
borrowing under the revolving credit agreement.
Each major subsidiary of NU finances its own needs. Neither CL&P nor WMECO
has any financing agreements containing cross defaults based on financial
defaults by NU, PSNH or NAEC. Similarly, neither PSNH nor NAEC has any
financing agreements containing cross defaults based on financial defaults by
NU, CL&P or WMECO. Nevertheless, it is possible that investors will take
negative operating results or regulatory developments at one company in the NU
system into account when evaluating other companies in the NU system. That
could, as a practical matter and despite the contractual and legal separations
among the NU companies, negatively affect each company's access to financial
markets.
NUCLEAR PERFORMANCE
MILLSTONE 3
PSNH has a 2.85 percent joint ownership interest in Millstone 3. Millstone 3 has
been out of service since March 30, 1996.
Subsequent to its January 31, 1996, announcement that Millstone had been placed
on its watch list, the NRC has stated that the unit cannot return to service
until independent, third party verification teams have reviewed the actions
taken to improve the design, configuration and employee concerns issues that
prompted the NRC to place the unit on its watch list. The actual date of the
return to service for the unit is dependent upon the completion of independent
inspections, reviews by the NRC and a vote by the NRC commissioners.
In January 1998, NU declared Millstone 3 physically ready for restart, which
meant that almost all of the restart-required physical work had been completed
in the plant. The NRC currently is conducting a series of inspections to
determine, among other things, whether the plant has effective leadership and
corrective action and employee concerns programs. The Independent Corrective
Action Verification Program, an NRC-ordered independent review of the plant's
design and licensing bases, is expected to be completed in March 1998.
To date, PSNH's costs related to the Millstone 3 outage have not had a material
impact on the company's financial position or results of operations. Management
expects that, under its current planning assumptions, Millstone 3's outage-
related costs will continue to be immaterial to the company's results of
operations.
SEABROOK
PSNH is obligated to purchase North Atlantic Energy Corporation's (NAEC) 35.98-
percent share of the capacity and output generated by Seabrook 1(Seabrook) under
the Seabrook Power Contract for a period equal to the length of the NRC full-
power operating license for Seabrook (through 2026) whether or not Seabrook is
operating and without regard to the cost of alternative sources of power. North
Atlantic Energy Service Corporation is the managing agent and operates Seabrook.
Seabrook operated at a capacity factor of 78.3 percent through December 1997,
compared to 96.8 percent for the same period in 1996. The lower 1997 capacity
factor is due primarily to the 50-day scheduled refueling and maintenance outage
which began on May 10, 1997, and an unplanned outage that began on December 5,
1997. The unplanned outage occurred when the unit was shut down to repair leaks
in a three inch stainless steel pipe in the residual heat removal system. The
pipe was replaced, but problems were subsequently discovered in the control
building air conditioning system. Design changes were implemented and the plant
returned to service on January 16, 1998.
DECOMMISSIONING
CONNECTICUT YANKEE
PSNH has a 5 percent ownership interest in the Connecticut Yankee nuclear
generating facility (CY or the plant). On December 4, 1996, the Board of
Directors of Connecticut Yankee Atomic Power Company voted unanimously to cease
permanently the production of power at the plant. The decision to retire CY from
commercial operation was based on an economic analysis of the costs of operating
it compared to the costs of closing it and incurring replacement power costs
over the remaining period of the plant's operating license, which would have
expired in 2007. The economic analysis showed that closing the plant and
incurring replacement power costs produced substantial savings.
CY has undertaken a number of regulatory filings intended to implement the
decommissioning. In late December 1996, CY filed an amendment to its power
contracts with the FERC to clarify the obligations of its purchasing utilities
following the decision to cease power production. At December 31, 1997, PSNH's
share of these obligations was approximately $31 million, including the cost of
decommissioning and the recovery of existing assets. Management expects that
PSNH will continue to be allowed to recover such FERC approved costs from their
customers. Accordingly, PSNH has recognized its share of the estimated costs as
a regulatory asset, with a corresponding obligation, on its balance sheets.
MAINE YANKEE
PSNH has a 5 percent ownership interest in the Maine Yankee (MY) nuclear
generating facility. On August 6, 1997, the Board of Directors of Maine Yankee
Atomic Power Company (MYAPC) voted unanimously to retire MY. On January 14,
1998, FERC released a draft order on the MYAPC application to amend its power
contracts with the owner/purchasers and revise its decommissioning and other
charges. FERC has accepted the proposed application for filing and made the
amendments and the proposed charges under the contracts effective on January
15, 1998, subject to refund after hearings. At December 31, 1997, PSNH's
share of the estimated remaining obligation, including decommissioning amounted
to approximately $43 million. Under the terms of the contracts with MYAPC, the
shareholders' sponsor companies, including PSNH, are responsible for their
proportionate share of the costs of the unit, including decommissioning.
Management expects that PSNH will be allowed to recover these costs from its
customers. Accordingly, PSNH has recognized these costs as a regulatory asset,
with a corresponding obligation on its balance sheet.
MILLSTONE AND SEABROOK
PSNH's estimated cost to decommission its 2.85 percent share of Millstone 3 and
NAEC's 35.98 share of Seabrook is approximately $16 million and $170 million,
respectively, in year end 1997 dollars. These costs are being recognized over
the lives of the respective units with a portion currently being recovered
through rates. Under the terms of the Rate Agreement, the company is obligated
to pay NAEC's share of Seabrook's decommissioning costs, even if the unit is
shut down prior to the expiration of its operating license. As of December 31,
1997, the market value of the contributions already made to the Millstone 3 and
Seabrook decommissioning trusts, including their investment returns, was
approximately $4 million and $26 million, respectively.
See the "Notes to Financial Statements," Note 4, for further information on
nuclear decommissioning, including PSNH's share of costs to decommission the
other regional nuclear generating units.
ENVIRONMENTAL MATTERS
PSNH is potentially liable for environmental cleanup costs at a number of sites
inside and outside its service territory. To date, the future estimated
environmental remediation liability has not been material with respect to the
earnings or financial position of PSNH. At December 31, 1997, PSNH had recorded
an environmental reserve of approximately $5.6 million. See the "Notes to
Financial Statements" Note 10C, for further information on environmental
matters.
YEAR 2000 ISSUE
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the change of the
century occurs, date-sensitive systems may recognize the year 2000 as 1900, or
not recognize it at all. This inability to recognize or properly treat the
year 2000 may cause NU systems to process critical financial and operational
information incorrectly. The company has assessed and continues to assess the
impact of the Year 2000 issue on its operating and reporting systems. The
assessment of the nuclear operating systems is continuing and is expected to
be completed in the summer of 1998.
The NU System will utilize both internal and external resources to reprogram or
replace, and test the software for Year 2000 modifications. The total estimated
remaining cost of the Year 2000 project is $37 million and is being funded
through operating cash flows. This estimate does not include any costs for the
replacement or repair of equipment or devices that may be identified during the
assessment process. The majority of these costs will be expensed as incurred
over the next two years. To date, the NU system has incurred and expensed
approximately $4 million related to the assessment of, 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 plan is not successful, there could be a significant
disruption of the NU system's operations.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
1997 over/(under) 1996 1996 over/(under) 1995
Amount Percent Amount Percent
Operating revenues ($2) - % $130 13%
Fuel, purchased and net
interchange power (30) (8) 100 39
Other operation 41 12 14 4
Maintenance (7) (16) 3 8
Other, net (7) (92) 5 (a)
Interest on long-term debt (6) (11) (19) (25)
Other interest expense (3) (91) 3 (a)
Net income (4) (5) 14 16
(a) Percent greater than 100
OPERATING REVENUES
Total operating revenues decreased in 1997 primarily due to lower fuel
recoveries, partially offset by higher retail revenues. Fuel recoveries
decreased approximately $12 million, primarily due to the customer refund
ordered by the NHPUC. Retail revenues increased approximately $9 million,
primarily due to the June 1996 rate increase, partially offset by the December
1997 rate decrease and higher price discounts to retain customers. Retail
sales were essentially unchanged.
Total operating revenues increased in 1996, primarily due to higher fuel
recoveries, regulatory decisions, and other retail revenues. Fuel recoveries
increased $112 million, primarily due to revenues resulting from the
intercompany allocation of energy costs to NU affiliated companies ($125
million) and higher base fuel revenues primarily as a result of the June 1996
and 1995 retail-rate increases, partially offset by lower FPPAC revenues as a
result of a customer refund ordered by the NHPUC. Revenues related to regulatory
decisions increased $8 million, primarily due to the retail-rate increases.
Other retail revenues increased $10 million primarily due to sales growth
and other revenue sources. Retail sales increased 0.4 percent ($2 million),
primarily due to economic growth in 1996, partially offset by milder weather
in 1996.
FUEL EXPENSE
Fuel, purchased and net interchange power expense decreased in 1997, primarily
due to the timing in the recognition of fuel expenses under the FPPAC, partially
offset by higher purchased power costs.
Fuel, purchased and net interchange power expense increased in 1996, primarily
due to higher purchased power costs and the timing in the recognition of fuel
expenses under the FPPAC.
