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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission Registrant;State of Incorporation; I.R.S. Employer
File Number Address;and Telephone Number Identification No.
1-5324 NORTHEAST UTILITIES 04-2147929
(a Massachusetts voluntary association)
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-2010
Telephone: (413) 785-5871
0-11419 THE CONNECTICUT LIGHT AND POWER COMPANY 06-0303850
(a Connecticut corporation)
107 Selden Street
Berlin, Connecticut 06037-1616
Telephone: (860) 665-5000
1-6392 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE 02-0181050
(a New Hampshire corporation)
1000 Elm Street
Manchester, New Hampshire 03105-0330
Telephone: (603) 669-4000
0-7624 WESTERN MASSACHUSETTS ELECTRIC COMPANY 04-1961130
(a Massachusetts corporation)
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-2010
Telephone: (413) 785-5871
33-43508 NORTH ATLANTIC ENERGY CORPORATION 06-1339460
(a New Hampshire corporation)
1000 Elm Street
Manchester, New Hampshire 03105-0330
Telephone: (603) 669-4000
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date:
Company - Class of Stock Outstanding at April 30, 1999
Northeast Utilities
Common shares, $5.00 par value 137,120,486 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, $1.00 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
NUEI............................... NU Enterprises, Inc.
NGC................................ Northeast Generation Company
NGSC............................... Northeast Generation Services Company
Select Energy...................... Select Energy, Inc.
Mode 1............................. Mode 1 Communications, Inc.
HEC................................ HEC Inc.
Quinnehtuk......................... The Quinnehtuk Company
NU system.......................... The Northeast Utilities system companies,
including NU and its wholly-owned
operating subsidiaries: CL&P, PSNH, WMECO
and NAEC
CYAPC.............................. Connecticut Yankee Atomic Power Company
MYAPC.............................. Maine Yankee Atomic Power Company
VYNPC.............................. Vermont Yankee Nuclear Power Corporation
YAEC............................... Yankee Atomic Electric Company
Yankee Companies................... CYAPC, MYAPC, VYNPC and YAEC
GENERATING UNITS
Millstone 1........................ Millstone Unit No. 1, a 660 MW nuclear
generating unit completed in 1970
Millstone 2........................ Millstone Unit No. 2, an 870 MW nuclear
electric generating unit completed in 1975
Millstone 3........................ Millstone Unit No. 3, a 1,154 MW nuclear
electric generating unit completed in 1986
Seabrook or Seabrook 1............. Seabrook Unit No. 1, a 1,148 MW nuclear
electric generating unit completed in
1986;Seabrook 1 went into service in 1990.
REGULATORS
DOE................................ U.S. Department of Energy
DTE................................ Massachusetts Department of
Telecommunications and Energy
DPUC............................... Connecticut Department of Public Utility
Control
FERC............................... Federal Energy Regulatory Commission
NHPUC.............................. New Hampshire Public Utilities Commission
NRC................................ Nuclear Regulatory Commission
SEC................................ Securities and Exchange Commission
OTHER
kWh................................ Kilowatt hour
MW................................. Megawatt
NU 1998 Form 10-K.................. The NU system combined 1998 Form 10-K as
filed with the SEC.
Northeast Utilities and Subsidiaries
The Connecticut Light and Power Company and Subsidiaries
Public Service Company of New Hampshire
Western Massachusetts Electric Company and Subsidiary
North Atlantic Energy Corporation
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
and
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
For the following companies:
Northeast Utilities and Subsidiaries
Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998................ 2
Consolidated Statements of Income - Three Months
Ended March 31, 1999 and 1998....................... 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998.......... 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 6
Report of Independent Public Accountants............ 15
The Connecticut Light and Power Company and
Subsidiaries
Consolidated Balance Sheets - March 31, 1999
and December 31, 1998............................... 18
Consolidated Statements of Income - Three
Months Ended March 31, 1999 and 1998................ 20
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998.......... 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 22
Public Service Company of New Hampshire
Balance Sheets - March 31, 1999
and December 31, 1998............................... 26
Statements of Income - Three Months Ended
March 31, 1999 and 1998............................. 28
Statements of Cash Flows - Three Months Ended
March 31, 1999 and 1998............................. 29
Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 30
Western Massachusetts Electric Company and Subsidiary
Consolidated Balance Sheets - March 31, 1999
and December 31, 1998............................... 34
Consolidated Statements of Income - Three
Months Ended March 31, 1999 and 1998................ 36
Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1999 and 1998................ 37
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 38
North Atlantic Energy Corporation
Balance Sheets - March 31, 1999 and
December 31, 1998................................... 42
Statements of Income - Three Months Ended
March 31, 1999 and 1998............................. 44
Statements of Cash Flows - Three Months Ended
March 31, 1999 and 1998............................. 45
Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 46
Notes to Financial Statements (unaudited -
all companies).......................................... 48
Part II. Other Information
Item 1. Legal Proceedings............................... 57
Item 5. Other Information............................... 58
Item 6. Exhibits and Reports on Form 8-K................ 58
Signatures........................................................ 60
NORTHEAST UTILITIES AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 9,601,500 $ 9,570,547
Other................................................... 195,665 195,325
------------- -------------
9,797,165 9,765,872
Less: Accumulated provision for depreciation......... 4,309,124 4,224,416
------------- -------------
5,488,041 5,541,456
Unamortized PSNH acquisition costs...................... 345,750 352,855
Construction work in progress........................... 146,981 143,159
Nuclear fuel, net....................................... 161,263 133,411
------------- -------------
Total net utility plant............................. 6,142,035 6,170,881
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 643,500 619,143
Investments in regional nuclear generating
companies, at equity................................... 86,232 85,791
Other, at cost.......................................... 162,681 154,504
------------- -------------
892,413 859,438
------------- -------------
Current Assets:
Cash and cash equivalents............................... 335,662 136,155
Investments in securitizable assets..................... 128,017 182,118
Receivables, net........................................ 226,219 237,207
Accrued utility revenues................................ 47,401 42,145
Fuel, materials, and supplies, at average cost.......... 199,738 202,661
Recoverable energy costs, net--current portion.......... 67,489 67,181
Prepayments and other................................... 63,329 65,440
------------- -------------
1,067,855 932,907
------------- -------------
Deferred Charges:
Regulatory assets (Note 1B):
Income taxes,net...................................... 737,372 762,495
Millstone 1........................................... 552,758 576,323
Deferred costs--nuclear plants........................ 168,868 187,132
Unrecovered contractual obligations................... 391,421 407,926
Recoverable energy costs, net......................... 240,222 279,232
Other................................................. 101,607 115,841
Unamortized debt expense................................ 37,703 40,416
Other .................................................. 52,444 54,790
------------ ------------
2,282,395 2,424,155
------------ ------------
Total Assets.............................................. $ 10,384,698 $ 10,387,381
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common shareholders' equity:
Common shares, $5 par value--authorized
225,000,000 shares; 137,120,608 shares issued and
131,187,105 shares outstanding in 1999 and
137,031,264 shares issued and 130,954,740 shares
outstanding in 1998.................................. $ 685,603 $ 685,156
Capital surplus, paid in.............................. 939,674 940,661
Deferred contribution plan--employee stock
ownership plan...................................... (137,334) (140,619)
Retained earnings..................................... 579,213 560,769
Accumulated other comprehensive income................ 1,524 1,405
------------- -------------
Total common shareholders' equity.............. 2,068,680 2,047,372
Preferred stock not subject to mandatory redemption..... 136,200 136,200
Preferred stock subject to mandatory redemption......... 166,039 167,539
Long-term debt.......................................... 3,218,149 3,282,138
------------- -------------
Total capitalization........................... 5,589,068 5,633,249
------------- -------------
Minority Interest in Consolidated Subsidiaries............ 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 78,107 88,423
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 225,000 30,000
Long-term debt and preferred stock--current
portion................................................ 277,212 397,153
Obligations under capital leases--current
portion................................................ 128,405 120,856
Accounts payable........................................ 319,300 338,612
Accrued taxes........................................... 82,134 50,755
Accrued interest........................................ 65,579 51,044
Accrued pension benefits................................ 18,209 33,034
Other................................................... 93,500 106,333
------------- ------------
1,209,339 1,127,787
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,823,330 1,848,694
Accumulated deferred investment tax credits............. 140,990 143,369
Decommissioning obligation--Millstone 1................. 692,000 692,000
Deferred contractual obligations........................ 402,255 418,760
Other................................................... 349,609 335,099
------------- ------------
3,408,184 3,437,922
Commitments and Contingencies (Note 5)
Total Capitalization and Liabilities........... $ 10,384,698 $ 10,387,381
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
------------- -------------
(Thousands of Dollars,
except share information)
<S> <C> <C>
Operating Revenues.................................... $ 1,043,407 $ 958,905
------------- -------------
Operating Expenses:
Operation--
Fuel, purchased and net interchange power........ 380,393 353,537
Other............................................ 236,297 243,932
Maintenance......................................... 97,151 120,955
Depreciation........................................ 84,348 87,229
Amortization of regulatory assets, net.............. 62,526 28,231
Federal and state income taxes...................... 22,440 16,761
Taxes other than income taxes....................... 70,614 67,772
------------- -------------
Total operating expenses...................... 953,769 918,417
------------- -------------
Operating Income...................................... 89,638 40,488
------------- -------------
Other Income:
Deferred nuclear plants return--other funds......... 1,234 1,875
Equity in earnings of regional nuclear generating
and transmission companies....................... 1,493 4,124
Millstone 1--unrecoverable costs.................... (1,371) -
Other, net.......................................... (1,606) 9,775
Minority interest in income of subsidiary........... (2,325) (2,325)
Income taxes........................................ 6,394 3,024
------------- -------------
Other income, net............................. 3,819 16,473
------------- -------------
Income before interest charges................ 93,457 56,961
------------- -------------
Interest Charges:
Interest on long-term debt.......................... 67,459 70,226
Other interest...................................... 4,053 878
Deferred nuclear plants return--borrowed funds...... (2,440) (3,516)
------------- -------------
Interest charges, net......................... 69,072 67,588
------------- -------------
Income/(Loss) after interest charges........... 24,385 (10,627)
Preferred Dividends of Subsidiaries................... 5,941 7,322
------------- -------------
Net Income/(Loss)..................................... $ 18,444 $ (17,949)
============= =============
Earnings/(Loss) Per Common Share--Basic and Diluted... $ 0.14 $ (0.14)
============= =============
Common Shares Outstanding (average)................... 131,110,491 130,299,512
============= =============
</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,
-----------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Income/(Loss) before preferred dividends of subsidiaries.. $ 24,385 $ (10,627)
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 84,348 87,229
Deferred income taxes and investment tax credits, net... (17,522) (10,166)
Deferred nuclear plants return.......................... (3,674) (5,391)
Amortization of nuclear plants return................... 21,600 -
Amortization of demand-side-management costs, net....... 8,458 30,924
Amortization/(deferral) of recoverable energy costs..... 38,702 25,099
Amortization of PSNH acquisition costs.................. 7,104 22,356
Amortization of regulatory asset - income taxes......... 11,853 2,811
Amortization of cogeneration deferral................... 5,835 8,696
Amortization of regulatory liability - PSNH............. (8,215) (8,215)
Amortization of Millstone 1 investment.................. 19,852 -
Amortization of other regulatory assets................. 4,497 2,583
Millstone 1 - unrecoverable costs....................... 1,371 -
Other sources of cash................................... 47,624 52,305
Other uses of cash...................................... (60) (27,577)
Changes in working capital:
Receivables and accrued utility revenues, net........... (44,268) (54,008)
Fuel, materials, and supplies........................... 2,923 4,031
Accounts payable........................................ (19,312) (87,671)
Accrued taxes........................................... 31,379 29,312
Sale of receivables and accrued utility revenues........ 50,000 85,000
Investment in securitizable assets...................... 54,101 115,341
Other working capital (excludes cash)................... (11,012) 17,717
----------- -----------
Net cash flows from operating activities.................... 309,969 279,749
----------- -----------
Financing Activities:
Issuance of common shares................................. 1,341 183
Issuance of long-term debt................................ 200 75
Net increase/(decrease) in short-term debt................ 195,000 (15,000)
Reacquisitions and retirements of long-term debt.......... (186,700) (36,452)
Reacquisitions and retirements of preferred stock......... (1,500) (23,678)
Cash dividends on preferred stock......................... (5,941) (7,322)
----------- -----------
Net cash flows from/(used for) financing activities......... 2,400 (82,194)
----------- -----------
Investment Activities:
Investment in plant:
Electric and other utility plant........................ (51,447) (38,805)
Nuclear fuel............................................ (34,942) (33)
----------- -----------
Net cash flows used for investments in plant.............. (86,389) (38,838)
Investments in nuclear decommissioning trusts............. (17,855) (20,914)
Other investment activities, net.......................... (8,618) (12,543)
----------- -----------
Net cash flows used for investments......................... (112,862) (72,295)
----------- -----------
Net Increase In Cash For The Period......................... 199,507 125,260
Cash and cash equivalents - beginning of period............. 136,155 143,403
----------- -----------
Cash and cash equivalents - end of period................... $ 335,662 $ 268,663
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This discussion should be read in conjunction with the consolidated financial
statements and footnotes in this Form 10-Q, the 1998 Form 10-K and Current
Reports on Form 8-K dated January 28, 1999, February 23, 1999, April 27, 1999
and May 7, 1999.
