FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
1-5324 NORTHEAST UTILITIES 04-2147929
(a Massachusetts voluntary association)
174 BRUSH HILL AVENUE
WEST SPRINGFIELD, MASSACHUSETTS 01090-2010
Telephone: (413) 785-5871
0-11419 THE CONNECTICUT LIGHT AND POWER COMPANY 06-0303850
(a Connecticut corporation)
107 SELDEN STREET
BERLIN, CONNECTICUT 06037-1616
Telephone: (860) 665-5000
1-6392 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE 02-0181050
(a New Hampshire corporation)
1000 ELM STREET
MANCHESTER, NEW HAMPSHIRE 03105-0330
Telephone: (603) 669-4000
0-7624 WESTERN MASSACHUSETTS ELECTRIC COMPANY 04-1961130
(a Massachusetts corporation)
174 BRUSH HILL AVENUE
WEST SPRINGFIELD, MASSACHUSETTS 01090-2010
Telephone: (413) 785-5871
33-43508 NORTH ATLANTIC ENERGY CORPORATION 06-1339460
(a New Hampshire corporation)
1000 ELM STREET
MANCHESTER, NEW HAMPSHIRE 03105-0330
Telephone: (603) 669-4000
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Company - Class of Stock Outstanding at April 30, 1998
Northeast Utilities
Common shares, $5.00 par value 136,857,443 shares
The Connecticut Light and Power Company
Common stock, $10.00 par value 12,222,930 shares
Public Service Company of New Hampshire
Common stock, $10.00 par value 1,000 shares
Western Massachusetts Electric Company
Common stock, $25.00 par value 1,072,471 shares
North Atlantic Energy Corporation
Common stock, $10.00 par value 1,000 shares
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms
that are found throughout this report:
COMPANIES
NU............................... Northeast Utilities
CL&P............................. The Connecticut Light and Power Company
Charter Oak or COE............... Charter Oak Energy, Inc.
WMECO............................ Western Massachusetts Electric Company
HWP.............................. Holyoke Water Power Company
NUSCO or the
Service Company.................. Northeast Utilities Service Company
NNECO............................ Northeast Nuclear Energy Company
NAEC............................. North Atlantic Energy Corporation
NAESCO or North Atlantic......... North Atlantic Energy Service Corporation
PSNH............................. Public Service Company of New Hampshire
RRR.............................. The Rocky River Realty Company
Select Energy.................... Select Energy, Inc., formerly NUSCO
Energy Partners, Inc.
Mode 1........................... Mode 1 Communications, Inc.
HEC.............................. HEC, Inc.
Quinnehtuk....................... The Quinnehtuk Company
the NU 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
FERC............................. Federal Energy Regulatory Commission
NHPUC............................ New Hampshire Public Utilities Commission
NRC.............................. Nuclear Regulatory Commission
SEC.............................. Securities and Exchange Commission
OTHER
kWh.............................. Kilowatt hour
MW............................... Megawatt
Northeast Utilities And Subsidiaries
The Connecticut Light and Power Company and Subsidiaries
Public Service Company of New Hampshire
Western Massachusetts Electric Company and Subsidiary
North Atlantic Energy Corporation
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
and
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
For the following companies:
Northeast Utilities and Subsidiaries
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997.............. 2
Consolidated Statements of Income - Three
Months Ended March 31, 1998 and 1997.............. 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997........ 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 6
Report of Independent Public Accountants ......... 15
The Connecticut Light & Power Company and
Subsidiaries
Consolidated Balance Sheets - March 31, 1998
and December 31, 1997............................. 17
Consolidated Statements of Income -
Three Months Ended March 31, 1998 and 1997........ 19
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997........ 20
Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 21
Public Service Company of New Hampshire
Balance Sheets - March 31, 1998
and December 31, 1997.............................. 30
Statements of Income - Three Months Ended
March 31, 1998 and 1997............................ 32
Statements of Cash Flows - Three Months Ended
March 31, 1998 and 1997............................ 33
Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 34
Western Massachusetts Electric Company and Subsidiary
Consolidated Balance Sheets - March 31, 1998
and December 31, 1997.............................. 40
Consolidated Statements of Income - Three
Months Ended March 31, 1998 and 1997............... 42
Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1998 and 1997............... 43
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 44
North Atlantic Energy Corporation
Balance Sheets - March 31, 1998 and
December 31, 1997.................................. 51
Statements of Income - Three Months Ended
March 31, 1998 and 1997............................ 53
Statements of Cash Flows - Three Months Ended
March 31, 1998 and 1997............................ 54
Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 55
Notes to Financial Statements (unaudited -
all companies)........................................ 59
Part II. Other Information
Item 1. Legal Proceedings......................... 71
Item 5. Other Information......................... 71
Item 6. Exhibits and Reports on Form 8-K.......... 72
Signatures........................................................ 75
NORTHEAST UTILITIES AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 9,881,327 $ 9,869,561
Other................................................... 187,646 186,130
------------- -------------
10,068,973 10,055,691
Less: Accumulated provision for depreciation......... 4,429,221 4,330,599
------------- -------------
5,639,752 5,725,092
Unamortized PSNH acquisition costs...................... 379,929 402,285
Construction work in progress........................... 140,471 141,077
Nuclear fuel, net....................................... 192,954 194,704
------------- -------------
Total net utility plant............................. 6,353,106 6,463,158
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 542,376 502,749
Investments in regional nuclear generating
companies, at equity................................... 90,532 86,955
Investments in transmission companies, at equity........ 20,465 19,635
Other, at cost.......................................... 104,461 95,362
------------- -------------
757,834 704,701
------------- -------------
Current Assets:
Cash and cash equivalents............................... 268,663 143,403
Special deposits........................................ 2,757 -
Investments in securitizable assets..................... 115,564 230,905
Receivables, net........................................ 187,215 214,914
Accrued utility revenues................................ 33,592 36,885
Fuel, materials, and supplies, at average cost.......... 208,690 212,721
Recoverable energy costs, net--current portion.......... 62,917 59,959
Investments in Charter Oak Energy, Inc.
held for sale.......................................... 32,428 33,391
Prepayments and other................................... 47,804 38,495
------------- -------------
959,630 970,673
------------- -------------
Deferred Charges:
Regulatory assets (Note 2C):
Income taxes,net...................................... 941,177 938,564
Deferred costs--nuclear plants........................ 187,147 199,753
Unrecovered contractual obligations................... 492,409 515,076
Recoverable energy costs, net......................... 296,752 324,809
Deferred demand side management costs................. 21,176 52,100
Cogeneration costs.................................... 25,491 33,505
Seabrook deferral..................................... 32,577 8,376
Other................................................. 95,120 101,095
Unamortized debt expense................................ 37,505 38,758
Other .................................................. 71,820 63,844
------------ ------------
2,201,174 2,275,880
------------ ------------
Total Assets.............................................. $ 10,271,744 $ 10,414,412
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common shareholders' equity:
Common shares, $5 par value--authorized
225,000,000 shares; 136,857,443 shares issued and
130,350,789 shares outstanding in 1998 and
136,842,170 shares issued and 130,182,736 shares
outstanding in 1997.................................. $ 684,287 $ 684,211
Capital surplus, paid in.............................. 934,825 932,493
Deferred benefit plan--employee stock
ownership plan...................................... (150,604) (154,141)
Retained earnings (Note 1)............................ 689,573 707,522
------------- -------------
Total common shareholders' equity.............. 2,158,081 2,170,085
Preferred stock not subject to mandatory redemption..... 136,200 136,200
Preferred stock subject to mandatory redemption......... 222,072 245,750
Long-term debt.......................................... 3,462,197 3,645,659
------------- -------------
Total capitalization........................... 5,978,550 6,197,694
------------- -------------
Minority Interest in Consolidated Subsidiaries............ 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 29,129 30,427
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 35,000 50,000
Long-term debt and preferred stock--current
portion................................................ 425,058 274,810
Obligations under capital leases--current
portion................................................ 179,138 177,304
Accounts payable........................................ 315,199 402,870
Accrued taxes........................................... 75,328 46,016
Accrued interest........................................ 67,473 30,786
Accrued pension benefits................................ 68,722 77,186
Other................................................... 89,970 88,396
------------- ------------
1,255,888 1,147,368
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,976,929 1,984,513
Accumulated deferred investment tax credits............. 156,443 158,837
Deferred contractual obligations........................ 503,243 525,076
Other................................................... 271,562 270,497
------------- ------------
2,908,177 2,938,923
------------- ------------
Commitments and Contingencies (Note 7)
Total Capitalization and Liabilities........... $ 10,271,744 $ 10,414,412
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997
1998 (Restated)
------------- -------------
(Thousands of Dollars,
except share information)
<S> <C> <C>
Operating Revenues.................................... $ 958,905 $ 975,368
------------- -------------
Operating Expenses:
Operation--
Fuel, purchased and net interchange power........ 353,537 341,382
Other............................................ 243,932 261,660
Maintenance......................................... 120,955 99,197
Depreciation........................................ 87,229 89,179
Amortization of regulatory assets, net.............. 28,231 31,397
Federal and state income taxes...................... 16,761 15,207
Taxes other than income taxes....................... 67,772 67,969
------------- -------------
Total operating expenses...................... 918,417 905,991
------------- -------------
Operating Income...................................... 40,488 69,377
------------- -------------
Other Income:
Deferred nuclear plants return--other funds......... 1,875 1,774
Equity in earnings of regional nuclear generating
and transmission companies....................... 4,124 3,441
Other, net.......................................... 9,775 4,741
Minority interest in income of subsidiary........... (2,325) (2,325)
Income taxes........................................ 3,024 (469)
------------- -------------
Other income, net............................. 16,473 7,162
------------- -------------
Income before interest charges................ 56,961 76,539
------------- -------------
Interest Charges:
Interest on long-term debt.......................... 70,226 70,206
Other interest...................................... 878 866
Deferred nuclear plants return--borrowed funds...... (3,516) (3,312)
------------- -------------
Interest charges, net......................... 67,588 67,760
------------- -------------
(Loss)/Income after interest charges........... (10,627) 8,779
Preferred Dividends of Subsidiaries................... 7,322 7,903
------------- -------------
Net (Loss)/Income (Note 1)............................ $ (17,949) $ 876
============= =============
(Loss)/Earnings Per Common Share (Note 1)............. $ (0.14) $ 0.01
============= =============
Common Shares Outstanding (average)................... 130,299,512 128,627,693
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997
1998 (Restated)
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
(Loss)/Income before preferred dividends of subsidiaries.. $ (10,627) $ 8,779
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 87,229 89,179
Deferred income taxes and investment tax credits, net... (10,166) 16,243
Deferred nuclear plants return, net of amortization..... (5,391) (5,086)
Amortization of demand-side-management costs, net....... 30,924 13,182
Recoverable energy costs, net of amortization........... 25,099 638
Amortization of PSNH acquisition costs, net............. 14,135 14,141
Amortization of deferred cogeneration costs, net ....... 8,014 8,176
Deferred nuclear refueling outage, net of amortization.. 1,553 (9,128)
Other sources of cash................................... 65,049 31,294
Other uses of cash...................................... (17,095) (44,527)
Changes in working capital:
Receivables and accrued utility revenues, net........... (164,008) 71,602
Fuel, materials, and supplies........................... 4,031 (7,622)
Accounts payable........................................ (87,671) (179,131)
Accrued taxes........................................... 29,312 17,437
Sale of receivables and accrued utility revenues........ 195,000 -
Investment in securitizable assets...................... 115,341 -
Other working capital (excludes cash)................... 17,717 21,991
----------- -----------
Net cash flows from operating activities.................... 298,446 47,168
----------- -----------
Financing Activities:
Issuance of common shares................................. 183 3
Issuance of long-term debt................................ 75 -
Net (decrease) increase in short-term debt................ (15,000) 187,500
Reacquisitions and retirements of long-term debt.......... (36,452) (21,491)
Reacquisitions and retirements of preferred stock......... (23,678) -
Cash dividends on preferred stock......................... (7,322) (7,903)
Cash dividends on common shares........................... - (32,135)
----------- -----------
Net cash flows (used for)/from financing activities......... (82,194) 125,974
----------- -----------
Investment Activities:
Investment in plant:
Electric and other utility plant........................ (57,502) (53,514)
Nuclear fuel............................................ (33) (4,987)
----------- -----------
Net cash flows used for investments in plant.............. (57,535) (58,501)
Investments in nuclear decommissioning trusts............. (20,914) (13,669)
Capital contributions to Charter Oak Energy projects...... - (28,060)
Other investment activities, net.......................... (12,543) (5,700)
----------- -----------
Net cash flows used for investments......................... (90,992) (105,930)
----------- -----------
Net Increase In Cash For The Period......................... 125,260 67,212
Cash and cash equivalents - beginning of period............. 143,403 194,197
----------- -----------
Cash and cash equivalents - end of period................... $ 268,663 $ 261,409
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of Northeast Utilities, (NU) and
subsidiaries' (the NU system) financial condition and the principal factors
having an impact on the results of operations. This discussion should be read
in conjunction with the consolidated financial statements and footnotes in this
Form 10-Q, the 1997 Form 10-K, and the Current Reports on Form 8-K dated March
9, 1998, April 8, 1998, and April 15, 1998.
FINANCIAL CONDITION
Overview
The outages at the three Millstone units (Millstone) continue to have a
significant negative impact on NU's earnings. NU had a loss for the first
quarter of 1998 of $0.14 cents per common share compared to a loss of $0.01 cent
per common share for the first quarter of 1997. In addition to the Millstone
outages, the loss was also due to retail rate reductions, mild weather and a
severe January ice storm in Northern New England. The three Millstone units
have been off-line for more than two years and require a vote of the
Commissioners of the Nuclear Regulatory Commission (NRC) approval to restart.
NU anticipates a June restart for Millstone 3 and a restart for Millstone 2
three to four months after Millstone 3. No restart work is currently being
undertaken for Millstone 1.
NU has reviewed with the Securities and Exchange Commission (SEC) the method by
which it accounted for certain costs associated with the ongoing Millstone
outages. For the past two years, NU, CL&P, PSNH, and WMECO have been reserving
for the unavoidable costs they expected to incur to meet NRC requirements. The
SEC has advised NU, CL&P, PSNH, and WMECO to reflect these costs as they are
incurred. These first quarter statements have been prepared in accordance with
the SEC's directive. The companies plan to submit amended Form 10-Ks for the
years 1996 and 1997 to reflect this change. Management does not expect
implementation of this accounting change to affect the ability of CL&P and WMECO
to meet their loan covenants.
For further information on this issue, including its financial impact on the NU
system, see "Notes to Financial Statements" Note 1.
Millstone 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 units 1, 2 and 3 have
been out of service since November 4, 1995, February 21, 1996, and March 30,
1996, respectively. Northeast Nuclear Energy Company (NNECO), a wholly owned
subsidiary of NU, acts as an agent for certain NU system companies and other New
England utilities in operating Millstone.