OTHER OPERATION AND MAINTENANCE EXPENSE
Other operation and maintenance expense increased in 1997 primarily due to
higher capacity charges under the Seabrook Power Contract as a result of the
scheduled May 1997 refueling and maintenance outage and the unplanned December
1997 outage ($23 million), higher capacity purchases from NHEC ($11 million),
higher capacity charges from MY ($4 million) and higher costs for PSNH's share
of Millstone 3 ($2 million), partially offset by lower fossil costs ($4 million)
and lower administration and sales costs ($3 million).
Other operation and maintenance expenses increased in 1996, primarily due to
higher storm costs, higher employee benefit costs, higher capacity charges under
the Seabrook Power Contracts and higher marketing costs.
OTHER, NET
Other, net decreased in 1997 and increased in 1996, primarily due to the
deferral in 1996 of interest expense ($5 million) associated with the FPPAC
refund.
INTEREST ON LONG-TERM DEBT
Interest on long-term debt decreased in 1997 and 1996, primarily due to the
repayment of the $172.5 million Series A first-mortgage bond in May 1996.
OTHER INTEREST EXPENSE
Other interest expense decreased in 1997 and increased in 1996, primarily due
to 1996 interest expense ($5 million) associated with the FPPAC refund.
Public Service Company of New Hampshire
SELECTED FINANCIAL DATA (a)
Jan. 1, 1997 Jan. 1, 1996 Jan. 1, 1995
to to to
For the Periods Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
(Thousands of Dollars)
Operating Revenues........ $1,108,459 $1,110,169 $ 979,971
Operating Income.......... 144,274 155,195 155,628
Net Income ............... 92,422 96,902 83,255
Cash Dividends on
Common Stock............ 85,000 52,000 52,000
At Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
Total Assets.............. $2,837,159 $2,851,212 $2,920,487
Long-Term Debt (b)........ 686,485 686,485 858,985
Preferred Stock
Subject to Mandatory
Redemption(b)........... 100,000 125,000 125,000
Obligations Under
Seabrook Power
Contracts and Other
Capital Leases(b)....... 921,813 914,617 915,288
(a) Reclassifications of prior data have been made to conform with
the current presentation.
(b) Includes portions due within one year.
Public Service Company of New Hampshire
SELECTED FINANCIAL DATA
Jan. 1, 1994 Jan. 1, 1993
to to
For the Periods Dec. 31, 1994 Dec. 31, 1993
(Thousands of Dollars)
Operating Revenues........ $922,039 $864,415
Operating Income.......... 152,086 124,710
Net Income ............... 77,444 52,237
Cash Dividends on
Common Stock............ - -
At Dec. 31, 1994 Dec. 31, 1993
(Thousands of Dollars)
Total Assets.............. $2,845,967 $2,774,511
Long-Term Debt (b)........ 999,985 1,093,895
Preferred Stock
Subject to Mandatory
Redemption(b)........... 125,000 125,000
Obligations Under
Seabrook Power
Contracts and Other
Capital Leases(b)....... 887,967 856,559
Public Service Company of New Hampshire
STATISTICS
Average
Gross Electric Annual
Utility Plant Use Per
December 31, kWh Residential Electric
(Thousands of Sales Customer Customers Employees
Dollars)(a) (Millions) (kWh) (Average) (December 31)
1997 $2,312,628 13,340 6,528 407,642 1,254
1996 2,382,009 13,601 6,567 407,082 1,279
1995 2,469,474 11,001 6,524(c) 406,077 1,325
1994 2,521,960 11,008 6,768 400,775 1,374
1993 2,590,644 11,146 6,817 397,277 1,426
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
Quarter Ended (b)
1997 March 31 June 30 Sept.30 Dec. 31
Operating Revenues....... $278,321 $257,098 $285,390 $287,650
Operating Income......... $ 45,010 $ 34,062 $ 32,322 $ 32,880
Net Income............... $ 32,529 $ 21,161 $ 19,056 $ 19,676
1996 March 31 June 30 Sept.30 Dec. 31
Operating Revenues....... $269,540 $261,897 $296,719 $282,013
Operating Income......... $ 44,668 $ 42,156 $ 46,934 $ 21,437
Net Income............... $ 28,545 $ 23,986 $ 30,646 $ 13,725
(a) Includes reclassification of the unamortized acquisition costs to
gross utility plant.
(b) Reclassifications of prior data have been made to conform with
the current presentation.
(c) Effective January 1, 1996, the amounts shown reflect billed and
unbilled sales. 1995 has been restated to reflect this change.
1997 Annual Report
North Atlantic Energy Corporation
Index
Contents Page
Balance Sheets................................................... 2
Statements of Income............................................. 4
Statements of Cash Flows......................................... 5
Statements of Common Stockholder's Equity........................ 6
Notes to Financial Statements.................................... 7
Report of Independent Public Accountants......................... 24
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 26
Selected Financial Data.......................................... 32
Statistics....................................................... 32
Statements of Quarterly Financial Data........................... 32
Bondholder Information........................................... Back Cover
PART I. FINANCIAL INFORMATION
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric (Note 1G)...................................... $ 779,111 $ 775,794
Less: Accumulated provision for depreciation......... 143,778 124,530
------------- -------------
635,333 651,264
Construction work in progress........................... 4,616 8,887
Nuclear fuel, net....................................... 27,413 31,765
------------- -------------
Total net utility plant............................. 667,362 691,916
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 26,547 19,744
------------- -------------
26,547 19,744
------------- -------------
Current Assets:
Cash.................................................... 13 299
Special deposits........................................ - 7,039
Receivables from affiliated companies................... 25,695 16,422
Taxes receivable........................................ 4,613 -
Materials and supplies, at average cost................. 13,003 13,093
Prepayments and other................................... 4,220 4,302
------------- -------------
47,544 41,155
------------- -------------
Deferred Charges:
Regulatory assets (Note 1H)............................. 269,484 259,881
Unamortized debt expense................................ 3,702 4,692
------------- -------------
273,186 264,573
------------- -------------
Total Assets........................................ $ 1,014,639 $ 1,017,388
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------
(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....................................... 58,702 53,749
------------- -------------
Total common stockholder's equity.............. 219,702 214,749
Long-term debt.......................................... 475,000 495,000
------------- -------------
Total capitalization........................... 694,702 709,749
------------- -------------
Current Liabilities:
Notes payable to affiliated company..................... 9,950 2,500
Long-term debt--current portion......................... 20,000 20,000
Accounts payable........................................ 7,912 20,714
Accounts payable to affiliated companies................ 6,040 5,073
Accrued interest........................................ 3,025 2,888
Accrued taxes........................................... - 3,486
Other................................................... 1,055 271
------------- -------------
47,982 54,932
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 216,701 196,650
Deferred obligation to affiliated company (Note 6)...... 32,472 33,284
Other................................................... 22,782 22,773
------------- -------------
271,955 252,707
------------- -------------
Commitments and Contingencies (Note 7)
------------- -------------
Total Capitalization and Liabilities........... $ 1,014,639 $ 1,017,388
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues................................. $ 192,381 $ 162,152 $ 157,183
---------- ---------- ----------
Operating Expenses:
Operation --
Fuel.......................................... 13,405 15,013 12,030
Other......................................... 39,091 34,356 36,737
Maintenance...................................... 24,146 9,154 12,442
Depreciation..................................... 25,170 24,056 23,406
Amortization of regulatory assets, net........... 6,270 - -
Federal and state income taxes (Note 5).......... 14,845 12,341 10,187
Taxes other than income taxes.................... 12,393 12,343 10,987
---------- ---------- ----------
Total operating expenses................... 135,320 107,263 105,789
---------- ---------- ----------
Operating Income................................... 57,061 54,889 51,394
---------- ---------- ----------
Other Income:
Deferred Seabrook return--other funds............ 7,205 7,700 9,405
Other, net....................................... (747) 1,200 1,556
Income taxes..................................... 4,394 5,052 2,776
---------- ---------- ----------
Other income, net.......................... 10,852 13,952 13,737
---------- ---------- ----------
Income before interest charges............. 67,913 68,841 65,131
---------- ---------- ----------
Interest Charges:
Interest on long-term debt....................... 50,722 52,414 62,721
Other interest................................... 649 (697) (519)
Deferred Seabrook return--borrowed funds......... (13,411) (14,948) (21,512)
---------- ---------- ----------
Interest charges, net...................... 37,960 36,769 40,690
---------- ---------- ----------
Net Income......................................... $ 29,953 $ 32,072 $ 24,441
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities:
Net Income.................................................. $ 29,953 $ 32,072 $ 24,441
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 25,170 24,056 23,406
Amortization of nuclear fuel.............................. 10,705 11,668 9,183
Deferred income taxes and investment tax credits, net..... 22,649 15,749 46,114
Deferred return - Seabrook................................ (20,616) (22,648) (30,917)
Sale of Seabrook 2 steam generator........................ - 20,931 -
Loss on reacquired debt................................... - - (31,886)
Other sources of cash..................................... 11,052 9,175 2,957
Other uses of cash........................................ (2,224) (2,582) (3,375)
Changes in working capital:
Receivables............................................... (9,273) 2,270 (4,709)
Materials and supplies.................................... 90 (824) (2,233)
Accounts payable.......................................... (11,835) 19,509 2,167