FINANCIAL CONDITION
Overview
NU had earnings of $18.4 million, or 14 cents a share, in the first quarter
of 1999, compared with a loss of $17.9 million, or 14 cents a share, for the
first quarter of 1998. The improvement in earnings in 1999 was due primarily
to higher sales and lower operation and maintenance (O&M) costs, partially
offset by the effects of a rate decision issued February 5, 1999 by utility
regulators in Connecticut.
Operating revenues in the first quarter of 1999 were 8 percent higher than
they were in the first quarter of 1998. Retail sales were 4.0 percent higher
in the first quarter of 1999 compared with the same period of 1998. Select
Energy, Inc., NU's unregulated energy marketing subsidiary, had revenues of
$86.4 million in the first quarter of 1999 compared with $441,000 in the same
period of 1998.
Non-fuel O&M costs totaling $333.4 million in the first quarter of 1999
dropped 8.6 percent, compared with $364.9 million in the first quarter of
1998. Lower O&M costs are attributed to the completion over the past year of
many restart-related activities at Millstone, a less severe winter storm
season and continued cost control. In the first quarter of 1998, a major ice
storm in northern New England required significant repairs to equipment owned
by PSNH, an NU subsidiary.
Partially offsetting the lower O&M costs were the effects of the February
1999 CL&P retail rate decision which reduced rates by 4 percent, or $96
million annually, and increased CL&P's amortization of regulatory assets by
$136 million annually.
Millstone Nuclear Units
CL&P and WMECO have joint ownership interests of 81 percent and 19 percent,
respectively, in Millstone 2. CL&P, WMECO and PSNH have joint ownership
interests in Millstone 3 that total 68.02 percent (52.93 percent for CL&P,
12.24 percent for WMECO and 2.85 percent for PSNH). NNECO, a wholly owned
subsidiary of NU, acts as an agent for certain NU system companies and other
New England utilities in operating the Millstone units.
Millstone 3 achieved a capacity factor of approximately 99 percent in the
first quarter of 1999. NU's share of O&M expenditures for Millstone 3 was
approximately $22 million for the first quarter of 1999 compared with
approximately $34 million for the first quarter of 1998. A scheduled 45
day refueling and maintenance outage began on May 1, 1999.
On April 29, 1999, the NRC granted permission for NNECO to restart Millstone 2.
Millstone 2's return to service is expected to restore $6.6 million a month
in noncash revenues to CL&P, reduce fuel and purchased power expense by
approximately $8 million a month, and significantly reduce the unit's operation
and maintenance expenses. O&M expenditures for Millstone 2 were approximately
$53 million for the first quarter of 1999 compared to approximately $61 million
for the first quarter of 1998. In its February 1999 rate decision, the
Connecticut DPUC permitted Millstone 2 to be restored to CL&P's rate base once
it operates at 75 percent or more power for 100 consecutive hours. Millstone 2
has not been included in CL&P's rate base since May 1, 1998.
Fish Unlimited, along with several other parties, sought an injunction
against operation of Millstone 2 until installation of a cooling tower and
fish return system was installed to protect winter flounder. On May 7, 1999,
the Connecticut Superior Court issued a decision which dissolved a temporary
restraining order and denied the motions for the temporary and permanent
injunction sought by Fish Unlimited. The ruling clears the way for Millstone
2 to resume operation. Millstone 2 is expected to reach 100 percent reactor
power by the end of May 1999.
For further information on Millstone Nuclear Units, see the 1998 Form 10-K
and the Form 8-K dated April 27, 1999.
Seabrook
The NU system owns 40 percent of the Seabrook nuclear unit. Seabrook
operated at a capacity factor of 94.1 percent from January 1, 1999 until it
began a scheduled 40-day refueling outage on March 27, 1999. The unit is
expected to return to service on May 14, 1999.
Liquidity and Capital Resources
Net cash flows from operations totaled approximately $310 million in the
first quarter of 1999, up from $280 million for the first quarter of 1998.
Approximately $113 million of net cash flow was used for investment activities,
including construction expenditures and nuclear fuel purchases for the Millstone
3 refueling outage compared with $72 million in 1998. In the first quarter of
1999, $195 million of short-term debt was issued to pay bond maturities, long-
term debt and preferred stock sinking funds that totaled $188 million. In the
first quarter of 1998, debt and preferred stock were reduced by $75 million.
Standard and Poor's revised its outlook on the entire NU system in March 1999
from "Stable" to "Positive". The revised outlook reflects continued progress
toward restarting the Millstone Unit 2 nuclear facility. Also, on May 10,
Moody's Investors Service placed the securities of NU, CL&P and WMECO under
review for a possible upgrade. The primary reason was the return of
Millstone 2 to operation.
Fitch IBCA raised its credit ratings on NU, CL&P and WMECO in March 1999.
The ratings reflect substantial improvement in cash flow at NU, particularly
at CL&P, continued progress toward restarting Millstone 2, improved operating
performance at Millstone 3, and NU's successful renegotiation of its bank
covenants following the rate case decision in Connecticut.
Key covenants on a $313.75 million revolving credit line primarily serving
CL&P and WMECO were adjusted in the fall of 1998. The CL&P February rate
decision resulted in the need for a waiver of the revolver's equity test in
the fourth quarter of 1998, which was negotiated with banks in March 1999.
CL&P and WMECO's $313.75 million revolving credit line will expire on
November 21, 1999. As of March 31, 1999, CL&P and WMECO had $165 million and
$60 million, respectively, outstanding under that line. CL&P paid off a $140
million bond maturity on February 1, 1999 and WMECO paid off a $40 million
bond maturity on March 1, 1999. CL&P will pay off a $74 million bond issue
that matures July 1, 1999. Management expects all of the remaining 1999
maturities and sinking fund payments to be met through cash on hand,
operating cash flows and borrowings through NU's short-term facilities.
CL&P and WMECO also have arranged financing agreements through the sale of
their accounts receivables. CL&P can finance up to $200 million and WMECO up
to $40 million through these facilities. As of March 31, 1999, CL&P had
financed $155 million through its accounts receivable line and WMECO had
financed $20 million. WMECO is terminating this agreement effective June 30,
1999.
CL&P is a party to an operating lease with General Electric Capital
Corporation related to the use of four turbine generators having an installed
cost of approximately $70 million and a stipulated loss value of $59 million.
CL&P must meet certain financial covenants that are substantially similar to
the revolving credit line that was amended in the first quarter of 1999.
CL&P received a waiver of these tests for the fourth quarter of 1998 as a
result of the CL&P rate decision and has negotiated the covenants for 1999.
On April 14, 1999, PSNH entered into two Letters of Credit and Reimbursement
Agreements totaling $115,414,000, that support the Series D and E pollution
control revenue bonds (PCRBs). The new letters of credit, which replaced
similar letters of credits which were set to expire on April 22, 1999, allow
the PCRBs to remain in their flexible, floating interest rate mode and expire
on April 12, 2000. In connection with these Letter of Credit transactions,
on April 14, 1999 PSNH terminated its $75 million revolving credit facility
that was set to expire on April 22, 1999. PSNH will fund its working capital
and construction program through cash on hand and operating cash flows.
NU has provided credit assurance in the form of guarantees of a letter of
credit, performance guarantees and other assurances for the financial and
performance obligations of certain of its unregulated subsidiaries. NU
currently is limited by the SEC to an aggregate of $75 million of such credit
assurance arrangements. NU expects SEC approval to increase this limit to
$250 million in assurances in late May.
On April 30, 1999, NU received an order from the SEC authorizing NU's
previously announced Shareholder Rights Plan (the "Plan") under the Public
Utility Holding Company Act of 1935. Pursuant to the order, NU implemented
the Plan and distributed to shareholders of record as of May 7, 1999, a
dividend of one Right for each outstanding common share. Each right will
be exercisable only if a person or group acquires, or offers to acquire,
ownership of 15 percent or more of the outstanding common shares of NU. The
plan is adopted to ensure fair and equitable treatment for all shareholders,
and to encourage any unsolicited acquirer to negotiate a fair price for NU's
shares with the Board. For further information on Shareholder Rights Plan see
the Forms 8-K dated February 23, 1999 and May 7, 1999.
Restructuring
Connecticut
On February 10, 1999, the DPUC began the auction of approximately 3,500 MW of
fossil/hydro generation capacity and related facilities owned by CL&P, and
270 MW of fossil/hydro generation owned by WMECO. Final bids are due in June
with the winning bid(s) likely to be announced this summer.
On March 15, 1999, CL&P filed an application for calculation of approximately
$4.3 billion of its potentially stranded costs as part of the restructuring
of Connecticut's electric utility industry. The filing contained a
description of each category of potential stranded cost;the relevant
statutory provisions for each category and CL&P's approach to compliance;
mitigation; and calculation of stranded costs for non-nuclear generation
assets, nuclear generation assets, purchased power agreements and
generation-related regulatory assets. On March 26, 1999, CL&P filed
reports with the DPUC prepared by two independent consultants that forecast
the market price of power and the "going-forward costs" and revenues of the
nuclear generation units. A decision on stranded cost recovery is expected
on June 30, 1999. CL&P expects to fully recover its stranded costs.
In accordance with the Connecticut electric utility restructuring
legislation, CL&P is required to make service available to all of its
customers beginning January 1, 2000. Accordingly, CL&P requested on April
30, 1999 that the DPUC approve CL&P's "standard offer" and its related
components, including generation service and back-up service. Standard offer
service includes electric generation, transmission and distribution services,
renewable energy and conservation and load management charges (C&LM), the
competitive transition assessment (CTA), and a systems benefits charge (SBC).