In January 1998, NNECO declared Millstone 3 physically ready for restart, which
meant that almost all of the restart-required physical work had been completed
at the plant. On April 7, 1998, Millstone 3 achieved Mode 4 operational status,
which is a significant milestone for restart. The Independent Corrective Action
Verification Program, an NRC-ordered independent inspection of Millstone's
corrective action program and design and licensing basis, is expected to be
completed for Millstone 3 in May 1998.
On May 1, 1998, NNECO had its first of two meetings with the NRC
Commissioners, preparatory to restarting Millstone 3. Selected issues were
discussed relating to the proposed restart of Millstone 3 including the Employee
Concerns Program (ECP), Safety Conscious Work Environment (SCWE), Deferred Items
Management (Backlog Management Plan), Management Oversight (Oversight) and
Quality Assurance (QA). The NRC Special Project Office reported to the
Commission that Millstone's SCWE, ECP, Oversight, and QA programs are "adequate
to support restart" of Millstone 3. Additionally, the NRC Special Project
Office found that Millstone 3's Backlog Management Plan "provides appropriate
process for (the) timely closure of deferred items." A second NRC meeting to
discuss the remaining restart items for Millstone 3 has been scheduled for June
2, 1998. The NRC Commissioners' vote on restart of Millstone 3 will likely take
place within the two weeks following this second meeting.
For the three months ended March 31, 1998, the NU system's share of nonfuel O&M
costs expensed for Millstone totaled approximately $115 million, unchanged from
the three months ended March 31, 1997.
Replacement power costs attributable to the Millstone outages totaled
approximately $86 million in the first quarter of 1998 compared to $112 million
expensed in the first quarter of 1997. For the remainder of 1998, these costs
are projected to average approximately $8 million per month for Millstone 3, $10
million per month for Millstone 2 and $7 million per month for Millstone 1 while
the plants are out of service.
WMECO and PSNH have been expensing all of the costs to restart the units
including replacement power and nonfuel O&M expenses. As a result of the recent
out-of-rate base decisions in Connecticut, CL&P is permitted to recover, through
its energy adjustment clause, replacement power costs for Millstone 1 effective
March 1, 1998, and Millstone 2 effective May 1, 1998. See "Connecticut Rate
Matters" for issues related to the recovery of Millstone 1 and Millstone 2
costs.
For further information on the current Millstone outages, see the 1997 Form 10-K
and the Form 8-Ks dated March 9, 1998 and April 8, 1998.
Liquidity and Capital Resources
Cash provided from operations increased approximately $251 million in the first
quarter of 1998, from 1997, primarily due to cash available through the use of
two accounts receivable facilities and a decrease in the amount needed to pay
down prior year accounts payable balances. Net cash from financing activities
decreased approximately $208 million, primarily due to the decrease in short-
term borrowings and higher preferred stock reacquisitions and retirements
partially offset by the elimination of cash dividends on NU common shares. Net
cash flows used for investments decreased approximately $15 million, primarily
due to a 1997 capital contribution to Charter Oak Energy projects.
CL&P and WMECO established facilities under which they may sell from time to
time up to $200 million and $40 million, respectively, of their accounts
receivable and accrued utility revenues. As of April 30, 1998, CL&P and WMECO
had sold approximately $145 million and $20 million, of accounts receivable,
respectively, to third party purchasors.
NU, CL&P and WMECO are parties to a three-year revolving credit agreement (the
Credit Agreement), which was amended in May 1997. CL&P and WMECO had $20 million
and $15 million, respectively, outstanding at March 31, 1998, under the Credit
Agreement.
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 in
February 1998. At March 31, 1998, NU had no borrowings outstanding under this
agreement.
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
throughout 1998. Spending levels in 1998, particularly the first half of the
year while the Millstone units are out of service, will be constrained to levels
intended to help meet the financial covenants in CL&P's and WMECO's Credit
Agreement. However, there is no assurance that these financial covenants will be
met as the NU system may encounter additional unexpected costs relating to
storms, reduced revenues from regulatory actions, or the effect of weather on
sales levels.
Each major company in the NU system finances its own needs. Neither CL&P nor
WMECO has any financing agreements containing cross defaults based on financial
defaults by NU, PSNH or North Atlantic Energy Corporation (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.
If CL&P or WMECO did not meet these covenants, the bank creditors would have a
number of options, including causing the acceleration of the affected
indebtedness, reducing CL&P's or WMECO's access to further credit, seeking
higher interest rates and fees, asking for additional collateral and additional
measures which management cannot predict.
On April 29, 1998, the DPUC issued a final decision with respect to the removal
of Millstone 2 and potentially Millstone 3 from CL&P's rate base, which will
have the effect of reducing earnings.
On April 22, 1998, Moody's Investors Services (Moody's) downgraded the
senior secured debt of CL&P and WMECO to Ba3 from Ba2. Moody's also
downgraded CL&P's and WMECO's preferred stock and NU's unsecured amortizing
notes. The ratings remain under review. Moody's indicated that the downgrade was
primarily due to the DPUC's decision discussed above. In particular, Moody's
stated that the decision "adds to pressure for restart at a time when existing
financial strains are already significant."
The downgrade of WMECO's senior secured debt brought those ratings to a level at
which the sponsor of WMECO's $40 million accounts receivable program could elect
to terminate the program. WMECO has initiated discussions with the sponsor
concerning the effect of the downgrade on continued availability of the program.
If the WMECO receivables program is terminated by the sponsor, WMECO could elect
to immediately pay off the outstanding obligations or wind down the program
pursuant to its terms.
CL&P's $200 million accounts receivable program could be terminated if its
senior secured debt is downgraded one more step.
CL&P and WMECO finance their respective shares of the costs of the nuclear fuel
for Millstone through the Niantic Bay Fuel Trust (NBFT). NBFT has initiated a
private notes offering seeking up to $180 million of three-to-five year debt
financing to refund $80 million of NBFT notes that mature on June 5, 1998. If
this offering realizes more than $80 million, the proceeds would be used to pay
down or terminate a $100 million NBFT bank revolving credit facility, which was
renegotiated in February 1998 and expires in July 1998. $92 million was
outstanding under the NBFT bank revolving credit facility on May 12, 1998.
If the return to service of Millstone 2 or 3 is delayed substantially beyond the
present restart estimates or if some borrowing facilities become unavailable
because of difficulties in meeting borrowing conditions, renegotiating
extensions or refinancing maturities, if the NU 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 attempt to 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
the time.
Restructuring
New Hampshire
On March 20, 1998, the New Hampshire Public Utilities Commission (NHPUC)issued
an order stating that Public Service Company of New Hampshire (PSNH), a wholly
owned subsidiary of NU, has demonstrated that severe financial harm would be
caused by the 1997 Order that mandated a regional average rate making
methodology. Thus, the NHPUC stated that an order will be issued in the future
using a cost-based method to allow PSNH to continue to use its current
accounting treatment.
Connecticut
On April 29, 1998, Connecticut enacted comprehensive electric utility
restructuring legislation. The legislation introduces a clear path to
competition in the state, while permitting, subject to mitigation requirements,
utilities to recover fully their strandable costs.
In summary, the legislation provides, among other things, that retail choice
will be phased in over six months beginning January 2000; rates will be capped
at December 31, 1996 levels from July 1, 1998 until December 31, 1999; customers
not choosing an alternate supplier can continue to receive service until
January 2004 at a rate that is at least 10 percent less than 1996 rates; rates
will be unbundled into several components; electric utilities will be required
to auction their nonnuclear generating assets by January 2000 and their nuclear
generating assets by January 2004 in order to recover strandable costs; and a
certain level of securitization will be allowed.
For further information on restructuring issues, see "Notes to Financial
Statements" Note 7A, NU's 1997 Form 10-K and Form 8-Ks dated March 9, 1998 and
April 15, 1998.
Rate Matters
New Hampshire
On March 13, 1998, PSNH filed testimony and exhibits seeking a 3.7
percent net increase in rates in the June through December 1998 period in
connection with its comprehensive fuel and purchased power adjustment clause
(FPPAC) proceedings. On April 29, 1998 PSNH entered into a Stipulation and
Settlement with the Office of The Consumer Advocate and the NHPUC Staff
resolving most of the contested issues in the FPPAC proceeding. If this
settlement is approved by the NHPUC, in conjunction with a new reduced NEPOOL
capability responsibility, PSNH's revised request will produce slightly more
than a 1 percent net increase in rates. This proposed rate would result in the
collection of substantially all currently projected fuel and purchased power
costs, but would defer for future collection a substantial portion of previously
incurred costs. Hearings are scheduled for mid-May.
For further information on New Hampshire rate matters, see NU's 1997 Form 10-K
and Form 8-K dated March 9, 1998.
Connecticut
On May 1, 1998, CL&P filed a statutory notice of intent to file a rate
application on June 1, 1998. The notice of intent stated that CL&P is not
proposing a change in rates but will hold its rates to 1996 levels.
On April 29, 1998, the DPUC issued a final decision to remove Millstone 2 from
CL&P's rate base effective May 1, 1998. The decision further concluded that the
DPUC would remove Millstone 3 from CL&P's rate base effective July 1, 1998 if
the unit has not been operating for 100 continuous hours at 95 percent capacity
by that date. Management has conservatively estimated that it may take up to
six weeks for a unit to reach full power after NRC approval to restart. This
duration includes several weeks of contingency shutdown which may or may not be
required. The decision also provides for Millstone 3 and Millstone 2 to be
automatically reinstated into rate base upon achieving the operating standard
required by the decision.
Removing Millstone 2 from rate base will result in an annual reduction of CL&P's
current revenue requirements of $37.7 million, or about $3 million a month.
This was computed by disallowing CL&P's recovery of Millstone 2's operation and
maintenance costs, depreciation and a return on capital, but allowing CL&P to
recover in the future the replacement power and capacity costs it has been
expensing for Millstone 2 while the unit has been out of service. The net
reduction of revenue requirements associated with removing Millstone 3 from rate
base would be about $13 million a month.
The DPUC decided in its decision to make the revenue requirement reduction
"noncash" by allowing CL&P to accrue the reductions associated with the removal
of Millstone 2 and Millstone 3, if applicable, from rate base and apply them
against the replacement power costs associated with the early retirement of the
Connecticut Yankee nuclear power plant (CY) that have been deferred by order of
the DPUC, pending a final decision by the Federal Energy Regulatory Commission
on the prudence of the early retirement and the costs associated therewith. CL&P
has been deferring these CY replacement power costs since December 1996 and the
projected deferral through June 1998 is approximately $65 million.
The decision could create additional pressures on CL&P's ability to meet certain
financial covenants in the Credit Agreement. The decision is expected to reduce
CL&P's earnings which will make both of CL&P's key revolving credit line
covenants more difficult to meet. NU and its wholly owned subsidiary, WMECO, are
also parties to this credit agreement. Similar covenant requirements are
included in a CL&P operating lease related to the use of four turbine generators
having an installed cost of approximately $70 million. CL&P will closely review
its 1998 projections in light of the decision to determine whether there are
additional measures that can be implemented to assure that these covenants are
met, including an evaluation of the restart schedule for Millstone 2.
For further information on Connecticut rate matters, see NU's 1997 Form 10-K and
Form 8-Ks dated March 9, 1998 and April 15, 1998.
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. This
assessment 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 $36 million and is being funded
through operating cash flows. This estimate does not include any costs for the
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 incurred and
expensed approximately $5 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. The company is committed to ensuring
that adequate resources are available in order to implement any changes
necessary for its nuclear and operating systems to be compatible with the new
millennium.
Risk-Management Instruments
The NU system uses swaps, collars, puts, and calls to manage the market risk
exposures associated with changes in fuel prices and variable interest rates.
The NU system uses these instruments to reduce risk by essentially creating
offsetting market exposures but does not use these risk-management instruments
for speculative purposes.
For more information on NU system's use of risk-management instruments, see the
"Notes to Financial Statements" Note 6.
CL&P employs fuel price risk-management instruments to hedge risks associated
with fuel prices created by long-term, fixed-price electricity contracts with
wholesale customers and the purchase or generation of replacement power related
to the ongoing Millstone nuclear outages.
At March 31, 1998, CL&P had outstanding agreements with a total notional value
of approximately $288 million.
NAEC has a hedge on its $200 million variable rate note, effectively fixing the
interest on it at 7.823 percent.
There have been no material changes in the reported market risks for either CL&P
or NAEC since the 1997 Form 10-K. For further information on CL&P's and NAEC's
respective market risk exposures, see the MD&A in the 1997 10-K.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
First
Quarter Percent
Operating revenues $(16) (2)%
Fuel, purchased and net
interchange power 12 4
Other operation (18) (7)
Maintenance 22 22
Other income, net 5 (a)
Net Income (19) (a)
(a) Percentage greater than 100
Comparison of the First Quarter of 1998 to the First Quarter of 1997
Total operating revenues decreased in 1998, primarily due to lower revenues from
regulatory decisions, lower wholesale revenues and lower other revenues,
partially offset by higher fuel recoveries. Revenues from regulatory decisions
decreased $18 million, primarily due to the retail rate decreases for PSNH, CL&P
and WMECO. Wholesale revenues decreased $16 million, primarily due to lower
1998 capacity sales as a result of CL&P's Settlement of an ongoing dispute with
the Connecticut Municipal Electric Energy Cooperative. Other revenues decreased
$9 million, primarily due to lower recognition in 1998 of reimbursable
conservation services and lower sales revenues. Fuel recoveries increased $25
million, primarily due to higher revenues under CL&P's and PSNH's fuel clauses.
Retail kilowatt hour sales were 0.2 percent lower than those in the first
quarter 1997. Both the first quarter of 1998 and 1997 experienced mild weather.
Fuel, purchased, and net interchange power expense increased in 1998, primarily
due to the timing in the recognition of costs under CL&P's and PSNH's fuel
clauses, partially offset by lower replacement power costs due to lower fuel
prices.
Other operation and maintenance expense increased in 1998, primarily due to
higher storm costs as a result of the January ice storm in New Hampshire ($16
million), higher conservation and load management amortization ($9 million), and
higher recognition of nuclear refueling outage costs primarily as a result of
the 1996 CL&P Rate Settlement, partially offset by lower administrative and
general expenses ($19 million) and lower capacity charges from Connecticut
Yankee ($8 million).