Accrued taxes............................................. (3,486) 2,140 (93)
Other working capital (excludes cash)..................... 3,429 (7,675) (12,161)
----------- ----------- -----------
Net cash flows from operating activities...................... 55,614 103,841 22,894
----------- ----------- -----------
Financing Activities:
Issuance of long-term debt.................................. - - 225,000
Net increase/(decrease) in short-term debt.................. 7,450 (5,500) 8,000
Reacquisitions and retirements of long-term debt............ (20,000) (45,000) (225,000)
Cash dividends on common stock.............................. (25,000) (38,000) (24,000)
----------- ----------- -----------
Net cash flows used for financing activities.................. (37,550) (88,500) (16,000)
----------- ----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (6,606) (5,921) (6,906)
Nuclear fuel.............................................. (6,147) (15,752) (16,609)
----------- ----------- -----------
Net cash flows used for investments in plant................ (12,753) (21,673) (23,515)
NU System Money Pool........................................ - 2,500 26,250
Investment in nuclear decommissioning trusts................ (5,597) (4,404) (3,824)
Other investment activities, net............................ - 222 -
----------- ----------- -----------
Net cash flows used for investments........................... (18,350) (23,355) (1,089)
----------- ----------- -----------
Net (Decrease)/Increase In Cash For The Period................ (286) (8,014) 5,805
Cash - beginning of period.................................... 299 8,313 2,508
----------- ----------- -----------
Cash - end of period.......................................... $ 13 $ 299 $ 8,313
=========== =========== ===========
Supplemental Cash Flow Information:
Cash paid/(refunded) during the year for:
Interest, net of amounts capitalized........................ $ 45,297 $ 46,322 $ 73,923
=========== =========== ===========
Income taxes................................................ $ - $ (13,160) $ (36,679)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Capital Retained
Common Surplus, Earnings
Stock Paid In (a) Total
- -----------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Balance at January 1, 1995 ............. $ 1 $ 160,999 $ 59,236 $ 220,236
Net income for 1995................. 24,441 24,441
Cash dividends on common stock...... (24,000) (24,000)
---------- ---------- --------- ----------
Balance at December 31, 1995............ 1 160,999 59,677 220,677
Net income for 1996................. 32,072 32,072
Cash dividends on common stock...... (38,000) (38,000)
---------- ---------- --------- ----------
Balance at December 31, 1996............ 1 160,999 53,749 214,749
Net income for 1997................. 29,953 29,953
Cash dividends on common stock...... (25,000) (25,000)
---------- ---------- --------- ----------
Balance at December 31, 1997............ $ 1 $ 160,999 $ 58,702 $ 219,702
========== ========== ========= ==========
</TABLE>
(a) All retained earnings are available for distribution, plus an allowance of
$10 million.
The accompanying notes are an integral part of these financial statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ABOUT NORTH ATLANTIC ENERGY CORPORATION
North Atlantic Energy Corporation (NAEC or the company), The
Connecticut Light and Power Company (CL&P), Public Service Company of
New Hampshire (PSNH), Western Massachusetts Electric Company (WMECO),
and Holyoke Water Power Company (HWP), are the operating subsidiaries
comprising the Northeast Utilities system (the NU system) and are
wholly owned by Northeast Utilities (NU).
The NU system furnishes franchised retail electric service in
Connecticut, New Hampshire, and western Massachusetts through CL&P,
PSNH, WMECO, and HWP. NAEC sells all of its entitlement to the
capacity and output of the Seabrook nuclear power plant, (Seabrook,
a 1,148-megawatt nuclear generating unit) to PSNH. In addition to its
franchised retail service, the NU system furnishes firm and other
wholesale electric services to various municipalities and other
utilities, and participates in limited retail access programs,
providing off-system retail electric service. The NU system serves
about 30 percent of New England's electric needs and is one of the
25 largest electric utility systems in the country as measured by
revenues.
Other wholly owned subsidiaries of NU provide support services for
the NU system companies and, in some cases, for other New England
utilities. Northeast Utilities Service Company (NUSCO) provides
centralized accounting, administrative, information resources,
engineering, financial, legal, operational, planning, purchasing and
other services to the NU system companies. North Atlantic Energy
Service Corporation (NAESCO) acts as agent for NAEC and CL&P and has
operational responsibility for Seabrook. Northeast Nuclear Energy
Company (NNECO) acts as agent for the NU system companies and other
New England utilities in operating the Millstone nuclear generating
facilities.
B. PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications of prior years' data have been made to
conform with the current year's presentation.
All transactions among affiliated companies are on a recovery of cost
basis which may include amounts representing a return on equity and are
subject to approval by various federal and state regulatory agencies.
C. PUBLIC UTILITY REGULATION
NU is registered with the Securities and Exchange Commission (SEC) as a
holding company under the Public Utility Holding Company Act of 1935
(1935 Act), and it and its subsidiaries, including NAEC, are subject to
the provisions of the 1935 Act. Arrangements among the NU system
companies, outside agencies and other utilities covering
interconnections, interchange of electric power and sales of utility
property are subject to regulation by the Federal Energy Regulatory
Commission (FERC) and/or the SEC. NAEC is subject to further regulation
for rates, accounting and other matters by the FERC and/or applicable
state regulatory commissions.
For information regarding proposed changes in the nature of industry
regulation, see Note 7A, "Commitments and Contingencies - Restructuring
and Rate Matters."
D. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued a new accounting
standard in February 1997: Statement of Financial Accounting Standards
(SFAS) 129, "Disclosure of Information about Capital Structure." SFAS
129 establishes standards for disclosing information about an entity's
capital structure. NAEC's current disclosures are consistent with the
requirements of SFAS 129.
During June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for the reporting and
disclosure of comprehensive income. To date, NAEC has not had material
transactions that would be required to be reported as comprehensive
income. Management believes that the implementation of SFAS 130 will
not have a material impact on NAEC's current disclosures.
E. JOINTLY OWNED ELECTRIC UTILITY PLANT
NAEC has a 35.98 percent joint-ownership interest in Seabrook which
includes the 0.4 percent ownership interest in Seabrook 1 which NAEC
acquired from Vermont Electric Generation and Transmission Cooperative
in February 1994. NAEC sells all of its share of the power generated
by Seabrook to PSNH under two long-term contracts (the Seabrook Power
Contracts). As of December 31, 1997 and 1996, plant-in-service
included approximately $723.2 million and $718.7 million, respectively,
and the accumulated provision for depreciation included approximately
$116.1 million and $102.0 million, respectively, for NAEC's share of
Seabrook 1. NAEC's share of Seabrook 1 expenses is included in the
corresponding operating expenses on the accompanying Statements of
Income.
F. DEPRECIATION
The provision for depreciation is calculated using the straight-line
method based on estimated remaining lives of depreciable utility plant-
in-service, adjusted for salvage value and removal costs, as approved
by the appropriate regulatory agency. Except for major facilities,
depreciation rates are applied to the average plant-in-service during
the period. Major facilities are depreciated from the time they are
placed in service. When plant is retired from service, the original
cost of plant, including costs of removal, less salvage, is charged to
the accumulated provision for depreciation. The depreciation rates for
the several classes of electric plant-in-service are equivalent to a
composite rate of 3.5 percent in 1997, 3.4 percent in 1996 and
3.3 percent in 1995. See Note 2, "Nuclear Decommissioning," for
additional information on nuclear plant decommissioning.
G. SEABROOK POWER CONTRACTS
PSNH and NAEC have entered into two power contracts that obligate PSNH
to purchase NAEC's 35.98 percent ownership of the capacity and output
of Seabrook 1 for the term of Seabrook 1's Nuclear Regulatory
Commission (NRC) operating license. Under these contracts, PSNH is
obligated to pay NAEC's cost of service during this period, regardless
if Seabrook 1 is operating. NAEC's cost of service includes all of its
Seabrook-related costs, including operation and maintenance (O&M)
expenses, fuel expense, income and property tax expense, depreciation
expense, certain overhead and other costs and a return on its allowed
investment.
The Seabrook Power Contracts established the value of the initial
investment in Seabrook (initial investment) at $700-million. As
prescribed by the 1989 rate agreement with the State of New Hampshire
(Rate Agreement), as of May 1, 1996, NAEC phased into rates 100 percent
of the recoverable portion of its investment in Seabrook 1. From
June 5, 1992 (the date NU acquired PSNH and NAEC acquired Seabrook 1
from PSNH - the Acquisition Date) through November 1997, NAEC recorded
$203.9 million of deferred return on its investment in Seabrook 1. At
November 30, 1997, NAEC's utility plant included $84.1 million of
deferred return that was transferred as part of the Seabrook plant
assets to NAEC on the Acquisition Date. Beginning on December 1, 1997,
the deferred return, including the portion transferred to NAEC is
currently being billed through the Seabrook Power Contracts to PSNH,
and will be fully recovered from customers by May 2001. NAEC is
depreciating its initial investment over the term of Seabrook 1's
operating license (39 years), and any subsequent plant additions are
depreciated on a straight-line basis over the remaining term of the
Seabrook Power Contracts at the time the subsequent additions are
placed in service.