The standard offer service is designed to allow CL&P to make the transition
from fully regulated, bundled electric service to a completely competitive
market for generation in which there are no remaining regulated generation
services available to CL&P's customers. The standard offer terminates
automatically on January 1,2004, subject to possible extension. During the
four-year transition period that standard offer service is available, CL&P's
customers may affirmatively choose standard offer generation service or will
have that service provided to them if they fail to select or are unable to
obtain competitive electric generation services from another electric
supplier.
CL&P's petition requested the DPUC to establish the standard offer and
related rates by October 1, 1999. The Department is required to hold a
hearing for the purpose of allocating CL&P's costs among distribution,
transmission and generation services, the CTA and the SBC. The act requires
CL&P's rates to be capped at least ten percent less than the rates in effect
for its customers on December 31, 1996. CL&P proposes supply arrangements
for its standard offer generation services based on one-half being supplied
through a request for proposals (RFP) in the competitive wholesale market,
and one-half being supplied by CL&P's affiliate, Select Energy.
CL&P has successfully renegotiated 15 purchased power agreements (PPAs)
representing 295 MW of capacity with independent power producers in
Connecticut and has filed the results of these agreements with the DPUC for
its approval. PPAs that were not renegotiated will be included in an
auction. Successful bidders are expected to be announced by mid-summer 1999.
CL&P expects to recover in full the settlement costs of these PPAs.
New Hampshire
On April 7, 1999, the U.S. District Court held a hearing on the pending
motions in PSNH's restructuring litigation. A federal judge ordered the
NHPUC to focus on the restructuring docket. He asked the NHPUC to issue an
order setting a revised stranded cost charge for PSNH. The NHPUC indicated
it may produce that revised figure within a couple of months. Until the
NHPUC order is issued, the court case is on hold and all restructuring
activities in New Hampshire remain frozen. A trial will not take place until
the NHPUC's stranded cost order is issued and the District Court subsequently
rules on the outstanding summary judgment motions. Settlement negotiations
continue between PSNH and representatives from the State of New Hampshire.
Massachusetts
On March 3, 1999, WMECO filed a petition with the Massachusetts DTE for
approval of the sale of 290 MW of non-nuclear generation to Consolidated
Edison Energy, Inc. WMECO expects to complete the sale this summer. In
addition, WMECO is selling approximately 270 MW of non-nuclear generation as
part of the auction being run by the DPUC.
As part of its petition to the DTE for approval of the sale WMECO submitted
testimony regarding the use of the net proceeds from the sale. In May 1999,
the DTE ruled that it would address the approval of the sale separately from
the use of the sale proceeds. The DTE has not determined when, or in what
proceeding it will address the use of the sale proceeds.
A final decision on WMECO's restructuring plan, is expected by the end of the
second quarter 1999.
Rate Matters
New Hampshire
On March 23, 1999, PSNH filed a motion to delay for two months the normal
fuel and purchased-power adjustment clause (FPPAC) procedure which would have
set a new FPPAC rate for implementation on June 1, 1999. The requested two
month delay, which management believes will be approved, would allow PSNH and
state negotiators to focus on a comprehensive settlement to all outstanding
regulatory issues without increasing the deferred FPPAC amounts. The FPPAC
rate currently in place would continue until a new rate is established.
Unregulated Energy Services
The unregulated energy services segment of NU's business is principally
comprised of three wholly owned subsidiaries of NU Enterprises, Inc., a
wholly owned subsidiary of NU: Select Energy, Inc., a retail and wholesale
energy services and power marketing company, HEC Inc., an energy engineering
and design firm, and Northeast Generation Services Company, a service company
that offers operation and management services to electric power generators
and to medium to large industrial businesses. Select Energy, Inc. is
aggressively growing its wholesale bulk power and marketing business along
with its retail business with commercial, industrial and government sector
customers in the eleven state Northeast region including the New England
Power Pool, Pennsylvania-New Jersey-Maryland (PJM) and New York power pool
territories. In 1998, Select Energy, Inc. signed $600 million in multi-year
contracts including $300 million to supply the electric power needs of
650,000 Boston Edison Company retail customers.
In the first quarter of 1999, these unregulated companies had operating
revenue of $92 million ($86 million from Select and $6 million from HEC).
This compares to $6.5 million ($.4 million and $6.1 million, respectively) in
the first quarter of 1998. Despite a first quarter Net Income loss of $5
million, management projects that the unregulated business will be profitable
for the twelve months ended December 1999. Increased revenues are expected to
be provided from a combination of contracts which began during the first
quarter and additional known contracts which will begin later in the year.
Select has supported its energy supply obligations with risk-management
instruments such as fixed-price energy contracts and energy products along
with financial instruments.
Year 2000 Issue
The NU system has established an action plan by which identified processes
must be completed by certain dates in order to ensure its operating systems,
including nuclear systems, and reporting systems are able to properly
recognize the year 2000.
The NU system has identified and inventoried 2,537 computer systems
(software) and over 24,000 devices (hardware) subdivided into 3,793 device
types containing date-sensitive computer chips. As of March 31, 1999, 82
percent of the software systems and 86 percent of the hardware were year
2000 ready, as follows:
Percentage Complete
Software Hardware
Generation-
Fossil/Hydro 65% 92%
Millstone Nuclear 93% 85%
Seabrook Nuclear 86% 83%
Transmission/Distribution 84% 73%
Other Business Systems 72% 95%
The remaining items are in various stages of modification or testing.
Management anticipates the remediation phase for mission critical systems to
be completed by mid-1999.
The NU system has utilized both internal and external resources to identify,
assess, test and reprogram or replace the computer systems for year 2000
readiness. The current projected total cost of the Year 2000 Program is
approximately $30 million. The total estimated remaining cost is $17 million,
which is being funded through operating cash flows. The majority of these
costs will be expensed as incurred in 1999. Since 1996, the NU system has
incurred and expensed approximately $13 million related to year 2000
readiness efforts.
The costs of the project and the date on which the NU system plans to
complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third-
party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual results could
differ materially from those plans. If the NU system's remediation plans or
those of third parties are not successful, there could be a significant
disruption of the NU system's operations. The most likely worst case
scenario is a limited number of localized interruptions to electric service
which can be restored within a few hours. As a precautionary measure, NU is
formulating contingency plans that will evaluate alternatives that could be
implemented if our remediation efforts are not successful. The contingency
plans are being developed by enhancing existing emergency operating
procedures to include year 2000 issues. In addition, the NU system plans to
have staff available to respond to any year 2000 situations that might arise.
The contingency plan is expected to be available by July 30, 1999.
The NU system is committed to assuring that adequate resources are available
in order to implement any changes necessary for its nuclear and other
operations to be compatible with the new millennium.
Risk-Management Instruments
The NU system employs risk-management instruments such as swaps 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 3.
CL&P has acquired fuel-price risk-management instruments to hedge risks
associated with fuel prices created by its long-term, fixed-price electricity
contracts with wholesale customers. At March 30, 1999, CL&P had outstanding
agreements with a total notional value of approximately $389 million and a
negative mark-to-market position of approximately $52 million. On April 16,
1999, CL&P sold forward fuel oil price swaps with a total notional value of
approximately $13.8 million. CL&P's remaining risk-management instruments'
outstanding and negative mark-to-market positions at April 30, 1999 were $384
million and $32 million, respectively.
NAEC has entered into various interest rate swap agreements related to its
$200 million variable rate note, which fix the interest rate of that note at
7.823 percent. As of March 31, 1999, NAEC had outstanding agreements with a
notional value of approximately $200 million and a negative mark-to-market
position of approximately $1.8 million.
There have been no material changes in the reported market risks for either
CL&P or NAEC since the 1998 Form 10-K. For further information on CL&P's and
NAEC's respective market risk exposures, see the MD&A in the 1998 Form 10-K.
RESULTS OF OPERATIONS
Comparison of the First Quarter of 1999 to the First Quarter of 1998
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
First
Quarter Percent
Operating revenues $85 8%
Fuel, purchased and net
interchange power 27 8
Other operation (8) (3)
Maintenance (24) (20)
Amortization of
regulatory assets, net 34 (a)
Federal and state income taxes 2 17
Other income, net (13) (77)
Net Income 36 (a)
(a) Percent greater than 100.
Total operating revenues increased by $85 million in the first quarter of
1999 as compared to the same period of 1998, primarily due to higher revenues
for Select and higher retail sales, partially offset by lower revenues from
regulatory decisions. Select had higher revenues of $86 million. Retail
kilowatt-hour sales increased by 4.0 percent and contributed $25 million to
revenues. Regulatory decisions decreased revenues by $38 million, primarily
due to the retail rate decreases for CL&P and WMECO and the accounting impact
of Millstone 2 being removed from CL&P'S rates.
Fuel, purchased, and net interchange power expense increased in 1999,
primarily due to higher purchased power costs for Select, partially offset
by lower replacement power costs due to the return of service to Millstone
unit 3.
Other operation and maintenance expense decreased in 1999, primarily due to
lower costs at the Millstone nuclear units ($29 million), lower major storm
expense ($15 million), lower pension costs ($8 million), lower charges from
Maine Yankee Atomic Power Company and Connecticut Yankee Atomic Power Company
($6 million), partially offset by higher Select capacity charges ($18
million) and higher transmission expense ($14 million).
Amortization of regulatory assets, net increased in 1999, primarily due to
accelerated amortizations in accordance with the retail regulatory decision
received in Connecticut and the amortization of CL&P's Millstone 1 remaining
investment, partially offset by the lower amortization of the PSNH
acquisition premium.
Federal and state income taxes increased during the first quarter of 1999,
primarily due to higher book taxable income.
Other income, net decreased in 1999, primarily due to the 1998 proceeds from
the shareholder derivative settlement suit.