Other income, net increased in 1998, primarily due to the 1998 benefit from the
1997 shareholder derivative settlement suit, partially offset by costs
associated with CL&P's accounts receivable facility.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Northeast Utilities:
We have reviewed the accompanying consolidated balance sheet of Northeast
Utilities (a Massachusetts trust) and subsidiaries as of March 31, 1998, and the
related consolidated statements of income for the three-month periods ended
March 31, 1998 and restated March 31, 1997, and the consolidated statements of
cash flows for the three-month periods ended March 31, 1998 and restated March
31, 1997. These financial statements are the responsibility of the company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Northeast Utilities as of December
31, 1997, and in our report dated February 20, 1998, we expressed an
unqualified opinion on that statement. As discussed in footnote 1, the
December 31, 1997 balance sheet was restated to reflect an adjustment in the
Company's accounting for nuclear compliance costs. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1997, is fairly stated, in all material respects, in relation to
the consolidated balance sheet, as restated, from which it has been derived.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Hartford, Connecticut
May 14, 1998
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 6,426,350 $ 6,411,018
Less: Accumulated provision for depreciation......... 2,965,288 2,902,673
------------- -------------
3,461,062 3,508,345
Construction work in progress........................... 85,036 93,692
Nuclear fuel, net....................................... 135,601 135,076
------------- -------------
Total net utility plant............................. 3,681,699 3,737,113
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 396,619 369,162
Investments in regional nuclear generating
companies, at equity................................... 60,397 58,061
Other, at cost.......................................... 69,419 66,625
------------- -------------
526,435 493,848
------------- -------------
Current Assets:
Cash.................................................... 236 459
Investments in securitizable assets..................... 85,943 205,625
Notes receivable from affiliated companies.............. 14,300 -
Receivables, net........................................ 57,901 50,671
Accounts receivable from affiliated companies........... 3,403 3,150
Taxes receivable........................................ 21,326 70,311
Fuel, materials, and supplies, at average cost.......... 77,702 81,878
Recoverable energy costs, net--current portion.......... 14,055 28,073
Prepayments and other................................... 102,547 79,632
------------- -------------
377,413 519,799
------------- -------------
Deferred Charges:
Regulatory assets (Note 2C):
Income taxes,net...................................... 697,624 709,896
Unrecovered contractual obligations................... 323,309 338,406
Deferred demand side management costs................. 21,176 52,100
Recoverable energy costs, net......................... 87,796 104,796
Cogeneration costs.................................... 25,491 33,505
Other................................................. 52,095 54,115
Unamortized debt expense................................ 18,793 19,286
Other................................................... 22,477 18,359
------------- -------------
1,248,761 1,330,463
------------- -------------
Total Assets........................................ $ 5,834,308 $ 6,081,223
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$10 par value. Authorized
24,500,000 shares; outstanding 12,222,930
shares................................................. $ 122,229 $ 122,229
Capital surplus, paid in................................ 643,729 641,333
Retained earnings (Note 1).............................. 385,078 419,972
------------- -------------
Total common stockholder's equity.............. 1,151,036 1,183,534
Preferred stock not subject to mandatory
redemption............................................. 116,200 116,200
Preferred stock subject to mandatory redemption......... 129,072 151,250
Long-term debt.......................................... 1,885,764 2,023,316
------------- -------------
Total capitalization........................... 3,282,072 3,474,300
------------- -------------
Minority Interest in Consolidated Subsidiary.............. 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 17,915 18,042
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 20,000 35,000
Notes payable to affiliated company..................... - 61,300
Long-term debt and preferred stock--current
portion................................................ 143,755 23,761
Obligations under capital leases--current
portion................................................ 141,526 140,076
Accounts payable........................................ 80,643 124,427
Accounts payable to affiliated companies................ 61,976 92,963
Accrued taxes........................................... 28,495 33,017
Accrued interest........................................ 31,705 14,650
Other................................................... 29,696 23,495
------------- -------------
537,796 548,689
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,323,546 1,348,617
Accumulated deferred investment tax credits............. 125,872 127,713
Deferred contractual obligations........................ 334,144 348,406
Other................................................... 112,963 115,456
------------- -------------
1,896,525 1,940,192
------------- -------------
Commitments and Contingencies (Note 7)
Total Capitalization and Liabilities........... $ 5,834,308 $ 6,081,223
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997
1998 (Restated)
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.................................... $ 608,961 $ 624,908
----------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power........ 246,692 266,094
Other............................................ 177,031 164,196
Maintenance......................................... 73,372 70,621
Depreciation........................................ 57,635 59,919
Amortization of regulatory assets, net.............. 12,628 15,869
Federal and state income taxes...................... (11,268) (8,604)
Taxes other than income taxes....................... 46,610 46,870
----------- -----------
Total operating expenses...................... 602,700 614,965
----------- -----------
Operating Income...................................... 6,261 9,943
----------- -----------
Other Income:
Equity in earnings of regional nuclear generating
companies......................................... 2,168 1,817
Other, net.......................................... (6,643) 4,610
Minority interest in income of subsidiary........... (2,325) (2,325)
Income taxes........................................ 3,332 (95)
----------- -----------
Other (loss)/income, net...................... (3,468) 4,007
----------- -----------
Income before interest charges................ 2,793 13,950
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 32,940 33,277
Other interest...................................... 832 309
----------- -----------
Interest charges, net......................... 33,772 33,586
----------- -----------
Net Loss (Note 1)..................................... $ (30,979) $ (19,636)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997
1998 (Restated)
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Loss ................................................... $ (30,979) $ (19,636)
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 57,635 59,919
Deferred income taxes and investment tax credits, net..... (25,023) (15,816)
Amortization of deferred demand-side-management costs, net 30,924 13,182
Recoverable energy costs, net of amortization............. 31,018 20,071
Amortization of deferred cogeneration costs, net ......... 8,014 8,176
Deferred nuclear refueling outage, net of amortization.... - (11,333)
Other sources of cash..................................... 25,517 20,521
Other uses of cash........................................ (7,207) (29,493)
Changes in working capital:
Receivables and accrued utility revenues.................. (182,483) 13,698
Fuel, materials, and supplies............................. 4,176 (5,173)
Accounts payable.......................................... (74,771) (85,391)
Accrued taxes............................................. (4,522) (484)
Sale of receivables and accrued utility revenues.......... 175,000 -
Investment in securitizable assets........................ 119,682 -
Other working capital (excludes cash)..................... 49,326 4,189
----------- -----------
Net cash flows from/(used for) operating activities........... 176,307 (27,570)
----------- -----------
Financing Activities:
Net (decrease)/increase in short-term debt.................. (76,300) 200,000
Reacquisitions and retirements of long-term debt............ (20,006) (11)
Reacquisitions and retirements of preferred stock........... (22,178) -
Cash dividends on preferred stock........................... (3,915) (3,805)
Cash dividends on common stock.............................. - (5,989)
----------- -----------
Net cash flows (used for)/from financing activities........... (122,399) 190,195
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (20,071) (32,493)
Nuclear fuel.............................................. 71 (589)
----------- -----------
Net cash flows used for investments in plant................ (20,000) (33,082)
NU System Money Pool........................................ (14,300) (116,250)
Investments in nuclear decommissioning trusts............... (14,702) (9,885)
Other investment activities, net............................ (5,129) (3,615)
----------- -----------
Net cash flows used for investments........................... (54,131) (162,832)
----------- -----------
Net Decrease In Cash For The Period........................... (223) (207)
Cash - beginning of period.................................... 459 404
----------- -----------
Cash - end of period.......................................... $ 236 $ 197
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of Connecticut Light and Power
Company's (CL&P's 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 consolidated financial statements and footnotes
in this Form 10-Q, the 1997 Form 10-K, and the Current Reports on Form 8-Ks
dated March 25, 1998 and April 15, 1998.
FINANCIAL CONDITION
Overview
The outages at the three Millstone units (Millstone) continue to have a
significant negative impact on the company's earnings. CL&P had a net loss for
the first quarter of 1998 of approximately $31 million compared to a net loss of
approximately $20 million for the first quarter of 1997. In addition to the
Millstone outages, the loss was also due to a retail rate reduction and mild
weather in 1998. The three Millstone units have been off-line for more than two
years and require a vote of the Commissioners of the Nuclear Regulatory
Commission (NRC) approval to restart. NU anticipates a June restart for
Millstone 3 and a restart for Millstone 2 three to four months after Millstone
3. No restart work is currently being undertaken for Millstone 1.
NU has reviewed with the Securities and Exchange Commission (SEC) the method by
which it accounted for certain costs associated with the ongoing Millstone
outages. For the past two years, CL&P has been reserving for the unavoidable
costs it expected to incur to meet NRC requirements. The SEC has advised CL&P
to reflect these costs as they are incurred. The first quarter statement has
been prepared in accordance with the SEC's directive. The company plans to
submit amended Form 10-Ks for the years 1996 and 1997 to reflect this change.
Management does not expect implementation of this accounting change to affect
the ability of CL&P to meet its loan covenants.
For further information on this issue, including its financial impact on the
company, see "Notes to Financial Statements" Note 1.
Millstone Outages
CL&P has an 81-percent ownership interest in Millstone 1 and 2 and a 52.93-
percent ownership interest in Millstone 3. Millstone units 1, 2 and 3 have been
out of service since November 4, 1995, February 21, 1996, and March 30, 1996,
respectively. Northeast Nuclear Energy Company (NNECO), a wholly-owned
subsidiary of NU, acts as an agent for certain NU system companies and other New
England utilities in operating Millstone.
In January 1998, NNECO declared Millstone 3 physically ready for restart, which
meant that almost all of the restart-required physical work had been completed
at the plant. On April 7, 1998, Millstone 3 achieved Mode 4 operational status,
which is a significant milestone for restart. The Independent Corrective Action
Verification Program, an NRC-ordered independent inspection of Millstone's
corrective action program and design and licensing basis, is expected to be
completed for Millstone 3 in May 1998.
On May 1, 1998, NNECO had its first of two meetings with the NRC Commissioners,
preparatory to restarting Millstone 3. Selected issues were discussed relating
to the proposed restart of Millstone 3 including the Employee Concerns Program
(ECP), Safety Conscious Work Environment (SCWE), Deferred Items Management
(Backlog Management Plan) and Management Oversight (Oversight) and Quality
Assurance (QA). The NRC Special Project Office reported to the Commission that
Millstone's SCWE, ECP, Oversight, and QA programs are "adequate to support
restart" of Millstone 3. Additionally, the NRC Special Project Office found
that Millstone 3's Backlog Management Plan "provides appropriate process for
(the) timely closure of deferred items." A second NRC meeting to discuss the
remaining restart items for Millstone 3 has been scheduled for June 2, 1998.
The NRC Commissioners' vote on restart of Millstone 3 will likely take place
within the two weeks following this second meeting.
For the three months ended March 31, 1998, CL&P's share of nonfuel operation
and maintenance (O&M) costs expensed for Millstone totaled approximately
$93 million, unchanged from the three months ended March 31, 1997.
CL&P's share of replacement power costs attributable to the Millstone outages
totaled approximately $74 million in the first quarter of 1998 compared to $94
million expensed in the first quarter of 1997. For the remainder of 1998, these
costs are projected to average approximately $6 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.
As a result of the recent out-of-rate base decisions in Connecticut, CL&P is
permitted to recover, through its energy adjustment clause, replacement power
costs for Millstone 1 effective March 1, 1998, and Millstone 2 effective May 1,
1998. See "Rate Matters" for issues related to the recovery of Millstone 1 and
Millstone 2 costs.
For further information on the current Millstone outages, see the 1997 Form 10-
K.
Liquidity and Capital Resource
Cash provided from operations increased approximately $204 million in the first
quarter of 1998, from 1997, primarily due to cash available through the use of
an accounts receivable facility, lower cash operating costs related to the
Millstone outages, and a decrease in the amount needed to pay down prior year
accounts payable balances. Net cash from financing activities decreased
approximately $313 million, primarily due to the decrease in short-term
borrowings and higher preferred stock retirements partially offset by lower
payments of cash dividends. Net cash flows used for investments decreased
approximately $109 million, primarily due to lower investments in the NU system
Money Pool.
CL&P established a facility under which it may sell from time to time up to $200
million of its accounts receivable and accrued utility revenues. As of April 30,
1998, CL&P had sold approximately $145 million of accounts receivable to third
party purchasors.
NU, CL&P's and Western Massachusetts Electric Company's (WMECO's) are parties to
a three-year revolving credit agreement (the Credit Agreement), which was
amended in May 1997. CL&P had $20 million outstanding at March 31, 1998, under
the Credit Agreement.
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 throughout 1998.
Spending levels in 1998, particularly the first half of the year while the
Millstone units are out of service, will be constrained to levels intended to
help meet the financial covenants in CL&P's and WMECO's Credit Agreement.
However, there is no assurance that these financial covenants will be met as the
NU system may encounter additional unexpected costs relating to storms, reduced
revenues from regulatory actions, or the effect of weather on sales levels.
Each major company in the NU system finances its own needs. Neither CL&P nor
WMECO has any financing agreements containing cross defaults based on financial
defaults by NU, PSNH (Public Service Company of New Hampshire) or North Atlantic
Energy Corporation (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 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.
If CL&P did not meet these covenants, the bank creditors would have a number of
options, including causing the acceleration of the affected indebtedness,
reducing CL&P's access to further credit, seeking higher interest rates and
fees, asking for additional collateral and additional measures which management
cannot predict.
On April 29, 1998, the DPUC issued a final decision with respect to the removal
of Millstone 2 and potentially Millstone 3 from CL&P's rate base, which will
have the effect of reducing earnings.
On April 22, 1998, Moody's Investors Services (Moody's) downgraded the
senior secured debt of CL&P and WMECO to Ba3 from Ba2. Moody's also downgraded
CL&P's and WMECO's preferred stock and NU's unsecured amortizing notes. The
ratings remain under review. Moody's indicated that the downgrade was primarily
due to the DPUC's decision discussed above. In particular, Moody's stated that
the decision "adds to pressure for restart at a time when existing financial
strains are already significant."
CL&P's $200 million accounts receivable program could be terminated if its
senior secured debt is downgraded one more step.
CL&P and WMECO finance their respective shares of the costs of the nuclear fuel
for Millstone through the Niantic Bay Fuel Trust (NBFT). NBFT has initiated a
private notes offering seeking up to $180 million of three-to-five year debt
financing to refund $80 million of NBFT notes that mature on June 5, 1998. If
this offering realizes more than $80 million, the proceeds would be used to pay
down or terminate a $100 million NBFT bank revolving credit facility, which was
renegotiated in February 1998 and expires in July 1998. $92 million was
outstanding under the NBFT bank revolving credit facility on May 12, 1998.
If the return to service of Millstone 2 or 3 is delayed substantially beyond the
present restart estimates or if some borrowing facilities become unavailable
because of difficulties in meeting borrowing conditions, renegotiating
extensions, or refinancing maturities, if the NU 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 attempt to 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
On April 29, 1998, Connecticut enacted comprehensive electric utility
restructuring legislation. The legislation introduces a clear path to
competition in the state, while permitting, subject to mitigation requirements,
utilities to recover fully their strandable costs.