If Seabrook 1 is shut down prior to the expiration of the NRC operating
license, PSNH will be unconditionally required to pay NAEC termination
costs for 39 years, less the period during which Seabrook 1 has
operated. These termination costs will reimburse NAEC for its share of
Seabrook 1 shut-down and decommissioning costs, and will pay NAEC a
return of and on any undepreciated balance of its initial investment
over the remaining term of the Seabrook Power Contracts, and the return
of and on any capital additions to the plant made after the Acquisition
Date over a period of five years after shut down (net of any tax
benefits to NAEC attributable to the cancellation).
H. REGULATORY ACCOUNTING AND ASSETS
The accounting policies of the company and the accompanying financial
statements conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of the
ratemaking process in accordance with SFAS 71, "Accounting for the
Effects of Certain Types of Regulation." Assuming a cost-of-service
based regulatory structure, regulators may permit incurred costs,
normally treated as expenses, to be deferred and recovered through
future revenues. Through their actions, regulators also may reduce or
eliminate the value of an asset, or create a liability. If any portion
of the company's operations no longer were subject to the provisions
of SFAS 71, as a result of a change in the cost-of-service based
regulatory structure or the effects of competition, the company would
be required to write off all of its related regulatory assets and
liabilities unless there is a formal transition plan which provides for
the recovery, through established rates, for the collection of approved
stranded costs and to maintain the cost-of-service basis for the
remaining regulated operations. At the time of transition, NAEC would
be required to determine any impairment to the carrying costs of
deregulated plant and inventory assets.
The issue of restructuring the electric utility industry in New
Hampshire is currently the focus of negotiations and proceedings
within the federal and state court systems. The outcome of these court
proceedings will impact NAEC due to NAEC's contractual relationship
with PSNH through the Seabrook Power Contracts. However, management
believes that NAEC's use of regulatory accounting remains appropriate
while this issue remains in litigation.
For more information on NAEC's regulatory environment and the potential
impacts of restructuring, see Note 7A, "Commitments and Contingencies -
Restructuring and Rate Matters," and Management's Discussion and
Analysis of Financial Condition and Results of Operations (MD&A).
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," requires the evaluation of long-
lived assets, including regulatory assets, for impairment when certain
events occur or when conditions exist that indicate the carrying
amounts of assets may not be recoverable. SFAS 121 requires that any
long-lived assets which are no longer probable of recovery through
future revenues be revalued based on estimated future cash flows.
If this revaluation is less than the book value of the asset, an
impairment loss would be charged to earnings. SFAS 121 did not have a
material impact on the company's financial position or results of
operations as of December 31, 1997. Management continues to believe
that it is probable that the company will recover its investments in
long-lived assets through future revenues. This conclusion may change
in the future as the implementation of restructuring plans within New
Hampshire will subject NAEC to competitive market conditions. As a
result, NAEC will be required to assess the carrying amounts of its
long-lived assets in accordance with SFAS 121.
The components of NAEC's regulatory assets are as follows:
At December 31, 1997 1996
(Thousands of Dollars)
Deferred costs-Seabrook 1
(Note 1K)............................ $199,753 $185,078
Income taxes, net (Note 1I)............ 48,736 47,185
Recoverable energy costs (Note 1J)..... 2,057 2,217
Unamortized loss on reacquired
debt................................. 18,938 25,401
$269,484 $259,881
I. INCOME TAXES
The tax effect of temporary differences (differences between the
periods in which transactions affect income in the financial
statements and the periods in which they affect the determination
of taxable income) is accounted for in accordance with the ratemaking
treatment of the applicable regulatory commissions. See Note 5, "Income
Tax Expense" for the components of income tax expense.
The tax effect of temporary differences, including timing differences
accrued under previously approved accounting standards, which give rise
to the accumulated deferred tax obligation is as follows:
At December 31, 1997 1996
(Thousands of Dollars)
Accelerated depreciation and
other plant-related differences ..... $159,251 $136,234
Regulatory assets - income tax
gross up ............................ 17,094 16,516
Other ................................. 40,356 43,900
$216,701 $196,650
J. RECOVERABLE ENERGY COSTS
Under the Energy Policy Act of 1992 (Energy Act), NAEC is assessed for
its proportionate share of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (D&D assessment). The Energy Act requires that
regulators treat D&D assessments as a reasonable and necessary current
cost of fuel, to be fully recovered in rates, like any other fuel cost.
NAEC is currently recovering these costs through the Seabrook Power
Contracts. As of December 31, 1997, NAEC's total D&D deferral was
approximately $2.0 million.
K. DEFERRED COST - SEABROOK 1
As prescribed by the Rate Agreement as of May 1, 1996, NAEC phased
into rates 100 percent of the recoverable portion of its investment
in Seabrook 1. This plan is in compliance with SFAS 92, "Regulated
Enterprises - Accounting for Phase-In Plans." See Note 1G, "Summary
of Significant Accounting Policies - Seabrook Power Contracts," for
terms of Seabrook 1's phase-in. See Note 7A, "Commitments and
Contingencies - Restructuring and Rate Matters," for the possible
impacts of the NHPUC's decision related to industry restructuring.
L. MARKET RISK-MANAGEMENT POLICIES
NAEC utilizes market risk-management instruments to hedge well-defined
risks associated with variable interest rates. To qualify for hedge
treatment, the underlying hedged item must expose the company to risks
associated with market fluctuations and the market risk-management
instrument used must be designated as a hedge and must reduce the
company's exposure to market fluctuations throughout the period.
Amounts receivable or payable under interest-rate management
instruments are accrued and offset against interest expense. NAEC
does not use market risk-management instruments for speculative
purposes. For further information, see Note 8, "Market Risk
Management."
M. SPENT NUCLEAR FUEL
Under the Nuclear Waste Policy Act of 1982, NAEC must pay the United
States Department of Energy (DOE) for the disposal of spent nuclear
fuel and high-level radioactive waste. The DOE is responsible for the
selection and development of repositories for, and the disposal of,
spent nuclear fuel and high-level radioactive waste. Fees for nuclear
fuel burned on or after April 7, 1983, are billed currently to
customers and paid to the DOE on a quarterly basis.
The DOE was originally scheduled to begin accepting delivery of spent
fuel in 1998. However, delays in identifying a permanent storage site
have continually postponed plans for the DOE's long-term storage and
disposal site. Extended delays or a default by the DOE could lead to
consideration of costly alternatives. The company has primary
responsibility for the interim storage of its spent nuclear fuel.
Current capability to store spent fuel at Seabrook is estimated to be
adequate until the year 2010. Meeting spent fuel storage requirements
beyond this period could require new and separate storage facilities,
the costs for which have not been determined.
In November 1997, the U.S. District Court of Appeals for the D.C.
Circuit ruled that the lack of an interim storage facility does not
excuse the DOE from meeting its contractual obligation to begin
accepting spent nuclear fuel no later than January 31, 1998.
Currently, the DOE has not taken the spent nuclear fuel as scheduled,
and, as a result, may have to pay contract damages. The ultimate
outcome of this legal proceeding is uncertain at this time.
2. NUCLEAR DECOMMISSIONING
The Seabrook 1 nuclear power plant has a service life that is expected to
end in the year 2026. Upon retirement, this unit must be decommissioned.
A current decommissioning study concluded that complete and immediate
dismantlement at retirement continues to be the most viable and economic
method of decommissioning Seabrook 1. Decommissioning studies are reviewed
and updated periodically to reflect changes in decommissioning
requirements, costs, technology and inflation.
NAEC's 35.98 percent ownership of the estimated costs of decommissioning
Seabrook 1, in year-end 1997 dollars, is $170.2 million. Seabrook 1
decommissioning costs will be increased annually by an escalation rate.
Nuclear decommissioning costs are accrued over the expected service life
of the unit and are included in depreciation expense on the Statements of
Income. Nuclear decommissioning costs amounted to $4.5 million in 1997,
$3.5 million in 1996, and $3.0 million in 1995. Nuclear decommissioning,
as a cost of removal, is included in the accumulated provision for
depreciation on the Balance Sheets. At December 31, 1997 and 1996, the
balance in the accumulated reserve for depreciation amounted to $26.5
million and $19.7 million, respectively.
Under the terms of the Rate Agreement, PSNH is obligated to pay NAEC's
share of Seabrook 1's decommissioning costs, even if the unit is shut
down prior to the expiration of its operating license. NAEC's portion
of the cost of decommissioning Seabrook 1 is paid to an independent
decommissioning financing fund managed by the state of New Hampshire.
Funding of the estimated decommissioning costs assumes escalated
collections for Seabrook 1 and after-tax earnings on the Seabrook
decommissioning fund of 6.5 percent.
As of December 31, 1997, NAEC (including payments made prior to the
Acquisition Date by PSNH) had paid approximately $21.1 million into
Seabrook 1's decommissioning financing fund. Earnings on the
decommissioning financing fund increase the decommissioning trust
balance and the accumulated reserve for depreciation. Unrealized gains
and losses associated with the decommissioning financing fund also impact
the balance of the trust and the accumulated reserve for depreciation.