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, 1999,
and the related consolidated statements of income for the three-month periods
ended March 31, 1999 and 1998, and the consolidated statements of cash flows
for the three-month periods ended March 31, 1999 and 1998. 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, 1998, and in our report dated February 23, 1999, we expressed
an unqualified opinion on that statement. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of December 31,
1998, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Hartford, Connecticut
May 12, 1999
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,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 6,204,391 $ 6,173,871
Less: Accumulated provision for depreciation......... 2,810,955 2,758,012
------------- -------------
3,393,436 3,415,859
Construction work in progress........................... 81,880 83,477
Nuclear fuel, net....................................... 106,510 87,867
------------- -------------
Total net utility plant............................. 3,581,826 3,587,203
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 469,426 452,755
Investments in regional nuclear generating
companies, at equity................................... 57,289 56,999
Other, at cost.......................................... 101,793 93,864
------------- -------------
628,508 603,618
------------- -------------
Current Assets:
Cash.................................................... 206 434
Investment in securitizable assets...................... 112,206 160,253
Notes receivable from affiliated companies.............. 68,475 6,600
Receivables, net........................................ 23,007 22,186
Accounts receivable from affiliated companies........... 36,128 1,721
Taxes receivable........................................ 8,386 26,478
Fuel, materials, and supplies, at average cost.......... 72,206 71,982
Prepayments and other................................... 139,151 121,514
------------- -------------
459,765 411,168
------------- -------------
Deferred Charges:
Regulatory assets (Note 1B):
Income taxes,net...................................... 511,597 538,521
Millstone 1........................................... 422,727 442,669
Unrecovered contractual obligations................... 256,119 266,992
Deferred demand side management costs................. 1,557 10,014
Recoverable energy costs, net......................... 72,788 102,124
Cogeneration costs.................................... - 5,779
Other................................................. 48,272 49,739
Unamortized debt expense................................ 19,013 19,603
Other................................................... 9,714 12,768
------------- -------------
1,341,787 1,448,209
------------- -------------
Total Assets........................................ $ 6,011,886 $ 6,050,198
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$10 par value. Authorized
24,500,000 shares; outstanding 12,222,930
shares................................................. $ 122,229 $ 122,229
Capital surplus, paid in................................ 664,556 664,156
Retained earnings....................................... 193,178 210,108
Accumulated other comprehensive income.................. 415 378
------------- -------------
Total common stockholder's equity.............. 980,378 996,871
Preferred stock not subject to mandatory
redemption............................................. 116,200 116,200
Preferred stock subject to mandatory redemption......... 99,539 99,539
Long-term debt.......................................... 1,796,166 1,793,952
------------- -------------
Total capitalization........................... 2,992,283 3,006,562
------------- -------------
Minority Interest in Consolidated Subsidiary.............. 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 61,015 68,444
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 165,000 10,000
Long-term debt and preferred stock--current
portion................................................ 93,755 233,755
Obligations under capital leases--current
portion................................................ 100,520 94,440
Accounts payable........................................ 96,948 121,040
Accounts payable to affiliated companies................ 33,219 32,758
Accrued taxes........................................... 23,448 19,396
Accrued interest........................................ 33,221 31,409
Other................................................... 34,865 34,872
------------- -------------
580,976 577,670
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,168,446 1,194,722
Accumulated deferred investment tax credits............. 112,632 114,457
Decommissioning obligation--Millstone 1................. 560,500 560,500
Deferred contractual obligations........................ 266,953 277,826
Other................................................... 169,081 150,017
------------- -------------
2,277,612 2,297,522
------------- -------------
Commitments and Contingencies (Note 5)
Total Capitalization and Liabilities........... $ 6,011,886 $ 6,050,198
============= =============
</TABLE>
See accompanying notes to consolidated financial statement
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.................................... $ 606,997 $ 608,961
----------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power........ 219,337 246,692
Other............................................ 154,256 177,031
Maintenance......................................... 64,800 73,372
Depreciation........................................ 55,342 57,635
Amortization of regulatory assets, net.............. 35,445 12,628
Federal and state income taxes...................... 9,983 (11,268)
Taxes other than income taxes....................... 47,422 46,610
----------- -----------
Total operating expenses...................... 586,585 602,700
----------- -----------
Operating Income...................................... 20,412 6,261
----------- -----------
Other Income:
Equity in earnings of regional nuclear generating
companies......................................... 555 2,168
Millstone 1--unrecoverable costs.................... (1,371) -
Other, net.......................................... 874 (6,643)
Minority interest in income of subsidiary........... (2,325) (2,325)
Income taxes........................................ 4,228 3,332
----------- -----------
Other income(loss), net....................... 1,961 (3,468)
----------- -----------
Income before interest charges................ 22,373 2,793
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 33,037 32,940
Other interest...................................... 3,041 832
----------- -----------
Interest charges, net......................... 36,078 33,772
----------- -----------
Net Loss.............................................. $ (13,705) $ (30,979)
=========== ===========
</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,
-----------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Loss .................................................... $ (13,705) $ (30,979)
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................... 55,342 57,635
Deferred income taxes and investment tax credits, net...... (23,733) (25,023)
Amortization of deferred demand-side-management costs, net 8,458 30,924
Amortization/(deferral) of recoverable energy costs........ 29,335 31,018
Amortization of cogeneration deferral...................... 5,835 8,696
Amortization of regulatory asset - income taxes............ 11,229 1,447
Amortization of Millstone 1 investment..................... 17,950 -
Amortization of other regulatory asset..................... 431 2,487
Millstone 1--unrecoverable costs........................... 1,371 -
Other sources of cash...................................... 41,275 20,901
Other uses of cash......................................... (2,157) (7,207)
Changes in working capital:
Receivables and accrued utility revenues................... (85,228) (92,483)
Fuel, materials, and supplies.............................. (224) 4,176
Accounts payable........................................... (23,631) (74,771)
Accrued taxes.............................................. 4,052 (4,522)
Sale of receivables and accrued utility revenues........... 50,000 85,000
Investment in securitizable assets......................... 48,047 119,682
Other working capital (excludes cash)...................... 2,260 49,326
----------- -----------
Net cash flows from operating activities....................... 126,907 176,307
----------- -----------
Financing Activities:
Net increase/(decrease) in short-term debt................... 155,000 (76,300)
Reacquisitions and retirements of long-term debt............. (140,000) (20,006)
Reacquisitions and retirements of preferred stock............ - (22,178)
Cash dividends on preferred stock............................ (3,225) (3,915)
----------- -----------
Net cash flows from/(used for) financing activities............ 11,775 (122,399)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant..................................... (33,834) (20,071)
Nuclear fuel............................................... (21,629) 71
----------- -----------
Net cash flows used for investments in plant................. (55,463) (20,000)
Investment in NU System Money Pool........................... (61,875) (14,300)
Investments in nuclear decommissioning trusts................ (13,353) (14,702)
Other investment activities, net............................. (8,219) (5,129)
----------- -----------
Net cash flows used for investments............................ (138,910) (54,131)
----------- -----------
Net Decrease In Cash For The Period............................ (228) (223)
Cash - beginning of period..................................... 434 459
----------- -----------
Cash - end of period........................................... $ 206 $ 236
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CL&P (the company) is a wholly owned subsidiary of NU. This discussion
should be read in conjunction with NU's MD&A and the company's consolidated
financial statements and footnotes in this Form 10-Q, the 1998 Form 10-K and
Current Reports on Form 8-K dated January 28, 1999 and April 27, 1999.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
First
Quarter Percent
Operating revenues $(2) -%
Fuel, purchased and net
interchange power (27) (11)
Other operation (23) (13)
Maintenance (9) (12)
Amortization of
regulatory assets, net 23 (a)
Federal and state income taxes 20 (a)
Equity in earnings of regulatory
nuclear and transmission companies (2) (74)
Other income, net 8 (a)
Other interest 2 7
Net Income 17 56
(a) Percent greater than 100.
Comparison of the First Quarter of 1999 to the First Quarter of 1998
CL&P had a net loss for the first quarter of 1999 of approximately $14
million, compared to a net loss of approximately $31 million for the first
quarter of 1998. Improved first quarter results were primarily due to lower
non-fuel operation and maintenance costs and a decrease in purchased power
costs due to the return to service of Millstone 3 in 1998 partially offset by
the impacts of the February 1999 retail rate decision.
Regulatory decisions decreased revenues by $31 million, primarily due to the
retail rate decrease effective February 1999 and the impact of Millstone 2
being removed from CL&P'S rates. Retail kilowatt-hour sales increased by 4.9
percent in 1999 as compared to the first quarter of 1998 and contributed $22
million to revenues. Wholesale bulk capacity sales were $7 million higher in
1999.
Fuel, purchased and net interchange power expense decreased in 1999,
primarily due to lower replacement power fuel as a result of the return to
service of Millstone 3 in the third quarter of 1998.
Other operation and maintenance expense decreased in 1999, primarily due to
lower costs at the Millstone nuclear units ($24 million), lower pension and
benefit costs ($6 million), lower charges from Maine Yankee Atomic Power
Company and Connecticut Yankee Atomic Power Company ($4 million).
Amortization of regulatory assets, net increased in 1999, primarily due to
the accelerated amortization ordered in the February 1999 rate decision ($136
million annually) and the amortization of CL&P's remaining investment in
Millstone 1.
Federal and state income taxes increased in the first quarter of 1999,
primarily due to higher book taxable income.
Equity in earnings of regulatory nuclear and transmission companies decreased
in 1999 primarily due to lower income at the Yankee nuclear power plants.
Other income, net increased in 1999, primarily due to lower costs in 1999
associated with CL&P's accounts receivable facility.
Other interest increased in 1999 primarily due to an increase in short-term
debt borrowings.
Liquidity and Capital Resources
Net cash provided from operations totaled approximately $127 million, down
from approximately $176 million in 1998, primarily due to the increase in
cash available in 1998 through the company's accounts receivable facility.
Approximately $12 million was provided from financing activities, primarily
from short-term borrowings offset by the retirement of long-term debt. In
1998, $11 million was used to reduce debt and preferred stock. Approximately
$139 million of net cash flows was used for investment activities as compared
to $54 million in 1998, primarily due to an increase in investments in the NU
system Money Pool, an increase in construction expenditures and additional
nuclear fuel purchases for the Millstone 3 refueling outage.