In summary, the legislation provides, among other things, that retail choice
will be phased in over six months beginning January 2000; rates will be capped
at December 31, 1996 levels from July 1, 1998 until December 31, 1999;
customers not choosing an alternate supplier can continue to receive service
until January 2004 at a rate that is at least 10 percent less than 1996 rates;
rates will be unbundled into several components; electric utilities will be
required to auction their nonnuclear generating assets by January 2000 and their
nuclear generating assets by January 2004 in order to recover strandable costs;
and a certain level of securitization will be allowed.
For further information on restructuring issues, see "Notes to Financial
Statements" Note 7A, CL&P's 1997 Form 10-K and Form 8-K dated April 15, 1998.
Rate Matters
On May 1, 1998, CL&P filed a statutory notice of intent to file a rate
application on June 1, 1998. The notice of intent stated that CL&P is not
proposing a change in rates but will hold its rates to 1996 levels.
On April 29, 1998, the DPUC issued a final decision to remove Millstone 2 from
CL&P's rate base effective May 1, 1998. The decision further concluded that the
DPUC would remove Millstone 3 from CL&P's rate base effective July 1, 1998 if
the unit has not been operating for 100 continuous hours at 95 percent capacity
by that date. Management has conservatively estimated that it may take up to
six weeks for a unit to reach full power after NRC approval to restart. This
duration includes several weeks of contingency shutdown which may or may not be
required. The decision also provides for Millstone 3 and Millstone 2 to be
automatically reinstated into rate base upon achieving the operating standard
required by the decision.
Removing Millstone 2 from rate base will result in an annual reduction of CL&P's
current revenue requirements of $37.7 million, or about $3 million a month.
This was computed by disallowing CL&P's recovery of Millstone 2's operation and
maintenance costs, depreciation and a return on capital, but allowing CL&P to
recover in the future the replacement power and capacity costs it has been
expensing for Millstone 2 while the unit has been out of service. The net
reduction of revenue requirements associated with removing Millstone 3 from rate
base would be about $13 million a month.
The DPUC decided in its decision to make the revenue requirement reduction
"noncash" by allowing CL&P to accrue the reductions associated with the removal
of Millstone 2 and Millstone 3, if applicable, from rate base and apply them
against the replacement power costs associated with the early retirement of the
Connecticut Yankee nuclear power plant (CY) that have been deferred by order of
the DPUC, pending a final decision by the Federal Energy Regulatory Commission
on the prudence of the early retirement and the costs associated therewith. CL&P
has been deferring these CY replacement power costs since December 1996 and the
projected deferral through June 1998 is approximately $65 million.
The decision could create additional pressures on CL&P's ability to meet certain
financial covenants in the Credit Agreement. The decision is expected to reduce
CL&P's earnings which will make both of CL&P's key revolving credit line
covenants more difficult to meet. NU and its wholly owned subsidiary, WMECO,
are also parties to this credit agreement. Similar covenant requirements are
included in a CL&P operating lease related to the use of four turbine generators
having an installed cost of approximately $70 million. CL&P will closely review
its 1998 projections in light of the decision to determine whether there are
additional measures that can be implemented to assure that these covenants are
met, including an evaluation of the restart schedule for Millstone 2.
For further information on rate matters, see CL&P's 1997 Form 10-K and Form 8-K
dated April 15, 1998.
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. This
assessment 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 $36 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 incurred and expensed
approximately $5 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. The company is committed to ensuring
that adequate resources are available in order to implement any changes
necessary for its nuclear and operating systems to be compatible with the new
millennium.
Risk-Management Instruments
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 uses these instruments to reduce risk by essentially creating
offsetting market exposures but does not use these risk-management instruments
for speculative purposes. For more information on CL&P's use of risk-management
instruments, see the "Notes to Financial Statements" Note 6.
CL&P employs fuel price risk-management instruments to hedge risks associated
with fuel prices created by long-term, fixed-price electricity contracts with
wholesale customers and the purchase or generation of replacement power related
to the ongoing Millstone nuclear outages.
At March 31, 1998, CL&P had outstanding agreements with a total notional value
of approximately $288 million.
There has been no material changes in the reported market risks for CL&P since
the 1997 Form 10-K. For further information on CL&P's market risk exposures,
see the MD&A in the 1997 10-K.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
First
Quarter Percent
Operating revenues $(16) (3)%
Fuel, purchased and net
interchange power (19) (7)
Other operation 13 8
Maintenance 3 4
Amortization of
regulatory assets, net (3) (20)
Federal and state income taxes (6) (a)
Other income, net (11) (a)
Net Income (11) (a)
(a) Percentage greater than 100
Comparison of the First Quarter of 1998 to the First Quarter of 1997
Total operating revenues decreased in 1998, primarily due to lower wholesale
revenues and lower retail sales, partially offset by higher fuel recoveries.
Wholesale revenues decreased $14 million, primarily due to lower 1998 capacity
sales. Retail sales decreased 1 percent ($4 million) primarily due to milder
weather in 1998. Fuel recoveries increased $3 million, primarily due to higher
revenues under the company's fuel clause.
Fuel, purchased, and net interchange power expense decreased in 1998, primarily
due to lower replacement power costs due to lower fuel prices.
Other operation and maintenance expense increased in 1998, primarily due to
higher capacity charges ($12 million), higher conservation and load management
amortization ($9 million), higher recognition of nuclear refueling outage costs
primarily as a result of the 1996 Rate Settlement ($9 million), partially offset
by lower administration and general expenses ($5 million) and lower other O&M
expenditures.
Amortization of regulatory assets, net decreased in 1998, primarily due to lower
amortizations as a result of the 1996 Rate Settlement.
Federal and state income taxes decreased in 1998, primarily due to lower book
taxable income.
Other income, net decreased in 1998, primarily due to higher costs associated
with the securitization of the accounts receivable facility.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
PART I. FINANCIAL INFORMATION
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 1,899,980 $ 1,898,319
Less: Accumulated provision for depreciation......... 598,618 590,056
------------- -------------
1,301,362 1,308,263
Unamortized acquisition costs........................... 379,930 402,285
Construction work in progress........................... 13,270 10,716
Nuclear fuel, net....................................... 1,307 1,308
------------- -------------
Total net utility plant............................. 1,695,869 1,722,572
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 4,769 4,332
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 19,306 19,169
Other, at cost.......................................... 3,808 3,773
------------- -------------
27,883 27,274
------------- -------------
Current Assets:
Cash and cash equivalents............................... 165,237 94,459
Receivables, net........................................ 80,182 89,338
Accounts receivable from affiliated companies........... 12,868 38,520
Accrued utility revenues................................ 33,592 36,885
Fuel, materials, and supplies, at average cost.......... 39,286 40,161
Recoverable energy costs--current portion............... 48,862 31,886
Prepayments and other................................... 5,417 11,271
------------- -------------
385,444 342,520
------------- -------------
Deferred Charges:
Regulatory assets (Note 2C):
Recoverable energy costs............................... 182,826 191,686
Income taxes, net...................................... 148,675 128,244
Deferred costs, nuclear plant.......................... 263,091 281,856
Unrecovered contractual obligations.................... 79,370 83,042
Seabrook deferral...................................... 32,577 8,376
Other.................................................. 2,228 2,214
Deferred receivable from affiliated company............. 30,036 32,472
Unamortized debt expense................................ 11,494 11,749
Other................................................... 6,893 5,154
------------- -------------
757,190 744,793
------------- -------------
Total Assets........................................ $ 2,866,386 $ 2,837,159
============= =============
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited) (Restated)
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$1 par value.
Authorized and outstanding 1,000 shares................ $ 1 $ 1
Capital surplus, paid in................................ 424,097 423,713
Retained earnings (Note 1).............................. 174,642 170,501
------------- -------------
Total common stockholder's equity.............. 598,740 594,215
Preferred stock subject to mandatory redemption......... 75,000 75,000
Long-term debt.......................................... 516,485 516,485
------------- -------------
Total capitalization........................... 1,190,225 1,185,700
------------- -------------
Obligations Under Seabrook Power Contracts
and Other Capital Leases................................. 774,829 799,450
------------- -------------
Current Liabilities:
Long-term debt and preferred stock--current portion..... 195,000 195,000
Obligations under Seabrook Power Contracts and other
capital leases--current portion........................ 127,909 122,363
Accounts payable........................................ 29,644 21,231
Accounts payable to affiliated companies................ 31,903 32,677
Accrued taxes........................................... 78,025 69,445
Accrued interest........................................ 16,014 7,197
Accrued pension benefits................................ 46,111 46,061
Other................................................... 7,791 9,417
------------- -------------
532,397 503,391
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 229,308 204,406
Accumulated deferred investment tax credits............. 3,844 3,972
Deferred contractual obligations........................ 79,370 83,042
Deferred revenue from affiliated company................ 30,036 32,472
Other................................................... 26,377 24,726
------------- -------------
368,935 348,618
------------- -------------
Commitments and Contingencies (Note 7)
------------- -------------
Total Capitalization and Liabilities........... $ 2,866,386 $ 2,837,159
============= =============
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997
1998 (Restated)
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.................................... $ 261,745 $ 278,321
----------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power........ 74,946 75,569
Other............................................ 87,825 86,412
Maintenance......................................... 28,616 8,111
Depreciation........................................ 11,507 11,242
Amortization of regulatory assets, net.............. 14,135 14,141
Federal and state income taxes...................... 15,392 27,617
Taxes other than income taxes....................... 10,555 10,453
----------- -----------
Total operating expenses...................... 242,976 233,545
----------- -----------
Operating Income...................................... 18,769 44,776
----------- -----------
Other Income:
Equity in earnings of regional nuclear generating
companies and subsidiary company.................. 671 556
Other, net.......................................... 3,397 (140)
Income taxes........................................ (3,226) (571)
----------- -----------
Other income/(loss), net...................... 842 (155)
----------- -----------
Income before interest charges................ 19,611 44,621
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 12,694 12,625
Other interest...................................... 126 (299)
----------- -----------
Interest charges, net......................... 12,820 12,326
----------- -----------
Net Income (Note 1)................................... $ 6,791 $ 32,295
=========== ===========
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997
1998 (Restated)
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 6,791 $ 32,295
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 11,507 11,242
Deferred income taxes and investment tax credits, net... 18,586 28,148
Recoverable energy costs, net of amortization........... (8,116) (1,153)
Amortization of acquisition costs, net.................. 14,135 14,141
Deferred Seabrook capital costs......................... (24,201) -
Other sources of cash................................... 29,262 8,579
Other uses of cash...................................... (34,778) (11,535)
Changes in working capital:
Receivables and accrued utility revenues................ 38,101 17,910
Fuel, materials, and supplies........................... 875 985
Accounts payable........................................ 7,639 (17,291)
Accrued taxes........................................... 8,580 357
Other working capital (excludes cash)................... 13,095 1,389
----------- -----------
Net cash flows from operating activities.................... 81,476 85,067
----------- -----------
Financing Activities:
Net increase in short term debt........................... - 250
Cash dividends on preferred stock......................... (2,650) (3,312)
Cash dividends on common stock............................ - (85,000)
----------- -----------
Net cash flows used for financing activities................ (2,650) (88,062)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................. (7,739) (8,119)
Nuclear fuel............................................ 1 1
----------- -----------
Net cash flows used for investments in plant.............. (7,738) (8,118)
NU System Money Pool...................................... - 18,250
Other investment activities, net.......................... (310) (534)
----------- -----------
Net cash flows used for investments......................... (8,048) 9,598
----------- -----------
Net Increase In Cash For The Period......................... 70,778 6,603
Cash - beginning of period.................................. 94,459 1,015
----------- -----------
Cash - end of period........................................ $ 165,237 $ 7,618
=========== ===========
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Management's Discussion and Analysis of Financial
Condition and Results of Operations
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 PSNH's financial statements and footnotes in this Form 10-Q,
the 1997 Form 10-K and Current Reports on Form 8-K dated March 9, 1998 and
April 8, 1998.
FINANCIAL CONDITION
OVERVIEW
Net income was approximately $7 million for the first quarter of 1998 compared
to approximately $32 million for the first quarter of 1997. The decrease in net
income was primarily due to lower operating revenues and higher maintenance
expenses.
PSNH has reviewed, with the Securities and Exchange Commission (SEC), the method
by which it accounted for certain costs associated with the ongoing Millstone
outages. For the past two years, PSNH, has been reserving for the unavoidable
costs they expected to incur to meet Nuclear Regulatory Commission (NRC)
requirements. The SEC has advised PSNH to reflect these costs as they are
incurred. These first quarter statements have been prepared in accordance with
the SEC's directive. The company plans to submit amended Form 10-Ks for the
years 1996 and 1997 to reflect this change. The implementation of this
accounting change does not materially impact the financial condition of the
company.
For further information on this issue, including its financial impact, see
"Notes to Financial Statements" Note 1.
RESTRUCTURING
On March 20, 1998, the New Hampshire Public Utilities Commission (NHPUC)issued
an order stating PSNH, a wholly owned subsidiary of NU, has demonstrated that
severe financial harm would be caused by the 1997 Order that mandated a regional
average rate making methodology. Thus, the NHPUC stated that an order will be
issued in the future using a cost-based method to allow PSNH to continue to use
its current accounting treatment.
See the "Notes to Financial Statements" Note 7A, for further information on
restructuring.
RATE MATTERS
On March 13, 1998, PSNH filed testimony and exhibits seeking a 3.7 percent net
increase in rates in the June through December 1998 period in connection with
its comprehensive fuel and purchased power adjustment clause(FPPAC)proceedings.
On April 29, 1998, PSNH entered into a Stipulation and Settlement with the
Office of The Consumer Advocate and the NHPUC Staff resolving most of the
contested issues in the FPPAC proceeding. If this settlement is approved by the
NHPUC, in conjunction with a new reduced NEPOOL capability responsibility,
PSNH's revised request will produce slightly more than a 1 percent net increase
in rates. This proposed rate would result in the collection of substantially
all currently projected fuel and purchased power costs, but would defer for
future collection a substantial portion of previously incurred costs. Hearings
are scheduled for mid-May.
See the "Notes to Financial Statements" Note 2C, for further information on the
FPPAC.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $4 million in the first
three months of 1998, from 1997, primarily due to the deferral of the PSNH
Seabrook phase-in costs billed by the North Atlantic Energy Corporation (NAEC),
partially offset by higher working capital. Cash used for financing activities
decreased approximately $85 million in the first three months of 1998, from
1997, due primarily to the payment of cash dividends in 1997. Cash used for
investments increased approximately $18 million in the first three months of
1998, from 1997, primarily due to an increase in investments in the NU system
Money Pool.
Each major company in the NU system 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.
MILLSTONE 3
PSNH has a 2.85-percent ownership interest in Millstone 3. Millstone 3 has been
out of service since March 30, 1996 and requires a vote of the Commissioners of
the NRC to restart.
Northeast Nuclear Energy Company (NNECO), a wholly owned subsidiary of
NU, acts as an agent for certain NU system companies and other New England
utilities in operating Millstone 3.