Changes in requirements or technology, the timing of funding or
dismantling, or adoption of a decommissioning method other than immediate
dismantlement would change decommissioning cost estimates and the amounts
required to be recovered. PSNH attempts to recover sufficient amounts
through its allowed rates to cover NAEC's expected decommissioning costs.
Only the portion of currently estimated total decommissioning cost that
has been accepted by regulatory agencies is reflected in PSNH's rates.
Based on present estimates and assuming Seabrook 1 operates to the end of
its licensing period, NAEC expects that the decommissioning financing fund
will be substantially funded when Seabrook 1 is retired from service.
Proposed Accounting: The staff of the SEC has questioned certain current
accounting practices of the electric utility industry, including NAEC,
regarding the recognition, measurement and classification of
decommissioning costs for nuclear generating units in the financial
statements. In response to these questions, the FASB has agreed to
review the accounting for closure and removal costs, including
decommissioning. If current electric utility industry accounting
practices for nuclear power plant decommissioning are changed, the
annual provision for decommissioning could increase relative to 1997,
and the estimated cost for decommissioning could be recorded as a
liability (rather than as accumulated depreciation), with recognition of
an increase in the cost of the related nuclear power plant. Management
believes that NAEC will continue to be allowed to recover decommissioning
costs through the Seabrook Power Contracts.
3. SHORT-TERM DEBT
The amount of short-term borrowings that may be incurred by NAEC is subject
to periodic approval by either the SEC under the 1935 Act or by its state
regulator. Under the SEC restrictions, NAEC was authorized, as of January
1, 1998, to incur short-term borrowings up to a maximum of $60 million.
Money Pool: Certain subsidiaries of NU, including NAEC, are members of
the Northeast Utilities System Money Pool (Pool). The Pool provides a
more efficient use of the cash resources of the system, and reduces outside
short-term borrowings. NUSCO administers the Pool as agent for the member
companies. Short-term borrowing needs of the member companies are first
met with available funds of other member companies, including funds
borrowed by NU parent. NU parent may lend to the Pool but may not borrow.
Funds may be withdrawn from or repaid to the Pool at any time without prior
notice. Investing and borrowing subsidiaries receive or pay interest based
on the average daily Federal Funds rate. However, borrowings based on loans
from NU parent bear interest at NU parent's cost and must be repaid based
upon the terms of NU parent's original borrowing. Effective during May
1997, NAEC became a full participant of the NU Money Pool. At December 31,
1997 and 1996, NAEC had $9.95 million and $2.5 million, respectively, of
borrowings outstanding from the Pool. The interest rate on borrowings from
the Pool at December 31, 1997 and 1996 was 5.8 percent and 6.3 percent,
respectively.
Maturities of NAEC's short-term debt obligations were for periods of three
months or less.
For further information on short-term debt, see the MD&A.
4. LONG-TERM DEBT
Details of long-term debt outstanding are:
December 31,
1997 1996
(Thousands of Dollars)
First Mortgage Bonds:
9.05% Series A, due 2002 ................. $295,000 $315,000
Notes:
Variable - Rate Facility, due 2000 ...... 200,000 200,000
Less: Amounts due within one year ........ 20,000 20,000
Long-term debt, net ................ $475,000 $495,000
Long-term debt maturities and cash sinking-fund requirements on debt
outstanding at December 31, 1997 is $20 million for the year 1998, $70
million for 1999, $270 million for 2000, $70 million for 2001, and $65
million for 2002.
Market risk management instruments with financial institutions effectively
fix the interest rate on NAEC's $200 million variable-rate bank note at
7.823 percent. For more information on the interest-rate management
instruments, see Note 8, "Market Risk Management."
The Series A Bonds are not redeemable prior to maturity except out of
proceeds of sales of property subject to the lien of the Series A First
Mortgage Bond Indenture (Indenture), at general redemption prices
established by the Indenture, and out of condemnation or insurance proceeds
and through the operation of the sinking fund. Essentially all of NAEC's
utility plant is subject to the lien of its Indenture.
5. INCOME TAX EXPENSE
The components of the federal and state income tax provisions charged to
operations are:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Current income taxes:
Federal ................................. $(11,890) $(8,570) $(38,703)
State ................................... (309) 110 -
Total current............................. (12,199) (8,460) (38,703)
Deferred income taxes, net:
Federal .................................. 21,528 14,884 41,885
State .................................... 1,121 865 4,229
Total deferred ........................ 22,649 15,749 46,114
Total income tax expense .............. $10,450 $ 7,289 $ 7,411
The components of total income tax expense are classified as
follows:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Income taxes charged to operating
expenses ................................ $14,844 $12,341 $10,187
Other income taxes ........................ (4,394) (5,052) (2,776)
Total income tax expense ................ $10,450 $ 7,289 $ 7,411
Deferred income taxes are comprised of the tax effects of temporary
differences as follows:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Depreciation .............................. $20,823 $12,730 $24,444
Alternative minimum tax ................... - - -
Bond redemptions .......................... (2,351) (2,359) 12,087
Seabrook 1 return ......................... 3,338 5,438 8,109
Other ..................................... 839 (60) 1,474
Deferred income taxes, net ............ $22,649 $15,749 $46,114
A reconciliation between income tax expense and the expected tax expense at
the applicable statutory rate is as follows:
For the Years Ended December 31, 1997 1996 1995
(Thousands of Dollars)
Expected federal income tax
at 35 percent of
pretax income .......................... $14,141 $13,776 $11,148
Tax effect of differences:
Depreciation ............................ (1,049) (1,343) (2,159)
Deferred Seabrook 1 return .............. (2,522) (2,695) (3,292)
State income taxes,
net of federal benefit ................ 718 634 2,749
Sale of Seabrook 2 steam
generator ............................... - (2,516) -
Other, net ................................ (838) (567) (1,035)
Total income tax expense .................. $10,450 $ 7,289 $ 7,411
6. DEFERRED OBLIGATION TO AFFILIATED COMPANY
At the time PSNH emerged from bankruptcy on May 16, 1991, in accordance
with the phase-in under the Rate Agreement, it began accruing a deferred
return on the unphased-in portion of its Seabrook 1 investment. From
May 16, 1991 to the Acquisition Date, PSNH accrued a deferred return of
$50.9 million. On the Acquisition Date, PSNH transferred the $50.9 million
deferred return to NAEC as part of the Seabrook-related assets.
At the time PSNH transferred the deferred return to NAEC, it realized, for
income tax purposes, a gain that is deferred under the consolidated income
tax rules. Beginning December 1, 1997, this gain is being restored for
income tax purposes as the deferred return of $50.9 million, and the
associated income taxes of $33.2 million, are collected by NAEC through
the Seabrook Power Contracts. As NAEC recovers the $33.2 million in years
eight through ten of the Rate Agreement, it will be obligated to make
corresponding payments to PSNH.
See Note 1G, "Seabrook Power Contracts" for further information on the
phase-in of the Seabrook power plant and see Note 7A, "Commitments and
Contingencies - Restructuring and Rate Matters" for the possible impacts
on NAEC from the NHPUC's decision related to industry restructuring.
7. COMMITMENTS AND CONTINGENCIES
A. RESTRUCTURING AND RATE MATTERS
New Hampshire: The 1996 restructuring legislation that the NHPUC is
charged with implementing provides that the NHPUC may not adopt a
restructuring plan that imposes a severe financial hardship on a
utility. Management believes that PSNH is entitled to full recovery
of its prudently incurred costs, including regulatory assets and
strandable costs. It bases this belief both on the general nature
of public utility industry cost-of-service based regulation and the
specific circumstances of the resolution of PSNH's previous bankruptcy
proceedings and its acquisition by NU, including the recoveries
provided by the Rate Agreement and related agreements.
On February 28, 1997, the NHPUC issued its decision related to
restructuring the state's electric utility industry and setting interim
stranded cost charges for PSNH pursuant to legislation enacted in New
Hampshire in 1996. In the decision, the NHPUC announced a departure
from cost-based ratemaking and instead adopted a market-priced approach
to ratemaking and stranded cost recovery. Accordingly, unless the
NHPUC modifies its position or the litigation described below results
in necessary modifications to the final plan which leads management
to conclude that the ratemaking approach utilized in the NHPUC's
restructuring decision will not go into effect, PSNH no longer will be
subject to the provisions of SFAS 71. That would result in PSNH
writing off from its balance sheet substantially all of its regulatory
assets. The amount of the potential write-off triggered by the order
is currently estimated at over $400 million, after taxes. PSNH does
not believe that under the decision, it would be required to recognize
any additional loss resulting from the impairment of the value of its
other long-lived assets under the provisions of SFAS 121.
On March 3, 1997, PSNH, NU, NAEC and NUSCO filed for a temporary
restraining order, preliminary and permanent injunctive relief and for
declaratory judgment in the United States District Court for New
Hampshire (District Court). The case was subsequently transferred to
Rhode Island. On March 10, 1997, the Chief Judge of the Rhode Island
federal court issued a temporary restraining order which stayed the
NHPUC's February 28, 1997 decision to the extent it established a rate
setting methodology that is not designed to recover PSNH's costs of
providing service and would require PSNH to write off any regulatory
assets.