For information relating to the following items, refer to NU's MD&A included
in this Form 10-Q:
Millstone Nuclear Units
Restructuring
Year 2000 Issue
Risk-Management Instruments
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
PART I. FINANCIAL INFORMATION
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 1,920,038 $ 1,927,341
Less: Accumulated provision for depreciation......... 641,750 631,584
------------- -------------
1,278,288 1,295,757
Unamortized acquisition costs........................... 345,750 352,855
Construction work in progress........................... 20,577 20,735
Nuclear fuel, net....................................... 2,106 1,323
------------- -------------
Total net utility plant............................. 1,646,721 1,670,670
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 5,893 5,580
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 19,535 19,836
Other, at cost.......................................... 4,439 4,319
------------- -------------
29,867 29,735
------------- -------------
Current Assets:
Cash and cash equivalents............................... 137,463 60,885
Receivables, net........................................ 83,597 89,044
Accounts receivable from affiliated companies........... 10,250 12,018
Accrued utility revenues................................ 39,553 42,145
Fuel, materials, and supplies, at average cost.......... 37,728 36,642
Recoverable energy costs--current portion............... 65,565 65,257
Prepayments and other................................... 13,571 22,744
------------- -------------
387,727 328,735
------------- -------------
Deferred Charges:
Regulatory assets (Note 1B):
Recoverable energy costs............................... 147,345 156,250
Income taxes, net...................................... 145,704 139,739
Deferred costs, nuclear plant.......................... 220,175 244,599
Unrecovered contractual obligations.................... 63,742 66,400
Other.................................................. 3,198 3,234
Deferred receivable from affiliated company............. 20,292 22,728
Unamortized debt expense................................ 12,406 13,995
Other................................................... 5,408 5,510
------------- -------------
618,270 652,455
------------- -------------
Total Assets........................................ $ 2,682,585 $ 2,681,595
============= =============
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- -------------
(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................................ 424,371 424,250
Retained earnings....................................... 276,206 252,912
Accumulated other comprehensive income.................. 1,074 1,004
------------- -------------
Total common stockholder's equity.............. 701,652 678,167
Preferred stock subject to mandatory redemption......... 50,000 50,000
Long-term debt.......................................... 516,485 516,485
------------- -------------
Total capitalization........................... 1,268,137 1,244,652
------------- -------------
Obligations Under Seabrook Power Contracts
and Other Capital Leases................................. 702,310 703,411
------------- -------------
Current Liabilities:
Long-term debt and preferred stock--current portion..... 25,000 25,000
Obligations under Seabrook Power Contracts and other
capital leases--current portion........................ 108,638 138,812
Accounts payable........................................ 29,271 26,227
Accounts payable to affiliated companies................ 21,451 28,410
Accrued taxes........................................... 84,487 82,743
Accrued interest........................................ 12,862 5,894
Accrued pension benefits................................ 45,754 46,004
Other................................................... 7,505 8,540
------------- -------------
334,968 361,630
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 239,411 225,091
Accumulated deferred investment tax credits............. 3,332 3,460
Deferred contractual obligations........................ 63,742 66,400
Deferred revenue from affiliated company................ 20,292 22,728
Other................................................... 50,393 54,223
------------- -------------
377,170 371,902
------------- -------------
Commitments and Contingencies (Note 5)
Total Capitalization and Liabilities........... $ 2,682,585 $ 2,681,595
============= =============
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.................................... $ 286,799 $ 261,745
----------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power........ 86,870 74,946
Other............................................ 109,266 87,825
Maintenance......................................... 13,264 28,616
Depreciation........................................ 11,762 11,507
Amortization of regulatory assets, net.............. 3,214 14,135
Federal and state income taxes...................... 15,367 15,392
Taxes other than income taxes....................... 11,607 10,555
----------- -----------
Total operating expenses...................... 251,350 242,976
----------- -----------
Operating Income...................................... 35,449 18,769
----------- -----------
Other Income:
Equity in earnings of regional nuclear generating
companies and subsidiary company.................. 310 671
Other, net.......................................... 2,567 3,397
Income taxes........................................ (1,999) (3,226)
----------- -----------
Other income, net............................. 878 842
----------- -----------
Income before interest charges................ 36,327 19,611
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 10,988 12,694
Other interest...................................... 58 126
----------- -----------
Interest charges, net......................... 11,046 12,820
----------- -----------
Net Income............................................ $ 25,281 $ 6,791
=========== ===========
</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,
-----------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 25,281 $ 6,791
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 11,762 11,507
Deferred income taxes and investment tax credits, net... 16,513 18,586
Recoverable energy costs, net of amortization........... 8,597 (8,116)
Amortization of acquisition costs, net.................. 7,104 22,356
Amortization of regulatory liability.................... (8,215) (8,215)
Amortization of other regulatory assets................. 4,325 (6)
Deferred Seabrook capital costs, net.................... 4,201 (24,201)
Other sources of cash................................... 13,099 21,041
Other uses of cash...................................... (19,421) (26,557)
Changes in working capital:
Receivables and accrued utility revenues................ 9,807 38,101
Fuel, materials, and supplies........................... (1,086) 875
Accounts payable........................................ (3,915) 7,639
Accrued taxes........................................... 1,744 8,580
Other working capital (excludes cash)................... 14,856 13,095
----------- -----------
Net cash flows from operating activities.................... 84,652 81,476
----------- -----------
Financing Activities:
Cash dividends on preferred stock......................... (1,987) (2,650)
----------- -----------
Net cash flows used for financing activities................ (1,987) (2,650)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................. (5,117) (7,739)
Nuclear fuel............................................ (1,016) 1
----------- -----------
Net cash flows used for investments in plant.............. (6,133) (7,738)
Investment in nuclear decommissioning trust (135) -
Other investment activities, net.......................... 181 (310)
----------- -----------
Net cash flows used for investments......................... (6,087) (8,048)
----------- -----------
Net Increase In Cash For The Period......................... 76,578 70,778
Cash and cash equivalents - beginning of period............. 60,885 94,459
----------- -----------
Cash and cash equivalents - end of period................... $ 137,463 $ 165,237
=========== ===========
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PSNH (the company) is a wholly owned subsidiary of NU. This discussion
should be read in conjunction with NU's MD&A and the company's consolidated
financial statements and footnotes in this Form 10-Q and the 1998 Form 10-K.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
First
Quarter Percent
Operating revenues $25 10%
Fuel, purchased and net
interchange power 12 16
Other operation 21 24
Maintenance (15) (54)
Amortization of
regulatory assets, net (11) (77)
Net income/(loss) 18 (a)
(a) Percent greater than 100.
Comparison of the First Quarter of 1999 to the First Quarter of 1998
PSNH's net income was approximately $25 million in 1999 compared to $7
million in 1998. The increase in net income for the first quarter was
primarily due to higher retail sales and lower storm costs.
Total operating revenues increased in 1999, primarily due to higher revenues
under the company's fuel clause and higher retail sales. Retail kilowatt-
hour sales were 4.4 percent higher in 1999 than the same period in 1998 and
contributed $6 million to revenues.
Fuel, purchased and net interchange power expense increased in 1999,
primarily due to lower deferrals of energy costs.
Other operation and maintenance expense increased in 1999, primarily due to
higher costs under the Seabrook Power Contract ($24 million)for the recovery
of the deferred Seabrook investment beginning in June 1998 and higher costs
related to the Seabrook refueling outage. These increases were partially
offset by lower distribution expenses ($15 million) due to the January 1998
ice storm.
Amortization of regulatory assets decreased in 1999, primarily due to lower
amortization of the acquisition premium ($15 million), partially offset by
the amortization of the Seabrook deferred return ($4 million).
Liquidity and Capital Resources
Cash provided from operations totaled approximately $85 million in 1999
compared to $82 million in 1998. Approximately $2 million of net cash flows
was used to pay cash dividends on preferred stock in 1999. Approximately $6
million of net cash flows was used for investment in plant and other
investment activities compared to $8 million in 1998.
See NU's MD&A in this Form 10-Q for further information regarding Liquidity
and Capital Resources.
For information relating to the following items, refer to NU's MD&A included
in this Form 10-Q:
Millstone Nuclear Units
Restructuring
Rate Matters
Year 2000 Issue
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 1,224,582 $ 1,221,257
Less: Accumulated provision for depreciation......... 527,342 517,401
------------- ------------
697,240 703,856
Construction work in progress........................... 13,637 14,858
Nuclear fuel, net....................................... 24,127 19,931
------------- ------------
Total net utility plant............................. 735,004 738,645
------------- ------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 131,206 125,598
Investments in regional nuclear generating
companies, at equity................................... 15,619 15,440
Other, at cost.......................................... 7,377 7,322
------------- ------------
154,202 148,360
------------- ------------
Current Assets:
Cash.................................................... 55 106
Investments in securitizable assets..................... 15,811 21,865
Receivables, net........................................ 677 862
Accounts receivable from affiliated companies........... 3,421 4,188
Taxes receivable........................................ 10,691 14,255
Fuel, materials, and supplies, at average cost.......... 4,997 5,053
Recoverable energy costs, net--current portion.......... 1,924 1,924
Prepayments and other................................... 27,244 23,996
------------- ------------
64,820 72,249
------------- ------------
Deferred Charges:
Regulatory assets (Note 1B):
Income taxes, net...................................... 55,106 57,079
Millstone 1............................................ 130,031 133,653
Unrecovered contractual obligations.................... 71,560 74,534
Recoverable energy costs............................... 18,264 18,980
Standard service offer deferral........................ 17,302 13,271
Other.................................................. 24,098 24,918
Unamortized debt expense................................ 2,149 2,298
Other................................................... 4,111 3,695
------------- ------------
322,621 328,428
------------- ------------
Total Assets........................................ $ 1,276,647 $ 1,287,682
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- ------------
(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................................ 151,496 151,431
Retained earnings....................................... 50,127 46,003
Accumulated other comprehensive income.................. 161 150
------------- ------------
Total common stockholder's equity.............. 228,596 224,396
Preferred stock not subject to mandatory redemption..... 20,000 20,000
Preferred stock subject to mandatory redemption......... 16,500 18,000
Long-term debt.......................................... 289,671 349,314
------------- ------------
Total capitalization........................... 554,767 611,710
------------- ------------
Obligations Under Capital Leases.......................... 10,389 12,129
------------- ------------
Current Liabilities:
Notes payable to banks.................................. 60,000 20,000
Notes payable to affiliated company..................... 34,300 30,900
Long-term debt and preferred stock--current
portion................................................ 61,500 41,500
Obligations under capital leases--current
portion................................................ 23,419 21,964
Accounts payable........................................ 14,585 17,952
Accounts payable to affiliated companies................ 6,297 12,866
Accrued taxes........................................... 2,287 1,264
Accrued interest........................................ 5,336 8,030
Other................................................... 4,828 6,831
------------- ------------
212,552 161,307
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 248,481 248,985
Accumulated deferred investment tax credits............. 21,528 21,895
Decommissioning obligation--Millstone 1................. 131,500 131,500
Deferred contractual obligations........................ 71,560 74,534
Other................................................... 25,870 25,622
------------- ------------
498,939 502,536
------------- ------------
Commitments and Contingencies (Note 5)
Total Capitalization and Liabilities........... $ 1,276,647 $ 1,287,682
============= ============
</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,
------------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.................................... $ 97,686 $ 107,189
----------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power........ 20,011 31,441
Other............................................ 29,472 33,374
Maintenance......................................... 13,485 15,553
Depreciation........................................ 9,660 10,339
Amortization of regulatory assets................... 2,494 1,696
Federal and state income taxes...................... 4,434 1,271
Taxes other than income taxes....................... 5,925 5,677
----------- -----------
Total operating expenses...................... 85,481 99,351
----------- -----------
Operating Income...................................... 12,205 7,838
----------- -----------
Other Income:
Equity in earnings of regional nuclear generating
companies......................................... 157 596
Other, net.......................................... (299) 711
Income taxes........................................ 392 (206)
----------- -----------
Other income, net............................. 250 1,101
----------- -----------
Income before interest charges................ 12,455 8,939
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 6,448 6,937
Other interest...................................... 1,155 635
----------- -----------
Interest charges, net......................... 7,603 7,572
----------- -----------
Net Income............................................ $ 4,852 $ 1,367
=========== ===========
</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,
-----------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 4,852 $ 1,367
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 9,660 10,339
Deferred income taxes and investment tax credits, net... 469 (3,069)
Recoverable energy costs, net of amortization........... 717 2,145
Amortization of regulatory assets - income taxes........ 624 1,363
Amortization of Millstone 1 investment.................. 1,902 -
Amortization of other regulatory assets................. (32) 333
Other sources of cash................................... 4,410 6,562
Other uses of cash...................................... (5,571) (690)
Changes in working capital:
Receivables and accrued utility revenues................ 952 1,959
Fuel, materials, and supplies........................... 56 351
Accounts payable........................................ (9,936) (22,170)
Accrued taxes........................................... 1,023 (66)
Investments in securitizable assets..................... 6,054 (4,341)
Other working capital (excludes cash)................... (4,381) 8,170
----------- -----------
Net cash flows from operating activities.................... 10,799 2,253
----------- -----------
Financing Activities:
Net increase in short-term debt........................... 43,400 18,600
Reacquisitions and retirements of long-term debt.......... (40,000) (9,800)
Reacquisitions and retirements of preferred stock......... (1,500) (1,500)
Cash dividends on preferred stock......................... (728) (757)
----------- -----------
Net cash flows from financing activities.................... 1,172 6,543
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................. (3,700) (3,423)
Nuclear fuel............................................ (5,195) 20
----------- -----------
Net cash flows used for investments in plant.............. (8,895) (3,403)
Investments in nuclear decommissioning trusts............. (2,893) (4,732)
Other investment activities, net.......................... (234) (673)
----------- -----------
Net cash flows used for investments......................... (12,022) (8,808)
----------- -----------
Net Decrease In Cash For The Period......................... (51) (12)
Cash - beginning of period.................................. 106 105
----------- -----------
Cash - end of period........................................ $ 55 $ 93
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations
WMECO (the company) is a wholly owned subsidiary of NU. This discussion
should be read in conjunction with NU's MD&A and the company's consolidated
financial statements and footnotes in this Form 10-Q, the 1998 Form 10-K and
the Current Report on Form 8-K dated April 27, 1999.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
First
Quarter Percent
Operating revenues $(10) (9)%
Fuel, purchased and net
interchange power (11) (36)
Other operation (4) (12)
Maintenance (2) (13)
Federal and state income taxes 3 (a)
Other income, net (1) (a)
Net income/(loss) 3 (a)
(a) Percent greater than 100.