In January 1998, NNECO declared Millstone 3 physically ready for restart, which
meant that almost all of the restart-required physical work had been completed
at the plant. On April 7, 1998, Millstone 3 achieved Mode 4 operational status,
which is a significant milestone for restart. The Independent Corrective Action
Verification Program, an NRC-ordered independent inspection of Millstone's
corrective action program and design and licensing basis, is expected to be
completed for Millstone 3 in May 1998.
On May 1, 1998, NNECO had its first of two meetings with the NRC Commissioners,
preparatory to restarting Millstone 3. Selected issues were discussed relating
to the proposed restart of Millstone 3 including the Employee Concerns Program
(ECP), Safety Conscious Work Environment (SCWE), Deferred Items Management
(Backlog Management Plan), Management Oversight (Oversight) and Quality
Assurance (QA). The NRC Special Project Office reported to the Commission that
Millstone's SCWE, ECP, Oversight, and QA programs are "adequate to support
restart" of Millstone 3. Additionally, the NRC Special Project Office found
that Millstone 3's Backlog Management Plan "provides appropriate process for
(the) timely closure of deferred items." A second NRC meeting to discuss the
remaining restart items for Millstone 3 has been scheduled for June 2, 1998.
The NRC Commissioners' vote on restart of Millstone 3 will likely take place
within the two weeks following this second meeting.
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. PSNH has
been expensing all of the costs to restart the unit, including replacement power
and nonfuel O&M expenses. 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.
For further information on the current Millstone outages, see PSNH's 1997 Form
10-K and the Form 8-Ks dated March 9, 1998 and April 8, 1998.
SEABROOK PERFORMANCE
PSNH is obligated to purchase NAEC's 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 81.2 percent through March 1998,
compared to 100.3 percent for the same period in 1997. The lower 1998 capacity
factor is due primarily to an unplanned outage that began December 5, 1997 and
ended on January 17, 1998. The unplanned outage was due to a small leak in a
back-up cooling system. While the unit was down the company decided to work on
the air circulation system, work which was originally scheduled for later in
1998.
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. This
assessment 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 $36 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 incurred
and expensed approximately $5 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. The company is committed to ensuring
that adequate resources are available in order to implement any changes
necessary for its nuclear and operating systems to be compatible with the new
millennium.
RESULTS OF OPERATIONS
Income Statement Variances
Three Months Ended March 31, 1998
1998 Over/(Under)1997
Millions of Dollars
Amount Percent
Operating revenues $(17) (6)%
Other operation 2 2
Maintenance 21 (a)
Federal and state income taxes (10) (34)
Other income, net 4 (a)
Net income (26) (79)
(a) Percent greater than 100
Total operating revenues decreased in the first three months of 1998 primarily
due to lower retail revenues and lower fuel recoveries. Retail revenues
decreased approximately $13 million, primarily due to the December 1997 retail
rate decrease, partially offset by higher retail sales in the first quarter of
1998. Retail sales increased 1 percent, primarily due to modest economic growth
in the first quarter of 1998. Fuel recoveries decreased approximately $6
million, primarily due to lower energy costs reflected in rates through March
1998.
Other operation and maintenance expense increased in the first three months of
1998 primarily due to higher storm costs as a result of the January 1998 ice
storm.
Federal and state income taxes decreased in the first three months of 1998
primarily due to lower book taxable income.
Other income, net increased in the first three months of 1998, primarily due to
the amortization of the Seabrook deferred charges associated with the taxes on
the purchased return which began in December 1997.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited) (Restated)
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 1,285,402 $ 1,284,288
Less: Accumulated provision for depreciation......... 574,314 559,119
------------- ------------
711,088 725,169
Construction work in progress........................... 18,472 19,038
Nuclear fuel, net....................................... 30,988 30,907
------------- ------------
Total net utility plant............................. 760,548 775,114
------------- ------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 112,127 102,708
Investments in regional nuclear generating
companies, at equity................................... 16,381 15,741
Other, at cost.......................................... 4,933 4,900
------------- ------------
133,441 123,349
------------- ------------
Current Assets:
Cash.................................................... 93 105
Investments in securitizable assets..................... 29,621 25,280
Receivables, net........................................ 1,781 2,739
Accounts receivable from affiliated companies........... 2,932 3,933
Taxes receivable........................................ 4,048 10,768
Fuel, materials, and supplies, at average cost.......... 5,509 5,860
Prepayments and other................................... 18,749 14,945
------------- ------------
62,733 63,630
------------- ------------
Deferred Charges:
Regulatory assets (Note 2C):
Income taxes, net...................................... 60,917 63,716
Unrecovered contractual obligations.................... 89,730 93,628
Recoverable energy costs............................... 24,125 26,270
Other.................................................. 26,194 27,763
Unamortized debt expense................................ 2,491 2,695
Other................................................... 3,552 2,963
------------- ------------
207,009 217,035
------------- ------------
Total Assets........................................ $ 1,163,731 $ 1,179,128
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited) (Restated)
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$25 par value.
Authorized and outstanding 1,072,471 shares............ $ 26,812 $ 26,812
Capital surplus, paid in................................ 151,472 151,171
Retained earnings (Note 1).............................. 59,218 58,608
------------- ------------
Total common stockholder's equity.............. 237,502 236,591
Preferred stock not subject to mandatory redemption..... 20,000 20,000
Preferred stock subject to mandatory redemption......... 18,000 19,500
Long-term debt.......................................... 347,564 386,849
------------- ------------
Total capitalization........................... 623,066 662,940
------------- ------------
Obligations Under Capital Leases.......................... 213 217
------------- ------------
Current Liabilities:
Notes payable to banks.................................. 15,000 15,000
Notes payable to affiliated company..................... 32,950 14,350
Long-term debt and preferred stock--current
portion................................................ 41,500 11,300
Obligations under capital leases--current
portion................................................ 33,007 32,670
Accounts payable........................................ 12,110 30,571
Accounts payable to affiliated companies................ 17,500 21,209
Accrued taxes........................................... 456 522
Accrued interest........................................ 5,149 3,318
Other................................................... 5,869 2,446
------------- ------------
163,541 131,386
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 242,316 246,453
Accumulated deferred investment tax credits............. 22,997 23,364
Deferred contractual obligations........................ 89,730 93,628
Other................................................... 21,868 21,140
------------- ------------
372,911 384,585
------------- ------------
Commitments and Contingencies (Note 7)
Total Capitalization and Liabilities........... $ 1,163,731 $ 1,179,128
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1997
1998 (Restated)
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.................................... $ 107,189 $ 106,054
----------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power........ 31,441 41,080
Other............................................ 33,374 31,827
Maintenance......................................... 15,553 16,485
Depreciation........................................ 10,339 10,182
Amortization of regulatory assets................... 1,696 1,615
Federal and state income taxes...................... 1,271 (1,267)
Taxes other than income taxes....................... 5,677 5,457
----------- -----------
Total operating expenses...................... 99,351 105,379
----------- -----------
Operating Income...................................... 7,838 675
----------- -----------
Other Income:
Equity in earnings of regional nuclear generating
companies......................................... 596 493
Other, net.......................................... 711 570
Income taxes........................................ (206) 72
----------- -----------
Other income, net............................. 1,101 1,135
----------- -----------
Income before interest charges................ 8,939 1,810
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 6,937 5,973
Other interest...................................... 635 870
----------- -----------
Interest charges, net......................... 7,572 6,843
----------- -----------
Net Income/(Loss) (Note 1)............................ $ 1,367 $ (5,033)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997
1998 (Restated)
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income/(Loss)........................................... $ 1,367 $ (5,033)
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 10,339 10,182
Deferred income taxes and investment tax credits, net..... (3,069) (808)
Recoverable energy costs, net of amortization............. 2,145 1,316
Amortization of nuclear refueling outage, net of deferrals 1,553 2,206
Other sources of cash..................................... 6,705 3,777
Other uses of cash........................................ (690) (11,332)
Changes in working capital:
Receivables and accrued utility revenues.................. (18,041) 3,485
Fuel, materials, and supplies............................. 351 180
Accounts payable.......................................... (22,170) (15,445)
Accrued taxes............................................. (66) 6,700
Sale of receivables and accrued utility revenues.......... 20,000 -
Investments in securitizable assets....................... (4,341) -
Other working capital (excludes cash)..................... 8,170 683
----------- -----------
Net cash flows from/(used for) operating activities........... 2,253 (4,089)
----------- -----------
Financing Activities:
Net decrease in short-term debt............................. 18,600 43,500
Reacquisitions and retirements of long-term debt............ (9,800) (14,700)
Reacquisitions and retirements of preferred stock........... (1,500) -
Cash dividends on preferred stock........................... (757) (785)
Cash dividends on common stock.............................. - (15,004)
----------- -----------
Net cash flows from financing activities...................... 6,543 13,011
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (3,423) (6,056)
Nuclear fuel.............................................. 20 (30)
----------- -----------
Net cash flows used for investments in plant................ (3,403) (6,086)
Investments in nuclear decommissioning trusts............... (4,732) (2,455)
Other investment activities, net............................ (673) (401)
----------- -----------
Net cash flows used for investments........................... (8,808) (8,942)
----------- -----------
Net Decrease In Cash For The Period........................... (12) (20)
Cash and cash equivalents- beginning of period................ 105 67
----------- -----------
Cash and cash equivalents- end of period...................... $ 93 $ 47
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of Western Massachusetts Electric
Company (WMECO 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 in this Form
10-Q, the 1997 Form 10-K, and the Current Reports on Form 8-K dated March 25,
1998 and April 20, 1998.
FINANCIAL CONDITION
Overview
WMECO had net income of $1.4 million for the first quarter of 1998 compared to a
net loss of $5.0 million for the first quarter of 1997. The 1998 net income was
a result of lower replacement power costs and higher retail sales, partially
offset by the impact of a retail rate reduction, effective March 1, 1998. Retail
kilowatt-hour sales for the quarter increased 3.8 percent from 1997, primarily
due to modest economic growth.
The outages at the three Millstone units (Millstone) continue to have a
significant negative impact on WMECO's net income. The three Millstone units
have been off-line for more than two years and require a vote of the
Commissioners of the Nuclear Regulatory Commission (NRC) approval to restart.
NU anticipates a June restart for Millstone 3 and a restart for Millstone 2
three to four months after Millstone 3. No restart work is currently being
undertaken for Millstone 1.
WMECO has reviewed with the Securities and Exchange Commission (SEC) the method
by which it accounted for certain costs associated with the ongoing Millstone
outages. For the past two years, WMECO has been reserving for the unavoidable
costs it expected to incur to meet NRC requirements. The first quarter statement
has been prepared in accordance with the SEC's directive. The company plans to
submit amended Form 10-Ks for the years 1996 and 1997 to reflect this change.
Management does not expect implementation of this accounting change to affect
the ability of WMECO to meet its loan covenants.
For further information on the this issue, including its financial impact on the
company, see "Notes to Financial Statements," Note 1.
Millstone Outages
WMECO has a 19-percent ownership interest in Millstone 1 and 2 and a 12.24-
percent ownership interest in Millstone 3. Millstone units 1, 2 and 3 have been
out of service since November 4, 1995, February 21, 1996, and March 30, 1996,
respectively. Northeast Nuclear Energy Company (NNECO), a wholly owned
subsidiary of NU, acts as an agent for certain NU system companies and other
New England utilities in operating Millstone.
In January 1998, NNECO declared Millstone 3 physically ready for restart, which
meant that almost all of the restart-required physical work had been completed
at the plant. On April 7, 1998, Millstone 3 achieved Mode 4 operational status,
which is a significant milestone for restart. The Independent Corrective Action
Verification Program, an NRC-ordered independent inspection of Millstone's
corrective action program and design and licensing basis, is expected to be
completed for Millstone 3 in May 1998.
On May 1, 1998, NNECO had its first of two meetings with the NRC Commissioners,
preparatory to restarting Millstone 3. Selected issues were discussed relating
to the proposed restart of Millstone 3 including the Employee Concerns Program
(ECP), Safety Conscious Work Environment (SCWE), Deferred Items Management
(Backlog Management Plan) and Management Oversight (Oversight) and Quality
Assurance (QA). The NRC Special Project Office reported to the Commission that
Millstone's SCWE, ECP, Oversight, and QA programs are "adequate to support
restart" of Millstone 3. Additionally, the NRC Special Project Office found
that Millstone 3's Backlog Management Plan "provides appropriate process for
(the) timely closure of deferred items." A second NRC meeting to discuss the
remaining restart items for Millstone 3 has been scheduled for June 2, 1998.
The NRC Commissioners' vote on restart of Millstone 3 will likely take place
within the two weeks following this second meeting.
For the three months ended March 31, 1998, WMECO's share of nonfuel operation
and maintenance (O&M) costs expensed for Millstone totaled approximately $21
million, unchanged from the three months ended March 31, 1997.
WMECO's share of replacement power costs attributable to the Millstone outages
totaled approximately $11 million in the first quarter of 1998 compared to $16
million expensed in the first quarter of 1997. For the remainder of 1998, these
costs for 1998 are projected to average approximately $1 million per month for
all three Millstone units while the plants are out of service.
WMECO has been expensing all of the costs to restart the units including
replacement power and nonfuel O&M expenses.
For further information on the current Millstone outages, see WMECO's 1997 Form
10-K and the Form 8-Ks dated March 25, 1998, and April 20, 1998.
Liquidity and Capital Resources
Cash provided from operations increased approximately $6 million in the first
quarter of 1998, from 1997, primarily due to cash available through the use
of an accounts receivable facility, lower cash operating costs related to the
Millstone outages, and a decrease in the amount needed to pay down prior year
accounts payable balances. Net cash from financing activities decreased
approximately $6 million, primarily due to the decrease in short-term
borrowings, partially offset by lower payments of cash dividends and lower
preferred stock reacquisitions and retirements
WMECO established a facility under which it may sell from time to time up to $40
million of its accounts receivable and accrued utility revenues. As of April
30, 1998, WMECO had sold approximately $20 million of accounts receivable to
third party purchasors.
NU, Connecticut Light and Power Company (CL&P) and WMECO are parties to a
three-year revolving credit agreement (the Credit Agreement), which was amended
in May 1997. At March 31, 1998, WMECO had $15 million outstanding under the
Credit Agreement.
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 throughout 1998.
Spending levels in 1998, particularly the first half of the year while the
Millstone units are out of service, will be constrained to levels intended to
help meet the financial covenants in CL&P's and WMECO's Credit Agreement.
However, there is no assurance that these financial covenants will be met as the
NU system may encounter additional unexpected costs relating to storms, reduced
revenues from regulatory actions, or the effect of weather on sales levels.
Each major company in the NU system 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). 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.
If CL&P or WMECO did not meet these covenants, the bank creditors would have a
number of options, including causing the acceleration of the affected
indebtedness, reducing CL&P's or WMECO's access to further credit, seeking
higher interest rates and fees, asking for additional collateral and additional
measures which management cannot predict.