During 1997, a mediation process ended without a resolution. The
District Court has suspended the procedural schedule associated with
this court proceeding pending the resolution of appeals of certain
preliminary rulings by the U.S. Circuit Court of Appeals for the First
Circuit (First Circuit). On February 3, 1998, the First Circuit denied
the appeals taken by would-be intervenors in PSNH's federal court
proceeding concerning the NHPUC's final plan on restructuring. The
First Circuit affirmed a previous court decision stating that the
opposing interests in this case were adequately represented by the
NHPUC or by PSNH. As a result of this decision, the proceedings in
the District Court may resume. On February 17, 1998, the NHPUC filed
a petition for rehearing with the First Circuit. The temporary
restraining order issued by the District Court in March 1997 will
remain in effect until further orders by either court.
During 1997, the NHPUC reopened its proceeding to reconsider certain
limited matters in its restructuring orders. The scope of the PSNH-
specific re-hearing proceedings included alternative rate-setting
methodologies proposed by the intervenors; to decide the appropriate
methodology to be used to determine PSNH's interim stranded costs; and
to set PSNH's interim stranded cost charges utilizing the determined
methodology. In testimony filed with the NHPUC in November 1997, PSNH
proposed a new methodology to quantify its strandable costs. Under
this proposal, PSNH would divest all owned generation and purchased
power obligations via auction. To the extent that the auction fails to
produce sufficient revenues to cover the net book value of owned
generation and contractual payment obligations of purchased-power, the
difference would be recovered from customers through a non-bypassable
distribution charge. The new proposal also relies upon securitization
of certain assets to further reduce rates.
On December 15, 1997, the NHPUC officially announced that industry
restructuring would not take place on January 1, 1998. Management
believes that industry restructuring will not take place in New
Hampshire until the courts resolve the issues brought before them, or
the parties involved reach a settlement.
PSNH and NAEC are parties to a variety of financing agreements
providing that the credit thereunder can be terminated or accelerated
if they do not maintain specified minimum ratios of common equity to
capitalization (as defined in each agreement). In addition, PSNH and
NAEC are parties to a variety of financing agreements providing in
effect that the credit thereunder can be terminated or accelerated if
there are actions taken, either by PSNH or NAEC or by the state of New
Hampshire, that deprive PSNH and/or NAEC of the benefits of the Rate
Agreement and/or the Seabrook Power Contracts.
If the NHPUC's February 28, 1997 decision were to become effective, it
would, unless PSNH and NAEC receive waivers from their respective
lenders, result in (i) write-offs that would cause PSNH's common equity
to fall below the contractual minimums (ii) reductions in income that
would cause PSNH's income to fall below the contractual minimums, (iii)
potential violation of the contractual provisions with respect to
actions depriving PSNH and NAEC of the benefits of the Rate Agreement
and (iv) the potential for cross defaults to other PSNH and NAEC
financing documents. Substantially all of PSNH's and NAEC's debt
obligations would be affected.
If these events transpired and if the creditors holding PSNH and NAEC
debt obligations decide to exercise their rights to demand payment,
then either creditors or PSNH and NAEC could initiate proceedings under
Chapter 11 of the bankruptcy laws.
As a result of the NHPUC decision and the potential consequences
discussed above, the reports of our auditors on the individual
financial statements of PSNH and NAEC contain explanatory paragraphs.
Those explanatory paragraphs indicate that a substantial doubt exists
currently about the ability of PSNH and NAEC to continue as going
concerns. The accounts of PSNH and NAEC are included in the
consolidated financial statements of NU on the basis of a going
concern. While the effect of the implementation of that decision
would have a material adverse impact on NU's financial position,
results of operations, and cash flows, it would not in and of itself
result in defaults under borrowing or other financial agreements of NU
or its other subsidiaries.
B. ENVIRONMENTAL MATTERS
NAEC is subject to regulation by federal, state and local authorities
with respect to air and water quality, the handling and disposal of
toxic substances and hazardous and solid wastes, and the handling and
use of chemical products. NAEC has an active environmental auditing
and training program and believes that it is in substantial compliance
with current environmental laws and regulations. However, the NU
system is subject to certain pending enforcement actions and
governmental investigation in the environmental area. Management
cannot predict the outcome of these enforcement actions and
investigations.
Environmental requirements could hinder future construction. Changing
environmental requirements could also require extensive and costly
modifications to NAEC's existing investment in Seabrook 1 and could
raise operating costs significantly. As a result, NAEC may incur
significant additional environmental costs, greater than amounts
included in cost of removal and other reserves, in connection with the
generation of electricity and the storage, transportation, and disposal
of by-products and wastes. NAEC may also encounter significantly
increased costs to remedy the environmental effects of prior waste
handling activities. The cumulative long-term cost impact of
increasingly stringent environmental requirements cannot accurately be
estimated.
NAEC cannot estimate the potential liability for future claims,
including environmental remediation costs, that may be brought against
it. However, considering known facts, existing laws and regulatory
practices, management does not believe the matters disclosed above will
have a material effect on NAEC's financial position or future results
of operations.
C. NUCLEAR INSURANCE CONTINGENCIES
Under certain circumstances, in the event of a nuclear incident at one
of the nuclear facilities in the country covered by the federal
government's third-party liability indemnification program, an owner
of a nuclear unit could be assessed in proportion to its ownership
interest in each of its nuclear units up to $75.5 million. Payments of
this assessment would be limited to $10.0 million in any one year per
nuclear incident based upon the owner's pro rata ownership interest in
each of its nuclear units. In addition, the owner would be subject to
an additional five percent of $3.8 million, in proportion to its
ownership interests in each of its nuclear units, if the sum of all
claims and costs from any one nuclear incident exceeds the maximum
amount of financial protection. Based upon its ownership interest in
Seabrook 1, NAEC's maximum liability, including any additional
assessments, would be $28.5 million per incident, of which payments
would be limited to $3.6 million per year.
Insurance has been purchased to cover the primary cost of repair,
replacement or decontamination or premature decommissioning of utility
property resulting from insured occurrences at Seabrook station. NAEC
is subject to retroactive assessments if losses exceed the accumulated
funds available to the insurer. The maximum potential assessment
against NAEC with respect to losses arising during the current policy
year is approximately $2.6 million.
Insurance has been purchased to cover the excess cost of repair,
replacement or decontamination or premature decommissioning of utility
property resulting from insured occurrences. NAEC is subject to
retroactive assessments if losses exceed the accumulated funds
available to the insurer. The maximum potential assessment against
NAEC with respect to losses arising during current policy years is
approximately $3.8 million. The cost of a nuclear incident could
exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on an industry
basis for coverage of worker claims. All participating reactor
operators insured under this coverage are subject to retrospective
assessments of $3 million per reactor. The maximum potential
assessment against NAEC with respect to losses arising during the
current policy period is pproximately $1.1 million. Effective
January 1, 1998, a new worker policy was purchased which is not
subject to retrospective assessments.
Under the terms of the Seabrook Power Contracts, any nuclear insurance
assessments described above would be passed on to PSNH as a "cost of
service."
D. SEABROOK 1 CONSTRUCTION PROGRAM
The construction program for Seabrook 1 is subject to periodic review
and revision by management. NAEC currently forecasts construction
expenditures for its share of Seabrook 1 to be $35.0 million for the
years 1998-2002, including approximately $8.9 million for 1998. In
addition, NAEC estimates that its share of Seabrook 1 nuclear fuel
requirements will be approximately $51.5 million for the years 1998-
2002, including $12.9 million for 1998.
8. MARKET RISK MANAGEMENT
NAEC uses swap instruments with financial institutions to hedge against
interest rate risk associated with its $200 million variable rate bank
note. The interest-rate management instruments employed eliminate the
exposure associated with rising interest rates, and effectively fix the
interest rate for this borrowing arrangement. Under the agreements, NAEC
exchanges quarterly payments based on a differential between a fixed
contractual interest rate and the three-month LIBOR rate at a given time.
As of December 31, 1997, NAEC had outstanding agreements with a total
notional value of $200 million and a positive mark-to-market position of
approximately $104 thousand.
Credit Risk: These agreements have been made with various financial
institutions, each of which is rated "A3" or better by Moody's rating
group. NAEC will be exposed to credit risk on its respective market 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.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each of the following financial instruments:
Cash and nuclear decommissioning fund: The carrying amounts approximate
fair value.
SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires investments in debt and equity securities to be
presented at fair value. As a result of this requirement, the investments
held in NAEC's nuclear decommissioning fund were adjusted to market by
approximately $1.5 million as of December 31, 1997 and adjusted to market
by approximately $0.3 million as of December 31, 1996, with corresponding
offsets to the accumulated provision for depreciation. The amounts
adjusted in 1997 and 1996 represent cumulative gross unrealized holding
gains. The cumulative gross unrealized holding losses were immaterial for
1997 and 1996.
Long-term debt: The fair value of NAEC's fixed-rate security is based upon
the quoted market price for that issue or similar issue. The adjustable
rate security is assumed to have a fair value equal to its carrying amount.