Comparison of the First Quarter of 1999 to the First Quarter of 1998
WMECO had net income for the first quarter of 1999 of approximately $4.9
million compared to net income of approximately $1.4 million for the first
quarter of 1998. Improved first quarter results were primarily due to a
$6 million reduction in non-fuel operation and maintenance costs due to the
return to service of Millstone 3 in 1998, partially offset by a reduction in
operating revenues.
Total operating revenues decreased in 1999 primarily due to a 10 percent retail
rate decrease in March 1998 and lower retail sales. Retail kilowatt-hour sales
decreased 5 percent and reduced revenues by $3 million.
Fuel, purchased and net interchange power expense decreased in 1999 primarily
due to lower replacement power costs as a result of the return to service of
Millstone 3 and lower fuel prices.
Other operation and maintenance expense decreased in 1999, primarily due to
lower costs at the Millstone units ($5 million) and lower capacity charges
($2 million).
Federal and state income taxes increased in 1999, primarily due to higher
book taxable income.
Other income, net decreased in 1999, primarily due to costs associated with
the accounts receivable facility.
Liquidity and Capital Resources
Net cash flows from operations totaled approximately $11 million in the first
quarter of 1999, up from approximately $2 million in the first quarter of
1998. Approximately $12 million of net cash flow was used for investment
activities, including construction and nuclear fuel expenditures and
investments in nuclear decommissioning trusts, compared with $9 million in
1998. Short-term debt increased by $43 million while long-term debt and
preferred stock levels were reduced by $42 million in the first quarter of
1999. In the first quarter of 1998 short-term debt increased by $19 million
while long-term debt and preferred stock levels were reduced by $11 million.
See NU's MD&A in this form 10-Q for further detail regarding Liquidity and
Capital Resources.
For information relating to the following items, refer to NU's MD&A included
in this Form 10-Q:
Millstone Nuclear Units
Restructuring
Year 2000 Issue
NORTH ATLANTIC ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 747,421 $ 753,379
Less: Accumulated provision for depreciation......... 172,004 165,114
------------- -------------
575,417 588,265
Construction work in progress........................... 8,618 7,090
Nuclear fuel, net....................................... 28,520 23,644
------------- -------------
Total net utility plant............................. 612,555 618,999
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 36,975 35,210
------------- -------------
36,975 35,210
------------- -------------
Current Assets:
Cash.................................................... 75 71
Special deposits........................................ 4,548 11,198
Notes receivable from affiliated companies.............. 46,700 30,350
Receivables from affiliated companies................... 25,034 23,804
Taxes receivable........................................ 3,526 7,887
Materials and supplies, at average cost................. 12,328 12,812
Prepayments and other................................... 754 2,198
------------- -------------
92,965 88,320
------------- -------------
Deferred Charges:
Regulatory assets (Note 1B):
Deferred costs--Seabrook............................... 133,106 147,169
Income taxes, net...................................... 37,280 39,472
Recoverable energy costs............................... 1,825 1,878
Unamortized loss on reacquired debt.................... 9,469 11,363
Unamortized debt expense................................ 2,501 2,742
------------- -------------
184,181 202,624
------------- -------------
Total Assets........................................ $ 926,676 $ 945,153
============= =============
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- -------------
(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....................................... 19,657 43,196
------------- -------------
Total common stockholder's equity.............. 180,657 204,196
Long-term debt.......................................... 405,000 405,000
------------- -------------
Total capitalization........................... 585,657 609,196
------------- -------------
Current Liabilities:
Long-term debt--current portion......................... 70,000 70,000
Accounts payable........................................ 9,041 5,924
Accounts payable to affiliated companies................ 630 867
Accrued interest........................................ 9,263 2,987
Accrued taxes........................................... 711 710
Other................................................... 353 285
------------- -------------
89,998 80,773
------------- -------------
Deferred Credits:
Accumulated deferred income taxes....................... 207,957 209,634
Deferred obligation to affiliated company............... 20,292 22,728
Other................................................... 22,772 22,822
------------- -------------
251,021 255,184
------------- -------------
Commitments and Contingencies (Note 5)
Total Capitalization and Liabilities........... $ 926,676 $ 945,153
============= =============
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.................................... $ 70,289 $ 68,169
----------- -----------
Operating Expenses:
Operation --
Fuel............................................. 3,726 3,222
Other............................................ 9,311 8,457
Maintenance......................................... 5,072 2,996
Depreciation........................................ 6,481 6,412
Amortization of regulatory assets, net.............. 21,372 21,366
Federal and state income taxes...................... 8,707 8,970
Taxes other than income taxes....................... 3,145 3,098
----------- -----------
Total operating expenses...................... 57,814 54,521
----------- -----------
Operating Income...................................... 12,475 13,648
----------- -----------
Other Income:
Deferred Seabrook return--other funds............... 1,308 1,875
Other, net.......................................... (1,546) (2,384)
Income taxes........................................ 3,830 3,175
----------- -----------
Other income, net............................. 3,592 2,666
----------- -----------
Income before interest charges................ 16,067 16,314
----------- -----------
Interest Charges:
Interest on long-term debt.......................... 12,321 12,815
Other interest...................................... (209) (20)
Deferred Seabrook return--borrowed funds............ (2,506) (3,390)
----------- -----------
Interest charges, net......................... 9,606 9,405
----------- -----------
Net Income............................................ $ 6,461 $ 6,909
=========== ===========
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income.................................................. $ 6,461 $ 6,909
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 6,481 6,412
Deferred income taxes and investment tax credits, net..... 516 909
Amortization of nuclear fuel.............................. 2,926 2,532
Deferred return - Seabrook................................ (3,814) (5,265)
Amortization of nuclear plants return..................... 21,600 21,594
Amortization of other regulatory assets................... (228) (228)
Amortization of deferred obligation to affiliated company. (2,436) (2,436)
Other sources of cash..................................... 4,775 8,442
Other uses of cash........................................ (105) (3,723)
Changes in working capital:
Receivables............................................... (1,230) 2,448
Materials and supplies.................................... 484 60
Accounts payable.......................................... 2,880 (2,586)
Accrued taxes............................................. 1 950
Other working capital (excludes cash)..................... 18,799 3,332
----------- -----------
Net cash flows from operating activities...................... 57,110 39,350
----------- -----------
Financing Activities:
Net (decrease) in short-term debt........................... - (9,950)
Cash dividends on common stock.............................. (30,000) -
----------- -----------
Net cash flows used for financing activities.................. (30,000) (9,950)
----------- -----------
Investment Activities:
Investment in plant:
Electric utility plant.................................... (1,532) (1,146)
Nuclear fuel.............................................. (7,748) (124)
----------- -----------
Net cash flows from/(used for) investments in plant......... (9,280) (1,270)
Investment in NU System Money Pool.......................... (16,350) (26,750)
Investments in nuclear decommissioning trusts............... (1,476) (1,342)
----------- -----------
Net cash flows used for investments........................... (27,106) (29,362)
----------- -----------
Net Increase In Cash For The Period........................... 4 38
Cash - beginning of period.................................... 71 13
----------- -----------
Cash - end of period.......................................... $ 75 $ 51
=========== ===========
</TABLE>
See accompanying notes to financial statements.
North Atlantic Energy Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
NAEC (the company) is a wholly owned subsidiary of NU. This discussion
should be read in conjunction with NU's MD&A in this Form 10-Q, the
company's financial statements and footnotes in this Form 10-Q and the
1998 Form 10-K.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
First
Quarter Percent
Operating revenues $2 3%
Other operation 1 10
Maintenance 2 70
Federal and state income taxes (1) (16)
Other income, net 1 35
Net income/(loss) - (6)
Comparison of the First Quarter of 1999 to the First Quarter of 1998
NAEC had net income of approximately $6.5 million in the first quarter
of 1999, compared to $6.9 million from the same period in 1998.
Operating revenues increased primarily due to higher O&M passed through
to PSNH.
Other operation and maintenance increased primarily due to higher
costs in 1999 relating to the Seabrook refueling outage.
Federal and state income taxes decreased primarily due in part to
lower book taxable income.
Other income, net increased primarily due to higher interest income on
the investments in the NU system Money Pool.
Liquidity and Capital Resources
Cash provided from operations increased by approximately $18 million
in the first quarter of 1999, from the same period in 1998, primarily
due to higher tax receivables and special deposits. Cash used for
financing activities increased by approximately $20 million in the
first quarter of 1999, from the same period in 1998, primarily due to
the payment of cash dividends on common stock. Cash used for investments
decreased by approximately $2 million in the first quarter of 1999, from
the same period in 1998, primarily due to lower expenditures related to
the NU system Money Pool.
See NU's MD&A in this Form 10-Q for further information on liquidity
and capital resources.
Seabrook Performance
Seabrook operated at a capacity factor of 94.1 percent through March
1999, compared to 81.2 percent for the same period in 1998. The lower
capacity factor in 1998 is due primarily to an unplanned outage.
For information relating to the following items, refer to NU's MD&A in
this Form 10-Q:
Restructuring
Year 2000 Issue
Risk-Management Instruments
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Presentation (All Companies)
The accompanying unaudited financial statements should be
read in conjunction with the MD&A in this Form 10-Q, current
reports on Form 8-K dated January 28, 1999 (NU, CL&P),
February 23, 1999 (NU), April 27, 1999 (NU, CL&P, WMECO),
and May 7, 1999 (NU), and the Annual Reports of NU, PSNH,
CL&P, WMECO and NAEC, which were filed as part of the NU
1998 Form 10-K. The accompanying financial statements
contain, in the opinion of management, all adjustments
necessary to present fairly NU's, and each NU system
company's financial position as of March 31, 1999, the
results of operations for the three-month periods ended
March 31, 1999 and 1998, and the statements of cash flows
for the three-month periods ended March 31, 1999 and 1998.
All adjustments are of a normal, recurring nature except
those described in Note 5. The results of operations for
the three-month periods ended March 31, 1999 and 1998 are
not indicative of the results expected for a full year.
The consolidated financial statements of NU and of its
consolidating subsidiaries, include the accounts of all of
their respective wholly owned subsidiaries. Significant
intercompany transactions have been eliminated in
consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications of prior period data have been
made to conform with the current period presentation.
B. Regulatory Accounting and Assets (All Companies)
Regulatory Accounting: The accounting policies of CL&P,
PSNH, WMECO and NAEC conform to generally accepted
accounting principles applicable to rate-regulated
enterprises and reflect the effects of the ratemaking
process in accordance with Statement of Financial Accounting
Standards (SFAS) 71, "Accounting for the Effects of Certain
Types of Regulation."
Restructuring programs are being implemented within each of
the NU system operating companies' respective jurisdictions,
however, management continues to believe the application of
SFAS 71 remains appropriate at this time. Once the NU
system operating companies' respective restructuring plans
have been formally approved by the appropriate regulatory
agency and management can determine the impacts of
restructuring, the NU system operating companies' generation
businesses no longer will be rate regulated on a cost-of-
service basis. The majority of the NU system operating
companies' regulatory assets are related to their respective
generation business. Management expects that the transmission
and distribution business within each of the NU system operating
companies' respective jurisdictions will continue to be rate-
regulated on a cost-of-service basis and restructuring plans will
allow for the recovery of regulatory assets through this portion
of the business.
Connecticut: Management believes that CL&P's use of
regulatory accounting for its generation business remains
appropriate pending final approval of CL&P's restructuring
plan in 1999.