On April 22, 1998, Moody's Investors Services (Moody's) downgraded the
senior secured debt of CL&P and WMECO to Ba3 from Ba2. Moody's also
downgraded CL&P's and WMECO's preferred stock and NU's unsecured amortizing
notes. The ratings remain under review. Moody's indicated that the downgrade was
primarily due to the Department of Public Utility Control's (DPUC) decision
which removed Millstones 1 and 2, and potentially Millstone 3 from rate base. In
particular, Moody's stated that the decision "adds to pressure for restart at a
time when existing financial strains are already significant."
The downgrade of WMECO's senior secured debt brought those ratings to a level at
which the sponsor of WMECO's $40 million accounts receivable program could elect
to terminate the program. WMECO has initiated discussions with the sponsor
concerning the effect of the downgrade on continued availability of the program.
If the program is terminated by the sponsor, WMECO could elect to immediately
pay off the outstanding obligations or wind down the program pursuant to its
terms.
CL&P and WMECO finance their respective shares of the costs of the nuclear fuel
for Millstone through the Niantic Bay Fuel Trust (NBFT). NBFT has initiated a
private notes offering seeking up to $180 million of three-to-five year debt
financing to refund $80 million of NBFT notes that mature on June 5, 1998. If
this offering realizes more than $80 million, the proceeds would be used to pay
down or terminate a $100 million NBFT bank revolving credit facility, which was
renegotiated in February 1998 and expires in July 1998. $92 million was
outstanding under the NBFT bank revolving credit facility on May 12, 1998.
If the return to service of Millstone 2 or 3 is delayed substantially beyond the
present restart estimates or if some borrowing facilities become unavailable
because of difficulties in meeting borrowing conditions, renegotiating
extensions, or refinancing maturities, 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 attempt to 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
the time.
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. This
assessment 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 $36 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 incurred
and expensed approximately $5 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. The company is committed to ensuring
that adequate resources are available in order to implement any changes
necessary for its nuclear and operating systems to be compatible with the new
millennium.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
First
Quarter Percent
Operating revenues $1 (2)%
Fuel, purchased and net
interchange power (10) (23)
Other operation 2 5
Maintenance (1) (6)
Federal and state income taxes 3 (a)
Net Income $1 (a)
(a) Percentage greater than 100
Comparison of the First Quarter of 1998 to the First Quarter of 1997
Total operating revenues increased in 1998, primarily due to higher retail
sales, partially offset by lower revenues from regulatory decisions. Retail
kilowatt-hour sales for the quarter increased 3.8 percent from 1997, primarily
due to modest economic growth. Revenues from regulatory decisions decreased
primarily due to a retail rate decrease, effective March 1, 1998.
Fuel, purchased, and net interchange power expense decreased in 1998, primarily
due to lower replacement power costs in 1998.
Federal and state income taxes increased in 1998, primarily due to higher book
taxable income.
NORTH ATLANTIC ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 773,646 $ 779,111
Less: Accumulated provision for depreciation......... 151,762 143,778
------------- -------------
621,884 635,333
Construction work in progress........................... 5,748 4,616
Nuclear fuel, net....................................... 25,057 27,413
------------- -------------
Total net utility plant............................. 652,689 667,362
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 28,861 26,547
------------- -------------
28,861 26,547
------------- -------------
Current Assets:
Cash.................................................... 51 13
Special deposits........................................ 2,757 -
Notes receivable from affiliated companies.............. 26,750 -
Receivables from affiliated companies................... 23,247 25,695
Taxes receivable........................................ 6,695 4,613
Materials and supplies, at average cost................. 12,943 13,003
Prepayments and other................................... 2,088 4,220
------------- -------------
74,531 47,544
------------- -------------
Deferred Charges:
Regulatory assets:
Deferred costs--Seabrook............................... 187,147 199,753
Income taxes, net...................................... 45,966 48,736
Recoverable energy costs............................... 2,005 2,057
Unamortized loss on reacquired debt.................... 17,044 18,938
Unamortized debt expense................................ 3,462 3,702
------------- -------------
255,624 273,186
------------- -------------
Total Assets........................................ $ 1,011,705 $ 1,014,639
============= =============
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$1 par value. Authorized
and outstanding 1,000 shares.......................... $ 1 $ 1
Capital surplus, paid in................................ 160,999 160,999
Retained earnings....................................... 65,612 58,702
------------- -------------
Total common stockholder's equity.............. 226,612 219,702
Long-term debt.......................................... 475,000 475,000
------------- -------------
Total capitalization........................... 701,612 694,702
------------- -------------
Current Liabilities:
Notes payable to affiliated company..................... - 9,950
Long-term debt--current portion......................... 20,000 20,000
Accounts payable........................................ 5,551 7,912
Accounts payable to affiliated companies................ 5,815 6,040
Accrued interest........................................ 9,794 3,025
Accrued taxes........................................... 950 -
Other................................................... 325 1,055
------------- -------------
42,435 47,982
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 214,840 216,701
Deferred obligation to affiliated company............... 30,036 32,472
Other................................................... 22,782 22,782
------------- -------------
267,658 271,955
------------- -------------
Commitments and Contingencies (Note 6)
------------- -------------
Total Capitalization and Liabilities........... $ 1,011,705 $ 1,014,639
============= =============
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.................................... $ 68,169 $ 41,976
----------- -----------
Operating Expenses:
Operation --
Fuel............................................. 3,222 3,828
Other............................................ 8,457 7,890
Maintenance......................................... 2,996 2,933
Depreciation........................................ 6,412 6,357
Amortization of regulatory assets, net.............. 21,366 -
Federal and state income taxes...................... 8,970 3,245
Taxes other than income taxes....................... 3,098 3,317
----------- -----------
Total operating expenses...................... 54,521 27,570
----------- -----------
Operating Income...................................... 13,648 14,406
----------- -----------
Other Income:
Deferred Seabrook return--other funds............... 1,875 1,741
Other, net.......................................... (2,384) 116
Income taxes........................................ 3,175 154
----------- -----------
Other income, net............................. 2,666 2,011
----------- -----------
Income before interest charges................ 16,314 16,417
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 12,815 12,527
Other interest...................................... (20) (75)
Deferred Seabrook return--borrowed funds............ (3,390) (3,275)
----------- -----------
Interest charges, net......................... 9,405 9,177
----------- -----------
Net Income............................................ $ 6,909 $ 7,240
=========== ===========
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 6,909 $ 7,240
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 6,412 6,357
Deferred income taxes and investment tax credits, net... 909 5,888
Deferred Seabrook return, net of amortization........... 16,329 (5,016)
Amortization of deferred obligation to affiliated co.... (2,436) -
Other sources of cash................................... 10,746 4,985
Other uses of cash...................................... (3,723) (454)
Changes in working capital:
Receivables............................................. 2,448 2,052
Materials and supplies.................................. 60 (586)
Accounts payable........................................ (2,586) (16,239)
Accrued taxes........................................... 950 (2,121)
Other working capital (excludes cash)................... 3,332 11,769
----------- -----------
Net cash flows from operating activities.................... 39,350 13,875
----------- -----------
Financing Activities:
Net increase (decrease) in short-term debt................ (9,950) 18,250
Cash dividends on common stock............................ - (25,000)
----------- -----------
Net cash flows used for financing activities................ (9,950) (6,750)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................. (1,146) (1,700)
Nuclear fuel............................................ (124) (4,364)
----------- -----------
Net cash flows used for investments in plant.............. (1,270) (6,064)
NU System Money Pool...................................... (26,750) -
Investments in nuclear decommissioning trusts............. (1,342) (1,212)
----------- -----------
Net cash flows used for investments......................... (29,362) (7,276)
----------- -----------
Net Increase/(Decrease) In Cash For The Period.............. 38 (151)
Cash - beginning of period.................................. 13 299
----------- -----------
Cash - end of period........................................ $ 51 $ 148
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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 footnotes in this Form
10-Q, the 1997 Form 10-K, and the Current Reports on Form 8-K dated March 9,
1998 and April 8, 1998.
FINANCIAL CONDITION
OVERVIEW
Under the Seabrook Power Contract, (the Contract), Public Service Company of New
Hampshire (PSNH) is unconditionally obligated to pay the company's cost of
service 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 1 is operating and without regard to the cost of alternative sources of
power. In addition, PSNH will be obligated to pay decommissioning and project
cancellation costs after the termination of the operating license.
NAEC had net income of approximately $7 million for the three months ended March
31, 1998, unchanged from the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations increased by approximately $25 million in the
first three months of 1998, from 1997, as a result of the beginning of the
amortization of the Seabrook deferred return in December 1997, which is billed
through the Seabrook Power Contract, to PSNH. Cash used for financing activities
increased by approximately $3 million in the first three months of 1998, from
1997, primarily due the payment of cash dividends in 1997, partially offset by
the repayment of short-term debt related to the NU system money pool. Cash used
for investments increased by approximately $22 million in the first three months
of 1998, from 1997, primarily due an increase in investments in the Money Pool,
partially offset by lower 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
On March 20, 1998, the New Hampshire Public Utilities Commission (NHPUC)issued
an order stating that PSNH, a wholly owned subsidiary of NU, has demonstrated
that severe financial harm would be caused by the 1997 Order that mandated a
regional average rate making methodology. Thus, the NHPUC stated that an order
will be issued in the future using a cost-based method to allow PSNH to continue
to use its current accounting treatment.
See the "Notes to Financial Statements" Note 7A, for further information on
restructuring.
SEABROOK PERFORMANCE
Seabrook operated at a capacity factor of 81.2 percent through March 1998,
compared to 100.3 percent for the same period in 1997. The lower 1998 capacity
factor is due primarily to an unplanned outage that began December 5, 1997 and
ended on January 17, 1998. The unplanned outage was due to a small leak in a
back-up cooling system. While the unit was down the company decided to work on
the air circulation system, work which was originally scheduled for later in
1998.
RISK-MANAGEMENT INSTRUMENTS
NAEC uses swaps to manage the market risk exposures associated with variable
interest rates. The company uses these instruments to reduce risk by
essentially creating offsetting market exposures but does not use these risk-
management instruments for speculative purposes.
For further information on risk-management instruments, see the "Notes to
Financial Statements" Note 6.
NAEC has a hedge on its $200 million variable rate note, effectively fixing the
interest on it at 7.823 percent.
There have been no material changes in the reported market risk for NAEC since
the 1997 Form 10-K. For further information on NAEC's market risk exposure, see
the MD&A in the 1997 10-K.
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. This
assessment 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 $36 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 incurred and expensed
approximately $5 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. The company is committed to ensuring
that adequate resources are available in order to implement any changes
necessary for its nuclear and operating systems to be compatible with the new
millennium.
RESULTS OF OPERATIONS
Income Statement Variance
Three months Ended March 31, 1998
1998 Over/(Under)1997
Millions of Dollars
Amount Percent
Operating revenues $26 62%
Amortization of Regulatory
Assets, net 21 (a)
Federal and State Income Taxes 3 87
Other, net (2) (a)
Net income - -
(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 the first three months of 1998 primarily due to
increased sales to PSNH as a result of the amortization of the Seabrook deferred
return which began in December 1997.
AMORTIZATION OF REGULATORY ASSETS, NET
Amortization of Regulatory Assets, net increased in the first three months of
1998 primarily due to the amortization of the Seabrook deferred return which
began in December 1997.
FEDERAL AND STATE INCOME TAXES
Federal and State income taxes increased in the first three months of 1998
primarily due to higher book taxable income.
OTHER, NET
Other, net decreased in the first three months of 1998 primarily due to the
amortization of the Seabrook deferred charges associated with the taxes on the
purchased return which began in December 1997.
NORTHEAST UTILITIES AND SUBSIDIARIES
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
NORTH ATLANTIC ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SECURITIES AND EXCHANGE COMMISSION INQUIRY AND RESTATEMENT
(NU, CL&P, PSNH, WMECO)
The SEC inquired into the NU system's accounting for nuclear compliance costs.
These costs are the unavoidable incremental costs associated with the current
nuclear outages required to be incurred prior to restart of the units in
accordance with correspondence received from the NRC early in 1996. The SEC's
view is that these unavoidable costs associated with nuclear outages and
procedures to be implemented at nuclear power plants in response to regulatory
requirements required prior to restart of the units should be expensed as
incurred. For the past two years, NU, CL&P, PSNH and WMECO have been reserving
for these unavoidable incremental costs they expected to incur to meet NRC
standards. The SEC has advised NU, CL&P, PSNH and WMECO to reflect these costs
as they are incurred. While NU and its independent auditors, Arthur Andersen
LLP, believed the accounting was required by, and was in accordance with,
generally accepted accounting principles, the company has agreed to adjust its
accounting for nuclear compliance costs beginning with its 1998 financial
statements and amend its 1996 and 1997 Form 10-K filings. The financial
statements within this Form 10-Q reflect this change.
The NU system's decision to recognize nuclear compliance costs as incurred will
effect earnings for all quarters in 1996 and 1997. The following table
discloses, by quarter and by year, the effect on earnings of this change in
accounting for NU, CL&P, PSNH and WMECO.