The carrying amounts of NAEC's financial instruments and the estimated fair
values are as follows:
Carrying Fair
At December 31, 1997 Amount Value
(Thousands of Dollars)
First Mortgage Bonds ...................... $295,000 $301,599
Other long-term debt ...................... $200,000 $200,000
Carrying Fair
At December 31, 1996 Amount Value
(Thousands of Dollars)
First Mortgage Bonds ...................... $315,000 $316,197
Other long-term debt ...................... $200,000 $200,000
The fair values shown above have been reported to meet the disclosure
requirements and do not purport to represent the amounts at which those
obligations would be settled.
10. NUCLEAR PERFORMANCE
The three Millstone units are managed by NNECO. Millstone 1, 2, and 3 have
been out of service since November 4, 1995, February 21, 1996 and March 30,
1996, respectively, and are on the NRC's watch list. NU has restructured
its nuclear organization and is currently implementing comprehensive plans
to restart the units.
Subsequent to its January 31, 1996 announcement that Millstone had been
placed on its watch list, the NRC stated that the units cannot return to
service until independent, third-party verification teams have reviewed the
actions taken to improve the design, configuration, and employee concerns
issues that prompted the NRC to place the units on its watch list. The
actual date of the return to service for each of the units is dependent
upon the completion of independent inspections and reviews by the NRC and
a vote by the NRC commissioners. NU hopes to return Millstone 3 to
service in early spring of 1998 and Millstone 2 three to four months after
Millstone 3. Millstone 1 is currently in extended maintenance status.
To the Board of Directors
of North Atlantic Energy Corporation:
We have audited the accompanying balance sheets of North Atlantic Energy
Corporation (a New Hampshire corporation and a wholly owned subsidiary of
Northeast Utilities) as of December 31, 1997 and 1996, and the related
statements of income, common stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of North Atlantic Energy
Corporation as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7A, on February
28, 1997, the State of New Hampshire Public Utilities Commission (the NHPUC)
issued an order outlining its final plan to restructure the electric utility
industry. The final plan announced a departure from cost-based ratemaking for
Public Service Company of New Hampshire (PSNH). PSNH is the sole customer of
the Company. The final plan, if implemented, would require PSNH to discontinue
the application of Financial Accounting Standard No. 71, "Accounting for the
Effects of Certain Types of Regulation," (FAS 71). The effects of such a
discontinuation would cause PSNH and the Company to be in technical default
under their current financial covenants, which would, if not waived or
renegotiated, give rise to the rights of lenders to accelerate the repayment of
approximately $686 million of PSNH's indebtedness and approximately $495 million
of the Company's indebtedness. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
referred to above do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 20, 1998
North Atlantic Energy Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of North Atlantic Energy
Corporation's (NAEC or the company) financial condition and the principal
factors having an impact on the results of operations. The company is a wholly-
owned subsidiary of Northeast Utilities (NU). This discussion should be read in
conjunction with the company's financial statements and notes to financial
statements.
FINANCIAL CONDITION
EARNINGS OVERVIEW
Public Service Company of New Hampshire (PSNH) and NAEC have entered into two
power contracts that unconditionally obligate PSNH to purchase NAEC's 35.98
percent ownership of the capacity and output of Seabrook Unit 1 (Seabrook or the
plant) for a period equal to the length of the Nuclear Regulatory Commission
(NRC) full-power operating license for Seabrook (through 2026) whether or not
Seabrook is operating and without regard to the cost of alternative sources of
power (the Power Contracts). In addition, PSNH will be obligated to pay
decommissioning and project cancellation costs after the termination of the
operating license. NAEC does not have any employees of its own and does not
operate Seabrook. North Atlantic Energy Service Corporation (NAESCO) is the
managing agent and represents the Seabrook joint owners, including NAEC, in the
operation of the plant.
The company's cost-of-service includes all of its prudently incurred Seabrook-
related costs, including operation and maintenance expense, fuel expense,
property tax expense, depreciation expense, certain overhead and other costs and
a phased-in return on its Seabrook investment.
The company's only assets are Seabrook and other Seabrook-related assets and its
only source of revenues are the Power Contracts. PSNH's obligations under the
Power Contracts are solely its own and have not been guaranteed by NU. The Power
Contracts contain no provisions entitling PSNH to terminate its obligations. If,
however, PSNH were to fail to perform its obligation under the Power Contracts,
the company would be required to find other purchasers for Seabrook power.
A temporary restraining order issued by a U.S. District Court is currently
blocking the New Hampshire Public Utilities Commission (NHPUC) from implementing
a February, 1997 restructuring order that would have resulted in a write-off by
PSNH of more than $400 million. Management hopes to negotiate an alternative
restructuring proposal in 1998 that will produce significant PSNH rate
reductions and allow retail customers to choose their electric suppliers, but
still give PSNH and NAEC an opportunity to maintain an adequate financial
condition and earn fair returns on their investments.
NAEC had net income of approximately $30 million in 1997 compared to
approximately $32 million in 1996. The decrease in net income for 1997 was
primarily due to deferred tax benefits in 1996 associated with the proceeds from
the sale of Seabrook Unit 2 steam generators, as well as lower earnings in
temporary cash investments in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased by approximately $48 million in 1997,
compared to 1996, as a result of the pay down of the 1996 year end accounts
payable balance and proceeds in 1996 from the sale of the Seabrook Unit 2 steam
generators. The year end accounts payable balance was relatively high due to
purchases in preparation for the Seabrook outage that had been incurred but not
yet paid by the end of 1996. Cash used for financing activities decreased by
approximately $51 million in 1997, compared to 1996, primarily due to lower
reacquisitions and retirements of long-term debt, the utilization of the NU
system money pool in 1997 and lower cash dividends on common stock. Cash used
for investments decreased by approximately $5 million in 1997, compared to 1996,
primarily due to lower 1997 nuclear fuel expenditures.
Each major subsidiary of NU finances its own needs. Neither The Connecticut
Light and Power Company (CL&P) nor Western Massachusetts Electric Company
(WMECO) has any financing agreements containing cross defaults based on
financial defaults by NU, PSNH or NAEC. Similarly, neither PSNH nor NAEC has
any financing agreements containing cross defaults based on financial defaults
by NU, CL&P or WMECO. Nevertheless, it is possible that investors will take
negative operating results or regulatory developments at one company in the NU
system into account when evaluating other companies in the NU System. That
could, as a practical matter and despite the contractual and legal separations
among the NU companies, negatively affect each company's access to financial
markets.
PSNH RESTRUCTURING
In February, 1997, the NHPUC issued orders to restructure the state's electric
utility industry and set interim stranded cost charges for PSNH. In the orders,
the NHPUC announced a departure from cost-based ratemaking and adopted a market-
priced approach to stranded cost recovery. PSNH, NU, NAEC and Northeast
Utilities Service Company (NUSCO) filed for a temporary restraining order,
preliminary and permanent injunctive relief and a declaratory judgment in the
United States District Court of New Hampshire. The case subsequently was
transferred to the United States District Court of Rhode Island (District Court)
where a temporary restraining order was granted, staying, indefinitely, the
enforcement of the NHPUC's restructuring orders as they affected PSNH. Certain
appeals to the preliminary ruling have been denied and proceedings in the
District Court are expected to resume.
The NHPUC conducted rehearing proceedings in 1997 to decide the appropriate
methodology to be used to determine PSNH's interim stranded costs and to set
PSNH's interim stranded cost charges utilizing the determined methodology. The
NHPUC has not indicated when it will issue a decision in these proceedings. On
December 15, 1997, the NHPUC officially announced that industry restructuring
would not take place on January 1, 1998.
As part of the rehearing proceedings, PSNH proposed a new methodology to
quantify its stranded costs. Under this proposal, PSNH would divest its owned
generation and purchased power obligations via auction. To the extent that the
auction fails to produce sufficient revenues to cover the net book value of
owned generation and contractual payment obligations of purchased power, the
difference would be recovered from customers through a non-bypassable
distribution charge. The new proposal also relies upon securitization of
certain assets to further reduce rates.
On February 20, 1998, PSNH forwarded a settlement offer to representatives from
the state of New Hampshire that was consistent with PSNH's proposal in the
rehearing proceedings, including among other things, a 20 percent rate reduction
at the beginning of 1999, an auction of PSNH's non-nuclear generating units and
securitization of approximately $1.15 billion of PSNH's stranded costs.
See the "Notes to Financial Statements", Note 7A, for the potential accounting
impacts of restructuring.
SEABROOK PERFORMANCE
Seabrook operated at a capacity factor of 78.3 percent through December 1997,
compared to 96.8 percent for the same period in 1996. The lower 1997 capacity
factor is due primarily to the 50-day scheduled refueling and maintenance outage
which began on May 10, 1997, and an unplanned outage which began on December 5,
1997. The unplanned outage occurred when the unit was shut down to repair leaks
in a three inch stainless steel pipe in the residual heat removal system. The
pipe was replaced, but problems were subsequently discovered in the control
building air conditioning system. Design changes were implemented and the plant
returned to service on January 16, 1998.
SEABROOK DECOMMISSIONING
NAEC's estimated cost to decommission its share of Seabrook is approximately
$170 million in year end 1997 dollars. These costs are being recognized over
the life of the unit with a portion currently being recovered through PSNH's
rates. PSNH is obligated to pay NAEC's share of Seabrook's decommissioning
costs even if the unit is shut down prior to the expiration of its license. As
of December 31, 1997, the market value of the contributions already made to the
decommissioning trusts, including their investment returns, was approximately
$26 million.