New Hampshire: Restructuring the electric utility industry
in New Hampshire is currently the focus of proceedings
within the federal and state legal systems. Management
believes that PSNH's use of regulatory accounting for its
generation business remains appropriate while this issue
remains in litigation.
Massachusetts: An electric utility industry restructuring
law became effective in Massachusetts on March 1, 1998. On
February 20, 1998, the DTE issued an order approving on an
interim basis, in all material aspects, WMECO's restructuring
plan filed on December 31, 1997. Modifications to WMECO's
original restructuring plan were subsequently filed with
the DTE in May 1998, June 1998 and September 1998. A final
decision on WMECO's restructuring plan, including all
modifications, is expected in the first half of 1999.
Management also expects the final decision on restructuring
to address the recovery of WMECO's investment in the permanently
shut-down Millstone 1 nuclear power plant. Management believes
that WMECO's use of regulatory accounting remains appropriate
for its generation business within this jurisdiction, pending
a final decision on the modified restructuring plan by the DTE.
For further information on the NU system companies'
regulatory environments and the potential impacts of
restructuring, see the MD&A and Note 5A in this Form 10-Q.
2. SHORT-TERM DEBT (NU, CL&P, PSNH, WMECO)
NU, CL&P and WMECO have been parties to a three-year revolving
credit agreement. Their ability to make new, and maintain
existing, borrowings under this financing arrangement is dependent
on their satisfaction of contractual borrowing conditions. As a
result of a February 5, 1999 DPUC rate decision, CL&P was unable
to meet one of its required fourth quarter financial ratios. As a
result, the companies entered into a Third Amendment and Waiver
dated March 3, 1999. The Third Amendment and Waiver forgave CL&P
from complying with the 1998 fourth quarter ratio covenant and
reduced CL&P's and WMECO's remaining common equity ratio
requirements for subsequent periods. In addition, the CL&P
interest coverage formula was modified. NU was terminated as a
borrower under this facility. The current expiration date on this
facility is November 21, 1999. At March 31, 1999, CL&P and WMECO
had approximately $165 million and $60 million, respectively, in
borrowings outstanding under this Agreement.
In anticipation of NU's removal as a borrower under the above
referenced agreement, as well as NU system liquidity needs for
1999, NU negotiated to extend and amend its $25 million 364-day
credit agreement which was due to expire on February 9, 1999. The
new termination date is September 9, 1999. At March 31, 1999, NU
had no borrowings outstanding under this Agreement.
During 1998, PSNH was party to a separate $75 million revolving
credit agreement with a group of 16 banks. In April 1999, this
agreement expired.
For further information on the NU system companies' short-term
debt, see the MD&A in this Form 10-Q.
3. INTEREST-RATE AND FUEL-PRICE RISK-MANAGEMENT (NU, CL&P, NAEC)
Fuel-Price Risk-Management: As of March 31, 1999, and April 30,
1999, CL&P had outstanding derivative instruments used for fuel-
price risk-management with a total notional value of
approximately $389 million and negative mark-to-market positions
of approximately $52 million and $31.7 million, respectively.
The terms of CL&P's fuel-price risk-management agreements require
CL&P to post cash collateral with its counterparties in the event
of negative mark-to-market positions and lowered credit ratings.
The collateral is 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, 1999 and April 30, 1999, cash
collateral in the amount of approximately $53.7 million and $33.9
million, respectively, was posted under these agreements.
Interest-Rate Risk-Management: As of March 31, 1999, NAEC had
outstanding derivative instruments used for interest-rate risk-
management with a total notional value of approximately $200
million and a negative mark-to-market position of approximately
$1.8 million.
For further information on fuel-price and interest-rate risk-
management instruments, see the MD&A in this Form 10-Q.
4. SALE OF ACCOUNTS RECEIVABLE AND ACCRUED UTILITY REVENUES (CL&P, WMECO)
At March 31, 1999, approximately $155 million and $20 million of
receivables had been sold with limited recourse, to third party
purchasers by CL&P and WMECO, respectively, through CL&P
Receivables Corporation (CRC) and WMECO Receivables Corporation
(WRC), wholly owned subsidiaries of CL&P and WMECO, respectively.
At March 31, 1999, approximately $17.1 million and $3.0 million
of assets had been designated as collateral by CRC and WRC,
respectively. During the second quarter of 1999, WMECO expects
to terminate its accounts receivable program with its respective
sponsor.
For further information on the NU system companies' sale of
receivables, see the NU 1998 Form 10-K.
5. COMMITMENTS AND CONTINGENCIES (All Companies)
A. Restructuring
Connecticut: During April 1998, a utility restructuring
bill was signed into law by the governor of the state of
Connecticut. The legislation provides for electric
utilities, including CL&P, to recover stranded costs. After
its restructuring is completed, CL&P will be an electric
transmission and distribution company which will continue to
provide transmission and distribution services on a cost-of-
service basis.
During March 1999, CL&P filed an estimate of $4.3 billion in
potentially stranded costs with the DPUC. The $4.3 billion
will be adjusted for any net proceeds obtained from the
auction of its fossil and hydro facilities, the auction and
renegotiation of independent power producer contracts and
the auction of its nuclear units. The remaining utility
investments that the DPUC decides are stranded (prudently
incurred costs that are not collected by January 1, 2000)
will be recovered from CL&P customers through a separate
charge on their monthly bill once competition begins on
January 1, 2000. The DPUC is expected to reach its final
decision on the amount of recoverable stranded costs on
June 30, 1999.
During April 1999, CL&P filed its standard offer service
plan with the DPUC and its related rate components including
generation service and back-up service. The standard offer
service is designed to provide for a transition from a
fully regulated, bundled electric service to a competitive
market for generation.
New Hampshire: Restructuring the electric utility industry
in New Hampshire is currently the focus of proceedings
within the federal and state legal systems.
On April 7, 1999, the U.S. District Court held a hearing on
various pending procedural motions in PSNH's restructuring
litigation.
The Court subsequently granted PSNH's request to amend its
complaint and allowed the NHPUC additional time to respond
to the complaint and to amend its summary judgment filings.
The Court also denied the NHPUC's request to dissolve the
existing preliminary injunction, and granted PSNH's motion
to enforce the Injunction. However, the Court allowed the
NHPUC to issue an order on rehearing establishing an interim
stranded cost charge for PSNH and said the rate case may
proceed provided that it complies with the terms of the Rate
Agreement and does not interfere with the interim stranded
cost proceeding. No formal rulemaking proceedings may take
place until a final interim stranded cost order is issued,
and the so-called "best efforts" investigation (relating to
PSNH's actions to reduce the costs of mandated energy
purchases from qualifying facilities) may not proceed.
As the court proceedings are ongoing, PSNH will continue to
be involved in settlement discussions with representatives
from the state of New Hampshire. PSNH hopes to reach a
settlement which would include, among other things, recovery
of regulatory assets and stranded costs, rate reductions, an
auction of PSNH's generating units and securitization of
PSNH's stranded costs. If a settlement is not reached, a
trial in federal court would have to await the issuance of
the NHPUC's interim stranded cost order and the federal
court's decisions on outstanding summary judgment motions.
Massachusetts: The DTE is currently reviewing WMECO's
restructuring plan as filed in December 1997 and as modified
in May 1998, June 1998 and September 1998. A final decision
from the DTE is expected by mid-1999.
For further information on electric utility restructuring,
see the MD&A in this Form 10-Q.
B. Rate Matters (All Companies)
CL&P, WMECO: For information on rate matters affecting the
NU system companies, see the NU 1998 Form 10-K.
PSNH: On March 23, 1999, PSNH filed a motion to delay by
two months the normal comprehensive fuel and purchased power
adjustment clause (FPPAC) procedure which would have set a
new FPPAC rate on June 1, 1999. Because the NHPUC had not
acted on PSNH's March 23, 1999 Motion, PSNH filed a tariff
change on April 30, 1999 which would have the sole effect of
extending the currently effective FPPAC rate beyond June 1,
1999. If granted, the two-month delay will result in the
continuation of the currently effective FPPAC rate until
July 31, 1999 and will allow PSNH and state negotiators to
focus on a comprehensive settlement to all outstanding
regulatory issues. If no comprehensive settlement is
reached which encompasses FPPAC and the deferred FPPAC
costs, PSNH will need to seek an FPPAC rate adjustment to
take effect at some time in the later half of 1999. The
rate case which is pending with the NHPUC has been put on
hold by the Court Order. For further information on PSNH
rate matters, see Note 5A, "Commitments and Contingencies -
Restructuring - New Hampshire," the MD&A in this Form 10-Q,
and the NU 1998 Form 10-K.
C. Nuclear Performance (All Companies)
Millstone: The three Millstone units are operated and
managed by NNECO. All three units were placed on the NRC
watch list on January 29, 1996, with the condition that they
could not be restarted without appropriate NRC approvals.
Millstone 3 received these approvals and resumed operation
in July 1998. On April 29, 1999, the NRC granted permission
for NNECO to restart Millstone 2 which has been out of
service since February 1996. Millstone 2's return is
expected to restore $6.6 million a month in noncash revenues
to CL&P, reduce fuel and purchased power expense by
approximately $8 million a month, and significantly reduce
the unit's operation and maintenance (O&M) expenses. O&M
expenditures for Millstone 2 were approximately $53 million
for the first quarter of 1999. In its February 1999 rate
decision, the DPUC ordered Millstone 2 to be restored to
CL&P's rate base once it operates at 75 percent or more
power for 100 consecutive hours.
Fish Unlimited, an environmental group, and other groups,
sued NNECO and NUSCO to block the restart of Millstone 2
until at least June 15, 1999. On May 7, 1999, a decision
was issued which dissolved a temporary restraining order
obtained by these parties and denied their motions for a
temporary and permanent injunction. For further information
on this issue, see the MD&A and Part II, "Legal Proceedings"
in this Form 10-Q.
For further information regarding the Millstone units, see
the MD&A in this Form 10-Q and the NU 1998 Form 10-K.
For information regarding Millstone-related litigation
matters, see Part II of this Form 10-Q.
D. Environmental Matters (All Companies)
At March 31, 1999, the NU system's net liability for its
estimated remediation costs, excluding recoveries from
insurance companies and other third parties, was approximately
$22 million, which management has determined to be most probable
amount within a range of $22 million to $40 million.
These amounts by operating company are as follows (in millions):
Net Liability Range
CL&P $8 $8 to $20
PSNH $8 $8 to $12
WMECO $2 $2 to $ 3
HWP $4 $4 to $ 5
The NU system companies have received proceeds from several
insurance carriers for the settlement with certain insurance
companies of all past, present and future environmental
matters. As a result of these settlements, the NU system
companies will retain the risk of loss, in part, for some
environmental remediation costs.
E. Nuclear Insurance Contingencies (All Companies)
For information regarding NU system's nuclear insurance, see
the NU 1998 Form 10-K.
F. Construction Program (All Companies)
For information regarding the NU system's construction
program, see the NU 1998 Form 10-K.
G. Long-Term Contractual Arrangements (NU, CL&P, PSNH, WMECO)
CL&P: During 1999, in accordance with Connecticut
restructuring legislation, CL&P renegotiated 15 purchase
power agreements (PPAs) with independent power producers in
Connecticut and has filed the resulting agreements with the
DPUC for its approval. PPAs that were not renegotiated will
be included in an auction which will occur as required under
the restructuring legislation. The aggregate amount of PPAs
which CL&P is involved with represent more than 435 MW of
capacity. CL&P has renegotiated PPAs representing 295 MW of
capacity.