<TABLE>
Effect on Earnings - Reporting Nuclear Compliance Costs as Incurred
As Reported Adjustment Amount As Restated
Net Net Net
Company For the Period Income/(Loss) EPS Income/(Loss) EPS Income/(Loss) EPS
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
NU Year Ended 12/31/97 ($135,708) ($1.05) $5,746 $0.05 ($129,962) ($1.00)
Quarter Ended 12/31/97 ($37,029) ($0.29) ($15,960) ($0.12) ($52,989) ($0.41)
Quarter Ended 09/30/97 ($51,745) ($0.40) $20,913 $0.16 ($30,832) ($0.24)
Quarter Ended 06/30/97 ($64,439) ($0.50) $17,422 $0.13 ($47,017) ($0.37)
Quarter Ended 03/31/97 $17,505 $0.14 ($16,629) ($0.13) $876 $0.01
Year Ended 12/31/96 $1,831 $0.01 $37,099 $0.29 $38,930 $0.30
Quarter Ended 12/31/96 ($76,370) ($0.60) $13,620 $0.11 ($62,750) ($0.49)
Quarter Ended 09/30/96 $1,033 $0.01 ($4,600) ($0.04) ($3,567) ($0.03)
Quarter Ended 06/30/96 $11,666 $0.09 $5,906 $0.05 $17,572 $0.14
Quarter Ended 03/31/96 $65,502 $0.51 $22,173 $0.17 $87,675 $0.67
CL&P Year Ended 12/31/97 ($144,377) N/A $4,780 N/A ($139,597) N/A
Quarter Ended 12/31/97 ($23,780) N/A ($12,860) N/A ($36,640) N/A
Quarter Ended 09/30/97 ($50,077) N/A $16,917 N/A ($33,160) N/A
Quarter Ended 06/30/97 ($64,089) N/A $13,928 N/A ($50,161) N/A
Quarter Ended 03/31/97 ($6,431) N/A ($13,205) N/A ($19,636) N/A
Year Ended 12/31/96 ($80,237) N/A $29,369 N/A ($50,868) N/A
Quarter Ended 12/31/96 ($75,450) N/A $10,651 N/A ($64,799) N/A
Quarter Ended 09/30/96 ($26,938) N/A ($3,644) N/A ($30,582) N/A
Quarter Ended 06/30/96 ($10,700) N/A $4,698 N/A ($6,002) N/A
Quarter Ended 03/31/96 $32,851 N/A $17,664 N/A $50,515 N/A
PSNH Year Ended 12/31/97 $92,422 N/A ($250) N/A $92,172 N/A
Quarter Ended 12/31/97 $19,676 N/A $12 N/A $19,688 N/A
Quarter Ended 09/30/97 $19,056 N/A ($156) N/A $18,900 N/A
Quarter Ended 06/30/97 $21,161 N/A $128 N/A $21,289 N/A
Quarter Ended 03/31/97 $32,529 N/A ($234) N/A $32,295 N/A
Year Ended 12/31/96 $96,902 N/A $563 N/A $97,465 N/A
Quarter Ended 12/31/96 $13,725 N/A $372 N/A $14,097 N/A
Quarter Ended 09/30/96 $30,646 N/A ($70) N/A $30,576 N/A
Quarter Ended 06/30/96 $23,986 N/A $64 N/A $24,050 N/A
Quarter Ended 03/31/96 $28,545 N/A $197 N/A $28,742 N/A
WMECO Year Ended 12/31/97 ($28,676) N/A $1,216 N/A ($27,460) N/A
Quarter Ended 12/31/97 ($2,520) N/A ($3,112) N/A ($5,632) N/A
Quarter Ended 09/30/97 ($9,455) N/A $4,152 N/A ($5,303) N/A
Quarter Ended 06/30/97 ($14,858) N/A $3,366 N/A ($11,492) N/A
Quarter Ended 03/31/97 ($1,843) N/A ($3,190) N/A ($5,033) N/A
Year Ended 12/31/96 $3,922 N/A $7,167 N/A $11,089 N/A
Quarter Ended 12/31/96 ($7,807) N/A $2,596 N/A ($5,211) N/A
Quarter Ended 09/30/96 ($396) N/A ($886) N/A ($1,282) N/A
Quarter Ended 06/30/96 $4,016 N/A $1,145 N/A $5,161 N/A
Quarter Ended 03/31/96 $8,109 N/A $4,312 N/A $12,421 N/A
</TABLE>
For more information regarding the SEC inquiry, see the Form 8-Ks dated March
9, 1998 for NU and PSNH and the Form 8-Ks dated March 25, 1998 for CL&P and
WMECO.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Presentation (All Companies)
The accompanying unaudited consolidated financial statements should be
read in conjunction with the MD&A in this Form 10-Q, the Annual
Reports of NU, CL&P, PSNH, WMECO and NAEC, which were filed as part of
a consolidated Form 10-K for the year ended December 31, 1997 (1997
Form 10-K) and the Current Reports on Form 8-K (Form 8-K) dated March
9, 1998 (NU, PSNH and NAEC), March 25, 1998 (CL&P and WMECO), April 8,
1998 (NU, PSNH and NAEC), April 15, 1998 (NU and CL&P), and April 20,
1998 (WMECO). In the opinion of the companies, the accompanying
financial statements contain all adjustments necessary to present
fairly the companies' financial position as of March 31, 1998, the
results of operations for the three-month periods ended March 31, 1998
and 1997, and the statements of cash flows for the three-month periods
ended March 31, 1998 and 1997. All adjustments are of a normal,
recurring nature except those described below in Note 7B. The results
of operations for the three-month periods ended March 31, 1998 and
1997 are not necessarily indicative of the results expected for a full
year.
NU is the parent company of 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 HWP. A fifth wholly owned subsidiary, NAEC, sells all
of its entitlement to the capacity and output of the Seabrook nuclear
power plant to PSNH. In addition to its franchised retail electric
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 other wholly owned subsidiaries of NU provide support services
for the NU system companies and, in some cases, for other New England
utilities.
The consolidated financial statements of NU include the accounts of
all wholly owned subsidiaries. Significant intercompany transactions
have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications of prior period data have been made to
conform with the current period presentation.
B. New Accounting Standards (All Companies)
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use." SOP 98-1 provides guidance on accounting for the costs of
computer software developed or obtained for internal use. The SOP
standardizes the criteria for capitalization versus expense of these
costs. SOP 98-1 becomes effective in 1999, with earlier adoption
permitted.
The NU system has adopted SOP 98-1 effective January 1, 1998.
The adoption of the SOP has not had a material impact on the O&M
expenses of the NU system for the three-month period ended March 31,
1998, and is not expected to have a material impact on O&M expenses
for the year.
For additional information regarding the adoption of new
accounting standards, see the 1997 Form 10-K for NU, CL&P, PSNH and
WMECO.
C. Regulatory Accounting and Assets (All Companies)
Regulatory Accounting: The accounting policies of CL&P, PSNH,
WMECO and NAEC conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of
the ratemaking process in accordance with SFAS 71, "Accounting for the
Effects of Certain Types of Regulation."
The Connecticut General Assembly has passed legislation for
electric industry restructuring, to begin in the year 2000, in the
state of Connecticut. Management believes that CL&P's use of
regulatory accounting remains appropriate within this jurisdiction.
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.
Electric utility industry restructuring in Massachusetts became
effective March 1, 1998. On February 20, 1998, the DTE issued an order
approving, in all material aspects, WMECO's restructuring plan on an
interim basis. WMECO's plan is subject to additional review, with
hearings expected to begin in the late spring of 1998. A final
decision on WMECO's restructuring plan is expected later in 1998.
Once the DTE completes its review of WMECO's restructuring plan and
issues a final approval, WMECO will discontinue application of
SFAS 71 to the generation portion of its business. The restructuring
legislation enacted by Massachusetts specifically provides for future
deferrals and cost recovery of generation-related strandable assets as
contemplated under the restructuring plan. As such, WMECO is not
expected to write off either its generation-related strandable assets
or related regulatory assets. WMECO's generation-related regulatory
assets had a book value of approximately $180 million at March 31,
1998.
CL&P, PSNH and WMECO each expect that their respective
transmission and distribution business will continue to be rate
regulated on a cost-of-service basis and, accordingly, CL&P, PSNH
and WMECO 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 in this Form 10-Q.
Regulatory Assets: On March 13, 1998, PSNH filed testimony and
exhibits seeking a 3.7 percent net increase in rates for the June-
November 1998 period in connection with its comprehensive fuel and
purchased power adjustment clause (FPPAC) proceedings. On April 29,
1998, PSNH entered into a Stipulation and Settlement with the Office
of the Consumer Advocate and the NHPUC staff resolving most of the
contested issues in the FPPAC proceeding. If this settlement is
approved by the NHPUC, in conjunction with a new reduced NEPOOL
capability responsibility, PSNH's revised request will produce
slightly more than a 1 percent net increase in rates. This proposed
rate would result in the collection of substantially all currently
projected fuel and purchased power costs, but would defer a
substantial portion of previously incurred costs. Hearings
are scheduled for mid-May 1998.
For more information regarding FPPAC, see the Form 8-Ks dated
March 9, 1998 and the 1997 Form 10-K of NU and PSNH.
For additional information regarding regulatory accounting and assets,
see the MD&A in this Form 10-Q and the 1997 Form 10-K of NU, CL&P,
PSNH, WMECO and NAEC.
3. SHORT-TERM DEBT (NU, CL&P, PSNH, WMECO)
On April 23, 1998, PSNH entered into a $75 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
0.5 percent per annum on the commitment. PSNH's borrowings under this
agreement are secured, per dollar of borrowing, by $75 million of first
mortgage bonds and substantially all of PSNH's accounts receivable. On
March 20, 1998, in connection with this transaction, the NHPUC issued an
order requiring PSNH to obtain NHPUC approval before paying any dividends
on its common stock and before investing any PSNH funds in the NU system
Money Pool during the expected 364-day term of the facilities.
For additional information on PSNH's short-term debt, see NU's and PSNH's
1997 Form 10-K and the 8-Ks dated March 9, 1998.
On April 29, 1998, the DPUC issued a final decision with respect to the
removal of Millstone 2, and potentially Millstone 3, from CL&P's rate base
which will have the effect of reducing earnings. The decision could create
additional pressure on CL&P's ability to meet certain financing covenants
under the Credit Agreement and an operating lease. As a result of this
decision, CL&P has initiated discussion with its lenders to review its
financial performance. CL&P and WMECO have met the covenant requirements
applicable in the first quarter of 1998.
For additional information see Note 7B and the MD&A in this Form 10-Q, NU
and PSNH's Form 8-Ks dated March 9, 1998 and the 1997 Form 10-K for NU,
CL&P, PSNH and WMECO.
4. CAPITALIZATION (NU, CL&P, PSNH, WMECO)
PSNH: On May 1, 1998, the $75 million principal amount of Pollution
Control Refunding Revenue Bonds (PCRRB), 1992 Series D, due May 1, 2021 and
$44.8 million principal amount of PCRRB, 1992 Series E, due May 1, 2021,
which were previously issued by the Business Finance Authority of the state
of New Hampshire (BFA) on PSNH's behalf as variable rate bonds, were
converted to fixed rate bonds bearing interest at 6% per annum. These bonds
are a special limited obligation of the BFA and are payable solely by PSNH
under a loan and trust agreement.
Downgrade Event: On April 22, 1998, Moody's Investors Services (Moody's)
downgraded the senior secured debt of CL&P and WMECO to Ba3 from Ba2.
Moody's also downgraded CL&P and WMECO's preferred stock and NU's unsecured
amortizing notes. These ratings remain under review. Moody's indicated
that the downgrade was primarily due to the DPUC's decision to remove
Millstone 2 from rate base effective May 1, 1998 and the possible removal
of Millstone 3 from rate base if certain milestones are not met by July 1,
1998.
The downgrade of WMECO's senior secured debt brought those ratings to a
level at which the sponsor of WMECO's $40 million accounts receivable
program could elect to terminate the program. WMECO has initiated
discussions with the sponsor concerning the effect of the downgrade on the
continued availability of the program. In the event that the program is
terminated by the sponsor, WMECO could elect to immediately pay off the
outstanding obligations or wind down the program pursuant to the terms of
the program. As of April 30, 1998, WMECO had sold approximately $20
million of receivables under the program.
CL&P's $200 million accounts receivable program could be terminated if its
senior secured debt is downgraded one more step. As of April 30, 1998, CL&P
had sold approximately $145 million of receivables under the program.
For more information regarding capitalization and the issuance of first
mortgage bonds as collateral see Notes 2 and 4 and the MD&A in this Form
10-Q and the 1997 Form 10-K of NU, CL&P, PSNH and WMECO. For more
information on Millstone see Note 7B and the MD&A in this Form 10-Q and the
1997 Form 10-K of NU, CL&P, PSNH and WMECO. For more information on the
downgrade and the effect on CL&P's and WMECO's accounts receivable programs
see the 8-Ks dated April 15, 1998 for NU and CL&P and the 8-K dated April
20, 1998 for WMECO, and the 1997 Form 10-K of NU, CL&P and WMECO.
5. LEASES (NU, CL&P, WMECO)
CL&P and WMECO utilize the Niantic Bay Fuel Trust (NBFT) to finance their
nuclear fuel requirements for the Millstone units. The NBFT consists of a
$100 million revolving credit facility and $80 million of intermediate term
notes (ITNs). On May 8, 1998, CL&P and WMECO issued $72.9 million and
$17.3 million of first mortgage bonds, respectively, to secure a portion of
the revolving credit facility through its maturity date in July 1998 and
the ITNs. The ITNs are due in June 1998.
For additional information regarding the NBFT, see the MD&A in this Form
10-Q and the 1997 Form 10-K of NU, CL&P and WMECO.
6. INTEREST RATE AND FUEL PRICE MANAGEMENT (NU, CL&P, NAEC)
Fuel Price Management: As of March 31, 1998, CL&P had outstanding fuel-
price management agreements with a total notional value of approximately
$288 million and a negative mark-to-market position of approximately $22.8
million.
The terms of CL&P's fuel-price management agreements require CL&P to post
cash collateral with its counterparties in the event of negative mark-to-
market positions and lowered credit ratings. The amount of collateral is to
be returned to CL&P when the mark-to-market position becomes positive, when
CL&P meets specified credit ratings or when an agreement ends and all open
positions are properly settled. At March 31, 1998, cash collateral in the
amount of $23.9 million was posted under these terms.
Interest Rate Management: As of March 31, 1998, NAEC had outstanding
interest-rate management agreements with a total notional value of
approximately $200 million and a negative mark-to-market position of
approximately $431 thousand.
Credit Risk: These agreements have been made with various financial
institutions, each of which is rated "A3" or better by Moody's rating
agency. Each respective company is exposed to credit risk on their
respective risk management instruments if the counterparties fail to
perform their obligations. However, management anticipates that the
counterparties will be able to fully satisfy their obligations under the
agreements.
For further information on fuel-price and interest-rate management
instruments, see the MD&A in this Form 10-Q and the 1997 Form 10-K of NU,
CL&P and NAEC.
7. COMMITMENTS AND CONTINGENCIES
A. Restructuring and Rate Matters (All Companies)
Connecticut: On April 29, 1998, the governor of the state of
Connecticut signed into law a comprehensive electric utility
restructuring bill. The bill provides, among other things, that:
(i) Retail choice will be phased in over six months beginning January
2000, with up to 35 percent of customers being eligible to choose
their electric supplier, and 100 percent of customers having choice by
July 2000; rates will be capped at December 31, 1996 levels from July
1, 1998 until December 31, 1999;
(ii) Customers who do not choose an alternate supplier could take
standard offer service from the existing utility until January 2004,
at a rate which must be at least 10 percent less than rates in effect
on December 31, 1996;
(iii) Rates will be unbundled into several components, including
charges for transmission, distribution, generation, the recovery of
strandable costs, public policy costs and new conservation and
renewable programs; Strandable costs will be recovered through a
competitive transition assessment (CTA).
(iv) CL&P will be required to auction its non-nuclear generating
assets by January 2000 and its nuclear generating assets by
January 2004 in order to recover strandable costs; affiliates of CL&P
will be allowed to bid at both auctions. If CL&P cannot sell its
nuclear plants above the minimum price set by the DPUC then they must
be transferred to an affiliate at a value determined by the DPUC.
Nuclear strandable costs can be recovered for the amount by which
their book value exceeds the minimum price set by the DPUC.
(v) Securitization is allowed for generation-related regulatory
assets and the costs associated with renegotiated above-market
purchased power contracts. The above-market portion of purchased
power contracts that have not been renegotiated can be collected
through the CTA.