See the "Notes to Financial Statements," Note 2, for further information on
nuclear decommissioning.
ENVIRONMENTAL MATTERS
NAEC is potentially liable for environmental cleanup costs at a number of sites
inside and outside its service territory. NAEC cannot estimate the potential
liability for these costs or for future claims, including environmental
remediation costs, that may be brought against it. However, considering known
facts, existing laws and regulatory practices, management does not believe that
these costs will have a material effect on NAEC's financial position or future
results of operations.
See the "Notes to Financial Statements," Note 7B, for further information on
environmental matters.
YEAR 2000 ISSUE
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the change of the
century occurs, date-sensitive systems may recognize the year 2000 as 1900, or
not recognize it at all. This inability to recognize or properly treat the year
2000 may cause NU's systems to process critical financial and operation
information incorrectly. The company has assessed and continues to assess the
impact of the Year 2000 issue on its operating and reporting systems. The
assessment of the nuclear operating systems is continuing and is expected to be
completed in the summer of 1998.
The NU system will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. The total estimated
remaining cost of the Year 2000 project is estimated at $37 million and is being
funded through operating cash flows. This estimate does not include any costs
for the replacement or repair of equipment or devices that may be identified
during the assessment process. The majority of these costs will be expensed as
incurred over the next two years. To date, the NU system has incurred and
expensed approximately $4 million related to the assessment of, 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 plan is not successful, there could be a significant
disruption of the NU system's operation.
RISK MANAGEMENT INSTRUMENTS
The following discussion about the company's risk-management activities includes
forward looking statements that involve risk and uncertainties. Actual results
could differ materially from those projected in the forward looking statements.
This analysis presents the hypothetical loss in earnings related to the interest
rate market risks not covered by the risk-management instruments at December 31,
1997. The company uses swaps to manage the market risk. The company does not
use these risk-management instruments for speculative purposes.
NAEC holds a variable rate long-term note, exposing the company to interest rate
risk. In order to hedge this risk, interest rate risk-management instruments
have been entered into on NAEC's $200 million variable rate note, effectively
fixing the interest on this note at 7.823 percent.
For further information on risk management instruments, see the "Notes to
Financial Statements," Note 8.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
1997 over/(under)1996 1996 over/(under)1995
Amount Percent Amount Percent
Operating revenues $30 19% $ 5 3%
Fuel Expense (2) (11) 3 25
Other operation and
maintenance expense 20 45 (5) (12)
Amortization of Regulatory
Assets, net 6 (a) - -
Federal and State Income Taxes 3 43 - -
Deferred Seabrook return (other
and borrowed funds) (2) (9) (8) (27)
Other, net (2) (a) - -
Interest on Long-term Debt (2) (3) (10) (16)
Net income (2) (7) 8 31
(a) Percent greater than 100
OPERATING REVENUES
Operating revenues represent amounts billed to PSNH under the terms of the Power
Contracts and billings to PSNH for decommissioning expense.
Operating revenues increased in 1997 primarily due to higher operation and
maintenance expenses and the increased return associated with the phase-in of
the final 15 percent of the Seabrook plant investment in May, 1996.
Operating revenues increased in 1996, primarily due to the increased return
associated with the phase-in of the Seabrook investment, partially offset by a
lower return due to lower debt costs.
FUEL EXPENSE
Fuel expenses decreased in 1997, primarily due to lower Seabrook capacity
factors as a result of the Seabrook outages in 1997.
Fuel expenses increased in 1996, primarily due to higher Seabrook capacity
factors.
OTHER OPERATION AND MAINTENANCE EXPENSE
Other operation and maintenance expenses increased in 1997 primarily due to
higher costs associated with the Seabrook outages in 1997.
Other operation and maintenance expenses decreased in 1996, primarily due to a
planned refueling and maintenance outage in 1995.
AMORTIZATION OF REGULATORY ASSETS, NET
Amortization of Regulatory Assets, net increased in 1997 primarily due to the
beginning of the amortization of the Seabrook deferred return in December 1997.
FEDERAL AND STATE INCOME TAXES
Federal and State income taxes increased in 1997 primarily due to deferred tax
benefits in 1996 associated with proceeds from the sale of the Seabrook Unit 2
steam generators.
DEFERRED SEABROOK RETURN, NET
Deferred Seabrook return, net decreased in 1997 primarily due to the final
phase-in of Seabrook investment into rates in May, 1996.
Deferred Seabrook return, net decreased in 1996, primarily due to the additional
Seabrook investment phased into rates in May, 1996, and May, 1995, partially
offset by a one-time adjustment in June, 1995, to the deferred Seabrook return
balance.
OTHER, NET
Other, net decreased in 1997 primarily due to lower income from temporary cash
investments and the amortization of the Seabrook deferred charges associated
with the taxes on the purchased return.
INTEREST ON LONG-TERM DEBT
Although the change in 1997 was not significant, interest on long-term debt
decreased in 1996 primarily due to the 1995 refinancing of its $205 million
15.23-percent variable-rate bank note.
North Atlantic Energy Corporation
SELECTED FINANCIAL DATA (a) 1997 1996 1995 1994 1993
(Thousands of Dollars)
Operating Revenues...... $ 192,381 $ 162,152 $ 157,183 $145,751 $125,408
Operating Income........ $ 57,061 $ 54,889 $ 51,394 $ 42,950 $ 33,718
Net Income.............. $ 29,953 $ 32,072 $ 24,441 $ 30,535 $ 25,998
Cash Dividends on
Common Stock.......... $ 25,000 $ 38,000 $ 24,000 $ 10,000 $ -
Total Assets............ $1,014,639 $1,017,388 $1,014,649 $963,579 $900,821
Long-Term Debt (b)...... $ 495,000 $ 515,000 $ 560,000 $560,000 $560,000
STATISTICS 1997 1996 1995 1994 1993
Gross Electric Utility
Plant at December 31,
(Thousands of Dollars).. $811,140 $816,446 $806,892 $792,880 $789,127
kWh Sales (Millions) for
the twelve month period
ending December 31,... 2,859 3,542 3,016 2,229 3,218
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited) (Thousands of Dollars)
Quarter Ended (a)
1997 March 31 June 30 Sept. 30 Dec.31
Operating Revenues...... $41,976 $50,128 $45,943 $54,334
Operating Income........ $14,406 $14,183 $14,124 $14,348
Net Income.............. $ 7,240 $ 6,958 $ 8,086 $ 7,669
1996
Operating Revenues...... $36,663 $39,107 $41,565 $44,817
Operating Income........ $12,075 $13,786 $14,639 $14,389
Net Income.............. $ 7,190 $ 7,356 $ 9,918 $ 7,608
(a) Reclassifications of prior data have been made to conform with the current
presentation.
(b) Includes portion due within one year.
NORTHEAST UTILITIES SYSTEM Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Northeast Utilities
The Connecticut Light and Power Company (100%)
- CL&P Capital, L.P. (3%)
- Research Park, Inc. (100%)
- The City and Suburban Electric and Gas Company (100%)
- Electric Power Incorporated (100%)
- The Connecticut Transmission Corporation (100%)
- The Nutmeg Power Company (100%)
- The Connecticut Steam Company (100%)
- CL&P Receivables Corporation (100%)
- Connecticut Yankee Atomic Power Company (34.5%)
- Yankee Atomic Electric Company (24.5%)
- Maine Yankee Atomic Power Company (12%)
- Vermont Yankee Nuclear Power Corporation (9.5%)
Public Service Company of New Hampshire (100%)
- Properties, Inc. (100%)
- New Hampshire Electric Company (100%)
- Connecticut Yankee Atomic Power Company (5%)
- Yankee Atomic Electric Company (7%)
- Maine Yankee Atomic Power Company (5%)
- Vermont Yankee Nuclear Power Corporation (4%)
North Atlantic Energy Corporation (100%)
North Atlantic Energy Service Corporation (100%)
Western Massachusetts Electric Company (100%)
- WMECO Receivables Corporation (100%)
- Connecticut Yankee Atomic Power Company (9.5%)
- Yankee Atomic Electric Company (7%)
- Maine Yankee Atomic Power Company (3%)
- Vermont Yankee Nuclear Power Corporation (2.5%)
Holyoke Water Power Company (100%)
- Holyoke Power and Electric Company (100%)
Charter Oak Energy, Inc. (100%)
- COE Development Corporation (100%)
- COE Argentina I Corp. (100%)
- COE Argentina II Corp. (100%)
- COE Tejona Corporation (100%)
- COE Ave Fenix Corporation (100%)
Northeast Nuclear Energy Company (100%)
Northeast Utilities Service Company (100%)
The Quinnehtuk Company (100%)
The Rocky River Realty Company (100%)
Mode 1 Communications, Inc. (100%)
Select Energy, Inc. (100%)
HEC Inc. (100%)
- HEC International Corporation (100%)
- HEC Energy Consulting Canada, Inc. (100%)
- Southwest HEC Energy Services L.L.C. (100%)
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