For further information on NU system companies' long-term
contractual arrangements, see the NU 1998 Form 10-K.
6. COMPREHENSIVE INCOME (All Companies)
During 1998, the NU system adopted SFAS 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying
comprehensive income and its components in a financial statement.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources, and includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. Comprehensive income is comprised of: (1) net
income, and (2) other comprehensive income items, namely those items
which are included in equity that have not been included in the income
statement.
The total comprehensive income/(loss), which includes all comprehensive
income items, for the NU system is as follows:
NU System Company Three Months Ended March 31,
(Thousand of Dollars) 1999 1998
NU System Consolidated $ 18,562 $ (16,662)
CL&P (16,893) (30,398)
PSNH 23,364 6,939
WMECO 4,135 1,511
7. EARNINGS PER SHARE (NU)
Basic earnings per share is computed based upon the weighted average
number of common shares outstanding during each year. Diluted earnings
per share is computed on the basis of the weighted average number of
common shares outstanding plus the potential dilution effect if certain
securities are converted into common stock.
The following table sets forth the components of basic and diluted
earnings per share:
(Thousands of Dollars, Three Months Ended March 31,
except per share data) 1999 1998
Income/(loss) after
interest charges $ 24,385 $ (10,627)
Preferred dividends of
subsidiaries 5,941 7,322
Net income/(loss) $ 18,444 $ (17,949)
Basic EPS common shares
outstanding (average) 131,110,491 130,299,512
Dilutive effect of employee
stock options 385,862 - (a)
Diluted EPS common shares
outstanding (average) 131,496,353 130,299,512
Basic earnings per share $0.14 $(0.14)
Diluted earnings per share $0.14 $(0.14)(a)
(a) The addition of dilutive potential common shares would be
anti-dilutive for the 1998 period shown and, therefore, is
not included.
8. SEGMENT INFORMATION
Effective January 1, 1999, NU system companies adopted SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information".
SFAS 131 establishes standards for the way companies must determine
and report information about operating segments in their annual and
interim reports. The NU system is organized between regulated utilities
and unregulated energy activities. The regulated business represents
92 percent of the NU system's total revenue and is comprised of several
business units including: Transmission, Distribution, and Generation.
The unregulated segment in the following table includes Select
Energy, Inc., a corporation engaged in the marketing, transportation,
storage and sale of energy commodities at wholesale in designated
geographical areas, and in the marketing of electricity to retail
customers; Northeast Generation Services Company, a corporation that
will maintain and service any new fossil or hydro facility that is
acquired or contracted with for fossil or hydro generation services
after divestiture;and HEC Inc., a provider of energy management,
demand-side management and related consulting services for commercial,
industrial, and institutional electric companies and electric
utility companies.
Other in the following table includes the results for Mode 1
Communications, Inc., an investor in a fiber-optic communications
network. Mode 1 had a net loss of approximately $1 million in the
first quarter of 1999. Also included is the company's investment in
Charter Oak Energy, Inc. (COE) which has an investment in a foreign
utility company. NU is in the process of selling COE. Interest expense
included in Other primarily relates to debt of NU Parent. Inter-segment
eliminations of revenues and expenses of approximately $5 million are
also included in Other.
Regulated revenues primarily are derived from residential,
commercial and industrial customers. The NU system was not dependent
on any single customer.
Unregulated
Regulated Energy
(Thousands of Dollars) Utilities Services Other Total
Operating Revenue $ 956,361 $92,071 $ (5,025) $ 1,043,407
Operating Expenses (874,501) (97,077) 17,809 (953,769)
Operating Income/(Loss) 81,860 (5,006) 12,784 89,638
Interest Expense (64,824) (471) (3,777) (69,072)
Other Income/(Expense) 6,453 136 (2,770) 3,819
Preferred Dividends (5,941) - - (5,941)
Net Income/(Loss) $ 17,548 $(5,341) $ 6,237 $ 18,444
Total Assets $10,171,289 $62,703 $150,706 $10,384,698
Prior to 1999, the NU system evaluated management performance using a
cost-based budget, therefore business segment reporting on a comparative
basis will not be available until the year 2000.
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
1. Connecticut DPUC - Energy Adjustment Clause (EAC)
(NU, CL&P) On March 9, 1999, the Connecticut Superior Court sustained
CL&P's appeal of the DPUC's order prohibiting current recovery of replacement
power costs (RPC) resulting from the early retirement of CY. The court
ordered the DPUC to permit recovery of the CY RPC. The accumulated CY RPC
deferral of approximately $75 million had been reflected as a regulatory
asset on CL&P's books. Pursuant to previous DPUC decisions, the CY RPC
deferral had been offset by accruals resulting from the DPUC's rate decisions
that removed the Millstone units from CL&P's rate base. Because CL&P's
accounting assumed recovery of the deferral, this decision did not have a
material impact on CL&P's earnings.
For more information regarding this matter, see "Item 1, Business
- - Rates - Connecticut Retail Rates" and "Item 3 - Legal Proceedings"
in NU's 1998 Annual Report on Form 10-K.
2. Connecticut Superior Court - Fish Unlimited Lawsuit
On March 11, 1999, Fish Unlimited, along with several other parties,
brought a civil environmental lawsuit in Connecticut Superior Court against
Northeast Nuclear Energy Company (NNECO) and Northeast Utilities Service
Company, two service company subsidiaries of Northeast Utilities (NU),
seeking temporary and permanent injunction to prevent the restart of the
Millstone 2 nuclear unit (Millstone 2) until a fish return system and
cooling towers are installed. The plaintiffs claim that these facilities
are needed to mitigate the effect of Millstone 2 on winter flounder and
the environment in general.
On April 20, 1999, the plaintiffs requested a temporary restraining
order to prevent Millstone 2 from resuming operations until at least June 15,
1999 when the winter flounder larvae migration season is over. On April 27,
1999, the court granted the plaintiffs' request and issued a temporary
restraining order, prohibiting the defendants from restarting the unit
until further order of the court. On May 7, 1999, the Court issued a
decision dissolving the temporary restraining order and denying the motions
for temporary and permanent injunctions filed by Fish Unlimited.
The Nuclear Regulatory Commission notified NNECO on April 29, 1999,
that it could restart Millstone 2. Following the Court's May 7, 1999 ruling,
management restarted Millstone 2.
For more information regarding this matter, see "Item 1, Business -
Rates - Connecticut Retail Rates" and "Nuclear Plant Performance and
Regulatory Oversight" in NU's 1998 Form 10-K.
ITEM 5. OTHER INFORMATION
1. FERC - NEPOOL Restructuring
(NU, CL&P, WMECO, PSNH) The NU system companies and most other
New England utilities are parties to an agreement (NEPOOL Agreement),
which provides for coordinated planning and operating of the region's
generation and transmission facilities. On April 5, 1999, the NEPOOL
executive committee approved a settlement that was reached among a
majority of the participants who are litigants in a FERC proceeding
regarding a revised pool-wide open access transmission tariff. The
settlement would resolve all issues in that proceeding and provides,
among other things, for the retention of grandfathered contracts
through the expiration of their terms, the extension of the transition
period for the move to a pool-wide rate from 10 to 11 years and sets
an 11.75 percent rate of return on equity for NU system companies for
service over their facilities covered by the NEPOOL transmission
tariff. The settlement was filed with the FERC on April 7, 1999.
For more information regarding this matter, see "Item 1, Business -
Electric Operations - Regional and System Coordination" in NU's 1998
Annual Report on Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
Exhibit No. Description
10.1 Amendment to Employment Agreement
15 Arthur Andersen LLP Acknowledgment Regarding Review Report
27.1 NU Financial Data Schedule
27.2 CL&P Financial Data Schedule
27.3 PSNH Financial Data Schedule
27.4 WMECO Financial Data Schedule
27.5 NAEC Financial Data Schedule
(b) Reports on Form 8-K:
NU and CL&P filed Form 8-Ks dated January 28, 1999, disclosing terms
contained within the January 1999 issued Connecticut DPUC draft rate
decision, and its proposed effects on the NU system companies;
NU filed a Form 8-K dated February 23, 1999, disclosing the NU Board of
Trustees adopted a shareholder rights plan (subject to regulatory
approval) together with a brief summary of the terms of the Rights Plan.
NU, CL&P and WMECO filed Form 8-Ks dated April 27, 1999 disclosing:
On April 27, 1999, the Connecticut Superior Court granted a plaintiff's
request for a temporary restraining order to prevent Millstone 2 from
resuming operations until at least June 15, 1999;
On April 29, 1999, the NRC notified NNECO that it could restart
Millstone 2; although NNECO received NRC approval, the unit could not
commence operations, until the temporary restraining order initiated by
Fish Unlimited is lifted.
NU filed a Form 8-K dated May 7, 1999 announcing the distribution of
rights to shareholders under its shareholder rights plan dated
February 23, 1999.
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 12, 1999 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President
and Chief Financial Officer
Date: May 12, 1999 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 12, 1999 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: May 12, 1999 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 12, 1999 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: May 12, 1999 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 12, 1999 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President,
Chief Financial Officer and
Director
Date: May 12, 1999 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 12, 1999 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President and
Chief Financial Officer and
Director
Date: May 12, 1999 By /s/ John J. Roman
John J. Roman
Vice President and Controller
Exhibit 10-1
April 14, 1999
TO: John H. Forsgren
FROM: Michael G. Morris
RE: Supplemental and Enhanced Retirement Benefit
This memorandum is intended to confer upon you supplemental and enhanced
retirement benefits in recognition of your past and expected future
contributions to the success of the Northeast Utilities (NU) system.
In addition to the retirement benefits you would otherwise be entitled upon
retirement from the employ of Northeast Utilities Service Company (NUSCO)
or a successor affiliate within the NU system (the Employer), under the NUSCO
retirement plan and under the existing SERP, you will be entitled to two
additional benefits that will be payable by the Employer:
(1) For the first ten years of your employment by the Employer, you will
accrue retirement benefits under the NUSCO retirement plan and the SERP
at the rate of two years of Credited Service (as defined by the NUSCO
retirement plan) for each one year of actual service, and the Employer
will pay you after your retirement from the Employer a supplemental,
non-qualified benefit reflecting the difference between the amount
determined in accordance with this enhanced Credited Service and the
amounts that you will be entitled under the NUSCO retirement plan and
the SERP. This payment will be made monthly until your death, without
limit of time. This benefit will not survive your death or be
available in part to a surviving spouse, except that you may elect to
receive it in one of the forms of payment available from the NUSCO
retirement plan that reduces your monthly payment in order to provide
for survivor benefits.
(2) In addition to your benefits under the NUSCO retirement plan and the
SERP, and the supplemental benefit attributable to enhanced Credited
Service described in paragraph (1) above, the Employer will pay you
after your retirement from the Employer an additional supplemental,
non-qualified benefit, on a monthly basis for the fifteen years after
your retirement begins, an amount equal to 25 percent of the monthly
average of your high consecutive 36 months of base compensation,
reduced by four percentage points for each year that your age is less
than 65 years at the time of your retirement from the Employer. This
benefit will not survive your death or be available in part to a
surviving spouse.
Please sign all three copies of this memorandum to acknowledge these
supplemental and enhanced retirement benefits. Keep one for yourself and
return two to me.
Acknowledged:
/s/ John H. Forsgren Date: May 10, 1999
John H. Forsgren
Exhibit 15
May 12, 1999
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, 1999, which includes our
report dated May 12, 1999 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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<NAME>WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
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<NAME>NORTH ATLANTIC ENERGY CORPORATION
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