Although CL&P is permitted under this legislation, as discussed above,
to fully recover its strandable costs, CL&P's earnings prospects in a
restructured environment will be affected in ways that cannot now be
estimated.
For additional information regarding utility restructuring in
Connecticut, see NU's and CL&P's Form 8-Ks dated April 15, 1998 and
the 1997 Form 10-K of NU and CL&P.
New Hampshire: On March 20, 1998, the NHPUC issued an order on
rehearing (Rehearing Order) of its February 28, 1997 orders on
restructuring the electric industry in New Hampshire (1997 Orders).
The Rehearing Order stated that PSNH had demonstrated that severe
financial harm would be caused by the 1997 Orders' regional average
rate making methodology. Thus, the NHPUC stated that PSNH's interim
stranded cost distribution charges will be determined in an order to
be issued in the future using a cost-based method to allow PSNH to
continue to use accounting treatment under SFAS 71.
The Rehearing Order also made other significant changes to the 1997
Orders, including opening retail markets up to energy supply
affiliates of distribution companies within the distribution company's
service territory and permitting transition service to be offered by
distribution companies to residential customers for at least one year.
PSNH and NU have obtained a stay of the 1997 Orders in a federal
lawsuit on various grounds, including certain issues that are not
addressed by the Rehearing Order. Compliance filings were required for
other utilities operating in New Hampshire by May 1, 1998 in order to
meet the statutory deadline for competition of July 1, 1998. PSNH was
not required to make a compliance filing under the terms of the
NHPUC's Rehearing Order.
Specific changes concerning interim stranded cost levels for PSNH are
not expected to be determined until after a decision is issued in a
New Hampshire Supreme Court proceeding regarding the 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. Based on the procedural schedule, a decision in this
proceeding could be issued in June 1998.
For additional information regarding these matters, see the Form 8-Ks
dated March 9, 1998 and the 1997 Form 10-K of NU, PSNH and NAEC.
Massachusetts: Deregulation was implemented in Massachusetts effective
March 1, 1998. For information on the impacts of deregulation in
Massachusetts see Note 2C in this Form 10-Q and the 1997 Form 10-K of
NU and WMECO.
B. Nuclear Performance (All Companies)
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. Management is currently implementing comprehensive
plans to restart Millstone 2 and 3. Millstone 1 continues to be in
extended maintenance status.
Several significant compliance filings have been made with the NRC.
The NRC has already completed several important inspections related to
restart. The NRC Commissioners met on May 1, 1998 and will meet a
second time on June 2, 1998 to consider the readiness of Millstone 3
for restart. The NRC Commissioners' vote on restart of Millstone 3
would likely take place within the two weeks following this second
meeting. NU expects to begin the restart of Millstone 3 in June 1998
following the NRC Commissioners' vote. The restart effort for
Millstone 2 is approximately three to four months behind Millstone 3.
As noted above, the actual date of the return to service for
Millstone 3 and Millstone 2 will be dependent upon the completion of
various additional inspections and reviews by the NRC and a vote by
the NRC Commissioners.
For the three months ended March 31, 1998, NU's share of nonfuel O&M
costs expensed for Millstone totaled $115 million. On a subsidiary
level, for the three-month period ended March 31, 1998, CL&P expensed
$94 million of nonfuel O&M costs related to the Millstone outage.
For the same three-month period, WMECO expensed $21 million of
nonfuel O&M costs. For PSNH, the amounts expensed over the three-
month period ended March 31, 1998, were immaterial. Nonfuel O&M costs
have been, and will continue to be, absorbed by the NU system without
adjustment to its subsidiaries' current rates.
As discussed above, management cannot be certain as to when the NRC
will allow any of the Millstone units to return to service and thus
cannot estimate the total replacement power costs the companies will
ultimately incur. Replacement power costs incurred by NU, CL&P and
WMECO attributable to the Millstone outages were approximately $86
million, $74 million and $11 million, respectively, during the first
three months of 1998. For NU, these costs for 1998 are projected
to average approximately $8 million per month for its share of
Millstone 3, $10 million per month for Millstone 2 and $7 million
per month for Millstone 1, while the plants are out of service.
For CL&P and WMECO for 1998, these costs are projected to average
approximately $6 million and $1 million per month, respectively, for
Millstone 3, $9 million and $1 million per month, respectively, for
Millstone 2 and $6 million and $1 million per month, respectively,
for Millstone 1, while the plants are out of service. For the first
three months of 1998 these costs were, and are expected to continue
to be, immaterial to PSNH. WMECO and PSNH will continue to expense
replacement power costs attributable to the Millstone outages for the
remainder of 1998. As a result of the two recent out-of-rate-base
decisions in Connecticut, CL&P was permitted to recover replacement
power costs, through its energy adjustment clause, for Millstone 1
effective March 1, 1998 and Millstone 2 effective May 1, 1998.
Based on the current estimates of expenditures and restart dates,
management continues to believe that 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 or
refinancing maturities, 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 attempt to 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.
Millstone Rate Issues: During February 1998, the DPUC issued a
decision that concluded that Millstone 1 was no longer "used and
useful" and ordered it removed from CL&P's rate base effective March
1, 1998. On April 29, 1998, the DPUC issued a decision that removed
Millstone 2 from CL&P's rate base effective May 1, 1998. The decision
further concluded that the DPUC would automatically remove Millstone 3
from CL&P's rate base effective July 1, 1998 if certain operational
milestones are not met.
For more information regarding these matters, see the MD&A in this
Form 10-Q, the Form 8-Ks dated April 15, 1998 for NU and CL&P, the
Form 8-K dated April 20, 1998 for WMECO, the Form 8-K dated March 9,
1998 for NU and NU's 1997 Form 10-K.
For information regarding Millstone related litigation matters, see
Part II of this Form 10-Q, the Form 8-K dated March 9, 1998 for NU and
the Form 8-Ks dated March 25, 1998 for CL&P and WMECO and the 1997
Form 10-K for NU, CL&P, PSNH and WMECO.
C. Environmental Matters (All Companies)
For information regarding environmental matters, see the 1997 Form 10-
K for NU, CL&P, PSNH, WMECO and NAEC.
D. Nuclear Insurance Contingencies (All Companies)
For information regarding nuclear insurance contingencies, see the
1997 Form 10-K for NU, CL&P, PSNH, WMECO and NAEC.
E. Construction Program (All Companies)
For information regarding the NU system's construction program, see
the 1997 Form 10-K for NU, CL&P, PSNH, WMECO and NAEC.
F. Long-Term Contractual Arrangements (NU, CL&P, PSNH, WMECO)
For information regarding long-term contractual arrangements, see the
1997 Form 10-K for NU, CL&P, PSNH and WMECO.
G. Charter Oak Energy, Inc. Sale (NU)
NU initiated the sale of the business and assets of its wholly owned
subsidiary, COE, in 1997. On May 5, 1998, COE sold its investment in
its subsidiary, COE Tejona Corp., to an outside party for $17.8
million.
For additional information on COE see NU's 1997 Form 10-K.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. (NU, CL&P, WMECO) On April 3, 1998, in connection with litigation commenced
against NU and certain of its current and former trustees in August 1997,
Massachusetts Municipal Wholesale Electric Company (MMWEC), a joint owner of
Millstone 3 filed a motion seeking a lien on NU's common ownership interest in
two of its Massachusetts subsidiaries, WMECO and HWP. A hearing on this motion
was held on April 28, 1998, and a decision is expected shortly. If MMWEC's
request for such a lien is granted, it could, unless waived by the affected
creditors, give rise to defaults and/or cross defaults under the "negative
pledge" clauses in numerous financing agreements to which NU and certain of
its subsidiaries are parties, which could in turn give rise to the acceleration
of a substantial portion of the NU system's indebtedness. NU is opposing the
motion vigorously.
For more information regarding this matter, see NU's Current Report on Form
8-K dated March 9, 1998 and "Item 3. Legal Proceedings" in NU's 1997 Annual
Report on Form 10-K.
2. (NU, CL&P) In mid-April 1998, the FERC issued an order accepting CL&P's
filing of the settlement with the Connecticut Municipal Electric Energy
Cooperative (CMEEC) over issues arising under the Millstone Units 1 and 2 life
of unit contract. The filing had requested a March 3, 1998 termination date
for the Millstone Units 1 and 2 contract, and a date of October 31, 1998 for the
termination of several CL&P fossil/hydro contracts with CMEEC. In accordance
with the settlement, CL&P will receive a lump sum payment of $24 million from
CMEEC, which has been held in escrow pending FERC approval of the settlement and
the completion of certain additional steps related to the court and arbitration
proceedings.
For additional information on the specific terms of the settlement
agreement, see "Item 3 - Legal Proceedings" in NU's 1997 Annual Report on Form
10-K.
3. (NU, CL&P) On March 31, 1998, the Connecticut Supreme Court issued a
decision in connection with one of three ongoing disputes involving CL&P and the
Southeastern Connecticut Regional Resources Recovery Authority (SCRRRA). In its
decision, the Court ruled that CL&P was obligated to pay the contract rate
specified in their electricity purchase agreement for the entire net electric
output of SCRRRA's trash-to-energy plant in Preston rather than for the lower
output level specified in the agreement. As a result of this decision, CL&P
expects to pay SCRRRA approximately $3.8 million plus accrued interest of
approximately $700,000 within the next few months, which CL&P had withheld
pending resolution of this dispute. Most of this payment should be recoverable
through CL&P's energy adjustment clause.
For additional information on this dispute, see "Item 3 - Legal
Proceedings" in NU's 1997 Annual Report on Form 10-K.
ITEM 5. OTHER INFORMATION
1. (All Companies) On April 23, 1998, the Citizens Regulatory Commission (CRC)
filed a "petition for leave to intervene" in a license amendment application for
Millstone 3 pending before the NRC staff. The amendment application at issue was
filed by NNECO on March 3, 1998, and would eliminate the requirement to have the
Recirculation Spray System directly inject into the reactor coolant system.
NNECO does not expect the CRC's petition to have a materially adverse effect on
the restart schedule for Millstone 3.
2. (NU, CL&P, WMECO) On May 13, 1998, the FERC voted to approve an order
requiring certain NU system companies, primarily CL&P and WMECO, to refund
disputed transmission charges (expected to amount to approximately $10 million)
to MMWEC and United Illuminating within 45 days. FERC issued this decision in
response to exceptions filed with respect to an initial Administrative Law Judge
decision issued on February 9, 1993. The decision is not expected to have a
material impact on the companies' earnings for the second quarter. The companies
are currently reviewing the decision and whether to pursue additional legal
actions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits:
Exhibit Number Description
15 Letter regarding unaudited financial
information
27.1 NU Financial Data Schedule
27.2 CL&P Financial Data Schedule
27.3 PSNH Financial Data Schedule
27.4 WMECO Financial Data Schedule
27.5 NAEC Financial Data Schedule
(b) Reports on Form 8-K:
1. NU, PSNH and NAEC filed Form 8-Ks dated March 9, 1998, and CL&P and
WMECO filed Form 8-Ks dated March 25, 1998, disclosing:
. On April 3, 1998, MMWEC, a joint owner of Millstone 3, filed a
motion seeking a lien on NU's common ownership interest in WMECO
and HWP.
. On March 20, 1998, the NHPUC issued an order on rehearing of its
February 28, 1997 orders on restructuring the electric industry in
New Hampshire.
. On March 9, 1998, the U.S. Court of Appeals for the First Circuit
denied requests for rehearing of its February 3, 1998 decision,
excluding certain intervenors from NU's and PSNH's lawsuit
challenging the NHPUC's 1997 orders on restructuring.
. On April 1, 1998, the New Hampshire Supreme Court held a pre-
hearing conference regarding the NHPUC's transfer of two questions
for the Supreme Court's determination.
. On March 13, 1998, PSNH filed testimony and exhibits seeking a 3.7
percent net increase in rates related to FPPAC.
. On March 20, 1998, the NHPUC issued an order requiring PSNH to
obtain NHPUC approval before paying any dividend on its common
stock to NU and before investing any PSNH funds in the NU system
Money Pool.
. The DPUC held a hearing on April 1, 1998 to review the status of
the restart schedules for Millstone 3 and Millstone 2.
. In a March 25, 1998 letter, the SEC questioned NU's, CL&P's, PSNH's
and WMECO's policy of reserving nuclear compliance costs.
2. NU, PSNH and NAEC filed Form 8-Ks dated April 8, 1998 disclosing:
. In late March 1998, PSNH received a revised unsolicited proposal
from New Hampshire Electric Cooperative, Inc. (NHEC) to purchase
PSNH's transmission and distribution facilities, as well as PSNH's
claims for recovery of stranded costs. On April 8, 1998, after due
consideration, PSNH informed NHEC that it had rejected the new
proposal.
3. NU and CL&P filed Form 8-Ks dated April 15, 1998, and WMECO filed a
Form 8-K dated April 20, 1998 disclosing:
. On April 15, 1998, the Connecticut legislature approved a
comprehensive electric utility restructuring bill.
. On April 20, 1998, the DPUC issued a draft decision that would, if
adopted unchanged, remove Millstone 2 from CL&P's rate base
effective May 1, 1998. The draft decision further concluded that
the DPUC would automatically remove Millstone 3 from CL&P's rate
base effective July 1, 1998 if the unit has not been operating for
a specified period of time.
. On April 22, 1998, Moody's downgraded the senior secured debt of
CL&P and WMECO to Ba3 from Ba2. Moody's also downgraded CL&P's and
WMECO's preferred stock and NU's unsecured amortizing notes. The
ratings remain under review.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTHEAST UTILITIES
Registrant
Date: May 14, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President
and Chief Financial Officer
Date: May 14, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE CONNECTICUT LIGHT AND POWER COMPANY
Registrant
Date: May 14, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: May 14, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Registrant
Date: May 14, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: May 14, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Registrant
Date: May 14, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: May 14, 1998 By /s/ John J. Roman
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTH ATLANTIC ENERGY CORPORATION
Registrant
Date: May 14, 1998 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President and
Chief Financial Officer and
Director
Date: May 14, 1998 By /s/ John J. Roman
John J. Roman
Vice President and
Controller
Exhibit 15
May 14, 1998
To Northeast Utilities:
We are aware that Northeast Utilities has incorporated by reference in its
Registration Statements No. 33-34622, No. 33-40156, No. 33-44814, No. 33-63023,
No. 33-55279, No. 33-56537, No. 333-52413, and No. 333-52415, its Form 10-Q for
the quarter ended March 31, 1998, which includes our report dated May 14, 1998
covering the unaudited interim financial information contained therein. Pursuant
to Regulation C of the Securities Act of 1933, that report is not considered a
part of the registration statement prepared or certified by our firm or a report
prepared or certified by our firm within the meaning of Sections 7 and 11 of the
Act.
Very truly yours,
/s/ Arthur Andersen LLP
Arthur Andersen LLP
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